Great Plains Educational Foundation, Inc., Appellant,

STATE OF MINNESOTA
IN COURT OF APPEALS
A20-0326

Great Plains Educational Foundation, Inc.,
Appellant,

vs.

Student Loan Finance Corporation, et al.,
Respondents.

Filed December 28, 2020
Reversed and remanded
Slieter, Judge

Hennepin County District Court
File No. 27-CV-19-13023

Vincent D. Louwagie , Philip J. Kaplan, Anthony Ostlund Baer & Louwagie P.A.,
Minneapolis, Minnesota (for appellant)

Douglas L. Elsass, Benjamin C. Johnso n, Nilan Johnson Lewis PA, Minneapolis,
Minnesota (for respondents)

Considered and decided by Slieter, Presid ing Judge; Bratvold, Judge; and Cochran,
Judge.
S Y L L A B U S
1. The presence of both a no-reliance and an integration clause in a settlement
agreement does not as a matter of law bar a subsequent claim for fraudulent inducement of
that settlement agreement based on alleged oral misrepresentations unless there are express
terms in the settlement agreement that contradict the alleged oral misrepresentations.

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2. A claim for fraudulent inducement of a settlement agreement does not
constitute an impermissible attack on th e judgment resulting from that settlement
agreement.
O P I N I O N
SLIETER, Judge
Appellant Great Plains Educational Foundati on, Inc. (Great Plains) challenges the
rule 12 dismissal of its complaint asserting fraud claims against respondents, Student Loan
Finance Corporation, et al. (SLFC). 1 The complaint alleges that SLFC fraudulently
misrepresented or omitted its assets and liabilities during settlement negotiations with
Great Plains, induced Great Plains to ente r into a settlement agreement, and later
fraudulently transferred assets. Great Plains argues that the district court erred by
determining that its fraud clai ms are precluded by the no-relia nce and integration clauses
in the settlement agre ement and that its fraud compla int constitutes an impermissible
collateral attack on the judgment of dismi ssal which resulted from the prior settlement
agreement. Because Great Plains’s fraud clai ms are not as a matte r of law barred by the
no-reliance and integration clauses of the prior settlement agreement, nor do they constitute
an impermissible attack on the judgment of dismissal resulting fro m the prior settlement
agreement, we reverse and remand.

1 Great Plains is a non-profit corporation form ed in 1978 to assist in delivering federal
student loans. SLFC is a fo r-profit corporation formed as a wholly-owned subsidiary of
Great Plains in 1997.

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FACTS
In 2014, Great Plains brou ght suit against SLFC for breach of a $13.25 million
promissory note. SLFC had purchased stock from Great Plains in 1 999 in exchange for
the promissory note but failed to make payment according to its terms. Great Plains sought
to recover the note’s full principal balance plus interest. SLFC acknowledged that it owed
Great Plains $13.25 million. In 2015, the parties began settlement negotiations.
Greats Plains asserts that, during these se ttlement negotiations, SLFC “repeatedly
represented” through oral statements and financial disclosures that it had only two sources
to fund a settlement: proceeds from a vendor’s interest in a contract for deed, and money
due under a licensing agreement.
In February 2017, SLFC’s president re iterated these representations during a
settlement conference before the district c ourt, indicating that SLFC could not borrow
funds to support a settlement because it had no assets to pledge as security for a loan.
In April 2017, Great Plains and SLFC executed a settlement agreement. The
settlement agreement provided that, among ot her things, SLFC would pay Great Plains
$350,000 in cash upon execution, transfer to Great Plains its vendor’s interest in a contract
for deed, and pay 75% of the principal ba lance from the $10 million licensing agreement
in annual installments. The settlement agreement also provided that SLFC’s obligations
pursuant to the promissory note would be deemed satisfied, all claims asserted by either
party would be dismissed with prejudice, and the parties agreed to “release and discharge
one another” from “any and all” claims related to or arising out of the lawsuit.

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In 2019, Great Plains brought this acti on against SLFC seeking money damages,
alleging fraudulent misrepresentation and frau dulent omission in the inducement of the
settlement agreement, and fraudulent transfer pursuant to Minn. Stat. § 513.44 (2018).
SLFC, relying on the settlement agreement, moved to dismiss pursuant to Minn. R.
Civ. P. 12.02(e) for failure to state a claim up on which relief can be granted. The district
court dismissed Great Plains’s complaint in its entirety, determining that the action was
precluded by the no-reliance and integration clauses in the settlement agreement. The
district court also deemed the action an im proper collateral attack on the judgment of
dismissal. The district court also dismisse d Great Plains’s Minnesota Uniform Voidable
Transfer Act (MUVTA) claim for lack of a viable fraud claim and lack of a debtor-creditor
relationship. Great Plains appeals.
ISSUES
I. Did the district court properly conclude that the no-reliance and integration clauses
of the settlement agreement precluded Great Plains’s fraud claims that are based on
inducement of the settlement agreement?

II. Did the district court properly concl ude that Great Plains’s action was an
impermissible attack on the judgment of dismissal?

ANALYSIS
“When reviewing a case dismissed pursuant to Minn. R. Civ. P. 12.02(e) for failure
to state a claim on which relief can be grante d, the question before [appellate courts] is
whether the complaint sets forth a legally sufficient claim for relief.” See Hebert v. City of
Fifty Lakes , 744 N.W.2d 226, 229 (Min n. 2008). Appellate courts review the legal
sufficiency of the claim for relief de novo, id., and “consider only the facts alleged in the

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complaint, accepting those facts as true,” Sipe v. STS Mfg., Inc. , 834 N.W.2d 683, 686
(Minn. 2013) (quotation omitted).
As a threshold matter, SLFC claims that Great Plains’s complaint violates the
election-of-remedies doctrine and the distri ct court therefore pr operly dismissed the
complaint. We disagree. The election-of-remedies doctrine dictates that a party “who has
been induced to enter a contract by fraudulent misrepresentations may elect to rescind the
contract or sue for damages.” Anders v. Dakota Land & Dev. Co. , 289 N.W.2d 161, 163
(Minn. 1980); see also U.S. Installment Realty Co. v. De Lancy Co. , 188 N.W. 212, 214
(Minn. 1922) (stating “[a party] cannot affirm a part of the contract and also rescind a part
of it”). In cases where a party elects to rescind the contract, the “‘party seeking such relief
must properly proceed to avoid the agreement; that is, [the party] must seek rescission but
not damages, and [the party] cannot rescind in part and a ffirm in part. [The party’s]
rescission of the contract must be in toto.’” Fouquette v. First Am. Nat.’l Securities Inc.,
464 N.W.2d 760, 763 (Minn. App. 1991) (quoting Atcas v. Credit Clearing Corp. ,
197 N.W.2d 448, 456 (1972)).
Great Plains’s fraud action does not seek rescission of the settlement agreement but
instead seeks a legal remedy of money damage s for alleged fraud in the formation of the
settlement agreement. This issue was addressed in Mlnazek v. Libera, in which plaintiff
Mlnazek alleged his former business partner and their insurance company conspired to
convince him to sign an agreement that released the insurance company from liability for
all claims related to their fi rm’s insurance policy. 80 N.W. 866, 866-67 (Minn. 1899).
Mlnazek then brought an action to reform the settlement agreement. Id. The supreme court

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rejected Mlnazek’s request to reform or cancel the settlement agreement but did conclude
that Mlnazek was “entitled to obtain the very right of which he was deprived through
fraud.” Id. at 867-68. The supreme court opined th at it “seem[ed] that [Mlnazek] had an
adequate legal remedy by an action for dama ges for the fraud of the company and his
partner, whereby he was deprived of his interest in the policy.” Id. at 868.
We conclude that Great Plains’s s ituation is analogous to that of Mlnazek because
Great Plains does not seek rescission of the settlement agreement and, instead, seeks
damages for alleged fraud. Because the complaint establishes that Great Plains has elected
damages as its remedy and is not seeking to rescind the settlement agreement in whole or
in part, Great Plains has properly elected its remedy.
I. The no-reliance and integration clause s of the settlement agreement do not
preclude Great Plains’s fraud claims.

The parties’ settlement agreement contains the following no-reliance and integration
clauses:
The Parties acknowledge that they have not relied upon any
statements made by any of the other Parties, their agents, or
their attorneys, in entering into this Agreement, other than what
is contained in this Agreement. This Agreement reflects the
entire agreement reached by the Parties and contains all terms
of settlement reached by the Part ies and supersedes any prior
writings memorializing or re flecting the terms of that
settlement.

SLFC argues this language precludes Grea t Plains from claiming reliance on oral
statements and omissions made during settlement discussions. Great Plains counters that
Minnesota law precludes a party from contractually waiving fraud claims.

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The Minnesota Supreme Court has long held that fraud canno t be waived by a
contractual disclaimer. In Ganley Bros. v. Butler Bros. Bldg. Co., the supreme court stated
that Minnesota law does not “permit a covenant of immunity to be drawn that will protect
a person against his own fraud.” 212 N.W. 602, 603 (Minn. 1927). Federal caselaw also
observes that “[g]eneral disclaimers and in tegration clauses are given no effect in
misrepresentation cases under Minnesota law.” Randall v. Lady of Am. Franchise Corp. ,
532 F. Supp. 2d 1071, 1086 (D. Minn. 2007) (emphasis omitted). Randall noted that “even
fairly specific disclaimers are typically held to create jury questions about reliance, rather
than to negate reliance as a matter of law.” Id. (emphasis omitted).
Likewise, in Johnson Bldg. Co. v. River Bluff Dev. Co ., our court determined that
“[a] ‘full integration’ clause does not prevent proof of fraudulent representations by a party
to the contract.” 374 N.W.2d 187, 193 (Minn. App. 1985), review denied (Minn. Nov. 18,
1985). This is not to say that fraud claims are never precluded by such clauses. A court
may “find that reliance on an oral representation was unjustifiable as a matter of law only
if the written contract provisi on explicitly stated a fact completely c ontradictory to the
claimed misrepresentation.” Id. at 194. But if the written contract is not completely
contradictory to the oral representation, the question of reliance is one for a factfinder. Id.
Because Great Plains’s fraud complaint alle ges that SLFC did not accurately portray
or disclose its assets and liabilities durin g settlement negotiations and the alleged
misrepresentations and omissions are not “completely contradict ory to the claimed
misrepresentation” of any term of the parties’ written settlement agreement, Great Plains’s
fraud claims are not precluded by the settlement agreement. Id.

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SLFC contends that this situ ation is distinguishable from Randall and Johnson
because the settlement ag reement contained both a no-relian ce and an integration clause.
We are not convinced. SLFC cites no caselaw in support of its argument, although it does
refer to a law-review article to support its claim. See Eric J. Magnuson & Daniel J. Supalla,
Life with Hoyt: Avoiding Misrepresentation Claims in Negotiating Settlement Agreements,
1 Wm. Mitchell J. L. & Prac. 3 (2008). We fi rst note that the article does not support the
conclusion claimed by SLFC. The article sugge sts that fraud claims may be precluded if
“the contract address[es], and negate[s], at least one of the elements of a fraudulent-
representation claim.” Id. The authors assert that “a cl ause that requires both parties to
affirm that they have not relied on representa tions outside of the settlement agreement”
allows the parties to “confirm[] the repr esentations . . . may be relied upon, and
simultaneously undercuts the reasonable-relia nce element of a fraudulent-inducement
claim.” Id. Neither the article nor SLFC refer to Minnesota caselaw that holds a no-
reliance and integration clause entitles a party to judgment as a matter of law.
After considering this state’s well-established caselaw that fraud cannot be waived
by contractual disclaimers, we do not find SL FC’s argument persuasive. Further, federal
caselaw, which is not precedentia l but may be persuasive to our court, has allowed fraud
claims where contracts contain both no-reliance and integration clauses. See, e.g., Randall,
532 F. Supp. 2d at 1075; Commercial Prop. Invs., Inc. v. Quality Inns Int’l, Inc., 938 F.2d
870, 875 (8th Cir. 1991)
In summary, having accepted the facts alleged in the complaint as true, we conclude
that the no-reliance and integration clauses of the parties’ settlement agreement do not

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preclude Great Plains’s fraud claims as a matte r of law. The dist rict court erred in
dismissing the complaint.
II. Great Plains’s action was not an imp ermissible attack on the judgment of
dismissal.

SLFC argues Great Plains’s fraud claims constitute an impermissible collateral
attack on the judgment of dismissal which followed the settlement agreement. “A
collateral attack is [a]n attack on a judgment in a proceeding ot her than a direct appeal.”
Aaron Carlson Corp. v. Cohen , 933 N.W.2d 63, 71 (Minn. 2019) (quotation omitted).
“Where a direct attack on a judgment attemp t[s] to annul, amend, reverse, or vacate a
judgment or to declare it void in an appropriate proceeding instituted initially and primarily
for that purpose, an impermissible collateral attack similarly attacks the validity of a
judgment, but the attack is purely secondary or incidental.” Id. (quotations omitted).
We have already determined that rule 12 dismissal of Great Plains’s fraud claims is
not proper despite the no-reliance and integra tion clauses. Because the fraud claims are
new claims with their own remedy, and becaus e Great Plains bears the burden of proving
that its fraud damages were caused by th e fraudulent inducement of the settlement
agreement and exceed the amount agreed-upon in the settlement agreement, the claims are
not an attempt to annul—either in full or in part—the previous judgment. The claims are
not, therefore, a direct attack on the prior judgment. The question then becomes whether
the claims are a secondary or incidental a ttack on the validity of the judgment. We
conclude they are not.

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The concept of a collateral a ttack is closely related to res judicata . See In re
Minneapolis Cmty. Dev. Agency , 359 N.W.2d 687, 690 (Minn. App. 1984) (“The reason
for the res judicata doctrine is not only to discourage collateral attacks on judgments but
also to discourage claim-splitting.”). Whether res judicata applies to preclude a claim is a
question we review de novo. Hauschildt v. Beckingham , 686 N.W.2d 829, 840 (Minn.
2004).
Res judicata precludes a party from relitigating a claim or pursuing a claim that
could have been litigated in the earlier action. Id. It applies when “(1) the earlier claim
involved the same set of factual circumstan ces; (2) the earlier claim involved the same
parties or their privies; (3) there was a final judgment on the merits; (4) the estopped party
had a full and fair opportunity to litigate the matter.” Id. All four prongs must be satisfied
to preclude the claim. Id. Great Plains’s claims are not precluded because the first prong
is not met.
In assessing whether the cl aims involve the same fact ual circumstances, appellate
courts consider “whether the same evidence will sustain” both the previous action and the
current action. Id. at 840-41 (quotation om itted). The prior acti on was for breach of
contract with no allegations or evidence of fraud involved. Because Great Plains did not
have knowledge of the fraud until after the parties had entered into the settlement
agreement, Great Plains is not precluded from now alleging fraud in the inducement of the
settlement agreement. For these reasons, the fraud claims are not precluded by res judicata
and are not an impermissible collateral attack on the final judgment.

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Similarly, we conclude that the action is not barred by the doc trine of collateral
estoppel. “Res judicata and collatera l estoppel are related doctrines.” Id. at 837. While
res judicata applies to preclude claims, collatera l estoppel applies to preclude the
relitigation of issues that have been adjudicated. Id. “The issue must have been distinctly
contested and directly determined in the ea rlier adjudication for collateral estoppel to
apply.” Id. at 837-38. Because fraud was not alleged in the previous litigation, collateral
estoppel does not apply to preclude the issue of fraud.
In conclusion, because Great Plains’s cl aims for fraudulent misrepresentation and
fraudulent omission in the inducement of the settlement agreement are new claims and new
issues, the claims do not impermissibly attack that judgment.2
D E C I S I O N
Because general no-reliance and integrat ion clauses included in the settlement
agreement do not preclude Great Plains fraud claims, and because such fraud claims do not
constitute an impermissible attack of the ju dgment of a settlement agreement, we reverse
and remand for further proceedings consistent with this decision.
Reversed and remanded.

2 SLFC also argues that Great Plains’s MUVT A claim fails for lack of a debtor-creditor
relationship. MUVTA, Minnesota statutes se ctions 513.41-.51, is intended “to prevent
debtors from placing property that is otherwise available for the payment of their debts out
of the reach of their creditors.” Finn v. Alliance Bank, 860 N.W.2d 638, 644 (Minn. 2015)
(quotation omitted). “[MUVTA] allows creditors to recover assets that debtors have
fraudulently transferred to third parties.” Id. Because we conclude that the parties shared
a debtor-creditor relationship contemplated by Minn. Stat. § 513.44(a)(1), we determine
the district court erred in dismissing Great Plains’s MUVTA claim.