David S. Doty, United States District Judge.
This matter is before the court upon the motions for judgment on the pleadings or, in the alternative, summary judgment by defendants Deutsche Bank Trust Company Americas; MelTel II W3, LLC; and MelTel II Valentine, LLC (MelTel).
This property dispute arises out of the allegedly fraudulent assignment of certain property rights to MelTel.
Plaintiff Lighthouse Management Group is an assignee for the benefit of creditors of Apple Valley Commons (AVC)
AVC owns two large office buildings in Apple Valley, Minnesota (Buildings).
MelTel and Deutsche Bank are involved in asset-backed securities. Voon Decl. ¶ 5; Bauermeister Dep. at 25:13-27:5. MelTel issues investor notes and, as collateral, acquires lease rights to wireless phone antennas. Bauermeister Dep. at 28:12-17. MelTel then grants mortgages on those leases to Deutsche Bank, which serves as the indenture trustee for the note-holders. Voon Decl. ¶ 6. In total, MelTel has acquired nearly 1,500 wireless antennae lease rights. Bauermeister Dep. at 29:14-16.
Before MelTel acquires a property interest, it conducts an asset due diligence review to ensure that the entity or individual negotiating the property transfer or assignment with MelTel has the requisite ownership interest over the asset. Hwang Decl. ¶ 3. MelTel investigates all asset ownership through an internal department,
MelTel first approached John Hanson in 2007 about acquiring the Lease Rights, but he did not respond. Boylan Decl., ECF No. 65, Ex. 1 at 2-3;
Then in June 2014, AVC agreed to sell the Buildings to Hillside, LLC, owned by Chris Hanson (no relation to John Hanson). Varland Decl. Ex. A at 4, 50. John Hanson subsequently informed MelTel that AVC was selling the Buildings, and that he had communicated MelTel's interest in the Lease Rights to Hillside.
In July 2014, Chris Hanson represented himself to MelTel as the owner and/or landlord of the Buildings and began negotiating directly with MelTel regarding an assignment of the Lease Rights. Boylan Supp. Decl. Ex. 28 at 5. Chris Hanson told MelTel that he was John Hanson's brother, and that he planned to acquire John's interests in the Lease Rights.
On July 22, Chris Hanson accepted MelTel's proposal to acquire the Lease Rights for a 99-year term in exchange for a lump-sum payment.
However, during that same time period, MelTel received information that Chris Hanson and Hillside were not the Buildings' owner or landlord. On August 8, Chris Hanson told MelTel that he had not yet acquired the deed to the Buildings, but that he hoped to do so in the next few days. Boylan Supp. Decl. Ex. 28 at 4. On August 12, MelTel left Chris Hanson a
Despite this information, MelTel still identified Chris Hanson as the Buildings' landlord. On September 15, MelTel noted that Chris Hanson, the Buildings' "landlord," had retained counsel, John Berkey, to close the sale of the Buildings.
However, Chris Hanson did not have the financing to close the Buildings' sale. In early October, Chris Hanson told John Hanson that in order to obtain financing to close the Buildings' sale, he needed to generate cash. Varland Decl. Ex. A at 3. Chris Hanson and Berkey suggested that AVC assign the Lease Rights to MelTel for a lump-sum cash payment, which could be used to facilitate the sale of the Building.
On November 10, AVC, as the Buildings' "Landlord," and MelTel entered two agreements, both entitled "Purchase and Sale of Lease and Successor Lease Agreement."
Later that day, the wiring instructions changed again. MelTel noted that "per John Hanson" it was required to wire the payment to Berkey's client trust account at PNC Bank on Hillside's behalf.
MelTel subsequently obtained two mortgages from Deutsche Bank on the Lease Rights.
John Hanson was not aware of the wire transfer to Berkey and AVC did not receive any of the $421,734.17 payment. Varland Decl. Ex. A. at 7. The record does not show whether MelTel tendered the $35,000 payment. MelTel testified that it is not aware of any previous situation in which it paid the lease purchase price to an entity other than the title or property owner or lease landlord. Bauermeister Dep. at 94:25-96:11. Hillside ultimately was unable to secure financing and never purchased the Buildings. Varland Decl. Ex. A at 5.
In April 2013, AVC and Husker Management Company (Husker) agreed that Husker would manage the Buildings and the collect rents.
In mid-2015, AVC hired Lighthouse to conduct a third-party audit given its suspicions that Husker was not properly reporting the rental income. AVC later agreed to assign its interest in the Buildings' to Lighthouse for the benefit of creditors, and in exchange, Lighthouse would conduct the audit and, if necessary, pursue legal action on AVC's behalf. Lighthouse agreed to reassign the Buildings back to AVC at the conclusion of its investigation and any related legal action.
During the course of the investigation, Lighthouse discovered that Chris Hanson had orchestrated a number of fraudulent real estate transactions involving assignments and other encumbrances on the Buildings. Boylan Decl. Ex. 1 at 5. For example, unrelated to this case, Lighthouse learned that Chris Hanson obtained several large loans through Fidelity Investment Group, LLC, using the Buildings as collateral and by representing himself as AVC's "Managing Member."
On July 3, 2017, Lighthouse filed suit against Deutsche Bank in Hennepin County District Court and Deutsche Bank timely removed. On January 24, 2018, Lighthouse filed a revised amended complaint raising quiet-title, declaratory judgment, and unjust enrichment claims. Defendants now move for judgment on the pleadings or, in the alternative, summary judgment.
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a);
On a motion for summary judgment, the court views all evidence and inferences in a light most favorable to the nonmoving party.
Lighthouse brings a quiet-title claim to determine the parties' adverse property interests in the Lease Rights. Lighthouse, specifically, requests that the court declare that: (1) the Assignment and mortgages are null and void,(2) MelTel and Deutsche Bank do not have an interest in the Lease Rights and,(3) any adverse interests are cleared from the Buildings' title. Rev. Am. Compl. ¶ 33.
Minnesota's quiet-title statute provides that "[a]ny person in possession of real property ... may bring an action against another who claims an estate or interest therein, or a lien thereon, adverse to the person bringing the action, for the purpose of determining such adverse claim and the rights of the parties, respectively." Minn. Stat. § 559.01.
MelTel first asserts that Lighthouse's quiet-title claim fails as a matter of law because Lighthouse has not alleged that it engaged in fraud. However, MelTel cites no authority, and the court can find none, stating that the only basis for a quiet-title action is fraud. Indeed, § 559.01 simply requires that a plaintiff have "possession of real property" and that the defendant be "another who claims an ... interest ... adverse to the person bringing the action"
MelTel next argues that Lighthouse's quiet-title claim fails as a matter of law because AVC surrendered its interest in the Lease Rights through the conveyance of the Assignment on November 10. Specifically, MelTel argues that once John Hanson signed the Assignment on AVC's behalf and MelTel took possession of the Assignment, the Assignment was legally delivered, and consequently, MelTel became the lawful and indefeasible owner of the Lease Rights. MelTel further argues that its failure to remit the purchase payment to AVC does not invalidate its property interest because AVC legally conveyed the Assignment when it was signed and MelTel took possession. According to MelTel, AVC's recourse is limited to recovering damages related to payment. The court disagrees.
Delivery of a real property interest "is effective if the grantor manifests a clear intention to part presently and unconditionally with all control ...."
Here, the record establishes that the Assignment was not delivered as a matter of law. The Assignment plainly states that MelTel's interest in the Lease Rights is subject to certain conditions. There is no dispute that a significant condition, that MelTel tender a $440,000 purchase payment, did not occur. In addition, MelTel failed to pay the second $35,000 payment as was also required under the Assignment. The court cannot conclude that the sale contemplated by the Assignment was fully delivered on November 10, given that MelTel did not pay AVC as required. Under these circumstances, the evidence does not show that AVC intended to presently and unconditionally surrender its interest in the Lease Rights on November 10, when the Assignment was signed. As a result, this argument fails as a matter of law.
MelTel lastly argues that Lighthouse's quiet-title claim fails because it is a bona-fide purchaser protected under the Minnesota Recording Act.Minn.Stat. § 507.34;
The court cannot conclude that the evidence establishes that MelTel is a bona-fide purchaser as a matter of law. Despite Chris Hanson's July 2014 representations that he was the Buildings' owner and/or landlord, MelTel was aware that he was neither by August 2014. In addition, by September 2014, MelTel had actual notice that Chris Hanson had not secured financing to purchase the Buildings. In mid-October 2014, MelTel was again on notice that Chris Hanson and Hillside still had not secured financing. In early November 2014, MelTel agreed several times to make the purchase payment to AVC, and not to Hillside.
Nevertheless, on November 12, MelTel made the purchase payment to Hillside through Berkey. Given these facts, a jury could find that MelTel had at least implied notice of AVC's right to the purchase payment. At a minimum, a jury could conclude that MelTel had a duty to ask why the wiring instructions had changed and why the previous payment agreements were no longer in place. Indeed, there is no indication in the record that MelTel ever questioned why the wiring instructions changed at the last minute. This is particularly curious given that there is no indication in the record that John Hanson ever told MelTel that the previous payment agreements had been rescinded or modified. MelTel could have simply contacted John Hanson before wiring the purchase payment to Hillside to verify the conflicting instructions, but it failed to do so. There are certainly facts that may explain why MelTel chose not to inquire, but they are for the jury to weigh in deciding the issue. As a result, the court must deny MelTel's motion for summary judgment on the quiet-title claim.
Lighthouse seeks the same relief under the Minnesota Uniform Declaratory Judgment Act as it does in its quiet-title claim.
The purpose of the Act is to settle uncertainty, and it is to be liberally construed and administered. Minn.Stat. § 555.12. "The Act, however, is not an express independent source of jurisdiction."
Here, because a jury could conclude that MelTel was not a bona-fide purchaser, MelTel has not shown that Lighthouse does not have an independent quiet-title claim. As a result, MelTel's motion as to the declaratory judgment claim must be denied.
The parties agree that Lighthouse's unjust enrichment claim is inextricably intertwined with its quiet-title claim — if MelTel is a bona-fide purchaser of the Lease Rights, it cannot be unjustly enriched by its interest in those Lease Rights. Lighthouse argues that MelTel has been unjustly enriched because it did not pay AVC for the Lease Rights and is collecting the proceeds under the Lease Rights. Lighthouse also argues that MelTel's retention of the Lease Rights under these circumstances is morally wrong. MelTel responds that it is entitled to summary judgment on the unjust enrichment claim because Lighthouse has not shown that it acted illegally or unlawfully.
In Minnesota, the elements of an unjust enrichment claim are: "(1) a benefit conferred; (2) the defendant's appreciation and knowing acceptance of the benefit; and (3) the defendant's acceptance and retention of the benefit under such circumstances that it would be inequitable for him to retain it without paying for it."
The Minnesota Court of Appeals appears to be split on the issue.
The court agrees with the previous cases in this district concluding that the Minnesota Supreme Court would hold that unjust enrichment claims may be based on a moral wrong, even if not a wrongful act.
Whether MelTel's retention of the Lease Rights is a moral wrong rests on the jury's determination as to whether MelTel was a bona-fide purchaser of those rights. As a result, MelTel is not entitled summary judgment on the unjust enrichment claim.
Accordingly, based on the above,