Opinion
No. CX-02-726.
Filed December 10, 2002.
Appeal from the District Court, Hennepin County, File No. DJ008187.
Jeffrey C. Paulson, Paul T. Meyer, Hammargren, Meyer Paulson, P.A., (for appellant).
Lewis A. Remele, Jr., Kevin P. Hickey, Anne C. Towey, Bassford, Lockhart, Truesdell Briggs, P.A., (for respondent Pierce McNally);
Agricultural Financial Services, Inc., (respondent)
Considered and decided by Hudson, Presiding Judge, Peterson, Judge, and Anderson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
This appeal stems from litigation over dairy cattle leases that went sour. Appellant contends the district court (a) abused its discretion by not vacating a settlement agreement and (b) improperly granted summary judgment based upon a release that appellant argues was not meant to release the respondents. Respondent McNally likewise asserts the district court abused its discretion by refusing to award attorney fees. We affirm.
FACTS
Respondent James Hoffman created Agriculture Finances Services (AFS) to help small dairy farmers buy and lease cattle. AFS brokered leases between dairy farmers and lending institutions and supervised the leases for which it received management fees Hoffman remained an officer of AFS until the corporation went out of business in January 2000.
In order to be successful, AFS needed individual investors to guarantee for the credit of the corporation. In return, the investor received a fee based on the number of cows involved in the lease, usually eight dollars per cow. Hoffman approached respondent Pierce McNally, a Minnesota attorney experienced in commercial transactions, about becoming an investor and McNally agreed to do so. In 1997, Hoffman and McNally began discussing purchasing a large dairy farm in California. McNally invested heavily in the California dairy and became a director of the California dairy. As time passed, McNally began to have doubts about the day-to-day management of the dairy and ultimately resigned as a director and sold his stock back to the dairy.
In early 1999, appellant First State Bank (FSB), an Iowa bank with just three branches, each located in towns with fewer than 2,000 people, was approached by AFS about financing a cattle lease in California. Under this plan, AFS would buy the cows and lease them to a farmer, and FSB would purchase the rights of AFS to receive the lease payments. FSB demanded the lessee be a person of sufficient financial stability to insure FSB was not taking an unreasonable risk. In light of his net worth of $3.5 million and a significant annual income, and despite the fact everyone involved acknowledged he was not a dairy farmer, FSB found McNally to be an acceptable lessee. In March 1999, the parties signed the agreement.
Unknown to FSB, AFS and McNally entered into an agency agreement in which AFS agreed to act as McNally's agent. The agency agreement also called for McNally to sublease his cattle to the California dairy. The California dairy would then reimburse McNally, who would then pay FSB. Finally, Hoffman personally guaranteed McNally's obligations. FSB did not learn of the agency agreement until April 2000.
From May to December 1999, McNally made regular payments to FSB. In December 1999, McNally's former business partners stopped making payments on the subleased cattle to McNally, who subsequently defaulted on his obligations to FSB. In January 2000, AFS ceased operations. FSB did not learn this until August 2000.
FSB sued McNally, AFS, and Hoffman in June 2000. In August 2000, after Hoffman gave a deposition, AFS and Hoffman broached the subject of a settlement. The final stipulated settlement agreement and release called for AFS to assign to FSB the right to receive residual payments on a collection of dairy cattle leases worth roughly $1.3 million. AFS and Hoffman asserted they had represented all relevant information concerning the status of the leases and any liens upon those leases to FSB. As part of this agreement, FSB released Hoffman and AFS from the bank's claims against them. Judgment was entered in FSB's favor in Hennepin County District Court in accord with the confession and stipulated settlement.
When FSB tried to collect, it soon discovered that most of the leases had been terminated or were otherwise without value. Further, FSB learned in February 2001 that AFS and Hoffman had judgment liens entered against them, preventing FSB from receiving residual payments. FSB also discovered that in 1998, other finance companies had already received the rights to residuals that AFS and Hoffman had assigned to FSB in 2000. In short, FSB was unable to collect the residuals that lay at the heart of the stipulated settlement. Hoffman ultimately sought bankruptcy protection.
In July 2001, FSB moved to vacate the settlement, citing the discrepancies between the nature of the leases as presented by Hoffman and the actual status of those leases. In support of its motion to vacate, FSB alleged fraud and mutual mistake. Hoffman countered by arguing he had told FSB, during his deposition, that he was uncertain as to the true state of the leases that the records of AFS were practically inaccessible, and the best he could do was offer speculation. FSB moved for summary judgment against McNally. McNally also brought a summary judgment motion against FSB, arguing that the release between AFS, Hoffman, and FSB also released him.
The district court denied FSB's motion to vacate the stipulated agreement, concluding that the appellant had not met its burden of proof. The district court granted McNally summary judgment. McNally subsequently moved to have attorney fees awarded; the district court denied this request, holding that McNally was not a prevailing party. This appeal followed.
DECISION
The Settlement Agreement
First State Bank (FSB) first alleges that the district court erred in not vacating the settlement agreement between AFS, Hoffman, and itself. "Settlement agreements are contractual in nature and are as binding on the parties as any contract could make them." Chalmers v. Kanawyer, 544 N.W.2d 795, 797 (Minn.App. 1996) (citation omitted). Vacating a settlement agreement rests largely within the discretion of the district court and its decision will be reversed only if the district court acted in such an arbitrary nature that justice is frustrated. Id. Settlement agreements are highly favored and releases are presumed valid. Clark v. Allstate, 405 N.W.2d 463, 465 (Minn.App. 1987), review denied (Minn. July. 9, 1987).
However, because settlement agreements are contractual in nature, the validity of those agreements are evaluated using basic principals of contract law. Beach v. Anderson, 417 N.W.2d 709, 711 (Minn.App. 1988), review denied (Minn. Mar 23, 1988). Appellant argues there are three independent grounds for setting aside the settlement agreement in this matter: fraud, mutual mistake, and unilateral mistake with inequitable conduct. See Winter v. Skoglund, 404 N.W.2d 786, 793 (Minn. 1987) (mutual mistake); Jacobs v. Farmland Mutual Ins. Co., 377 N.W.2d 441, 444 (Minn. 1985) (unilateral mistake); Sorenson v. Coast-to-Coast Stores Inc., 353 N.W.2d 666, 670 (Minn.App. 1984), (fraud) review denied (Minn. Nov. 7, 1988).
Fraud.
FSB contends its consent to the settlement agreement was induced by fraudulent misrepresentations and omissions by Hoffman, and therefore the district court erred by not vacating the agreement. FSB argues had it known the true nature of AFS's financing, it would never have agreed to the terms of the stipulated settlement. FSB also contends that AFS and Hoffman misrepresented the value and availability of the residual payments. FSB asserts that Hoffman misrepresented the fact that AFS was entitled to receive 80% residuals from various leases when AFS was, in fact, not so entitled. Similarly, FSB alleges AFS misrepsented the fact that it was not in default on its various leases when it was in fact default. FSB therefore argues that because it justifiably relied on these misrepresentations and omissions, the settlement agreement should be vacated. See Spiess v. Brandt, 230 Minn. 246, 252-53, 41 N.W.2d 561, 566 (Minn. 1950).
Respondents argue there was no misrepresentation. They contend they disclosed all the information available to them and did so to the best of their ability. Further, respondents assert that appellant was informed by Hoffman, at his deposition, that most of AFS's records were in storage and inaccessible. Therefore, respondents argue, appellant went into the settlement agreement aware of the speculative nature of AFS's finances.
FSB cites several cases in support of its contention that Hoffman fraudulently induced it into agreeing to the settlement agreement. But, those cases differ in some important respects from this case. The cases cited by the appellant, for the most part, involve marriage dissolutions, Maranda v. Maranda, 449 N.W.2d 158 (Minn. 1989), review denied (Minn. Dec. 22 1988), or testamentary trusts, Witzman v. Wolfson, No. C7-98-421 (Minn.App. Oct. 13, 1998). Those cases, however, all involved defrauded parties with a low level of sophistication. Here, FSB, even given its small size, is more sophisticated than the homemaker defrauded in Maranda, the trust beneficiary in Witzman or even the salesman induced to take a job with the fraudulent misrepresentation about his new sales territory profitability as in Davis v. Re-Trac Mfg. Corp, 276 Minn. 116, 149 N.W.2d 37 (1967).
Likewise, in the cases cited by FSB, the misrepresentations were all affirmative and unequivocal. See id. at 118, 149 N.W.2d at 39 (defendant knew or had reason to know that the sales territory had only been one-third as productive as it was said to have been), Maranda 449 N.W.2d at 166 (husband systematically excluded wife from access to financial information and willfully failed to disclose the value of the marital property). Moreover, the wronged parties in the cases cited by FSB lacked the notice that FSB had here that the party and facts they were dealing with were not reliable. FSB had extensive dealings with the respondents and reason to doubt their financial projections. In fact, the agreement that appellant now wants vacated arises out of past dealings where respondents' financial projections turned out to be unreliable. Further, unlike Davis or Spiess, respondents here did not make any unequivocal statements about their financial status. In fact, Hoffman was quite candid in his deposition, revealing that he was unaware of: (1) whether AFS was receiving any residual payments, (2) the value of those residual payments, (3) whether AFS was being sued by another financial institution, and (4) that the documents needed to verify such information were inaccessible. Based on the parties' extensive past interactions and Hoffman's disclosures as to the uncertain nature of AFS's financial affairs, we conclude the district court did not err in refusing to vacate the settlement agreement for fraud.
Mutual Mistake.
Appellant asserts that the district court should have vacated the settlement agreement because of a mutual mistake as to the value of AFS's assets. A contract can be voided in cases of mutual mistake. Winter, 404 N.W.2d at 793. However, the mistake must relate to facts as they existed at the time the agreement was entered into. Creative Communications Consultant, Inc. v. Gaylord, 403 N.W.2d 654, 657 (Minn.App. 1987). The mistake must be material. Skoglund, 404 N.W.2d at 793.
Voiding a contract due to a mutual misunderstanding is reserved for those rare occasions where the parties completely misunderstood the very nature of the contract. See Brecht v. Schram, 266 N.W.2d 514, 520 (Minn. 1978) (aunt and niece had a mutual misunderstanding whether the aunt's home would be transferred to the niece solely for past care the niece had provided the aunt, or past and future care). An agreement can also be set aside where the parties were completely mistaken about the facts underlying the contract. Skoglund, 404 N.W.2d at 793 (parties to an agreement regarding the sale of stock were both mistaken as to whether all parties to the agreement were bound).
Here, no such mistake exists. Appellant may not have known the true nature of AFS's right to receive residuals. Nevertheless, Hoffman expressed his uncertainty about the value or availability of those residuals. The appellant was provided with some information regarding the financial status of AFS but had also been previously informed as to the tenuous nature of that information. FSB was aware that other partners of AFS were trying to recoup their investments as well. FSB could have contacted AFS's past partners to determine how they were enforcing their rights. We conclude that there is little evidence of a mutual mistake and the district court did not err in refusing to vacate the settlement agreement on that ground. See Beasley v. Medin, 479 N.W.2d 95, 98 (Minn. 1992) (holding that purchasers of stock in a closely held corporation were not entitled to rescission when they failed to perform an adequate investigation into corporations stock).
Unilateral Mistake and Inequitable Conduct.
Appellant next argues that even if there was no mutual mistake, the settlement agreement should still be set aside as a result of a unilateral mistake by FSB as to the nature of the residuals and the benefit from unconscionable advantage respondents received from that unilateral mistake. But this type of remedy is generally reserved for cases where there is a clear disparity between the parties involved in the dispute. See Jacobs, 377 N.W.2d 441 (Minn. 1985) (insurance adjuster negotiated a settlement with the parents for the death of their son for one third of the policy's value).
There is no such inequity between the parties here. While FSB is not an experienced lender in these specific types of transactions, it is a commercial financial institution with at least some level of business sophistication. More importantly, FSB had first hand knowledge of the unreliable nature of respondents' information. The district court did not err in refusing to vacate the settlement agreement because of unilateral mistake and inequitable conduct.
Release Agreement.
Appellant next argues the district court erred in granting McNally summary judgment based on the district court's holding that the release between AFS, Hoffman and appellant, entered into as part of the settlement agreement, applied to McNally as well.
On an appeal from summary judgment, there are two questions we must ask: "(1) whether there are any genuine issues of material fact and (2) whether the lower courts erred in their application of the law." State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990) (citation omitted).
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). There are no genuine issue of material fact for trial when the nonmoving party presents evidence that simply create a "metaphysical doubt as to a factual issue and which is not sufficiently probative with respect to an essential element of the nonmoving party's case to" allow "reasonable persons to draw different conclusions." DLH. Inc. v. Russ, 566 N.W.2d 60, 71 (Minn. 1997).
Appellant makes a very straightforward argument: the release entered into as part of the settlement agreement between itself, Hoffman and AFS does not mention McNally. Because McNally was not a party to those negotiations, FSB claims it never intended McNally to benefit from the release and therefore the release does not apply to him. McNally counters by pointing out that when the release was signed, AFS was McNally's agent. Moreover, the plain language of the release clearly releases the parties, their agents, and principals.
The law encourages the settlement of disputes and generally presumes an agreement settling a dispute is valid. Sorensen, 353 N.W.2d at 669. Further, a valid release is a defense to any action on the claims released. Id. Whether an agreement to release one tort-feasor releases others will be determined from the facts of the particular situation. Gronquist v. Olson, 242 Minn. 119, 125, 64 N.W.2d 159, 164 (1954). However,
[r]egardless of what form that release may take, as long as it does not constitute an accord and satisfaction or an unqualified or absolute release, and there is no manifestation on any injunction to the contrary in the agreement, the injured party should not be denied his right to pursue the remaining wrongdoers until he has received full satisfaction.
Id. at 129, 64 N.W.2d. at 165.
Where the language of an agreement is clear, the courts are to enforce the plain meaning of the agreement. Northstar Center, Inc. v. Irie Enterprise, Inc., 530 N.W.2d 539 (Minn. 1995). Paragraph six of the settlement and release provides that
the bank does * * * unconditionally release, acquit and forever discharge AFS, James Hoffman their heirs, executors, administrators, personal representatives, past present and future officers, directors, attorneys, principals, agents * * * from any and all past and present claims, causes of actions[.]
(Emphasis added.)
Importantly, not only did FSB have advice of counsel relative to the settlement, FSB's attorney prepared the release. See Sorensen, 353 N.W.2d at 669 (Courts may consider the absence of counsel when examining the intent to release. "The presence of counsel is a strong factor indicating intent"). The fact that McNally was not a party to the negotiations leading to execution of the release does not prevent him from enjoying its protections. See Hoffmann v. Wittscheck, 411 N.W.2d 923, 926 (Minn.App. 1987), (a plaintiff who released the driver and registered owner of a car that struck an injured him was precluded from recovering against a vicariously liable defendant) review denied (Minn. Nov. 13 1987). Further, the plain language of the release simply does not give any indication that FSB did not intend to release McNally. In Gronquist, the supreme court placed considerable weight on the fact that
the writings clearly express by the strongest inference if not outright reservation the intention to release one joint tort-feasor but at the same time to reserve the right to proceed against * * * the other tort-feasor.
Gronquist, 242 Minn. at 129, 64 N.W.2d at 166.
Here, the release expresses no such intent. The release was written with a broad scope encompassing as many parties as possible. Further, FSB learned of the AFS agency agreement with McNally in April 2000, some seven months before FSB entered into the release agreement with AFS and Hoffman. In light of the broad release language, language that specifically releases principals and agents, and the lack of any indication of contrary intent expressed in the release itself, we conclude the award of summary judgment by the district court was proper.
Attorney Fees.
McNally argues the district court erred in not awarding attorney fees. According to the original lease agreement between McNally and FSB, if there was any litigation arising out of the lease, the prevailing party was to receive reasonable attorney fees. McNally contends the district court abused its discretion by concluding that because McNally did not win at trial, but rather by summary judgment, he did not qualify as a prevailing party and was not entitled to attorney fees. Minnesota's appellate courts apply an abuse of discretion standard of review when reviewing a district court decision whether or not to award attorney fees. Gully v. Gully, 599 N.W.2d 814, 825 (Minn. 1999).
McNally is correct in his contention that a grant of summary judgment does not automatically preclude an award of attorney fees. Kjesbo v. Ricks, 517 N.W.2d 585, 591 (Minn. 1994). But the district court has discretion in deciding who qualifies as a prevailing party. Benigni v. County of St. Louis, 585 N.W.2d 51, 55 (Minn. 1998), review denied (Minn. May 20, 1997). This court has previously upheld a district court's determination that a party who won at summary judgment did not qualify as a prevailing party and was not entitled to attorney fees. Gross v. Running, 403 N.W.2d 243, 248 (Minn.App. 1987).
McNally seeks to distinguish Gross from this case by arguing that Gross involved a statutory claim for attorney fees, while the case at hand involves a claim for fees authorized by a contract between the parties. But neither Gross nor Kjesbo makes the distinction respondent asserts here. Given McNally's attenuated relationship to the settlement agreement, we cannot say on the unique facts of this case that the district court erred in declining to award attorney fees.