Hoyt Properties v. Prg

• Decision Date: 26 July 2007
• Docket Number: No. A05-1293.,A05-1293.
• Citation: 736 N.W.2d 313
• Parties: HOYT PROPERTIES, INC., et al., Respondents, v. PRODUCTION RESOURCE GROUP, L.L.C., et al., Appellants.
• Court: Minnesota Supreme Court

736 N.W.2d 313

HOYT PROPERTIES, INC., et al., Respondents, v. PRODUCTION RESOURCE GROUP, L.L.C., et al., Appellants.

No. A05-1293.

Supreme Court of Minnesota.

July 26, 2007.

Thomas H. Boyd, Winthrop & Weinstine, P.A., Minneapolis, MN, for Appellants.

Randall L. Sarosdy, Akin, Gump, Strauss, Hauer & Feld, L.L.P., Austin, TX, Rex S. Heinke, Gia Kim, Los Angeles, CA, for Appellant Production Resource Group, L.L.C.

George G. Eck, Andrew Holly, Dorsey & Whitney, L.L.P., Minneapolis, MN, for Respondents Hoyt Properties, Inc., and Hoyt/Winnetka, L.L.C.

William M. Hart, Damon L. Highly, Meagher & Geer, P.L.L.P., Charles E. Lundberg, Bassford Remele, P.A., Minneapolis, MN, for Amicus Curiae Minnesota Defense Lawyers Association.

Duane A. Lillehaug, Maring Williams Law Office, P.C., Detroit Lakes, MN, for Amicus Curiae Minnesota Trial Lawyers Association.

Heard, considered, and decided by the court en banc.

OPINION

PAGE, Justice.

Appellants Production Resource Group, L.L.C. (PRG), Haas Multiples Environmental Marketing and Design, Inc., d/b/a Entolo-Minneapolis, and Entolo, Inc. (collectively, appellants), seek review of a court of appeals decision reversing the trial court's decision partially dismissing on summary judgment a lawsuit brought by respondents Hoyt Properties, Inc., and Hoyt/Winnetka, L.L.C., (collectively, Hoyt). Hoyt alleged that a settlement agreement it signed with appellants, which included a release provision relieving PRG of any future liability, was invalid because the release provision in the agreement was induced by a material fraudulent misrepresentation. The district court concluded that the alleged misrepresentation was a legal opinion, not a representation of fact; the court of appeals reversed on grounds that the alleged misrepresentation both implied and directly asserted facts. We affirm the court of appeals and remand the case to the district court for further proceedings.

The record in this case shows the following. Steve Hoyt is an attorney who owns and operates Hoyt Properties, Inc., and Hoyt/Winnetka, L.L.C., two Minnesota corporations engaged in the real estate business. In 2001, the parties executed a multimillion dollar lease whereby Hoyt Properties leased office and warehouse space to Haas. Before Haas took possession of the leased space, Haas assigned the lease to its successor corporation, Entolo, and Hoyt Properties subsequently assigned the lease to Hoyt/Winnetka. Entolo eventually defaulted on the lease and Hoyt filed an unlawful detainer action. On the day of the eviction hearing, Hoyt and Entolo reached a settlement under which Hoyt agreed to allow Entolo to continue occupying a portion of the leased premises for about two months in exchange for payment of approximately $104,000 in rent. Hoyt retained the right to sue Entolo for the remaining unpaid balance due under the lease; however, at the request of appellants' counsel, Hoyt agreed to a provision releasing Entolo's parent corporation, PRG, and its other affiliates from liability, save for two circumstances not at issue here.

Steve Hoyt alleges that Hoyt agreed to the provision releasing PRG from liability because of representations made to him by PRG's attorney on the day of the eviction hearing. Steve Hoyt asserts that when he learned of the request to release PRG, he inquired of PRG's attorneys the reason for the provision releasing PRG. According to Steve Hoyt, he was told that PRG wanted the release because it did not want to be sued after the fact. At this point, Steve Hoyt alleges that one of PRG's attorneys made the representations at issue in this case. According to Hoyt, upon learning that PRG was concerned about being sued after the fact, Steve Hoyt asked, "I don't know of any reason how we could pierce the veil, do you?" Hoyt alleges that PRG's attorney responded, "There isn't anything. PRG and Entolo are totally separate." Hoyt asserts that, relying on the statement made by PRG's attorney, Steve Hoyt authorized the release provision as requested.

After signing the settlement agreement, Hoyt learned of a lawsuit brought by a third party against Entolo that alleged breach of contract by Entolo but sought to hold its parent company, PRG, liable by piercing the corporate veil. The complaint alleged, among other things, that Entolo failed to observe corporate formalities, was operated by PRG as a division rather than a separate corporation, and was undercapitalized by PRG. Upon learning of this litigation, Hoyt filed suit against appellants, seeking to rescind the settlement agreement and to pierce the corporate veil to hold PRG liable for Entolo's breach of the lease. Hoyt alleged in its complaint that the representations PRG's attorney made to Steve Hoyt were false and that the attorney either knew or should have known that the representations were false.

In granting summary judgment to appellants, the district court found that the alleged representations at issue constituted a nonactionable legal opinion, that the alleged representations were not false, and that Hoyt failed to assert any facts demonstrating that any reliance on the alleged representations was reasonable. The court of appeals concluded that the alleged representations were actionable because they both implied facts and directly asserted facts. Hoyt Props. Inc., v. Prod. Res. Group, 716 N.W.2d 366, 373-74 (Minn.App. 2006). The court of appeals also concluded that whether Hoyt reasonably relied on the representations was a genuine issue of material fact for trial, thus precluding summary judgment. Id. at 374-75. On appeal to this court, appellants challenge the court of appeals' conclusion that the representations were actionable and the finding that Hoyt's reliance raised a genuine issue of material fact for trial.¹

I.

Appellants first assert that the court of appeals erred in reversing the district court's grant of summary judgment because the representations PRG's attorney allegedly made expressed only the attorney's legal opinion and therefore were not actionable. When reviewing a grant of summary judgment, we review the record to determine: "(1) whether there are any genuine issues of material fact for trial; and (2) whether the trial court erred in its application of the law." See Nicollet Restoration, Inc. v. City of St. Paul, 533 N.W.2d 845, 847 (Minn.1995). We review the evidence in the light most favorable to the nonmoving party, id., in this case, Hoyt.

To make out a claim for fraudulent misrepresentation, the plaintiff must establish that:

(1) there was a false representation by a party of a past or existing material fact susceptible of knowledge; (2) made with knowledge of the falsity of the representation or made as of the party's own knowledge without knowing whether it was true or false; (3) with the intention to induce another to act in reliance thereon; (4) that the representation caused the other party to act in reliance thereon; and (5) that the party suffer[ed] pecuniary damage as a result of the reliance.

Specialized Tours, Inc. v. Hagen, 392 N.W.2d 520, 532 (Minn.1986). Appellants argue that the statements at issue do not amount to statements of past or present material fact as required under the first prong of our fraudulent misrepresentation standard.

As the court of appeals noted, abstract statements of law or pure legal opinions are not actionable; however, a mixed statement of law and fact may be actionable "if it amounts to an implied assertion that facts exist that justify the conclusion of law which is expressed" and the other party would ordinarily have no knowledge of the facts. Miller v. Osterlund, 154 Minn. 495, 496, 191 N.W. 919, 919 (1923). Our holding in Osterlund is consistent with the Restatement (Second) of Torts. A representation of law that is clearly a statement of opinion does not carry an implication of fact and is not actionable. See Restatement (Second) of Torts § 545 (1977). Thus, according to the Restatement, one who says, "`I think that my title to this land is good, but do not take my word for it; consult your own lawyer,'" cannot be reasonably understood as asserting any fact with respect to the title. Id. cmt. d. However, a legal statement in the form of an expression of opinion may still be actionable if it carries "with it by implication the assertion that the facts known to the maker are not incompatible with his opinion or that he does know facts that justify him in forming it." Id. cmt. c. For example,

a statement that one mortgage has priority over another may imply an assertion that one was made before the other; and a statement that a corporation has the legal right to do business in a state may carry with it an assurance that it has as a matter of fact taken all of the steps necessary to be duly qualified.

Id.

In order to evaluate the statement at issue in this case, it is helpful to review the standard courts use to determine whether to pierce the corporate veil. A court may pierce the corporate veil to hold a shareholder liable for the debts of the corporation when the shareholder is the alter ego of the corporation. Victoria Elevator Co. v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn.1979). When using the alter ego theory to pierce the corporate veil, courts look to the "reality and not form, with how the corporation operated and the individual defendant's relationship to that operation." Id. (internal quotation marks omitted). Factors relevant to that inquiry include

insufficient capitalization for purposes of corporate undertaking, failure to observe corporate formalities, nonpayment of dividends, insolvency of debtor corporation at time of transaction in question, siphoning of funds by dominant shareholder, nonfunctioning of other officers and directors, absence of corporate records and existence of corporation as merely facade for individual dealings.

Id.

Appellants assert that the representations PRG's attorney allegedly made were statements...