Court Opinion

ID: 2826235
Source: CourtListenerOpinion
Date Created: 2015-08-11 15:20:35.635773+00
Date Added: 2024-06-11T11:31:20.951046
License: Public Domain

This opinion will be unpublished and
                       may not be cited except as provided by
                       Minn. Stat. § 480A.08, subd. 3 (2014).

                            STATE OF MINNESOTA
                            IN COURT OF APPEALS
                                  A14-1922

                   Liza A. Robson, Trustee of The Ann S. Fischer
                     Living Trust u/d/t February 2, 1995, et al.,
                                    Appellants,

                                        vs.

                      The Economic Development Authority in
                           and for the City of Elk River,
                                    Respondent.

                              Filed August 10, 2015
                                    Affirmed
                                Halbrooks, Judge

                          Sherburne County District Court
                              File No. 71-CV-14-534

Gerald S. Duffy, Kristin L. Kingsbury, Monroe Moxness Berg P.A., Minneapolis,
Minnesota (for appellants)

George C. Hoff, Shelly M. Ryan, Hoff, Barry & Kozar, P.A., Eden Prairie, Minnesota
(for respondent)

      Considered and decided by Reilly, Presiding Judge; Halbrooks, Judge; and

Hooten, Judge.

                      UNPUBLISHED OPINION

HALBROOKS, Judge

      Appellant landowners and redevelopers challenge the district court’s grant of

summary judgment and dismissal of their breach-of-contract claim against respondent
economic development authority, arguing that the district court erred in its interpretation

of the contract. We affirm.

                                         FACTS

       This action arises from an Elk River redevelopment project financed in part by

tax-increment financing (TIF).    Appellant landowners and redevelopers (collectively

redeveloper) contend that they did not receive all of the interest income to which they are

entitled under the contract. On cross-motions for summary judgment based on stipulated

facts, the district court ruled in favor of respondent economic development authority for

the city of Elk River (EDA). The parties agree that there are no genuine issues of

material fact, the contract is unambiguous, and the outcome turns on proper interpretation

of the contract.

       In May 1999, the parties entered into a redevelopment agreement under which

redeveloper agreed to construct a shopping center project and a business park project on

property located within Elk River TIF District 19. EDA agreed to reimburse redeveloper

for certain costs incurred to acquire and prepare the property through an initial payment

of $300,000 and issuance of two promissory notes. The initial payment of $300,000

came due after redeveloper had paid at least $300,000 in reimbursable redevelopment

costs and a building permit had been issued for initial improvements.

       After redeveloper had spent at least $1,415,280 on reimbursable costs, EDA would

issue promissory note A (Note A), and after redeveloper spent at least $2,811,000, EDA

would issue promissory note B (Note B). The notes were to be repaid out of available tax

increment, if any, after redeveloper achieved certain milestones. Note A includes Exhibit

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B, a payment schedule that includes both principal and interest but does not itemize the

breakdown of the two. In the event that redevelopment milestones were not met, EDA

could defer 50% of each payment due under Note A.

      Article 3 of the redevelopment agreement sets forth the parties’ obligations with

respect to acquisition and development of the property and reimbursement of costs.

       Section 3.2(i) sets forth milestones based on certificates of occupancy and
        provides that “[i]t is imperative to [EDA] that the entire Development be
        developed in a timely manner as a condition precedent to reimbursement.”

       Section 3.5(a) details the conditions precedent to payment under the notes,
        including:

          o “[(ii)]2. If, following completion of the Initial Improvements, Certificates
            of Occupancy for subsequent phases of the Minimum Improvements have
            not been obtained when required by the Development Schedule in Section
            3.2(i) of this Agreement, then fifty percent (50%) of every subsequent
            payment to be made under both of the Notes shall be withheld until a
            Certificate of Occupancy for the Minimum Improvements . . . is obtained.
            No interest will accrue on payments deferred for failure to meet the
            Development Schedule.” (Emphasis added.)

       Section 3.5(b)(i) provides that Note A “will bear simple interest at the rate of
        eight percent (8%).”

       Section 3.5(b)(iii) provides that interest “will not accrue on any payments
        deferred due to a default by Redeveloper.”

       Section 9.12 provides that “Time is of the Essence.”

      Under the terms of the redevelopment agreement, EDA issued Note A on

August 4, 2000. Note A provides:

       EDA agrees to pay $1,415,280, “together with simple, non-compounded
        interest from the date of issuance of this Note at the rate of eight percent (8%)
        per annum, on the dates . . . and in the amounts . . .set forth [in] Exhibit B.”
        (Emphasis added.)

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           o Exhibit B to Note A sets forth the following payment schedule:

                                  YEAR                            AMOUNT
                                   2001                               0
                                   2002                               0
                                   2003                            156,008
                                   2004                            339,868
                                   2005                            472,395
                                   2006                            475,960
                                   2007                            480,044
                                   2008                            263,388
                                   2009                               0
                                   2010                               0
                                   2011                               0

        “All payments made on this Note shall first be applied to accrued and unpaid
         interest and second, to reduction of the Principal Amount.”

The parties agree that the sum of the payments set forth in Exhibit B to Note A is

$2,187,663, which “contemplates payment of the Principal Amount of $1,415,280.00 and

simple, non-compounded interest.”

       From December 15, 2003 until July 15, 2008, redeveloper did not complete the

minimum improvements in accordance with the development schedule identified in

section 3.2(i) of the redevelopment agreement. During this period (the deferral period),

EDA withheld 50% of scheduled payments, which redeveloper agrees was proper. The

final payment on Note A was scheduled to be made in December 2008, but because of

redeveloper’s delays and the consequent deferral of payments, EDA made its final

payment to redeveloper on July 15, 2009. The parties agree that in total, EDA paid

redeveloper $2,239,925.45 under Note A, or $52,262 more than the sum of the payments

listed in Exhibit B.

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       On February 20, 2012, redeveloper’s legal counsel contacted the city of Elk

River’s finance director, asserting that an audit had revealed a shortfall in EDA’s favor.

Redeveloper contended that the redevelopment agreement provided for accrual of interest

during the deferral period (due after the deferral period ended), and demanded an

additional $132,950.30 under Note A. Redeveloper contended that the contract “does not

say there will be no interest on deferred principal,” but “no interest was calculated on part

of the principal during [the deferral period].” Redeveloper asserted that, “If there were to

be no interest paid on principal on any deferred payments, the contract would have so

specified.”

       Two years later, redeveloper commenced an action against EDA, seeking a

declaratory judgment that EDA was obligated “to pay all accrued simple interest at all

times, even during times of deferred or withheld payments” and claiming damages for

breach of contract. EDA answered, denying all claims. The parties agreed to postpone

discovery and all other activities in the case until after the district court resolved their

cross-motions for summary judgment.

       Both parties then moved for summary judgment.            The parties agree that the

redevelopment agreement and Note A control their respective rights and obligations.

EDA argued that the redevelopment agreement and Note A unambiguously provide that

no interest accrued during the deferral period.1            Redeveloper argued that the

1
   In its response to redeveloper’s summary-judgment motion, EDA also attempted to
recover the $52,262 it had paid under Note A in excess of the payment schedule found in
Exhibit B. The district court ruled that EDA was barred from raising an issue outside the

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redevelopment agreement and Note A unambiguously provide that during the deferral

period, simple interest continued to accrue on principal, and later payments by EDA

applied first to pay down interest, leaving principal unpaid and continuing to accrue

additional interest.

       The district court framed the legal issue as whether “the contract[’s] stated interest

rate continued to accrue on the princip[al] during the period [redeveloper] failed to meet

the conditions precedent” and ruled that it did not. The district court found:

               Redeveloper postulates that the Redevelopment Contract
               placed no monetary consequence on the Redeveloper’s failure
               to meet the deadlines set out in the Agreement other than the
               temporary delay in payments. This argument undermines the
               basic intent of the parties and would require this Court to
               adopt a significantly strained construction of the agreement
               between the parties while producing an absurd result whereby
               the Redeveloper would arguably have benefitted monetarily
               from its failure to meet the express obligations it assumed
               when entering into the Redevelopment Contract.

       The district court observed that the redevelopment agreement contained a “time is

of the essence” clause as well as deadlines that were explicitly termed conditions

precedent to reimbursement. Further, sections 3.2(i) and 3.2(ii) provide that “No interest

will accrue on payments deferred for failure to meet the Development Schedule,” and

interest “will not accrue on any payments deferred due to a default by Redeveloper.” The

district court ruled:

               In order to give effect to the condition precedent language in
               the Redevelopment Contract, and when interpreting the
               Redevelopment Contract as a whole, including the “time is of

pleadings and denied EDA’s request to amend the pleadings to claim this relief. EDA
does not challenge this ruling on appeal.

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              the essence” provision, the Court concludes that the EDA
              does not owe interest on any of the payments withheld
              during the Deferral Period.

(Emphasis added.) Redeveloper now appeals.

                                      DECISION

       “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.” Fabio v. Bellomo, 504 N.W.2d 758, 761

(Minn. 1993). A district court’s grant of summary judgment is reviewed de novo. Savela

v. City of Duluth, 806 N.W.2d 793, 796 (Minn. 2011).             On appeal from summary

judgment, this court reviews the record to determine whether there is any genuine issue

of fact and whether the district court erred in its interpretation of the law. Dahlin v.

Kroening, 796 N.W.2d 503, 504 (Minn. 2011). “Absent ambiguity, the interpretation of a

contract is a question of law” subject to de novo review. Roemhildt v. Kristall Dev., Inc.,

798 N.W.2d 371, 373 (Minn. App. 2011), review denied (Minn. July 19, 2011).

       The primary goal of contract interpretation is to determine and enforce the intent

of the contracting parties. Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc., 666

N.W.2d 320, 323 (Minn. 2003). When interpreting a written instrument, “the intent of

the parties is determined from the plain language of the instrument itself.” Travertine

Corp. v. Lexington–Silverwood, 683 N.W.2d 267, 271 (Minn. 2004). “We read contract

terms in the context of the entire contract and will not construe the terms so as to lead to a

harsh and absurd result. Additionally, we are to interpret a contract in such a way as to

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give meaning to all of its provisions.” Brookfield Trade Ctr., Inc. v. Cnty. of Ramsey,

584 N.W.2d 390, 394 (Minn. 1998) (citation omitted). Appellate courts will not rewrite,

modify, or limit the effect of a contract provision by a strained construction when the

contractual provision is clear and unambiguous. Travertine Corp., 683 N.W.2d at 271.

         The resolution of this appeal turns on the terms of Note A and the meaning of

section 3.5(a)(ii)(2) of the redevelopment agreement, which provides that, “No interest

will accrue on payments deferred for failure to meet the Development Schedule.”

Redeveloper contends that the redevelopment agreement and Note A clearly and

unambiguously provide that 8% interest will accrue on all outstanding principal from the

issuance of the note until it has been repaid in full, even when payments are deferred due

to redeveloper’s failure to meet development deadlines. We disagree.

         The district court carefully reviewed the terms of the redevelopment agreement

and Note A, recognizing the contract’s emphasis on the development schedule and the

related provisions that limit interest. The district court reasoned that a ruling that there

were no monetary consequences for redeveloper’s failure to meet deadlines would

undermine the intent of the parties, require a significantly strained construction of the

contract, and produce an absurd result whereby redeveloper could benefit monetarily by

essentially breaching the redevelopment agreement. The district court’s reasoning is

sound.

         Note A provides that EDA is indebted to redeveloper for no more than

$1,415,280.00, “together with simple, non-compounded interest from the date of issuance

of this Note at the rate of eight percent (8%) per annum, on the dates . . . and in the

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amounts . . . set forth . . . on the payment schedule attached hereto as Exhibit B.” Exhibit

B provides for a series of payments, which under the redevelopment agreement are

subject to the availability of tax increment and to deferral for failure to meet the

development schedule.

       Reading Note A together with the payment-deferral terms in the redevelopment

agreement, including the provision that “no interest will accrue on payments deferred”

and multiple provisions addressing timeliness, the parties did not intend for redeveloper

to earn interest when the project lagged behind schedule.          Giving meaning to all

provisions and interpreting the contract to avoid an absurd result, we conclude that the

district court properly ruled that interest did not accrue on principal during the deferral

period.

       Affirmed.

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