Minnesota

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Osborne Properties v. Bruce Edward,
1995.MN.21126 (Minn.App. 08/15/1995)

COURT OF APPEALS OF MINNESOTA

No. C4-95-636

1995.MN.21126

August 15, 1995

OSBORNE PROPERTIES, D/B/A MCCARRON HILLS, RESPONDENT,
v.
BRUCE EDWARD MITCHELL, ET AL., APPELLANTS.

Appeal from District Court, Ramsey County; Hon. Charles A. Flinn, Jr., Judge. District Court File No. C892331.

For Osborne Properties, d/b/a McCarron Hills, Respondent: John M. Koneck, Joseph G. Springer, Fredrikson & Byron, P.a., Minneapolis, Mn.

For Bruce Edward Mitchell, et al., Appellants: Thomas M. Fafinski, Thomas G. Wallrich, Fafinski & Wallrich, P.a., Minneapolis, Mn.

Considered and decided by Kalitowski, Presiding Judge, Schumacher, Judge, and Peterson, Judge.

The opinion of the court was delivered by: Schumacher

SCHUMACHER, Judge

Bruce Edward Mitchell (Mitchell) and Animal Farm, Inc. (Animal Farm) appeal the grant of summary judgment, arguing the district court erred in determining that Mitchell could not reverse pierce the corporate veil and that Mitchell was not a third-party beneficiary to Animal Farm's lease with respondent Osborne Properties, d/b/a McCarron Hills (Osborne) . We affirm.

FACTS

Mitchell, as president of Animal Farm, leased property from Osborne to be used as a pet store. Mitchell guaranteed that Animal Farm would perform all its obligations under the lease.

Animal Farm defaulted. Osborne sued Animal Farm for breach of its lease and sued Mitchell individually as guarantor. Mitchell and Animal Farm counterclaimed, alleging that Osborne breached some of the lease covenants. Osborne moved for a directed verdict, and the court granted the motion. The court also sanctioned Mitchell's and Animal Farm's attorney. Mitchell and Animal Farm appealed. This court reversed the directed verdict and the imposition of sanctions and remanded for a new trial. Osborne Properties v. Mitchell, No. C8-93-2076 (Minn. App. Feb. 28, 1994) (order op.); Osborne Properties v. Mitchell, No. C8-93-490 (Minn. App. Nov. 2, 1993).

Mitchell filed for Chapter 7 bankruptcy. The bankruptcy court approved the trustee's sale of all stock in Animal Farm to Kraus-Anderson Realty Company. After the sale was approved, Osborne dismissed its complaint, and Animal Farm dismissed its counterclaim.

Mitchell individually continued to pursue the claims against Osborne, however, contending that he was entitled to assert Animal Farm's claims either through a reverse pierce of the corporate veil or as a third-party beneficiary under the lease. The district court held that Mitchell was not entitled to assert these claims and granted summary judgment in favor of Osborne. Mitchell and Animal Farm appeal.

DECISION

On appeal from summary judgment, this court decides whether there are any genuine issues of material fact and whether the district court correctly applied the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).

1. Mitchell argues that the district court erred in failing to apply a reverse pierce theory in order to allow him to pursue the claims individually. We disagree.

In a reverse pierce, a shareholder is asking the court to ignore the corporate entity. Michael J. Gaertner, Reverse Piercing the Corporate Veil: Should Corporation Owners Have It Both Ways?, 30 Wm. & Mary L. Rev. 667, 667 (1989). To determine whether to reverse pierce, Minnesota courts look at (1) the relationship between the corporation and the shareholder, and (2) whether public policy favors ignoring the corporate entity. See Cargill, Inc. v. Hedge, 375 N.W.2d 477, 478-79 (Minn. 1985); see also Schroeder v. Gearman, 413 N.W.2d 194, 196 (Minn. App. 1987), pet. for rev. denied (Minn. Dec. 13, 1987).

Looking at the first factor, Mitchell was the sole officer, director, and shareholder of Animal Farm. Cf. Kruehnen v. Citizens Sec. Mut. Ins. Co., 330 N.W.2d 886, 886-87 (Minn. 1983) (51% stock ownership insufficient to reverse pierce corporate veil). In the usual case, this would satisfy the first factor. Id.; see also Hennings v. State Farm Fire & Casualty Co., 438 N.W.2d 680, 683-84 (Minn. App. 1989), pet. for rev. denied (Minn. June 9, 1989). Mitchell, however, filed for bankruptcy. A trustee succeeds to all causes of action held by the debtor at the time the bankruptcy petition is filed." In re Shoemaker, 155 B.R. 552, 554 (Bankr. N.D. Ala. 1992). Once a trustee is appointed, a debtor no longer has standing to sue. Hancock Bank v. Jefferson, 73 B.R. 183, 185 (Bankr. S.D. Miss. 1986). Thus, Mitchell no longer had standing to pursue suit. *fn1

Moreover, looking at the second factor, public policy and the equities do not favor a reverse pierce. In Cargill, the shareholder's right to a homestead exemption was at stake. 375 N.W.2d at 479. In Roepke v. Western Nat'l Mut. Ins., 302 N.W.2d 350, 351-52 (Minn. 1981), the ability of family members to recover no-fault benefits was at issue. Here, Mitchell did not lose a right conferred to an individual by forming a corporation.

2. Next, Mitchell argues that he was a third-party beneficiary to the lease under the "intent to benefit" test or, alternatively, that there are fact questions pertaining to the application of this test, which would preclude summary judgment. As noted above, Mitchell lost his standing to sue once the bankruptcy petition was filed. Even if he did have standing, he did not pass the "intent to benefit" test. Under this test, the contract must express some intent that the contracting parties intended to benefit the third party. Buchman Plumbing Co. v. Regents of the Univ. of Minn., 298 Minn. 328, 334-35, 215 N.W.2d 479, 483-84 (1974). It is relevant in ascertaining intent to determine to whom performance is rendered. Id. at 335, 215 N.W.2d at 484; Cretex Cos. v. Construction Leaders, Inc., 342 N.W.2d 135, 140 (Minn. 1984).

Here, the lease is between Osborne and Animal Farm. There is nothing in the lease that refers to Mitchell individually, indicates that Mitchell was to benefit under the lease, or shows that performance was to be rendered to Mitchell individually. See Wurm v. John Deere Leasing Co., 405 N.W.2d 484, 485-87 (Minn. App. 1987) (third party not identified as lessee was not beneficiary under intent to benefit test, even though third party was sole user of leased property) . Furthermore, summary judgment may be granted under the intent to benefit test where facts are not in dispute. See, e.g., Chard Realty, Inc. v. City of Shakopee, 392 N.W.2d 716, 720-21 (Minn. App. 1986), pet. for rev. denied (Minn. Nov. 19, 1986). The district court properly granted summary judgment in Osborne's favor.

Affirmed.

ROBERT H. SCHUMACHER

August 9, 1995

Opinion Footnotes

*fn1 Under the bankruptcy court's order, Mitchell retained his right to sue individually as the guarantor. Mitchell has not brought suit in this capacity.

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