Chicago Title Insurance Company, a Missouri corporation, Respondent, vs. Old Dominion Title Services, Inc., et al., Defendants, Molly L. Heise, et al., Appellants, and EastBank, intervenor, Respondent, Provident Funding Associates, L. P., intervenor, Respondent, Principal Residential Mortgage, Inc., n/k/a CitiMortgage, Inc., intervenor, Respondent, and Lighthouse Management Group, LLC, Receiver.

Chicago Title Insurance Company, a Missouri corporation, Respondent, vs. Old Dominion Title Services, Inc., et al., Defendants, Molly L. Heise, et al., Appellants, and EastBank, intervenor, Respondent, Provident Funding Associates, L. P., intervenor, Respondent, Principal Residential Mortgage, Inc., n/k/a CitiMortgage, Inc., intervenor, Respondent, and Lighthouse Management Group, LLC, Receiver. A06-1628, Court of Appeals Unpublished Decision, December 11, 2007.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2006).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A06-1628

 

Chicago Title Insurance Company,
a Missouri corporation,
Respondent,
vs.
 
Old Dominion Title Services, Inc., et al.,
Defendants,
 
Molly L. Heise, et al.,
Appellants,
 
and
 
EastBank, intervenor,
Respondent,
 
Provident Funding Associates, L. P., intervenor,
Respondent,
 
Principal Residential Mortgage, Inc., n/k/a
CitiMortgage, Inc., intervenor,
Respondent,
 
and
 
Lighthouse Management Group, LLC,
Receiver.

 

Filed December 11, 2007

Reversed and remanded

Shumaker, Judge

 

Hennepin County District Court

File No. 27-CV-04-001076

 

Patrick J. Rooney, Fafinski, Mark & Johnson, P.A., Flagship Corporate Center, 775 Prairie Center Drive, Suite 400, Eden Prairie, MN 55344;

 

Eric J. Magnuson, Briggs and Morgan, P.A., 2200 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402; and

 

Samuel J. Siegelman, Lindquist & Vennum, 4200 IDS Center, 80 South 8th Street, Minneapolis, MN 55402 (for respondent Chicago Title Insurance Co.)

Michael C. McCarthy, Karen D. Olson, Maslon Edelman Borman & Brand, 3300 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402 (for appellants Heise, et al.)

Gary D. Pihlstrom, Gary D. Pihlstrom, P.A., 945 Winnetka Avenue North, Suite 275, Golden Valley, MN  55427 (for intervenor respondent EastBank)

Paul J. Robbennolt, Todd R. Trumpold, Dorsey & Whitney LLP, 50 South Sixth Street, Suite 1500, Minneapolis, MN  55402 (for respondent Provident Funding Associates L.P.)

Mark G. Schroeder, Briggs and Morgan, P.A., 2200 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for intervenor respondent Principal Residential Mortgage, Inc.)

Larry B. Ricke, Leonard, Street and Deinard, P.A., 150 South Fifth Street, Suite 2300, Minneapolis, MN  55402 (for receiver Lighthouse Management Group)

 

 

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

U N P U B L I S H E D   O P I N I O N

SHUMAKER, Judge

            Appellants Molly Heise, Richard T. Heise, and Matthew R. Heise challenge summary judgments in favor of respondents Chicago Title Insurance Co., Provident Funding Associates L.P., and Principal Residential Mortgage, Inc. on claims of intentional and negligent misrepresentation, alter-ego liability, unjust enrichment, and conversion, and they contest the district court's appointment of a receiver, order for attachment, and imposition of a constructive trust over their assets, resulting in liquidation of the assets and distribution of funds.  They also challenge the district court's refusal to permit Richard and Matthew Heise to use funds from their liquidated assets to satisfy the judgments against them rather than the judgments against Molly Heise and Profile Title.  Because (a) there are genuine issues of material fact precluding summary judgment and (b) the district court erred as a matter of law in granting the motion to amend the complaint under Minn. R. Civ. P. 15.02, we reverse and remand.  We hold that the challenges to the appointment of a receiver, order for attachment, and constructive trust are moot.  Finally, we remand the issue raised by Richard and Matthew Heise regarding the use of their liquidated assets for the district court to reassess after resolution of the other issues, if necessary.

FACTS

            Although this opinion need not relate in detail all of the numerous hearings and disputes in this matter, the facts relevant to this appeal will be summarized.  In 1999, respondent Chicago Title Insurance Company and defendant Old Dominion Title Services entered into an issuing agency contract, under which Chicago Title, as principal, appointed Old Dominion to act as its agent to issue title insurance and similar products related to real estate.  The contract specified the agent's duties.

            In November 2000, appellant Molly Heise (Heise) started Integrity Title Services as a sole proprietorship and then conducted real-estate closings.  She opened a bank account for Integrity (the Integrity account), which she admittedly treated as a mixed business and personal account.  About a year later, she purchased Old Dominion, for which she had previously worked, in a stock transaction and became its sole shareholder.  In 2002, Heise incorporated Profile Title, also as its sole shareholder, to replace Old Dominion.  Although Profile did not enter into a written contract with Chicago Title, Profile continued to perform the duties and obligations of Old Dominion.  Christine Hein, a defendant who is not involved in this appeal, was the chief financial officer of Profile.  In early October 2003, Chicago Title informed Profile that it was terminating the agency contract as of November 7, 2003.  At Profile's request, Chicago Title extended the termination date to December 12, 2003, when the contract was terminated.

            In early January 2004, respondent Provident Funding Associates, a residential mortgage lender, informed Chicago Title of irregularities concerning loans in which Profile Financial Services, Inc., a mortgage company incorporated by Heise, had acted as lender and mortgage broker, and loans in which Profile had acted as the title company.  Provident advised that prior mortgage loans exceeding $1.6 million were unpaid and that prior mortgage liens might not have been satisfied.  Chicago Title did an audit and learned that Heise, Hein, and Profile continued to hold themselves out as agents of Chicago Title after the December 2003 termination of the contract.  Upon further investigation, Chicago Title discovered numerous irregularities and alleged misappropriations.

            In January 2004, Chicago Title sued Profile, Heise, and others and applied for a temporary restraining order (TRO) and other injunctive relief.  Shortly thereafter, the district court held a hearing and then granted the TRO in part, ordering Heise, Profile, and others to stop acting as Chicago Title's agents, granting a lien on Heise's assets, freezing bank accounts, and ordering expedited discovery.

            In April 2004, Chicago Title sought a temporary injunction and imposition of a constructive trust on the defendants' assets.  At a hearing, the parties discussed the possibility of a receivership, constructive trust, and prejudgment attachment, and seemed to agree for the most part.  The district court orally ordered such relief but left the exact provisions and the list of the attached property to the parties to resolve.

            In May 2004, counsel for Chicago Title, EastBank, and Provident signed a stipulation on which the district court based its order; other counsel, including counsel for Heise and Profile, did not sign it.  Under the stipulation and order, a receiver was appointed under Minn. Stat. §§ 576.01-.16 (2002) and the court's equitable powers.  The stipulation listed items of Heises' property that the receiver was to take possession of, including real property, motor vehicles, bank accounts, loans, and Profile assets.  Heise was to provide a list of all the properties that she claimed were exempt and was to deliver to the receiver all nonexempt property.  The stipulation provided that it did not constitute a waiver by any party of any rights regarding any of the properties and did not create any other interest in the property without further agreement of the parties or court order.  Shortly after the order was issued, the district court granted a motion to amend the complaint to add Richard Heise, Heise's husband, and Matthew Heise, their son, as defendants.  The court later granted motions by respondents EastBank, Provident, and Principal Residential Mortgage, Inc. to intervene in the case.

 

            The district court issued a series of orders in 2004 and January 2005 on the receiver's motions authorizing the sale of real and personal property.  At one point, Heise was jailed for contempt for disobeying the court's order to disclose all assets.  In August 2005, the district court granted summary judgment to Chicago Title and to intervenors EastBank, Provident, and Principal on a variety of claims.  In June 2006, the district court accepted the final report and accounting of the receiver, and judgments and amended judgments were entered.

            Molly Heise, Richard Heise, and Matthew Heise then brought this appeal, challenging the decisions in favor of Chicago Title, EastBank, Provident, and Principal.  The Heises advised this court in their brief that they decided not to challenge the decision in favor of EastBank; EastBank nonetheless filed a respondent's brief.  Provident and Principal have not filed respondents' briefs.  Consequently, we do not address issues relating to EastBank, but the appeals against Provident and Principal are proceeding under Minn. R. Civ. App. P. 142.03 and will be decided on the merits.

D E C I S I O N

I.

            In reviewing an appeal from summary judgment, an appellate court must determine whether there are genuine issues of material fact and whether the district court erred as a matter of law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). 

            The district court granted summary judgment to Chicago Title on its claim of intentional misrepresentation against Profile and Heise.  The elements of such a claim are "that defendant (1) made a representation (2) that was false (3) having to do with a past or present fact (4) that is material (5) and susceptible of knowledge (6) that the representer knows to be false or is asserted without knowing whether the fact is true or false (7) with the intent to induce the other person to act (8) and the person in fact is induced to act (9) in reliance on the representation (10) that the plaintiff suffered damages (11) attributable to the misrepresentation."  M.H. v. Caritas Family Servs., 488 N.W.2d 282, 289 (Minn. 1992).  The district court also ruled in favor of Chicago Title on its claims of negligent representation.  The tort of negligent representation has the following elements.

                        One who, in the course of his business, profession or employment, or in a transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

 

Bonhiver v. Graff, 311 Minn. 111, 121-22, 248 N.W.2d 291, 298 (1976) (quotation omitted).

            The district court ruled in relevant part that Profile, through Heise, was contractually obligated to perform certain services and falsely represented that it performed or would perform the contractual obligations and concomitant fiduciary duties.  These included maintaining escrow funds in federally insured accounts, dispersing funds for the intended purposes, maintaining ledgers and accounts, reconciling the ledgers and accounts monthly, and cooperating to perform audits.  Further, the court ruled that Profile, through Heise, made the misrepresentations with the intent that others, including Chicago Title and intervenors, would act on them; that Chicago Title and intervenors did act on them; and that Profile and Heise were liable for damages.

            Heise first argues that Chicago Title never consented to have its contract with Old Dominion assigned to Profile, relying on the contract's nonassignability clause.  This clause provides that the contract is not assignable by the agent unless Chicago Title consents in writing, but also provides that the duties and obligations of the agent survive any change in ownership of the agent.  A party to a contract, however, may consent to an assignment even though there is a nonassignability clause.  6A C.J.S. Assignments § 84 (2004); Koehler & Hinrichs Merchantile Co. v. Ill. Glass Co., 143 Minn. 344, 349, 173 N.W. 703, 705 (1919).  Here, there is no doubt that Chicago Title, which argues that Profile operated under the terms of the contract, has waived the nonassignability clause, and Heise's argument on this point fails.

            We next address whether the district court properly held that there were no genuine issues of material fact as to elements of the misrepresentation claims.  Heise does not dispute that between 2001 and 2004, more than $5.5 million was deposited into the Integrity account, and that during the same period, she made withdrawals and wrote checks for her personal use which Chicago Title asserts ran into the millions.

            Chicago Title cites the extensive evidence that it submitted to the district court in support of its summary judgment motion, which the district court found undisputed.  This included bank accounts, debits, and the records of funds deposited into the accounts, as well as transaction histories compiled by Chicago Title that trace the deposits and withdrawals and the identity of clients whose escrow funds were misappropriated.

            There are, however, numerous credibility issues that are inappropriate for resolution on summary judgment.  First, fact questions exist as to whether all of the $5.5 million in the Integrity account originated from escrow funds that the Heises should not have used.  Next, while two escrow checks admittedly were improperly deposited in the Integrity account, there is a question of whether this was the result of fraudulent action by Heise.  Heise explained in her deposition that she guessed that one of the escrow checks was deposited into the Integrity account by accident.  She also explained that had an escrow check been deposited into an Integrity account by mistake, it was an oversight and later rectified.  Fact questions also exist as to whether there is a causal link between the losses Chicago Title claims and improprieties by Heise.  The district court seemed to assume such a link, which is improper.

            Heise also challenges the district court's grant of summary judgment on the intentional and negligent misrepresentation claims by respondents Provident and Principal, the residential mortgage lenders.  For the same reasons as discussed above, we hold that there are genuine issues of material fact precluding summary judgment on these claims.  The evidence is in dispute; there are credibility issues; and summary judgment cannot be used to resolve them.

II.

            In district court, Heise objected to several claims made by Chicago Title in its summary judgment motion on the ground that they were not in its third amended complaint.  These included claims for alter-ego liability or stockholder liability under Minn. Stat. § 300.27, unjust enrichment, and conversion.  Heise also objected to claims by respondents Provident and Principal for alter-ego liability or stockholder liability under Minn. Stat. § 300.27 for the same reason.  The district court ordered that these claims be added as amendments to the pleadings so that they would conform to the evidence under Minn. R. Civ. P. 15.02 and granted summary judgment against Heise on these counts.  Heise challenges the district court's decisions to amend the pleadings to include the above claims as well as the merits of the summary judgments.

            A district court's decision of whether to amend pleadings under Minn. R. Civ. P. 15.02 will not be reversed unless the court abused its discretion.  Brendsel v. Wright, 301 Minn. 175, 178, 221 N.W.2d 695, 696-97 (1974).  Construction of a rule of court procedure, however, will be reviewed de novo.  Patterson v. Wu Family Corp., 608 N.W.2d 863, 866 (Minn. 2000).

            Chicago Title argues that it was not necessary to specifically label its claim for alter-ego liability in its complaint because it included detailed allegations in the complaint that gave Heise notice that she faced potential personal liability.  See Barton v. Moore, 558 N.W.2d 746, 749 (Minn. 1997) (holding that plaintiffs alleged sufficient facts in complaint to constitute a claim for piercing the corporate veil so as to defeat a motion to dismiss on the pleadings).  The district court did not address this argument, and we decline to address it for the first time on appeal.  Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988).

            Rule 15.02 allows amendments only when issues not raised by the pleadings are tried by express or implied consent.  "Such amendments are permissible at or after trial."  Tex. Commerce Bank v. Olson, 416 N.W.2d 456, 461-62 (Minn. App. 1987).  The district court here, however, was not ruling on a motion to amend at or after trial, but instead was addressing the issue in the context of a motion for summary judgment.  Therefore, the district court erred as a matter of law in relying on rule 15.02 to grant the motions to amend.

            On remand, the district court may in its discretion allow a motion to amend under Minn. R. Civ. P. 15.01.  We note that while leave to amend under rule 15.01 should be given freely "when justice so requires," "[p]rejudice to the adverse party [if leave is granted] can be weighed against prejudice to the moving party if leave is denied."  Wilson v. City of Eagan, 297 N.W.2d 146, 151 (Minn. 1980).  In that context, the district court may consider Heise's argument that she was prejudiced because discovery was closed.

III.

            We next address the district court's grant of summary judgment on Chicago Title's unjust enrichment and conversion claims against Heise's husband, Richard Heise, and her son, Matthew Heise.  These claims against Richard and Matthew Heise were explicitly pleaded in Chicago Title's complaint, unlike the unjust enrichment and conversion claims against Heise.

            An unjust enrichment claim requires a showing "that another party knowingly received something of value to which he was not entitled, and that the circumstances are such that it would be unjust for that person to retain the benefit."  Schumacher v. Schumacher, 627 N.W.2d 725, 729 (Minn. App. 2001).  Conversion is "an act of wilful interference with [personal property], done without lawful justification, by which any person entitled thereto is deprived of use and possession."  Larson v. Archer-Daniels-Midland Co., 226 Minn. 315, 317, 32 N.W.2d 649, 650 (1948).  "The elements of common law conversion are (1) the plaintiff has a property interest and (2) the defendant deprives the plaintiff of that interest."  Lassen v. First Bank Eden Prairie, 514 N.W.2d 831, 838 (Minn. App. 1994), review denied (Minn. June 29, 1994).

            The district court cited a number of facts that the Heises do not specifically dispute regarding funds that they received from the Integrity account.  But they argue that Chicago Title has not shown that the money that they received from the Integrity account (which was Molly Heise's mixed business and personal account) was misappropriated from Profile funds, rather than taken from funds that did not belong to Profile.  Consequently, they assert that Chicago Title cannot establish that they knowingly obtained benefit at Chicago Title's expense, rather than Profile's expense.  We agree that these facts are in dispute; that it cannot be assumed, but must be proved, that the funds were taken improperly; and that the issue cannot be resolved by summary judgment.

IV.

            The Heises next argue that the district court's liquidation of their assets was improper because the constructive trust was not properly imposed, the court's appointment of a receiver was improper, and the requirements for prejudgment attachment were not satisfied.

            The Heises argue that the district court's appointment of a receiver under Minn. Stat. § 576.01 (2006) was improper.  They contend that there was no motion for the appointment of a receiver, no adequate hearing on the issue, and no showing or findings as to the propriety of the appointment of the receiver.  Consequently, they assert that the receiver was not properly appointed and was not legally authorized to seize and sell their property.

            Our review of the transcript shows that, even though counsel for Heise suggested other options, he participated in the discussion of the receivership and later indicated agreement with it.  There was no objection based on the lack of the motion and no showing that the district court prevented counsel from objecting.  Heise has not shown she raised this issue in the district court, and we decline to address it for the first time on appeal.  See Thiele, 425 N.W.2d at 582.  Further, Heise has not shown that, under these circumstances, the district court abused its discretion.  See Minn. Hotel Co. v. ROSA Dev. Co., 495 N.W.2d 888, 891 (Minn. App. 1993) (applying abuse of discretion standard to review challenge to appointment of receiver).

            Finally, a district court order appointing a receiver adjudicates a substantial right in a proceeding commenced independently of a pending action to obtain special relief.  Brown v. Muetzel, 358 N.W.2d 725, 727 (Minn. App. 1984).  Therefore, it "is a final order affecting a substantial right made in a special proceeding " and is directly appealable under Minn. R. Civ. App. P. 103.03(g).  Brown, 358 N.W.2d at 727.  Heise did not appeal directly from the order granting the receivership.  The receiver was discharged upon final disbursement of the funds, and the receivership was terminated.

            If an appellate "court is unable to grant effectual relief," the issue will be dismissed as moot.  In re Schmidt, 443 N.W.2d 824, 826 (Minn. 1989).  Here, because the receivership has been terminated, no effectual relief can be awarded.  Nor do any exceptions to the mootness doctrine apply.  See Elzie v. Comm'r of Pub. Safety, 298 N.W.2d 29, 32 (Minn. 1980) (describing exceptions).  Consequently, the issue is moot.

            Next, the Heises challenge the order of attachment.  A claimant who seeks to recover money from a respondent through a civil action alleging intentional fraud may bring an ancillary proceeding to attach the property of respondent "as security for the satisfaction of any judgment that the claimant may recover."  Minn. Stat. §§ 570.01, .02, subd. 1(4) (2006).  The claimant must demonstrate "the probability of success on the merits."  Minn. Stat. § 570.026, subd. 3 (2006).  "The purpose of attachment is to preserve the status quo while title to the property is determined on the merits."  In re Estate of Rosenberger, 495 N.W.2d 234, 235 (Minn. App. 1993).  The Heises contend that the district court failed to find that any of the requirements for attachment were met and that the attachment was therefore improper.

            An order vacating or sustaining an attachment is directly appealable.  Minn. R. Civ. App. P. 103.03(c).  When the title to the property has been determined on the merits by the actions of the receiver, there is no longer any relief that this court can provide to the Heises challenge to the order of attachment, and this issue, too, is moot.

            Finally, we address the Heises' challenge to the constructive trust.  They argue that the district court had no basis to impose a constructive trust, but earlier contend in the facts that no constructive trust was ever actually ordered by the court.  We note that in the court's March 21, 2006 order, it reiterated that the receiver retained the property under an alternative theory of constructive trust.  In any event, in light of our holdings that the issues of receivership and attachment are moot, we find it unnecessary to reach this issue.

V.

            The Heises argue that the district court erred in refusing to permit Richard and Matthew Heise to use funds from their liquidated assets to satisfy judgments against them, rather than judgments against Profile and Molly Heise.  They contend that the district court essentially determined that there was joint and several liability against Richard and Matthew Heise without first finding that joint and several liability had been established.  Under the circumstances of our decision as detailed above, and given the fact that liquidation and distribution have already occurred, we remand this issue to the district court for resolution depending on the outcome of the other proceedings on remand.

            Reversed and remanded.