Michael-Curry Cos., Inc. v. Knutson Shareholders Liquidating Trust

Court of Appeals of Minnesota · 1989 · Contracts

434 N.W.2d 671 (1989)

Updated July 26, 2026

ContractsArbitrationFraud in the inducementmaking of the agreementscope of arbitration clauseMinnesota Uniform Arbitration Actcontract formationrescission

Facts

Knutson Companies, Inc., predecessor to the Knutson Shareholders Liquidating Trust, agreed to sell the stock of D & L Building, Inc. to Michael-Curry Companies, Inc. The parties' agreement contained an arbitration clause requiring arbitration of any controversy or claim arising out of or relating to the agreement, or the making, performance, or interpretation of it. An amendment later added a profitability guaranty and indemnity limitation, and MCCI later demanded reimbursement after suffering losses on D & L projects. The Trust refused, asserted that the amendment was induced by MCCI's false and misleading representations about the projects, and argued that its fraud-in-the-inducement claim should be decided by the court rather than by arbitration.

Issue

Whether the trial court erred in concluding that the arbitration clause was not sufficiently broad to require arbitration of the Trust's claim of fraud in the inducement. More specifically, the question was whether the clause's reference to the "making" of the agreement comprehended disputes about fraudulent inducement.

Rule

Under Minnesota law, when fraud in the inducement is alleged, a court must determine whether the parties agreed to arbitrate that issue. Under Atcas, fraud in the inducement must be arbitrated if the arbitration clause either specifically expresses an intent to arbitrate that issue or is sufficiently broad to comprehend arbitration of it; language referring to the "making" of the agreement is broad enough to include claims relating to contract formation, including fraud in the inducement.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Minneapolis, Nora Benton sold all membership interests in North Fork Roofing LLC to Eli Mercer. Their written purchase agreement required arbitration of "any controversy or claim arising out of or relating to this agreement, or the making, performance, or interpretation of it." After closing, Nora alleged Eli had made false pre-contract statements about planned financing and sought a court ruling that the agreement was void for fraudulent inducement.

If Eli moves to compel arbitration under Minnesota law as stated by the majority opinion, how should the court rule?

Explanation. When fraud in the inducement is alleged, the court first determines whether the parties agreed to arbitrate that issue. Under the majority opinion, an arbitration clause covering claims arising out of or relating to the agreement, or its "making," is sufficiently broad to comprehend disputes about contract formation, including fraud in the inducement. Express use of the word fraud is not required if the clause is broad enough.