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Alpha Real Estate Comapny of Rochester v. Delta Dental Plan of Minnesota

July 3, 2003

ALPHA REAL ESTATE COMPANY OF ROCHESTER, PETITIONER, APPELLANT,
v.
DELTA DENTAL PLAN OF MINNESOTA, ET AL., RESPONDENTS.



SYLLABUS BY THE COURT

1) Motions for a new trial pursuant to Minn. R. Civ. P. 59.01, while permissive, are not a prerequisite for appellate review of a substantive question of law that was properly raised and decided in the district court.

2) When a written agreement contains the entire agreement by the parties and is unambiguous, it is error for the district court to engage in a practical construction of the agreement based on the conduct of the parties or to use extrinsic evidence to modify or reform the plain language of the agreement.

3) Reformation of a written agreement because of either mutual mistake or scrivener's error is inappropriate when based solely on the parties' failure to negotiate a change from an earlier agreement.

4) Absent ambiguity, fraud, or misrepresentation, a mistake of only one party as to the subject matter of the contract is not grounds for reformation of a written agreement.

Reversed in part, affirmed in part and remanded.

Heard, considered, and decided by the court en banc.

The opinion of the court was delivered by: Gilbert, Justice.

OPINION

This case involves interpretation of a lease entered into by appellant, Alpha Real Estate Company of Rochester, LLC, and respondent, Sui Generis Development Company. We must also determine the proper scope of review to apply to questions of law raised at the district court, where there was no motion for new trial pursuant to Minn. R. Civ. P. 59.01.

In 1995, Alpha Real Estate of Rochester, LLC (Alpha) entered into an agreement (1995 agreement) with respondent, Delta Dental Plan of Minnesota (Delta), providing that Alpha would lease a dental clinic from Delta's nominee, SuiáGeneris Development Company (SuiáGeneris). The 1995 agreement contains an additional rent clause stating that during the first 10 years of the lease Alpha would pay "five percent of adjusted cash receipts" in any year that cash receipts exceeded $1 million, and an option to purchase clause. In the event of purchase, the 1995 agreement provides that the five percentárental formula "shall continue for the remainder of the 10 year period." Sui Generis and Alpha subsequently entered into a lease with an option to purchase clause. The lease also contains a similar five percent additional rent clause, but does not provide that the five percentáadditional rent clause continues for the remainder of the 10-year period or survives the closing of the option. Subsequently, Alpha attempted to exercise the lease's option to purchase the property. Sui Generis refused to honor the option unless Alpha continued to pay the five percent additional rent after closing the option. Alpha then brought this action against Delta and Sui Generis seeking specific performance of the lease's option to purchase. Alpha also claimed that the five percent additional rent clause violates federal and state law. The district court determined that the 1995 agreement and the lease must be construed together and, therefore, the five percentáadditional rent clause survives the closing of the option. The court also concluded that the five percent additional rent clause does not violate federal or state law. Using a narrow scope of review on the alleged error of law, the court of appeals affirmed. We reverse in part, affirm in part and remand to the court of appeals.

Delta Dental Plan of Minnesota is a Minnesota non-profit health-service-plan corporation that sells and administers dental benefit plans to businesses, governmental units, and labor unions. In early 1995, Michael Walsh, the President of Delta, approached Dr. Ted Erickson, a dentist from Faribault, to discuss opening a dental clinic in Rochester. Walsh proposed that Delta would purchase property in Rochester and build a dental clinic on the property. Erickson would then lease the property and provide dental services on a preferred basis to Delta clients. Delta's purpose in approaching Erickson was to address a lack of Delta providers in the Rochester area and to expand its provider network for its Delta Care product. Delta specifically needed a dental clinic in Rochester to service its IBM clients.

Negotiations between Erickson and Delta culminated in the execution of the 1995 agreement, dated August 4, 1995. The parties to the 1995 agreement are Alpha and Delta. Alpha was formed by Erickson and three other dentists from Faribault solely to lease the property. To operate the dental clinic, Erickson and the three dentists formed Apollo Dental Center, PLC (Apollo). Effective January 1, 1996, Apollo sub-leased the property from Alpha. Apollo is not a party to this action.

The 1995 agreement provides that Delta's nominee, Sui Generis, will purchase real estate in Rochester, construct a dental clinic on the property, and purchase equipment to furnish the clinic. In return, Alpha would lease the property from Sui Generis over a 20-year term and provide dental care on a preferred basis to persons covered under dental programs sold or serviced by Delta. Under the terms of the 1995 agreement, the monthly lease payments consist of Sui Generis' principal and interest loan payments plus a nominal administrative fee. In addition, the 1995 agreement contains a five percent additional rent clause:

If in any one calendar year during the first ten years of the Lease (1996-2005) the adjusted cash receipts exceed $1 million, [Alpha] shall pay to SuiáGeneris additional rent for that particular year a sum equal to five percent of adjusted cash receipts.

Adjusted cash receipts are defined as "total cash receipts from patient service revenue."*fn1 The 1995 agreement states that the purpose of the five percent additional rent is to reimburse Delta for the risk it assumed under the 1995 agreement, and "as a partial contribution to defraying Delta's cost of marketing products in the Rochester area so as to provide a satisfactory volume of patients for the Rochester, Minnesota clinic." Under the 1995 agreement Alpha has the option of purchasing the property. Alpha's right to exercise the option is contingent upon the execution of an agreement satisfactory to Delta "which provides for the continued servicing of Delta and its affiliates' patients on a preferred basis and the continued payment of the five percent rental surcharge."

Pursuant to the 1995 agreement, Sui Generis purchased property in Rochester and began construction on the dental clinic. In the fall of 1995, Sui Generis as landlord and Alpha as tenant executed a lease (1995 lease). The monthly lease payments under the 1995 lease are classified as "Basic Rent" and consist of the actual principal and interest payments for the financing obtained by Sui Generis for the cost of the property and improvements. The 1995 lease ...


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