Peterson, Judge Beltrami County District Court File No. 04-CV-12-1301
Caren L. Stanley, Jon R. Brakke, Vogel Law Firm, Fargo, North Dakota (for appellant)
Boris Parker, Nicholas M. Wenner, Brandon Charles Meder, Parker & Wenner, P.A., Minneapolis, Minnesota (for respondents Glow Hospitality)
B. Todd Jones, United States Attorney for Minnesota, Roylene A. Champeaux. Assistant United States Attorney, Minneapolis, Minnesota (for respondent United States Business Administration)
Considered and decided by Chutich, Presiding Judge; Peterson, Judge; and Smith, Judge.
In this appeal from summary judgment dismissing appellant mortgagee's foreclosure-by-action proceeding, appellant-mortgagee argues that the district court erred by invoking its equitable powers to (a) undo appellant's acceleration of the amounts due under the mortgage, (b) allow respondent-mortgagor to cure its defaults, and (c) rule that respondent's remaining defaults are not material. We reverse and remand.
In January 2008, respondent Glow Hospitality, LLC, and Zion's First National Bank entered into a loan transaction approved by the Small Business Administration (SBA) that consisted of a construction-loan agreement and additional SBA funding for Glow to purchase and make improvements to a Holiday Inn Express Hotel. Glow executed in favor of the bank a promissory note for a loan of $2, 177, 506, a construction mortgage, a commercial security agreement, and an assignment of rents (hereinafter collectively, together with the construction-loan agreement, referred to as loan documents). Glow also executed a mortgage and a promissory note in favor of Prairieland Economic Development Corporation for loan proceeds of $1, 517, 000 received from the SBA. Respondents Devindar Khatkar and Harkrishan Khatkar personally guaranteed Glow's payment obligations to the bank and the SBA. Harkrishan Khatkar filed for bankruptcy in June 2010 and was granted a discharge of his debt.
In November 2010, respondent Baljinder Sandhu and Devindar Khatkar began a shareholder action against Glow and Harkrishan Khatkar and respondents Schivcharan Singh and GIO Management, Inc. The same month, Harkrishan Khatkar and respondent Schivcharan Singh stopped making payments on the SBA loan on behalf of Glow, and, in February 2011, the development corporation accelerated the obligations due under the SBA note.
In March 2011, the bank and Glow entered into a forbearance agreement effective until September 11, 2011, under which the bank agreed to forebear from enforcing specified rights and remedies under the loan documents in exchange for Glow's agreement to cure payment defaults. In June 2011, the bank transferred its rights, title, and interest in the loan documents to Nick Klaers, who, on July 1, 2011, transferred them to appellant Ridgeway Investments, LLC, which owns a competing hotel across the street from the Holiday Inn Express.
On April 20, 2012, in the shareholder action, based on evidence that the defendants in that action had syphoned and usurped funds from the hotel, the district court appointed a receiver for the hotel. On June 25, 2012, the court entered a default judgment against the defendants and awarded Sandhu a 70% ownership interest in Glow.
Also in April 2012, Ridgeway brought this foreclosure action against respondents alleging the following events of default by Glow: failure to pay the SBA note, which had been accelerated by the SBA; failure to provide requested financial records and statements; failure to comply with the terms of the franchise agreement under which the hotel is operated; changes in Glow's ownership or officers and failure to notify Ridgeway of those changes; failure to provide annual personal financial statements of guarantors; commencement of the shareholder action and the resulting appointment of a receiver for the hotel; failure to remove liens filed against the mortgaged property for labor done and materials furnished; and the bankruptcy of guarantor Harkrishan Khatkar. Glow and ...