In re the Receivership of United Prairie Bank v. Molnau Trucking LLC, Granite Re, Inc....

• Court: Court of Appeals of Minnesota
• Decided: May 6, 2024
• Docket: a231478
• Status: Published

Opinion

This opinion is nonprecedential except as provided by Minn. R. Civ. App. P. 136.01, subd. 1(c).

STATE OF MINNESOTA IN COURT OF APPEALS A23-1478

In re the Receivership of United Prairie Bank, Respondent,

vs.

Molnau Trucking LLC, et al., Defendants,

Granite Re, Inc., Appellant.

Filed May 6, 2024 Affirmed Schmidt, Judge

Carver County District Court File No. 10-CV-21-998

Thomas H. Boyd, Andrew J. Steil, Kyle R. Kroll, Winthrop & Weinstine, P.A., Minneapolis, Minnesota (for respondent)

Justine K. Wagner, Daniel R. Gregerson, Gregerson, Rosow, Johnson & Nilan, Ltd., Minneapolis, Minnesota (for appellant)

Considered and decided by Wheelock, Presiding Judge; Slieter, Judge; and

Schmidt, Judge.

NONPRECEDENTIAL OPINION

SCHMIDT, Judge

This dispute arises from funds held by a receiver in a receivership action. Appellant

Granite Re, Inc. (Granite) and defendants Molnau Trucking LLC, et al. (Molnau Trucking) executed a General Agreement of Indeminty, naming Molnau Trucking as bond principal

on public works projects, which effectively communicated an intent to form a surety

relationship. 1 Respondent United Prairie Bank (the bank) later lent Molnau Trucking

$3,258,400, and they executed a security agreement that granted the bank a security interest

in Molnau Trucking property as collateral. Molnau Trucking defaulted on the projects and

Granite paid on the bonds. Molnau Trucking also defaulted on the bank’s loan. Granite

and the bank dispute who has the right to Molnau Trucking’s bonded receivables. Granite

appeals the district court’s final judgment, arguing that the court should not have granted

summary judgment to the bank. Because the bank secured its interest in Molnau

Trucking’s collateral before Granite’s equitable subrogation claim attached, we affirm.

FACTS

In March 2020, Molnau Trucking executed a General Agreement of Indemnity in

favor of Granite, which stated that Molnau Trucking “has or may hereafter require

suretyship upon certain bonds or obligations of suretyship and has applied or may hereafter

apply to [Granite] to execute such instruments as surety.” The General Agreement of

Indemnity provided that Molnau Trucking “will pay, or cause to be paid, to [Granite], as

and when each and every such bond or obligation is executed, the premium therefor in

accordance with the regular scheduled rates of [Granite] then in force.” The agreement

gave Granite discretion to “decline to execute any bond.” The General Agreement of

1 A surety bond involves three indispensable parties: the surety, the obligee, and the obligor (or principal). Stabs v. City of Tower, 40 N.W.2d 362, 370 (Minn. 1949).

2 Indemnity was neither executed by Granite nor did it obligate Granite to bond or indemnify

Molnau Trucking for any project.

In April 2020, the bank extended three loan agreements totaling over $3.25 million

to Molnau Trucking. For each loan, Molnau Trucking and the bank executed a security

agreement that granted the bank a security interest in Molnau Trucking property, including

Molnau Trucking’s accounts receivable, as collateral. That same month, to perfect its

security interests in the collateral, the bank filed Uniform Commercial Code (UCC)

Financing Statements with the Minnesota Secretary of State.

Molnau Trucking defaulted on the public-works projects. Granite received several

claims from subcontractors and suppliers for losses related to the projects. Between

February and April 2021, Granite issued several payment-and-performance bonds, which

named Molnau Trucking as contractor and Granite as surety, and Granite paid over

$740,000 on the bonded projects. In May 2021, the bank served a written default notice

that informed Molnau Trucking of its default with the bank, and provided 30 days to cure,

but default was not cured. In November 2021, Granite filed a UCC Financing Statement

with the secretary of state listing the General Agreement of Indemnity as collateral.

In December 2021, the bank sued Molnau Trucking and its successor company, 3G

Contracting Inc. The district court ordered judgment of more than $3.75 million against

Molnau Trucking and in favor of the bank. The district court also appointed a limited

receiver over property owned or previously owned by Molnau Trucking. The receiver

identified more than $500,000 of collected and pending accounts-receivable funds. In

December 2022, the receiver filed a motion that requested the district court to establish a

3 briefing schedule to allow Granite and any other interested party to assert their rights to

receive payments of the net proceeds of accounts receivable collected or to be collected by

the receiver. The district court heard the receiver’s motion and issued a briefing schedule

pertaining to the issue of the bonded receivables.

In February 2023, the bank and Granite filed cross-motions for summary judgment

seeking the accounts receivable funds held by the receiver. 2 The district court denied

Granite’s motion, granted the bank’s motion, and directed the receiver to distribute the

accounts-receivable funds to the bank. The court reasoned that any alleged equitable right

of subrogation that Granite had would date back to when it issued the payment-and-

performance bonds, which occurred after the bank had already perfected its security

interest in Molnau Trucking’s accounts receivable.

Granite appeals.

DECISION

Granite appeals the district court’s final judgment, arguing Granite is entitled to the

accounts-receivable funds held by the receiver under an equitable-subrogation theory. This

court reviews a district court’s summary-judgment decision de novo. Riverview Muir

Doran, LLC v. JADT Dev. Grp., LLC, 790 N.W.2d 167, 170 (Minn. 2010). In doing so,

we determine whether the district court properly applied the law and whether there are

genuine issues of material fact that preclude summary judgment. Id. Here, the parties

dispute the application of relevant caselaw to the undisputed facts.

2 While the summary-judgment motions were pending, the bank and 3G Contracting stipulated for dismissal with prejudice of claims against 3G Contracting.

4 I. The district court properly granted summary judgment to the bank.

Under the doctrine of equitable subrogation, a party “who has discharged the debt

of another may succeed in substitution to the rights and position of the satisfied creditor.”

Ripley v. Piehl, 700 N.W.2d 540, 545 (Minn. App. 2005). Equitable subrogation applies

when “one party has provided funds used to discharge another’s obligations if (a) the party

seeking subrogation has acted under a justifiable or excusable mistake of fact and (b) injury

to innocent parties will otherwise result.” Carl H. Peterson Co. v. Zero Ests., 261 N.W.2d

346, 348 (Minn. 1977).

Granite has not met the first prong of equitable subrogation—that it acted under a

justifiable or excusable mistake of fact. Id. The bank perfected its security interests in

Molnau Trucking’s property, including the accounts-receivable funds, when the bank filed

its UCC statements. That filing put Granite on notice that the bank had a secured interest

in Molnau Trucking’s property and assets. Despite that notice of the bank’s interest in

Molnau Trucking’s property and assets, Granite paid on the bonds under its General

Agreement of Indemnity with Molnau Trucking.

Granite points to no “justifiable or excusable mistake of fact” in paying on those

bonds. Id. Regardless, any mistake of fact would not be justifiable or excusable because

(1) the bank put the world, including Granite, on notice of the bank’s interests with the

UCC filing, (2) Granite had no obligation under the indemnity agreement to pay on the

bonds, and (3) even if Granite did have an obligation to pay under the General Agreement

of Indeminity, Granite did not execute the agreement to bind itself to it.

5 Given Granite’s inability to establish any mistake of fact, much less one that was

justifiable or excusable, the doctrine of equitable subrogation is not available to Granite.

As such, the district court properly denied Granite’s summary judgment motion and

granted the bank’s motion for summary judgment.

II. The district court properly reasoned that, because the bank filed its UCC statements before Granite issued payment bonds, it retained priority over any interest that Granite could have acquired by equitable subrogation.

Granite argues that the district court erred in applying the UCC first-in-time rules

of prioritization to its equitable-subrogation claim. Even if Granite could meet the two

equitable-subrogation prongs to open the door for a full analysis, we conclude such an

argument would fail.

With certain exceptions that do not apply to this case, the UCC requires that a

financing statement be filed to perfect a security interest. Minn. Stat. § 336.9-310(a)

(2022). Although the doctrine of equitable subrogation survived the enactment of the

UCC, 3 it does not apply to these circumstances. The bank argues that it perfected its

security interest in Molnau Trucking’s accounts receivable by filing a UCC Financing

Statement before Granite’s equitable-subrogation claim arose.

Minnesota law establishes that a surety’s equitable-subrogation claim attaches as of

the date of suretyship. Barrett Bros. Co. v. St. Louis County, 206 N.W. 49, 50 (Minn.

1925); see also City of Minneapolis v. RW Farms, LLC, No. A13-0309, 2013 WL 6839711,

at *6 (Minn. App. Dec. 30, 2013) (holding that surety’s interest attached when the surety

3 See In re J.V. Gleason Co., 452 F.2d 1219, 1221 (8th Cir. 1971).

6 issued a payment bond, which was before the creditor perfected its security interest). 4

“That equitable assignment to the surety of the principal’s rights and remedies, when

completed by the surety’s performance of his principal’s obligation, relates back to that

earlier time when the surety first obligated himself as such.” Barrett Bros., 206 N.W. at

50 (quotation omitted).

Here, Granite “first obligated” itself and became the surety for Molnau Trucking,

when it issued payment bonds beginning in February 2021. See id. The district court

properly reasoned that after Molnau Trucking defaulted on the projects and Granite paid

on the bonds, the right to equitable subrogation became choate and its priority dated back

to February 2021—when the payment bonds were first issued. Before Granite obligated

itself by issuing the payment bonds, the bank had filed a UCC statement in April 2020

which perfected the bank’s interest in Molnau Trucking’s accounts receivable as collateral

for the loans totaling over $3.25 million. Therefore, under Minnesota precedent, Granite’s

subrogation attached in February 2021, well after the bank’s interest attached—and was

perfected—in April 2020. See id.; RW Farms, 2013 WL 6839711, at *6. Notably, Granite

filed its own UCC Financing Statement with the secretary of state in November 2021 to try

to perfect its interests. Under either equitable subrogation precedent or UCC law, Granite’s

interests in Molnau Trucking’s accounts receivable must take a backseat to the bank’s

earlier perfected interests.

4 We cite this nonprecedential opinion for its persuasive value. See Minn. R. Civ. App. P. 136.01, subd. 1(c).

7 Granite insists that secured creditors like the bank that perfect their security interests

are protected under the UCC as demonstrated in this case because the bank “has already

received $824,064.15 in other collateral.” We are not persuaded by Granite’s argument to

forgo the bank’s interests because Granite’s interest did not attach before the bank’s interest

attached. Stated differently, Granite chose to pay on the bonds—even though it had no

obligation to do so under the General Agreement of Indemnity—at a time when the bank’s

interests had already been perfected by its UCC filing. As such, the bank retained priority

over any interest that Granite could have acquired by equitable subrogation.

Accordingly, the district court properly denied Granite’s motion for summary

judgment, granted the bank’s motion for summary judgment, and awarded Molnau

Trucking’s accounts-receivable funds to the bank.

Affirmed.