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World Business Lenders, LLC v. Palen

United States District Court, D. Minnesota

June 13, 2017

World Business Lenders, LLC, Plaintiff,
Joseph F. Palen, and Robert Carlson, Defendants.


          Paul A. Magnuson United States District Court Judge

         This matter is before the Court on Defendants' Motions for Summary Judgment. For the following reasons, the Motions are granted in part and denied in part.


         A. The Parties

         Plaintiff World Business Lenders (“WBL”) is a private capital lender headquartered in New York City. (Compl. (Docket No. 1) ¶ 1.) WBL makes short-term loans to businesses that need money but do not qualify for conventional business loans. (Pardes Decl. (Docket No. 82) ¶ 2.) Because of the risk involved in making these types of loans, WBL charges significant interest rates, relies on security interests in available property, obtains personal guaranties, and collects automatic daily payments directly from the borrower's bank account. (Id. ¶ 4.)

         Defendant Joseph Palen owns a small business in Minneapolis, Minnesota buying and selling new and used restaurant equipment under the business names Jos. F. Palen Co. and Jos. F. Palen Restaurant Equipment. (Palen Decl. (Docket No. 64) ¶¶ 5, 6.) Palen is 72 years old and has worked in the kitchen equipment business for over 52 years. (Id. ¶¶ 3, 6.) He does not own a computer or cell phone and does not use email. (Id. ¶ 8.) He completes all business accounting records by hand and believes handwritten thank-you notes are critical to building and maintaining relationships. (Id.)

         Defendant Robert Carlson works in the commercial finance industry, “primarily help[ing] companies grow through various forms of financing.” (Carlson Dep. (Docket No. 65-1) at 14, 15.) Carlson previously worked in the restaurant industry for over 12 years, owning several restaurants in the Twin Cities area. (Id. at 13.) Carlson and Palen previously knew each other due to their shared experience in the restaurant industry. (Palen Decl. ¶ 10.)

         Third party Jason Hines was a Twin Cities area restaurateur who owned several entities called KB&J Enterprises, Inc., Pot Luck Catering, Inc., JHH Rogers, LLC, JCC Plymouth, LLC, and Preserve of Plymouth, LLC. (Hines Dep. (Docket No. 66) at 14-16.) Through these entities, Hines operated multiple restaurants including four Broadway Pizzas, two restaurants called Harvest Grill located in Rogers and Coon Rapids, and a catering company located in Plymouth. (Id. at 10-11.) Hines first met Carlson in 1996 and considered him a resource when he was seeking financing to open restaurants. (Id. at 17-18.)

         B. Hines and Carlson Seek Financing for a Third Harvest Grill

         In 2012, Hines decided to convert his catering company into a third Harvest Grill restaurant. (Id. at 94-95.) Carlson knew that Hines would need money to convert his catering facility into a restaurant and began to seek financing for Hines with a company called Oakmont Finance. (Carlson Dep. (Docket No. 84-4)[1] at 29-30; ElShareif Decl. (Docket No. 65-1) Ex. 6, 7.) Oakmont Finance, however, refused to extend Hines any financing because of his poor credit history. (ElShareif Decl. Ex. 8.)

         C. Hines, Carlson, and Palen Meet

         In early 2013, Carlson approached Palen about doing business with Hines. (Palen Decl. ¶ 11.) According to Palen, Carlson informed him that Hines wanted to purchase a large amount of kitchen equipment for the new Harvest Grill that was identical to the kitchen equipment in the other Harvest Grills. (Id.; Hines Dep. at 50.) Based on this request, Palen started to work on the potential sale by visiting the new Harvest Grill site, taking measurements, meeting with the general contractor, and collecting other data. (Palen Decl. ¶¶ 12-18.) According to Carlson, Hines informed Palen that he was negotiating a sale/leaseback arrangement with WBL and wanted Palen to buy kitchen equipment from Hines, sell that equipment to WBL, and have WBL lease the equipment to Hines. (Carlson Dep. (Docket Nos. 57, 84-4) at 57-58, 70, 76.) At some point, the three men met in person (Hines Dep. at 37), but the record is unclear when and where these conversations took place.

         D. The Fake Invoices

         On March 15, 2013, Carlson asked Palen to fill out several handwritten invoices that indicated Palen had already sold certain kitchen equipment to Hines. (Palen Decl. ¶ 20, Exs. 11-15.) Carlson provided Palen with the information to write on the invoices, including dollar amounts and separate equipment lists. (Id.) Palen did not know why Carlson asked him to do this, but thought it was possible that Hines wanted Palen to find and sell him the equipment on the attached lists. (Id.) Palen did not expect that Hines would pay him the amounts on the invoices and did not own the equipment on the attached lists. (Palen Dep. (Docket No. 84-3) at 48, 60.) Palen filled out the invoices in his handwriting and eventually gave them to Carlson. (Id. at 56.) Carlson took Palen's handwritten invoices and scanned and emailed them to Hines. (ElShareif Decl. Exs. 9-12.) Carlson or Hines then provided Palen with typed-up invoices that resembled Palen's handwritten invoices. (Palen Decl. ¶ 22, Exs. 16-20.)

         E. The March 25 Agreement

         On March 22, Hines's attorney, Greg Miller, sent Carlson and Hines a draft of a document that Miller referred to as the “Pot Luck/Palen Agreement.” (ElShareif Decl. Ex. 14.) The document details a sale/leaseback arrangement in which Palen agreed to purchase kitchen equipment from Hines, Hines would use his best efforts to obtain a lease arrangement for the kitchen equipment, and after receiving the lease proceeds, Palen would convey the leased equipment to Hines while keeping a small profit. (Id.) On March 25, Palen signed the agreement. (Palen Decl. Ex. 28.) Palen, however, does not remember seeing or signing the agreement, and did not buy any kitchen equipment from Hines. (Palen Decl. ¶ 38.)

         F. Hines Seeks Financing from WBL

         At some point in early 2013, a company called Kingswood Leasing contacted Hines and offered to find him financing for the third Harvest Grill. (Carlson Dep. (Docket No. 57) at 43.) Hines expressed interest and Kingswood, acting as a broker, referred Hines to WBL. (Herman Dep. (Docket No. 57) at 25.) Hines told WBL that the purpose of the loan was to pay Palen for the kitchen equipment that he had allegedly already purchased. (Id. at 43.) In May, Hines and WBL began negotiating the terms of the loan agreement. (Moen Decl. Ex. H-2 (Docket No. 59) at WBL 116-1034.)

         On May 14, Hines emailed the fake, typed-up invoices to WBL, representing that Palen had sold the kitchen equipment to Hines, and that Hines owed Palen for the equipment. (ElShareif Decl. Ex. 19.) WBL also requested photos of the kitchen equipment, along with the serial numbers. (Id.) On May 22, WBL prepared a “Loan Committee Approval Sheet” that contained extensive information about Hines's loan with WBL. (ElShareif Decl. (Docket No. 70) Ex. 20.) The Approval Sheet indicated that the loan was for $250, 000 with a 75% interest APR to be paid over eight months. (Id.) It also indicated that Hines personally guaranteed the loan, WBL would obtain a lien on three of Hines's properties, and WBL would have a purchase money security interest in the kitchen equipment that Hines had allegedly purchased from Palen. (Id.)

         G. Hines and Carlson Attempt to Have WBL Wire the Loan Proceeds to Miller

         On May 23, a WBL representative emailed Hines and stated, “Everything is moving along towards a funding next week. If by Monday you can get me the invoice requirement I needed from [Palen] that would be great . . . I'll also need wiring instructions for Jos. F. Palen if that is how they wish to be paid.” (ElShareif Decl. Ex. 21.) On May 29, Carlson emailed Hines and stated, “Here is Joseph F Palen Restaurant Equipment attorney's wiring instructions. His name is Greg Miller. Joe would like the money wired to this account because he will likely be out of town.” (Id. Ex. 23.) But Miller has never met Palen, let alone represented him. (Palen Dep. at 36.) Rather, Miller was Hines's attorney, ...

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