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Hansen v. U.S. Bank National Association

Supreme Court of Minnesota

September 25, 2019

Jill Hansen et al., Appellants,
v.
U.S. Bank National Association, as Special Administrator and Personal Representative of the Estate of Robert J. Hansen, Respondent.

          Richard W. Huffman, James T. Smith, Huffman, Usem, Crawford & Greenberg, P.A., Minneapolis, Minnesota, for appellants.

          David F. Herr, Martin S. Fallon, Leora M. Maccabee, Jesse D. Mondry, Maslon LLP, Minneapolis, Minnesota, for respondent.

         SYLLABUS

         1. An appellate court's review of a decision to grant a motion to dismiss under Minn. R. Civ. P. 12.02(e) on the ground that a claim is barred by a statute of limitation is de novo and limited to the facts set out in the complaint. All facts must be construed in favor of the nonmoving party.

         2. Under the "some damage" rule of damage accrual, damage can consist of harm that causes "financial liability" or harm that causes "the loss of a legal right." Financial harm results in some damage when the resulting liability is immediate, concrete, compensable, noncontingent, and at least partly ascertainable. Harm taking the form of the loss of a legal right results in some damage where the wrongful conduct allowed the claimant's legal rights to be adversely, immediately, and irredeemably changed involuntarily.

         3. The allegations of the complaint did not establish that appellants suffered some damage in the form of a loss of a legal right, but did establish that appellants suffered some damage in the form of financial harm in August 2012, when the Estate-and by extension, appellants-stopped receiving payments on its subordinated Note. The district court erred by granting the motion to dismiss because respondent failed at this stage in the proceedings to establish that appellants suffered some damage before August 2012.

         Reversed and remanded.

          OPINION

          THISSEN, Justice.

         This case presents a statute of limitations question requiring us to revisit the "some damage" rule of accrual used to evaluate when the statute of limitations begins to run in Minnesota. Appellants Jill Hansen and Leif Layman appeal from an unpublished decision of the court of appeals affirming the district court's dismissal of their complaint against respondent U.S. Bank on statute of limitations grounds. Because U.S. Bank failed to establish based on the pleadings that appellants suffered "some damage" in the form of financial harm before August 2012-less than six years before appellants filed their lawsuit-the district court erred by granting the motion to dismiss. We therefore reverse the decision of the court of appeals and remand to the district court to reinstate the complaint and for further proceedings.

         FACTS

         Jill Hansen is the daughter of the late Robert J. Hansen. Leif Layman is the son of Jill Hansen and the grandson of Robert J. Hansen. Both are beneficiaries of Robert J. Hansen's Estate (the Estate). We will refer to Jill Hansen and Leif Layman as the "Beneficiaries."

         On or about August 18, 2009, Robert Hansen and his brother, Bryan Hansen, negotiated a purchase agreement to sell certain real property located in Vadnais Heights to Community Facilities Partnership of Vadnais Heights, LLC (CFP) to be used for a community sports complex. In the original purchase agreement, CFP agreed to pay the Hansens $2.5 million in cash at closing and give the Hansens a $2 million tax-exempt subordinate nonrecourse 30-year note (the Note) issued by the City of Vadnais Heights and bearing interest at a rate of eight percent per annum, payable semi-annually. Payments on the Note were to be made by CFP or its designated payer using anticipated revenue from the sports complex.

         On November 22, 2009, Robert Hansen died. In the probate action for Robert Hansen's estate, Ramsey County District Court appointed U.S. Bank, along with Barbara Pagel (Robert's widow), as co-Special Administrators of the Estate to supervise and oversee the closing on the sale of the land to CFP. In early April 2010, CFP, Bryan Hansen, and the Estate's Special Administrators amended the purchase agreement. The amendments changed the terms of the Note from "tax-exempt" to "taxable." The amendments also increased the cash payment due at closing to $2, 625, 000 to compensate for the change in taxable status. And the interest rate on the Note was increased from 8 percent to 8½ percent.

         The April 2010 amendments also altered several provisions in the purchase agreement. Specifically, the amendments changed section 2.D, entitled "Terms of the Note, " to require the following:

Prior to closing, an independent certified public accounting firm or financial professional selected by Seller shall forecast more than enough net operating income is expected to pay the debt service on all improvements and on all Tax-Exempt and Taxable Bonds and Taxable Notes applicable to this Project, its operation, and the property retained by the Buyer herein.

         The amendments also modified section 10 of the purchase agreement, entitled "Obligations of Buyer at Closing, " to read as follows:

At Closing, Buyer shall master lease the Project to the City [of Vadnais Heights] for a rent which the City shall pay which shall be sufficient in amount to pay all Project operating expenses and all principal and interest payments under the Series A, B and C Bonds and the Taxable Subordinate Note payable to Seller.

         The amendments did not change Section 10(A)(ii) of the purchase agreement, which required CFP to

provide Seller with . . . (ii) a five-year compiled financial forecast prepared by an independent firm of certified public accountants or other independent financial consultant which shows that projected net operating income of the Project is more than the amount necessary to pay the debt service on the Buyer's financing for such improvements and the debt service on the Bonds and the Note.

         These provisions form the core of the statute of limitations dispute now before us. The Beneficiaries allege that U.S. Bank, acting as a co-Special Administrator for the Estate, never obtained any of the required financial forecasts or revenue assurances and failed to require CFP to master lease the property to the City of Vadnais Heights.

         The transaction closed on April 27, 2010, and the Estate received its share of the $2, 625, 000 initial payment as well as the $2 million Note as consideration for its interest in the land. The Note was a non-recourse revenue note that contained no obligation on the part of the City of Vadnais Heights to pay for the debt out of its general funds. Furthermore, the Note was explicitly subordinated to $24, 700, 000 in other bond commitments involved in the construction of the sports complex. The first payment on the Note was scheduled to occur in February 2011.

         Just three days after closing, on April 30, 2010, U.S. Bank and Pagel were discharged as co-Special Administrators, but contemporaneously appointed as co-Personal Representatives of the Estate. The Beneficiaries allege that, several years after closing, they discovered that two financial reports or forecasts for the project's anticipated revenue had been prepared and provided to CFP and/or the City. Each document purportedly showed that the revenue projections relied upon unsupported revenue commitments and therefore were overstated. Between 2010 and 2012, the sports complex suffered revenue shortfalls. CFP started making payments on the Note in February 2011 as agreed. But in August 2012, the City of Vadnais Heights stopped financial support of the sports complex and the Estate stopped receiving payments on its Note.

         On January 24, 2017, the Beneficiaries sued U.S. Bank, alleging breach of fiduciary duty and unjust enrichment.[1] The Beneficiaries allege that U.S. Bank breached its fiduciary duties to them by failing to (1) require CFP to provide financial forecasts; (2) select an independent certified public accounting firm/financial professional to forecast sufficient operating income; (3) require CFP to show a lease with the City of Vadnais Heights sufficient to maintain payments on the Note; and (4) hold itself liable, as a Personal Representative of the Estate, for its three previous failures.

         U.S. Bank did not serve an answer. Instead, on April 20, 2017, U.S. Bank moved to dismiss the complaint under Minn. R. Civ. P. 12.02(e) for failure to state a claim upon which relief could be granted. U.S. Bank asserted, among other things, that the Beneficiaries failed to satisfy the applicable six-year statute of limitations. See, e.g., Minn. Stat. § 541.05 (2018). U.S. Bank's argument rested solely on the fact that the alleged breaches of fiduciary duty occurred before the 2010 closing, more than six years before the lawsuit. U.S. Bank did not identify any specific damage that occurred in 2010 connected with those breaches. The Beneficiaries responded that they had suffered damages no earlier than August 2012, the date that the Estate stopped receiving payments on its Note, which was less than six years before the date that they filed suit.

         The district court granted U.S. Bank's motion to dismiss on statute of limitations grounds. It held that, under Minnesota's "some damage" accrual rule, the Beneficiaries incurred some damage on April 27, 2010, when U.S. Bank closed on the sale of the property without, allegedly, performing its required due diligence. The district court did not identify any damages suffered by the Beneficiaries upon closing. Nevertheless, the district court held that the Beneficiaries could have raised claims against U.S. Bank in April 2010, more than six years before this action was commenced.

         The court of appeals affirmed. Hansen v. U.S. Bank Nat'l Ass'n, No. A17-1608, 2018 WL 3213105 (Minn.App. July 2, 2018). Regarding the breach of fiduciary duty claim, the court reasoned that "when the sale of the property closed without the required forecast[s, ] . . . [the Beneficiaries] reached the 'point of no return' because they lost the opportunity to demand the forecast, to renegotiate the terms of the purchase agreement, or to cancel the purchase agreement." Id. at *4 (quoting Antone v. Mirviss, 720 N.W.2d 331, 337 (Minn. 2006)). Although the precise amount of damages was not ascertainable, the court noted that "some damage" occurred on April 27, 2010, and therefore the statute of limitations began running on that date. Id.

         We granted the Beneficiaries' request for review on the question of when the statute of limitations began to run ...


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