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STATE OF MINNESOTA IN COURT OF APPEALS A09-607

United Prairie Bank - Mountain Lake, Respondent, vs. Haugen Nutrition & Equipment, LLC, et al., Appellants.

Filed May 11, 2010 Affirmed Bjorkman, Judge

Cottonwood County District Court File No. 17-CV-05-213 Samuel L. Hanson, Charles B. Rogers, Jason R. Asmus, Briggs and Morgan, P.A., Minneapolis, Minnesota (for respondent) John E. Mack, Mack & Daby, P.A., New London, Minnesota (for appellants) Considered and decided by Minge, Presiding Judge; Schellhas, Judge; and Bjorkman, Judge. SYLLABUS Where a contract permits a party to collect attorney fees incurred in enforcing the contract, the Minnesota Constitution does not guarantee a right to trial by jury on the issue of attorney fees.

OPINION BJORKMAN, Judge Appellants challenge the district court's order awarding respondent bank attorney fees incurred in a lawsuit initiated to protect the bank's claim to property and in a separate foreclosure action. Appellants argue that the district court erred by failing to grant them a jury trial, awarding excessive fees, dismissing their claim for punitive damages, and distributing monies deposited with the court in lieu of a supersedeas bond to the bank. We affirm. FACTS Appellants Ilene and Leland Haugen owned two parcels of land in Cottonwood County (the real property), on which they farmed and ran a feed mill business, Haugen Feeds, Inc. In 2002-2003, the Haugens and Haugen Feeds defaulted on loans they obtained from First Security Bank of Canby and The Prudential Insurance Company of America. In May 2003, the Haugens met with Theodore Devine, a vice president and loan officer at respondent United Prairie Bank (UPB), about refinancing their debt. Devine informed the Haugens that UPB would not loan them money, but he proposed an alternate plan in which the Haugens would transfer nearly all of their assets to an unrelated third party and then buy the property back through a newly created entity. For this purpose, the Haugens created appellant Haugen Nutrition and Equipment, LLC (HNE).1 Devine suggested his friend, Mark Sahli, as the buyer.

1

From this point forward, "appellants" will refer to Ilene and Leland Haugen and the entity HNE. "Haugens" will refer to Ilene and Leland Haugen as individuals. 2

In the subsequent series of transactions, Sahli received loans from UPB to purchase the Haugens' assets and real property. The Haugens used the funds from the asset sales to pay off their existing debt at a significantly reduced cost. HNE then purchased the assets from Sahli with loans from UPB: HNE paid cash for the moveable assets and obtained the real property through a contract for deed. In exchange for these loans, HNE gave UPB promissory notes secured by these assets and a mortgage on the real property.2 The Haugens signed personal guarantees for all the notes. All of the loan-related documents permit UPB to recover costs, including attorney fees, associated with collection efforts. The promissory notes obligate HNE to "pay all costs of collection, replevin . . . , or any other similar type of cost if I am in default." The notes define default to include, among other things, (1) "[failing] to make a payment on time or in the amount due," (2) doing or "[failing] to do something which causes [UPB] to believe that [UPB] will have difficulty collecting the amount I owe [UPB]," and (3) situations where a legal authority threatens to confiscate the collateral. The security agreements attached to these notes expressly entitled UPB to recover "reasonable attorneys' fees and legal expenses" incurred in enforcing appellants' payment obligation. And the personal guarantees similarly provide: "The Undersigned will pay or reimburse Lender for all costs and expenses (including reasonable attorney fees and legal expenses)

2

There were three promissory notes: two from HNE to UPB and one from Ilene Haugen to UPB. All were secured by the same moveable assets. The larger of the notes from HNE to UPB was also secured by a mortgage on the real property. All three notes are collectively referred to as "the notes" or "the promissory notes" throughout the remainder of the opinion. 3

incurred by Lender in connection with the protection, defense or enforcement of this guaranty in any litigation or bankruptcy or insolvency proceeding." The mortgage securing one of the notes permits UPB to recover attorney fees incurred in any action taken to protect or preserve its interest in the real property. Finally, the contract for deed under which Sahli transferred the real property to HNE includes a clause holding HNE responsible for attorney fees that Sahli (and later UPB) incurs in removing liens or adverse claims against his interest in the property. The Meadowland action After all of the Haugens' former assets had been transferred to HNE, Meadowland Farmers Coop (Meadowland) sued the Haugens, HNE, and UPB. Meadowland had previously obtained a judgment against Leland Haugen and Haugen Feeds, and alleged in its complaint that the loans and sales to Sahli and HNE were fraudulent and "intended to put assets of the Judgment Debtors in other related entities under the control of [the Haugens] and beyond the reach of Meadowland." The parties eventually settled

Meadowland's claims in a manner that left the security agreements between HNE and UPB intact. The current action HNE failed to make the balloon payment due to Sahli at the end of the first year under the contract for deed. That left Sahli unable to repay his own debt to UPB. As a result, Sahli transferred title to the real property and the contract for deed to UPB. On May 2, 2005, UPB commenced this action seeking recovery of $347,496.79 due under the contract for deed, with interest accruing at the rate of $101.84 per diem. 4

UPB also sought to foreclose on the property, requesting a judgment that it is entitled to immediate possession of all collateral covered by the security agreements and that it is the fee owner of the real property under the contract for deed, or, alternately, cancellation of the contract for deed. Appellants asserted ten counterclaims, all of which were ultimately dismissed. In the course of litigating the counterclaims, three primary issues emerged: (1) whether UPB could foreclose on the properties (foreclosure claim); (2) whether the contract for deed should be considered an equitable mortgage (contract-for-deed claim); (3) and whether UPB was entitled to recover attorney fees incurred in the Meadowland action and in the present case. The parties agreed to try the foreclosure and contract-for-deed claims to the court. The district court denied appellants' motion for a jury trial on the attorney-fees issue. The district court determined on summary judgment that the contract for deed was not an equitable mortgage and that UPB could foreclose on the property. On appeal, this court concluded that the district court erred by resolving fact issues on summary judgment and remanded. United Prairie Bank v. Haugen Nutrition & Equip, LLC,

Nos. A06-722, A06-868, 2007 WL 1470219, at *4 (Minn. App. May 22, 2007). During the pendency of the first appeal, the district court ordered appellants to post a $75,000 bond to cover the rental value of the real property during their continued occupation pursuant to Minn. Stat.

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