ROA Rochester v. City of Byron

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ROA Rochester, Appellant, v. City of Byron, Respondent.

No. A23-1952

Court of Appeals of Minnesota

June 24, 2024

This opinion is nonprecedential except as provided by Minn. R Civ. App. P. 136.01, subd. 1(c).

Olmsted County District Court File No. 55-CV-22-5733

Mark R. Bradford, Elizabeth Euller, Bradford Andresen Norrie &amp Camarotto, Bloomington, Minnesota; and Benjamin D. McAninch Blethen Berens, Mankato, Minnesota (for appellant)

Melanie J. Leth, Weber, Leth &Woessner, PLC, Dodge Center, Minnesota (for respondent)

Considered and decided by Connolly, Presiding Judge; Bratvold, Judge; and Jesson, Judge. ^[*]

CONNOLLY, JUDGE

Appellant challenges the summary-judgment dismissal of its claims against respondent, arguing that the district court (1) erred in determining that respondent is a bona fide purchaser, (2) erred in applying the doctrine of unclean hands, and (3) abused its discretion in granting summary judgment without first resolving appellant's pending motion to compel discovery. We reverse and remand.

FACTS

Appellant ROA Rochester, LLC,^[1] is an outdoor-advertising company that previously held two written, but unrecorded, one-year leases with Flanco, LLC to place advertisement billboards on Flanco's property in Byron, Minnesota (the property). In 2018 Flanco's owner died, and ownership of the property passed to the owner's son, Steven Flanagan. Flanagan tried unsuccessfully to sell the property which had an appraised value of $750,000 with an additional $50,000 of value associated with appellant's billboards. In February and March 2021, appellant proposed extending its one-year leases to ten-year leases. Flanagan at first hesitated to sign new leases because he still intended to sell the property.

On April 21, 2021, appellant reached an agreement with Flanagan who executed two ten-year leases with retroactive start dates of September 1, 2020. The leases each include an addendum which provides:

If [Flanagan] sells the [p]roperty to a person or entity that is neither related to nor affiliated with [Flanagan] then, in that event, [Flanagan] will give 60 days prior notice and allow [appellant] to negotiate the lease with the buyer. If unable to reach satisfactory terms with the buyer, [appellant] agrees to terminate this [l]ease, effective as of the date of the closing of the sale providing [appellant] a copy of the executed contract evidencing such sale, together with written notice of termination in advance of the closing of the sale.

In early 2021, respondent City of Byron referred Flanagan to a potential buyer. After the proposed deal with the potential buyer failed, the city's administrator and Flanagan discussed the possibility of respondent buying the property. Flanagan represented to respondent that appellant had two one-year leases to the property that would expire at the end of 2021. Flanagan did not disclose the two, ten-year leases. On April 13, 2021, the city administrator moved the city council to "begin the process of purchasing" the property for $600,000. The motion noted that the property's appraisal states, "The contracts for the billboards are with [appellant] and are up at the end of 2021. As part of the sale, [Flanagan] keeps the 2021 rent which is [a] total of $3,000[] annually."

On May 28, 2021, respondent bought the property from Flanagan for the agreed-upon price. The city administrator later testified that she did not "receive any lease from [Flanagan] before moving forward with the sale." She also testified that she did not contact appellant before closing. Instead, she relied on Flanagan's verbal representations that the leases would expire at the end of 2021, and Flanagan's signed Affidavit Regarding Seller (affidavit) drafted by respondent's attorney. But contrary to his verbal representations, Flanagan stated in his affidavit that, "There are no unrecorded contracts, leases, easements, or other agreements or interests relating to [the property] except as stated herein[.]" The affidavit did not disclose any of appellant's leases.

On June 1, 2021, Flanagan emailed appellant for the first time regarding the sale of the property. On July 30, 2021, appellant sent copies of the ten-year leases to respondent. At first, the parties discussed honoring appellant's leases. But in September 2021, respondent informed appellant that it was not bound by the leases because Flanagan failed to disclose them, and that appellant needed to remove its billboards from the property before the end of the year.

Appellant sued respondent to enforce its rights to the property under the ten-year leases. Respondent denied liability and asserted that it was a bona fide purchaser. Before the close of discovery, respondent moved for summary judgment, arguing that it was a bona fide purchaser because it was not on notice of the ten-year leases. Appellant opposed the motion, asserting that respondent knew that appellant had an interest in the property and failed to contact appellant to confirm the extent of that interest. Appellant also requested that the referee decide its pending motion to compel depositions of certain city council members and respondent's attorney before ruling on summary judgment.

On October 24, 2024, the referee issued its decision and concluded that respondent was a bona fide purchaser because respondent "did not have any actual knowledge of facts that would lead it to further inquire about the ten-year leases between Flanagan and [appellant]" before closing on the property. The referee disagreed with appellant that respondent was required to request copies of the one-year leases from appellant before closing because Flanagan consistently represented to respondent that "the one-year leases would remain and there is no evidence presented that, even if the one-year leases were disclosed to [respondent] prior to closing, there would be information presented in those one-year leases that would require [respondent] to further inquire into the ten-year leases." The referee also granted summary judgment for respondent under the doctrine of unclean hands, finding that appellant sought to induce Flanagan not to disclose the ten-year leases to respondent. As a result, the referee denied appellant's pending motion to compel discovery without addressing its merits. The district court adopted the referee's findings and dismissed appellant's complaint.

This appeal follows.

DECISION

We review a district court's "grant of summary judgment de novo to determine whether there are genuine issues of material fact and whether the district court erred in its application of the law." Montemayor v. Sebright Prods., Inc., 898 N.W.2d 623, 628 (Minn. 2017) (quotation omitted); see Minn. R. Civ. P. 56.01. A material fact is one that will affect the outcome or result of the case. Westfield Ins. Co. v. Wensmann, Inc. 840 N.W.2d 438, 450 (Minn.App. 2013), rev. denied (Minn. Feb. 26, 2014). Appellate courts "view the evidence in the light most favorable to the party against whom judgment was granted." Fletcher Props., Inc. v. City of Minneapolis, 947 N.W.2d 1, 9 (Minn. 2020) (quotation omitted). Summary judgment is inappropriate when reasonable minds could reach different conclusions based on the evidence presented. DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997).

Appellant challenges the summary-judgment dismissal of its claims against respondent, arguing that the district court (1) erred in determining that respondent is a bona fide purchaser, (2) erred in applying the doctrine of unclean hands, and (3) abused its discretion in granting summary judgment without first resolving appellant's pending motion to compel discovery. We address each argument in turn.

I. The district court erred in determining that respondent is a bona fide purchaser.

Appellant challenges the district court's determination that respondent is a bona fide purchaser protected by the Minnesota recording act and therefore not bound by appellant's ten-year leases. The Minnesota recording act provides, in part:

Every conveyance of real estate shall be recorded in the office of the county recorder of the county where such real estate is situated; and every such conveyance not so recorded shall be void as against any subsequent purchaser in good faith and for a valuable consideration of the same real estate, or any part thereof, whose conveyance is first duly recorded, and as against any attachment levied thereon or any judgment lawfully obtained at the suit of any party against the person in whose name the title to such land appears of record prior to the recording of such conveyance.

Minn. Stat. § 507.34 (2022). The term "conveyance" includes written leases for a term greater than three years. Minn. Stat. § 507.01 (2022). Because appellant's written, ten-year leases are conveyances, the recording act applies here.

The language of the recording act makes Minnesota a race-notice jurisdiction, which means that a purchaser in good faith, or "a bona fide purchaser[,] who records first obtains rights to the property which are superior to a prior purchaser who failed to record." Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 524 (Minn. 1990). A "bona fide purchaser is one who provides valuable consideration without actual, constructive, or implied notice of others' inconsistent outstanding rights." Wash. Mut. Bank, F.A. v. Elfelt, 756 N.W.2d 501, 506 (Minn.App. 2008), rev. denied (Minn. Dec. 16, 2008). Purchasers with any such knowledge are not protected under the recording act. In re Ocwen Fin. Servs., Inc., 649 N.W.2d 854, 857 (Minn.App. 2002), rev. denied (Minn. Nov. 19, 2002).

On appeal, the parties dispute only whether respondent had implied notice of appellant's ten-year leases. A purchaser has implied notice when th...