Lighthouse Management Group, Inc. v. Deutsche Bank Trust Company Americas

Background

Lighthouse Management Group, Inc. was appointed as an assignee for the benefit of creditors of Apple Valley Commons and its related entities. Lighthouse was authorized to investigate the entities’ management and assets and, if necessary, pursue legal action for creditors.

Apple Valley Commons owned two office buildings and had leased rooftop antenna space to Verizon and T-Mobile since 1994. Those lease rights generated monthly rental payments. MelTel II W3, LLC and MelTel II Valentine, LLC acquired wireless-antenna lease rights as part of an asset-backed-securities business. MelTel then granted Deutsche Bank Trust Company of Americas mortgages on those rights; Deutsche Bank served as indenture trustee for noteholders.

Chris Hanson represented to MelTel that he owned or controlled the buildings and negotiated an assignment of the lease rights. Later, however, the transaction was put in Apple Valley Commons’ name because Chris Hanson had not obtained financing to buy the buildings. On November 10, 2014, Apple Valley Commons and MelTel signed agreements assigning the lease rights to MelTel for 99 years. The agreements required MelTel to pay Apple Valley Commons $440,000, plus another $35,000 after obtaining title insurance.

MelTel did not pay Apple Valley Commons. Instead, after receiving changing wiring instructions, it sent $421,734.17 to an attorney’s trust account for Hillside. Apple Valley Commons did not receive that payment. MelTel later obtained two mortgages from Deutsche Bank on the lease rights and began collecting the related rent. Hillside never completed its purchase of the buildings.

Claims and Motions

Lighthouse asserted claims for quiet title, declaratory judgment, and unjust enrichment. It sought a ruling that the assignment and mortgages were invalid, that MelTel and Deutsche Bank had no interest in the lease rights, and that adverse interests should be removed from the buildings’ title.

The defendants moved for judgment on the pleadings or, alternatively, summary judgment. Because the court considered affidavits, exhibits, and other materials outside the pleadings, it applied the summary-judgment standard. Summary judgment is appropriate only when no genuine dispute about an important fact exists and the moving party is entitled to judgment under the law.

Quiet Title

The court rejected MelTel’s argument that Lighthouse’s quiet-title claim failed because Lighthouse had not alleged that MelTel committed fraud. Minnesota’s quiet-title statute requires possession of real property and an adverse claim by another person; the court found no requirement that the plaintiff prove fraud as the only possible basis for the claim.

The court also rejected MelTel’s argument that Apple Valley Commons had surrendered its interest when John Hanson signed the assignment and MelTel took possession of the documents. Under Minnesota law, delivery of a real-property interest requires a clear and unconditional intent to give up control, and delivery is not complete until the grantor cannot revoke or reclaim the interest. The court held that the assignment was not delivered as a matter of law because MelTel did not make the required $440,000 payment or the additional $35,000 payment. The assignment’s conditions and the failure of consideration prevented the court from concluding that Apple Valley Commons had unconditionally surrendered its interest on November 10.

MelTel also claimed protection as a bona-fide purchaser, meaning a buyer who gives consideration in good faith without actual, implied, or constructive notice of another person’s conflicting rights. The court held that the evidence did not establish that status as a matter of law. MelTel knew by August 2014 that Chris Hanson was not the buildings’ owner or landlord and knew by September and October that he and Hillside had not obtained financing. MelTel had also agreed several times that the purchase payment would go to Apple Valley Commons, but it sent the money to Hillside through the attorney’s trust account after the wiring instructions changed.

The court concluded that a jury could find MelTel had at least implied notice of Apple Valley Commons’ right to receive the payment. A jury could also find that MelTel had a duty to investigate the changed instructions. The court added that a jury could determine whether Deutsche Bank had a duty to inquire further or conduct its own review, and therefore whether Deutsche Bank was a bona-fide purchaser.

Declaratory Judgment

The declaratory-judgment claim sought the same relief as the quiet-title claim. The court explained that Minnesota’s declaratory-judgment law is not an independent source of jurisdiction and requires an underlying common-law or statutory claim. Because a jury could conclude that MelTel was not a bona-fide purchaser, the court held that MelTel had not shown that Lighthouse lacked an independent quiet-title claim. The court therefore denied the motion as to the declaratory-judgment claim.

Unjust Enrichment

The parties agreed that the unjust-enrichment claim was closely connected to the quiet-title claim. Lighthouse argued that MelTel was unjustly enriched by receiving the lease rights without paying Apple Valley Commons and by collecting the lease income. The defendants argued that Lighthouse had not shown illegal or unlawful conduct.

The court held that Minnesota unjust-enrichment claims require a benefit, the defendant’s knowing acceptance of that benefit, and circumstances making it inequitable to retain the benefit without paying for it. The court further held that such a claim may be based on a moral wrong, even when the defendant did not commit an illegal or independently wrongful act, particularly when the benefit resulted from a failure of consideration, fraud, or mistake. Whether MelTel’s retention of the lease rights was morally wrong depended on the jury’s determination of MelTel’s good-faith-purchaser status. MelTel was therefore not entitled to summary judgment on this claim.

Disposition

The court denied the defendants’ motions for judgment on the pleadings or, alternatively, summary judgment. The order did not resolve the claims in the defendants’ favor; the disputed issues identified by the court remained for further proceedings. Judge David S. Doty signed the order on March 29, 2019.