Steffen v. Northway Res. Dev., LLC

581 F.Supp.3d 1138

Dr. Eric STEFFEN, Plaintiff/Counterdefendant,

v.NORTHWAY RESOURCE DEVELOPMENT, LLC, Defendant/Counterclaimant.

Case No. 20-CV-2281 (PJS/JFD)

United States District Court, D. Minnesota.

Signed January 26, 2022

Joseph M. Windler and Christina Rieck Loukas, WINTHROP & WEINSTINE, P.A., for plaintiff/counterdefendant.

Todd Wind and Pari I. McGarraugh, FREDRIKSON & BYRON, P.A., for defendant/counterclaimant.

ORDER

Patrick J. Schiltz, United States District Judge

Defendant Northway Resource Development, LLC ("Northway"), is a real-estate holding company, one of four companies associated with an ophthalmology practice. Plaintiff Dr. Eric Steffen is a physician, a former employee of the practice, and a former member of Northway. Steffen left the practice in 2018. The parting was acrimonious, and Steffen and his former colleagues have been involved in continuing litigation—both before a Minnesota state court, see ECF No. 12 at 14 ¶ 10, and before this Court—over all manner of issues stemming from Steffen's departure.

Some of the issues in dispute—the ones that are the subject of this lawsuit—relate to Northway's buyback of Steffen's membership interest in the company. The parties agree that Northway has properly exercised its right to buy back Steffen's membership interest, see id. at 13 ¶ 6, but the parties disagree about how to assess the value of that interest. The parties’ disagreement centers on three issues: First, the parties disagree about the "valuation date"—that is, as of which date the value of Steffen's membership interest should be assessed. Second, the parties disagree about the "effective date"—that is, the date on which the transfer of Steffen's membership interest will be effective. And third, the parties disagree about whether Northway has breached a contract and thereby forfeited its appraisal rights.

Both Steffen and Northway have moved for summary judgment. For the reasons that follow, the Court agrees with Steffen regarding the effective date and finds that genuine disputes of material fact preclude summary judgment regarding the valuation date and the forfeiture issue.

I. BACKGROUND

As noted, Northway is a real-estate holding company affiliated with a professional ophthalmology practice. ECF No. 12 at 12 ¶¶ 2, 3.¹ The other companies affiliated with the practice are St. Paul Eye Clinic, P.A. (the "Eye Clinic"), St. Paul Opticians, Inc. ("Opticians"), and Eye Surgery Associates, Inc. ("Eye Surgery"). Id. at 12 ¶ 3. Northway holds a 50% interest in a building in Woodbury, Minnesota (the "Woodlake building"), in which the Eye Clinic has its primary offices. Id. at 12 ¶ 2. Northway previously held a 79.2% interest in Beam Building Associates, which owned the Beam Professional Building in Maplewood, Minnesota (the "Beam building"). Beam Building Associates sold the Beam building in December 2018, id. , and Northway received about $4.73 million in net proceeds from the sale, ECF No. 37 at 2.

Steffen was employed by the practice from 2004 to 2008. Id. at 13 ¶ 4. Effective January 1, 2008, Steffen became a member of the practice by purchasing shares in the Eye Clinic and Eye Surgery and membership units in Northway. Id. In 2013, when Opticians spun off from the Eye Clinic into its own entity, Steffen became a shareholder in Opticians. Id. As part of his buy-in to the practice, Steffen executed Stock Sale and Redemption Agreements (the "Redemption Agreements") for the Eye Clinic and Eye Surgery and a Membership Unit Sale Agreement for Northway. Id. at 13 ¶ 5. By signing the Membership Unit Sale Agreement, Steffen entered into and became a party to Northway's Member Control Agreement ("MCA"). Id. ; ECF No. 36-1 at 4.

In roughly April 2018, Steffen gave notice that he intended to resign his employment with the Eye Clinic. ECF No. 12 at 14 ¶ 8. He saw patients through June 8, 2018, and then ended his employment on August 5, 2018. Id. Under the MCA, a Northway member's termination of employment with the Eye Clinic is an "Option Event" that triggers procedures for Northway to buy back that member's interest. See ECF No. 5-1 at 4, 13. Northway exercised its repurchase option on September 4, 2018. ECF No. 12 at 13 ¶ 6. One of the things triggered by Northway's exercise of its repurchase option was a process to determine the value of Steffen's membership interest. ECF No. 5-1 at 13.

The valuation process described in the MCA is as follows: If the parties agree on a purchase price, then the process ends. Id. If the parties do not agree, then they try to agree on a mutually acceptable appraiser to determine the value of the interest. Id. If the parties cannot agree on an appraiser, then they each select an independent appraiser, and each conducts an appraisal. Id. If the two appraisals are sufficiently close, then the average of the two appraisals becomes the purchase price; if not, then the two appraisers pick a third appraiser to do another appraisal. Id. The average of the two closest appraisals then becomes the purchase price. Id.

As noted, the parties dispute three issues relating to the valuation of Steffen's membership interest. The first dispute concerns the valuation date. The MCA calls for the value of Steffen's membership interest to be appraised, but the MCA does not identify as of which date. Steffen argues that his interest should be valued as of August 5, 2018, the date of his termination from the practice. ECF No. 41 at 5. Northway disagrees, arguing that Steffen's interest should be valued as of December 31, 2018. ECF No. 30 at 13.

The reason the valuation date matters is that, on August 5, 2018, Beam Building Associates still owned the Beam building, but by December 31, 2018, it had sold the building. Steffen believes that Beam Building Associates—and, consequently, Northway—got a bad deal; specifically, Steffen complains that, in connection with the sale of the Beam building, Northway "prepaid rent that was not its obligation, paid for future tenant improvements that were not its obligation, made lump-sum payments on another buy-out and loan rather than making those payments over time, and otherwise deducted dollar amounts out of the purchase price." ECF No. 41 at 4. Thus, Steffen believes that his membership interest was worth more on August 5, 2018 (before Northway got a bad deal for the Beam building), than on December 31, 2018 (after Northway got a bad deal for the Beam building). Id. at 4–5; see also ECF No. 6 at 4 ¶ 24.

The parties’ second dispute concerns the date on which the transfer of Steffen's membership interest will be effective. Steffen says that, under the MCA, the effective date of the transfer is the date of closing. ECF No. 41 at 9. But Northway contends that, based on historical practice, the effective date occurs prior to the closing of the transaction, "generally coinciding with the year-end valuation date or the end of the member's [Eye Clinic] employment." ECF No. 30 at 11. The reason why this matters is complicated; basically, each party fears negative financial consequences if the other party is correct about the effective date.²

The parties’ third and final dispute relates to whether Northway has breached the MCA and, if so, whether Northway has thereby forfeited its appraisal rights. Steffen asks the Court to find Northway in breach of the MCA because it has neither completed an independent appraisal nor repurchased his interest within what he says are the MCA's required time frames. ECF No. 41 at 9–12. According to Steffen, because Northway "has refused to appoint an independent appraiser," Northway has "forfeited its right to conduct such an appraisal." ECF No. 5 at 6–7 ¶ 36. Thus, says Steffen, his membership interest must be "valued by using the valuation completed by his independent appraiser." ECF No. 41 at 18. Northway disagrees, arguing that, until the dispute over the valuation date is resolved, Northway cannot hire an appraiser, because it cannot tell an appraiser what he or she is supposed to appraise. See ECF No. 30 at 18.

Each party now moves for summary judgment.

II. ANALYSIS

A. Legal Framework

1. Standard of Review

Summary judgment is warranted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A dispute over a fact is "material" only if its resolution might affect the outcome of the lawsuit under the governing substantive law. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute over a fact is "genuine" only if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. "The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [its] favor." Id. at 255, 106 S.Ct. 2505.

2. Minnesota Law on Interpreting Contracts

In Minnesota, "the primary goal of contract interpretation is to determine and enforce the intent of the parties." Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc. , 666 N.W.2d 320, 323 (Minn. 2003). If "the parties express their intent in unambiguous words," then a court must give the words "their plain and ordinary meaning" in accordance with the contract's obvious overall purpose. Id. at 323–24.

Both determining whether a contract is ambiguous and interpreting an unambiguous contract are issues of law for the court. Staffing Specifix, Inc. v. TempWorks Mgmt. Servs., Inc. , 913 N.W.2d 687, 692 (Minn. 2018). A contract term is ambiguous if it is "susceptible to more than one reasonable interpretation." Id. Once a court determines that a term is ambiguous, the court may admit extrinsic evidence of the parties’ intent. Id. At that point, however, the interpretation of the ambiguous term typically "becomes a question of fact for the jury." Id.

Minnesota has also adopted the following canon of interpretation, which is relevant in this case:

[I]nstruments executed at the same time, for the same purpose,

...