WAF-2, LLC v. Lowry Building, LLC, and third party v. John R. Rupp, third party, A16-531

Background

In June 2012 Rupp (owner of W.A. Frost) signed a 10‑year restaurant lease with Lowry Building, LLC; WAF-2, LLC (WAF) was purported lessee but was not formed with the Secretary of State until August 1, 2012.
WAF had no capitalization, no bank accounts, no tax filings, and otherwise functioned as an assetless shell; Rupp was WAF’s sole principal and manager.
Lease required tenant to provide detailed plans/specifications, perform tenant improvements, obtain permits, and pay 5% of gross proceeds plus a share of building operating expenses beginning June 1, 2013; Lowry also agreed to provide a “vanilla shell” and a $250,000 TI credit.
Construction/permit work never meaningfully progressed; parties disputed square footage, scope of the vanilla shell, and responsibility for delays.
District court found WAF did not exist when lease was signed, WAF failed to operate as an LLC (alter ego of Rupp), Rupp personally liable for breach, awarded Lowry $245,567.76 in damages (rent + operating expenses), and reformed an attorney‑fee clause to award Lowry fees; appellate court affirmed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether WAF existed and thus whether Rupp is personally liable for the lease	WAF ratified the lease by later amendment; WAF is proper plaintiff	WAF did not exist when lease was signed and functioned only as Rupp’s shell; Rupp personally liable	Court: WAF did not exist at signing and operated as Rupp’s alter ego; Rupp personally liable
Whether corporate veil/alter‑ego doctrine permits piercing	Rupp: LLC protections apply after formation; no basis to pierce	Lowry: WAF was undercapitalized, ignored formalities, mere façade for Rupp	Court: Alter‑ego factors met; piercing not an abuse of discretion; Rupp liable
Whether Lowry breached conditions precedent (vanilla shell, agreed square footage, plan approvals)	Rupp: Lowry failed to provide vanilla shell and agree on square footage/floor plan, so conditions precedent unmet	Lowry: Rupp failed to provide sufficient plans/specs and permits; his delay caused the failure to perform	Court: District court credibility/findings supported that Rupp failed to perform and Lowry did not breach
Whether damages for unpaid rent and operating expenses are excessive or speculative	Rupp: Operating expense method was an unenforceable "agreement to agree" and award is excessive	Lowry: Lease makes tenant responsible; used reasonable square‑footage estimate and actual 2013 expenses as basis	Court: Award supported by reasonable basis; not unjust or shocking; damages affirmed
Whether court properly reformed or interpreted ambiguous attorney‑fee clause to favor landlord	Rupp: Clause ambiguous; reformation inappropriate; parties did not mutually agree to reformation	Lowry: Clause was a transposition error; context and intent show tenant should bear fees	Court: Clause ambiguous; parol evidence supports Lowry’s interpretation; court corrected transposition and awarded fees

Key Cases Cited

Stone v. Jetmar Props., LLC, 733 N.W.2d 480 (Minn. App. 2007) (LLC existence determined by filing; corporation‑by‑estoppel and de‑facto doctrines addressed)
Rogers v. Moore, 603 N.W.2d 650 (Minn. 1999) (standard for clearly erroneous appellate review of trial findings)
Park Nicollet Clinic v. Hamann, 808 N.W.2d 828 (Minn. 2011) (elements required to prove breach of contract)
Metropolitan Sports Facilities Comm’n v. General Mills, Inc., 460 N.W.2d 625 (Minn. App. 1990) (definition and effect of conditions precedent)
Henning Nelson Constr. Co. v. Fireman’s Fund Am. Life Ins. Co., 383 N.W.2d 645 (Minn. 1986) (difficulty in proving damages does not bar recovery if reasonable basis exists)
Dunn v. National Beverage Corp., 745 N.W.2d 549 (Minn. 2008) (appellate reluctance to set aside damage awards absent plain injustice)
Denelsbeck v. Wells Fargo & Co., 666 N.W.2d 339 (Minn. 2003) (interpretation of ambiguous contract language is factual; determination whether a contract is ambiguous is legal)