County District Court File No. 10-CV-16-704
Christopher Elliott, Elliott Law P.A., Edina, Minnesota; and
Jason Steck, Law Office of Jason Steck, Edina, Minnesota (for
Anthony Gabor, The Morris Law Group, P.A., Edina, Minnesota;
and Phillip R. Krass, Malkerson Gunn Martin LLP, Minneapolis,
Minnesota; and Bryce D. Huemoeller, Huemoeller, Gontarek
& Cheskis, PLC, Prior Lake, Minnesota (for respondents)
Considered and decided by Larkin, Presiding Judge; Cleary,
Chief Judge; and Halbrooks, Judge.
determining whether a property is used primarily for
agricultural purposes such that the property's owner
qualifies for the agricultural homestead exemption under
Minn. Stat. § 510.02, subd. 1 (2010), a district court
must consider all of the record evidence regarding how the
property is used. Evidence that the property receives
valuation and tax deferment under Minn. Stat. § 273.111
(2018), the Minnesota Agricultural Property Tax Law, is
relevant, but it is not determinative.
creditors challenge the district court's dismissal of
their fraudulent-transfer claims against respondents, which
were brought under the Minnesota Uniform Fraudulent Transfer
Act (MUFTA) based on respondent husband's transfer of his
interest in certain real property to his wife, who is also a
respondent in this appeal. The district court dismissed
appellants' MUFTA claims based on its determination that
husband's interest in the property was not an asset as
defined in MUFTA. Appellants argue that the district court
abused its discretion by amending its posttrial findings to
determine that at the time of the transfer, the market value
of the property was $1, 935, 000 and by applying a $750, 000
agricultural homestead exemption. By notice of related
appeal, respondents argue that the district court erred by
determining that a $3, 000, 000 guaranty mortgage is not a
valid lien encumbering the property under MUFTA. Because the
district court did not err in determining the market value of
the property and because any errors related to the
agricultural homestead exception and guaranty mortgage are
harmless, we affirm.
2001 until February 29, 2012, respondents John D. Klingelhutz
and Durene D. Klingelhutz, husband and wife, continuously
owned and occupied real property in Carver County as joint
tenants. The property is composed of three contiguous parcels
totaling 49.28 acres and is classified by Carver County for
tax purposes as homestead agricultural. Respondents reside in
a home on the largest parcel. On February 29, 2012, Mr.
Klingelhutz conveyed, by quit claim deed, his joint-tenancy
interest in the Carver County property to Mrs. Klingelhutz.
2016, appellants Landmark Community Bank N.A. (Landmark) and
Security Bank & Trust Company (Security) sued
respondents, asserting that Mr. Klingelhutz's February
29, 2012 transfer of his joint-tenancy interest in the Carver
County property to Mrs. Klingelhutz was void under MUFTA and
that the property was therefore available to satisfy
appellants' outstanding judgments against Mr.
fraudulent-conveyance claims were tried to the court. At
trial, respondents' appraiser, a certified appraiser with
15 years of real-estate appraisal experience, testified that
the fair market value of the property at the time of the
transfer was $1, 935, 000. The district court received,
pursuant to the parties' stipulation, copies of Carver
County property cards for the property indicating that the
2015 assessed values of the parcels composing the property
were $2, 470, 000, $108, 700, and $241, 800 and that the 2016
assessed values of the parcels were $2, 470, 000, $112, 400,
and $250, 000.
did not submit a market-value appraisal. Instead, appellants
asked the district court, in posttrial submissions, to take
judicial notice of the 2012 and 2013 tax-assessed values of
the parcels composing the property. Appellants did not submit
any documentation establishing the 2012 and 2013 tax-assessed
values. Instead, appellants set forth those values in their
proposed findings of fact and suggested that judicial notice
be taken. In its initial findings of fact following trial,
the district court accepted appellants' assertions that
the 2012 tax-assessed values of the parcels were $2, 537,
000, $108, 000 and $241, 200 and that the 2013 assessed
values of the parcels were $2, 104, 800, $83, 400, and $185,
500. However, that acceptance was "subject to
[respondents'] right to present any contradictory
evidence of such in connection with a motion for
reconsideration or amended findings."
district court's initial findings also set forth the
following facts. In June 2001, respondents granted mortgages
of $158, 000 and $475, 000 to Community Bank Chaska. Those
mortgages encumbered two of the property's three parcels.
As of February 29, 2012, respondents had only paid interest
on the mortgages.
January 2008, Vista Canyon LLC, owned by Mr. Klingelhutz,
entered into a loan agreement with The RiverBank for $7, 750,
000 to fund the development and construction of a
senior-housing facility. Mr. Klingelhutz personally
guaranteed the loan. Later, the RiverBank loan agreement was
amended to add Mrs. Klingelhutz as an additional personal
guarantor. Respondents executed a guaranty mortgage in the
amount of $3, 000, 000 in favor of The RiverBank. One of the
Carver County property's parcels served as security for
the guaranty mortgage.
November 2008, Klingelhutz Development Company, owned by Mr.
Klingelhutz, granted Community Bank Corporation a mortgage in
the amount of $245, 000 on one of the property's parcels.
2009, the district court awarded judgment of $451, 213.51 for
Associated Bank against Mr. Klingelhutz. The judgment was
docketed in Ramsey and Carver Counties. As of February 29,
2012, Mr. Klingelhutz had not satisfied any portion of the
2010, Landmark sued Mr. Klingelhutz to recover a debt he owed
pursuant to a loan agreement. In September 2013, the district
court awarded judgment of $403, 524.42 for Landmark against
Mr. Klingelhutz. The judgment was docketed in Ramsey and
2016, Security sued Mr. Klingelhutz, Klingelhutz Investment
Company, and Klingelhutz Development Company to recover a
debt owed under a 2006 promissory note and personal guaranty.
In January 2017, the district court awarded judgment of $812,
314 for Security against Mr. Klingelhutz. The judgment was
docketed in Carver County.
district court found that when Mr. Klingelhutz transferred
his interest in the Carver County property to Mrs.
Klingelhutz in 2012, the reasonable value of the property was
$2, 427, 800, that Mr. Klingelhutz was entitled to a
homestead exemption of $300, 000 against any judgment on the
property, and that the property was encumbered by three
mortgages totaling $878, 000, as well as the 2009 $451,
213.51 judgment for Associated Bank. The district court found
that "the amount of debt secured by [respondents']
guaranty mortgages" as of the date of transfer was zero,
"[b]ecause the underlying principal mortgages had not
been deemed in default." The district court also found
that because respondents had a $798, 586.49 nonexempt
interest in the property and the transfer of Mr.
Klingelhutz's joint-tenancy interest in the property to
Mrs. Klingelhutz was "done in an attempt to place the
Property beyond the reach of [appellants] and [Mr.
Klingelhutz's] other creditors," the transfer was
December 2017, respondents moved for amended findings, or, in
the alternative, a new trial. Consistent with the district
court's reservation of respondents' right to present
evidence contradicting appellants' posttrial assertions
regarding tax-assessed values, respondents submitted an
affidavit from their appraiser further explaining his
appraisal and the comparables on which he relied.
argued that the reasonable value of the property at the time
of transfer was $1, 935, 000, that the district court should
have applied an agricultural homestead exemption of $750,
000, and that the property was encumbered by four mortgages
totaling $3, 878, 000, including the $3, 000, 000 guaranty
mortgage in favor of The RiverBank. Respondents also argued
that the district court erred in computing the nonexempt
interest in the property by subtracting the amount of the
mortgages and the $451, 213.51 judgment from the total value
of the property, and not just from Mr. Klingelhutz's
interest in the property. Respondents concluded that, based
on their proposed amended findings, Mr. Klingelhutz's
interest in the property was not an asset as defined by MUFTA
and the transfer of his joint-tenancy interest therefore did
not violate MUFTA.
district court granted respondents' motion for amended
findings in part. The district court amended its finding
regarding the property's market value at the time of the
2012 transfer, finding "the value of the Property to be
not less than $1, 935, 000 as determined by
[respondents'] appraisal." The district court also
amended its finding regarding the homestead exemption. The
district court found that the property "has been
enrolled in the Green Acres tax deferment program since
2000" and reasoned that based on the Green Acres
enrollment,  and because respondents had
"testified they farmed the Property for a number of
years and now rent the tillable acreage on it to a local
farmer," Mr. Klingelhutz was entitled to a $750, 000
agricultural homestead exemption.
district court did not amend its findings or determination
regarding the $3, 000, 000 guaranty mortgage. However, the
district court found that it was not appropriate to include
the $245, 000 mortgage in favor of Community Bank Corporation
in the computation of Mr. Klingelhutz's equity in the
Carver County property because that mortgage was signed by
Mr. Klingelhutz as CEO of Klingelhutz Development Company,
and not by Mrs. Klingelhutz, and because Klingelhutz
Development Company did not have an ownership interest in the
on the amended findings, the district court concluded that
"[a]t the time of transfer, [Mr. Klingelhutz's]
interest in the Property was -$550, 000, and the Property was
therefore not an asset under MUFTA." The district
court therefore dismissed appellants' MUFTA claims.
and Security appeal, challenging the district court's
amended property valuation, application of the agricultural
homestead exemption, and dismissal of their MUFTA claims.
Respondents have filed a notice of related appeal,
challenging the district court's determination that the
$3, 000, 000 guaranty mortgage is not a valid lien
encumbering the property under MUFTA.
the district court err by amending its findings regarding the
market value of the Carver County ...