Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minnesota

664 N.W.2d 303, 2003 Minn. LEXIS 398, 2003 WL 21511929
Supreme Court of Minnesota·Decided July 3, 2003·No. C7-01-2259·Published·Cited by 82 cases

Opinion

OPINION

GILBERT, Justice.

This case involves interpretation of a lease entered into by appellant, Apha Real Estate Company of Rochester, LLC, and respondent, Sui Generis Development Company. We must also determine the proper scope of review to apply to questions of law raised at the district court, where there was no motion for new trial pursuant to Minn. R. Civ. P. 59.01.

In 1995, Apha Real Estate of Rochester, LLC (Apha) entered into an agreement (1995 agreement) with respondent, Delta Dental Plan of Minnesota (Delta), providing that Apha would lease a dental clinic from Delta’s nominee, Sui Generis Development Company (Sui Generis). The 1995 agreement contains an additional rent clause stating that during the first 10 years of the lease Apha would pay “five percent of adjusted cash receipts” in any year that cash receipts exceeded $1 million, and an option to purchase clause. In the event of purchase, the 1995 agreement provides that the five percent rental formula “shall continue for the remainder of the 10 year period.” Sui Generis and A-pha subsequently entered into a lease with an option to purchase clause. The lease also contains a similar five percent additional rent clause, but does not provide that the five percent additional rent clause continues for the remainder of the 10-year period or survives the closing of the option. Subsequently, Apha attempted to exercise the lease’s option to purchase the property. Sui Generis refused to honor the option unless Apha continued to pay the five percent additional rent after closing the option. Apha then brought this action against Delta and Sui Generis seeking specific performance of the lease’s option to purchase. Apha also claimed that *306 the five percent additional rent clause violates federal and state law. The district court determined that the 1995 agreement and the lease must be construed together and, therefore, the five percent additional rent clause survives the closing of the option. The court also concluded that the five percent additional rent clause does not violate federal or state law. Using a narrow scope of review on the alleged error of law, the court of appeals affirmed. We reverse in part, affirm in part and remand to the court of appeals.

Delta Dental Plan of Minnesota is a Minnesota non-profit health-service-plan corporation that sells and administers dental benefit plans to businesses, governmental units, and labor unions. In early 1995, Michael Walsh, the President of Delta, approached Dr. Ted Erickson, a dentist from Faribault, to discuss opening a dental clinic in Rochester. Walsh proposed that Delta would purchase property in Rochester and build a dental clinic on the property. Erickson would then lease the property and provide dental services on a preferred basis to Delta clients. Delta’s purpose in approaching Erickson was to address a lack of Delta providers in the Rochester area and to expand its provider network for its Delta Care product. Delta specifically needed a dental clinic in Rochester to service its IBM clients.

Negotiations between Erickson and Delta culminated in the execution of the 1995 agreement, dated August 4, 1995. The parties to the 1995 agreement are Alpha and Delta. Alpha was formed by Erickson and three other dentists from Faribault solely to lease the property. To operate the dental clinic, Erickson and the three dentists formed Apollo Dental Center, PLC (Apollo). Effective January 1, 1996, Apollo sub-leased the property from Alpha. Apollo is not a party to this action.

The 1995 agreement provides that Delta’s nominee, Sui Generis, will purchase real estate in Rochester, construct a dental clinic on the property, and purchase equipment to furnish the clinic. In return, Alpha would lease the property from Sui Generis over a 20-year term and provide dental care on a preferred basis to persons covered under dental programs sold or serviced by Delta. Under the terms of the 1995 agreement, the monthly lease payments consist of Sui Generis’ principal and interest loan payments plus a nominal administrative fee. In addition, the 1995 agreement contains a five percent additional rent clause:

If in any one calendar year during the first ten years of the Lease (1996-2005) the adjusted cash receipts exceed $1 million, [Alpha] shall pay to Sui Generis additional rent for that particular year a sum equal to five percent of adjusted cash receipts.

Adjusted cash receipts are defined as “total cash receipts from patient service revenue.” 1 The 1995 agreement states that the purpose of the five percent additional rent is to reimburse Delta for the risk it assumed under the 1995 agreement, and “as a partial contribution to defraying Delta’s cost of marketing products in the Rochester area so as to provide a satisfactory volume of patients for the Rochester, Minnesota clinic.” Under the 1995 agreement Alpha has the option of purchasing the property. Alpha’s right to exercise the *307 option is contingent upon the execution of an agreement satisfactory to Delta “which provides for the continued servicing of Delta and its affiliates’ patients on a preferred basis and the continued payment of the five percent rental surcharge.”

Pursuant to the 1995 agreement, Sui Generis purchased property in Rochester and began construction on the dental clinic. In the fall of 1995, Sui Generis as landlord and Alpha as tenant executed a lease (1995 lease). The monthly lease payments under the 1995 lease are classified as “Basic Rent” and consist of the actual principal and interest payments for the financing obtained by Sui Generis for the cost of the property and improvements. The 1995 lease also contains an additional rent clause, which differs slightly from the additional rent clause in the 1995 agreement:

Upon [Alpha’s] achievement of Gross Receipts per calendar year of $1,000,000 (“Benchmark”), [Alpha] shall pay as Additional Rent an amount equal to five percent of all Gross Receipts (“Percentage Rent”) for a period of ten successive years. “Gross Receipts” shall have the same meaning as “Adjusted Cash Receipts” as that term is defined in the [1995 agreement].

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Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minnesota, 664 N.W.2d 303, 2003 Minn. LEXIS 398, 2003 WL 21511929 (Mich. 2003).

664 N.W.2d 303 (Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minnesota) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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