Lighthouse Mgmt. Grp., Inc. v. Deutsche Bank Trust Co. of Americas

• Decision Date: 29 March 2019
• Docket Number: Civil No. 17-3473(DSD/SER)
• Parties: LIGHTHOUSE MANAGEMENT GROUP, INC. as assignee for the benefit of creditors of AV Development Company LLLP, Apple Valley Commons II and AV Commons II LLLP, Plaintiff, v. DEUTSCHE BANK TRUST COMPANY OF AMERICAS, MelTel II W3, LLC, and MelTel II Valentine, LLC, Defendants.
• Court: U.S. District Court — District of Minnesota

380 F.Supp.3d 911

LIGHTHOUSE MANAGEMENT GROUP, INC. as assignee for the benefit of creditors of AV Development Company LLLP, Apple Valley Commons II and AV Commons II LLLP, Plaintiff,

v.DEUTSCHE BANK TRUST COMPANY OF AMERICAS, MelTel II W3, LLC, and MelTel II Valentine, LLC, Defendants.

Civil No. 17-3473(DSD/SER)

United States District Court, D. Minnesota.

Signed March 29, 2019

Arthur G. Boylan, Esq. and Anthony Ostlund Baer & Louwagie, PA, 90 South 7^th Street, Suite 3600, Minneapolis, MN 55402, counsel for plaintiff.

Brian W. Varland, Esq. and Heley, Duncan & Melander, PLLP, 8500 Normandale Lake Blvd., Suite 2110, Minneapolis, MN 55437, counsel for defendants.

ORDER

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).¹ Based on a review of the file, record, and proceedings herein, and for the following reasons, the courts denies the motions.

BACKGROUND

This property dispute arises out of the allegedly fraudulent assignment of certain property rights to MelTel.

I. The Parties

Plaintiff Lighthouse Management Group is an assignee for the benefit of creditors of Apple Valley Commons (AVC)² under Minn. Stat. § 577.14. Rev. Am. Compl. ¶ 6; Varland Decl. Ex. C at 3-4. Lighthouse is charged with investigating AVC's business management; using AVC's business assets for the benefit of creditors; if necessary, taking possession of AVC's property to further the creditors' interests; and exercising the powers of a general receiver. See also Minn Stat. § 577.18.

AVC owns two large office buildings in Apple Valley, Minnesota (Buildings).³ Varland Decl. Ex. A. at 3. Since 1994, AVC has leased roof-top, antennae space at one of the Buildings to wireless phone companies Verizon and T-Mobile in exchange for monthly rent payments (Lease Rights). Id. at 7; Rev. Am. Compl. ¶ 2. During 2014 and 2015, John Hanson was AVC's general partner, chief manager, and a primary investor. Varland Decl. Ex. A at 3; Boylan Supp. Decl., ECF No. 102, Ex. 31 at 6.

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, see id., and logs its due diligence efforts and communications in a specially designed database. Wade Dep. at 41:19-22. Deutsche Bank relies entirely on MelTel's due diligence review. Id. at 56:4-24; Voon Dep. at 27:23-25.

II. The Lease Rights Assignment

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; see also Boylan Supp. Decl. Ex. 28 at 7. MelTel contacted John Hanson approximately an additional fifteen times over the next several years, but he remained uninterested in assigning the Lease Rights. Boylan Supp. Decl. Ex. 28 at 6-7.

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. Id. at 6; see also Boylan Decl. Ex. 1 at 3.

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. Id. He also told MelTel that he would consider an offer to assign the Lease Rights in exchange for a cash payment. Id.

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. Id. On July 23 and July 29, Chris Hanson again represented to MelTel that he was the Buildings' landlord, see id. Ex. 29 at 2, and granted MelTel an exclusive option to acquire the Lease Rights. Id. Ex. 30 at 1-3. Based on those representations, MelTel assumed that Chris Hanson was the controlling person for the "landlord entity, Hillside." Wade Dep. at 24:11-13.

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 voicemail asking whether the deed transfer had occurred. Id. at 3. On September 2, MelTel noted that Chris Hanson was still negotiating the Buildings' sale and the "idea [now] is to close [the Lease Rights' assignment] with [the] current fee owner," AVC.⁴ Id.

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. Id. On September 25, MelTel noted that the landlord, Chris Hanson, "would now like to close [the Lease Rights assignment] in the name of Hillside" and that the "closing of the [Buildings] will happen in about 7 days." Id.

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. Id. John Hanson appears to have agreed to the proposal and to that end, on October 8, John Hanson told MelTel that the Lease Rights assignment would be in AVC's name, rather than Hillside's. Id. John Hanson explained to MelTel that Chris Hanson had not yet been able to obtain financing to purchase the Buildings and it was uncertain when he would be able to do so. Boylan Supp. Decl. Ex. 28 at 2.

On November 10, AVC, as the Buildings' "Landlord," and MelTel entered two agreements, both entitled "Purchase and Sale of Lease and Successor Lease Agreement." Id. Exs. 31, 32. The agreements assigned the Lease Rights to MelTel for 99 years (Assignment).⁵ Id.; see also Varland Aff. Exs. C, E. John Hanson signed the Assignment on AVC's behalf.⁶ Boylan Supp. Decl. Exs. 31, 32. The Assignment expressly stated that MelTel "shall pay to [AVC], in consideration for the rights and interests granted by [AVC] to [MelTel]" the purchase price of $ 440,000.⁷ Id. The Assignment also expressly stated that MelTel would pay AVC a second $ 35,000 payment thirty days after MelTel obtained title insurance on the Lease Rights. Id. The Assignment further provided that AVC had assigned the Lease Rights to MelTel "on the terms and subject to the conditions set forth" therein. Varland Aff. Exs. C, E. MelTel, in turn, took possession of the Assignment and subsequently recorded it with the Dakota County District Court on December 4. Boylan Supp. Decl. Exs. 31, 32; see also Rev. Am. Compl. ¶ 17; Varland Aff. ¶¶ 2-7; Varland Aff. Exs. A-F. Later on November 10, MelTel entered a separate agreement whereby it again agreed to "wire the [Lease Rights] purchase proceeds ... to [AVC] ...." Boylan Supp. Decl. Exs. 33, 34.

Then, on the morning of November 12, MelTel received two landlord settlement statements, purportedly from AVC, with wiring instructions for the $ 440,000 payment. Id. Exs. 39, 40. The statements identified AVC as the landlord, but instructed MelTel to wire the payment to a Hillside bank account. Id. The statements were not signed by John Hanson.⁸ Id.

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. Id. Ex. 28 at 1. Consistent with that instruction, MelTel wired $ 421,734.17 to Berkey's trust account. Boylan Decl. Ex. 11.

MelTel subsequently obtained two mortgages from Deutsche Bank on the Lease Rights.⁹ Shortly thereafter, MelTel started collecting the monthly rent proceeds under the Lease Rights. Boylan Decl. Ex. 18.

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.

III. Lighthouse Appointment and Investigation

In April 2013, AVC and Husker Management Company (Husker) agreed that Husker would manage the Buildings and the collect rents. Id. at 2. In exchange, Husker received a percentage of the rental income. Id. It appears, however, that Husker did not always remit the rental proceeds as agreed and failed to keep an accounting of the collected rents. Id.

In mid-2015, AVC hired Lighthouse to conduct a third-party...