Incline Plaza Development v. Stearns Financial Services

Background

This case involves a failed attempt to finance a large mixed-use housing development in Duluth, Minnesota. Plaintiff Incline Plaza Development LLC ('Incline') is a New York limited liability company operated by Lazar Ostreicher and Eli Leshkowitz. In 2024, the City of Duluth and the Duluth Economic Development Authority approved a $500 million project called 'The Incline' and granted associated tax benefits.

To fund Phase 1—a 70-unit condominium building—Incline entered into an agreement with a financing entity, SGGI Holdings, Ltd. ('SGGI'), which agreed to lend Incline $45 million provided Incline first obtained a standby letter of credit (SbLC)—a financial guarantee from a third-party bank that a specified sum will be paid if Incline fails to perform—for $27 million, to be transmitted via a SWIFT MT760 message (a standardized electronic banking communication used to issue or confirm an SbLC). SWIFT is a global interbank messaging network used by thousands of financial institutions.

Incline approached Stearns Bank about providing the SbLC. Incline alleges that after due diligence and underwriting, Stearns agreed to issue the $27 million SbLC and points to four documents as evidence: (1) a September 17, 2024 letter from Stearns to SGGI titled 'Commitment to Issue a Standby Letter of Credit'; (2) an October 16, 2024 document titled 'Irrevocable Standby Letter of Credit'; (3) a 'Standby Letter of Credit Construction and Business Loan Agreement'; and (4) a 'Promissory Note.'

Incline further alleges that Stearns later claimed it was disconnected from the SWIFT system and gave Incline two options: route the SbLC through JP Morgan or wait approximately 90 days for Stearns to reconnect. Stearns allegedly continued to assure Incline that the SbLC transmission would happen. Relying on these assurances, Incline broke ground on Phase 1 on December 10, 2024, with Stearns representatives in attendance. The SbLC was never transmitted. SGGI terminated its partnership with Incline on May 8, 2025, and Duluth issued a Notice of Breach on June 2, 2026.

Incline's complaint asserts seven state law claims against Stearns: (1) First Material Breach of Loan; (2) Fraud and/or Intentional Misrepresentation; (3) Deceptive Conduct; (4) Inducement; (5) violations of Minn. Stat. § 513.33; (6) violations of the Minnesota Unfair Trade Practices Act § 325D.44; and (7) violations of the Minnesota Consumer Fraud Act § 325F.69.

Stearns's Version and Counterclaims

Stearns disputes that any final SbLC agreement was reached, characterizing the documents Incline relies on as unexecuted drafts and denying it made any guarantees. Separately, Stearns asserts that Incline released all its claims when the parties entered into two other agreements:

1. A Short-Term Loan dated November 22, 2024, in which Stearns agreed to lend Incline $5,600,000. The loan agreement contained broad release language under which Incline and its guarantors (Ostreicher and Leshkowitz) released any and all claims arising from Stearns's failure to transmit the SbLC, including claims for breach of contract, fraud, misrepresentation, and other torts.

2. A Modification Agreement dated March 6, 2025, extending the maturity date of the Short-Term Loan and reaffirming the earlier release.

Stearns asserts six counterclaims against Incline, Ostreicher, Leshkowitz, and various unnamed parties: (1) Default on the Note; (2) Foreclosure of Mortgage; (3) Replevin; (4) Enforcement of Ostreicher Guaranty; (5) Enforcement of Leshkowitz Guaranty; and (6) Subordinate Interests.

Plaintiffs' Response and Counterclaimants' Claims

Plaintiffs deny that they entered into the Short-Term Loan or the Modification Agreement, alleging that the signatures on those documents were inauthentic and fraudulent—specifically that Stearns affixed signature pages from the SbLC agreement to the Short-Term Loan documents without authorization.

Ostreicher and Leshkowitz characterize the $5.6 million as an 'Advance' against the $27 million SbLC—not a standalone loan—and allege the parties orally agreed that if Stearns failed to transmit the SbLC within 90 days, Incline would owe nothing and would not be in default. They acknowledge the Advance Agreement was not in writing. As for the Modification Agreement, they admit signing it but say they understood it only extended the repayment date of the Advance and did not constitute a personal guaranty.

Ostreicher and Leshkowitz assert six counterclaims against Stearns mirroring Incline's claims: (1) Fraud and/or Intentional Misrepresentation; (2) Deceptive Conduct; (3) Inducement; (4) violations of Minn. Stat. § 513.33; (5) violations of the Minnesota Unfair Trade Practices Act § 325D.44; and (6) violations of the Minnesota Consumer Fraud Act § 325F.69.

Stearns, in its Answer to those counterclaims, denies the fraud allegations and attaches email communications from Plaintiffs' attorney allegedly authorizing Stearns to 'slip' (affix) signatures on their behalf, as well as signed guaranty documents from both Ostreicher and Leshkowitz.

The Motion: Rule 12(c) Judgment on the Pleadings

Stearns filed a Rule 12(c) motion for judgment on the pleadings—a procedural mechanism that, like a Rule 12(b)(6) motion to dismiss for failure to state a claim, asks the court to resolve a case based only on the pleadings without discovery, accepting all well-pleaded facts as true in the light most favorable to the non-moving party. Such a motion may be granted only if the moving party clearly establishes there are no material issues of fact and it is entitled to judgment as a matter of law.

Stearns sought four forms of relief: (1) dismissal of Stearns Financial Services, Inc. as a misnamed party; (2) dismissal of Incline's complaint; (3) dismissal of Ostreicher and Leshkowitz's counterclaims; and (4) preclusion of all affirmative defenses as barred by Minn. Stat. § 513.33. The court held a hearing on December 4, 2025.

Ruling

Part 1: Misnomer — Granted

Stearns argued that Stearns Financial Services, Inc. and Stearns Bank National Association are two distinct entities, and only the latter was involved in the transactions at issue. Plaintiffs did not dispute this but stated they would comply with any corrective order. Applying the Eighth Circuit's 'misnomer principle,' which allows courts to grant leave to amend rather than dismiss outright when a plaintiff has accidentally sued a corporation under the wrong name, Judge Menendez granted this portion of the motion. Plaintiffs were ordered to file amended pleadings within one week substituting 'Stearns Bank National Association' as Defendant. The court noted that if discovery confirms Stearns Financial Services, Inc. is itself a party in interest, Plaintiffs may seek further leave to add it.

Part 2: Merits — Denied

The court denied the remainder of the motion. Stearns's central argument was that Plaintiffs failed to plead an enforceable credit agreement under Minn. Stat. § 513.33, which requires that a credit agreement—defined broadly as any agreement to lend or extend credit or make a financial accommodation—must be in writing, express consideration, set forth relevant terms and conditions, and be signed by both creditor and debtor to be enforceable. The Minnesota Supreme Court has interpreted this statute to bar not just breach of contract claims but also quasi-contract theories like promissory estoppel when based on an underlying credit agreement. See Figgins v. Wilcox, 879 N.W.2d 653 (Minn. 2016).

Judge Menendez acknowledged that Stearns raised real questions about § 513.33's application, but concluded that this case is not amenable to resolution at the pleadings stage. The court identified numerous central factual disputes that cannot be resolved without discovery, including: - The nature and validity of the documents Incline relies on as evidence of a final agreement; - Whether certain oral statements and guarantees were made; - The timeline of communications between the parties; - The authenticity of signatures on the Short-Term Loan and Modification Agreement.

The court also declined to convert the Rule 12(c) motion into a motion for summary judgment under Rule 56, noting that the parties had submitted over 50 exhibits—including drafts, emails, letters, and financial statements—far exceeding what is typical at the pleadings stage. The court exercised its discretion not to consider the extraneous materials and found conversion inappropriate given the procedural posture and the extent of the factual disputes. The case will proceed to discovery, after which summary judgment motions may be considered.

Disposition

Defendant's Motion for Judgment on the Pleadings (Dkt. 25) was granted in part and denied in part. Plaintiffs were ordered to file amended pleadings within one week substituting 'Stearns Bank National Association' for 'Stearns Financial Services, Inc. d/b/a Stearns Bank National Association' as Defendant. All other relief sought by Stearns was denied.