## Facts

- Terry Hartmann was a commercial real estate developer who operated through TLH Properties, LLC (TLH).
- In 1993, Jerry Smith, a part owner of land in Zimmerman, Minnesota, approached Hartmann about developing the land into a commercial site.
- Smith and Hartmann discussed a joint venture in which Smith would join TLH and contribute the land, while Hartmann would manage development.
- Tom Thumb Food Markets, Inc. (Tom Thumb) became interested in operating a store on the site.
- Hartmann made statements that led Tom Thumb to believe Hartmann had acquired the land; in a March 18, 1993 letter, Hartmann wrote that he had the land purchased and was pursuing rezoning and permits.
- At that time, Hartmann had not purchased the land; he was proceeding under an oral arrangement with Smith that contemplated an option to purchase.
- On December 4, 1995, Tom Thumb and TLH executed a written lease agreement under which TLH (as landlord) agreed to construct a building for Tom Thumb’s use.
- The lease required TLH to deliver possession of the premises to Tom Thumb on or before May 31, 1996, and set a 12-year term with renewal options.
- Hartmann sought construction financing from a bank; the bank requested financial information from Tom Thumb as part of the loan process.
- Tom Thumb did not immediately provide the requested financial information; once it did, the bank declined the loan after reviewing Tom Thumb’s financial condition.
- The development did not proceed, TLH did not deliver the premises, and Smith withdrew from the plan; the land was sold to another company.
- Tom Thumb sued TLH and Hartmann in district court for breach of contract and fraud; during the bench trial, Tom Thumb moved to amend its complaint to add a veil-piercing theory to impose personal liability on Hartmann, and the court allowed the amendment.
- The district court found the lease was not contingent on financing, found a breach of the lease, awarded Tom Thumb lost-profit damages for the 12-year lease term (present value about $492,000), and pierced TLH’s veil to hold Hartmann personally liable.
- TLH and Hartmann appealed.

## Issues

1. Whether the evidence supported the finding that the lease was not contingent on TLH’s obtaining construction financing, such that TLH’s failure to build and deliver the premises constituted a breach.
2. Whether the evidence supported an award of lost profits for the 12-year lease term as damages for breach of the lease.
3. Whether the record supported piercing the veil of TLH (an LLC) to impose personal liability on Hartmann based on the required showing of injustice or fundamental unfairness.

## Decision

- The Minnesota Court of Appeals affirmed the district court’s determination that the lease was not contingent on financing and that TLH breached by failing to construct and deliver the premises.
- The court affirmed the award of lost-profit damages to Tom Thumb for the lease term.
- The court reversed the veil-piercing ruling, holding the record did not support a finding of injustice sufficient to disregard TLH’s separate existence and impose personal liability on Hartmann.
- Disposition: affirmed in part and reversed in part.

## Legal Principles

- Whether a contract contains a condition precedent such as a financing contingency is determined from the agreement’s terms and the fact-finder’s supported findings; absent an express contingency, a court may reject an attempt to treat financing as a condition to performance.
- In Minnesota, lost profits may be recoverable for breach of a commercial agreement when causation is shown and the amount is proved with reasonable certainty; the fact-finder may award lost profits for an agreed contract term when supported by trial evidence.
- Veil piercing is an equitable remedy; even when an entity is closely held or controlled by one individual, personal liability requires more than nonperformance of a contract.
- Minnesota veil-piercing analysis considers factors bearing on the separateness of the entity and, in addition, requires a showing that respecting the entity would produce injustice or fundamental unfairness.
- The same general veil-piercing framework used for corporations may be applied to limited liability companies; the injustice requirement remains a separate and necessary element.

## Conclusion

Tom Thumb and TLH entered a build-to-suit lease requiring TLH to construct and deliver premises by a date certain, but the project failed after financing was denied and the land arrangement collapsed; after a bench trial the district court awarded Tom Thumb lost-profit damages and imposed personal liability on Hartmann by piercing TLH’s veil, and the Minnesota Court of Appeals affirmed the breach and damages findings while reversing veil piercing because the record did not establish the level of injustice required to hold Hartmann personally liable.


Tom Thumb Food Markets, Inc. v. TLH Properties, LLC, 1999 WL 31168 (unpublished opinion) (1999)