Damon v. Groteboer, Civil No. 10–92 (JRT/FLN).

• Court: United States District Courts. 8th Circuit. United States District Court of Minnesota
• Writing for the Court: JOHN R. TUNHEIM
• Citation: 937 F.Supp.2d 1048
• Parties: Jean Francois DAMON and Jacqueline Damon, Plaintiffs, v. Daniel GROTEBOER; Merl Groteboer; Re/Max of Rochester; Northwest Executives Brokerage Inc.; Compark, LCC; Compark 6–2, LLC; Lowell Penz; Bryan Schoeppner; John Wade; Edward Lunn; Darren Groteboer; Alan Schafer; Joel Alberts a/k/a Joel Albert; Joel S. Larson; Jeffrey L. Bigler a/k/a Jeff L. Bigler; Kenneth Nash; M & L Partnership; TJ Haley, LLC; 4 TP, LLC; Jadco Properties, a Minnesota General Partnership; Jadco Properties, LLC; SLB Services; LLC, and does 1–10, Defendants.
• Docket Number: Civil No. 10–92 (JRT/FLN).
• Decision Date: 29 March 2013

937 F.Supp.2d 1048

Jean Francois DAMON and Jacqueline Damon, Plaintiffs,
v.
Daniel GROTEBOER; Merl Groteboer; Re/Max of Rochester; Northwest Executives Brokerage Inc.; Compark, LCC; Compark 6–2, LLC; Lowell Penz; Bryan Schoeppner; John Wade; Edward Lunn; Darren Groteboer; Alan Schafer; Joel Alberts a/k/a Joel Albert; Joel S. Larson; Jeffrey L. Bigler a/k/a Jeff L. Bigler; Kenneth Nash; M & L Partnership; TJ Haley, LLC; 4 TP, LLC; Jadco Properties, a Minnesota General Partnership; Jadco Properties, LLC; SLB Services; LLC, and does 1–10, Defendants.

Civil No. 10–92 (JRT/FLN).

United States District Court,
D. Minnesota.

March 29, 2013.

[937 F.Supp.2d 1058]

Steven J. Weintraut, Siegel Brill, PA, Minneapolis, MN, for plaintiffs.

Christopher P. Renz, Nathan J. Knoernschild, David J. McGee, and Sarah B. Bennett, Thomsen & Nybeck, PA, Bloomington, MN, for defendants, Daniel Groteboer,

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Merl Groteboer, RE/MAX of Rochester, and Northwest Executives Brokerage Inc.

Sten–Erik Hoidal, Ted C. Koshiol, and Todd A. Wind, Fredrikson & Byron, PA, Minneapolis, MN, for defendants, Compark, LLC, Compark 6–2, LLC, Lowell Penz, Bryan Schoeppner, John Wade, Edward Lunn, Darren Groteboer, Alan Schafer, Joel Alberts, Joel S. Larson, Jeffrey L. Bigler, Kenneth Nash, M & L Partnership, TJ Haley, LLC, 4 TP, LLC, Jadco Properties, Jadco Properties, LLC, and SLB Services, LLC.

MEMORANDUM OPINION AND ORDER
JOHN R. TUNHEIM, District Judge.

Plaintiffs Jean Francois Damon and Jacqueline Damon's (the “Damons”) claims arise out of a commercial real estate purchase in 2005. The Damons' complaint includes fifteen counts, including breach of fiduciary duties and fraud, against their real estate agents (Daniel Groteboer, Merl Groteboer, RE/MAX of Rochester, Northwest Executives Brokerage Inc. (collectively, the “Realtor Defendants”)) and the sellers of the real estate (Compark, LLC, Compark 6–2, LLC, and the fourteen members of Compark, LLC (collectively, the “Compark Defendants”)). The matter is currently before the Court on the Realtor Defendants' motion to dismiss for lack of subject matter jurisdiction, the Realtor Defendants' motion for partial summary judgment, the Compark Defendants' motion for summary judgment, and various objections to rulings of United States Magistrate Judge Franklin L. Noel relating to the subject matter jurisdiction issue. For the reasons explained below, the Court will deny the Realtor Defendants' motion to dismiss and will grant in part and deny in part defendants' motions for summary judgment.

BACKGROUND I. COMPARK AND THE DEVELOPMENT

This action involves commercial real estate in the “Commerce Park” development in northwest Rochester, Minnesota. Dan Penz's company 4TP, LLC possessed the right to purchase several lots in Commerce Park. (Third Aff. of Sten–Erik Hoidal, Ex. 3 at 9, Aug. 9, 2012, Docket Nos. 152–53.) Penz's discussions with Merl Groteboer led to the formation of Compark, LLC on December 29, 2004. (Third Hoidal Aff., Ex. 4 (Dep. of Daniel L. Penz (“Penz Dep.”)) 27–28; Third Hoidal Aff., Ex. 5.) The lots in Commerce Park were estimated to be worth between $7.4 and $8 million, and 4TP LLC obtained a 47.5% membership interest in Compark by transferring to Compark its right to purchase the lots. (Penz Dep. 28–29, 32–33.) The remaining 52.5% interest in Compark was held by a group of investors that contributed approximately $3 million and obtained a loan for $1.1 million to purchase the lots. (Third Hoidal Aff., Exs. 8–9.) Compark used these funds to purchase the lots for $3.7 million.

Merl Groteboer (“Merl G.”) is Compark's Chief Manager and Ed Lunn is its Chief Financial Officer and Secretary. (Seventh Aff. of Steven J. Weintraut, Ex. 52 (Dep. of Merl Groteboer (“Merl G. Dep.”)) 41:25–42:13, Sept. 14, 2012, Docket No. 168.) Merl's son, Dan Groteboer (“Dan G.”), is also a member of Compark. (Seventh Weintraut Aff., Ex. 48 (Dep. of Daniel Groteboer (“Dan G. Dep.”)) 48:24–49:18.) Merl G. and Dan G. are real estate agents for RE/MAX of Rochester. (Third Hoidal Aff., Ex. 7 at 20.) Penz was an indirect member of Compark through 4TP, LLC. (Penz Dep. 77:21–25.) The rest of Compark's membership consists of business people and investors and to the extent

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that they are relevant to the present action, the Court will discuss them below.

II. THE DAMONS' PURCHASE

The events leading up to the present action begin with the Damons' July 2005 sale of a rental home in Maryland that netted approximately $630,000. (Third Hoidal Aff., Ex. 11 (Dep. of Jean Francois Damon (“Mr. Damon Dep.”)) 18:21–19:19.) The Damons then decided to invest those proceeds in a “like-kind” property in order to avoid paying taxes on the proceeds—a process known as a § 1031 exchange. ( Id. 19:23–20:8.) The Damons invested about $200,000 in oil and gas royalties and, on the advice of family members, decided to invest the remaining money in commercial real estate in Rochester, Minnesota. (Fourth Aff. of Christopher P. Renz, Ex. A (Dep. of Jacqueline Ruth Damon (“Ms. Damon Dep.”)) 30:10–13, 40:5–12, 344:14–21, Aug. 9, 2012, Docket No. 143.) There was a deadline of September 10, 2005, for the Damons to identify properties for the § 1031 exchange.

On September 2, 2005, the Damons met with Dan G. and took a tour of Rochester to look at developing areas. (Mr. Damon Dep. 39:12–25.) The Damons and Dan G. dispute how much detail the Damons provided regarding the amount they wanted to spend on property during this meeting, but the meeting ended without the Damons selecting a property or signing an agreement with Dan G. ( Id. 41:5–11.)

On September 7, 2005, the Damons met with Dan G. again, visited Commerce Park, and discussed the possibility of purchasing a building within the development that contained four office condos and was for sale for $1.21 million. ( Id. 232–33.) Dan G. informed the Damons that Commerce Park was owned by Compark, that Compark was owned by fourteen investors including himself, and that separate LLCs held each building in Commerce Park. (Ms. Damon Dep. 389:20–390:19.) The Damons allege that Dan G. agreed to serve as their leasing agent, through RE/MAX, and find tenants for the building, but the alleged agreement was not reduced to writing and its specifics were not discussed. ( Id. 189–90, 403–04.) Dan G. denies making such an agreement.

During the September 7 meeting, Dan G. presented a “Financial Analysis” to the Damons, which had been prepared by Merl G., and was intended to justify the $1.2 million asking price. ( See Seventh Weintraut Aff., Ex. 71.) The Damons allege that the Financial Analysis contained several false or misleading aspects, such as being based on a 100% occupancy rate, asserting that the condos were viable rental properties when they are typically sold, assuming rent of $13.50 per square foot even though such a figure was based on a fully finished interior and the building was being sold as a “vanilla shell,” and asserting that the units were 1,802 square feet each when in fact they were under 1,600.

At the close of the meeting, the Damons signed an agreement to purchase the building for $1.21 million. (Ms. Damon Dep. 369.) The Purchase Agreement included a $96,800 one-year rent guarantee from the sellers. ( Id. 214.) The Agreement indicated that the Groteboers were representing the Damons and Dan G. told the Damons that he was also representing the seller, Compark. ( See Fourth Renz Aff., Ex. N.) At some point after the meeting, Dan G. made a notation on the Financial Analysis that appears to indicate that he knew the square footage he conveyed to the Damons was incorrect and that rent of $14.90 per square foot, not $13.50, was needed to achieve the desired income. (Seventh Weintraut Aff., Ex. 71; Dan G. Dep. 104:14–23.)

The Damons allege that Dan G. made several misrepresentations during the September

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7 meeting, such as that there were no buildings available that would better suit the Damons' needs, that the Groteboers would represent the Damons in leasing the building, that there were numerous strong leads for tenants including a tenant associated with Mayo Clinic, that there was “no doubt” they could fill the building with tenants in one year, and that the size of the units was 1,802 square feet. (Third Am. Compl. ¶ 81, July 10, 2012, Docket No. 126.) ¹

The Purchase Agreement included an “acceptance deadline” stating that the offer to purchase would be “null and void” if it was not accepted by September 8, 2005. (Fourth Renz Aff., Ex. N at 2.) Dan G. testified that sometime after the Damons signed the Agreement on September 7, there was a meeting of the Compark members and Lunn signed for Compark. (Dan G. Dep. 112–13, 281–82.) The first record of the signed Agreement appeared on October 10, 2005, when Dan G. faxed the signed agreement to Dan Berndt, Compark's attorney. (Seventh Weintraut Aff., Exs. 77–79.)

The Purchase Agreement also indicated that Dan G. and Merl G. were the agents for both the Damons (the buyers) and Compark (the sellers). (Fourth Renz Aff., Ex. N.)

III. COMPARK 6–2

In connection with developing various commercial buildings on its lots, Compark created three LLCs for which it was the sole member: Compark 6–2, Compark 3–1, and Compark 1–1. (Third Hoidal Aff., Ex. 7 at 13 –14.) Compark maintains a bank account and files taxes, but the additional LLCs do not. The purpose of creating separate LLCs was to facilitate obtaining separate financing for each parcel and avoid complications that might arise if several properties financed by a single loan were sold individually. ( Id., Ex. 7 at 13–15.)

According to the Purchase Agreement, Compark was the seller to the Damons. (Fourth Renz Aff., Ex. N.) On October 12, 2005, however, Compark transferred the land to Compark 6–2 via quit claim deed. (Third Hoidal Aff., Ex. 26.) The Damons did not learn about this transfer and the Damons' representative at closing did not notice that Compark 6–2, not...