Opinion
No. A05-2051.
Filed July 18, 2006.
Appeal from the District Court, Hennepin County, File No. HC-05-08-11521.
Howard Roston, Patrick B. Steinhoff, Malkerson Gilliland Martin Llp, Minneapolis, Mn (for respondent)
Timothy R. Maher, Boris Parker, Saliterman Siefferman, P.C., Minneapolis, Mn (for appellant)
Considered and decided by Peterson, Presiding Judge; Halbrooks, Judge; and Minge, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
Appellant challenges the summary judgment ordering its eviction and denial of its motion for a continuance. Because the lease that governed appellant's subtenancy was terminated as a result of the mortgage foreclosure, the district court did not err in granting summary judgment on respondent's eviction petition. Similarly, because appellant did not have a valid lease, the district court did not err in dismissing appellant's counterclaims nor did it abuse its discretion by denying appellant's motion for a continuance.
FACTS
This is an appeal from summary judgment granted by the district court in favor of respondent New Hope One, LLC (New Hope), the plaintiff-property owner, in its eviction proceeding against appellant ViroGen, Inc. (ViroGen), a subtenant-defendant. On November 12, 1999, DL Real Estate Holdings, LLC (DL), executed a mortgage (first mortgage) in favor of Anchor Bank encumbering improved real estate known as the Quebec property. On the same day, DL leased the entire Quebec property to Nielsen's Equipment Design, Inc. (Nielsen). At that time, Anchor Bank, DL, and Nielsen entered into a Lease Subordination Agreement, which stated that Nielsen's lease "shall be and hereby [is] declared to be subject and subordinate to," in all respects, the first mortgage.
DL and Anchor Bank subsequently executed a second mortgage. For ease of discussion, both Anchor Bank mortgages are referred to as first mortgage to reflect that Anchor Bank was the most senior creditor of DL.
On January 21, 2000, DL executed a second mortgage secured by the Quebec property in favor of Twin Cities Metro Certified Development Company. Twin Cities Metro assigned its interest in the mortgage to the U.S. Small Business Administration (SBA). On April 1, 2000, Nielsen subleased a portion of the Quebec property to ViroGen. DL, Anchor Bank, Twin Cities Metro, and the SBA were not involved with and never acknowledged the subtenancy.
Eventually, DL defaulted on the first mortgage, and Anchor Bank initiated a foreclosure. Anchor Bank purchased the Quebec property at the foreclosure sale. During the redemption period, SBA assigned its interest in the second mortgage to New Hope. Pursuant to Minn. Stat. § 580.24(a) (2004), New Hope, as the next most senior lien holder, filed a notice of redemption on May 27, 2005. On June 16, 2005, New Hope successfully redeemed the property and became the fee owner of the Quebec property.
After the expiration of the redemption period, New Hope notified ViroGen that its tenancy was terminated and that it should move out. When ViroGen refused to vacate, New Hope filed an eviction complaint. The eviction petition came before the district court on cross-motions for summary judgment. The district court granted summary judgment in favor of New Hope, dismissed ViroGen's counterclaims, and denied ViroGen's motion for a continuance. ViroGen appeals.
DECISION I.
The first issue is whether the district court erred in granting summary judgment for New Hope. On appeal from summary judgment this court must determine whether there are any genuine issues of material fact and whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). "On appeal, the reviewing court must view the evidence in the light most favorable to the party against whom judgment was granted." Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).
[T]here is no genuine issue of material fact for trial when the nonmoving party presents evidence which merely creates a metaphysical doubt as to a factual issue and which is not sufficiently probative with respect to an essential element of the nonmoving party's case to permit reasonable persons to draw different conclusions.
DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (Minn. 1997).
A. Leases after Foreclosure
The district court granted summary judgment for New Hope because the mortgage foreclosure extinguished any possessory interest that ViroGen may have had in the property. ViroGen argues that the foreclosure of the first mortgage did not terminate ViroGen's sublease and that the district court erred by applying the foreclosure statute, Minn. Stat. §§ 580.01-.30 (2004). Interpretation of a written contract, such as a lease, is a question of law that this court will review de novo. Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minn., 664 N.W.2d 303, 311 (Minn. 2003). Interpretation of a statute is also a question of law and similarly reviewed de novo. Nash v. Wollan, 656 N.W.2d 585, 589 (Minn.App. 2003), review denied (Minn. Apr. 29, 2003).
At common law, a mortgage foreclosure extinguishes subordinate leases on the property. Geo. Benz Sons v. Willar, 198 Minn. 311, 314, 269 N.W. 840, 841 (1936). Redemption by a creditor holding a lien on the property "operates as an assignment to the creditor of the right acquired under such sale." Minn. Stat. § 580.27.
Because Nielsen's lease was subordinate to the foreclosed mortgage, Nielsen's lease was extinguished. Because ViroGen's possessory interest in the Quebec property is based on Nielsen's lease, its rights were also extinguished. See Geo. Benz Sons, 198 Minn. at 314, 269 N.W. at 841; Warnert v. MGM Props., 362 N.W.2d 364, 367 (Minn.App. 1985), review denied (Minn. Apr. 18, 1985). New Hope, as the next most senior creditor, redeemed the mortgage from Anchor Bank, which held the sheriff's certificate of sale from the foreclosure sale. Minn. Stat. § 580.24(a). As a result, New Hope acquired all of the rights of Anchor Bank and held fee title to the Quebec property. ViroGen was a tenant-at-will. Therefore, New Hope had the right to eject ViroGen from the property.
B. Contractual Limits
ViroGen urges that this conclusion should be modified because of provisions in various agreements. Where the contract is clear and unambiguous, "the reviewing court cannot go beyond the language of the contract in interpreting it." S O Designs USA, Inc. v. Rollerblade, Inc., 620 N.W.2d 48, 53 (Minn.App. 2000), review denied (Minn. Feb. 21, 2001). A lease is a contract, which should be construed according to the rules of interpretation. Minneapolis Pub. Hous. Auth. v. Lor, 591 N.W.2d 700, 704 (Minn. 1999); Amoco Oil Co. v. Jones, 467 N.W.2d 357, 360 (Minn.App. 1991). Courts will interpret the language of the lease "in the context of the entire agreement." Carlson Real Estate Co. v. Soltan, 549 N.W.2d 376, 379 (Minn.App. 1996) (quoting Hydra-Mac, Inc. v. Onan Corp., 450 N.W.2d 913, 916 (Minn. 1990)), review denied (Minn. Aug. 20, 1996).
1. Financing Agreement
ViroGen points out that New Hope's position is limited by the arrangement under which Anchor Bank financed New Hope's redemption. As a part of that financing, New Hope gave Anchor Bank a security interest. ViroGen argues that security documents implicitly recognized its sublease when they stated: "[New Hope] hereby grants, transfers and assigns to [Anchor Bank] the immediate and continuing right to receive and collect the rents, income, profits and issues (collectively the "Rents") arising out of or payable or collected from the [Quebec property]." We note ViroGen is neither a party to nor a third party beneficiary of this assignment and, therefore, lacks standing to enforce it. Although the assignment mentions current or future rents, it does not purport to continue or reinstate earlier leases. We conclude this assignment is simply a security arrangement and did not create any rights in ViroGen to enforce its sublease.
2. Lease Subordination
ViroGen also points to the terms of the various subordination agreements among the parties. First, Nielsen's lease with DL provides that if "the interests of [DL] under this Lease shall be transferred by reason of foreclosure . . . [and] if requested by the Purchaser, [Nielsen] agrees to attorn to the Purchaser, including the mortgagee under any such mortgage if it be the Purchaser, as its Landlord." (Emphasis added.) The Lease Subordination Agreement further provides that if Anchor Bank did not terminate the lease upon a foreclosure of its mortgage, Nielsen was required to attorn to and recognize Anchor Bank, "its successors and assigns, or any purchaser at the foreclosure sale (a "New Owner"), as its substitute lessor under the Lease." ViroGen asserts that if Nielsen successfully attorned, then Anchor Bank would not disturb its tenancy under the Lease.
ViroGen argues that its rights are analogous to Nielsen's by terms of the lease and sublease. It reasons that because the Lease Subordination Agreement requires Nielsen (and by extension, ViroGen) to attorn to a new owner, including a new owner after a foreclosure sale, because ViroGen was offering to attorn when it sent New Hope rent checks, and because New Hope accepted and cashed the checks, New Hope had accepted ViroGen's implicit offer to attorn and had accepted ViroGen as its tenant. ViroGen contends that the attornment language in the Lease Subordination Agreement supersedes the common law rule that foreclosure of a mortgage extinguishes a subordinate lease.
Black's Law Dictionary defines "attorn" as "[t]o agree to be the tenant of a new landlord." Black's Law Dictionary 124 (7th ed. 1999). First, this definition indicates that the tenant has a duty to recognize a new landlord where the tenant has agreed to attorn. Yet, the definition does not suggest that a new landlord must accept a tenant who attempts to attorn. Second, Nielsen's lease with DL provides that if DL's interest is transferred as a result of a foreclosure sale, Nielsen agrees to attorn if requested to do so by the purchaser. Therefore, Nielsen's lease, of which ViroGen's sublease is derivative, provides that the tenant has a duty to attorn when requested to do so. The concept of attornment detailed in the Lease Subordination Agreement should be similarly understood, as the agreement was executed in the context of Nielsen's lease. Thus, ViroGen may have had a duty to attorn, but not an absolute right to burden a new fee-simple owner of the Quebec property with its tenancy by claiming an implied attornment. In any event, ViroGen never expressly warned New Hope that it was offering to attorn by making payments for any occupancy at will. At best, it was an attempted stealth attornment.
As stated earlier, the foreclosure sale extinguished Nielsen's lease and created a tenancy-at-will that New Hope had the right to terminate. New Hope, as fee simple owner of the Quebec property, could refuse ViroGen's attempted attornment. It never expressly accepted any stealth attornment by ViroGen. In sum, the district court did not err in granting summary judgment in favor of New Hope.
ViroGen's claim that it had a nondisturbance agreement with New Hope fails because the Lease Subordination Agreement specifically provides for disturbance in the event of a mortgage foreclosure and default.
II.
The second issue is whether the district court erred in dismissing ViroGen's counterclaims. ViroGen asserted two counterclaims against New Hope; both challenge New Hope's title to the property: (1) a claim for declaratory judgment recognizing ViroGen's sublease; and (2) a claim for breach of contract. By granting summary judgment in favor of New Hope, the district court implicitly denied ViroGen's counterclaims.
An unlawful detainer action "usually does not bar subsequent actions involving title or equitable rights of the parties." Lilyerd v. Carlson, 499 N.W.2d 803, 812 (Minn. 1993). However, here the parties have argued and we have considered the merits of ViroGen's claims. First, we note that to the extent that ViroGen bases its claim on the Lease Subordination Agreement and argues that Agreement is still in effect, it undermines its own breach-of-contract claim. The Lease Subordination Agreement specifically states that,
Eviction actions are special proceedings that usually do not include consideration of ancillary matters related to title and disputes between the parties based on other considerations. See Lilyerd v. Carlson, 499 N.W.2d 803, 812 (Minn. 1993); Eagan E. Ltd. P'ship v. Powers Investigations, Inc., 554 N.W.2d 621, 622 (Minn.App. 1996). Typically the matters now being addressed would not be considered. However, because they were presented to the district court and fully raised in this appeal, in the interests of judicial economy and bringing closure to the controversy, we will address them.
If [Anchor Bank] or a New Owner becomes the owner of the [Quebec property] as a result of a foreclosure sale . . ., [Nielsen] shall have no claim against [Anchor Bank] or the New Owner resulting from, and [Anchor Bank] and the New Owner shall not be liable for, any act, omission, and/or breach of the Lease by any prior or subsequent landlord under the Lease.
Applying this language to the facts, New Hope would be the New Owner, after redeeming the property from Anchor Bank. Therefore, even if the provisions of the former lease were breached, the Lease Subordination Agreement provides that New Hope as the New Owner is not liable for those actions. Second, we note that because of the foreclosure sale, the Lease Subordination Agreement is not in effect and ViroGen is not party to any contract with New Hope.
Our earlier analysis of New Hope's rights to the eviction remedy and of ViroGen's defenses and this analysis of ViroGen's counterclaims lead us to conclude that ViroGen did not have a valid lease after completion of the foreclosure. For these reasons, we further conclude that ViroGen has no claim against New Hope and that the district court did not err in dismissing ViroGen's counterclaims.
III.
The third issue is whether the district court abused its discretion in denying ViroGen's motion for a continuance to conduct additional discovery. Denial of a motion to continue for additional discovery is reviewed for an abuse of discretion. Alliance for Metro. Stability v. Metro. Council, 671 N.W.2d 905, 919 (Minn.App. 2003). Generally, continuances should be liberally granted, especially if the party seeking the continuance has had insufficient time to complete discovery. Id.
We utilize a two-part test to determine whether to grant a continuance: (1) whether the party seeking the continuance has been diligent in obtaining or seeking discovery; and (2) whether the party is seeking the continuance in the good faith belief that material facts will be uncovered, or whether the party is merely engaging in a fishing expedition. Rice v. Perl, 320 N.W.2d 407, 412 (Minn. 1982); Hasan v. McDonald's Corp., 377 N.W.2d 472, 475 (Minn.App. 1985). Thus, even if the party seeking a continuance diligently sought discovery, where the desired discovery is not reasonably calculated to uncover material facts, the motion to continue may properly be denied. See Rice, 320 N.W.2d at 412. In the context of summary judgment, where the discovery would neither aid the district court nor change the result of the summary judgment motion, it is not an abuse of discretion to grant summary judgment without granting the continuance. McCormick v. Custom Pools, Inc., 376 N.W.2d 471, 477 (Minn.App. 1985), review denied (Minn. Dec. 30, 1985).
Here, ViroGen challenges the district court's consideration of the affidavit to Mark Lauffenburger, Anchor Bank's senior vice president. ViroGen moved the district court for a continuance to conduct a deposition of Lauffenburger, which the district court denied. ViroGen, however, does not identify the information it seeks to obtain via further discovery. The affidavit essentially mirrors the allegations New Hope makes in its complaint. Moreover, there is no indication that discovery will lead to any material facts. Because ViroGen's breach-of-contract counterclaim is not meritorious and because the declaratory judgment claim was implicitly decided and disposed of in granting summary judgment, there are no remaining claims that would require further discovery. Therefore, although continuances are liberally granted, the district court's denial of this continuance request was not an abuse of discretion.