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City of Minneapolis v. RW Farms LLC

Court of Appeals of Minnesota

December 30, 2013

City of Minneapolis, Plaintiff,
v.
RW Farms, LLC, et al., Defendants, and Granite Re, Inc., intervening defendant, Respondent, and Thomas Payne, third party plaintiff, Appellant,
v.
Russell W. Leistiko, et al., Third Party Defendants, and RW Farms, LLC, et al., Third Party Plaintiffs,
v.
Flagship Bank Minnesota d/b/a Flagship Bank, et al., Third Party Defendants

UNPUBLISHED OPINION

Hennepin County District Court File No. 27-CV-11-1410

Matthew Adam Helgemoe, Timothy James Peters, Peters Law Firm, P.L.C., Minneapolis, Minnesota (for appellant)

Daniel Rhodes Gregerson, Emeric James Dwyer, Gregerson, Rosow, Johnson & Nilan, Minneapolis, Minnesota (for respondent)

Considered and decided by Peterson, Presiding Judge; Halbrooks, Judge; and Ross, Judge.

PETERSON, Judge

This appeal is from a summary judgment granted in an interpleader action initiated by the City of Minneapolis after it received competing claims for payments it owed under a contract with defendant RW Farms. Appellant Thomas Payne granted a loan to RW Farms and held a security interest in the proceeds of the contract with the city. Respondent Granite Re, Inc. issued a performance and payment bond to RW Farms securing the contract with the city and made payments under the bond. Appellant argues that the district court erred in determining that, under the doctrine of equitable subrogation, Granite Re's claim to the contract proceeds has priority over appellant's security interest. Appellant also argues that the district court erred in determining that respondent's attorney-fee award has priority over appellant's claim. We affirm in part and reverse in part.

FACTS

In March 2009, the City of Minneapolis entered into a contract with RW Farms, LLC, and Organic Technologies, Inc. (OTI), under which RW Farms and OTI agreed to compost and dispose of yard waste collected by the city. Appellant Thomas Payne loaned RW Farms $50, 000 to fund seasonal start-up costs. RW Farms executed a promissory note for the loan on May 1, 2009, with a maturity date of December 31, 2009. The same day, Payne and RW Farms executed a security agreement securing "[a]ll present and future debts, even if this Agreement is not referenced, the debts are also secured by other collateral, or the future debt is unrelated to or of a different type than the current debt." The security agreement granted Payne a security interest in RW Farms' accounts receivable and other rights to payment. The security agreement also provided that Payne may collect enforcement costs, including reasonable attorney fees. Between July 2009 and January 2010, Payne advanced an additional $25, 790 to RW Farms.

On May 1, 2010, respondent Granite Re, Inc. issued a payment-and-performance bond naming RW Farms as principal and Granite Re as surety for RW Farms' contract with the city. The bond obligated Granite Re to pay subcontractors and suppliers "for labor, materials, and equipment furnished for use in the performance of [RW Farms' contract with the city]." The same day, RW Farms and its principals, Ralph Leistiko and Wendy Leistiko, executed an agreement to indemnify Granite Re for any and all losses and costs, including attorney fees, incurred by Granite Re as a result of acting as surety.

In December 2010 and January 2011, the city withheld payments due to RW Farms for work performed under the contract in October and November 2010 because RW Farms owed approximately $61, 000 to a subcontractor for services provided in late 2009 and early 2010.

On December 23, 2010, Payne filed a Uniform Commercial Code (UCC) financing statement with the Minnesota Secretary of State. On January 6, 2011, Payne sent the city notice that RW Farms had assigned to him its right to collect the amounts due to RW Farms under its contract with the city. The notice stated that Payne was foreclosing on his security interest in RW Farms' accounts receivable and demanded payment of amounts owed to RW Farms by the city. As of July 31, 2012, the payoff amount of the loan from Payne to RW Farms included $35, 132.51 in principal and $9, 426.68 in interest. Payne also sought collection costs and submitted a statement showing that he had incurred $39, 990.65 in attorney fees as of August 2012.

On January 11, 2011, Granite Re received a claim against the bond from Hagen Trucking for unpaid work performed for RW Farms on the city contract in November 2010. Granite Re paid $13, 804 to satisfy the claim. On January 13, 2011, Granite Re received a claim against the bond from Ries Farms and Excavating for unpaid work performed for RW Farms on the city contract between July and November 2010. Granite Re paid $61, 612.64 to satisfy the claim. Granite Re also paid $3, 469.28 to satisfy a claim against the bond by OTI.

The city withheld $114, 658.12 that it owed to RW Farms under the contract and began this interpleader action to determine the rights of Payne, Granite Re, and other claimants to the money. Payne and Granite Re asserted cross-claims and counterclaims against each other and the city regarding their rights of priority to the interpleader funds. The parties filed cross-motions for summary judgment, and the district court granted summary judgment for Granite Re under the doctrine of equitable subrogation. The parties and other claimants entered into a ...


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