Alliance Bank v. Dykes

Alliance Bank, Respondent (A12-455),

Lecy Construction, Inc., Plaintiff (A12-485), Appellant (A12-486),

v.Daryll C. Dykes, et al., Appellants (A12-455, A12-485), Respondents (A12-486),

Alliance Bank, Respondent (A12-485, A12-486),

Old Republic National Title Insurance Company, Respondent (A12-485, A12-486), and

Daryll C. Dykes, et al., third party plaintiffs, Appellants (A12-455, A12-485),

v.Alliance Bank, third party defendant, Respondent (A12-485),

Alliance Bank, et al., Third Party Defendants (A12-486),

Old Republic National Title Insurance Company, third party defendant, Respondent (A12-455, A12-485),

Emigrant Mortgage Company, Inc., a New York corporation, Third Party Defendant (A12-455, A12-485), Respondent (A12-486).

A12-0455

A12-0485

A12-0486

STATE OF MINNESOTA IN COURT OF APPEALS

Filed December 31, 2012

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2012).

Affirmed

Chutich, Judge

Ramsey County District Court

File Nos. 62-CV-09-10096; 62-CV-09-7761

Thomas C. Atmore, Edward W. Gale, Leonard, O'Brien, Spencer, Gale & Sayre, Ltd., Minneapolis, Minnesota (for respondent Alliance Bank)

Beverly J. Aho, James H. Gilbert, Steven R. Hedges, James H. Gilbert Law Group, P.L.L.C., Eden Prairie, Minnesota (for respondent/cross-appellant Lecy Construction, Inc.)

Laura A. Hage, Hage Law Office, St. Paul, Minnesota (for appellants Daryll C. Dykes, et al.)

Thomas B. Olson, Shaun D. Redford, Olson & Lucas, P.A., Edina, Minnesota (for respondent Old Republic National Title Insurance Company)

Christina M. Snow, David R. Mortensen, Wilford, Geske & Cook, P.A., Woodbury, Minnesota (for respondent Emigrant Mortgage Company, Inc.)

Considered and decided by Hudson, Presiding Judge; Worke, Judge; and Chutich, Judge.

UNPUBLISHED OPINION

CHUTICH, Judge

In this foreclosure-related dispute, appellants Daryll and Sharon Dykes, and respondent and cross-appellant Lecy Construction, Inc. (Lecy), asserted a number ofclaims against respondents Alliance Bank, Old Republic National Title Insurance Company, and Emigrant Mortgage Company. The district court granted summary judgment to respondents on all of appellants' and cross-appellant's claims.

On appeal from summary judgment, the Dykeses argue that the district court erred by (1) concluding that their claims and defenses are barred by the statute of frauds and the statute of limitations; (2) denying a motion to compel discovery; and, (3) granting Alliance Bank attorney fees. Cross-appellant Lecy contends that the district court erred by (1) granting summary judgment because genuine issues of material fact exist; (2) determining that its claims are barred by the statute of frauds and the statute of limitations; (3) ruling that the theory of respondeat superior did not apply; and (4) denying a number of other motions brought by Lecy. Because we conclude that the district court properly granted summary judgment on all claims, we affirm.

FACTS

These three consolidated appeals arise from the financing and construction of a multi-million dollar home for the Dykeses. The Dykeses hired Lecy to build the home. The Dykeses secured financing from Emigrant Mortgage Company (Emigrant), Alliance Bank (Alliance), and Lecy to purchase the home after construction was completed. An employee of Old Republic National Title Insurance (Old Republic) conducted the closing on the notes. The following are the relevant and, unless otherwise noted, undisputed underlying facts.

In early 2002, Daryll Dykes, a surgeon who had just joined an orthopedic surgical practice after finishing his residency and a fellowship, began a banking relationship withAlliance. His wife Sharon, a surgeon as well, was still completing her residency in 2002. The Dykeses worked with Susan Theimer, the vice president of an Alliance branch, to secure a home-equity line of credit.

Later that year, the Dykeses became interested in purchasing lake-front property in Arden Hills. They intended to purchase the property, tear down the existing house, and build a custom home. Daryll Dykes contacted Theimer about possible financing, and Theimer promised him that Alliance would extend the financing for the purchase of the land and construction of the home. The Dykeses specifically claim that Theimer promised them a 15- or 30-year mortgage at a 2% annual interest rate to cover the entire cost of the project. Theimer denies ever promising the Dykeses a mortgage on those terms, and the record shows that interest rates for "jumbo" loans, the type of loan that the Dykeses would have required, were between 5% and 7% at that time.

In December 2002, the Dykeses purchased the lake-front property with an unsecured variable-rate loan from Alliance for $627,800. Theimer approved the loan for the Dykeses although the loan amount exceeded her lending authority. Theimer also failed to get approval from Alliance's Executive Loan Committee to extend the loan, as was Alliance's customary practice. When Theimer approved the loan, the Dykeses would likely not have qualified for the loan because of their relatively low credit scores and combined annual gross income, then approximately $200,000.¹ In February 2003,the Dykeses refinanced the loan and secured it with the purchased property at the same variable interest rate.

The Dykeses hired Lecy, a Minnesota corporation with over thirty years' experience constructing luxury homes, to build their new house. Roy Lecy, who has a B.A. in business and a M.A. in finance, handled Lecy's sales and financing and was personally involved in the Dykeses' project. The Dykeses and Lecy entered into a construction agreement on January 28, 2003, which estimated the cost of the home to be about $1.8 million. Lecy financed the construction of the house with its own line of credit.

Construction on the 13,000-square-foot house began in early 2003. During construction, Lecy encountered some engineering issues and the Dykeses upgraded the home's features, which increased its cost by over $1 million dollars, from $1.8 to $2.9 million, an increase of over sixty percent. When additional costs arose, the Dykeses claim that Daryll Dykes and Roy Lecy spoke with Theimer to confirm that the final financing could cover the increased cost.² According to the Dykeses, Theimer said that the increased price would not be an issue.

To close on the new house, the Dykeses needed financing to cover the costs of the entire project, including the final cost of construction—$2.9 million—as well as the original Alliance loan used to purchase the property, for a total of approximately $3.5 million. On or about December 8, 2003, Theimer informed the Dykeses that there was a"glitch" with the financing because of the Dykeses' credit issues. On December 9, 2003, Daryll Dykes informed Lecy of the problem and asked if Lecy could carry some of the construction costs at closing. Lecy initially agreed to loan the Dykeses $800,000, and later, before closing, agreed to increase the loan's amount to $1.1 million.

By December 24, 2003, the Dykeses were prepared to close on their home with the following financing: a first priority loan for $1 million from Emigrant (Emigrant note), a second priority loan for $1.6 million from Alliance Bank (Alliance note), and a third priority loan for about $1.1 million from Lecy (Lecy note). Each note was secured by a mortgage associated with that particular note. According to the Dykeses and Lecy, Theimer represented that this financing package was "temporary" and only for a couple months until Alliance could provide the Dykeses with permanent financing. By their terms, the Emigrant note was a high-interest variable rate loan amortized over 30 years, while the Alliance and Lecy notes contained shorter maturity dates, 24 months and 13 months, respectively.

Julie Perusse of Old Republic handled the closing for all three loans on December 24, 2003.³ In attendance at the closing were Perusse, the Dykeses, and Roy Lecy. Just before closing, Emigrant sent instructions to Perusse for the Emigrant note, which stated that "[a]ll existing liens on subject property must be discharged and removed at closing," and that "no further liens may be placed on the property withoutEmigrant's prior written consent." The Dykeses signed the documents for all of the notes and moved into their home on December 25, 2003.

Lecy received approximately $1.8 million from the Emigrant and Alliance notes which, given the $2.9 million cost of the home, meant Lecy was still owed the $1.1 million reflected in the Lecy note. Shortly after the closing, Lecy informed Daryll Dykes that it had received $20,000 less than it should have from the disbursement of the Emigrant note. Lecy contacted Perusse, and she told him that there was an error "in the numbers that Sue Theimer had put together and the numbers are what they were." Lecy did not inquire further, cashed the check, and passed the $20,000 cost onto the Dykeses.

Daryll Dykes also contacted Theimer about the discrepancy. Theimer informed him that the missing funds were the "amount to record the mortgages" and later described it as a "miscellaneous debit of $16,000." Despite receiving these inconsistent explanations, the Dykeses did not pursue the matter further.

In October 2004, Alliance discovered that Theimer had been exceeding her lending authority by extending multiple loans that did not meet the generally accepted banking and lending practices of Alliance. It terminated Theimer's employment in December 2004. The following year, the Federal Deposit Insurance Corporation conducted a routine audit of Alliance's files and discovered that Theimer and Darrell Mullerleile, the branch president, had been stealing funds from loan closings, including $16,000 from the transaction involving the Dykeses. See U.S. v. Theimer, 557 F.3d 576, 577 (8th Cir. 2009). Theimer and Mullerleile were charged and convicted in federal court for various crimes, including embezzlement and theft.

The Dykeses made...