Langford Tool & Drill Co. v. The 401 Group, LLC

Court of Appeals of Minnesota·Decided January 12, 2015·No. A14-507·Unpublished

Opinion

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2014).

STATE OF MINNESOTA

IN COURT OF APPEALS

A14-0507

Langford Tool & Drill Co., Plaintiff,

vs.

The 401 Group, LLC, et al., Defendants,

and

ADB Construction Company, Inc., et al., Intervenors and Third Party Plaintiffs,

vs.

Positive Companies, Inc., Respondent,

and

SR Mechanical, Inc.,

Intervenor and Third Party Plaintiff,

vs.

Sohan Uppal,

Appellant,

UN Hospitality, LLC,

Third Party Defendant,

and

Central Bank, as successor in interest to Mainstreet Bank, Third Party Plaintiff,

vs.

Olsen Fire Protection, et al., Third Party Defendants,

and

Egan Companies, Inc., Intervening Mechanic’s Lien Claimant,

and

Century Construction Company, Inc., Third Party Plaintiff,

vs.

The 401 Group, LLC, Third Party Defendant,

Sohan Uppal,

Appellant,

Positive Companies, Inc., Respondent,

and

J. H. Larson Electrical Company, Third Party Plaintiff,

vs.

Sohan Uppal,

Appellant,

UN Hospitality, et al., Third Party Defendants.

Filed January 12, 2015 Reversed

Cleary, Chief Judge Concurring specially, Johnson, Judge

Hennepin County District Court File No. 27-CV-09-20489

Gary G. Fuchs, Elizabeth E. Rein, Hammargren & Meyer, P.A., Bloomington, Minnesota (for respondent Positive Companies, Inc.)

Kay Nord Hunt, Barry A. O’Neil, Lommen Abdo, P.A., Minneapolis, Minnesota (for appellant Sohan Uppal)

Considered and decided by Johnson, Presiding Judge; Cleary, Chief Judge; and Reyes, Judge.

UNPUBLISHED OPINION

CLEARY, Chief Judge The district court held a bifurcated trial on breach of contract and unjust-

enrichment claims. After the jury found there was no oral contract between the parties, the district court concluded that appellant had been unjustly enriched in the amount of $1,267,814. Because we hold that appellant did not receive a benefit in his status as a member of a limited liability company or personal guarantor, we reverse the district court’s judgment.

FACTS

Appellant Sohan Uppal is an owner of The 401 Group, LLC (“401 Group”), a Minnesota limited liability company (“LLC”). Appellant’s wife and son are the other owners of the 401 Group. Respondent Positive Companies, Inc. is a general contractor. The 401 Group entered into two contracts with respondent for the improvement of real property and a restaurant located at 401 First Avenue North, Minneapolis, Minnesota.

Under the terms of the first contract, dated October 18, 2008, respondent would furnish labor, material, skill, and equipment necessary to renovate the real property for an amount of $1,836,143. During the performance of the contract, respondent and the 401 Group agreed to change orders through which respondent did additional work and received more payments. Under the terms of the second contract, dated March 23, 2009, respondent agreed to furnish labor, material, skill, and equipment necessary for work on a restaurant located in the 401 building. The contract price was $1 with work to be added by change orders. Respondent and the 401 Group agreed to a number of change orders under the second contract.

Before entering into the first contract, the 401 Group obtained two loans from Mainstreet Bank for a total of $6,130,000. The loan agreement provided that Mainstreet Bank would make periodic advances to appellant. The loan agreement contained collateral, including a mortgage on the 401 property, assignments of rent, and the personal guaranty of appellant and his wife. Mainstreet Bank recorded a first and second mortgage on the 401 property on May 15, 2008, and had priority to any other interests.

Mainstreet Bank ceased funding the draw requests because it alleged that the scope and type of renovations being performed at the project had changed dramatically. Mainstreet Bank did not resume funding the project and respondent and other subcontractors ceased working on the renovations. At the time that work ceased, the restaurant portion of the project was not complete. The Federal Deposit Insurance Corporation closed down Mainstreet Bank, and all of the bank’s assets—including the loan at issue—were purchased by Central Bank. Because of the problems with the banks,

appellant began making payments on behalf of the 401 Group to the contractors from his personal account. Appellant paid close to $700,000 to respondent and its subcontractors during fall 2009. Appellant believed that he was just making bridge loans to 401 Group, and that he would eventually be reimbursed from Central Bank under the terms of the loan agreements. Appellant had previously received payments from the bank for bridge loans made to the 401 Group. Appellant also made promises to respondent that he would personally pay for respondent’s construction work. The parties stipulated that appellant had received $1,087,449 worth of unpaid work at the time he made promises to be personally liable. After making the promises, respondent did another $180,365 worth of unpaid work.

The underlying litigation began when a subcontractor sued the 401 Group, Uppal Enterprises LLC, Mainstreet Bank (Central Bank joined as successor in interest), and other subcontractors in a mechanic’s lien action. ADB Construction Company, Inc. intervened and served a third-party summons and complaint against respondent. Respondent asserted counterclaims and cross-claims against appellant, including breach of contract and unjust enrichment. As the senior lien holder, Central Bank foreclosed on the 401 property and bought it for $3,750,000 at a sheriff’s sale. The sale was not enough to cover the 401 Group’s liabilities, and Central Bank obtained a deficiency judgment against appellant based on his personal guaranty in the amount of $5,601,654.03, plus continuing interest, fees, and costs.1 By the time the case got to trial, all of the claims had

1 Notably, neither contract between the 401 Group and respondent has a personal guaranty of appellant.

been resolved except those between appellant and respondent, and appellant and a third- party subcontractor.

The district court ordered a bifurcated trial with the contract claim going to the jury and the unjust-enrichment claim reserved for a bench trial in case the jury found there was no contract. The jury concluded that there was no oral contract between respondent and appellant for respondent’s construction work. However, the district court entered judgment against the 401 Group in the amount of $1,267,814 based on its contract with respondent. After the jury trial, respondent and appellant submitted motions regarding unjust enrichment. The district court never conducted a bench trial on issues of fact relating to unjust enrichment, but it did have a hearing on October 31, 2013. At the hearing, appellant argued that he was an owner of an LLC and protected from personal liability under corporate law. Respondent argued that it had no adequate remedy at law, and that the evidence in the record supported a judgment on the unjust-enrichment claim.

The district court issued findings of fact and conclusions of law, holding that appellant had been unjustly enriched in the amount of $1,267,814. The district court found that appellant had made oral promises to respondent that he would personally pay for respondent’s services. The district court found appellant had personally benefitted from respondent’s work in two ways: (1) through the work respondent did on collateral to a loan to which appellant was a personal guarantor, because it lowered the deficiency judgment against him, and (2) as the member of two limited liability companies. Because we conclude that appellant could not benefit in his status as a personal guarantor or

member of an LLC, we hold that the district court abused its discretion by erroneously applying the law.

DECISION

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