Source: https://mn.gov/law-library-stat/archive/ctapun/9802/1387.htm
Timestamp: 2019-04-22 20:04:48+00:00

Document:
Lee L. Herold, Respondent, vs. Schumann, Granahan, Hesse & Wilson, Ltd., et al., Appellants. C8-97-1387, Court of Appeals Unpublished, February 3, 1998.
In a suit on a promissory note executed in conjunction with the sale of a business, the promissor conceded its failure to pay, but affirmatively alleged frustration of contractual purpose and counterclaimed for breach of the purchase agreement and a covenant not to compete. The district court entered summary judgment enforcing the note and dismissing the counterclaim. We affirm in substance, but reverse and remand on the attorneys' fees.
Lee Herold entered into a purchase agreement for the sale of his accounting and tax preparation business to Schumann, Granahan, Hesse & Wilson, Ltd. (Schumann). The agreement outlined the terms of a promissory note and a noncompete agreement to be signed at the closing, two months after the date of the purchase agreement. The agreement further provided that Herold would continue the business and preserve its goodwill until the closing, and that Herold would, effective the date of the closing, terminate his employees.
Between the signing of the purchase agreement and the closing, Schumann offered continued employment to many of Herold's employees. Herold's "key employee," Kelley Brenno-Carpenter, accepted a position with Schumann.	Pending the closing, Herold and Schumann mailed an announcement of the sale to Herold's clients, encouraging them to use Schumann's services. Brenno-Carpenter approached Herold with a request to mail postcards to her individual clients notifying them of her decision to join the Schumann firm. Herold and Schumann agreed to Brenno-Carpenter's mailing.
At the closing, Herold signed the anticipated covenant not to compete and Schumann signed a promissory note, personally guaranteed by its partners, for the remainder of the $180,000 purchase price. The purchase agreement allocated $5,000 of the total price as consideration for the noncompete agreement that prohibited Herold from competing for five years and prohibiting him from disclosing confidential information, customer lists, and specified information about clients.
Nine months after the closing, Brenno-Carpenter resigned and formed her own accounting firm. She used the client list that she had obtained from her earlier mailing to send Herold's former clients announcements of her new firm. Schumann sued Brenno-Carpenter for unfair trade practices and breach of employment duties. The suit was settled for $3,750. Herold was not a party to that action.
Ten months after the closing, Schumann failed to make a payment required by the note. Herold declared the note in default, accelerated the payments according to the note's terms, and brought this action. On cross motions for summary judgment, the district court entered summary judgment enforcing the note and dismissing Schumann's counterclaims. Schumann appeals, and Herold, by notice of review, challenges the district court's failure to award attorneys' fees.
On appeal from summary judgment, this court reviews whether any genuine issues of material fact exist and whether the district court correctly applied the law. Nicollet Restoration, Inc. v. City of St. Paul, 533 N.W.2d 845, 847 (Minn. 1995). To defeat summary judgment, the nonmoving party must produce specific facts to demonstrate a genuine issue of material fact. Thiele v. Stich, 425 N.W.2d 580, 583 (Minn. 1988). The construction and effect of an unambiguous contract is a question of law that is subject to determination on summary judgment. Blattner v. Forster, 322 N.W.2d 319, 321 (Minn. 1982).
Schumann maintains that the district court erred in granting summary judgment enforcing the note despite Schumann's affirmative defense of contract frustration. Schumann alleged that the contract was frustrated and performance discharged when Herold provided Brenno-Carpenter with his client list. A party is discharged from contractual obligations by frustration when: (1) the principal purpose in making the contract is frustrated; (2) they are without fault; and (3) the occurrence of an event, the non-occurrence of which was a basic assumption on which the agreement was made. National Recruiters, Inc. v. Toro Co., 343 N.W.2d 704, 707 (Minn. App. 1984).
The district court did not err in concluding that the facts in support of the affirmative defense did not create a triable issue. First, the facts are undisputed that Schumann consented to Brenno-Carpenter's mailing the announcement of her employment with Schumann to her individual clients. Although Brenno-Carpenter was technically an employee of Herold when she obtained Herold's client list, her actions were for the benefit of Schumann and related to her employment with Schumann. These facts do not demonstrate that Schumann is "without fault" in the disclosure but rather that it fully participated in the decision to further its commercial interest. Second, Schumann's knowledge and consent eliminates any basis on which it can claim that the nondisclosure of the list to Brenno-Carpenter was a basic assumption on which their agreement had been made. Schumann's claim that it assumed Brenno-Carpenter would be given only addresses for her own list, rather than the complete mailing list of Herold's clients, is not persuasive, particularly when Schumann did not impose that condition. Finally, Schumann has not produced facts that show the principal purpose of the contract was frustrated. Under the agreement, Schumann purchased the client files, equipment, and goodwill of Herold's firm. The purchase agreement states that only $5,000 of the $180,000 purchase price was consideration not just for the nondisclosure of client lists, but for all of the promises in the covenant not to compete.
Schumann admits that he did not make the payment provided in the promissory note. Because the evidence was insufficient to establish a genuine issue of material fact on Schumann's affirmative defense of frustration of contractual purpose, the terms of the promissory note were enforceable as a matter of law. Thiele, 425 N.W.2d at 583 (when party moving for summary judgment demonstrates proof on necessary elements, opposing party asserting affirmative defense must produce facts to raise genuine issue); Kessel v. Kessel, 370 N.W.2d 889, 895 (Minn. App. 1985) (nonmovant required to demonstrate specific facts to support affirmative defense to withstand summary judgment).
Schumann's second argument is that the district court erred when it dismissed its counterclaims for breach of the purchase agreement and the covenant not to compete. The same undisputed facts that failed to provide an affirmative defense to nonpayment demonstrate that Schumann has not shown a genuine issue of material fact that requires a trial on its counterclaims. Schumann consented to the transaction resulting in Brenno-Carpenter's obtaining the list, the mailing was solely for Schumann's benefit, and provided no benefit to Herold. The evidence does not support a claim for breach of contract or for beach of the covenant not to compete. See Minn. R. Civ. P. 56.05 (moving party must present specific facts showing genuine issue for trial).
The district court ordered judgment for Herold on the note, interest accrued to the date of judgment, and costs and disbursements. The court did not address Herold's request for attorneys' fees.
Attorneys' fees may be awarded when specifically provided by contract. Material Movers, Inc. v. Hill, 316 N.W.2d 13, 18 (Minn. 1982). It is undisputed that the promissory note provides that "in the event this Note is not paid when due" Schumann "agrees to pay all costs of collection, including attorneys' fees." We therefore remand to the district court to determine the amount of Herold's attorneys' fees incurred to collect on the note.

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