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Adams v. Rosensteel

Court of Appeals of Minnesota

December 2, 2013

Rebecca J. Adams, et al., Appellants,
Thomas Rosensteel, Respondent. Little Red House Investments, LLC, et al., Plaintiffs,


Hennepin County District Court File No. 27-CV-12-12595

Christopher P. Parrington, Shawn M. Dobbins, Foley & Mansfield, PLLP, Minneapolis, Minnesota (for appellants)

Joseph A. Wentzell, James W. Moen, Wentzell Law Office, PLLC, St. Anthony, Minnesota (for respondent)

Considered and decided by Kirk, Presiding Judge; Kalitowski, Judge; and Chutich, Judge.


In this action arising out of failed real estate investments, appellants challenge the district court's dismissal of their claims of fraud, negligent misrepresentation, promissory estoppel, and consumer fraud against respondent Thomas Rosensteel. Because the complaint does not allege facts that, if true, allow appellants to prevail and because appellants did not ask the district court for leave to amend the complaint, we affirm the district court's dismissal with prejudice of their claims.


Between 2007 and 2009, appellants Rebecca J. Adams, Brent W. Adams, Adams at Work Incorporated, John Crudele, JC Recreational Properties, LLC, Bruce W. Helmer, Laura A. O'Halloran Helmer, LBAG Investment Group, LLC, Paul J. Rampetsreiter, Lara D. Rampetsreiter, and Ramp Recreational, LLC, bought condominiums at Giant's Ridge Resort in Biwabik from James Koch, a real estate developer. Koch marketed condominium units at Giant's Ridge Resort through Split Rock Realty. Respondent Thomas Rosensteel worked for Koch as a real estate broker. Rosensteel was a licensed real estate broker until approximately August 24, 2009, when his license was permanently revoked retroactive to June 11, 2008.

On September 21, 2011, appellants and others served a complaint in a companion case against Koch, a bank, respondent Rosensteel, and various other defendants. After Rosensteel successfully received an order for discharge in separate bankruptcy proceedings, he was dismissed from the companion case by stipulation. Notwithstanding the bankruptcy, in June 2012, appellants filed the complaint underlying this appeal against Rosensteel alone. This complaint is almost identical to the complaint in the companion case and alleges fraud, negligent misrepresentation, consumer fraud, deceptive trade practices, violation of the Minnesota Securities Act, promissory estoppel, unjust enrichment, negligence, and quantum meruit. The complaint also seeks attorney's fees, a determination of discharge of debts, and declaratory relief (liquidation of the amount of the plaintiffs' claims against Rosensteel). The claims for unjust enrichment, negligence, and quantum meruit were dismissed by stipulation in October 2012, and are not at issue here. Nor do appellants appeal the district court's dismissal of their claims for deceptive trade practices, Minnesota Securities Act, attorney's fees, determination of discharge of debts, and declaratory relief.

According to the complaint, Koch marketed the condominiums to potential buyers as an investment property. Under Koch's plan, a purchaser would buy one or more units and receive a mortgage loan that required only payment of interest for approximately three years with a balloon payment due at the end of the period. For the first 18 months, and on a month-to-month basis thereafter, the purchasers would lease their units to Wayzata Hospitality Group, a business in which Koch owned a controlling interest. The plan further provided that these lease payments would cover the monthly mortgage payments, and Koch projected that the purchasers would make a profit during this time period. At the end of the lease period, the purchasers could either fractionalize their unit as a time share or sell it before the balloon payment came due.

While Rosensteel was working to sell condominiums within Giant's Ridge Resort as one of Koch's real estate brokers, he had contact with several appellants. Appellants allege that Rosensteel made false statements and intentional omissions to convince them to buy units on the property. Rosensteel allegedly told appellant John Crudele that by purchasing five units, he would see a 12-percent return on his investment. Rosensteel explained to Crudele and appellant Paul Rampetsreiter that the unit they were interested in had an annual cash-flow of $60, 000; in reality the unit realized $25, 132 in annual cash flow in 2009 and $41, 491 in 2010.

The complaint further alleges that Rosensteel told appellants Bruce and Laura Helmer that they would instantly see a 16-percent return on their investment, 60-percent occupancy was the break-even point, the property taxes would not drastically increase, and they would not have to pay out-of-pocket to make their mortgage payment because of the "lease back" program. Rosensteel also allegedly told several appellants that American Bank of the North was the only bank available for financing and that their investments would be safe. Appellants allege that Rosensteel did not tell them that Giant's Ridge Resort owed back taxes to St. Louis County, the resort had been mismanaged before Koch purchased the property, and Koch, Split Rock Realty, and American Bank of the North had a pre-existing business relationship.

In September 2012, Rosensteel moved to dismiss the case, and appellants did not respond to the motion. A hearing on the motion to dismiss was held, and appellants claimed at the hearing that they were not served with the motion. Court records show, however, that appellants' counsel was properly served with the motion.[1] Appellants did not ask the district court for leave to amend the complaint or for more time to respond to Rosensteel's motion. In December 2012, the district ...

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