Border State Bank, Appellant, vs. Russell Edgar, d/b/a Carlisle Farms, et al., Respondents.

Border State Bank, Appellant, vs. Russell Edgar, d/b/a Carlisle Farms, et al., Respondents. A05-2385, Court of Appeals Unpublished, September 26, 2006.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-2385

 

Border State Bank,

Appellant,

 

vs.

 

Russell Edgar, d/b/a Carlisle Farms, et al.,

Respondents.

 

Filed September 26, 2006

Affirmed in part, reversed in part, and remanded

Shumaker, Judge

 

Kittson County District Court

File No. CX-05-52

 

 

Steven A. Anderson, Law Office of Steven A. Anderson, P.A., P.O. Box 430, Warroad, MN 56763 (for appellant)

 

Tracy A. Kennedy, Zimney Foster P.C., 3100 S. Columbia Road, Suite 200, P.O. Box 13417, Grand Forks, ND 58208-3417 (for respondents)

 

 

            Considered and decided by Shumaker, Presiding Judge; Stoneburner, Judge; and Worke, Judge.

U N P U B L I S H E D   O P I N I O N

SHUMAKER, Judge

Appellant contends that the district court erred in dismissing its claim for conversion of and wrongful levy of execution on collateral in which appellant held a security interest and that the district court improperly awarded attorney fees against it.  Because the court did not err in determining that appellant had no security interest in the collateral at issue, we affirm the dismissal of the action.  But because the court failed to make requisite findings to support its award of attorney fees, we reverse that issue and remand.

FACTS

Appellant Border State Bank lent $600,000 to River Ridge Dairy, LLP.  For that loan, River Ridge executed a promissory note and a security agreement.  The relevant collateral securing the loan is described in the security agreement as "SETTLEMENT ON ADM LAWSUIT."  The parties agree that "ADM" refers to Archer Daniels Midland Company.  River Ridge sued ADM, alleging a commercial-tort claim.

Respondents Russell Edgar and Roger Imdieke became judgment creditors of River Ridge, and they levied upon River Ridge's pending lawsuit against ADM.  In a subsequent sheriff's sale, Edgar and Imdieke purchased River Ridge's interest in the lawsuit as a chose in action.

Claiming that it had a prior security interest in the ADM lawsuit, Border sued Edgar and Imdieke, alleging conversion of the collateral and wrongful levy and execution.  Edgar and Imdieke contended in their response that Border failed to state a claim on either theory, arguing that Border did not have a security interest in the ADM lawsuit, but, even if it did, Edgar and Imdieke properly followed the law in enforcing their judgments against River Ridge.

Border moved for a temporary restraining order to enjoin disposition of the ADM lawsuit.  Among the papers Border submitted to the district court in support of its motion were the complaint, which attached and incorporated by reference River Ridge's promissory note and security agreement; a Uniform Commercial Code financing statement; and the affidavit of Border's chief executive officer.

Noting that the response of Edgar and Imdieke requested the consolidation of the temporary restraining order with a trial on the merits, and as provided by Minn. R. Civ. P. 65.02(c), the court heard the motion and entered its Findings of Fact, Conclusions of Law, and Order for Judgment on April 28, 2005.  Although the court concluded that the levy of execution was proper in all respects, its dispositive conclusion was that Border did not have a valid security interest in the ADM lawsuit because Border failed sufficiently to identify collateral "to which the secured creditor's interest will attach."

The court then provided in its order that the motion and a trial on the merits were consolidated; that Edgar and Imdieke were the rightful owners of the "chose in action," the ADM lawsuit; that Border did not have a lien against the chose in action sold upon levy of execution; and that Border's complaint failed to state a claim upon which relief can be awarded.  The court also awarded attorney fees in favor of Edgar and Imdieke.

On appeal from the court's order, Border argues that the court erred by concluding that Border had failed to state a claim and by dismissing the action despite the absence of a rule 12 motion and without affording Border an opportunity to conduct discovery.

D E C I S I O N

            The district court dismissed Border's complaint "for failure to state a claim upon which relief can be granted."  Although the court did not cite a rule upon which it premised its dismissal, Minn. R. Civ. P. 12.02(e) is the applicable authority.  We review a rule 12.02(e) dismissal de novo.  Leonard v. Nw. Airlines, 605 N.W.2d 425, 428 (Minn. App. 2000), review denied (Minn. Apr. 18, 2000).  And the question before us is "whether the complaint sets forth a legally sufficient claim for relief."  Elzie v. Comm'r of Pub. Safety, 298 N.W.2d 29, 32 (Minn. 1980) (quotation omitted).  For purposes of a rule 12 motion, the district court is to assume that the facts pleaded in the complaint are true.  Alexander v. Minnesota Vikings Football Club LLC, 649 N.W.2d 464, 466 (Minn. App. 2002).

            Although the parties on appeal raise issues as to the procedural posture of the lawsuit, the propriety of a levy on a commercial tort, and distinctions between a lawsuit as a chose in action and a settlement as a contract, the underlying dispositive issue is whether or not the complaint adequately pleaded the existence of a security interest in the ADM lawsuit, which is the personalty Edgar and Imdieke obtained through levy.

            In support of its contention that it pleaded a sufficient claim, Border points to paragraph 6 of the complaint, which alleges: "Border Bank, by virtue of a promissory note, security agreement and UCC financing statement (attached Exhibits A, B, and C), has a security interest in the lawsuit, any settlement of the lawsuit, and the proceeds of the lawsuit."

 

            Although this paragraph does allege a security interest in various aspects of the ADM lawsuit, the security agreement, which is the sole source of Border's rights, is not as broad.  Rather, it is confined to a security interest only in a "settlement" of the ADM lawsuit.  The district court distinguished "settlement," which it held to be contractual in nature, from a "tortious dispute."  It relied on the authorities of Eide v. State Farm Mut. Auto. Ins. Co., 492 N.W.2d 549, 555 (Minn. App. 1992), which noted that granting authority to settle a claim is not an assignment of a cause of action, and Ryan v. Ryan, 292 Minn. 52, 55, 193 N.W.2d 295, 297 (1971), which held that a settlement is a contract that requires all the elements of a contract to be valid.

            There was no contract between River Ridge and ADM to resolve the claims in the lawsuit.  It appears that, when Edgar and Imdieke executed their levy, the ADM lawsuit was still in the posture of an unresolved tortious dispute, or claim.  Thus, there was no "settlement" to which Border's security interest could attach.

            Border argues that Minnesota's Uniform Commercial Code provides that the collateral in which a security interest is granted need only be reasonably identified and that exact details of description are not required.  See Minn. Stat. § 336.9-108(a) (2004) (stating that, with certain exceptions, description of collateral is sufficient ‘if it reasonably identifies what is described"); cf. Minn. Stat. § 336.9-108(e) (2004) (stating that description only by type of collateral is insufficient description of commercial-tort claim).  Border also asserts that it would be absurd to conclude that the parties intended a security interest only in "a potential contract that may be entered into by the parties in the lawsuit but not the lawsuit or its proceeds . . ." and that the opportunity for discovery would disclose the intent of the parties to the security agreement.

            Here the security agreement describes the collateral exactly, precisely, and without ambiguity.  The law requires that when "words of a written contract are plain and unambiguous, its meaning should be determined in accordance with its plainly expressed intent."  Carl Bolander & Sons, Inc. v. United Stockyards Corp., 298 Minn. 428, 433, 215 N.W.2d 473, 476 (1974).  Furthermore, "[t]he meaning of a contract is to be ascertained from the writing alone, if possible, the duty of the court being to declare the meaning of what is written in the instrument, not what was intended to be written."  Id.(quotation omitted).

            The parties used the specific term "settlement" to describe the collateral.  That is a term of limitation and not of broad inclusion of other matters that might be connected with the ADM lawsuit.  It is not for us, under the guise of interpreting the contract, to alter the parties' clear expression of their intent as to the collateral to be covered by the security interest.  And "[a]bsent some violation of law or transgression of a strong public policy, the parties to a contract are basically free to make whatever agreement they wish, no matter how unwise it might appear to a third party."  United States v. Bedford Assocs., 491 F. Supp. 851, 864 (S.D.N.Y. 1980) (quoting Rowe v. Great Atl. & Pac. Tea Co., 46 N.Y.2d 62, 68, 412 N.Y.S.2d 827, 830, 385 N.E.2d 566, 569 (1978)), aff'd in part, rev'd in part, remanded, 657 F.2d 1300 (2d Cir. 1981)); see Pollock-Halvarson v. McGuire, 576 N.W.2d 451, 455 (Minn. App. 1998) (stating that parties have an unfettered right to contract and courts will not invalidate a lawful agreement, even if unwise or improvident), review denied (Minn. May 28, 1998).  Even if discovery were permitted, absent a showing of fraud, the parties would not be allowed to contradict the clear expression of their contractual intent.

            Border contends also that the security agreement itself broadens the description of collateral beyond merely a settlement.  It argues:

The Security Agreement recited as collateral, inter alia:

 

"Settlement on ADM Lawsuit"

All monies or instruments pertaining to the Collateral described above;

All accessions, accessories, additions, amendments, attachments, modifications, replacements and substitutions to any of the above;

All proceeds and products of any of the above; and

All supporting obligations of any of the above.

 

            This is broad language indeed, but Border misquotes the security agreement.  That language does not apply to the "Settlement on [the] ADM Lawsuit" but rather to "[t]he property described on Schedule A[,]" which refers to "accounts."  It is beyond reasonable dispute that a "settlement" is not an "account," and nowhere in the security agreement is the settlement on the lawsuit described or listed as an "account."

            With respect to Border's contention that the court improperly summarily decided the case without affording Border a trial, it appears that the parties were given an opportunity to present facts that might create a triable issue.  But the dispositive fact is that Border held no security interest in the personalty that was sold at the sheriff's sale.  Neither discovery nor a trial would alter that fact, and the district court properly determined the case as a matter of law.

            Finally, Border argues that the court improperly assessed attorney fees against it. When a district court awards attorney fees, it must make specific findings demonstrating the basis for and propriety of the award.  Becker v. Alloy Hardfacing & Eng'g Co., 401 N.W.2d 655, 661 (Minn. 1987) (remanding to district court for failure to state basis for determination of whether to award attorney fees).  The court here failed to make the requisite findings, and thus the award must be reversed and this issue remanded for further appropriate proceedings.

            Affirmed in part, reversed in part, and remanded.