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Jerry's Enterprises, Inc. v. Larkin

January 24, 2005


Hennepin County District Court, File No. 02-7377.

Considered and decided by Willis, Presiding Judge; Halbrooks, Judge, and Hudson, Judge.


1. While an attorney is not liable for an error of judgment or mistake in a point of unsettled law, the attorney must exercise legal judgment in some way to be so protected. Therefore, an attorney may be liable to a client for damage caused by the attorney's failure to exercise any legal judgment in giving advice about an unsettled area of law.

2. When a district court admits testimony about continuing-legal-education seminar materials, district court opinions, and opinions from foreign jurisdictions for the purpose of establishing the appropriate standard of care in a legal-malpractice case, refusing to admit testimony regarding unpublished decisions of the Minnesota Court of Appeals offered for the same purpose is an abuse of discretion.

The opinion of the court was delivered by: Willis, Judge

Reversed and remanded


Appellant challenges the district court's order granting respondents' motion for a directed verdict on appellant's legal-malpractice claim. Because we conclude that the district court erred by granting the motion, we reverse and remand.


Appellant Jerry's Enterprises, Inc. (Jerry's) owns and operates grocery stores. Respondents are law firm Larkin, Hoffman, Daly & Lindgren, Ltd., which began representing Jerry's in 1987; attorney Tim Stoltman, Jerry's primary contact at the law firm; and attorney Gary Renneke, a Larkin, Hoffman attorney who represented Jerry's at the closing of the property at issue here (hereafter collectively referred to as Larkin, Hoffman). This case arises from Larkin, Hoffman's representation of Jerry's from 1993 to 2001, when it assisted Jerry's in acquiring certain property in Woodbury.

William Bruggeman and Eugene Zugschwert, as trustee for The Builders Wholesale, Inc. Profit Sharing Trust, (hereafter together referred to as Bruggeman), owned a parcel of the Woodbury property. Jerry's, represented by Stoltman, negotiated an option agreement for the purchase by Jerry's of the Bruggeman parcel. At Bruggeman's insistence, the final option agreement gave Bruggeman the right to repurchase the parcel if Jerry's failed to develop the parcel within two years after exercising its purchase option.*fn1 Stoltman drafted the option agreement, but before adding the repurchase provision, he advised Jerry's in writing that, strategically, Jerry's should not close on the purchase of the property until it had a commitment for construction of its intended development and all necessary approvals. He explained that the two-year period for development of the parcel "provides you a safety net in the event a market study or some other reason comes up which prevents commencement of construction immediately after closing."

Jerry's originally intended to build a Cub Foods store on the Bruggeman parcel, but its plans changed before it exercised the purchase option. Jerry's told Stoltman that its new plan was to purchase the property, subdivide it, and develop it for resale.

Although Stoltman's notes shortly after the option agreement was signed indicate that he recognized that he should request the elimination of the repurchase provision, he did not discuss eliminating the provision either with Jerry's or with Bruggeman. And the repurchase provision was never eliminated.

The closing documents, which were drafted by Bruggeman's counsel, did not mention the option agreement or its repurchase provision. Stoltman testified that when he reviewed the closing documents, he did not consider whether the repurchase provision in the option agreement would survive closing. He also testified that he did not warn Jerry's that the repurchase provision possibly created a cloud on the title that Jerry's received because he did not believe that such a possibility existed.

Jerry's exercised its purchase option, and its purchase of the Bruggeman parcel for $2.4 million closed on August 10, 1995. Jerry's was represented at closing by Stoltman's colleague, Gary Renneke, because Stoltman was unavailable. Renneke testified that he noticed that the repurchase provision was not mentioned in the closing documents but that he did not form an opinion regarding whether the repurchase provision merged*fn2 into the deeds at closing and did not discuss with any representative of Jerry's whether the repurchase provision survived the closing.

During the two years after Jerry's exercised its purchase option, Jerry's began improving the property by grading and doing utility-installation work. Jerry's received no advice from Larkin, Hoffman about the nature of the development necessary to avoid the repurchase provision if that provision survived the closing. On August 13, 1997, Jerry's president, Robert Shadduck, received notice that Bruggeman was exercising its right under the repurchase provision. Stoltman advised Shadduck, in writing, that the response to the notice should be (1) that the repurchase provision merged into the deeds that were delivered to Jerry's at closing, and neither deed mentioned the repurchase provision as a "permitted encumbrance"; (2) that the sellers failed to indicate in the closing documents that they intended to retain the repurchase provision; and (3) that Jerry's has avoided the repurchase provision by commencing the construction of improvements in the form of grading and utility-installation work. On August 22, Stoltman wrote such a letter on behalf of Jerry's, rejecting Bruggeman's repurchase attempt. Stoltman testified that he did not research the merger issue before advising Shadduck or before writing the letter.

Bruggeman then sued Jerry's, seeking specific performance of the repurchase provision. Because Larkin, Hoffman had not informed the title insurer of the existence of the repurchase provision in the purchase-option agreement, the title insurer rejected the tender of the defense of Bruggeman's claim. Jerry's hired Larkin, Hoffman to defend it in the suit, and Larkin, Hoffman researched for the first time the issue of whether the repurchase provision survived the closing.

The district court granted summary judgment to Jerry's. This court reversed. See Bruggeman, 591 N.W.2d at 706 (Minn. 1999). The Minnesota Supreme Court affirmed the court of appeals and remanded the case to the district court for further proceedings. Id. at 711. The supreme court acknowledged that it had "not squarely addressed, until now, whether agreements to perform acts subsequent to closing are governed by the merger doctrine." Id. at 709. The supreme court held "that the presumption of merger does not apply to this repurchase option agreement which could not, by its very nature, be performed prior to closing." Id. at 710. The court went on to explain that "no presumption of merger exists to bar respondents, as a matter of law, from asserting their contract claims. It will be the task of the district court on remand to evaluate the parties' competing claims and determine whether appellant owes respondents a contractual duty to re-convey the property." Id. at 711.

In November 2000, the district court entered judgment for Bruggeman. The parties subsequently entered into a settlement agreement that required Jerry's to pay Bruggeman $4.2 million for a quitclaim deed transferring all of Bruggeman's right, title, and interest in the parcel to Jerry's. There was evidence in the district court in the case now on appeal ...

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