This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2006).
STATE OF MINNESOTA
COURT OF APPEALS
Richard A. Born,
Donald E. Berg,
Filed December 24, 2007
Hennepin County District Court
File No. 27-CV-06-330
Stephen F. Simon, Robins, Kaplan, Miller
& Ciresi L.L.P., 2800 LaSalle Avenue, #2800, Minneapolis, Minnesota
55402-2015 (for appellant)
Scott Harris, Jeffrey J. Harrington, Leonard, Street & Deinard, P.A., 150 South Fifth Street, Suite 2300, Minneapolis, Minnesota 55402 (for respondent)
Considered and decided by Randall, Presiding Judge; Kalitowski, Judge; and Hudson, Judge.
In 1990, appellant Richard A. Born created Born Information Services, Inc. (BIS) and acted as its chief executive officer until 2004. Respondent Donald E. Berg was hired as the chief financial officer (CFO) of BIS in 1997 and continued in that position until 2005.
In March 2000, respondent approached appellant for a loan of $500,000. Respondent told appellant that he needed the money for renovations on his house and his daughter’s college tuition. Appellant agreed to loan respondent $250,000. On March 27, 2000, the parties executed a promissory note, which read:
For value received, the undersigned agrees to pay to Rick Born the principal amount of $250,000.00 plus simple interest computed at the rate of 8.0% calculated from the date of funds transfer. There is no penalty for prepayment of any amounts, however such prepayment amounts need to be in an amount not less than $10,000.00.
As security for the above referenced promise to pay, the undersigned hereby gives a security interest in all options for the purchase of common stock of BORN Information Services, Inc. held by the undersigned.
The record contains a second version of the promissory note that is identical with the first except for the addition of the following language at the end of the second paragraph: “It is intended and understood by both parties that the only source of repayment of this Promissory Note will be the previously mentioned stock options and that no other asset of the undersigned is encumbered by this Promissory Note.” Respondent claims that the second note is a true copy of the original; appellant maintains that the second note is fraudulent. But respondent agrees that, for the purposes of this appeal, “it may be assumed . . . that the note contains the terms [appellant] alleges.”
Beginning in 2002, appellant attempted to collect on the promissory note. Appellant e-mailed respondent several times to try to set up meetings to discuss repayment. Respondent maintains that the $250,000 was an advance against his stock options and not a loan, stating in his deposition that “it was always assumed that the only source of repayment was stock options.” Despite his efforts, appellant was unable to collect payment on the promissory note from respondent.
In January 2004, control of BIS was transferred from appellant to several other entities. As part of that transfer, the parties executed an exchange agreement. At the time of the exchange agreement, respondent was BIS’s CFO. The provision of the exchange agreement entitled “Born Release” reads:
Born hereby releases and discharges BIS, and each of its officers, directors, employees, stockholders, lenders, agents, affiliates and their respective attorneys, from any and all claims, actions and liabilities of any kind or nature that Born or any one claiming through or under Born ever had or may now have, whether now known or hereafter discovered (but excluding claims, actions and liabilities resulting from actions or events after the date of this Agreement)[.]
. . . .
Born acknowledges and agrees that he has received the advice of independent counsel, appraisers and accountants selected by him, or the opportunity to obtain such advice, before entering into this Agreement, and has not relied upon BIS or any of its officers, directors, employees, stockholders, lenders, agents or their respective attorneys concerning any aspect of the transactions contemplated by this Agreement.
Appellant’s attorney, John McDonald, testified in his deposition that he suggested language that would have created a “carve-out” to exclude the promissory note from the release. But McDonald also stated that such language was “rebuffed” by the other parties and was ultimately not included in the final document.
In May 2005, Fujitsu Consulting purchased BIS. As part of that transaction, the parties executed a stock redemption and stock rights cancellation agreement (stock agreement). At the time of the stock agreement, respondent was BIS’s CFO. In this agreement, the “Holder” is appellant, and “the Company” refers to BIS. The stock agreement read, in relevant part:
Holder hereby releases and discharges each of the Company, U.S. Bank National Association (“US Bank”), Washington & Congress Capital Partners, L.P. (“W&C Partners), Triumph III Investors, L.P. (“Triumph” and, together with W&C Partners, “W&C”), Carlson Real Estate Company, A Minnesota Limited Partnership, a Minnesota limited partnership (“Carlson”) and Fujitsu (each, a “Released Party”) and each Released Party’s officers, directors, employees, stockholders, members, partners, lenders, agents, affiliates and their respective attorneys, from any and all claims, actions and liabilities of any kind or nature that Holder or any one claiming through or under Holder ever had or may now have, whether now known or hereafter discovered (but excluding claims, actions and liabilities resulting from actions or events after the date of this Agreement) . . . . Holder acknowledges and agrees that he has received the advice of independent counsel, appraisers and accountants selected by him, or the opportunity to obtain such advice, before entering into this Agreement, and has not relied upon any Released Party or any of Released Party’s officers, directors, employees, stockholders, lenders, agents or their respective attorneys concerning any aspect of the transactions contemplated by this Agreement.
Appellant maintains that he believed that the release provisions in the exchange agreement and the stock agreement would not preclude him from pursuing a claim against respondent for repayment of the March 2000 promissory note. In his deposition, appellant stated that he believed that “because [it] was a personal matter, not a corporate,” he “could still pursue the fact that he owes me money outside of the business.”
Elmer Baldwin, the CEO of BIS at the time of the stock agreement, testified in his deposition that he viewed appellant’s concerns about not releasing respondent from the promissory note as “theatrics” because “the substantial financial release that [appellant] would be receiving in this transaction . . . was substantially more than this $250,000 claim.” Baldwin testified that appellant received more than $10 million as a result of the stock agreement. Baldwin went on to state that although several options were proposed that would exclude the promissory note from the release, none was incorporated into the final stock agreement, and none of the other parties to the stock agreement agreed on “any substantive equivalent” to the options suggested. But Baldwin also testified that he believed the language of the stock agreement did not cover “personal matters” between appellant and respondent.
In December 2005, appellant filed a complaint in Hennepin County District Court alleging (1) breach of contract and default on the promissory note; (2) fraud; and (3) unjust enrichment; and seeking, among other remedies, reformation. Respondent moved for summary judgment and sanctions under rule 11 of the Minnesota Rules of Civil Procedure. In October 2006, the district court granted respondent’s motion for summary judgment but denied his motion for sanctions. In a written memorandum, the district court concluded that (1) the language of both releases is clear and unambiguous; (2) appellant was represented by counsel at the time of the agreements; (3) the evidence showed that any fraud that existed relating to the language/existence of the promissory note “did not touch on the execution of the agreements”; (4) there was no evidence of wrongful concealment or other inequitable conduct; (5) there was no evidence of duress; and (6) there was no evidence that the releases are against public policy. This appeal follows.
Appellant argues that the district court erred by granting summary judgment in favor of respondent because the release provisions of the two agreements apply only to business matters relating to BIS and were not meant to release respondent from the obligation to repay a personal loan from appellant. Appellant maintains that the release provisions in both agreements are ambiguous and, therefore, parol evidence may be considered. We disagree.
On appeal from
summary judgment, this court asks (1) whether there are any genuine issues of
material fact and (2) whether the district court erred in applying the
v. Cardiovascular Sys., Inc., 729 N.W.2d 619, 623 (
A motion for summary judgment shall be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law. On appeal, the reviewing court must view the evidence in the light most favorable to the party against whom judgment was granted.
Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (citation omitted). No genuine issue for trial exists “[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party.” DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (alteration in original) (quotation omitted). “A party need not show substantial evidence to withstand summary judgment. Instead, summary judgment is inappropriate if the nonmoving party has the burden of proof on an issue and presents sufficient evidence to permit reasonable persons to draw different conclusions.” Schroeder v. St. Louis County, 708 N.W.2d 497, 507 (Minn. 2006) (emphasis omitted).
construction and effect of a contract is a question of law unless the contract
terms are ambiguous. Denelsbeck v. Wells Fargo & Co., 666
N.W.2d 339, 346 (Minn. 2003). If the
contract is ambiguous, its interpretation is a question of fact for a jury. Id. “A contract is ambiguous if, based upon its
language alone, it is reasonably susceptible of more than one
The parol evidence rule “prohibits the admission of extrinsic evidence of prior or contemporaneous oral agreements, or prior written agreements, to explain the meaning of a contract when the parties have reduced their agreement to an unambiguous integrated writing.” Alpha Real Estate Co. v. Delta Dental Plan of Minn., 664 N.W.2d 303, 312 (Minn. 2003) (quotation omitted).
Appellant maintains that parol evidence is “relevant and necessary” in this case and argues that the release provisions of both agreements are ambiguous, making their interpretation a fact question for the jury:
the fundamental issue in this case is not whether [appellant] broadly released Born Information Services (BIS). Rather, the issue is whether any such release extends to a personal dispute between [appellant] and [respondent] (an officer of BIS) wholly personal in nature and wholly unrelated to any business function. Born confuses and conflates two separate issues: the scope of the contract language and the scope of the persons within the reach of that language. The scope as to the latter issue is susceptible of more than one interpretation.
We conclude that the release provisions of both the exchange agreement and the stock agreement are unambiguous. The provisions in both agreements clearly release the “officers, directors, employees, stockholders, lenders, agents, affiliates and their respective attorneys” from “any and all claims, actions and liabilities of any kind or nature” that appellant had “whether now known or hereafter discovered.” The only exception listed is for “claims, actions and liabilities resulting from actions or events after the date” of the agreements. This exception is inapplicable here because the parties executed the promissory note in 2000, well before either the exchange agreement or stock agreement was executed. Nor does appellant cite any legal authority for his proposition that the “scope of the contract language” and the “scope of the persons within the reach of that language” are distinguishable, and we conclude that they are not. (Emphasis omitted.) Because the release provisions of the agreements are unambiguous, consideration of parol evidence is prohibited. And “[u]nambiguous contract language must be given its plain and ordinary meaning, and shall be enforced by courts even if the result is harsh.” Minneapolis Pub. Hous. Auth. v. Lor, 591 N.W.2d 700, 704 (Minn. 1999).
Appellant cites H.J. Kramer Plumbing & Heating, Inc. v. Scharmer, 386 N.W.2d 742, 746–47 (Minn. App. 1986), in support of his argument that there is a “latent ambiguity” created by the parties’ conduct before, during, and after the execution of the exchange agreement and stock agreement that raises a factual issue as to the true meaning of the contract. Appellant’s reliance on Kramer is misplaced. In Kramer, this court concluded that admission of parol evidence was appropriate to complete an incomplete, ambiguous term of the contract. Id. at 747. The Kramer court did not, as appellant suggests, hold that the parties’ conduct subsequent to the execution of the contract created the ambiguity. Id. Instead, the Kramer court recognized the well-established rule that “[u]nder Minnesota law, parol evidence is inadmissible to vary the terms of a written contract, absent incompleteness or ambiguity.” Id. (quotation omitted). There is no such ambiguity here.
Appellant also argues that parol evidence of the parties’ intent should be admitted under Couillard v. Charles T. Miller Hosp., Inc., 253 Minn. 418, 92 N.W.2d 96 (1958), and that the district court applied the incorrect legal standard. We disagree.
In Couillard, the court deemed the use of parol evidence proper when determining whether a party intended to release certain claims. Id. at 427-28, 92 N.W.2d at 102-03. But Couillard examined whether an injured person intended to release claims based on injuries caused by subsequent tortfeasors—a substantively different fact pattern than we are presented with here. Moreover, the holding in Couillard appears to be limited to such tort actions. See id. (overruling cases that “do not permit parol proof that a party to a release never was compensated for and never intended to release claims based on injuries caused by a subsequent tortfeasor for which the releasee is also liable because of the rules of proximate cause”). Additionally, the Couillard court emphasized that it made its decision “particularly in light of the fact that the subsequent joint tortfeasors in this instance, who might claim the protection of the rule, are neither parties to the release nor are they named in it.” Id. Here, the release provisions in both agreements specifically released claims against officers and employees of the named parties, categories that included respondent. On this record, we conclude that the district court properly declined to follow Couillard.
Finally, we note that the parol-evidence rule does not preclude evidence offered to invalidate a contract. Ridgway v. County of Hennepin, 289 Minn. 128, 137, 182 N.W.2d. 674, 679 (1971). “A release is invalid if the party executed the release under circumstances showing the release was not intended or if the party did not receive sufficient consideration.” Sorensen v. Coast-to-Coast Stores, Inc., 353 N.W.2d 666, 669 (Minn. App. 1984), review denied (Minn. Nov. 7, 1984). Sorensen lists a number of factors that courts should consider in determining whether a claimant intended to release his claims, including (1) the language of the release; (2) whether the parties had counsel; (3) the existence of fraud; (4) whether there was any inequitable conduct; and (5) whether there is evidence of duress. Id. at 669-70.
Here, after considering the Sorensen factors, the district court found that parol evidence was not admissible. The record supports the district court’s findings. The language of both releases is clear and straightforward. See id. at 669 (“The more complicated, confusing or misleading the language the more weight a court will give to a claim of no intent.”). And appellant does not suggest that he did not receive adequate consideration for either agreement. Moreover, appellant was represented by counsel during the negotiation and execution of both agreements. When a party to a release had the benefit of legal counsel, it “is a strong factor indicating intent.” Id. at 669. Furthermore, appellant admits that respondent did nothing to lead him to believe that the release agreements excluded the $250,000 promissory note. Nor does appellant allege that he signed the agreements under duress. Therefore, the district court properly concluded that parol evidence is not admissible under Sorensen to invalidate the release agreements. For all these reasons, we conclude that the district court did not err by granting summary judgment to respondent.
By notice of review, respondent argues that the district court abused its discretion when it determined that rule 11 sanctions were not warranted. Rule 11.03 of the Minnesota Rules of Civil Procedure provides that a court “may” impose sanctions on a party if the provisions of rule 11.02 have been violated. Rule 11.02 provides that when an attorney presents papers to the court, he or she is doing so with the belief that
(a) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(b) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(c) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(d) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.
Minn. R. Civ. P. 11.02(a)-(d). This court will not reverse a district court’s decision regarding rule 11 sanctions absent an abuse of discretion. Gibson v. Coldwell Banker Burnet, 659 N.W.2d 782, 787 (Minn. App. 2003).
Here, the district court concluded that sanctions were not warranted because
[a]lthough there is not an equitable claim in this case, the equities would support Born. Berg is gaining $250,000 plus some amount of interest on that money from Born without paying any consideration. Additionally, if this Court decided to follow Coulliard, the case would likely be going to trial. Finally, this case involves settlement agreements not between Born and Berg but between Born, BIS, and other entities with Berg being a third-party beneficiary. It is certainly fair for a party to seek a modification of the law in a situation such as this.
We disagree with the district court’s conclusion that following Coulliard would have changed the outcome on summary judgment, but based on the record before us, we cannot conclude that the district court abused its discretion by denying respondent’s motion for rule 11 sanctions.