Wilmington Tr. v. 700 Hennepin Holdings, LLC

• Decision Date: 07 March 2022
• Docket Number: A21-0963
• Parties: Wilmington Trust, National Association, Respondent, v. 700 Hennepin Holdings, LLC, Respondent, Gregg Williams, as receiver for 700 Hennepin Holdings, LLC, Respondent, Anytime Restoration, Inc., Defendant, Seven Acquisition, LLC, Appellant.
• Court: Court of Appeals of Minnesota

Wilmington Trust, National Association, Respondent,
v.
700 Hennepin Holdings, LLC, Respondent,

Gregg Williams, as receiver for 700 Hennepin Holdings, LLC, Respondent, Anytime Restoration, Inc., Defendant, Seven Acquisition, LLC, Appellant.

No. A21-0963

Court of Appeals of Minnesota

March 7, 2022

Hennepin County District Court File No. 27-CV-20-11149

Mark W. Vyvyan, Kyle W. Ubl, Fredrikson & Byron, P.A., Minneapolis, Minnesota (for respondent Wilmington Trust, National Association)

Thomas F. DeVincke, Malkerson Gunn Martin LLP, Minneapolis, Minnesota (for respondent 700 Hennepin Holdings, LLC)

Michael W. Kaphing, Taft Stettinius & Hollister LLP, Minneapolis, Minnesota (for respondent Gregg Williams)

Mark R. Bradford, Andrew L. Marshall, Bassford Remele, P.A., Minneapolis, Minnesota (for appellant)

Considered and decided by Segal, Chief Judge; Ross, Judge; and Larkin, Judge.

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SYLLABUS

When a receiver appointed under the receivership statute, Minn. Stat. §§ 576.21-.53 (2020), seeks to enforce provisions of an executory contract that was entered into before the receivership, the receiver is bound by a mandatory arbitration provision in the contract to the same extent that the party subject to the receivership would have been bound but for the receivership.

OPINION

SEGAL, CHIEF JUDGE

Appellant Seven Acquisition, LLC (Seven) is a tenant in a building subject to a mortgage held by respondent Wilmington Trust, National Association. Wilmington Trust brought a foreclosure action against its mortgagor, respondent 700 Hennepin Holdings, LLC (700 Hennepin), the owner of the building. Pursuant to a stipulation between Wilmington Trust and 700 Hennepin, the district court appointed a limited receiver, respondent Gregg Williams (the receiver), with the power to collect rent from Seven, among other powers.

Seven challenges a district court order granting the receiver's motion to direct the payment of rent by Seven. Seven asserts that the district court erred by determining that (1) the receiver was not bound by a mandatory arbitration provision in the lease between Seven and 700 Hennepin, and (2) Seven could not assert a defense of recoupment to the rent-payment motion. Because we conclude that the receiver is bound by the arbitration provision in the lease to the same extent as 700 Hennepin would have been but for the receivership, we reverse and remand.

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FACTS

In January 2017, Seven entered into a lease to operate a restaurant in the building located at 700 Hennepin Avenue (the building) in downtown Minneapolis. 700 Hennepin purchased the building and assumed the lease with Seven in November 2017.

When 700 Hennepin purchased the building, it had an inspection performed by a structural engineer. The engineer noted that there were obvious signs of "water leaking at the roof level" and recommended that 700 Hennepin further investigate and repair the leak. 700 Hennepin did not act on the recommendation. Beginning in January 2018, the water leaks became increasingly frequent and intense, with water leaking into various areas of the restaurant.

Despite Seven's request that 700 Hennepin make repairs to prevent the leaks, 700 Hennepin failed to do so. In 2019, a pipe burst and caused extensive water damage to the restaurant, requiring Seven to close for several days for repairs. Seven asked 700 Hennepin to provide the name of its insurer so that Seven could submit a claim for the water damage. 700 Hennepin did not provide the information. Seven then submitted the claim through its own insurer, causing a substantial increase in Seven's annual insurance premiums.

Seven withheld rent payments because it believed that 700 Hennepin was responsible for the cost of the repairs and Seven's revenue losses. 700 Hennepin then filed an eviction action in housing court, alleging that Seven owed over $100, 000 in rent. Seven initiated a separate action in district court seeking an order to compel arbitration of the dispute and enjoin the eviction action. The district court granted the relief sought by Seven,

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based on its determination that the lease unambiguously required the parties to arbitrate the dispute.

The parties submitted the matter to arbitration, and the arbitrator determined that 700 Hennepin was responsible under the lease for maintenance and repairs to the building's roof, that it had failed to satisfy those obligations, and that Seven was entitled to an award of damages in excess of $900, 000 for business losses and the increase in Seven's insurance premiums. The arbitrator also awarded 700 Hennepin approximately $140, 000 in unpaid rent and determined that the eviction action should be dismissed. The district court confirmed the award and directed that judgment be entered in favor of Seven in the net amount of $826, 070.84.

Shortly before the confirmation of the award, Wilmington Trust, the mortgagee of 700 Hennepin, commenced a foreclosure action in district court against 700 Hennepin. Wilmington Trust did not initially name Seven as a party in the foreclosure action. The district court, based on a stipulation between Wilmington Trust and 700 Hennepin, signed an order appointing the receiver and granting him, among other powers, "[t]he power to oversee all collection of rents and cash flow." The receiver then sent a letter to Seven seeking payment of $44, 199.95, which the receiver claimed as the amount of rent due since the date the receiver was appointed. Seven disputed the rent claim and asserted that a landlord default had occurred because the roof still leaked and Seven was continuing to incur losses as a result.

In...