HomeMy WebLinkAbout5.c. Review of Rosemount Plaza Condominium StatusCITY OF ROSEMOUNT
EXECUTIVE SUMMARY FOR ACTION
PORT AUTHORITY COMMISSION MEETING DATE: AUGUST 4, 1992
AGENDA ITEM: REVIEW OF ROSEMOUNT PLAZA
AGENDA SECTION:
CONDOMINIUM STATUS
OLD BUSINESS
PREPARED BY: JOHN MILLER,
AGENDA NO.
ECONOMIC DEVELOPMENT COORDINATOR
ITIRM
ATTACHMENTS: NONE
APP VED Y:
At the Port Authority's July 21, 1992 meeting, Commissioner Sinnwell asked
for an update of the Rosemount Plaza Condominium Project.
The attorney for the Port Authority will have a verbal presentation for the
Commissioners.
ACTION:
Informational item only.
PORT AUTHORITY ACTION:
999 Westview Drive
Hastings, MN
55033-2495
(612) 437-3148
FAX (612) 437-2732
*Samuel H. Hertogs
*Donald J. Fluegel
**Michael R. Sieben
**Michael S. Polk
*Harvey N. Jones
*,Richard A. LaVerdiere
Steven D. Hawn
Thomas R. Longfellow
Bernie M. Dusich
**J. Michael Miles
Leo F. Schumacher
Shawn M. Moynihan
Mark J. Fellman
Michael R. Strom
John P. Sieben
Scott J. Hertogs
Eric A. Short
Craig M. Roen
Sara M. Hulse
Of Counsel:
James M. Goetteman
*Also admitted in Wisconsin
**Also admitted in Iowa
*Certified as civil trial
specialists by the National
Board of Trial Advocacy
and the Minnesota State
Bar Association
ST. PAUL OFFICE:
Galtier Plaza
Suite 550, Box 45
175 Fifth Street East
St. Paul, MN 55101-2901
(612) 222-4146
FAX (612) 223-8279
Hertogs Fluegei
Sieben Polk
Jones & LaVerdiere
PROFESSIONAL ASSOCIATION
M E M O R A N D U M
TO: Rosemount Port Authority
FROM: Eric A. Short
DATE: August 4, 1992
RE: Rosemount Plaza Condominium
This Memorandum is in response to your request for a status
report. I hope you find it to be helpful.
For background, the Rosemount Plaza Condominium Project was
financed primarily by Midway National Bank and secondarily
by the Rosemount HRA. Both loans were secured by mortgages.
Sales did not meet projections, and the developer defaulted
on both loans. Several subcontracts were also unpaid, and
Carlson-Grefe Construction, Inc., commenced foreclosure of
its mechanic's lien. Midway Bank and Rosemount HRA
answered, alleging priority of their mortgages. Midway Bank
and Rosemount HRA prevailed in District Court and in the
Court of Appeals (see attached).
Throughout the litigation, efforts at refinancing and other
workout possibilities were explored, but no agreement was
reached. Midway Bank has since foreclosed its mortgage and,
as redemption has expired, owns the unsold condominium
units.
Rosemount HRA (now the Port Authority) has obtained a
judgment against the developer in the amount of $351,716.06.
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STATE. _OF SMI =S.OTA
Dakota County
District Court File C9-90-7555
Carlson-Grefe Construction, Inc.,
Appellant,
VS.
Rosemount Condominium Group
Partnership, et al.,
Respondents,
August W. Ratzlaff, et al.,
Defendants,
Midway National Bank of
St. Paul,
Respondent,
The City of Rosemount
Housing and Redevelopment
Authority,
Respondent,
Dakota County Housing and
Redevelopment Authority,
Respondent,
State Mechanical, Inc.,
Respondent.
Klaphake, Judge
Kurt M. Anderson
Bergeson, Lander,
and Megarry, P.A.
7900 Xerxes Avenue South
Suite 940
Bloomington, Minnesota 55431
E. Martin Stapleton
Stapleton, Nolan & McCall P.A.
2300 American National Bank
Building
St. Paul, Minnesota 55101
Leander G. Lippert
Lippert Law Offices, P.A.
7301 Ohms Lane, Suite 150
Edina, Minnesota 55435
Eric A. Short
Michael R. Strom
Donald J. Fluegel
Hertogs, Fluegel, Sieben, Polk,
Jones and LaVerdiere, P.A.
999 Westview Drive
Hastings, Minnesota 55033
Larry M. Wertheim
Bonnie Wilkins
Holmes and Graven, Chartered
470 Pillsbury Center
Minneapolis, Minnesota 55402
Peter I. Orlins
Orlins Law Office
6635 Lyndale Avenue South
Richfield, Minnesota 55423-2390
Filed August 27, 1991
Office of Appellate Courts
S Y L L A B U 8
1. The court of appeals will not review issues to which finality
has not attached.
2. A construction trailer containing plumbing materials is not a
visible improvement on the ground sufficient to establish
priority of a mechanics' lien over a mortgage. Minn.
Stat. § 514.05, subd. 1 (1990).
3. A ceremonial groundbreaking is not a visible improvement on
the ground sufficient to establish priority of a mechanics'
lien over a mortgage. Minn. Stat. S 514.05, subd. 1 (1990).
Affirmed.
Considered and decided by Klaphake, Presiding Judge,
Lansing, Judge, and Davies, Judge.
O P I N I O N
KLAPHAKE, Judge
Appellant challenges summary judgment granted to the
respondent mortgagees in a priority dispute involving mechanics'
liens and mortgage interests. The trial court held, and we agree,
that neither the presence of a construction trailer containing
plumbing fixtures nor a ceremonial groundbreaking constitutes the
actual and visible beginning of an improvement on the ground under
Minn. Stat. § 514.05, subd. 1 (1990). We affirm.
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FACTS
Because this is an appeal from summary judgment, we state the
facts in the light most favorable to the appellant, Carlson-Grefe
Construction, Inc. (Carlson-Grefe).
Respondent Rosemount Condominium Group Partnership (Rosemount
Condominium) owned real estate in Rosemount, Minnesota, on which it
planned to build a condominium complex.' On March 19, 1988,.
respondent State Mechanical, Inc., a plumbing contractor, moved its
construction trailer onto the Rosemount Condominium property. On
March 28, 1988, State Mechanical began storing in the trailer
plumbing fixtures it planned to install in the condominiums. State
Mechanical prefabricated the fixtures in its shop before delivering
them to the trailer.
After State Mechanical began storing the plumbing fixtures in
the trailer, respondent Fridlund Group Partnership contracted with
Carlson-Grefe to construct the condominium building and with State
Mechanical to provide the plumbing for the condominium development.
On May 10, 1988, Rosemount Condominium executed several mortgages
in favor of respondent Midway National Bank of St. Paul (Midway),
respondent the City of Rosemount Housing and Redevelopment
Authority (Rosemount HRA), and respondent Dakota County Housing and
Redevelopment Authority (Dakota HRA). The Midway and Rosemount HRA
' Although Rosemount Condominium Group Partnership is the
owner of the property, the relevant construction contracts were
executed on behalf of Fridlund Group Partnership by Milton
Bruflodt. Bruflodt is a general partner in both Rosemount
Condominium and Fridlund Group Partnership.
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mortgages were recorded on May 13, 1988, and re-recorded on October
26, 1988.2 The Dakota HRA mortgage has been satisfied.
On May 11, 1988, a ceremonial groundbreaking took place on the
property. Midway had no notice of this ceremony, and did not
attend. On August 8, 1988, Carlson-Grefe began construction.
Midway foreclosed its mortgage and purchased the property at
the foreclosure sale on November 15, 1990. The redemption period
is currently running.
In July 1990, Carlson-Grefe also began foreclosure
proceedings, joining interested parties to determine priority. The
trial court held that neither the presence of State Mechanical's
trailer nor the ceremonial groundbreaking constituted the "actual
and visible beginning of the improvement on the ground" as a matter
of law. Thus, the trial court granted summary judgment to Midway
and Rosemount HRA, declaring their mortgages superior to the
Carlson-Grefe and State Mechanical liens. The trial court allowed
Carlson-Grefe to add Eileen Greenwood, general partner in both
Rosemount Condominium and Fridlund Group Partnership, as a
defendant, but refused to allow the addition of Marguerite
Fridlund, the widow of a general partner in Fridlund Group
Partnership, as a defendant. The trial court denied Carlson-
Grefe's motion to amend the complaint to add an additional cause of
action based on a letter outlining the approximate amount owed
under the contract.
2 The parties do not dispute that the effective date of the
mortgage, for priority purposes, is May 13, 1988.
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ISSUES
1. Did the trial court abuse its discretion in refusing to allow
Carlson-Grefe to amend its complaint?
2. Consistent with Minn. Stat. $ 514.05, subd. 1 (1990), does the
presence of a construction trailer containing plumbing
materials and/or a ceremonial groundbreaking constitute the
"actual and visible beginning of the improvement on the
ground?"
ANALYSIS
Standard of Review
on appeal from summary judgment, this court reviews the entire
record to determine whether any genuine issues of material fact
exist and whether the trial court erred in applying the law.
Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn. 1989).
For purposes of our review here, we resolve disputed facts in favor
of Carlson-Grefe and examine only the trial court's application of
the law.
I.
Carlson-Grefe claims the trial court abused its discretion in
refusing to allow an amendment to its complaint. Although included
in the summary judgment decision, the denial of Carlson-Grefe's
motion to amend was not a final judgment, nor did it determine the
action and prevent an appealable judgment. Minn. R. Civ. App. P.
103.03 (a) , (e) ; see also Spaeth v. City of Plymouth, 344 N.W.2d
815, 824-25 (1984) (nonappealable order does not become appealable
by joining it to appealable order). Thus, we will not review the
amendment issue.
M. -fl
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II.
Carlson-Grefe challenges the trial court's determination that
the Midway and Rosemount HRA mortgages took priority over the
mechanics' liens. Minn. Stat. S 514.05, subd. 1 (1990) addresses
priority disputes among lienholders, owners, and mortgagees. The
statute provides:
All liens, as against the owner of the land,
shall attach and take effect from the time the
first item of material or labor is furnished
upon the premises for the beginning of the
improvement, and shall be preferred to any
mortgage or other encumbrance not then of
record, unless the lienholder had actual
notice thereof. As against a bona fide
nurchaser mortgagee or encumbrancer without
Id. (emphasis added). Carlson-Grefe contends the presence of the
construction trailer containing plumbing fittings constitutes the
actual and visible beginning of the improvement on the ground. We
disagree.
Midway and Rosemount HRA 's status as bona fide mortgagees
without notice', depends on whether there was an actual and visible
beginning of an improvement on the ground before the mortgages were
recorded. See M E Kraft Excavating a Grading Co. v. Barac Constr.
Co., 279 Minn. 278, 284, 156 N.W.2d 748, 752 (1968). Once a
visible improvement on the ground has begun, the mortgagees are
deemed to have notice of mechanics' liens and stand in the same
position, for priority purposes, as an owner. Reuben E. Johnson
Co. v. Phelps, 279 Minn. 107, 113, 156 N.W.2d 247, 251 (1968).
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The underlying policy of the statute enables property owners
and developers to procure financing by granting mortgagees priority
against lien claimants filing claims after the mortgage is
recorded, so long as the mortgagee's inspection of the property
does not reveal the actual and visible beginning of the improvement
on the ground. fid_. at 112-13, 156 N.W.2d at 252. This policy
prevents the injustice that would occur
if the land could be afterwards swallowed up
by mechanics' liens for work which had not
been commenced on the ground, and of which
consequently one who might buy the property or
take a mortgage upon it had no notice or means
of knowledge when he took his deed or
mortgage.
Wentworth v. Tubbs, 53 Minn. 388, 395, 55 N.W. 543, 544 (1893)
quoted in Phelps, 279 Minn. at 114, 156 N.W.2d at 252. The statute
balances this 'policy against the equally important purpose of
protecting the rights of the workers and suppliers who furnish the
labor and material necessary to the improvement project by charging
the mortgagee with notice of the liens as of the beginning date of
the actual and visible improvement. See e.g., Anderson v. Breezy
Point Estates, 283 Minn. 490, 493, 168 N.W.2d 693, 696 (1969).
This dual purpose is best served when the rights of both mortgagees
and lien claimants are fixed with definiteness and certainty.
Phelps, 279 Minn. at 116, 156 N.W.2d at 253.
Our review of the case law indicates a lien claimant must meet
several requirements to assert priority over a mortgagee under the
statute. There must be an improvement defined as any contribution
of labor, skill, material, or machinery used to make a permanent
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addition that enhances the capital value of real estate, involving
the expenditure of labor or money, and designed to increase the
usefulness or value of the property. Kloster -Madsen. Inc. v.
Tafi's. Inc., 303 Minn. 59, 63-64, 226 N.W.2d 603, 607 (1975).
While the furnishing of some goods and services creates a lien
under Minn. Stat. $ 514.01 (1990), the lien itself does not attach
for priority purposes against a mortgagee at the time of the
delivery of the goods or at the commencement of these services.
Kraft, 279 Minn. at 285, 156 N.W.2d at 753 (neither a survey nor
architectural services constituted the actual and visible
improvement on the ground) .(citing Erickson v. Ireland, 134 Minn.
156, 158, 158 N.W. 918, 919 (1916)). Rather, the lien attaches at
the actual and visible beginning of the improvement on the ground.
Kraft, 279 Minn. at 285, 156 N.W.2d at 753.
The presence of a construction trailer containing plumbing
materials does not constitute a visible improvement on the ground.
By definition, an improvement must have an aspect of permanence
which is not met here. Kloster -Madsen, 303 Minn. at 64, 226 N.W.2d
at 607 (an improvement is a permanent addition designed to increase
value or usefulness of the property). The statutory language adds
to this definition the requirement that the improvement be visible
on the ground. Minn. Stat. 5 514.05, subd. 1. These requirements
are necessary to further the statute's underlying policy of
providing notice to mortgagees of existing mechanics' liens.
The mobile character of the trailer precludes the necessary
permanence implicit in the phrase "visible improvement on the
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ground." A mortgagee inspecting the property for visible signs of t
an improvement on the ground must be able to rely on the appearance
of the property without being concerned that a materialman has
moved a trailer filled with supplies on and off the property and
thereby established priority. At best, the trailer's presence
indicated that an improvement was planned. Knowledge of planned
improvements, however, is not sufficient to charge a mortgagee with
notice of existing mechanics' lien claims. Phelps, 279 Minn. at
116, 156 N.W.2d at 253. For priority purposes, the mechanics' lien
attaches at the first sign of the actual and visible beginning of
the improvement on the ground. While the presence of this
equipment may establish a mechanics' lien against an owner, the
facts of this case do not meet the higher standard necessary to
establish priority over a mortgagee.
We also disagree that a ceremonial groundbreaking provides an
appropriate bright line rule for establishing the priority of a
mechanics' lien. First, a ceremonial groundbreaking contradicts
the express language of the statute requiring that there be an
actual and visible beginning of the improvement on the ground.
Second, a shovelful of dirt marking a ceremonial groundbreaking
does not enable a person exercising reasonable diligence to see it.
See Kloster -Madsen, 303 Minn. at 64, 226 N.W.2d at 607. Such a
ceremonial groundbreaking may often occur, as it did here, well
before the actual improvement on the ground begins. Additionally,
the elements may erase any visible proof of the groundbreaking. We
believe using the ceremonial groundbreaking as a bright line rule
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would inject uncertainty into the law and inhibit the ability of._,
developers to obtain financing.
We conclude the trial court correctly determined, as a matter
of law, that neither the presence of the trailer containing
plumbing materials nor the ceremonial groundbreaking constitute the
actual and visible beginning of the improvement on the ground.
Affirmed.
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