Minnesota's Disfavor Toward Forfeitures—Capistrant V. Lifetouch

Mitchell Hamline Law Review Volume 47 Issue 2 Article 13 2021 Not Pictured: Minnesota’s Disfavor Toward Forfeitures—Capistrant v. Lifetouch Nat’l Sch. Studios, Inc., 916 N.W.2D 23 (Minn. 2018). Madalyn Elmquist Follow this and additional works at: https://open.mitchellhamline.edu/mhlr Part of the Contracts Commons Recommended Citation Elmquist, Madalyn (2021) "Not Pictured: Minnesota’s Disfavor Toward Forfeitures—Capistrant v. Lifetouch Nat’l Sch. Studios, Inc., 916 N.W.2D 23 (Minn. 2018).," Mitchell Hamline Law Review: Vol. 47 : Iss. 2 , Article 13. Available at: https://open.mitchellhamline.edu/mhlr/vol47/iss2/13 This Note is brought to you for free and open access by the Law Reviews and Journals at Mitchell Hamline Open Access. It has been accepted for inclusion in Mitchell Hamline Law Review by an authorized administrator of Mitchell Hamline Open Access. For more information, please contact [email protected]. © Mitchell Hamline School of Law Elmquist: Not Pictured: Minnesota’s Disfavor Toward Forfeitures—Capistrant NOT PICTURED: MINNESOTA’S DISFAVOR TOWARD FORFEITURES—CAPISTRANT V. LIFETOUCH NAT’L SCH. STUDIOS, INC., 916 N.W.2D 23 (MINN. 2018). Madalyn Elmquist I. INTRODUCTION .......................................................................ǂ 816 II. HISTORY ................................................................................... 817 A. Contracts Generally Defined ................................................ 817 B. Conditions Precedent ............................................................ 817 C. Disproportionate Forfeiture .................................................. 819 D. The Bennett Test .................................................................. 820 E. Section 229 of the Restatement (Second) of Contracts ............ 824 III. THE CAPISTRANT DECISION ................................................... 827 A. The Lifetouch Contract ........................................................ 827 B. Facts & Procedural Posture ................................................... 828 C. The Minnesota Supreme Court’s Decision .......................... 829 IV. ANALYSIS .................................................................................. 830 A. Minnesota’s precedential reluctance toward forfeitures should have afforded Capistrant an appropriate remedy irrespective of section 229 of the Restatement (Second) of Contracts. ................... 830 1. Excusable Delay & Harm to Obligor .................................... 831 2. Adequate Protection ............................................................. 832 3. Clear & Unmistakable Proof of Intent to Forfeit .................. 834 4. Immateriality of Condition Precedent .................................. 836 B. Alternatively, enforcing the drafting considerations for restrictive covenants not to compete under the Bennett test could have secured Capistrant his retirement funds. ................................. 837 1. Protection of the Business or Good Will of the Employer .. 839 2. No Greater Restraint than Reasonably Necessary ................ 839 a. Nature & Character of Employment ................................. 839 b. Duration of the Non-Compete .......................................... 840 c. Geographical Scope ........................................................... 840 3. Employer’s Subjective Motivations ....................................... 842 C. Section 229 of the Restatement (Second) of Contracts creates an avenue for corporate employees to retain post-employment benefits in future forfeiture actions. ................................................. 843 V. CONCLUSION............................................................................ 846 Published by Mitchell Hamline Open Access, 2021 1 Mitchell Hamline Law Review, Vol. 47, Iss. 2 [2021], Art. 13 816 MITCHELL HAMLINE LAW REVIEW [Vol. 47 I. INTRODUCTION In Capistrant v. Lifetouch National School Studios, Inc.,1 the Minnesota Supreme Court adopted section 229 of the Restatement (Second) of Contracts (“Restatement Section 229”) to resolve an employment contract conflict that was contrary to Minnesota’s reluctance to enforce forfeitures.2 In its niche opinion, the majority credits Minnesota’s disfavor of forfeitures but refuses to resolve the contractual dispute as a matter of law.3 While the Capistrant matter remains unresolved on remand, the court’s decision to integrate Restatement Section 229 creates a precedentially consistent avenue for employees to recover relief from former corporate employers. This Paper begins by detailing Minnesota’s historical interpretation of contracts, conditions precedent, and aversion to forfeitures—all of which paved the way for implementing Restatement Section 229.4 The facts and procedural posture of Capistrant follow.5 The analysis argues that the Minnesota Supreme Court could have affirmed the appellate court’s decision in favor of Capistrant, viewed in combination with the facts on the record and Minnesota’s precedential reluctance toward forfeitures.6 Nevertheless, the analysis proffers that the adopted Restatement creates an avenue for corporate employees to recover appropriate remedies in future forfeiture actions.7 Thus, this Paper concedes that the Minnesota Supreme Court ultimately ruled correctly in Capistrant, despite the lack of a sound resolution at law because Capistrant, and those similarly situated, 8 will recover under the newly implemented standard. Madalyn Elmquist, Juris Doctor Candidate 2022 at Mitchell Hamline School of Law. The ǂauthor is a second-year law student working for the Dakota County Attorney’s Office in the Adult Prosecution Division. The author previously worked for Birkholz & Associates, LLC who affirmed and directed her career in the legal field. Special thanks to Mitchell Hamline Law Review for the invaluable edits herein and countless others for their support along the way—particularly, these strong and independent women: Lori Horst, Jaclyn Elmquist, Laura Sonday, Sara Burger-Edwards, Sabrina Batalden, and Madison Barber. 1 916 N.W.2d 23 (Minn. 2018). 2 Id. at 28, 31. 3 Id. at 24. 4 See infra Part II. 5 See infra Part III. 6 See infra Part IV. 7 See infra Part IV. 8 See infra Part V. https://open.mitchellhamline.edu/mhlr/vol47/iss2/13 2 Elmquist: Not Pictured: Minnesota’s Disfavor Toward Forfeitures—Capistrant 2021] MINNESOTA’S DISFAVOR TOWARD FORFEITURES 817 II. HISTORY A. Contracts Generally Defined A contract is generally defined as “a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law recognizes as a duty.”9 While contracts are comprised of promises, promises are legally enforceable only if there is a legal duty to perform.10 Consequently, a contract—a legally enforceable promise—is formed when “two or more parties exchange bargained-for promises, manifest mutual assent to the exchange, and support their promises with consideration.”11 In turn, a party prevails in a breach of contract action upon proving three elements: “(1) formation of a contract; (2) performance by plaintiff of any conditions precedent to his right to demand performance by the defendant; and (3) breach of the contract by defendant.”12 Notably, some Minnesota federal courts include damages as an element of a breach of contract claim,13 such that “[a] successful breach-of-contract claim under Minnesota law [requires]: ‘(1) formation of a contract; (2) performance by plaintiff of any conditions precedent; (3) a material breach of the contract by defendant; and (4) damages.’”14 B. Conditions Precedent The second element in a breach of contract action—a plaintiff’s failure to fulfill conditions precedent—is at issue in Capistrant.15 Per the 9 Baehr v. Penn-O-Tex Oil Corp., 258 Minn. 533, 537, 104 N.W.2d 661, 664 (1960) (summarizing RESTATEMENT (FIRST) OF CONTRACTS § 1 (AM. L. INST. 1932)). 10 See RESTATEMENT (SECOND) OF CONTRACTS § 2 (AM. L. INST. 1981). 11 Med. Staff of Avera Marshall Reg’l Med. Ctr. v. Avera Marshall, 857 N.W.2d 695, 701 (Minn. 2014) (citing RESTATEMENT (SECOND) OF CONTRACTS § 17 (AM. L. INST. 1981)); see Thomas B. Olson & Assoc., P.A. v. Leffert, Jay & Polglaze, P.A., 756 N.W.2d 907, 918 (Minn. Ct. App. 2008) (“The formation of a contract requires communication of a specific and definite offer, acceptance, and consideration.”) (quoting Com. Assocs., v. Work Connection, Inc., 712 N.W.2d 772, 782 (Minn. Ct. App. 2006) (citing Pine River State Bank v. Mettille, 333 N.W.2d 622, 626-27 (Minn. 1983)). 12 Park Nicollet Clinic v. Hamann, 808 N.W.2d 828, 833 (Minn. 2011) (emphasis added) (citing Briggs Transp. Co. v. Ranzenberger, 299 Minn. 127, 129, 217 N.W.2d 198, 200 (1974)) (“These elements of the cause of action are the fundamental propositions which plaintiff must prove in order to establish a right of recovery.”). 13 See, e.g., Hot Stuff Foods, LLC v. Dornbach, 726 F. Supp. 2d 1038, 1042 (D. Minn. 2010) (citing MSK EyEs Ltd. v. Wells Fargo Bank, N.A., 546 F.3d 533, 540 (8th Cir. 2008)). 14 Gen. Mills Operations, LLC v. Five Star Custom Foods, Ltd., 703 F.3d 1104, 1107 (8th Cir. 2013) (quoting Parkhill v. Minn. Mut. Life Ins. Co., 174 F. Supp. 2d 951, 961 (D. Minn. 2000), aff’d, 286 F.3d 1051 (8th Cir. 2002)). 15 Capistrant v. Lifetouch Nat’l Sch. Studios, Inc., 916 N.W.2d 23, 24 (Minn. 2018); see Park Nicollet Clinic, 808 N.W.2d at 833. Published by Mitchell Hamline Open Access, 2021 3 Mitchell Hamline Law Review, Vol. 47, Iss. 2 [2021], Art. 13 818 MITCHELL HAMLINE LAW REVIEW [Vol. 47 Restatement, “[a] condition

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