Midwest Housing Lifestyles, Inc., Appellant, vs. Judy Evelyn Adams, Respondent.

Midwest Housing Lifestyles, Inc., Appellant, vs. Judy Evelyn Adams, Respondent. A04-1609, Court of Appeals Unpublished, July 26, 2005.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-1609

 

Midwest Housing Lifestyles, Inc.,
Appellant,
 
vs.
 
Judy Evelyn Adams,
Respondent.

 

Filed July 26, 2005

Reversed and remanded

Peterson, Judge

 

Hennepin County District Court

File No. CT03-005191

 

John R. Koch, Reichert, Wenner, Koch & Provinzino, P.A., 501 West St. Germain Street, P.O. Box 1556, St. Cloud, MN  56302 (for appellant)

 

Judy Evelyn Adams, P.O. Box 582694, Minneapolis, MN  55458  (pro se respondent)

 

            Considered and decided by Peterson, Presiding Judge; Kalitowski, Judge; and Wright, Judge.

U N P U B L I S H E D   O P I N I O N

PETERSON, Judge

In this appeal from a judgment, appellant corporation argues that the district court erred by implicitly concluding that a director of the corporation had authority to convey real estate owned by the corporation.  We reverse and remand. 

FACTS

            Neil A. Lewis owned a home located at 3633 Newton Avenue North in Minneapolis.  After Lewis's creditors foreclosed their liens against the home and the home was sold to satisfy the liens, appellant Midwest Housing Lifestyles, Inc. (Midwest) redeemed the property.  The district court found that "Lewis intended to avoid his creditors by re-purchasing 3633 Newton Ave. N. through Midwest."

            Midwest was incorporated on October 17, 1996.  The articles of incorporation were signed by Lori A. Rollenhagen as incorporator and named Rollenhagen as the registered agent.  An October 18, 1996 application to open a commercial bank account for Midwest lists Neil A. Lewis as the sole signer on the account and identifies Lewis as secretary/treasurer of Midwest.  The application was signed by Rollenhagen, and a blank on the form that asks for "Principal Name" was filled in with Rollenhagen's name.  An October 21, 1996 resolution of the Midwest board of directors granted Lewis sole authority to sign checks and promissory notes for Midwest and to pledge, assign, or mortgage any assets of the corporation as security for payment of corporate obligations.  This resolution was signed by Lewis as secretary/treasurer and was also signed by Rollenhagen. 

            Respondent Judy Evelyn Adams owns a company that rehabilitates houses.  On October 31, 2000, Adams entered into a purchase agreement with Midwest for a house located in Minneapolis at 4310 Fremont Avenue North.  The purchase agreement names Midwest as seller and is signed by Lewis, as president.  The settlement statement prepared for the January 30, 2001 closing on this property identifies Midwest as the seller and Adams as the borrower and indicates that the purchase price was paid using the proceeds of a first-mortgage loan from Mortgages West, Inc. and by Adams giving a second mortgage on the property to Midwest.  The settlement statement and an addendum to the settlement statement were both signed by Adams and by Lewis, as president of Midwest.  The warranty deed transferring the property from Midwest to Adams was signed by Lewis, as president of Midwest.  A residential mortgage granting Midwest a mortgage on the property was signed by Adams. 

On May 8, 2001, Adams entered into a purchase agreement with Midwest for the house at 3633 Newton Avenue North that Midwest had redeemed following foreclosure.  The purchase agreement names Midwest as seller and is signed by Lewis, as president of Midwest.  The purchase agreement calls for a June 10, 2001 closing date, but the closing did not occur.  On March 18, 2002, Adams commenced two conciliation court actions against Midwest.  In the first action, Adams claimed that in order to prevent imminent tax forfeiture, she had paid $8,378.61 for back taxes on the Newton Avenue property and that the $8,378.61 was supposed to be repaid to her at closing, but the closing did not occur because the property was in Lewis's name, and outstanding judgments against him remained unpaid.  Adams reduced her $8,378.61 claim to the $7,500 jurisdictional limit for conciliation court.  In the second action, Adams claimed that after entering into a purchase agreement to buy the Newton Avenue property in July 2001, she took immediate possession and began cleaning and repairing the house.  Adams claimed that the seller later refused to close because past judgments from when the property was in the president's personal name would have to be paid at closing.  Adams claimed $10,820 for labor and supplies, but reduced her claim to the $7,500 jurisdictional limit for conciliation court.

Upon learning from the Minnesota Secretary of State's office that she was required to serve the conciliation court papers on Midwest's registered agent and that Rollenhagen was the registered agent, Adams served Rollenhagen.  Following service, Adams met with Rollenhagen during April 2002, and they reached a settlement.  Under the settlement, Midwest conveyed its interests in the Newton Avenue property and in property in Stearns County to Adams by quitclaim deeds.  Rollenhagen signed both quitclaim deeds as president of Midwest.  Rollenhagen also gave Adams a satisfaction of mortgage for the mortgage on the Fremont Avenue property that Adams had granted to Midwest when purchasing the property.  Rollenhagen signed the satisfaction as president of Midwest. 

Midwest brought an action against Adams, claiming that Rollenhagen did not have authority to sign deeds for Midwest and that Rollenhagen had not received authorization to sign the quitclaim deed purporting to convey the Newton Avenue property.  Midwest's complaint alleged that Adams "induced Lori Rollenhagen to believe that she was an officer of [Midwest] with authority to sign a deed, and further conspired with her to pay her a sum of money to gain her assistance."  The complaint sought money damages and requested that the deed for the Newton Avenue property be surrendered and cancelled and that Adams be adjudged to have no right, title, or interest in the Newton Avenue property. 

The case went to trial, and when Midwest completed presenting its case, Adams made an oral motion for a directed verdict.  The district court granted the motion.  In a written order, the district court made findings of fact and conclusions of law and ordered that judgment be entered against Midwest in favor of Adams.  Judgment was entered, and this appeal followed.

D E C I S I O N

            We begin our analysis by noting that because the district court heard this case without a jury, the proper motion for Adams to make after Midwest completed presenting its case was a motion for dismissal under Minn. R. Civ. P. 41.02(b), rather than a motion for a directed verdict.  Fidelity Bank & Trust Co. v. Fitzimons, 261 N.W.2d 586, 587 n.1 (Minn. 1977).  Minn. R. Civ. P. 41.02(b) states:

            After the plaintiff has completed the presentation of evidence, the defendant, without waiving the right to offer evidence in the event the motion is not granted, may move for a dismissal on the ground that upon the facts and the law, the plaintiff has shown no right to relief.  In an action tried by the court without a jury, the court as trier of the fact may then determine the facts and render judgment against the plaintiff or may decline to render any judgment until the close of all the evidence.  If the court renders judgment on the merits against the plaintiff, the court shall make findings as provided in Rule 52.01.

 

            The district court determined the facts and made findings as provided in rule 52.01.  Also, it is apparent from the district court's order that the district court determined that judgment should be entered against Midwest in favor of Adams because, based on the facts and the law, Midwest did not show any right to relief.  Therefore, although Adams referred to her motion as a motion for directed verdict, we will treat the motion as a motion for dismissal under rule 41.02(b) and the judgment in favor of Adams as a judgment of dismissal.

            On appeal from a judgment when there has been no motion for a new trial, appellate review is generally limited to "whether the evidence sustains the findings of fact and whether such findings sustain the conclusions of law and the judgment."  Gruenhagen v. Larson, 310 Minn. 454, 458, 246 N.W.2d 565, 569 (1976).  But a motion for a new trial is not a prerequisite for appellate review of a substantive question of law that was previously considered and addressed by the district court.  Alpha Real Estate Co. v. Delta Dental Plan of Minn., 664 N.W.2d 303, 308-11 (Minn. 2003).  "Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses."  Minn. R. Civ. P. 52.01.  "Findings of fact are clearly erroneous only if the reviewing court is left with the definite and firm conviction that a mistake has been made."  Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999) (quotation omitted).  In applying Minn. R. Civ. P. 52.01, "we view the record in the light most favorable to the judgment of the district court."  Rogers v. Moore, 603 N.W.2d 650, 656 (Minn. 1999).  "If there is reasonable evidence to support the district court's findings, we will not disturb them."  Id.  "A reviewing court is not bound by and need not give deference to a district court's decision on a purely legal issue."  Goeb v. Tharaldson, 615 N.W.2d 800, 817 (Minn. 2000).

            At trial, Midwest claimed that Rollenhagen had no authority to transfer Midwest's property to Adams in April 2002 because Lewis was the president and sole owner of Midwest.  Lewis testified that, in December 2001, all of the corporate documents were lost or stolen that showed that he was elected president of Midwest, that he was issued 100,000 shares in the corporation, and that he was the sole owner of the corporation.  Lewis also testified that he filed a police report about the theft, but Midwest did not offer a police report as evidence.  Between the alleged theft of the corporate documents in December 2001 and December 23, 2003, Lewis did not file any information with the Secretary of State regarding his position with Midwest.  The only annual registration for the corporation that Midwest offered as evidence was one that Lewis filed on December 23, 2003, after Rollenhagen transferred property to Adams. 

            The district court concluded that "Lewis failed to prove that it was more likely than not that his statements that an election had occurred, that he had been elected the President of Midwest or that shares had been issued to him were true" and that Lewis "failed to present any evidence or documentation to support his bare assertion that he was President of Midwest in April of 2002."  These conclusions imply that the district court did not find credible Lewis's testimony that he had been formally elected president of Midwest.  We must give due regard to the district court's credibility determinations.  But the conclusion that Lewis failed to prove that he had been elected president of Midwest in April 2002 is not sufficient to support the further conclusion that Midwest did not show any right to relief.

The district court's conclusion that Midwest did not show any right to relief is based on the principle that the acts of a corporation are presumed to be valid, and the burden of showing that an act should be voided is on the complaining party.  Equitable Holding Co. v. Equitable Bldg. & Loan Ass'n, 200 Minn. 529, 535, 279 N.W. 736, 740 (1938).  Citing Minn. Stat. § 302 A. 171, subd. 1 (2004), the district court concluded that "[a]s the incorporator, Lori Rollenhagen had all of the power of a director to act on behalf of the corporation in April of 2002."  Under Minn. Stat. § 302 A. 171, subd. 1, "[i]f the first board is not named in the articles, the incorporators may elect the first board or may act as directors with all of the powers, rights, duties, and liabilities of directors, until directors are elected or until shares are issued, whichever occurs first."  The Midwest articles of incorporation filed in October 1996 do not name a board of directors.  Therefore, the record supports the district court's conclusion that Rollenhagen had the power of a director in April 2002.  But having the power of a director does not mean that Rollenhagen had authority to transfer Midwest's property in April 2002.

            Under the Minnesota Business Corporation Act,[1] there can be circumstances under which a person who has not formally been made the chief executive officer (CEO) of a corporation nevertheless acquires the authority of the CEO.

            In the absence of an election or appointment of officers by the board, the person or persons exercising the principal functions of the chief executive officer or the chief financial officer are deemed to have been elected to those offices, except for the purpose of determining the location of the principal executive office, which in that case is the registered office of the corporation.

 

Minn. Stat. § 302 A. 321 (2004).

            Unless a corporation's articles, bylaws, or a board resolution provide otherwise, the principal functions of the CEO are that the CEO shall

(a) have general active management of the business of the corporation;

(b) when present, preside at all meetings of the board and of the shareholders;

(c) see that all orders and resolutions of the board are carried into effect;

(d) sign and deliver in the name of the corporation any deeds, mortgages, bonds, contracts or other instruments pertaining to the business of the corporation, except in cases in which the authority to sign and deliver is required by law to be exercised by another person or is expressly delegated by the articles or bylaws or by the board to some other officer or agent of the corporation;

(e) maintain records of and whenever necessary, certify all proceedings of the board and the shareholders; and

(f) perform other duties prescribed by the board.

 

Minn. Stat. § 302 A. 305, subds. 1 - 2 (2004) (emphasis added).

To rebut the presumption that Rollenhagen's conveyance of the Newton Avenue property to Adams was a valid corporate act, Midwest presented evidence that before April 2002, Lewis exercised a principal function of the CEO of Midwest when he signed and delivered deeds in the name of the corporation.  Because he exercised a principal function of the Midwest CEO, Lewis could be deemed the Midwest CEO under Minn. Stat. § 302 A. 321 if the Midwest board had not elected or appointed a CEO.    

 The district court concluded that Minn. Stat. § 302 A. 321 applies only to the positions of CEO and chief financial officer and that because Lewis failed to produce any corporate documents, share certificates, tax returns, or an application for a tax identification number, Lewis could not demonstrate that he was acting as the CEO of Midwest by simply telling Adams that he was the president.  But the Business Corporation Act provides that "[a] corporation shall have one or more natural persons exercising the functions of the offices, however designated, of chief executive officer and chief financial officer."  Minn. Stat. § 302 A. 301 (2004) (emphasis added).  Calling a person who exercises the functions of CEO the president of the corporation does not mean that the person is not the CEO of the corporation.  Unless the board of directors has elected or appointed a CEO, the person exercising the principal functions of the CEO, however designated, is deemed to have been elected CEO.  The record does not include any evidence that as a director, Rollenhagen elected or appointed a CEO before April 2002 or that anyone other than Lewis exercised a principal function of the Midwest CEO before April 2002.  Therefore, the district court's conclusion that Midwest did not present any documentation to support the assertion that Lewis was president of Midwest in April 2002 is incorrect.  The deeds signed by Lewis, as president of Midwest, are documents that support this assertion.

The district court also erred in concluding that Midwest's suit does not meet the requirements for a proceeding to establish a lack of corporate power.  The principle that the acts of a corporation are presumed to be valid and the burden of showing that an act should be voided is on the complaining party is reflected in Minn. Stat. § 302 A. 165 (2004), which states:

            The doing, continuing, or performing by a corporation of an act, or an executed or wholly or partially executory contract, conveyance or transfer to or by the corporation, if otherwise lawful, is not invalid because the corporation was without the power to do, continue, or perform the act, contract, conveyance, or transfer, unless the lack of power is established in a court in this state:

            (a) In a proceeding by a shareholder against the corporation to enjoin the doing, continuing, or performing of the act, contract, conveyance, or transfer. . . .

            (b) In a proceeding by or in the name of the corporation, whether acting directly or through a legal representative, or through shareholders in a representative or derivative suit, against the incumbent or former officers or directors of the corporation for exceeding or otherwise violating their authority, or against a person having actual knowledge of the lack of power; or

            (c) In a proceeding by the attorney general, as provided in section 302 A. 757, to dissolve the corporation, or in a proceeding by the attorney general to enjoin the corporation from the transaction of unauthorized business.

 

(Emphasis added.) 

            The district court acknowledged section 302 A. 165 in its order, but it concluded that because Midwest's suit is not a suit by a shareholder for injunctive relief, a suit against officers or directors, or a suit by the attorney general, it is not one of the permitted proceedings for establishing a lack of corporate power.  The district court failed to recognize that under section 302A.165(b), a lack of corporate power may be established in a proceeding against a person having actual knowledge of the lack of power.

            In its complaint, Midwest alleged that Adams "misrepresented and induced Lori Rollenhagen to believe that she was an officer of [Midwest] with authority to sign a deed."  At trial, Midwest introduced evidence that before entering into the purchase agreement for the Newton Avenue property, Adams purchased the Fremont Avenue property from Midwest and received a deed signed by Lewis, as president of Midwest.  In reliance on this deed, Adams mortgaged the real estate to a third-party mortgage lender.  Also, Adams testified that from the time she met Lewis, he always represented to her that he was the president of Midwest, and the district court found that in dealings with Adams before April 2002, Lewis held himself out to Adams as the president of Midwest.  This evidence and the district court's finding could support a conclusion that Adams had actual knowledge that in April 2002, Rollenhagen lacked the power to sign deeds as president of Midwest, which would make Midwest's action to invalidate Rollenhagen's conveyance of real estate to Adams a proceeding in the name of the corporation against a person having actual knowledge of Rollenhagen's lack of power to convey Midwest's real estate.

            Because the district court's findings do not support the judgment against Midwest in favor of Adams, we reverse and remand.  Because we have treated Adams's motion for a directed verdict as a motion for dismissal under Minn. R. Civ. P. 41.02(b), Adams has not waived her right to offer evidence.

            Reversed and remanded.

[1] Minn. Stat. ch. 302A is the "Minnesota Business Corporation Act."  Minn. Stat. § 302 A. 001 (2004).