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Damon v. Groteboer

United States District Court, D. Minnesota

March 29, 2013

JEAN FRANCOIS DAMON and JACQUELINE DAMON, Plaintiffs,
v.
DANIEL GROTEBOER; MERL GROTEBOER; RE/MAX OF ROCHESTER; NORTHWEST EXECUTIVES BROKERAGE INC.; COMPARK, LCC; COMPARK 6-2, LLC; LOWELL PENZ; BRYAN SCHOEPPNER; JOHN WADE; EDWARD LUNN; DARREN GROTEBOER; ALAN SCHAFER; JOEL ALBERTS a/k/a Joel Albert; JOEL S. LARSON; JEFFREY L. BIGLER a/k/a Jeff L. Bigler; KENNETH NASH; M& L PARTNERSHIP; TJ HALEY, LLC; 4 TP, LLC; JADCO PROPERTIES, a Minnesota General Partnership; JADCO PROPERTIES, LLC; SLB SERVICES; LLC, and DOES 1-10, Defendants

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Steven J. Weintraut, SIEGEL BRILL, PA, Minneapolis, MN, for plaintiffs.

Christopher P. Renz, Nathan J. Knoernschild, David J. McGee, and Sarah B. Bennett, THOMSEN & NYBECK, PA, Bloomington, MN, for defendants Daniel Groteboer, Merl Groteboer, RE/MAX of Rochester, and Northwest Executives Brokerage Inc.

Sten-Erik Hoidal, Ted C. Koshiol, and Todd A. Wind, FREDRIKSON & BYRON, PA, Minneapolis, MN, for defendants Compark, LLC, Compark 6-2, LLC, Lowell Penz, Bryan Schoeppner, John Wade, Edward Lunn, Darren Groteboer, Alan Schafer, Joel Alberts, Joel S. Larson, Jeffrey L. Bigler, Kenneth Nash, M& L Partnership, TJ Haley, LLC, 4 TP, LLC, Jadco Properties, Jadco Properties, LLC, and SLB Services, LLC.

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MEMORANDUM OPINION AND ORDER

JOHN R. TUNHEIM, United States District Judge.

Plaintiffs Jean Francois Damon and Jacqueline Damon's (the " Damons" ) claims arise out of a commercial real estate purchase in 2005. The Damons' complaint includes fifteen counts, including breach of fiduciary duties and fraud, against their real estate agents (Daniel Groteboer, Merl Groteboer, RE/MAX of Rochester, Northwest Executives Brokerage Inc. (collectively, the " Realtor Defendants" )) and the sellers of the real estate (Compark, LLC, Compark 6-2, LLC, and the fourteen members of Compark, LLC (collectively, the " Compark Defendants" )). The matter is currently before the Court on the Realtor Defendants' motion to dismiss for lack of subject matter jurisdiction, the Realtor Defendants' motion for partial summary judgment, the Compark Defendants' motion for summary judgment, and various objections to rulings of United States Magistrate Judge Franklin L. Noel relating to the subject matter jurisdiction issue. For the reasons explained below, the Court will deny the Realtor Defendants' motion to dismiss and will grant in part and deny in part defendants' motions for summary judgment.

BACKGROUND

I. COMPARK AND THE DEVELOPMENT

This action involves commercial real estate in the " Commerce Park" development in northwest Rochester, Minnesota. Dan Penz's company 4TP, LLC possessed the right to purchase several lots in Commerce Park. (Third Aff. of Sten-Erik Hoidal, Ex. 3 at 9, Aug. 9, 2012, Docket Nos. 152-53.) Penz's discussions with Merl Groteboer led to the formation of Compark, LLC on December 29, 2004. (Third Hoidal Aff., Ex. 4 (Dep. of Daniel L. Penz (" Penz Dep." )) 27-28; Third Hoidal Aff., Ex. 5.) The lots in Commerce Park were estimated to be worth between $7.4 and $8 million, and 4TP LLC obtained a 47.5% membership interest in Compark by transferring to Compark its right to purchase the lots. (Penz Dep. 28-29, 32-33.) The remaining 52.5% interest in Compark was held by a group of investors that contributed approximately $3 million and obtained a loan for $1.1 million to purchase the lots. (Third Hoidal Aff., Exs. 8-9.) Compark used these funds to purchase the lots for $3.7 million.

Merl Groteboer (" Merl G." ) is Compark's Chief Manager and Ed Lunn is its Chief Financial Officer and Secretary. (Seventh Aff. of Steven J. Weintraut, Ex. 52 (Dep. of Merl Groteboer (" Merl G. Dep." )) 41:25-42:13, Sept. 14, 2012, Docket No. 168.) Merl's son, Dan Groteboer (" Dan G." ), is also a member of Compark. (Seventh Weintraut Aff., Ex. 48 (Dep. of Daniel Groteboer (" Dan G. Dep." )) 48:24-49:18.) Merl G. and Dan G. are real estate agents for RE/MAX of Rochester. (Third Hoidal Aff., Ex. 7 at 20.) Penz was an indirect member of Compark through 4TP, LLC. (Penz Dep. 77:21-25.) The rest of Compark's membership consists of business people and investors and to the extent

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that they are relevant to the present action, the Court will discuss them below.

II. THE DAMONS' PURCHASE

The events leading up to the present action begin with the Damons' July 2005 sale of a rental home in Maryland that netted approximately $630,000. (Third Hoidal Aff., Ex. 11 (Dep. of Jean Francois Damon (" Mr. Damon Dep." )) 18:21-19:19.) The Damons then decided to invest those proceeds in a " like-kind" property in order to avoid paying taxes on the proceeds -- a process known as a § 1031 exchange. ( Id. 19:23-20:8.) The Damons invested about $200,000 in oil and gas royalties and, on the advice of family members, decided to invest the remaining money in commercial real estate in Rochester, Minnesota. (Fourth Aff. of Christopher P. Renz, Ex. A (Dep. of Jacqueline Ruth Damon (" Ms. Damon Dep." )) 30:10-13, 40:5-12, 344:14-21, Aug. 9, 2012, Docket No. 143.) There was a deadline of September 10, 2005, for the Damons to identify properties for the § 1031 exchange.

On September 2, 2005, the Damons met with Dan G. and took a tour of Rochester to look at developing areas. (Mr. Damon Dep. 39:12-25.) The Damons and Dan G. dispute how much detail the Damons provided regarding the amount they wanted to spend on property during this meeting, but the meeting ended without the Damons selecting a property or signing an agreement with Dan G. ( Id. 41:5-11.)

On September 7, 2005, the Damons met with Dan G. again, visited Commerce Park, and discussed the possibility of purchasing a building within the development that contained four office condos and was for sale for $1.21 million. ( Id. 232-33.) Dan G. informed the Damons that Commerce Park was owned by Compark, that Compark was owned by fourteen investors including himself, and that separate LLCs held each building in Commerce Park. (Ms. Damon Dep. 389:20-390:19.) The Damons allege that Dan G. agreed to serve as their leasing agent, through RE/MAX, and find tenants for the building, but the alleged agreement was not reduced to writing and its specifics were not discussed. ( Id. 189-90, 403-04.) Dan G. denies making such an agreement.

During the September 7 meeting, Dan G. presented a " Financial Analysis" to the Damons, which had been prepared by Merl G., and was intended to justify the $1.2 million asking price. ( See Seventh Weintraut Aff., Ex. 71.) The Damons allege that the Financial Analysis contained several false or misleading aspects, such as being based on a 100% occupancy rate, asserting that the condos were viable rental properties when they are typically sold, assuming rent of $13.50 per square foot even though such a figure was based on a fully finished interior and the building was being sold as a " vanilla shell," and asserting that the units were 1,802 square feet each when in fact they were under 1,600.

At the close of the meeting, the Damons signed an agreement to purchase the building for $1.21 million. (Ms. Damon Dep. 369.) The Purchase Agreement included a $96,800 one-year rent guarantee from the sellers. ( Id. 214.) The Agreement indicated that the Groteboers were representing the Damons and Dan G. told the Damons that he was also representing the seller, Compark. ( See Fourth Renz Aff., Ex. N.) At some point after the meeting, Dan G. made a notation on the Financial Analysis that appears to indicate that he knew the square footage he conveyed to the Damons was incorrect and that rent of $14.90 per square foot, not $13.50, was needed to achieve the desired income. (Seventh Weintraut Aff., Ex. 71; Dan G. Dep. 104:14-23.)

The Damons allege that Dan G. made several misrepresentations during the September

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7 meeting, such as that there were no buildings available that would better suit the Damons' needs, that the Groteboers would represent the Damons in leasing the building, that there were numerous strong leads for tenants including a tenant associated with Mayo Clinic, that there was " no doubt" they could fill the building with tenants in one year, and that the size of the units was 1,802 square feet. (Third Am. Compl. ¶ 81, July 10, 2012, Docket No. 126.) [1]

The Purchase Agreement included an " acceptance deadline" stating that the offer to purchase would be " null and void" if it was not accepted by September 8, 2005. (Fourth Renz Aff., Ex. N at 2.) Dan G. testified that sometime after the Damons signed the Agreement on September 7, there was a meeting of the Compark members and Lunn signed for Compark. (Dan G. Dep. 112-13, 281-82.) The first record of the signed Agreement appeared on October 10, 2005, when Dan G. faxed the signed agreement to Dan Berndt, Compark's attorney. (Seventh Weintraut Aff., Exs. 77-79.)

The Purchase Agreement also indicated that Dan G. and Merl G. were the agents for both the Damons (the buyers) and Compark (the sellers). (Fourth Renz Aff., Ex. N.)

III. COMPARK 6-2

In connection with developing various commercial buildings on its lots, Compark created three LLCs for which it was the sole member: Compark 6-2, Compark 3-1, and Compark 1-1. (Third Hoidal Aff., Ex. 7 at 13-14.) Compark maintains a bank account and files taxes, but the additional LLCs do not. The purpose of creating separate LLCs was to facilitate obtaining separate financing for each parcel and avoid complications that might arise if several properties financed by a single loan were sold individually. ( Id., Ex. 7 at 13-15.)

According to the Purchase Agreement, Compark was the seller to the Damons. (Fourth Renz Aff., Ex. N.) On October 12, 2005, however, Compark transferred the land to Compark 6-2 via quit claim deed. (Third Hoidal Aff., Ex. 26.) The Damons did not learn about this transfer and the Damons' representative at closing did not notice that Compark 6-2, not Compark, was listed as the seller.

IV. FINANCING AND CLOSING

Dan G. agreed to help the Damons obtain financing. (Ms. Damon Dep. 201; Dan G. Dep. 140.) On September 14, 2005, Dan G. told the Damons that Associated Bank offered a 6.5% interest rate that would only stay in place for sixty days, meaning the Damons needed to close on the building in November 2005, rather than January 2006 as set forth in the purchase agreement. (Ms. Damon Dep. 202, 209-10; Third Hoidal Aff., Ex. 20.) Ms. Damon learned prior to closing that Associated Bank would actually hold the 6.5% interest rate for longer than sixty days, but the Damons still agreed to close in November 2005. (Ms. Damon Dep. 205-06, 361-62; Third Hoidal Aff., Ex. 20.) The Damons allege that they had already arranged for the earlier closing date with Ms. Damon's sister and proceeded with the November closing for that reason.

Associated Bank arranged for Title Services, Inc. (" Title Services" ) to serve as the settlement agent at the closing. (Third Hoidal Aff., Ex. 2 (Dep. of Daniel E. Berndt (" Berndt Dep." )) 34:12-14.) Title Services is a wholly owned subsidiary of

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Dan Berndt's law firm. Title Services distributed closing documents to the buyer and seller that reflected that Compark 6-2 was the seller, not Compark. (Ms. Damon Dep., 159-60, 217, 430-31; Third Hoidal Aff., Ex. 25.) The Damons did not attend the closing on November 18, 2005, but the Damons were represented at the closing by Ms. Damon's sister, Judy O'Donohoe. (Ms. Damon Dep. 89:21-24.)

Portions of the proceeds from the sale were used to pay down Compark's loan from Associated Bank and to reduce the personal guarantees of Compark members, and $96,780 was held for Compark 6-2 to satisfy its one year rent guarantee to the Damons. Merl G. and Dan G. each received a commission of $24,000 for representing the Damons and Compark at the closing. (Third Hoidal Aff., Ex. 36; Dan G. Dep. 162-65.) Compark's net proceeds were $743,261.59. (Third Hoidal Aff., Ex. 36.)

The day before closing, Dan G. sent Ms. Damon an email informing her that Steve Seymour would be helping to rent the condos, and telling her that " Merl [G.] and I also have large for rent signs out there" and " Merl [G.] Steve and I have been . . . showing the units." (Third Hoidal Aff., Ex. 33.) The signs actually said " Office Condos for Sale or Lease." (Seventh Weintraut Aff., Ex. 90.)

V. THE APPRAISAL

Prior to the closing, Associated Bank had the building appraised, informed the Damons that its value was determined to be $1,257,000 in finished condition, and offered to make the appraisal available to the Damons. (Third Hoidal Aff., Ex. 22.) The appraisal was performed by Scott Renne. In April 2009, the Damons learned that Renne had faced criminal charges for an alleged scheme involving fraudulent appraisals and kickbacks and committed suicide in May 2007. Based on other sales Compark made in the Commerce Park, the Damons' expert opines that the value of the Damons' building on the date of closing was actually $950,000. (Seventh Weintraut Aff., Ex. 129 at 2.)

VI. EFFORTS TO LEASE THE PROPERTY

The Damons allege that they were expecting the Groteboers to work to lease the building after the closing and that they were expecting to pay the Groteboers a commission to do that work, even though such a commission had not been discussed. (Ms. Damon Dep. 229-230.) During the first half of 2006, Ms. Damon and Dan G. spoke on a number of occasions and Dan G. repeatedly informed Ms. Damon that there were numerous calls and showings. However, Steve Seymour later told the Damons that he would not represent them in leasing the properties. (Ms. Damon Dep. 273.)

The Damons came to Rochester in October 2006 to meet with Dan G. On December 15, 2006, after the rent guarantee expired, Dan G. emailed the Damons and told them " Unfortunately the Rochester rental market got very soft over the last 8 months . . . I have shown these units . . . 100 times at least but have not been able to get the people to carry thru . . . ." (Seventh Weintraut Aff., Ex. 134.) Dan G. now testifies that he remembers showing the properties to only two potential tenants -- a day care center and a fitness center. (Dan G. Dep. 284-86.) On January 5, 2007, Merl G. sent a letter of intent to a client indicating that the client would be entering into a seven year lease for approximately 1,300 square feet of space, but this opportunity was never presented to Damons. (Seventh Weintraut Aff., Ex. 98.)

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VII. THE DAMONS' LATER ACTIONS

The Damons hired Paramark to be the leasing agent for their property in February 2007. In July 2008, Ms. Damon attempted to meet with the Groteboers but Dan G. told her to leave or he would call the police. (Ms. Damon Dep. 139-140.) Around August 2008, the Damons formed Damon Center, LLC (" Damon Center" ) and transferred ownership of the building to Damon Center in order to limit the Damons' personal liability in relation to leasing units in the building. (Ms. Damon Dep., 250-51.) The building was not fully leased until 2010, when Damon Center entered into multi-year leases for all units in the building. ( Id. 488-89, 492.) The Damons, through Damon Center, paid approximately $192,000 for build-outs for tenants in order to lease the units. The Damons filed the present action on January 11, 2010. (Compl., Jan. 11, 2010, Docket No. 1.)

ANALYSIS

I. MOTION TO DISMISS FOR LACK OF SUBJECT-MATTER JURISDICTION

As a threshold matter, the Court must consider whether the action must be dismissed on the basis that Ms. Damon is a United States citizen but has no United States domicile and is therefore " stateless," which destroys diversity jurisdiction. See Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 828-29, 109 S.Ct. 2218, 104 L.Ed.2d 893 (1989). [2] Although defendants did not raise this issue until over two years after the commencement of the litigation, objections to subject matter jurisdiction are never waived and the Court is obligated to determine whether it has jurisdiction. See Gonzalez v. Thaler, 132 S.Ct. 641, 648, 181 L.Ed.2d 619 (2012). For the reasons explained below, the Court will find that Ms. Damon does not have a United States domicile, but that she is not an indispensable party and can be dismissed from the action in order to preserve the Court's jurisdiction.

A. Standard of Review

A motion to dismiss pursuant to Rule 12(b)(1) challenges the Court's subject matter jurisdiction and requires the Court to examine whether it has authority to decide the claims. Molina Jerez v. Holder, Civ. No. 10-4498, 2012 WL 1072581, at *3 (D. Minn. Mar. 30, 2012). " A court deciding a motion under Rule 12(b)(1) must distinguish between a 'facial attack' and a 'factual attack.'" Osborn v. United States, 918 F.2d 724, 734 n.6 (8th Cir. 1990). In deciding a facial attack,

the court restricts itself to the face of the pleadings, and the non-moving party receives the same protections as it would defending against a motion brought under Rule 12(b)(6). The general rule is that a complaint should not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. In a factual attack, the court considers matters outside the pleadings, and the non-moving party does not have the benefit of 12(b)(6) safeguards.

Id. (citations and internal quotation marks omitted).

B. Facts Relevant to Subject Matter Jurisdiction

The complaint states that " Jacqueline Damon is a U.S. citizen, and her last place of residence in the United States was Maryland"

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and that " Damons currently reside in Nairobi, Kenya." (Third Am. Compl. ¶ 1.) Ms. Damon filed affidavits providing greater detail in an attempt to establish that she has a United States domicile. [3] Ms. Damon has lived in Kenya since January 2008, when she moved to join Mr. Damon in operating an ecotourism business. (Aff. of Jacqueline Damon ¶ ¶ 12-13, Oct. 15, 2012, Docket No. 178.) Ms. Damon has not lived in Maryland since 1991. [4] ( Id. ¶ 5.) Ms. Damon did, however, own a home in Maryland and pay taxes in Maryland until 2005. ( Id. ¶ ¶ 4, 9.) Ms. Damon also avers that she maintains a bank account in Washington, DC and continues to vote in Maryland. ( Id. ¶ 5.)

In September 2009, Ms. Damon was diagnosed with cancer and decided to obtain treatment in Virginia. ( Id. ¶ 17.) From 2009 to the present, she has spent most of her time in Virginia, briefly renting a home but primarily living with friends. ( Id. ¶ ¶ 17, 19.) Ms. Damon has also returned to Kenya on several occasions during this period, and she avers that her " plan was to stay in Virginia as long as necessary to get better." ( Id. ¶ ¶ 17-20, 23.) Ms. Damon avers that the Damons " intend to return to the U.S. (possibly Maryland) or France" when the venture in Kenya is completed. (Supplemental Aff. of Jacqueline Damon ¶ 4, Oct. 15, 2012, Docket No. 179.)

C. Ms. Damon's Domicile

The Court's purported jurisdiction over the Damons' state law claims is provided by 28 U.S.C. § 1332, the diversity jurisdiction statute, which provides:

(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between--
(1) citizens of different States;
(2) citizens of a State and citizens or subjects of a foreign state, except that the district courts shall not have original jurisdiction under this subsection of an action between citizens of a State and citizens or subjects of a foreign state who are lawfully admitted for permanent residence in the United States and are domiciled in the same State;
(3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and
(4) a foreign state, defined in section 1603(a) of this title, as plaintiff and citizens of a State or of different States.

" In order to be a citizen of a State within the meaning of the diversity statute, a natural person must both be a citizen of the United States and be domiciled within the State." Newman-Green, 490 U.S. at 828 (emphasis in original). A United States citizen who has no domicile in a state is " stateless" and destroys diversity jurisdiction. See id. at 829 (" [Defendant]'s 'stateless' status destroyed complete diversity under § 1332(a)(3), and his United States citizenship destroyed complete diversity under § 1332(a)(2)." ). Thus, if Ms. Damon,

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who is a United States citizen, does not have a United States domicile, she will destroy the Court's subject matter jurisdiction.

There are two requirements to establish a domicile: (1) " physical presence in a state" ; and (2) " intent to remain there indefinitely." Altimore v. Mount Mercy Coll., 420 F.3d 763, 768 (8th Cir. 2005); Yeldell v. Tutt, 913 F.2d 533, 537 (8th Cir. 1990). Domicile is determined at the time the action is instituted. Yeldell, 913 F.2d at 537. The Damons' arguments regarding Ms. Damon's potential domiciles in the United States have shifted as the parties litigated this matter before the Magistrate Judge in the context of motions to amend pleadings. None are persuasive.

First, in response to Realtor Defendants' motion to dismiss, the Damons argued that Ms. Damon's domicile was Virginia as of January 11, 2010, the date the complaint was filed. ( See Pl.'s Mem. in Opp. at 2, Sept. 14, 2012, Docket No. 165.) United States Magistrate Judge Franklin L. Noel considered and rejected this argument in an order denying as futile the Damons' motion to amend their complaint to add additional factual allegations relating to Ms. Damon's domicile. ( See Order at 2-3, Nov. 7, 2012, Docket No. 197.) The Court finds, as the Magistrate Judge found, that Ms. Damon was not domiciled in Virginia ...


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