Tom Thumb Food Markets, Inc. v. TLH Properties, LLC

Terry Hartmann was a commercial developer operating through TLH Properties, LLC (TLH) (defendant). Jerry Smith, a part-owner of property in Minnesota, asked Hartmann to develop the land into a commercial site. Smith and Hartmann planned to form a joint venture, with Smith joining TLH, wherein Hartmann would develop the land and Smith would contribute the land to the venture. Hartmann made arrangements to develop the property for use by Tom Thumb Food Markets, Inc. (Tom Thumb) (plaintiff). Based on representations from Hartmann, Tom Thumb believed that Hartmann owned the land. In 1995 Tom Thumb and TLH entered into a lease agreement whereby TLH agreed to construct a building for Tom Thumb’s use. Hartmann signed the agreement on behalf of TLH. Hartmann tried to get a construction loan from a bank for the development, which required financial information from Tom Thumb. After a delay, Tom Thumb provided the bank with the information, and the bank rejected the loan application because Tom Thumb had a negative net worth. In the meantime, Smith withdrew from the plan, the property was sold to another company, and Tom Thumb discovered that Hartmann had never owned the property. Tom Thumb sued for breach of contract and argued that Hartmann should be held personally liable under the doctrine of piercing the corporate veil. The district court agreed to pierce the corporate veil, holding that Hartmann had misled Tom Thumb about the ownership of the property. The district court further held that Hartmann had breached the lease, and it awarded damages to Tom Thumb. Hartmann appealed.