Blue Sky Real Estate, LLC v. Sunrise Banks, N.A.

• Decision Date: 04 May 2020
• Docket Number: A19-1411
• Parties: Blue Sky Real Estate, LLC, Appellant, v. Sunrise Banks, N.A., f/k/a University National Bank successor by merger with Park Midway Bank, NA f/k/a Park Midway Bank, f/k/a Saint Anthony Park State Bank, Respondent.
• Court: Court of Appeals of Minnesota

Blue Sky Real Estate, LLC, Appellant, v. Sunrise Banks, N.A., f/k/a University National Bank successor by merger withPark Midway Bank, NA f/k/a Park Midway Bank, f/k/a Saint Anthony Park State Bank, Respondent.

A19-1411

STATE OF MINNESOTA IN COURT OF APPEALS

May 4, 2020

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2018).

Affirmed

Smith, Tracy M., Judge

Ramsey County District Court

File No. 62-CV-18-6733

Kelly Vince Griffitts, Griffitts Law Office, PLLC, Eagan, Minnesota (for appellant)

Lindsay W. Cremona, Garth G. Gavenda, Anastasi Jellum, P.A., Stillwater, Minnesota (for respondent)

Considered and decided by Hooten, Presiding Judge; Connolly, Judge; and Smith, Tracy M., Judge.

UNPUBLISHED OPINION

SMITH, TRACY M., Judge

This dispute arises from appellant Blue Sky Real Estate, LLC's purchase, for $75,000, of respondent Sunrise Banks, N.A.'s rights under a promissory note and mortgage after the mortgagors received a bankruptcy discharge. In its complaint, Blue Sky asserted several claims against Sunrise, seeking either to undo the purchase or to recover damages. The district court dismissed Blue Sky's complaint for failure to state a claim. Blue Sky argues that the district court erred because (1) the complaint alleges facts sufficient to show a lack of consideration for the contract and, therefore, a basis to rescind it; (2) the complaint alleges that, if a contract was formed, Sunrise breached express and implied warranties because it did not assign an existing note and mortgage and there was not $86,443.82 due and owing as it warranted; and (3) the complaint alleges facts sufficient to justify rescission of the contract based on mutual mistake. We conclude, based on the facts as alleged in the complaint and its attached assignment agreement, that the contract was supported by consideration, that Blue Sky accepted the note and mortgage pursuant to a nonrecourse agreement in which Sunrise expressly disclaimed any warranties as to their enforceability or collectability, and that Blue Sky assumed the risk of any mutual mistake. We therefore affirm.

FACTS

Blue Sky purchased respondent Sunrise's rights under a promissory note and mortgage in August 2017. A year later, Blue Sky served a complaint alleging five counts against Sunrise: (I) breach of contract, (II) rescission of contract due to mutual mistake, (III) rescission of contract due to lack of consideration, (IV) breach of express and implied warranties, and (V) misrepresentation. Sunrise moved to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Minn. R. Civ. P. 12.02(e), arguing that the promissory note and mortgage were assigned by means of a nonrecourseagreement that expressly precludes the action. The district court agreed and dismissed Blue Sky's claims with prejudice. Blue Sky now appeals. The facts as alleged in the complaint are as follows.

On November 21, 2003, Michael and Nancy Akpe obtained a loan of $85,200 from Sunrise¹ in order to fund the operation of their business. In connection with the loan, the Akpes executed a promissory note in favor of Sunrise in the original principal amount of $85,200. The note was secured, in part, by a mortgage in favor of Sunrise encumbering certain real property (specifically, their condominium unit) located in St. Paul (the property).

After the Akpes defaulted on their loan, Sunrise sued them under the note in Ramsey County District Court and, on July 27, 2010, obtained a judgment in the amount of $75,982.31. Shortly thereafter, on September 17, 2010, the Akpes filed a petition for bankruptcy pursuant to chapter 13 of the United States Bankruptcy Code.² In their bankruptcy petition and schedule, the Akpes listed the property as an asset and listed Sunrise as a creditor holding an unsecured claim. Sunrise did not object to its treatment asan unsecured creditor; in fact, on January 19, 2011, Sunrise filed a proof of claim in the Akpes' bankruptcy case indicating that its claim of $75,982.32 was unsecured.³ The bankruptcy court entered an order confirming the Akpes' chapter 13 plan. On October 20, 2015, after completion of their chapter 13 plan, the Akpes received a discharge from the bankruptcy court.

About a year and a half later, in the summer of 2017, an agent of Blue Sky contacted a representative of Sunrise, seeking to negotiate an assignment of the note and mortgage. Blue Sky alleges that the Sunrise representative indicated to the Blue Sky agent that the mortgage was still subject to foreclosure despite the Akpes' bankruptcy. The parties, both represented by counsel, ultimately came to an agreement that Sunrise would assign the note and mortgage to Blue Sky in exchange for $75,000. The assignment agreement, titled "NON-RECOURSE ASSIGNMENT AGREEMENT," disclaims any representations, warranties (express or implied), or recourse against Sunrise, except for four warranties specified therein. Specifically, the assignment agreement states:

Assignment and Payment. In exchange for the amount of $75,000.00 hereby paid by Assignee to Assignor for the assignment of the Note and Mortgage, Assignor does hereby grant, bargain, sell, transfer, and assign unto Assignee,absolutely and not upon any condition, all such right, title, interest and claim Assignor may have in, to, and under the Note and Mortgage, to have and to hold the same unto Assignee, its successors and assigns forever, without any representation, warranty (express or implied) or recourse, against Assignor, whatsoever except as follows:

Assignor represents and warrants that: (i) it has executed no prior assignment of the Note and Mortgage; (ii) the individuals executing this Agreement have the appropriate power and authority to bind Assignor hereto; (iii) Assignor is the sole owner and holder of the Note and Mortgage; and (iv) the amount due and owing under the terms of the Note and Mortgage as of the date hereof is $86,443.82 and interest accrues on the outstanding principal balance in the amount of $3.03 per day. This Agreement is made without representation or warranty of any kind except as expressly stated herein, including but not limited to, any representation or warranty regarding the enforceability or collectability of the Note and Mortgage, any default or even of default thereunder, or compliance with any applicable laws or regulations and is made without recourse whatsoever.

(Emphasis added.) Further, the agreement specifies that Blue Sky "made its decision to purchase and take an assignment of the Note and Mortgage based upon its own independent evaluation." Blue Sky expressly represents multiple times in the agreement that it is not relying on anything outside the four corners of the assignment agreement. The assignment agreement also states that "each Party has carefully read this Agreement and has had the opportunity to consult with their respective counsel regarding its meaning and consequences."

About a year after the parties executed the assignment agreement, Blue Sky initiated this action. As described above, Sunrise moved to dismiss the complaint for failure to statea claim under rule 12.02(e), and the district court granted Sunrise's motion and dismissed Blue Sky's claims with prejudice.

This appeal follows.

DECISION

We "review de novo the district court's grant of a motion to dismiss under Minn. R. Civ. P. 12.02(e)" and, in so doing, "consider only the facts alleged in the complaint, accepting those facts as true." Sipe v. STS Mfg., Inc., 834 N.W.2d 683, 686 (Minn. 2013) (quotation omitted). The question is "whether the complaint sets forth a legally sufficient claim for relief." Barton v. Moore, 558 N.W.2d 746, 749 (Minn. 1997). Dismissal under rule 12.02(e) is appropriate only if "it appears to a certainty that no facts, which could be introduced consistent with the pleading, exist which would support granting the relief demanded." Walsh v. U.S. Bank, N.A., 851 N.W.2d 598, 602 (Minn. 2014) (quotation omitted). Courts are "not bound by legal conclusions stated in a complaint when determining whether the complaint survives a motion to dismiss for failure to state a claim." Hebert v. City of Fifty Lakes, 744 N.W.2d 226, 235 (Minn. 2008).

I. The district court properly dismissed Blue Sky's claim that the contract should be rescinded for lack of consideration.

"The basic elements of a contract are offer, acceptance, and consideration." Mattice v. Minn. Prop. Ins. Placement, 655 N.W.2d 336, 344 (Minn. App. 2002). Accordingly, "[w]hen there is a lack of consideration, no valid contract is ever formed." Franklin v. Carpenter, 244 N.W.2d 492, 495 (Minn. 1976). Consideration may consist of a benefit to one party or a detriment to another party. C & D Invs. v. Beaudoin, 364 N.W.2d 850, 853(Minn. App. 1985), review denied (Minn. June 14, 1985). Valid consideration "requires that a contractual promise be the product of a bargain." Baehr v. Penn-O-Tex Oil Corp., 104 N.W.2d 661, 665 (Minn. 1960). As the supreme court has explained, though, "in this usage, 'bargain' does not mean an exchange of things of equivalent, or any, value. It means a negotiation resulting in the voluntary assumption of an obligation by one party upon condition of an act or forbearance by the other." Id. The consideration requirement "insures that the promise enforced as a contract is not accidental, casual, or gratuitous, but has been uttered intentionally as the result of some deliberation, manifested by reciprocal bargaining or negotiation." Id. Minnesota courts "follow[] the long-standing contract principle that a court will not examine the adequacy of consideration as long as something of value has passed between the parties." Beaudoin, 364 N.W.2d at 853.

Blue Sky argues that the assignment agreement lacked consideration because the note and mortgage were rendered valueless by the Akpes' bankruptcy proceedings. The complaint alleges that (1) the note "did not exist" at the...