Vermillion State Bank v. Tennis Sanitation, LLC

Decision Date02 February 2022
Docket NumberA19-1421
Citation969 N.W.2d 610
Parties VERMILLION STATE BANK, Respondent, v. TENNIS SANITATION, LLC, Appellant.
CourtMinnesota Supreme Court

Mark R. Bradford, Lewis A. Remele, Jr., Steven M. Sitek, Bassford Remele, P.A., Minneapolis, Minnesota, for respondent.

Kay Nord Hunt, Michelle K. Kuhl, Barry A. O'Neil, Lommen Abdo, P.A., Minneapolis, Minnesota; and Steven R. Coon, Law Offices of Steven Coon, Minneapolis, Minnesota, for appellant.

OPINION

MOORE, III, Justice.

This case asks us to decide, among other issues, whether an oral hybrid contract for the sale of goods and intangible non-goods is subject to our predominant purpose test—the test used to determine whether the provisions of the Uniform Commercial Code (UCC) or the common law govern the contract as a whole. Appellant Tennis Sanitation, LLC (Tennis) repudiated an alleged oral contract it negotiated with respondent Vermillion State Bank (Vermillion) for its purchase of certain assets of a trash collection business in bankruptcy, which included tangible assets such as garbage trucks and intangible assets such as customer routes. Vermillion, after selling the assets to another company at a significantly lesser price following Tennis's repudiation, sued Tennis for breach of contract, seeking monetary relief.

At trial, the jury returned a unanimous verdict finding that the parties entered an oral contract; the predominant factor of that oral contract was for the sale of the trash collection business’ customer routes, not its physical assets; Tennis breached the contract; and as a result of the breach, Vermillion suffered $1.92 million dollars in damages. After the district court adopted the jury's verdict as its findings, Tennis made post-trial motions based on numerous alleged errors, asserting that the district court should have divided the contract into its component parts and applied the UCC to the goods portion of the contract; that a clear and convincing evidence standard applies as to the formation of the contract; that there was insufficient evidence to support the jury's finding that an oral contract existed; that the district court issued erroneous jury instructions; and that the statutory postjudgment rate of 10% imposed on judgments greater than $50,000 violates the Equal Protection Clause. The district court denied Tennis's motions, the court of appeals affirmed, and we granted Tennis's petition for review. Because we hold that hybrid contracts involving goods and non-goods should be interpreted based on the predominant purpose of the contract, and otherwise find no error in the decision of the court of appeals—including as to the constitutionality of the postjudgment statutewe affirm.

FACTS

In 2010, respondent Vermillion began loaning money to Troje's Trash Pick-up, Inc. (Troje's), a trash collection company. To secure its loans, Vermillion obtained security interests in Troje's tangible assets, such as Troje's garbage trucks, and intangible assets, such as Troje's customer routes.

In 2015, Vermillion loaned more money to Troje's in an effort to alleviate Troje's mounting financial problems. Despite this additional funding, Troje's financial difficulties proved to be unresolvable, and in January 2016, the company filed for Chapter 11 bankruptcy. See generally 11 U.S.C. §§ 101 – 12. By this time, Vermillion had loaned more than $7 million to Troje's and was the company's largest creditor.

The bankruptcy court appointed a bankruptcy specialist to help run Troje's and maximize recovery for all creditors. The specialist recommended selling Troje's assets at auction, including garbage trucks, garbage containers, customer routes, and more.

Only two bidders submitted timely bids to buy Troje's assets at auction. Republic Services, another trash collection business, submitted the first bid. Minnesota Sanitation Company LLC, a dummy company created by Vermillion to increase other bid offers, submitted the second bid. Two days before the auction, Vermillion's president, John Poepl, reached out to Tennis's co-owners, brothers Gregory and William Tennis, to see if they were interested in acquiring Troje's assets. Poepl proposed that Vermillion's dummy company could outbid Republic and turn the assets over to Tennis because Vermillion had no intention of running a trash collection business. Both Tennis brothers expressed interest and agreed to meet with Poepl.

The next day, the Tennis brothers met with John Poepl and his son, Vermillion's vice president Matt Poepl, to discuss Troje's assets. Together, they created a rough valuation of Troje's assets, individually pricing its commercial accounts, residential accounts, trucks, and garbage containers. The group ultimately valued the assets at $9.1 million, $5.3 million of which they attributed to Troje's customer routes. After valuing the assets, John and Matt Poepl and the Tennis brothers negotiated potential purchase prices and initially agreed to a price of $6.1 million for Troje's assets.

On the morning of the auction, August 8, 2016, John Poepl, Matt Poepl, William Tennis, Gregory Tennis, and Tennis's accountant participated in two short conference calls. In the first call, the parties discussed the purchase of Troje's assets and debated whether six natural gas trucks with nearly $1 million dollars of debt on them would be included in the final deal. In the second call, Tennis verbally agreed to purchase Troje's assets for $6.1 million, excluding the indebted natural gas trucks. The parties discussed and understood that Tennis could not perform due diligence because there was no time to inspect the assets before the auction. At the end of this second call, Vermillion asked Tennis for "an email or something saying ... we want you to bid for us" to confirm that Tennis would pay $6.1 million for Troje's assets.

The auction began at 1:00 p.m. with Republic as the high bidder. Three minutes after the auction started, Tennis e-mailed a signed letter of intent to Vermillion. The letter of intent was expressly "non-binding" and contained multiple provisions that were not part of the parties’ original verbal agreement, including a due diligence provision. After Vermillion received the letter of intent, John Poepl called Gregory Tennis and reminded him that their agreement did not allow for due diligence. During that call, John Poepl asked Gregory Tennis to confirm Tennis still wanted Vermillion to bid on the assets under the terms of their initial deal, and Gregory Tennis did so.

At 3:55 p.m., Vermillion submitted a winning $5.4 million bid for Troje's assets. The evening after the auction, John Poepl, Matt Poepl, Gregory Tennis, and William Tennis met to discuss transitioning Troje's assets over to Tennis. Despite previously confirming the parties’ deal, Gregory Tennis appeared nervous about having agreed to the purchase.

On the day after the auction, the parties met with the bankruptcy specialist. Gregory Tennis continued to appear uneasy about the situation, but he nevertheless confirmed that he had asked John Poepl to bid on Troje's assets for Tennis. The parties discussed the payment and transfer of assets. The meeting ended with John Poepl growing concerned that Tennis would back out of the agreement, leaving Vermillion as the owner of Troje's assets. Later that afternoon, John Poepl's fears came to fruition when William Tennis called him and withdrew from their arrangement.

Vermillion then needed a way to sell Troje's assets. After reaching out to Republic, the runner-up at auction, Vermillion sold the assets to it for $4 million. Republic's purchase terms, however, required Vermillion to include the natural gas trucks and cover over $1 million in debt on them.

Vermillion subsequently sued Tennis for over $4 million in damages, alleging claims of breach of contract, breach of the implied duty of good faith and fair dealing, and promissory estoppel. After a 4-day trial, the jury, under a preponderance of the evidence standard, found that an oral contract existed, the predominant factor of the contract was the purchase of Troje's customer routes, and Tennis breached the contract. The jury awarded Vermillion $1,920,000 in damages.

Tennis made a post-trial motion for judgment as a matter of law pursuant to Minn. R. Civ. P. 50.02 or, in the alternative, for a new trial. In its motion for judgment as a matter of law, Tennis alleged there was insufficient evidence to prove the existence of a contract and that, even if a contract existed, it was unenforceable under the UCC statute of frauds because the primary purpose of the contract was for goods and this contract was not in writing. Alternatively, Tennis asserted that if the predominant purpose of the contract was for non-goods, the court should bifurcate the contract into its component parts and invalidate the goods portion under the UCC statute of frauds. In its new trial motion, Tennis alleged fifteen different errors, including errors related to the standard of proof and the jury instructions.1 The district court denied both of Tennis's motions.

Tennis also separately moved to "bar accrual of interest on the judgment" against it. In this motion, Tennis asserted that Minnesota's postjudgment interest statute, Minn. Stat. § 549.09 (2020), by providing separate rates of interest depending on the amount of the judgment, violated the Equal Protection Clause of both the Minnesota and Federal Constitutions. The district court also denied this motion.

The court of appeals affirmed, concluding that the district court correctly denied Tennis's motion for judgment as a matter of law because sufficient evidence existed to support the jury's verdict that the parties entered into a contract. Vermillion State Bank v. Tennis Sanitation, LLC , 947 N.W.2d 456, 465–70 (Minn. App. 2020). In doing so, the court of appeals affirmed that the predominant purpose test, rather than a bifurcation rule, applied to contracts such as this one which included goods and non-goods. Id. at 467–68....

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