Walhof & Co., Mergers and Acquisitions, LLC, et al., Appellants,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2016).

STATE OF MINNESOTA
IN COURT OF APPEALS
A17-0510

Walhof & Co., Mergers and Acquisitions, LLC, et al.,
Appellants,

vs.

MCB Holdings I, LLC, a successor in interest to MidCountry Bank; et al.,
Respondents.

Filed November 27, 2017
Affirmed
Connolly, Judge

Hennepin County District Court
File No. 27-CV-16-2774

Jeffrey Storms, Newmark Storms Law Office, LLC, Minneapolis, Minnesota; and

Dan Rasmus, Hovland & Rasmus, PLLC, Edina, Minnesota (for appellants)

Justin P. Weinberg, Daniel N. Moak, Michael M. Sawers, Briggs and Morgan, P.A.,
Minneapolis, Minnesota (for respondents)

Considered and decided by Connolly, Presiding Judge; Ross, Judge; and Schellhas,
Judge.
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U N P U B L I S H E D O P I N I O N
CONNOLLY, Judge
Appellants challenge the district court’s dismissal under Minn. R. Civ. P. 12.03 of
appellants’ claims for breach of fiduciary duty, violation of the Uniform Commercial Code
(UCC), breach of contract, and tortious interference with a contract ual relationship.
Appellants argue that the grant of judgment on the pleadings was improper because (1) the
UCC statutorily and contractually applies to the sale of corporate-membership units,
(2) respondents owed appellants a fiduciary duty, and (3) the indemnity clause present in
the cash-management agreement between the parties does not bar the tortious interference
claim. We affirm.
FACTS
Appellants are: (1) Walhof & Co., Mergers and Acquisitions, LLC (Walhof M&A)
and (2) the two members of Walhof M&A, Christiaan Walhof and Bettina Wal hof
(collectively, the Walhofs). Respondents consist of: (1) MidCountry Bank (the b ank);
(2) MCB Holdings I, LLC (MCB); and (3) Lighthouse Management Group, LLC
(Lighthouse).
According to the first ame nded complaint, two of the Walhof s’ businesses and the
Walhofs (collectively, the borrowers) entered into loan agreements, totaling $2.75 million,
with the bank to fund the purchase of properties . As security for the loans, i n addition to
mortgages on the pro perties and personal guarantees , Bettina Walhof and Walhof M&A
pledged their membership units of K&K Express Inc (K&K). The borrowers defaulted on
these loans, and the bank sought to enforce its rights in Florida and Minnesota. Rather than
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continue the litigation, the parties entered into a forbearance agreement, and the borrowers
executed a confession of judgment and a stipulation for order of replevin of personal
property.
Under the forbearance a greement, the b ank agreed to refrain from exercising its
rights and re medies under the loan documents and from pursuing the lawsuit s in Florida
and in Minnesota. The borrowers agreed to a payment schedule, whereby the loans would
be fully paid by July 1, 2015. The collateral pledged for the three loans was to continue to
serve as security until the debt was paid in full. The borrowers defaulted under the
forbearance agreement. The loans remain in default. The bank filed the confession of
judgment in Hennepin County, and a $2,679,975.28 ju dgment was entered against the
borrowers, Walhof M&A, and the Walhofs.
Rather than file a replevin stipulation to exercise its right to seize the collateral, the
bank entered into a cash-management agreement (the CMA ) with the Walhofs, Walh of
M&A, and K&K . To effectuate the bank’s rights over the K&K membership units, the
bank retained Timothy Becker of Lighthouse. The CMA established Becker’s powers over
the K&K membership units, which included the power “to dispose of the membership units
of K&K in accordance with the Minnesota Uniform Commercial Code for the benefit of
[the bank].”
The bank sold the K&K membership units in a private sale and assigned the CMA
to a company for $1.5 million. The judgment against the borrowers was not satis fied by
this sale. Appellants filed a seven-count amended complaint against respondents, for: (1) a
commercially unreasonable sale under Minn. Stat. § 336.9 -610(b) (2016) against all
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respondents; (2) breach of contract against the bank; (3) breach of fidu ciary duty against
all respondents; (4) breach of the covenant of good faith and fair dealing and bad faith
conduct against the b ank; (5) economic dure ss against all respondents; (6) tortious
interference with contract and business relations hips against a ll respondents; and
(7) seeking a declaratory judgment.
Respondents sought judgment on the pleadings on the grounds that (1) Article 9 of
the UCC, codified in Minn. Stat. § 336.9 (2016 ), did not apply to the bank’s sale of the
K&K membership units and (2) all claims appellants raised in their complaint were barred
by the CMA’s indemnity provision . The district court granted respondents’ motion for
judgment on the pleadings as a matter of law and dismissed all of appellants’ claims.
Appellants moved to supplement the record with two emails discussing the CMA and the
intention behind it. The district court denied appellants’ motion, holding that the CMA is
an unambiguous document; thus, the parol evidence rule excludes contradictory evi dence
outside its fou r corners. Appellants now challenge three aspects of the district court’s
ruling.
D E C I S I O N
I.
Appellants assert that the district court erred in dismissing their claim for breach of
fiduciary duty because whether a de facto fiduciary relationship exists is a fact question ,
which should survive a motion for judgment on the pleadings. Judgment on the pleadings
should not be granted unless the pleadings show that the nonmoving party “has no claim
to present to the [district] court by evidence.” Ryan v. Lodermeier, 387 N.W.2d 652, 653
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(Minn. App. 1986). “Only if the pleadings create no fact issues should a motion for
judgment on the pleadings be granted.” Id. Thus, the district court is not precluded from
resolving the issue by judgment on the pleadings if , as a matter of law, no fiduciary duty
exists.
We conclude that even if we take the facts that appellants alleged in the pleadings
and the incorporated references as true, they do not support that a fiduciary relationship
existed. We agree with the district court that the CMA effectuated an outright assignment
of the K&K membership units. Any relationship between the bank and appellants prior to
the CMA was a simple lender-borrower relationship. A lender-borrower relationship does
not create a de facto fiduciary relationship absent special circumstances. See Klein v. First
Edina Nat’l Bank , 293 Minn. 418, 421, 196 N.W.2d 619 , 622 (1972). Minnesota has
recognized that such special circumstances might arise when a lender knows or should
know that the borrower is trusting the lender to counsel and inform them. Id. at 422, 196
N.W.2d at 623 . No such circumstances exist here. When entering the CMA, appellants
were represented by independent counsel. Additionally, the bank was enforcing its rights
against appellants in court, so the parties were clearly adverse to one another in the midst
of litigation. There was no reason that the bank should have known that appellants were
relying on the bank to counsel and inform them.
In arguing that Lighthouse, as Becker’s employer, owed appellants a fiduciary duty,
appellants assert that Becker was acting as a receiver for K&K. To support this assertion,
appellants rely on two emails that appellants asked the district court to consider by
supplementing the record . The district court properly denied this motion to supplement.
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The first email concerned information that was already alleged in appellant’s first amended
complaint. In a judgment -on-the-pleadings analysis, the district court accepts the
complaint’s allegations as true. See, e.g., Walsh v. U.S. Bank, 851 N.W.2d 598, 606 (Minn.
2014). Thus, the district court had already considered the substance of the email in the
complaint. The second email contradicted the plain language in the CMA, which is a fully
integrated, unambiguous, written document . The parol evidence rule prohibits evidenc e
outside a written document which varies or contradicts the plain language of the document.
Hield v. Thyberg , 347 N.W.2d 503, 507 (Minn. 1984). Thus, the district court properly
excluded the second email from its consideration. No court gave Becker or Lighthouse the
authority to act as a receiver , and neither Becker nor Lighthouse were signatories to the
CMA. Thus, appellants have not alleged any facts to establish that Lighthouse was in a
position to owe appellants a fiduciary duty . The district cour t did not err by granting
respondents’ motion for judgment on the pleadings on appellants’ breach-of-fiduciary-duty
claim.
II.
Appellants also argue that the grant of judgment on the pleadings was improper with
respect to their breach -of-contract and UCC c laims because whether the sale of K&K
membership units was commercially reasonable is a fact issue. We disagree.
For the UCC’s commercially reasonable sale requirement codified in Minn. Stat.
§ 336.9-610(b) to apply, the K&K membership units had to have been collateral at the time
of the sale. Article 9 applies to all transactions that contractually create a security interest
in personal property or fixtures. Minn. Stat. § 336.9-109(a)(1). When the security interest
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is created in personal prop erty, the property is referred to as “collateral.” Minn. Stat.
§ 336.9-102(a)(12). However, the K&K membership units were not collateral after the
parties entered into the CMA because the agreement assigned all of appellants’ ownership
interests in the units.
“Under Minnesota law no particular form of words is required for an assignment,
but the assignor must manifest an intent to transfer and must not retain any control or any
power of revocation.” Minn. Mut. Life Ins. Co. v. Anderson, 504 N.W.2d 284, 286 (Minn.
App. 1993). Paragraph 1 of the CMA states, “Bettina Walhof and Walhof M&A, by their
execution of this Agreement, hereby transfer all rights, title and interest in the membership
units of K&K to [the b ank].” This unambiguous language demonstrates an outright
assignment of the K&K membership units.
Appellants claim that they retained an equitable right of redemption because of a
later CMA provision that states:
[s]o long as [the b ank] is still the holder of the K&K
membership units as provided hereu nder, [the b ank] shall
transfer the right, title and interest of the K&K membership
units back to Walhof M &A and Bettina Walhof upon the
Indebtedness (as defined in the Forbearance Agreement) being
paid in full.

However, appellants’ ability to have the K&K membership units transferred back to them
was contingent upon appellants paying back their indebtedness before respondents decided
to sell the units. This never occurred. “When a contract contains a condition precedent, a
party to the contract does not acquire any rights under the contract unless the condition
occurs.” Nat’l Union Fire Ins. v . Schwing Am. , Inc., 446 N.W .2d 410, 412 (Minn. App.
8
1989). Since the CMA was an outright transfer of the K&K membership units from
appellants to respondents, no security interest exists, and Minn. Stat. § 336.9 -610(b) does
not apply.
The CMA also does not contractually require the b ank to abide by the UCC when
selling the K&K membership units. In arguin g that such a requirement bind s the b ank,
appellants cite the CMA provision outlining Becker’s powers regarding the membership
units, including his power “to dispose of the membership units of K&K in accordance with
the Minnesota [UCC] for the benefit of [the b ank].” (Emphasis added). This phrase
governs conduct between Becker and the bank, not between respondents and appellants. If
Becker were to sell the units, the b ank, as the owner of the units, required him do so in
accordance with the UCC for its benefit and not the benefit of appellant. This requirement
does not apply to the facts at hand. Appellants’ UCC and breach-of-contract claims fail as
a matter of law; thus, judgment on the pleadings on those claims was properly granted to
respondents.
III.
Appellants also challenge the district court’s conclusion that the CMA indemnity
provision barred all appellants’ claims against respondent s. As explained above, t he
district court properly granted judgment on the pleadings on six of the seven claims because
they failed as a matter of law on other grounds. Thus, appellants’ tortious interference with
a contract claim would be the sole claim resurrected if the indemnity provision did not
operate to bar it . Because the indemnity clause unambiguously bars “all claims,” we
affirm.
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Appellants argue that Minnesota case law requires indemnity provision s to be
narrowly construed to explicitly state that they apply to first -party claims. However, the
cases upon which appellants rely relate to construction or negligence claims. See, e.g.,
Nat’l Hydro Sys. v. M.A. Mortenson Co ., 529 N.W.2d 690 (Minn. 1995); Johnson v.
McGough Constr. Co., Inc ., 294 N.W.2d 286 (Minn. 1989) ; Bogatzki v. Hoffman , 430
N.W.2d 841 (Minn. App. 1988) ; Oster v. Medtronic, Inc. , 428 N.W.2d 116 (Minn. App.
1988), review denied (Minn. Dec. 21, 1988). In other contexts, indemnity provisions are
interpreted according to general contract principles. See, e.g., Buchwald v. Univ. of Minn.,
573 N.W.2d 723, 726 (Minn. App. 1998) (interpreting nonconstruction indemnity contract
by applying the general principles of contract construction).
“[W]hen a contract is unambiguous, a court gives effect to the parties’ intentions as
expressed in the four corners of the instrument, and clear, plain, and unambiguous terms
are conclusive of that intent.” Knudsen v. Transp. Leasing/Contract, Inc. , 672 N.W.2d
221, 223 (Minn. App. 2003), review denied (Minn. Feb. 25, 2004) . I f a contract is
unambiguous, then “there is no room for construction.” City of Virginia v. Northland
Office Props. Ltd. P’ship, 465 N.W.2d 424, 427 (Minn. App. 1991), review denied (Minn.
Apr. 18, 1991). Here, appellants agreed to indemnify and hold respondents harmless “from
and against any and all claims. . . . which are r elated to or arise in any manner out of [the
CMA].” This language clearly and unambiguously applies to all claims that arise under
the CMA. Appellants’ tortious interference with a contract claim arose out of the CMA
because the bank’s sale of the K&K membership units and Becker’s management of K&K
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are the bases for the claim. Thus, the district court did not err in granting judgment on the
pleadings for this claim.
Affirmed.