Business Bank v. Hanson, File No. 27-CV-06-14616.
| Decision Date | 13 March 2007 |
| Docket Number | File No. 27-CV-06-14599.,File No. 27-CV-06-14616. |
| Parties | The Business Bank, Plaintiff, v. Kevin C. Hanson, Colleen L. Hanson, and Option One Mortgage Corporation, Defendants. and Kevin C. Hanson and Colleen Hanson, individually, and Plaintiffs, v. The Business Bank, a state chartered business institution, and Travis Carter, individually, Defendants. |
| Court | Minnesota District Court |
The above-captioned consolidated cases were heard before the Honorable William R. Howard, Judge of District Court, on March 13, 2007. The Court heard arguments on three separate motions for Summary Judgment; one brought by The Business Bank as against Option One Mortgage Corporation, and one as against Kevin Hanson; Option One also brought a Summary Judgment motion against the Business Bank. Present at the hearing were Scott Johnson, representing Kevin Hanson; Michael Rosow, representing The Business Bank as against Kevin Hanson; Barbara Ross, representing The Business Bank as against Option One Mortgage; Jon Bye, representing Option One Mortgage; and Norman Baer, representing Travis Carter. Based upon the arguments presented, the submissions of the parties and a review of the entire file herein, the Court makes the following:
FINDINGS OF FACT
1. On July 31, 2006, The Business Bank filed suit against Kevin C. Hanson, Colleen L. Hanson, Option One Mortgage Corporation and the United States of America. On August 2, 2006, Kevin Hanson filed suit against the The Business Bank and Travis Carter, individually. On September 12, 2006, the cases were consolidated by Order of Francis J. Connolly, Judge of District Court, and the consolidated case was assigned to Judge Howard.
2. By correspondence of September 18, 2006, Assistant US Attorney Roylene A. Champeaux, the Internal Revenue Service recognized that its lien was junior to any foreclosing party and stated that the United States will not answer or defend in the action. Rosow Aff., Ex. G.
3. Kevin Hanson, an individual, is a resident of Hennepin County, Minnesota. He is a self-taught businessman with significant business experience. See Second Rosow Aff., Ex. K. Colleen Hanson is his wife.
4. The Business Bank is a Minnesota corporation. Option One Mortgage is a California corporation registered to operate in Minnesota.
5. Sometime before February 5, 2004, Jesse Yap, principle shareholder of U.S. Pet Headquarters, Inc., arranged a meeting between Peter Reichert, loan officer and senior vice president of The Business Bank (TBB) and Kevin Hanson, along with Donn Smith. Donn Smith was a friend of Yap's who was subsequently bought out of any operation in the company in question. The meeting was to facilitate Hanson's investment into the company, owned by Yap, for which TBB had been a Lender. Reichert Depo, Johnson Aff. Ex. D, Hanson's Complaint.
6. On February 4, 2004, Jesse Yap delivered to TBB a Term Note for a loan in the amount of $111,925.17. Bank's Complaint, Ex. D.
7. On February 5, 2004, an original loan agreement was agreed to between North American Pet Distributors, Inc. (NAPD), a Minnesota corporation, and TBB. TBB loaned NAPD $250,000 on a Term Note for the purchase of assets previously owned by US Pet Headquarters, Inc. The original loan agreement was secured on that same date by the guarantees of borrowers and NAPD principles Kevin Hanson and Travis Carter. Bank's Complaint, Ex. A.
8. In June or July of 2004, NAPD sought to expand its financing with TBB. TBB agreed on the condition that Hanson and Carter guaranty the Yap Note in amount of $111, 925.17. In July, Hanson responded to an email from his counsel Joseph Wentzell and stated that it was his understanding that Reichert Aff., Ex. A.
9. On August 17, 2004, TBB and NAPD agreed to an Amended and Restated Loan Agreement, signed by Hanson, Carter, and Peter Reichert, senior vice president of TBB. The agreement extended the term of the original note. Pursuant to that agreement, NAPD executed a Term Note for $50,000 and a Revolving Note for $100,000. The Notes were signed by Kevin Hanson as CFO and COO of NAPD and Travis Carter as CEO of NAPD. Bank's Complaint, Ex. B and C.
10. On August 17, 2004, Carter signed an Amended and Restated Guaranty. Complaint, Ex. E. Also on August 17, 2004, Hanson signed an Amended and Restated Guaranty securing the original $ 250,000 Note, the $50,000 Term Note, the $100,000 Revolving Note, and the $111,925.17 Yap Note. Reichert Aff., Ex. B.
11. Hanson's August 2004 guaranty provides, in pertinent part:
Section 1. The Guaranty. Guarantor hereby primarily, absolutely irrevocably and unconditionally agrees to Lender ... (i) the prompt payment when due ... of all indebtedness (principle, interest and other), liabilities and monetary obligations of (a) Jesse C. Yap, under or in connection with the Yap Note and (b) Borrower to Lender of every kind, nature and description that is evidenced by the Loan Documents or any present or future instrument or agreement or by operation of law ... (ii) the prompt performance of all other covenants, obligations and agreements ... (iii) all representations and warranties made by Borrower in the Loan Agreements being true, correct and complete."
Reichert Aff., Ex. B.
The Guaranty further provides, in Section 3, that:
No invalidity, irregularity or unenforceability of all or any part of the Obligations or of any security therefore or other recourse with respect thereto shall affect, impair or be a defense to this Guaranty ... No act or omission of the Lender, whether or not such action or failure to act varies or increases the risk, or affects the rights or remedies, of Guarantor shall affect or impair the obligations of Guarantor hereunder.
12. To further secure the Notes, on August 17, 2004, Hanson and his wife, Colleen Hanson, executed a mortgage in favor of The Business Bank. The mortgage secured "the payment of up to $200,000 (`The Mortgage Amount') of principal and interest ... on the Notes." Bank's Complaint, Ex. F. The Mortgage was recorded with the Hennepin County Registrar of Titles on August 31, 2004.
13. On September 28, 2005, the parties agreed to a Loan Modification Agreement. The document was signed by Hanson, Carter, and Reichert, and added $15,000 in principle to the indebtedness on the Notes and extended the deadline for payments. The Modification agreement states that all other terms and representations from the original and Amended Loan documents remain in full force and effect. Bank's Complaint, Ex. G.
14. The 2005 Loan Modification Agreement, signed by both Hanson and Carter, contains a claim release provision that reads:
E. Release of Lender. Borrower agrees that Lender has completely fulfilled all of the terms and conditions of the Loan Documents to be performed by Lender through the date hereof and Borrower hereby releases, acquits and discharges all claims, demands, suits, debts, causes of action, damages and defenses it now has, whether known or unknown, by reason of any performance or non-performance by Lender from the time of the execution of the Loan Documents through the date hereof.
Bank's Complaint, Ex. G.
15. On October 31, 2005, Kevin and Colleen Hanson executed a $1.17 million mortgage on their homestead to Option One Mortgage Corporation, recorded in the Hennepin County Registrar of Titles on December 9, 2005. Hanson did not list the mortgage obligation to Business Bank on his Mortgage application to Option One on information and belief that the obligation was a corporate liability that had been temporarily released pending refinancing. Vehrs Aff., Ex. B.
16. In 2006, NAPD ceased operations and began to liquidate its assets. NAPD then went into default on the loan agreements.
17. A forebearance agreement was reached between Carter and the Business Bank on June 21, 2006, in which the Bank agreed to forbear its claims for default against Carter upon Carter's payment of $219,051.62, paying off the remainder of the $250,000 Note. See Reichert Aff., ¶ 46, 47.
18. Hanson went into default on his required payments on his mortgage and as guarantor of the Notes. Hanson contends that the Bank engaged in fraud in the inducement and misrepresentation, alleging that the Bank misled him with regard to the security of the loans, and as a result he should be released from the Guarantees and obligations.
19. Hanson contends that late in 2005, the Bank colluded with Carter to deny access to NAPD's accounts at the Bank, preventing him from accessing the assets of NAPD. Hanson contends they did so by denying him the passwords to access the accounts. TBB contends that both Hanson and Carter had the ability to change the access codes to the company's bank accounts and that the information was not deliberately kept from Hanson by the Bank. Hanson Depo, Second Rosow Aff., Ex. J.
20. The Business Bank now seeks summary judgment on its claims, in District Court File Number 27-CV-06-14599, against Kevin Hanson to enforce his obligations under the Guaranty and for foreclosure of the mortgage to pay the indebtedness; and seeks summary judgment as a defense to the Hansons' claims against the Business Bank, Counts I, II, III, in District Court File Number 27-CV-06-14616.
21. The Business Bank also separately seeks summary judgment on the issue of mortgage loan priority as against Option One Mortgage Corporation, in District Court File Number 27-CV-06-14599.
22. No arguments were presented, nor have any been considered, in Count IV, against Travis Carter, individual defendant in District Court File...
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