Sci Minn. Funeral Serv. Inc. v. Washburn–mcreavy Funeral Corp..

• Decision Date: 30 March 2011
• Docket Number: No. A09–935.,A09–935.
• Citation: 795 N.W.2d 855
• Parties: SCI MINNESOTA FUNERAL SERVICES, INC., et al., Appellants,v.WASHBURN–McREAVY FUNERAL CORPORATION, et al., Respondents.
• Court: Minnesota Supreme Court

795 N.W.2d 855

SCI MINNESOTA FUNERAL SERVICES, INC., et al., Appellants,

v.WASHBURN–McREAVY FUNERAL CORPORATION, et al., Respondents.

No. A09–935.

Supreme Court of Minnesota.

March 30, 2011.

Syllabus by the Court

1. A de novo standard applies to review of the district court's ruling on summary judgment that the requirements for rescission and reformation were not met as a matter of law.

2. In the context of a stock sale agreement, where the claimed mistake relates to the value of the stock, rescission based on mutual mistake is not available.

3. Because appellants have not demonstrated a lack of mutual assent among the parties during the formation of the agreement, appellants are not entitled to rescission based on a lack of mutual assent.

4. Where the undisputed evidence establishes that appellants did not meet their burden of proving that the parties' agreement failed to reflect their true intentions due to a mutual mistake, appellants are not entitled to reformation.

Barbara Jean D'Aquila, Fulbright & Jaworski L.L.P., Minneapolis, MN, for appellants.Kevin M. Decker, Jonathan P. Schmidt, Briggs and Morgan, P.A., Minneapolis, MN, for respondents.

OPINION

GILDEA, Chief Justice.

The case arises from a stock sale transaction, and we are asked to decide whether appellants are entitled to reformation or rescission of the transaction because two vacant lots were transferred in the stock sale. Appellant SCI Minnesota Funeral Services, Inc. (SCI) sold Crystal Lake Cemetery Association (Crystal Lake) to appellant Corinthian Enterprises, LLC (Corinthian) in a stock sale agreement. Corinthian subsequently sold and assigned Crystal Lake to respondent Washburn–McReavy Funeral Corporation (Washburn) in a share purchase agreement. SCI and Corinthian brought this action contending the parties did not intend to include the vacant lots in the sale of Crystal Lake, and they sought equitable relief to remedy this claimed mistake. The district court held that SCI and Corinthian were not entitled to reformation or rescission based on mutual mistake, and the court of appeals affirmed. SCI Minn. Funeral Servs., Inc. v. Washburn–McReavy Funeral Corp., 779 N.W.2d 865, 875 (Minn.App.2010). Because we conclude that neither rescission nor reformation is available, we affirm.

The parties do not dispute the facts that are material to the disposition of this case. In 2005, the parent company of SCI placed several cemeteries and funeral homes on the market. Corinthian purchased some of these cemeteries and funeral homes. Crystal Lake was one of the businesses offered for sale by SCI and purchased by Corinthian. Crystal Lake was comprised of three cemeteries in Minnesota—Crystal Lake Cemetery/Crematory in Minneapolis (Crystal Lake Cemetery), Dawn Valley Funeral Home/Memorial Park in Bloomington (Dawn Valley), and Glen Haven Memorial Gardens in Crystal (Glen Haven).

Although no one involved in the transaction was aware of it, Crystal Lake's assets also included the two vacant lots at issue here. One lot is located in Colorado and one lot is located in Burnsville. SCI either acquired or purchased the vacant lots for Crystal Lake several years prior to the Crystal Lake sale. A former employee of SCI testified that SCI purchased the Colorado land in the late 1990s for tax purposes “as part of a like-kind exchange,” and it acquired the Burnsville land when it “had been carved out of the asset sale of another cemetery property years ago.” SCI continued to pay property taxes on the Colorado lot after the 2005 sale of Crystal Lake. The parties agree that the value of the two lots is approximately $2 million.

SCI and Corinthian agreed from the beginning of negotiations that they would structure the sale of Crystal Lake as a stock transaction based on their conclusion that Minnesota law prohibits the acquisition of cemeteries for profit.¹ But SCI and Corinthian also agreed that they would classify the sale of Crystal Lake as an asset transaction for tax purposes. The parties agree that the subject matter of the stock sale agreement is the stock of Crystal Lake.

On July 20, 2005, SCI and Corinthian reduced their agreement to writing and entered into a stock sale agreement. In the agreement, SCI agreed to sell all of its shares of Crystal Lake to Corinthian. The purchase price of the stock was $1 million. The stock sale agreement listed the three cemeteries—Crystal Lake Cemetery, Dawn Valley, and Glen Haven—but it did not specifically mention the vacant lots. The agreement did provide, however, for the removal of some of Crystal Lake's assets and operations. The agreement provided that SCI “shall and may cause to be removed” from the Crystal Lake sale all assets owned by Crystal Lake that are “not utilized in or related to the operation of the Business in its present form.”

Also on July 20, 2005, Corinthian entered into a share purchase agreement with Washburn in which Corinthian agreed to sell its outstanding shares of stock in Crystal Lake to Washburn for $1 million. In this agreement, Corinthian assigned everything it received from SCI under the stock sale agreement to Washburn. The share purchase agreement listed the three cemeteries—Crystal Lake Cemetery, Dawn Valley, and Glen Haven—as transferring to Washburn. ²

There was no language in either the stock sale agreement or the share purchase agreement that expressly excluded or included the vacant lots from the sale or that limited the sale of Crystal Lake's shares to the three cemeteries owned by Crystal Lake. The parties do not dispute the fact that they intended neither to include nor to exclude the vacant lots from either the stock sale agreement or the share purchase agreement. The parties contend they had no such intention because they did not know about the existence of the vacant lots. But appellants do not dispute that under the terms of the agreements, SCI could have removed the vacant lots from the assets of Crystal Lake prior to the transaction because the lots were not utilized in the operation of the cemetery business.

The record is unclear about when SCI first learned that the Crystal Lake sale included the vacant lots. Washburn first became aware sometime in 2007 or 2008 that it owned the Colorado lot. This occurred when the chief executive officer of Washburn received a phone call from a potential purchaser inquiring about the Colorado property and when Washburn's chief financial officer received a phone call from SCI requesting a quit claim deed for the property. Washburn did not become aware that it was the owner of the Burnsville lot until this lawsuit was commenced.

SCI and Corinthian sued Washburn and requested several forms of equitable relief from the district court, including reformation of both agreements (the stock sale agreement and the share purchase agreement), and rescission. The parties each moved for summary judgment. The district court granted Washburn's motion for summary judgment and denied appellants' motion for summary judgment. The court held that it could not reform the agreements because the evidence did not satisfy the elements required for reformation. As for rescission, the court considered only the equitable remedy of rescission based on mutual mistake. The court, relying on Costello v. Sykes, 143 Minn. 109, 172 N.W. 907 (1919), held that appellants were not entitled to rescission based on mutual mistake because a stock sale transfers all assets and liabilities unless specifically excluded. Because the subject matter of the contract was 100% of SCI's stock in Crystal Lake, the court reasoned that “the parties all knew that a stock transaction would transfer everything that was not specifically excluded,” and therefore there was no mutual mistake. Finally, the court dismissed SCI's unjust enrichment claim as a matter of law. ³

SCI and Corinthian appealed and a divided court of appeals affirmed. SCI Minn., 779 N.W.2d at 875. The court of appeals held that a manifestly-contrary-to-the-evidence standard of review applied to a district court's grant of summary judgment involving reformation. The court of appeals also held that appellants did not satisfy the elements of reformation, and the district court did not abuse its discretion in holding that appellants were not entitled to rescission based on mutual mistake or lack of mutual assent. Id. at 870, 872, 875. The dissent agreed with the majority's application of the deferential standards of review and its conclusion that rescission based on lack of mutual assent was not available. Id. at 875 (Worke, J., dissenting). But the dissent disagreed with the majority's conclusion that appellants were not entitled to reformation based on mutual mistake. Id. at 875–76, 878. We granted appellants' petition for review.

I.

We turn first to consideration of the proper standard of review that applies to the review of a grant of summary judgment involving claims for equitable relief. Appellants contend that the court of appeals incorrectly applied a manifestly-contrary-to-the-evidence standard to the district court's determination of a request for reformation. Appellants also contend that the court of appeals incorrectly applied an abuse-of-discretion standard to the district court's determination of a request for rescission. Appellants argue that we should apply a de novo standard of review because this case arose from summary judgment in which there were no disputed material facts.

For its part, Washburn argues that we should apply a de novo standard of review in determining whether the elements of reformation have been satisfied. But Washburn contends that the court of appeals correctly applied a deferential standard of review to the district court's decision on equitable claims because we uphold the district court's exercise of equitable powers unless they are manifestly contrary to the evidence, citing Metro Office Parks Co. v. Control Data Corp., 295 Minn. 348, 353, 205 N.W.2d 121, 124 (1973)...