Briggs Attorneys Win Corporate Law Victory

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April 1, 2011

MINNEAPOLIS, MINN. (April 1, 2011) - Briggs and Morgan, P.A. shareholders Kevin M. Decker and Jonathan P. Schmidt recently won an important victory for their client, Washburn-McReavy, in SCI Minnesota Funeral Services, Inc. v. Washburn-McReavy Funeral Corporation, A09-935 (Minn. Mar. 30, 2011). "A deal is a deal,” was confirmed by the Minnesota Supreme Court in litigation concerning the legal effect and implications of a business acquisition by way of corporate stock sale. 

The specific issue addressed by the courts was whether one company obtaining 100% control of another company in a $1 million stock sale also acquired $2 million in real estate assets owned by the target company even though the target company’s ownership of such assets was unknown to the particular seller and buyer representatives negotiating and executing the deal. The case arose afterthe plaintiffs/appellants sold the corporate stock of one of its subsidiaries to Briggs’ client, Washburn-McReavy. Several years later, a dispute arose when the sellers realized that the extent of assets underlying the corporate stock was greater than had been understood by the business team. Apparently, the sellers’ due diligence failed to identify two significant parcels of land owned by the subsidiary whose stock had been conveyed to Washburn-McReavy. The subsequent lawsuit sought to rescind and/or reform the corporate stock transaction to extract the real estate assets from the stock.

The District Court rejected the lawsuit on summary judgment, and the Court of Appeals affirmed in a split decision. The state’s high court unanimously affirmed, holding that in the context of a stock sale agreement a rescission claim based on mutual mistake is not available when the claimed mistake relates to the value of the stock. The court also held that the sellers failed to demonstrate a lack of mutual assent during the formation of the stock acquisition agreement, and that they had not met their burden of proving that the parties’ agreement failed to reflect their true intentions due to mutual mistake.

The result in the SCI Minnesota litigation honors the adage that “a deal is a deal.” In the normal course, the risk in a stock transaction is realized by the buyer when the value received is less than anticipated due to either diminished assets or increased liabilities. The Minnesota Supreme Court’s decision confirms that sellers, too, bear risk in a corporate stock transaction; specifically, underlying assets may be greater than understood. Therefore, it is incumbent upon corporate stock sellers to mind their due diligence because the courts will not intervene to make up for apparent oversights such as those at the heart ofSCI Minnesota