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On the Receiving End of Hardball Litigation in a Foreclosure

by William McGaughey

 

Background

During my ten-year marriage, I ran up hundreds of thousands of dollars of debt. Part of it was incurred in purchasing and renovating a condemned duplex across the street from my other property. To finance this project and meet expenses for daily living, I charged money on credit cards and lines of credit, bearing interest rates of 11 percent or more. I then arranged to transfer $182,000 of the debt to a mortgage on the duplex at 1715 Glenwood Avenue, bearing an interest rate of 6.875 percent.

Shortly after purchasing this property, I learned that the lot on which the house stood was only 38 feet wide. Minneapolis city code required that houses zoned 3RB be on lots at least 40 feet wide. A non-profit developer owned the adjacent lot which was 42.5 feet wide. He was planning to build a house on that lot. I approached the developer about selling me 2 feet from that property so that my lot would conform to city code. He agreed. The developer later abandoned the project of building a house because he discovered that an antiquated sewer line ran through the property which might cause problems during construction. The lot reverted to the city which then sold it to me. I now owned three pieces of land - one 38 feet wide, one 2 feet wide, and one 40.5 feet wide which was a vacant lot. The first was encumbered with $182,000 in debt.

I was foolish not to have sold the duplex to a willing buyer for $300,000 when it was first renovated. There was a deal to sell the property for $280,000 a year or two later but the prospective buyer’s financing fell through. Various real estate agents later listed the property but housing prices were beginning to sink. The real-estate crisis of 2008 hit hard. The appraised value of the duplex and the adjacent lot fell to $110,000. It had lost two thirds of its previous value and the mortgage was now under water.

Meanwhile, my marriage was running into problems. My wife falsely accused me of domestic abuse and then filed for divorce. I spent $6,000 on an attorney whose time was spent in fruitless bickering with my wife’s attorney. Our marital debt now exceeded $300,000. Reduced to self-representation, I handled the rancorous negotiations with the other attorney myself. I also pled my case at trial and, when the judge rendered an adverse decision, prepared the post-trial motions and appeal to the Minnesota Court of Appeals. In his decision following the trial, the judge assigned me all the $325,000 in marital debt, made me pay $500 a month in permanent spousal maintenance, and ordered me to pay my wife $50,000 in a lump sum although I had few liquid assets and little credit left. The Court of Appeals did, however, reverse the judge’s decision on the lump-sum payment in a decision announced in January 2014.

Being 74 years of age, I am retired from an accounting career. Even though I have income from rental properties, this occupation provides little income. My properties are mainly in a poor neighborhood of Minneapolis where few tenants with stable income care to live. Meanwhile, irresponsible tenants and city inspectors have kept me hopping to perform maintenance. I also renewed a relationship with my previous wife with insatiable money requirements. I sold stock, pressed delinquent tenants for rent, and tried to keep a positive balance in my checking account.

My former wife was owned money from an acquaintance who promised her half of what she could recover on his behalf from a bank in Haiti. Because of a criminal conviction, he himself was unable to leave the country and be allowed to reenter. My former wife went to Haiti, withdrew the money - about $90,000 - from his account, and returned to the United States. She deposited the money in a Miami bank that her acquaintance had designated. Unfortunately, the check was written in both their names. The acquaintance tried to intimidate bank employees into giving this money to him alone. The Miami bank had him arrested. Evidently, the authorities thought he was a terrorist or someone engaging in fraud. He was jailed for a time.

My former wife hired an investigator or para-legal to protect her interest in the money withdrawn from the Haiti bank. She expected around $40,000 after expenses and fees. This process took years. The investigator, known only as “Mr. Johnston”, traveled to Miami and Haiti several times. Evidently the source of the funds was an insurance claim suspected of being fraudulent. Therefore, recovery of the money required litigation in Florida courts. I was meanwhile paying some of my former wife’s and her children’s expenses with the promise that the Haiti money would be given to me, once recovered.

As the process dragged on, I became increasingly concerned. I had never met “Mr. Johnson” who was alleged to be a Canadian. There was, however, no contact information about him. We did not even have his telephone number. My wife said she had to depend on Mr. Johnston calling her. Otherwise, there was only a vague promise that the money from Haiti was on its way.

My financial situation started to become desperate in the late summer of 2014. On a number of occasions, I received bank charges because my checking account was overdrawn. I deferred payment of bills whenever I could. I was unable to pay my Minneapolis property taxes that were due in October 2014. I no longer paid bills as they were due but only when I could find the money.

Meanwhile, my former wife continued to need money for medical and other reasons. I would usually oblige her requests. At other times, she would simply write checks on my checking account, forging my signature. Alternatively, she would have bills paid with charges to my checking or credit-card accounts, sometimes for large amounts. Comcast was one of the worst. I could have reported fraud and recovered this money but I did not for two reasons: My former wife, who was living downstairs, was the closest thing to family that I had. Second, if I had reported fraud, it might well have resulted in a prison sentence for her which, among other things, would have jeopardized recovery of the money from “Mr. Johnston”.

[Note: Because of privacy laws, it is surprisingly easy to take money from other peoples’ accounts. See “I pay other people’s cell phone or cable bills.”]

There was also another problem. My former wife’s oldest son, Tony, had become a heroin addict after becoming addicted to prescription drugs. As a juvenile, he had previously been convicted of second-degree murder and been imprisoned for 14 years. Released from prison, he wasted little time in impregnating women. A girl and a boy arrived in short order. But the two parents quarreled. Tony then took up with a native American woman who also had drug problems. She was pregnant with their child when Tony was arrested on suspicion of involvement in the murder of a drug dealer in south Minneapolis. He remained in jail for nearly a year before being brought to trial. The prosecution offered generous plea bargains to several other persons who had confessed to the murder on condition that they implicate Tony. That strategy succeeded. Tony was convicted of unintentional second-degree murder and given a prison sentence of 19 years. (The self-confessed gunman received a sentence of 8 years.)

This tragic event had consequences for me and my former wife (who was living downstairs in my house without paying rent). First, the lawyer who had represented him during the trial needed to be paid. Much of his fee was paid by accessing one of my credit cards without my knowledge or consent. The rest remains unpaid. Second and more important, the responsibility of caring for Tony’s new-born son fell on our shoulders. After Tony’s conviction, the baby’s mother was using drugs heavily. My former wife, seeing that her grandson was being neglected, arranged to take him from the mother to raise herself.

So now we had a baby in our household, half native American, who became a delightful but rambunctious toddler. We called him “Dale”. My former wife had a potentially lucrative position producing internet shows. But she also had to attend to Dale’s needs and demands, night and day, so that all else fell to the wayside. She was supposed to receive foster-care money from Hennepin County but, like the funds from Haiti, this money never arrived. The money boat was always on the horizon but it never arrived.

I was beginning to feel like a dupe. Was my former wife telling the truth, or the whole truth? Did Mr. Johnston even exist? I had no first-hand information about any of these potential funds, only another person’s word. But I decided to do nothing. What could I do short of liquidating all my assets, paying my bills, and moving on, preferably out of state.

In the fall of 2014, as my finances became increasingly desperate, I decided to put $155,000 of short-term debt under a debt-management program. The advantage would be that the program administrators could negotiate sharply reduced interest rates - I was paying 20% to 30% in some cases - so that my monthly payments hardly reduced the principal. Under the program, I could pay around $3,500 per month for five years and have the debt eliminated. But $3,500 in extra monthly payment on top of regular living and business expenses was a hard pill to swallow. How could I squeeze out this money?

There were two possibilities. First, I could petition the judge in the divorce case to eliminate the spousal-maintenance award. The law allowed this when the person obligated to pay alimony had substantially increased financial needs. In my motions, I argued that the additional contractual obligation to pay $3,500 to a debt-management agency constituted a substantial increase in my need. The judge disagreed. Calling me a liar (or a person deficient with respect to “veracity”), he instead increased the spousal-maintenance award to $600 per month. He might also have been miffed that the appellate court had overturned one of his decisions at the request of an unworthy person such as me.

The other possibility was to discontinue mortgage payments on the duplex at 1715 Glenwood Avenue. In truth, after I had incurred the debt-management obligation, I had little choice in the matter. There was no money left to make the mortgage payment.

 

Behind on the mortgage

Back in 2012, I had written a letter to Boundary Waters Bank, which now held the mortgage for the duplex at 1715 Glenwood Avenue. I said that my financial situation was becoming difficult. Did the bank participate an any federal or state programs to modify loans for commercial properties, especially those under water? Ranee Holmboe, the bank’s branch president, called me on the telephone. The answer was that, no, unlike larger banks, Boundary Waters Bank did not participate in any federal programs. In the next year or two, she did, however, refer me to mortgage brokers working with the bank who might be able to help me. Basically, I was looking to refinance the mortgage at a lower interest rate. (The current rate was 6.875%.) However, it turned out that lenders these days consider only a borrower’s debt-to-income ratio, and mine was inadequate. Therefore, neither broker was able to find a solution for me.

To make a long story short, I skipped June’s mortgage payment to Boundary Water Bank. In July, however, I sold some shares of Wells Fargo stock to make a double payment and catch up. I still had some more stock left, but it seemed unwise to liquidate this investment entirely, staving off foreclosure for a few more months. Therefore, in August 2015 and in succeeding months my payments to the bank stopped. I knew I was headed to foreclosure but could do little about it.

Anticipating a foreclosure, I consulted an attorney for one hour for advice on what to do. I learned that there were two types of foreclosure: by advertisement and by action. Banks might foreclose by advertisement to avoid legal fees. However, the disadvantage for them would be that they would give up the right to recover the full amount due under the mortgage from the sheriff’s sale plus a deficiency judgement. The attorney also discussed my right later to redeem the property if I had the money. Basically, I should hope for a foreclosure by advertisement but, in the other case, hope to redeem the property if I had the money. (Hopefully, Mr. Johnston would come through. I might also look to my late father’s estate which had not yet been settled.)

I continued to receive regular monthly statements from Boundary Waters Bank, showing what was owed. A delinquency each month incurred an additional $1,531.00 in principal and interest (mostly interest) and 59.78 for a late fee. There was also a deficiency in the escrow account for unpaid property taxes. By April 16, 2015, the total amount owed had climbed to $15,297.60. When I sent a check for smaller amount, the bank returned it saying that only the full payment could be accepted. I frankly declared that I did not have the money to make that payment.

*** ***** *** ***** *** ***** ***

Some time in September, 2014, I received a telephone call from the branch president, Ms. Holmboe. Would I be interested in settling this matter by giving the bank a “deed in lieu”? I was unfamiliar with the term. Ms. Holmboe said that this meant simply giving the bank a deed to the property with the underlying debt being forgiven. In other words, there would be no deficiency judgment. Ms. Holmberg also asked if the bank could start receiving the rents. Yes, of course. I said I was interested in this approach and asked Ms. Holmboe if she would send me something in writing. She said she would. I was relieved. There would be no foreclosure and no rents from the property, of course, but also no debt needing to be serviced.

*** ***** *** ***** *** ***** ***

Perhaps unwisely, I sent Ms. Holmboe the following letter dated September 30, 2014:

Dear Ms. Holmboe:

I am afraid I did not give an adequate explanation of my financial situation in our conversation last evening.

For most of the summer, I have been struggling to keep a positive balance in my checking account to avoid overdraft fees. It has remained a struggle even without the mortgage payments to your bank.

When Boundary Waters Bank took over the mortgage on the duplex at 1715 Glenwood Avenue, I had two Section 8 tenants, each with a paying job. It was no problem to handle the mortgage. Then one of the tenants left to buy her own house. The remaining tenant had her weekly hours and pay reduced because the employer did not want to pay for health insurance. Section 8 meanwhile raised her portion of the rent to above half. This tenant has paid nothing this month - and it is the last day - while the other tenant, who is not in Section 8, has paid only a partial rent.

The duplex at 1715 Glenwood Avenue is next door to a large apartment building (1707 Glenwood Avenue) which has been raided by police several times this year. However, there is a chain-link fence between the two properties. This affects the ability to find and keep good tenants.

My other big problem has been that for the past three years I have had to deal with a difficult divorce. The trial-court judge assigned me all of the $325,000 in marital debt, required me to pay $500 per month in permanent alimony, and also required me to come up with $50,000 in cash for my former wife. I appealed to the Minnesota Court of Appeals and had the last order overturned. Now my debt load has risen to almost $400,000.

Due to my difficult situation, I am going back to court to ask that the alimony be eliminated. The judge - who unfortunately is the same judge that decided the case - is set to do a “paper review” in December. His decision should come a short time afterwards.

My cash flow has been inadequate since the tenant at 1715 Glenwood Avenue left two years ago. I made the monthly mortgage payment by borrowing against unused credit. Now the credit is exhausted and I have huge payments to make on the debt. I tried twice this year to get a paying job to supplement my income but was hired neither time. My financial future is uncertain.

I do not want to make promises that I cannot keep. Even if this payment is inadequate, I am enclosing a check for $200.00.

Sincerely,

William McGaughey


Intention to foreclose

I guess this shows it is not a good strategy to bare your financial soul to bankers. The promised literature or written agreement regarding the deed in lieu never arrived. Instead, the following letter dated September 30, 2014, I received the following letter from Ms. Holmboe:

“RE: Loan #5000589901 - NOTICE OF DEMAND OF DEFAULT - LOAN PAYMENTS PAST DUE - 1st Real estate Mortgage secured property located at, 1715 Glenwood Avenue, Minneapolis, MN 55405.

Dear Mr. McGaughey:

YOU ARE HEREBY NOTIFIED that default has occurred in the payment of principal and interest for said mortgage secured loan as follows: the loan is past due in the amount of $2,939.96 for the Augusta and September 2014 payments plus late charges that apply in the amount of $179.34. Interest is continuing to accrue at the per diem rate of $31.94.

The regularly scheduled loan payment due for October 1, 2014 is in the amount of $1,469.98.

The required total amount of PAYMENT Due to Boundary Waters Bank of $4589.28; plus late fees accrued after the date of this letter.

*** Any tender of partial payment of the default will NOT be accepted; ;and only tender of the default in full will be satisfactory. ***

It will be necessary that the above, PLUS PAYMENTS THAT COME DUE, be remitted as CERTIFIED FUNDS OR A BANK MONEY ORDER, within 15 days to bring the real estate mortgage secured loan current, no later October 15, 2014. If not paid in full, it is our intention to commence with foreclosure.

Failure to cure the default on or before that date specified may result in acceleration of the sums secured by the mortgage and sale of the mortgaged property.

You do have the right to reinstate the mortgage after acceleration prior to Sheriff’s Sale and the right to bring court action to assert the non-existence of a default or any other defense to acceleration and sale.

If the breach is not cured on or before the date specified above, we, at our option, may declare all of the sums secured by the mortgage to be immediately due and payable without further demand and this may result in acceleration of the sums secured by the mortgage and sale of property. We shall be entitled to collect all reasonable costs and expenses incurred in pursuing the remedies as provided by law, including reasonable attorney fees.

Please feel free to contact me at our toll free number at 855-862-9962 ext. 58, between the hours of 8-5 pm CDT, Monday-Friday.

Sincerely,

Ranee R. Holmboe”

*** ***** *** ***** *** ***** ***

I replied as follows on November 13, 2014:

Dear Ms. Holmboe:

When we spoke several weeks ago, you proposed that the mortgage problem be resolved by me deeding the property to the bank. I was unfamiliar with the process. You said you would send me a letter explaining this in greater detail. If this letter was sent, I have not received it.

I have instead received your letter announcing the bank’s intention to proceed with foreclosure if all the payments due plus late fees are not received by December 8, 2014. Unfortunately, I do not have nearly enough money to satisfy this requirement and do not expect that I will have it by December 8th.

I was able for some time to continue with timely mortgage payments by selling liquid assets and going deeper into debt. Unfortunately, I have now run out of credit. I have recently made arrangements with a debt-management firm to put the bulk of my huge credit-card and other non-mortgage debt under a program which will give me a chance to stay current on these debts and avoid bankruptcy.

Yes, I would like to continue to own the duplex at 1715 Glenwood Avenue but the prospect of foreclosure makes this unlikely. I appreciate your previous attempts to help find a way that I could refinance the debt on this property.
Sincerely,

William McGaughey

*** ***** *** ***** *** ***** ***

Nothing happened for a time. Then, I again received the same letter as before announcing the bank’s intention to foreclose except that it was dated November 7, 2014. The total amount due had risen to $6,119.04 by this time. This letter was sent both by certified and regular mail. Still there was nothing I could do. The expected “money boat” had not yet arrived.

There was a brief ray of hope in late January. I received a letter in the mail from an organization called Home Mortgage Solutions that said it could help persons facing foreclosure. The letter stated: “Eligible Applicants in the State of Minnesota may also receive a Principle Reduction, Payment Relief, an interest free loan to pay mortgage payments, or the elimination of their 2nd Mortgage.” Normally, such programs pertain only to owner-occupied buildings and mine was rental. However, I was assured by a customer representative that the program would cover rental properties, too.

Home Mortgage Solutions required an application, copies of my income-tax statements, and a statement to the effect that I was facing hardship. I complied with this request. The next step was for this organization to contact the bank. However, Boundary Waters Bank referred the request to its attorney and the attorney refused to talk with Home Mortgage Solutions. My application for debt relief was stopped dead in its tracks.

 

A letter from a law firm

About this time, I received a summons from the bank’s law firm. It read:

_____________________________________________________________________

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Case Type: Other Civil

Court File No. ____________

Boundary Water Bank, a Minnesota
Banking Corporation
Plaintiff,


SUMMONS

vs

William H. McGaughey and Lian Y. McGaughey,
Defendants

________________________________________________________________

THIS SUMMONS IS DIRECTED TO DEFENDANTS, WILLIAM H. MCGAUGHEY AND LIAN Y. MCGAUGHEY, 1702 GLENWOOD AVENUE, MINNEAPOLIS, MN 55405

1. YOU ARE BEING SUED. The Plaintiff has started a lawsuit against you. The Plaintiff’s Complaint against you is attached to this Summons. Do not throw these papers away. They are official papers that affect your rights. You must respond to this lawsuit even though it may not yet be filed with the Court and there may be no court file number on this Summons.

2. YOU MUST REPLY WITHIN 20 DAYS TO PROTECT YOUR RIGHTS. You must give or mail to the person who signed this Summons a written response called an Answer within 20 days of the date on which you received this Summons. You must send a copy of your answer to the person who signed this summons located at:

Murnane Brandt
30 East 7th Street, Suite 3200
St. Paul, MN 55101

3. YOU MUST RESPOND TO EACH CLAIM. The answer is your written response to the Plaintiff’s Complaint. In your Answer you must state whether you agree or disagree with each paragraph of the complaint. If you believe the Plaintiff should not be given everything asked for in the Complaint, you must say so in your Answer.

4. YOU WILL LOSE YOUR CASE IF YOU DO NOT SEND A WRITTEN RESPONSE TO THE COMPLAINT TO THE PERSON WHO SIGNED THIS SUMMONS. If you do not answer within 20 days, you will lose this case. You will not get to tell your side of the story, and the Court may decide against you and award the Plaintiff everything asked for in the Complaint. If you do not want to contest the claims stated in the Complaint. you do not need to respond. A default judgment can then be entered against you for the relief requested in the Complaint.

5. LEGAL ASSISTANCE. You may wish to get legal help from a lawyer. If you do not have a lawyer, the Court Administrator may have information about places where you can get legal assistance. Even if you cannot get legal help, you must still provide a written Answer to protect your rights or you may lose the case.

ALTERNATIVE DISPUTE RESOLUTION. The parties may agree to be ordered to participate in an alternative dispute resolution process under Rule 114 of the Minnesota General Rules of Practice. You must still send your written response to the complaint even if you expect to use alternative means of resolving this dispute.

7. This action involves, affects or brings into question real property located in Hennepin County, Minnesota, legally described as follows:

The front or Northerly 145 feet of Lot 16, Auditor’s Subdivision No. 26, including any part or portion of any street or alley adjacent to said premises vacated or to be vacated; and

The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, except the East 2.0 feet thereof; and

The East 2.0 feet of the North 138 feet of the East 42.5 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26.

8. The object of this action is to obtain an order reforming and to foreclose by action that certain mortgage dated November 29, 2007, executed by William H. McGaughey and Lian Y. McGaughey, husband and wife, as Mortgagors to Mortgage Electronic Registration Systems, Inc., as nominee for Bear Stearns Residential Mortgage Corporation, as Mortgagee, and filed for record December 26, 2007, as Document No. 9078879 in the office of the County Recorder of Hennepin County Minnesota.

Dated January 22, 2015.

MURNANE BRANDT
Attorneys for Plaintiff

By Kelly S. Hadac

*** ***** *** ***** *** ***** ***

This document was attached:
________________________________________________________________

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Case Type: Other Civil

Court File No. ____________

Boundary Water Bank, a Minnesota
Banking Corporation
Plaintiff,
COMPLAINT
vs

William H. McGaughey and Lian Y. McGaughey,
Defendants

_______________________________________

Plaintiff, for its claim for relief against Defendant, states and alleges as follows:

1. On November 29, 2007, Defendant William H. McGaughey (“W. McGaughey”) executed and delivered to Bear Sterns Mortgage Corporation a Note (the “Note”) in the original amount of $182,000.00. A true and correct copy of the Note is attached hereto as Exhibit A.

2. The Note is secured by a Mortgage (the “Mortgage”) dated November 29, 2007, executed and delivered by Defendants in favor of Mortgage Electronic Registration Systems, Inc., as nominee for Bears Sterns Residential Mortgage Corporation, on the following described real property in Hennepin County, Minnesota:

The front or Northerly 145 feet of Lot 16, Auditor’s Subdivision No. 26, including any part or portion of any street or alley adjacent to said premises vacated or to be vacated; AND
The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, except the East 2.0 feet thereof.

The Mortgage was filed for record December 26, 2007, as Document No. 9078879 in the office of the County Recorder of Hennepin County, Minnesota. A true and correct copy of the Mortgage is attached hereto as Exhibit B.

3. The Note and Mortgage have been assigned by Mortgage Electronic Registration Systems, Inc. as nominee for Bears Stearns Residential Mortgage Corporation to Bayview Loan Servicing LLC, by Assignment of Mortgage dated May 22, 2012, filed for record June 5, 2012, as Document No. A9797962 (a true and correct copy of which is attached here to as Exhibit C) and by Bayview Loan Servicing, LLC, to Plaintiff by Assignment of Mortgage dated December 26, 2014, filed for record January 7, 2015, as Document No. A10152692 (a true and correct copy of which is attached here to as Exhibit D).

4. It has come to Plaintiff’s attention that the legal description contained in the Mortgage is in error in that it fails to include that portion of the property described as follows:

The East 2.0 feet of the North 138 feet of the East 42.5 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26.

5. The Mortgage should be reformed to contain the following correct legal description:

The front or Northerly 145 feet of Lot 16, Auditor’s Subdivision No. 26, including any part or portion of any street or alley adjacent to said premises vacated or to be vacated; and

The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, except the East 2.0 feet thereof; and

The East 2.0 feet of the North 138 feet of the East 42.5 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26.

6. W. McGaughey has defaulted in the payment of the monthly principal and interest installments due under the Note. By virtue of this default, Defendants are in default under the Mortgage, and Plaintiff, pursuant to the power of sale contained in the Mortgage, does hereby elect and declare the total amount owing under the Note and Mortgage to be immediately due and payable.

7. There is due and owing under the Note an unpaid principal amount of $167,236.04 and, as of January 21, 2015, accrued interest of $5,972.30 and late charges of $418.46, for a total of $173,626.80.

8. The Mortgage provides that Plaintiff shall also be entitled to recovery of its costs and expenses, including reasonable attorney’s fees.

9. No action or proceeding at law or equity is currently pending for the collection of indebtedness secured by the Mortgage.

WHEREFORE, Plaintiff prays for relief against Defendants as follows:

1. For an Order entering judgment against Defendant William H. McGaughey for the sum of $173,626.80, together with interest from January 21, 2015, and together with Plaintiff’s costs and disbursements herein, including reasonable attorney’s fees, and such other and further sums as may be now or will become due and payable post-judgment to Plaintiff.

For an Order directing the Court Administrator to immediately enter and docket the monetary judgment described in Paragraph 1 above and ordering the Plaintiff shall file a partial satisfaction of said judgment for any amounts recovered by Plaintiff in any foreclosure sale of the Mortgage.

For an Order determining that Plaintiff is the legal holder of the Mortgage.

For an Order determining that the Mortgage should be reformed to contain the correct legal description to the property as set forth above.

For an Order authorizing the Sheriff of Hennepin County, Minnesota, to conduct a foreclosure sale of the reformed Mortgage as provided by Minn. Stat. § 581, and to apply the proceeds of said sale to the partial payment of the judgment amount adjudged to be due herein, with interest thereon to the time of payment, the expenses of said sale, the costs and disbursements associated herewith and the Bank’s attorney’s fees, as allowed by applicable law.

For such other and further relief as the Court deems just and equitable.

Dated: January 22, 2015 MURNANE BRANDT
Attorneys for Plaintiff

By Kelly S. Hadac

ACKNOWLEDGMENT

The undersigned hereby acknowledges that sanctions may be imposed pursuant to Minn. Stat. § 549.211, against the attorney, law firm or party that has violated or is responsible for the violation of Minn. Stat. § 549.211, Subd. 2.

Kelly S. Hadac

Exhibit A was a copy of the mortgage note dated November 29, 2007.

Exhibit B was a copy of a document showing the the mortgage was recorded on December 26, 2007 with the Hennepin County Recorder.

Exhibit C showed that the mortgage was transferred from Bear Stearns to Bayview Loan Servicing on May 22, 2012.

Exhibit D showed that the mortgage was transferred from Bayview Loan Servicing to Boundary Water Bank on December 26, 2014.

[Note: This was rather strange. I had been making mortgage payments to Boundary Waters Bank since October 2012 yet the mortgage was not recorded by this bank with Hennepin County until December 2014. Evidently, it was still in the name of Bayview Loan Servicing through 2014.]

 

My reply

I promptly drafted a response to the bank’s complaint. It read:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Case Type: Other civil

Court file number 27-CV-15-1090
Boundary Waters Bank,
a Minnesota Banking Corporation

Plaintiff


RESPONSE TO COMPLAINT


vs.

William H. McGaughey and Lian Y. McGaughey

defendants

________________________________________________________________

William H. McGaughey, a defendant, answers the complaint filed by Boundary Waters Bank with respect to a mortgaged property at 1715 Glenwood Avenue in Minneapolis:

1. The plaintiff alleges in section 4 that the legal description of the property contained in the Mortgage document is in error because it does not contain the land described as follows:

The East 2.0 feet of the North 138 feet of the East 42.5 feet of that part of Lot 15 lying north of 3rd Avenue North, Auditor’s subdivision No. 26.

The defendant claims that there was no error. The plaintiff gave no reason why the omission of this land in the Mortgage document was erroneous.

To the contrary, the mortgaged property at 1715 Glenwood Avenue in Minneapolis did not include that parcel of land when it was purchased from Keith Schroeder on January 16, 2004. The two feet of land that are referenced in the complaint were purchased by William McGaughey from the Minneapolis Community Development Agency on March 15, 2004. See Exhibit A. Originally, it was part of the adjacent property at 1719 Glenwood Avenue, which is a vacant lot. The mortgage was to Mortgage Electronic Mortgage Systems, Inc. which was filed on December 7, 2007, well after both purchases were made. It specifically omitted the two additional feet of land that is now claimed to have been erroneously omitted.

The explanation is as follows: When William McGaughey purchased the duplex at 1715 Glenwood Avenue in Minneapolis, he did not know that this property was not zoned to permit a duplex because its width was less than forty feet. Therefore, the city of Minneapolis could have required him to convert the building into a structure occupied by a single tenant. This conversion would both have been costly and have reduced the property’s income-producing potential. At the time, a non-profit developer was planning to construct a house on the adjacent property at 1719 Glenwood Avenue but he later abandoned the project because old sewer pipes were found underneath the land. He agreed to sell William McGaughey the two feet of land adjacent to 1715 Glenwood Avenue. The land was transferred back to the Minneapolis Community Development Agency which then completed the sale. McGaughey now owned both parcels of land.

In summary, the facts regarding this land were known at the time that the mortgage was originally placed on the duplex at 1715 Glenwood Avenue. The most recent owner of this mortgage has no right to place additional property under the mortgage without William McGaughey’s permission.

2. Despite the lapse in monthly payments to Boundary Waters Bank, the defendant objects to the commencement of judicial action to foreclose on the property for the following reasons:

William McGaughey kept to the required payment schedule on the mortgage for six years until he ran into some serious financial problems in 2014 due to nonpayment of rent by tenants at 1715 Glenwood Avenue, heavy debt payments to credit-card and other creditors, and an unusually onerous settlement of a divorce concluded in January, 2014, after three years of litigation. He was meanwhile saddled with a large debt bearing a relatively high interest rate (6.875 percent) for the mortgage at 1715 Glenwood Avenue. He contacted the bank’s branch manager, Ranee Holmboe, to disclose potential difficulties. Twice, she referred McGaughey to mortgage brokers for the purpose of refinancing the debt but neither was able to help. Neither was McGaughey able to secure an additional loan to help relieve the burden. After he sold some shares of stock to continue the payments to Boundary Waters Bank, he basically ran out of money in August, discontinued the payments, and let the property go into foreclosure. He also tried to keep Ms. Holmboe informed of his situation by letter as events unfolded.

On or around October 15, 2014, Ms. Holmboe placed a telephone call to Mr. McGaughey in which she proposed that, instead of going through the foreclosure process, McGaughey simply deed the property to the bank - the term “deed in lieu” might have been used - in which case the bank would not pursue legal action against him including a deficiency judgment. The bank would also immediately start receiving rents from the duplex. McGaughey expressed interest in that approach. Ms. Holmboe agreed to send McGaughey some specific written information about it. She never kept that promise. Instead, McGaughey later received a letter disclosing the bank’s intention to foreclose on the property if full payment plus penalties was not received by a certain date. (See Exhibit B for evidence of the earlier conversation.) Then, on the evening of January 26, 2015, McGaughey was served with papers regarding a lawsuit.

There has also been another attempt to settle this matter without going to court. On January 30, 2015, William McGaughey responded to a mailed offer for assistance with foreclosures from an organization connected with the Roosevelt law firm of Santa Ana, California. This organization did a quick screening of him and agreed to help. McGaughey was told that the likely outcome was both a reduction in the interest rate and a reduction of principal to the property’s market value. It attempted to place a conference call to Boundary Waters Bank but was told this would not be possible. Instead, McGaughey completed and signed a form allowing the Roosevelt law firm to negotiate on his behalf. This process has not yet been completed. Meanwhile, there are indications that McGaughey’s income prospects will improve since the downstairs tenant who is far behind on her rent will start receiving money for an Indian child she has been raising for more than a year. Stricter collection from other non-paying tenants will also be undertaken. These steps should allow McGaughey to handle a new mortgage if successfully negotiated by the Roosevelt law firm and thereby avoid the foreclosure process through legal action.

THEREFORE, the defendant seeks resolution of issues in the lawsuit as follows:

1. The property secured by the mortgage shall remain as in the original document, excluding the two additional feet of land.

2. No action should be undertaken until the negotiations between Boundary Waters Bank and the Roosevelt law firm have been completed. If an agreement is reached, it will be the basis of resolving issues related to nonpayment under the existing mortgage. If agreement is not reached, satisfaction of the mortgage shall take place along the lines of the conversation between William McGaughey and Ranee Holmboe in mid October, 2014. William McGaughey will simply transfer the deed to the property to Boundary Waters Bank and the bank will drop any remaining claims. Within that general framework of agreement, the two parties can negotiate minor issues, if any.

Dated February 5, 2015

Signed ___________________________

William McGaughey, defendant


This document was sent to Kelly S. Hadac at Murnane Brandt in St. Paul.

*** ***** *** ***** *** ***** ***

I later wrote a letter to Mr. Hadac, dated February 24, 2015, which reads:

Dear Kelly Hadac:

You have filed a case in court against me and my former wife regarding failure to maintain mortgage payments on the duplex located at 1715 Glenwood Avenue in Minneapolis, owed to Boundary Waters Bank.

Earlier this month, I was working with an organization in California, Home Mortgage Solutions, which has a program to avert foreclosures by refinancing the debt. My understanding is that I qualified for the program, which would both lower the interest rate and possibly forgive some of the principal.

I had authorized Home Mortgage Solutions to contact Boundary Waters Bank on my behalf. The representative was referred to the law firm, Murnane Brandt. Evidently your firm refused to negotiate with Home Mortgage Solutions to try to work out an arrangement that would be acceptable to all parties. Therefore, my application for participating in the program fell through.
I believe it is in your client’s best interest to talk with Home Mortgage Solutions to see what might be arranged. It is neither in the bank’s nor my interest to undergo a prolonged lawsuit regarding the mortgage at 1715 Glenwood Avenue. If you wish to reconsider, you can contact Brenda Rivera, the loan-modification officer, at 949-205-7471.

You should understand that the duplex does not sit on a buildable lot for this type of structure. City ordinance requires a lot at least 40 feet wide. This lot is only 38 feet wide. The two feet, which I subsequently purchased, were not part of the mortgaged property; it was no “error”, as your motion suggests. The original mortgage on the property was placed with full knowledge of the lot’s specifications. This nonconformity to code may affect the price that the duplex will fetch at auction and, therefore, the deficiency, if any, that will subsequently be pursued. I have been advised that it represents possible negligence on the part of the original underwriter or mortgage holder.

I believe it is possible to resolve this matter short of going to trial. The first and best option would be to see what Home Mortgage Solutions can do. Beyond that, I would be willing immediately to deed the property to Boundary Waters Bank in exchange for dropping financial claims, as proposed by Ranee Holmboe last fall. At the moment, I cannot do more because of lack of resources.

Sincerely,

William McGaughey

cc: Ranee Holmboe, Boundary Waters Bank”

Mr. Hadac did not respond either to this letter or to my response to his complaint.

 

Communications from the Court

In the meanwhile, I received a letter from the Hennepin County courts titled “Notice of Judicial Assignment - General Civil Block Cases.” This letter, dated January 23, 2015, informed me that District Court Judge Mary R. Vasaly was assigned to this case. The letter also cited statutes and procedures for removing this judge and a statement that the failure to file documents on a timely basis or to observe the Minnesota rules of civil procedure could result in dismissal of the case or even court sanctions.

This was not exactly good news. Mary R. Vasaly was the judge before whom I had pled “guilty-continuance” in a domestic-abuse case in March 2011. Would she remember me? Even so, would she be fair and unbiased in deciding this foreclosure case? I had no reason to believe otherwise.
In early March 2014, I receive another letter from the court, as follows:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
________________________________________________________________

Court file number 27-CV-15-1090
Judge Mary R. Vasaly

Boundary Waters Bank,
a Minnesota Banking Corporation

Plaintiff

SCHEDULING ORDER REFERRAL TO MEDIATION
vs. AND ORDER SETTING TRIAL

William H. McGaughey and Lian Y. McGaughey

defendants
________________________________________________________________

Pursuant to Minn. Gen. R. Prac. 111.03,

IT IS HEREBY ORDERED:

1. E-filing: All attorneys representing parties in the above-captioned matter must sign up for the electronic case service list for the above-captioned matter. The Court will distributed all courtesy copies in this file electronically. If an attorney does not sign up for the electronic case service list, the Court will not send that attorney or that attorney’s client a hard copy of documents filed by the Court.

Unrepresented parties are excluded from this requirement. Questions regarding signing up for the electronic case service list may be directed to the Court on its E-File Help Line at (612) 543-4000. Parties also may visit http://www. mncourts. gov/district4 for more information regarding the eFile & Serve program.

2. Restrictive Identifiers: Under Minn. Gen. R. Civ. Prac. 11, information including, but not limited to, social security numbers, employer identification numbers, and financial account numbers are considered confidential information. Such confidential information is to be submitted separately and by using the Confidential Information forms 11.1 and 11.2. Please ensure your pleadings and subsequent filings comply with this rule.

3. Parties:

A. Joinder: Joinder of all additional parties, by amendment or third-party practice, must be accomplished on or before July 17, 2015. Any party joining an additional party to this litigation must deliver a copy of this order to the additional party.

B. Party Status: All parties who are not represented by an attorney must keep the Court informed of their most current mailing address and phone number.

C. Corporations: Corporations must be represented by legal counsel. See Nicollet Restoration, Inc. v. Turnham, 486 N.W. 2d 753, 754 (Minn. 1992). Failure to comply with this requirement will result in adverse consequences.

D. Correspondence: No party may send the Court any unrequested correspondence on substantive issues. If the parties believe they need the Court’s immediate attention, they can request a conference call with the Court by calling the Judge’s clerks.

4. Discovery:

A. Initial Disclosures: Initial disclosures required by Minn. Gen. R. Civ. P. 26.02(a) must be made pursuant to the deadlines set forth in Minn. Gen. R. Civ. P. 26.02(a)(3).

B. Expert Disclosures: The parties’ expert disclosures, if any, must comply with the requirements and deadlines set forth in Minn. Gen. R. Civ. P. 26.02(b).

C. Discovery Schedule: All discovery must be noticed and completed on or before July 17, 2015.

Discovery Conference: Except for proceedings exempt from initial disclosures, or when the Court orders otherwise, the parties must confer as soon as practicable regarding discovery. The attorney(s) of record and all unrepresented parties must arrange a conference and attempt in good faith to agree on a discovery plan. The conference must take place within 30 days from the initial due date for an answer. A written report outlining the discovery plan must be filed with the Court within 14 days after the conference or at the time the action is filed, whichever is later.

E. Discovery Disputes: No discovery dispute may be brought to the attention of the court unless the parties have conferred and made a good-faith effort to settle their dispute pursuant to Minn. Gen. R. Civ. P. 37.01(b) and Minn. Gen. R. Prac. 115.10 Pursuant to Minn. Gen. R. Prac. 115.04(d), the party raising an unresolved discovery issue must first arrange a telephone conference with the court to determine if the dispute can be resolved without a formal motion. No formal motion papers shall be filed prior to the telephone conference. Each party shall serve and file, at least two days in advance of the telephone conference, a letter describing the issues in dispute. The letter shall be in 12 point font, and shall not exceed two pages or include attachments. If the dispute is not resolved, a formal motion may be scheduled at the time of the telephone conference. Motions filed without following the above procedures will be stricken.

5. Motion Deadlines: All dispositive and non-dispositive motions must be noticed and heard on or before August 21, 2015. The scheduling of motions must be arranged with the court’s Law Clerks well in advance of the deadline (as much as two-three months in advance.) When a motion date is obtained, notice of the date shall be provided to the opposing party or parties. All submissions must comply with the time limits set forth in Minn. Gen. R. Prac. 115; failure to comply may result in the Court disregarding the untimely submission.

6. Motion Papers:

A. Paper Courtesy Copies: Paper courtesy copies of motion-related documents must be provided to chambers as soon as practicable after the documents are filed. A party must submit two paper copies of a legal memorandum and one paper copy of any affidavits and supporting material. Supporting affidavits and exhibits of 30 pages or more must be tabbed and bound in a 3-ring binder. (Footnote: The undersigned still requires paper courtesy copies to be provided to chambers, despite the fact that parties are now required to file documents with the court electronically.)

B. Electronic Courtesy copies: An electronic copy of the following motion-related documents must be emailed to chambers (email address below) as soon as practicable after the documents are filed: Legal memoranda and proposed orders. An electronic courtesy copy of a proposed order must be in an editable format, such as Microsoft Word or RTF, and not in PDF format.

Chamber Email Address: 4thJudgeVasalyChambers@courts.state.mn.us.

C. Formatting: A legal memorandum must use a font of 12 points or greater and must have margins of one inch or greater.

7. Interpreters: Interpreters are available upon request. For a motion, the need (and specific language) must be communicated to the Court at the time the motion is scheduled. For trial, the need (and specific language) must be communicated to the Court no later than one month prior to the scheduled date or trial block.

8. Alternative Dispute Resolution:

A. Selection of Mediator: This case is referred to mediation. In the Fourth Judicial District, parties and the Court have several mediation options.

The parties shall select a mediator. Counsel shall submit their joint selection of a mediator to the Court in writing, and provide the mediator’s name, address, and telephone number no later than APRIL 24, 2015. If the parties do not submit their joint selection by this date, the Court will appoint a mediator pursuant to Minn. Gen. R. Prac. 114.05(a).

Alternatively, the Fourth Judicial District is currently offering a mediation pilot program for parties that qualify or express interest:

Flat Fee Mediation Pilot Program

The neutrals at ValueSolve ADR offer mediation services at a flat rate of $1,000 per case (i.e.: $500 per party in a two party case) for Fourth Judicial District cases valued at $150,000 or less. For a description of the Flat Fee Mediation pilot Program and mediator information, see www.ValueSolveADR.org/Flat Fee Pilot. IF YOU DESIRE OR BELIEVE YOU ARE ELIGIBLE FOR THIS PROGRAM, PLEASE LET THE COURT KNOW BY APRIL 17, 2015. A separate order will be issued if this option is selected by the Court or the parties.

B. Timing of Mediation: ADR must be completed by November 20, 2015. The costs of mediation, if any, must be shared equally by the parties. If the parties fail to complete ADR before trial, they may be subject to sanctions as set forth in paragraph 13 of this order. Counsel must immediately notify the Court of any final disposition of this case.

C. Procedure at Mediation: All mediation sessions must be attended, in person, by the attorneys who will try the case, the parties involved in the litigation, claims adjusters, and other persons who have the authority to negotiate and settle the case. Any questions regarding the identity of the specific persons who will attend the mediation shall be directed to the mediator, who has sole authority whether or not to excuse anyone’s attendance, and whose decision on this issue will be final.

9. Joint Statement: A Joint Statement of the Case pursuant to Minn. Gen. R. Prac. 112.01 must be filed by the parties on or before December 4, 2015.

10. Trial: If this case is not resolved, it will be tried during the first available trial block in January 2016. A revised scheduling order will be issued at a later date reflecting the trial block dates for January 2016. An order for trial will be issued at a later date as well. A request for a continuance of the trial and the reasons therefore must be submitted to the Court in the parties’ discovery plan. Any conflicts with the assigned trial block also must be submitted in writing to the Court in the parties’ discovery plan. A description of each conflict , including court file number and date of assignment of conflicting trials, must be included.

Pretrials and settlement conferences may be scheduled at the request of the parties or at the Court’s discretion.

11. Jury Fee: Any party seeking a jury trial must pay the required fee. Failure to pay the required jury fee in accordance with the terms of this Order may be deemed a waiver of any right to trial by jury in this action and will result in trial before the Court.

12. Amendments: The parties may agree to an amendment of the scheduling dates set forth in this Order, but no such stipulation will be recognized by the Court without the Court’s approval. Parties requesting an amendment of this Order shall schedule a conference call with the court to obtain the Court’s approval.

13. Sanctions: Failure to comply with this Order may subject a party to appropriate sanction, including the assessment of costs, dismissal, entry of default judgment, striking of pleadings, or such other relief as the Court may deem appropriate.

14. Professional Courtesy: The attorneys and pro se litigants must familiarize themselves with the Minnesota General Rules of Practice for district Courts, paying close attention to titleI, Rules 1 and 2. The standard of integrity and courtesy the Court expects from all attorneys and pro se litigants appears in the Professional Aspirations approved by the Minnesota Supreme Court on January 11, 2001.

Dated: March 6, 2015 BY THE COURT:

_________________
Mary R. Vasaly
Judge of District Court
Refer questions to:
Ted Wagor, Law Clerk

NOTE: If you are aware of any party or attorney not listed above, please immediately notify the Law Clerk at the number indicated above.

Expecting money

This communications from the court was reassuring in terms of expectations that I might be able to raise the money to redeem the duplex from foreclosure. I knew that if I paid all that was due the bank, including missed principal, interest, escrow payments, and late fees, plus reasonable attorney fees and other court costs, I could reinstate the mortgage and the law firm would be off my back.

A friend who was knowledgeable about legal matters and had had some exposure to foreclosure issues thought that the issue of the 38-foot-wide lot gave me leverage against the bank. Because the property did not conform to Minneapolis zoning requirements, the foreclosure would bring less money in a Sheriff’s sale than such sales would normally bring. My friend thought that to place a mortgage on nonqualifying property indicated negligence on the part of the original mortgage holder or, perhaps, the underwriter. He also thought that it was the underwriter, not the bank, that stood to lose because of this problem. The issue might be useful to me not only as an argument to make in court but also because it gave me a bargaining chip in negotiations with the bank. I could offer to sell or give the extra two feet that I owned to make the foreclosed property conform to city requirements in exchange for certain concessions.

At that time, I still was hoping that the “Haiti money” would come through. In addition, my former wife was expecting a “Northstar grant” from Hennepin County in caring for her abandoned grand son; this was many months in arrears. Finally, the Salvation Army might be willing to pay something. All this money had been promised before but it kept being delayed. It was delayed so many times I could hardly keep track of the various promises. Finally, in the first week of March, 2015, my former wife gave me a slip of paper on which the expected arrival times of money from three different sources were written. I quote from that paper:

March 13 $950 (from the Salvation Army)
March 19 $7,785 (back payments of the Northstar grants)
March 23 $41,225 (her share of the Haiti money)

The grand total of expected payments was $49,850. This would be far more than what would be needed to take care of my obligation to Boundary Waters Banks.

Unfortunately, the arrival times of this money came and went. I received not a dime. Even though a judge had ordered the county to pay the Northstar grant, there was always some reason that the payment was held. Some unknown supervisor had put a hold of the payment or else there were licensing issues. The Haiti money was held up either in court or in a bank. We could never contact Mr. Johnston to get a clear explanation. I thought for a time that it was sitting in my former wife’s account at Wells Fargo, not being released because of the amount. Then the money was in a Canadian bank, being held because previous checks written by Mr. Johnston had bounced. The bottom line was that the cash was never available now.

I also had hopes of money from a second source. My parents owned some wooded land in Pennsylvania. My sister, who was executor of my father’s estate, had given a conservation group a two-year option to purchase the land at a certain price. The option period came and went. The money should have been paid in the fall of 2014. Evidently, my sister had extended the option period; she would not give me specific information. We still had hopes that it would be exercised. The new date would be in June 2015. Even then, it was uncertain that money would ever be paid.

Finally, a third source of funds emerged in early 2015. My aunt died in January and left me $20,000 in her will. The executor of her estate said that checks would be cut no later than May 18, 2015. Money from this inheritance would more than cover the missed payments to Boundary Waters Bank but now I would also be owing an unspecified amount of attorney fees. The total might be more than $20,000.

If all else failed, I could always sell my apartment building or some other property in Minnesota, pay off Boundary Waters Bank, and move to Pennsylvania where I also own a house. That option was looking increasingly attractive. Frankly, I hate Minnesota courts.

Another legal case

I say this because I was meanwhile engaged in another legal battle in Hennepin County with respect to settlement of a recent divorce. The trial-court judge (then chief judge of Hennepin County courts) had assigned nearly all the $325,000 marital debt to me and, on top of this, ordered me to pay $500 in permanent spousal maintenance (alimony). His further award of $50,000 from proposed sale of some of my non-marital real estate had been overturned by the Minnesota Court of Appeals.

On September 25, 2014, I filed a motion to eliminate the spousal maintenance citing my sharply increased financial needs. I was now obligated to pay $3,500 beyond my normal monthly expenses to service my short-term debt through a debt-management firm. In support of my allegation of financial hardship, I attached Ms. Holmboe’s letter announcing the bank’s intention to foreclose on my duplex.

The judge was miffed that I, a self-represented litigant, had prevailed in the appellate court with respect to his order dipping into my non-marital property. He accused me of being a liar. A financial disclosure in my application to the debt-management firm suggested that I had more disposable income than I actually did. It included gross receipts from my rental-property business (omitting the related expenses) and from this subtracted my estimated living expenses. A copy of my 2013 federal income-tax return, submitted as an exhibit with my motion, showed that I had only $7,631.50 in adjusted gross income that year, which put me somewhere in the lower echelons of American income.

But the judge thought that I was using slick financial tricks - such as depreciation - to deflate my income artificially. He implied that I might have been cheating on my taxes. The upshot was that, not only did he deny my motion to eliminate monthly spousal maintenance, he actually increased it to $600 per month. That decision is currently being appealed.

The bank's motion for summary judgment

While I was waiting for the money to arrive, the law firm representing Boundary Water Bank delivered another shock. It was filing a motion for summary judgment of the bank’s claim. That meant that there would be no mediation. There would be no trial. Instead, in a matter of ten or fifteen minutes, a District Court judge could declare that the bank now owned my property while I remained responsible for the entire debt, the deficiency included. The trial date set for January 2016 had given me a false sense of security. The date when the motion for summary judgment would be heard was May 6, 2015. Then, potentially, it could be all over, leaving me with the worst of outcomes.

All this bad news came in a thick manila envelope from the bank’s law firm, now renamed HKM (“innovation, passion, results”, it said on the envelope). The cover letter, addressed both to me and my former wife, was dated April 3, 2015. It said:

“ Re: Boundary Waters Bank v. William H. McGaughey
Court File No. 27-CV-15-1090
Our File No. 69442

Dear Mr. McGaughey and Ms. McGaughey:

Enclosed herewith and served upon you by United States Mail relative to the above matter please find:

Plaintiff Boundary Waters Bank’s Notice of Motion and Motion For Summary Judgment;

Plaintiff Boundary Waters Bank’s Memorandum of Law in Support of Motion for Summary Judgment;

Affidavit of Ranee R. Holmboe; and

Proposed Findings of Fact, Conclusions of Law and order, and Order for Judgment and Judgment.

Very truly yours,

Christian A. Brand
Attorney at Law


*** ***** *** ***** *** ***** ***

The Notice of Motion and Motion for Summary Judgment read as follows:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________

Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank,
a Minnesota Banking Corporation

Plaintiff

SCHEDULING ORDER REFERRAL TO MEDIATION
vs. AND ORDER SETTING TRIAL

William H. McGaughey and Lian Y. McGaughey

defendants
________________________________________________________________

TO: Defendants above named

PLEASE TAKE NOTICE that the undersigned will bring the following motion on for hearing before The Honorable Mary R. Vasaly, at the Hennepin County District Court, Hennepin County Government Center, 300 South Sixth Street, MC 332, Minneapolis, MN 55487-0332, on the 6th day of May, 2015, at 9:00 a.m, or as soon thereafter as counsel can be heard.

MOTION

Pursuant to Rule 56 of the Minnesota Rules of Civil Procedure, Plaintiff Boundary Waters Bank will move this Court for an order for Summary Judgment against as follows:

1. Granting Plaintiff Boundary Water Bank’s Motion for Summary Judgment;

2. Entering a money judgment against William McGaughey; and,

3. Granting Plaintiff a decree of foreclosure of the subject mortgage.

Said motion will be based upon the accompanying Memorandum of Law, Affidavit of Ranee R. Holmboe and all of the files, records and proceedings herein and the arguments of counsel at the motion hearing.

Dated: April 3, 2015 HKM

___________________________
Kelly S. Hadac
Christian A. Brandt

*** ***** *** ***** *** ***** ***

A second document in this packet of disagreeable materials was titled Plaintiff Boundary Waters Bank’s Memorandum of Law in support of Motion for Summary Judgment. It read:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________

Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank,
a Minnesota Banking Corporation

Plaintiff

PLAINTIFF BOUNDARY WATERS BANK’S MEMORANDUM OF LAW
IN SUPPORT OF MOTION FOR
SUMMARY JUDGMENT

William H. McGaughey and Lian Y. McGaughey

defendants
________________________________________________________________

INTRODUCTION

Plaintiff Boundary Waters Bank(“Bank”) respectfully submits this Memorandum of Law in support of its Motion for Summary Judgment.

The above-captioned matter was commenced by Plaintiff after Defendants filed to abide by their contractual obligations. Mr. McGaughey executed a note requiring him to make monthly payments to Plaintiff. The debt evidenced by the subject promissory note was secured by a mortgage. Mr. McGaughey failed to make the payments as required and is therefore in default under the note. By extension, the Defendants are in default under the subject mortgage. Upon an event of default, the loan documents allow Plaintiff to seek a judgment against Mr. McGaughey and to foreclose the subject mortgage. Given the fact that there is no dispute the loan is in default, Plaintiff is entitled to entry of judgment and a decree of foreclosure.

STATEMENT OF FACTS

William McGaughey submitted a Response to the complaint on February 4, 2015. In the response, he admits that he failed to make the required payments under the loan documents. (See Exhibit 1 to the Affidavit of Ranee R. Holmboe (“Holmboe Aff.”) Thus, there can be no legitimate question of fact with regard to the critical material facts in this case, as set forth in the ensuing paragraphs.

THE NOTE

On November 29, 2007, Defendant William H. McGaughey executed and delivered to Bear Sterns Residential Mortgage Corporation a Note in the original amount of $182,000.00 (“Note”) (See Exhibit 2 to the Holmboe Aff.). Exhibit 2 also contains an Allonge to Note naming Plaintiff as the holder of Note. (ld.) Pursuant to the Note, Mr. McGaughey was required to make monthly payments until the debt was paid in full. (ld. at ¶3.) The Note defines failure to make the monthly payments as a default. (ld at ¶6.) Upon default, the Note allows the Bank to call the balance of the loan due, plus interest, fees, including reasonable attorneys’ fees, and costs. (ld)

THE MORTGAGE

The Note is secured by a Mortgage dated November 29, 2007, executed and delivered by Defendants in favor of Mortgage Electronic Registration Systems Inc., as nominee for Bear Stearns Residential Mortgage Corporation, on the following described real property in Hennepin County, Minnesota:

The front or Northerly 145 feet of Lot 16, Auditor’s Subdivision No. 26, including any part or portion of any street or alley adjacent to said premises vacated or to be vacated; AND The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, except the East 2.0 feet thereof.

(“Mortgage”) [Footnote 1: The Complaint seeks a revision to the Mortgage’s legal description of the property. At this point, and by this motion, the Bank is no longer pursuing that claim.] (See Exhibit 3 to the Holmboe Aff.) The Mortgage was filed for record December 28, 2007, as Document No. 9078879 in the office of the County Recorder of Hennepin County, Minnesota. (ld.) Per the terms of the Mortgage, Defendants agreed to make payments as required by the Note. (ld. at p. 4 ¶ 1). In the event Defendants breach any term of the Mortgage, the Bank has the right to accelerate the loan, require immediate payment of the outstanding balance, invoke the power of sale, and pursue all other remedies permitted by law. (ld. at p. 13, ¶22). The Mortgage further entitles the Bank to recovery of all fees and costs, including reasonable attorneys’ fees, incurred in connection with pursuing its remedies under the Mortgage. (ld.)

ASSIGNMENTS

The Note and Mortgage were assigned by Mortgage Electronic Registration Systems, Inc. as nominee for Bears Stearns Residential Mortgage Corporation to Bayview Loan Servicing LLC, by Assignment of Mortgage dated May 22, 2012, filed for record June 5, 2012, as Document No. A9797962. (See Exhibits 2 and 4 to the Holmboe Aff.) Then, Bayview Loan Servicing, LLC, made an assignment to Plaintiff by Assignment of Mortgage dated December 26, 2014, filed for record January 7, 2015, as Document No. A10152692. (See Exhibit 5 to Holmboe Aff.).

IV. DEFAULTS AND NOTICE

Mr. McGaughey has defaulted in the payment of the monthly principal and interest installments due under the Note. By virtue of this default, Defendants are in default under the Mortgage. (See Holmboe Aff. at ¶ 7). Notice of the defaults was sent to Mr. McGaughey by Plaintiff on November 7, 2014. The notice letter advised that if the defaults were not cured, Plaintiff would take the action now underway before this Court. (See Exhibit 6 to the Holmboe Aff.) In his response to the Complaint, Mr. McGaughey acknowledges the failure to make the payments. (See Exhibit 1 to the Holmboe Aff.)

TOTAL AMOUNT DUE AND OWING

As of April 1, 2015, there was due and owing under the Note an unpaid principal amount of $167,236.04, interest of $8,236.04, and late charges of $538.02 for a total of $175,981.98. Interest, late charges, fees and costs continue to accrue. (See Holmboe Aff. at ¶ 9).

ANSWERS

Both Defendants have appeared in this matter. Lian McGaughey’s daughter provided a letter on her behalf to our office, indicating that she has no further interest in the subject property following her divorce from Mr. McGaughey. Mr. McGaughey provided a Response to complaint on or about February 4, 2015. (See Exhibit 1 to the Holmboe Aff.)

ARGUMENT

SUMMARY JUDGMENT STANDARD

“Rule 56 of the Minnesota Rules of Civil Procedure is designed to implement the stated purpose of the rule - securing a just, speedy, and inexpensive determination of an action - by allowing a court to dispose of an action on the merits if there is no genuine dispute regarding the material facts, and a party is entitled to judgment under the law applicable to such facts.” DLH, Inc. v. Russ, 566 N.W. 2d 60, 69 (Minn. 1997), citing, In re Estate of Bush, 302 Minn. 188, 211 N.W.2d 489, 503 (1974), cert. denied, Lee v. Arrowwood 420 U.S. 1008 (1997).

“Accordingly, [R]ule 56 provides that summary judgment is proper when the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any, submitted show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law.” DLH, Inc. v. Russ, 566 N.W. 2d at 69, citing, Minn. R. Civ. P. 56.03. A fact is material only when its resolution affects the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

“Upon a motion for summary judgment *** the adverse party cannot preserve his right to a trial on the merits merely by referring to unverified and conclusionary allegations in his pleadings or by postulating evidence which might be developed at trial.” Lubbers v. Anderson, 539 N.W.2d 398, 401 (Minn. 1995); see also Bob Useldinger & Sons, Inc. v. Hangsleben, 505 N.W.2d 323m 328 (Minn. 1993) (concluding that summary judgment is properly granted when the nonmoving party relies on mere conjecture or speculation as opposed to concrete evidence). Accordingly, if the party moving for summary judgment makes out a prima facie case, the burden on producing facts that create a genuine issue for trial shifts to the opposing party. Thiele v. Stich, 425 N.W.2d 580, 583 (Minn. 1988).

In ruling on a motion for summary judgment, the court should not consider evidence, such as inadmissible hearsay statements or vague, conclusory allegations, which would not be admissible at trial. Miller v. Solem, 728 F.2d 1020, 2026 (8h Cir. 1984) There is no genuine issue of fact for trial if the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party. Matsushita Electric Industrial Co. v, Zenith Radio Corp., 475 U.S. 574, 587 (1986). Nor is there a genuine issue of material fact when the nonmoving party presents evidence that creates only 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. 566 N.W.2d at 71.

II. THE BANK IS ENTITLED TO AN ORDER FOR ENTRY OF A MONETARY JUDGMENT AND A DECREE OF FORECLOSURE.

A breach of contract claim requires the plaintiff to show “(1) formation of a contract; (2) performance by plaintiff of any conditions precedent; (3) a material breach of the contract by defendant; and (5) damages.” Briggs Trans. Co. v. Razenberger, 299 Minn. 127, 217 N.W.2d 198, 200 (1970) ; Boatwright Const. Inc. v. Kemrich Knolls, 306 Minn. 519,238 N.W.2d 606, 607 (1976).

In this case, it is undisputed that the Note and Mortgage represent enforceable contracts and that Mr. McGaughey/Defendants have breached the Note and Mortgage. In specific, Mr. McGaughey has failed to make the required monthly payments, which constitutes a default/breach under the Note and, by extension, the Mortgage. In addition, Plaintiff has provided the required notice.

Based on the above undisputed facts, the Bank respectfully requests an order granting summary judgment in its favor against Defendant as follows: (1) a monetary judgment against William McGaughey for $175,981.98 plus additional late charges, interest, costs, expenses, and attorneys’ fees; and (2) an order allowing the Bank to foreclose the Mortgage.

CONCLUSION

It is undisputed that the Defendants have enforceable contracts with the Bank and that those contracts have been breached. As such, the Bank respectfully requests an Order granting its summary judgment motion and entering judgment in its favor and against William McGaughey in the amount of $175,981.98, plus continually accruing interest, late charges, fees, and costs. In addition, the Bank respectfully requests that this Court a decree of foreclose which allows the Bank to foreclose the Mortgage.

Dated: April 3, 2015 HKM

__________________

Kelly S. Hadac
Christian A. Brandt

*** ***** *** ***** *** ***** ***

Still another document in the packet of disagreeable materials was Boundary Waters Bank Branch President Ranee Holmboe’s affidavit. It read:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________

Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank,
a Minnesota Banking Corporation

Plaintiff

AFFIDAVIT OF RANEE R. HOLMBOE

v.

William H. McGaughey and Lian Y. McGaughey

defendants
________________________________________________________________

STATE OF MINNESOTA )
) ss.
COUNTY OF ANOKA )

RANEE R. HOLMBOE, being first duly sworn upon oath, deposes and states as follows:

1. I am Branch President and Director of Operations at Plaintiff Boundary Waters Bank in the above-captioned matter. I make this affidavit on personal knowledge and in support of our Motion for Summary Judgment.

2. Attached hereto as Exhibit 1 is a true and correct copy of the Response to complaint from William McGaughey.

3. Attached hereto as Exhibit 2 is a true and correct copy of the November 29, 2007 Note in the principal amount of $182,000.00.

4. Attached hereto as Exhibit 3 is a true and correct copy of the Mortgage, dated November 29, 2007.

5. Attached hereto as Exhibit 4 is a true and correct copy of the assignment from Mortgage Electronic Registration Systems, Inc., as nominee for Bear Stearns Residential Mortgage Corporation to Bayview Loan Servicing, LLC, dated May 22, 2012.

6. Attached hereto as Exhibit 5 is a true and correct copy of the assignment from Bayview Loan Servicing , LLC, to Plaintiff, dated December 26, 2014.

7. William McGaughey has failed to make the required monthly payments per the terms of the Note and the Mortgage and is therefore in default under both the Note and the Mortgage.

8. Attached hereto as Exhibit 6 is a true and correct copy of the notice-of-default letter I sent to William McGaughey on November 7, 2014.

9. As of April 1, 2015, the total amount due and owing on the Note is $175,981.98 - inclusive of late charges and interest - plus attorneys’ fees, costs and expenses of collection.

FURTHER YOUR AFFIANT SAYETH NOT.

Dated and notarized: April 3, 2015

_______________________
RANEE R. HOLMBOE

The exhibits, too long to reproduce here, are self-explanatory.

*** ***** *** ***** *** ***** ***

Finally, the packet of materials from HKM law firm includes the Plaintiff’s Findings of Fact, Conclusions of Law and Order, Order for Judgment, and Judgment. this document reads:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________
Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank,
a Minnesota Banking Corporation

Plaintiff

FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER, ORDER FOR
JUDGMENT, AND JUDGMENT

William H. McGaughey and Lian Y. McGaughey

Defendants
________________________________________________________________

The matter came on for hearing before the Honorable Mary R. Vasaly, at the Hennepin County District Court, Hennepin County Government Center, 300 South Sixth Street, MC 332, Minneapolis, MN 55487-0332, on the 6th day of May, 2015, upon the Plaintiff’s Motion for Summary Judgment.

Appearances were duly noted on the record.

The Court, having reviewed the memoranda submitted by the parties, as well as the affidavits, pleadings and proceedings herein, makes the following:

FINDINGS OF FACT

1. On November 29, 2007, Defendant William McGaughey executed the subject Note in the principal amount of $182,000.00 (“Note”). Pursuant to the Note, Mr. McGaughey was required to make monthly payments until the debt was paid in full. The Note defines failure to make the monthly payments as a default. Upon default, the Note allows the Plaintiff to call the balance of the loan due, plus interest, fees, including reasonable attorneys’ fees and costs.

2. The Note is secured by a Mortgage dated November 29, 2007, executed and delivered by Defendants in favor of Mortgage Electronic Registration Systems Inc., as nominee for Bear Stearns Residential Mortgage Corporation, on the following described real property in Hennepin County, Minnesota:

The front or Northerly 145 feet of Lot 16, Auditor’s Subdivision No. 26, including any part or portion of any street or alley adjacent to said premises vacated or to be vacated; AND The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, except the East 2.0 feet thereof.

The Mortgage was filed for record December 28, 2007, as Document No. 9078879 in the office of the County Recorder of Hennepin county, Minnesota. Per the terms of the Mortgage, Defendants agreed to make payments as required by the Note. In the event Defendants breach any term of the Mortgage, the Bank has the right to accelerate the loan, require immediate payment of the outstanding balance, invoke the power of sale, and pursue all other remedies permitted by law. The Mortgage further entitles the Bank to recovery of all fees and costs, including reasonable attorneys’ fees, incurred in connection with pursuing its remedies under the Mortgage.

3. The Note and Mortgage were assigned by Mortgage Electronic Registration Systems, Inc. as nominee for Bears Stearns Residential Mortgage Corporation to Bayview Loan Servicing LLC, by Assignment of Mortgage dated May 22, 2012, filed for record June 5, 2012, as Document No. A9797962. Then, Bayview Loan Servicing, LLC, made an assignment to Plaintiff by Assignment of Mortgage dated December 26, 2014, filed for record January 7, 2015, as Document No. A10152692. There was an Allonge to Note naming Plaintiff as the holder of Note.

4. Mr. McGaughey has defaulted in the payment of the monthly principal and interest installments due under the Note. By virtue of this default, Defendants are in default under the Mortgage.

5. Notice of the defaults was sent to Mr. McGaughey by Plaintiff on November 7, 2014. The notice letter advised that if the defaults were not cured, Plaintiff would take the action now underway before this Court. In his response to the Complaint, Mr. McGaughey acknowledges the failure to make the payments.

6. As of April 1, 2015, there was due and owing under the Note an unpaid principal amount of $167,236.04, interest of $8,236.04, and late charges of $538.02 for a total of $175,981.98. Interest, late charges, fees and costs continue to accrue.

CONCLUSIONS OF LAW AND ORDER

1. Plaintiff is entitled to judgment against William McGaughey in the amount of $175,981.98 plus continually accruing late charges, interest, fees, including attorneys’ fee, and costs, expenses, and such other and further sums as may be now or will become due and payable post-judgment to the Plaintiff, which additional amounts may be added to the judgment amount by motion and supported by an affidavit of the Plaintiff or its legal counsel.

2. The Court Administrator shall immediately enter and docket the monetary judgment described in paragraph 1 above. In the event the Plaintiff recovers any amount of money from conducting any foreclosure sale(s), the Bank shall timely file a partial/full satisfaction of judgment, in the manner required by law for the amount of the net proceeds from any collections (after deducting the expenses of the executions or other process). In the event the Bank schedules and conducts any Sheriff’s sale under the decree of foreclosure under this order and obtains a further court order confirming the Sheriff’s sale, now or in the future, the Court Administrator shall partially satisfy the remaining amount of the monetary judgment entered an docketed pursuant to this Order by the amount of the successful bid at any confirmed Sheriff’s sale.

3. Plaintiff is hereby granted a decree of foreclosure of the Mortgage to partially satisfy the judgment described in paragraph 1 above, and additionally as follows:

(a) Upon the Plaintiff’s request to the Sheriff of Hennepin, the Property shall be sold by the Sheriff in the manner provided by law;

(b) The proceeds of any Sheriff’s sale are to be applied, first, to the payments of costs and disbursements of the sale, second, to the amount of the judgment remaining unpaid;

(c) Order that the purchaser at any Sheriff’s sale or assigns, if no redemption is made within the period fixed by statute, be decreed to be the absolute owner of the Property purchased at the Sheriff’s sale;

(d) The Mortgage is a valid mortgage that is prior and superior to all other liens and encumbrances against the Property, and barring and foreclosing all Defendants from any equity of redemption, equity, lien or interest in the Property, except the right to redeem from the Sheriff’s sale as provided by statute.

4. The Bank’s rights to an immediate monetary judgment, decree of foreclosure, deficiency judgment or other contract rights shall be cumulative remedies, and the Bank shall be entitled to exercise one or more of these rights, in any order and/or simultaneously in its sole discretion.

5. The Court shall retain jurisdiction over this matter for the purposes of making amendments to the judgment as provided for in paragraph 1 above and for all other post-judgment purposes.

ORDER FOR JUDGMENT

IT IS HEREBY ORDERED, that pursuant to Rule 56.03 of the Minnesota Rules of Civil Procedure, Boundary Waters Bank’s motion for summary judgment is GRANTED in all respects.

Dated ___________ BY THE COURT:

_______________________
Mary R. Vasaly
Judge of District Court

JUDGMENT

I herby certify that the above Conclusions of Law and Order and Order for Judgment constitute the Judgment of the Court.

Dated ________________ Court Administrator

By _____________________
Deputy

 

Groping for a response

I was now in serious trouble. The first order of business was to check the court rule permitting summary judgments. It was Minnesota Rules of Civil Procedure, Rule 56.

Rule 56.03 states: “Service and filing of the motion shall comply with the requirements of Rule 115.03 of the General Rules of Practice for the District Courts, provided that in no event shall the motion be served less than ten days before the time fixed for the hearing.  Judgment shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law.  A summary judgment, interlocutory in character, may be rendered on the issue of liability alone although there is a genuine issue as to the amount of damages.”

With respect to the defending party. Rule 56.05 states: “When a motion for summary judgment is made and supported as provided in Rule 56, an adverse party may not rest upon the mere averments or denials of the adverse party’s pleading but must present specific facts showing that there is a genuine issue for trial.  If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.” In other words, I had to find something specific that was a genuine issue of fact and support it by submitted evidence. I could not simply deny the Plaintiff’s statements. 

Was there a genuine issue of material fact in this case? Clearly I was behind in the mortgage payments and I owed payment on the debt to Boundary Water Bank. But was that the end of the argument as the bank’s lawyers suggested? Were there no genuine issues in this case? I visited the law library on the top floor of the Hennepin County Government Center. The librarian referred me to several books on foreclosure, paying particular attention to summary judgments.

What I found was mildly encouraging. Motions for summary judgment could be defeated if, among other things, motions were improperly drafted or if witnesses submitting affidavits were not available for questioning. Sometimes persons submitted affidavits but failed to attach the referenced documents as exhibits. If the bank did not own the property when it foreclosed, that would be another defense. However, all this seemed rather lame. I should try to find something actually wrong in the Plaintiff’s submission.

The fact that the foreclosed property had a lot that did not conform to Minneapolis zoning requirements did provide grounds for defense. Evidently the law firm realized this as well, since it tried to claim that it was a “mistake” that the property’s legal description did not include the parcel of land that was two feet wide. What “mistake” did the attorneys think had been made? That claim was obviously fictitious. But the fact that the attorneys thought that the extra two feet needed to be with the foreclosed property indicated that they recognized a defect in their case. This was no imagined or manufactured issue but a situation that actually existed. What’s more, the attorneys themselves seemed to recognize that it was an issue. There was, therefore, a “genuine issue” about a “material fact” and I had evidence to prove it. It should be no problem, then, to defeat the bank’s motion for a summary judgment.

My attention now turned to outcomes. If I could come up with the money to catch up on the mortgage payments, that would end my ordeal in court. Even now, the Haiti money was expected soon if what my former wife told me could be believed. The law provided for reinstatement of mortgages under certain conditions.

Minnesota statute 580.30,Subdivision 1, regarding “reinstatement” reads as follows:

“In any proceedings for the foreclosure of a real estate mortgage, whether by action or by advertisement, if at any time before the sale of the premises under such foreclosure the mortgagor, the owner, or any holder of any subsequent encumbrance or lien, or any one for them, shall pay or cause to be paid to the holder of the mortgage so being foreclosed, or to the attorney foreclosing the same, or to the sheriff of the county, the amount actually due thereon and constituting the default actually existing in the conditions of the mortgage at the time of the commencement of the foreclosure proceedings, including insurance, delinquent taxes, if any, upon the premises, interest to date of payment, cost of publication and services of process or notices, attorney's fees not exceeding $150 or one-half of the attorney's fees authorized by section 582.01, whichever is greater, any costs incurred when an order to reduce a mortgagor's redemption period under section 582.032 is entered, including costs and disbursements awarded under section 582.032, subdivision 9, together with other lawful disbursements necessarily incurred in connection with the proceedings by the party foreclosing, then, and in that event, the mortgage shall be fully reinstated and further proceedings in such foreclosure shall be thereupon abandoned.”

Boundary Waters Bank’s last statement, dated April 16, 2015, showed that I was $15,297.60 in arrears. This included $2,790.16 in principal that had not been paid, $9,166.04 in unpaid interest, $2,743.60 for escrow (unpaid property taxes), and $597.80 in unpaid late fees. Meanwhile, interest was accruing at $31.93 per day. But this was not all. Statute 580.30 also required me to pay “attorney's fees not exceeding $150 or one-half of the attorney's fees authorized by section 582.01, whichever is greater ... together with other lawful disbursements necessarily incurred in connection with the proceedings by the party foreclosing.” I had no idea what those costs might be.

Regarding attorney’s fees, Statute 582.01, Subdivision 1, read:

“Contractual fees. The mortgagor may, in the mortgage, covenant to pay or authorize the mortgagee to retain an attorney's fee in case of foreclosure; but such fees in case of foreclosure by advertisement shall not exceed the following amounts, and any provision for fees in excess thereof shall be void to the extent of the excess:”

There was then a table of permissible attorney’s fees based upon the amount of principal in the mortgage. For mortgages above $10,000 (after May 31, 1971), this statute authorized a payment of $275 “plus $35 for each additional $5,000 or major fraction thereof.” In this case, the original principal of the mortgage was $182,000. Therefore, the permissible attorney’s fees would be $275 plus $35 times the number of $5,000 units in $172,000. 172,000 divided by 5,000 equals 34.4. Round it up to 35. $35 times 35 equals $1,225. $1,225 plus $275 equals $1,500. If it were a foreclosure by advertisement, the maximum attorney’s fees would be $1,500 and my share would be half - $750.

However, it was not a foreclosure by advertisement but by action. Statute 582.01, subdivision 2, read: “The court shall establish the amount of the attorney's fee in case of foreclosure by action.”

My heart sank. If the court set attorney’s fees, anything could happen. My only consolation is that the mortgage document consistently referred to “reasonable attorney’s fees”. However, reasonableness was in the eye of the court - in this case, Judge Mary R. Vasaly. Anything could happen. Even so, I recognized attorney’s fees as a major issue in the outcome of this proceeding. I thought I should make at least two arguments with respect to reasonableness:

First, the schedule of permissible attorney’s fees for foreclosures by advertisement indicated the range of fees that the legislature thought appropriate in the case of foreclosures. I could certainly live with a fee of $1,500 or $750. Second, I could argue that certain activities of the bank’s law firm were unreasonable. Was it reasonable for those lawyers to pursue a motion for summary judgment if they knew that there was a major unresolved issue in the case - the fact that the foreclosed property did not have a buildable lot and therefore would not fetch much at the Sheriff’s sale. If the firm knew that it could not reasonably expect to persuade the court to grant a summary judgment, then its motion (and all the paperwork involved) was not a reasonable piece of work. The Court should then assign all that cost to the bank. Yes, that would be my argument.

 

My opposing Motion and Memorandum of Law

With all this in mind, I drafted the following response to the bank’s motion for a summary judgment:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Type of case: Civil/Other

File No. 27-CV-15-1090

Boundary Waters Bank

DEFENDANT’S OPPOSING MOTION IN OPPOSITION TO PLAINTIFF’S MOTION
Plaintiff FOR SUMMARY JUDGMENT

and

William Howard Taft McGaughey, Jr. and Judge: Hon. Mary R. Vasaly
Lian Y. McGaughey

Defendants

___________________________________________________________

TO: Kelly S. Hadac, attorney for Boundary Waters Bank

PLEASE TAKE NOTICE that the undersigned will bring the following motions on for the hearing before the Honorable Mary R. Vasaly at the Hennepin County District Court, Hennepin County Government Center, 300 South Sixth Street, MC 332, Minneapolis, MN 55487-0332, on the sixth day of May, 2015, at 9:00 a.m., or as soon thereafter as counsel can be heard.

MOTIONS

Pursuant to Rule 56.02 of the Minnesota Rules of Civil Procedure, Defendant William H.T. McGaughey, Jr. will move the Court for an order to dismiss the motion for a summary judgment because of unresolved issues relating to the identity of the defendants and the legal description and dimensions of the lot for the property that is the subject of foreclosure proceedings.

William McGaughey will also move the court for dismissal of the foreclosure motion due to satisfaction of the payment terms under the mortgage contract between Boundary Waters Bank and William H. T. McGaughey, Jr. and Lian Y. McGaughey in accordance with Minnesota statute 580.30.

Said motion is based on the accompanying Memorandum of Law, Affidavit of William H. T. McGaughey, Jr. and all of the files, records, and proceedings herein and the arguments of the defendant, appearing pro se, at the motion hearing.

Dated: April 24, 2015 ______________________________
William H.T. McGaughey, Jr.
1702 Glenwood Avenue
Minneapolis, MN 55405

*** ***** *** ***** *** ***** ***

Besides the motion, there was my Memorandum of Law:

___________________________________________________________

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Type of case: Civil/Other

File No. 27-CV-15-1090

Boundary Waters Bank
Plaintiff

DEFENDANT’S MEMORANDUM OF LAW IN IN OPPOSITION TO PLAINTIFF’S MOTION
FOR SUMMARY JUDGMENT AND AFFIDAVIT OF DEFENDANT

and

William Howard Taft McGaughey, Jr. and Judge: Hon. Mary R. Vasaly
Lian Y. McGaughey
Defendants

___________________________________________________________

INTRODUCTION

Defendant William H. T. McGaughey, Jr. respectfully submits this memorandum of law in opposition to plaintiff’s motion for summary judgment.

The defendant submits that the facts of the case are in dispute. Although he fell behind in making mortgage payments to Boundary Waters Bank, the deficiency is cured by his latest payment to the bank so that further foreclosure proceedings should be abandoned.

STATEMENT OF FACTS

William H.T. McGaughey, Jr. and his wife, Lian Y. McGaughey concluded a loan agreement with Bear Stearns Residential Mortgage Corporation in November, 2007, placing a mortgage in the amount of $182,000 and bearing an interest rate of 6.875 percent on property owned at 1715 Glenwood Avenue in Minneapolis. The successive mortgage holders have been NationStar Mortgage, Bayview Loan Servicing, and finally Boundary Waters Bank.

Mr. McGaughey made regular mortgage payments of around $1,530 through July 2014 when he was unable to sustain the payments and the bank refused to accept a lesser amount. After the bank branch president, Ranee Holmboe, proposed to take the property in lieu of foreclosure in a telephone conversation with Mr. McGaughey in September, 2014, and McGaughey accepted the offer, the bank later decided to foreclose on the property through court action. The HKM law firm of St. Paul is representing the bank.

The property, located in Hennepin County, is legally described in Plaintiff’s affidavit and in the mortgage agreement as:

The front or Northerly 145 feet of Lot 16, Auditor’s subdivision No. 26, Hennepin County, Minnesota, including any part or portion of any street or alley adjacent to said premises vacated or to be vacated. AND Hennepin County, Minnesota. AND The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, except the East 2.0 feet thereof.

This description is in error. The Quit claim deed conveying the property to William McGaughey from its previous owner, Keith Schroeder, contains the following legal description:

“The front or Northerly 145 feet of Lot 16, Auditor’s subdivision No 26, Hennepin County, MN, including any part or portion of any street or alley adjacent to said premises vacated or to be vacated”

Thus the legal description following “AND” (The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, Hennepin County, except the East 2.0 feet thereof) does not pertain to any property owned by William McGaughey and should not have been included in a loan document to which he was a party.

This discrepancy in itself is enough to defeat the motion for a summary judgment. Minnesota Rules of Civil Procedure, Rule 56.03 allows summary judgments only if “there is no genuine issue as to any material fact”. There is obviously a genuine issue relating to the property being secured by the mortgage if the legal description on the loan document differs from that in the Quit Claim deed by which the property was conveyed.

There is another unresolved issue relating to the property described below above that the original mortgage to secure the duplex was placed upon a property whose lot was only 38 feet wide when city code requires a lot at least 40 feet wide. Because the lot is considered unbuildable, the city of Minneapolis could require conversion of the duplex to a single-family house or, if it is destroyed, refuse permission to rebuild the structure. This may affect the ability of the foreclosing party to obtain a fair price at auction. It also reflects possible negligence on the part of Bear Stearns when it placed the mortgage and also of Boundary Waters Bank when it purchased this mortgage from Bayview.

When the HKM law firm first filed an action against the defendant, it attempted to add part of the adjoining property to the property referenced in the foreclosure proceeding, saying that its omission in the original loan document was a “mistake”. William McGaughey presented conclusive evidence to the contrary. Its false claim to the adjacent property is an indication that HKM knew or knows that there were or are unresolved issues related to the foreclosed property but recklessly chose to proceed with a summary judgment nonetheless.

Third, there is some uncertainty as to who is being sued. The mortgage executed with Bear Stearns is signed both by William McGaughey and Lian McGaughey, who are now divorced. Although the plaintiff’s documents are addressed to both parties, their text refers only to William McGaughey. For example, the Findings of Fact begins: “On November 29, 2007, Defendant William McGaughey executed the subject Note in the principal amount of $182,000.” (Both parties did.) Does the plaintiff intend to hold both parties responsible for repayment of the loan? If so, how would the obligation be enforced? This is yet another issue that remains unclear.

In late January, 2015, William McGaughey attempted a loan modification on this property through Home Mortgage Solutions and the Roosevelt Law Firm of California but neither the Boundary Waters Bank nor the HKM law firm would agree to talk with Home Mortgage Solutions so they abandoned the attempt to modify the mortgage loan. Current state policy encourages loan-modification efforts as an alternative to foreclosure.

Originally this case was scheduled to go to trial next year. The court prescribed a mediation session. Instead of attempting to resolve this matter cooperatively, the HKM law firm is proceeding prematurely to a summary judgment. This law firm has not attempted to communicate with the defendant in any manner. It has not answered the defendant’s several letters.

The defendant has been working to raise the money to repair the deficiency in the continuity of mortgage payments but the process has taken time. It is unjust to cut short this time with a summary judgment. For a long time, the defendant has been owed a large sum of money but this money has been tied up for many months in legal proceedings and in banks. By a lucky circumstance, some of it has recently been released which enables him to catch up on the payments. Had Boundary Waters Bank waited a bit longer for its money or attempted to communicate with the defendant to assess his repayment prospects, this particular court proceeding would not have been needed.

The defendant therefore moves that the motion to foreclose on the property be dismissed once he catches up on the legally required payments.

Law

Legal justification for dismissing the foreclosure proceedings is the following statute:

Minnesota statute § 580.30, Subd. 1, provides that foreclosure proceedings shall be abandoned when the mortgagor pays to the holder of the mortgage, or to an attorney handling the foreclosure, “the amount actually due thereon and constituting the default actually existing in the conditions of the mortgage at the time of the commencement of the foreclosure proceedings, including insurance, delinquent taxes, if any, upon the premises, interest to date of payment, cost of publication and services of process or notices, attorney’s fees not exceeding $150 or one-half of the attorney’s fees authorized by section 582.01, whichever is greater, any costs incurred when an order to reduce a mortgagor’s redemption period under section 582.032 is entered, including costs and disbursements awarded under section 582.032, subdivision 9, together with other lawful disbursements necessarily incurred in connection with the proceedings by the party foreclosing.”

Although state law requires only that the deficiency at the time the foreclosure was commenced be repaired to reinstate the mortgage, William McGaughey will produce a money order or cashier’s check for the full amount due the bank on April 16, 2015, as evidenced by a recent statement from Boundary Waters Bank, plus daily interest accrued from April 16, 2015 until May 6, 2015. The court will decide the amount of legal fees and other expenses. With this payment, the defendant moves that the foreclosure be dismissed by the court in accordance with state law.

dated April 24, 2015 _________________________

William H.T. McGaughey, Jr.
1702 Glenwood Avenue
Minneapolis, MN 55405

Attached exhibits

Boundary Waters Bank statement dated April 16, 2015

Quit Claim deed for the property from Keith Schroeder to William McGaughey dated January 14, 2004

Description of the property at 1715 Glenwood Avenue in Minneapolis from the Hennepin County property information website

Plat map showing lot for 21-029-24-34-0193 property (38 feet wide)

Minneapolis ordinance showing 40-foot minimum lot width

Would money arrive?

To file a response to the Court, I had first to pay the filing fee. I thought I might qualify for In Forma Pauperis which would allow me to file a motion without paying the fee. It all depended upon whether I could afford to pay the fee. Yes, I had significant assets in real estate but I also had little money or credit left and a $600 monthly obligation to pay alimony. The person to approve or disapprove the application would be the same judge who would be hearing the case - Judge Mary Vasaly. Judge Vasaly was at a conference on Friday, April 24th, which I first approached her office. However, her law clerk took my application and on Monday had it approved. Only then could I file my response. It was the last day allowed.

I should explain that I was expecting the Haiti money to come through at any moment. It was sitting in Mr. Johnston’s bank account in Canada. Mr. Johnson had promised to release the funds to my former wife’s account at Wells Fargo in Stillwater. Although we did not have Johnston’s telephone number or any other contact information, the Wells Fargo banker had been in contact with the Canadian bank and with Mr. Johnston himself and had been assured that the money would be transferred to Wells Fargo soon. My former wife (and current “significant other”) had promised to give me the money to repay past debts once it arrived. We had requested that the $40,000 be issued in several smaller checks so that some of the money could be released soon. Otherwise, banks tend to hold large checks for a certain number of business days sometimes stretching into weeks.

At the time that I drafted the response (April 24, 2015) I understood that a check for $15,000 from the Haiti money had already been issued and was sitting in my former wife’s Wells Fargo account. She was able to withdraw $500. The rest of the money was expected to be available on Thursday, April 30th. She and I would drive out to Stillwater on that day to pick up the money. However, my former wife had misplaced her driver’s license which she needed to withdraw funds from the bank. So there would be further delays.

I admit I was questioning my former wife’s credibility after so many delays had taken place. But I had little choice in the matter. I still expected the money to come and come soon. I certainly expected it to be available by Wednesday, May 6th, when I was to appear before Judge Vasaly.

Then, my former wife said she had heard from Mr. Johnston himself. He would be coming to Minneapolis on Monday, May 4th. I could meet with him myself. Mr. Johnson would probably release more of the money then. He would call her Monday morning to say when we could meet. But again there were problems. My former wife had lost her cell phone which had the number that Mr. Johnston would call. She thought he had my landline number as a backup. On that assumption, I waited near the telephone all morning, waiting for a call from Mr. Johnston, but it never came. There was no further word from Johnston. By the time of my appearing before the judge on May 6th, I still had no assurance that any more of the Haiti money would be available.

In summary, my expectation of receiving, first, $15,000 and, then, $25,000 from the Haiti money was the reason I mentioned reinstating the mortgage in my reply to the law firm’s motion for a summary judgment. I expected to have a cashier’s check or money order for $15,297.60 in hand when I appeared before Judge Vasaly. I would personally hand this check to the HKM law firm representative and both the motion for a summary judgment and the foreclosure itself would be dismissed. That was my expectation, at least.

But, again, the money did not arrive as expected and I had to backtrack. I changed the last sentence in my reply to delete that statement that I would present a check at the appearance on May 6th leaving a statement suggesting that I would present it at some time in the future. I also left the statement intact in the Introduction: “Although he fell behind in making mortgage payments to Boundary Waters Bank, the deficiency is cured by his latest payment to the bank so that further foreclosure proceedings should be abandoned.”

Kelly Hadac from the HKM law firm called me on Wednesday, April 29, 2015, with reference to the promised payment. He was curious about the reference to my “latest payment”. Had I made a payment that was missed. At first, I thought he was talking about the $200 payment sent to the Boundary Waters Bank last October which had been returned. Then I explained that I expected to have a cashier’s check for the amount in arrears available by May 6th. However, I did not yet have the money in hand.

I said I would call Hadac on Friday, May 1st, to report whether I then had the money. I did call but, sadly, the money had not yet arrived. I then said I would call him on Monday, May 4th. Again, I kept my promise, but, again, did not have the money. Hadac said that the firm would be represented by another lawyer, Christian Brandt, at the appearance before Judge Vasaly on May 6th. When I asked the amount of attorney’s fees, Hadac said that his services were “not cheap”. The attorney’s fees would be in the range of $9,000 to $10,000. He gave no breakdown which I had earlier requested.

The bank's reply brief

On Monday, May 1, 2015, I was surprised to receive another packet of materials from the HDM law firm. The cover letter was as follows:

Boundary Water Bank v. William H. McGaughey
Court File No. 27-CV-15-1090
Our File No.: 69442

Dear Mr. McGaughey and Ms. McGaughey:

Enclosed herewith and served upon you by United States Mail relative to the above matter please find the following:

1. Plaintiff Boundary Waters Bank’s Reply Memorandum of Law in Support of Motion for Summary Judgment; and,

Supplemental Affidavit of Ranee R. Holmboe

Very truly yours,

Christian A. Brandt
Attorney at Law

*** ***** *** ***** *** ***** ***

The first enclosed document was as follows:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________

Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank,
a Minnesota Banking Corporation

Plaintiff

PLAINTIFF BOUNDARY WATERS BANK’S REPLY MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR
SUMMARY JUDGMENT

William H. McGaughey and Lian Y. McGaughey

defendants
________________________________________________________________

INTRODUCTION

Plaintiff Boundary Water Bank, (“Bank”) respectfully submits this Reply Memorandum of Law in Support of its Motion for Summary Judgment.

The dispositive facts are not in dispute, even following Mr. McGaughey’s opposition to the Bank’s summary judgment motion. The fact of a default is undisputed and, in fact, is admitted by Mr. McGaughey. Mr. McGaughey references a recent payment having been made, but no such payment was made. [Note: This reference had been explained to Kelly Hadac in the telephone conversation on April 29th.] Similarly, Mr. McGaughey alleges that he reached an agreement with the Bank to avoid the instant lawsuit, but (a) no such agreement was reached, and, regardless, (b) any such alleged agreement is invalid and unenforceable under Minnesota law. [Note: I did not say that I had an agreement to avoid the lawsuit, only that Mr. Holmboe had proposed such a settlement back in September 2014.]

Because the critical facts - as set forth in the Bank’s initial brief - are not in dispute, summary judgment is appropriate. The Bank respectfully requests that its motion be granted.

PERTINENT FACTS AND DISCUSSION

I. THERE IS NO QUESTION OF FACT, AS MR McGAUGHEY HAS ADMITTED TO THE DEFAULTS

William McGaughey submitted a Response to the Complaint on February 4, 2015. In the response, he admits that he failed to make the required payments under the loan documents. (See Exhibit 1 to the Affidavit of Ranee R. Holmboe (“Holmboe Aff.’) filed in support to the Bank’s initial brief in support summary judgment on 4/3/15). Mr. McGaughey again acknowledges the defaults in his recently submitted Memorandum of Law in Opposition to Plaintiff’s Motion for Summary Judgment and Affidavit of Defendant (“McGaughey Brief”). In specific, he states that after July of 2014 “he was unable to sustain the payments ...” (McGaughey Brief at p. 2) Later in the brief, Mr. McGaughey makes a similar admission when he states that he is “working to raise the money to repair the deficiency ...” (ld. at p.5) These are clear examples of admissions by Mr. McGaughey that he has failed to make required payments to the Bank and is in default under the loan documents. Thus, there is no question of fact with regard to the critical material facts in this case.

II. MR. McGAUGHEY DID NOT MAKE A RECENT PAYMENT TO THE BANK AND THE LOAN REMAINS IN DEFAULT.

One point that requires treatment is Mr. McGaughey’s statement that “the deficiency is cured by his latest payment to the bank ..” (McGaughey’s Brief at p. 1). What is meant by this statement is unclear, especially considering Mr. McGaughey’s later discussion regarding his plans to “catch up on the legally required payments” and to “produce a money or cashier’s check for the full amount due the bank ...” (ld. at pp. 6-7) On p. 1 it appears Mr. McGaughey is claiming to have already brought the loan current; but then later he acknowledges that the loan is in default and discusses plans for bringing the loan current. In any event, and in the interest of clarifying this issue for the Court, the loan is in default, there have been no recent payments made, and the amount due to bring the loan current is $15,287.60 (plus continually accruing interest, fees, and charges). (Supplemental Affidavit of Ranee R. Holmboe (“supp. Holmboe Aff.”) at ¶ 2.)

[Comment: This whole section assumes that the HKM law firm did not know whether I was prepared to give the bank a cashier’s check or money order for $15,297.60 at the court appearance on May 6th, which was the reference for the above-quoted statement, but I had discussed this matter in three telephone conversations with Kelly Hadac. I had specifically clarified the statement about a payment having been made to reinstate the mortgage. But, of course, I did not have proof that those telephone conversations took place so that the court would believe that there was genuine confusion about the alleged payment as this part of the Plaintiff’s reply brief suggests. But I have been accustomed to attorneys operating within the Minnesota court system making false or misleading statement of fact.]

III. MINNESOTA STATUTES § 513.33 PROHIBITS THE ALLEGED DEED-IN-LIEU AGREEMENT

Mr. McGaughey suggests that he reached an agreement with the Bank whereby the Bank agreed to accept a deed in lieu of foreclosure. (McGaughey Brief at p. 2) Even assuming the alleged agreement was reached - which it was not (See Supp. Holmboe Aff. at ¶ 3.) - it would nevertheless be invalid and unenforceable under Minnesota law.

Minn. Stat. § 513.33 provides:

513.33 CREDIT AGREEMENTS.

Subdivision 1. Definitions: for the purposes of this section, the following terms have the meanings given them:

1. “credit agreement” means an agreement to lend or forbear repayment of money, goods, or things in action, to otherwise extend credit, or to make any other financial accommodation;

2. “creditor” means a person who extends credit under a credit agreement with a debtor;
“debtor” means a person who obtains credit or seeks a credit agreement with a creditor or who owes money to a creditor; and

3. “debtor” means a person who obtains credit or seeks a credit agreement with a creditor or who owes money to a creditor; and

4. “signed” has the meaning specified in section 336.1-201(b)(37)

Subd. 2 Credit agreements to be in writing. A debtor may not maintain an action on a credit agreement unless the agreement is in writing, expresses consideration, sets forth the relevant terms and conditions, and is signed by the creditor and the debtor.

Subd. 3 Actions not considered agreements. (a) The following actions do not give rise to a claim that a new credit agreement is created, unless the agreement satisfies the requirements of subdivision 2:

(1) the rendering of financial advice by a creditor to a debtor;

(2) the consultation by a creditor with a debtor; or

(3) the agreement by a creditor to take certain actions, such as entering into a new credit agreement, forbearing from exercising remedies under prior credit agreements, or extending installments due under prior credit agreements.

(b) A credit agreement may not be implied from the relationship, fiduciary or otherwise, of the creditor and the debtor.

Under § 513.33, the alleged agreement would need to have been in writing in order to be enforceable. First, the agreement alleged by Mr. McGaughey certainly falls within the definition of a “credit agreement,” as it is an agreement regarding the lending of money. More specifically, the alleged agreement involves the Bank agreeing to “forbear repayment of money ... or to make any other financial accommodation.” Minn. Stat. § 513.33, subd. 1(1).

Second, the alleged agreement is invalid. It is not in writing and is not signed, as required. See Minn. Stat. § 513.33, subd. 2. Even more compelling is the language in subdivision 3 which specifies that “the agreement by a creditor to take certain actions, such as entering into a new credit agreement [or] forbearing from exercising remedies under prior credit agreements.” “do not give rise to a claim that a new credit agreement is created, unless the agreement” is, among other things, in writing and signed, per subdivision 2. Minn. Stat. § 513.33, subd. 3. In short, Minn. Stat. § 513.33 is designed to address precisely this type of situation.

Notwithstanding the fact that there are/have been no additional agreement between the Bank and Mr. McGaughey, any such alleged agreement would be invalid and unenforceable unless memorialized in writing and signed by the parties. Here, there is no writing, and therefore this attempt by Mr. McGaughey to avoid summary judgment must fail.

[Comment: This lengthy discussion of whether or not a proposed “deed in lieu” is enforceable is based on the false premise that I thought I had an enforceable agreement with Ms. Holmboe on the basis of her having proposed this. What I actually said under “statement of facts” in my brief was the following: “ After the bank branch president, Ranee Holmboe, proposed to take the property in lieu of foreclosure in a telephone conversation with Mr. McGaughey in September, 2014, and McGaughey accepted the offer, the bank later decided to foreclose on the property through court action.” Note that I did not say that an agreement had been reached to avoid foreclosure. I said that the bank had changed its mind. I also did not include a reference to Ms. Holmboe’s proposal in my argument. Yet, this rebuttal of an argument never made takes up a large part of the Plaintiff’s reply brief. A busy judge might assume that it was addressing the heart of my case. However, the reply brief fails to mention or address any of the three reasons that I actually gave with respect to not granting the Plaintiff’s motion for summary judgment.]

CONCLUSION

It is undisputed that Mr. McGaughey is in default under the loan documents. The critical facts are not disputed in this regard. Accordingly, the Bank respectfully requests that its motion be granted.

Dated: May 1, 2015 HKM

________________________
Kelly S. Hadac
Christian A. Brandt

Finally, Ranee Holmboe submitted another affidavit which read:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________

Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank,
a Minnesota Banking Corporation

Plaintiff

*** ***** *** ***** *** ***** ***

AFFIDAVIT OF RANEE R. HOLMBOE

William H. McGaughey and Lian Y. McGaughey

defendants
________________________________________________________________

STATE OF MINNESOTA )
) ss.
COUNTY OF ANOKA )

RANEE R. HOLMBOE, being first duly sworn upon oath, deposes and states as follows:

1. I am Branch President and Director of Operations at Plaintiff Boundary Waters Bank in the above-captioned matter. I make this supplemental affidavit on personal knowledge and in support of our Motion for Summary Judgment.

2. Attached hereto as Exhibit A is a true and correct copy of the Bank’s records relating to Mr. McGaughey’s payment history, which reflects no payments since July 2014.

3. I did not enter into any agreement with Mr. McGaughey whereby the Bank agreed to accept a deed in lieu of foreclosure or any other similar agreement, either orally, in writing, or otherwise.

[Comment: The deed in lieu was proposed by Ms. Holmboe but not agreed because the bank later changed its mind about this.]

FURTHER YOUR AFFIANT SAYETH NOT.

Dated and notarized: April 3, 2015

_______________________
RANEE R. HOLMBOE

 

I prepare a response and then a brief

There was not much time left. I thought I had three strong reasons why the motion for summary judgment should not be granted. There was a genuine issue with respect to material facts in that the duplex did not sit on a buildable lot, that the legal description in the mortgage document differed from that in the Quit Claim deed that I had received for the property, and that the mortgage document listed both me and my former wife as debtors but the lawsuit seemed to be directed at me alone. (One of the plaintiff’s documents said that my former step-daughter had said her mother was no longer involved, but no one was available in court to be examined.)

Even if the Haiti money had fallen through, I now had another source of funds with which to reinstate the mortgage: a $20,000 inheritance from “Aunt Aurie” who had died in January, 2015. Papers dated in February from the executor of her estate, attorney John Zeiner of Greencastle, Indiana, had indicated that it might take four to six weeks to identify assets and determine a distribution schedule. I decided to include as exhibits a copy of my aunt’s will, showing that I would receive $20,000, and an email from Mr. Zeiner, which indicated that checks would be cut no later than May 18, 2015. Even if I could not bring a certified check or money order to court on May 6th, this would at least be strong evidence that I had funds to reinstate the mortgage and was prepared to do so.

I started to prepare written notes that could be referred to or read at my court appearance on May 6th. Quite a lot of material was included. Then I adapted these notes to the form of a brief. I was hoping that the judge would let me run through the entire argument. My former wife suggested that I, instead, submit this to the court as a brief. Then the judge would have to accept it. I thought this was a good idea. I typed the writings and made copies on May 5th, having received HKM’s reply brief on the previous day.

My former wife’s brother and I drove to St. Paul to serve the papers personally on the bank’s attorney in their plush St. Paul office with a magnificent view of the state capitol. (He told me that the attorney said they already had these papers, as if to talk him out of service. I think this was likely confusion with my previous submission.) Then he filled out the affidavit of service and had it notarized at the Wells Fargo bank. Finally, I gave my document and the related affidavit of service to the court at the civil filings desk on the third floor of the Hennepin County Government Center.

*** ***** *** ***** *** ***** ***

The document, titled “Defendant’s Reply Memorandum of Law in opposition to Plaintiff’s Motion for Summary Judgement is as follows:

 

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Type of case: Civil/Other

File No. 27-CV-15-1090

Boundary Waters Bank

DEFENDANT’S REPLY MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFF’S MOTION
Plaintiff FOR SUMMARY JUDGMENT

and

William Howard Taft McGaughey, Jr. and
Lian Y. McGaughey

Defendants


Judge: Hon. Mary R. Vasaly
___________________________________________________________

TO: Christian Brandt, attorney for Boundary Waters Bank

Two questions govern this proceeding:

1. Should the court grant Boundary Water Bank a summary judgment?

2. If the mortgage is reinstated, how much of the attorney fees and other court-related costs should be assigned to the defendant?

1. Question of the Summary Judgment:

Rule 56.03 of the Minnesota Rules of Civil Procedure allow the plaintiff to file a motion for a summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law.”

The defendant is allowed to make a response. However, Rule 56.06 states that “When a motion for summary judgment is made and supported as provided in Rule 56, an adverse party may not rest upon the mere averments or denials of the adverse party’s pleading but must present specific facts showing that there is a genuine issue for trial.”

In my earlier Memorandum of Law in opposition to the Plaintiff’s motion for a summary judgment, I cited three substantial issues that were in dispute:

1. that the legal description of the property being foreclosed upon in the plaintiff’s affidavit and also in the mortgage document differs from the description in the Quit Claim deed for the same property. This is a genuine issue in dispute.

2. that the lot for the property being foreclosed upon is only 38 feet wide whereas Minneapolis city code requires buildable lots to be a minimum of 40 feet wide. This could affect the property’s marketability.

3. that there seems to be confusion whether William McGaughey and his former wife Lian McGaughey are the parties being sued, or just William McGaughey.

I also presented specific factual evidence to support each of these issues including a copy of both Hennepin County’s legal description and the Quit Claim deed for the property being foreclosed (which differs from the legal description in the plaintiff’s filing), a city plat map of the lot at 1715 Glenwood Avenue which shows the lot to be 38 feet wide, and a copy of the Minneapolis city ordinance showing that property zoned R2B needs to have a lot at least 40 feet wide.

It is significant that the Plaintiff’s Reply Memorandum of Law in support of its motion did not address any of these three issues. Instead, it raised “straw man” issues suggesting that my defenses against Summary Judgment were based upon two arguments: 1. that I had already made a payment that satisfied the judgment and 2. that an oral agreement between me and Ms. Holmboe of Boundary Waters Bank superseded the summary judgement. This is incorrect.

1. The statement in my introduction “the deficiency is cured by his latest payment to the bank”, while misleading in its wording, referred to the prospect that I could reinstate the mortgage by today’s date - May 6, 2015 - if I could bring a cashier’s check for $15,297.60 to court. It turned out that I could not, although there was a reasonable expectation. But I explained this to Kelly Hadac in a telephone conversation on April 29th. My motion itself did not say that I had already made the payment but said that I would, at some time, present a money order or cashier’s check for the amount due Boundary Waters Bank as of April 16, 2015, plus interest carrying forward to the date of payment.

2. Ms. Holmboe did, indeed, propose to me in a telephone conversation in September 2014 that my mortgage problem be resolved by deeding the property to the bank in lieu. I accepted. She later reneged. However, I concede the point that, with respect to real estate, such agreements must be in writing. I did not raise this issue as a defense against Summary Judgment but to suggest that I had been reasonable and compliant in trying to resolve my issue with the bank. The bank, in contrast, has consistently played hard ball with me.

Bottom Line: My opposition to Summary Judgement is based upon at least three fact-based issues that are in dispute: 1. the discrepancy in legal descriptions, 2. the 38-foot lot, and 3. uncertainty as to who is being sued. The Plaintiff did not make a reply to any of these issues because it knew they were genuine issues in dispute that would defeat their motion for Summary Judgment.

There is another compelling reason why Summary Judgment should not be granted - the prospect that Boundary Waters Bank will soon receive full payment, including late fees, for the mortgage payments that were missed. I had been promised $13,500 last week from my former wife from funds that I thought were in her bank account, but I learned two days ago that the money had not been received.

However, I have an alternative source of funds:

My aunt died in January. Her will provides that I will receive a payment of $20,000. The executor of the estate, attorney John Zeiner, has told me by email that checks will be mailed no later than May 18, 2015. I feel confident that by May 25th, or by the end of the month at the latest, those funds will be available. If the court will give me until then to reinstate the mortgage, I will certainly have the funds and will commit to doing so.

One more comment: I have admitted to being behind in my mortgage payments. I would imagine that nearly all of the people being foreclosed on are behind in their mortgage payments. Are, then, nearly 100 percent of foreclosures by action accomplished through summary judgments, the fact of nonpayment being beyond dispute? No, the law as I read it tries to encourage voluntary settlements. In this case, a mediation session was prescribed. The HKM law firm has made no attempt to settle voluntarily. In fact, it has defeated a settlement effort in late January, 2015, by Home Mortgage Solutions of California by refusing to talk with these people. It has refused to negotiate with me regarding the two feet which would have cured the lot-width deficiency. It has tried to cut short the time that I had to gather the funds to cure the mortgage payment deficiency. I would urge the court not to encourage such unreasonable, hyper-aggressive behavior by the HKM law firm. The goal ought to be to get the money to Boundary Waters Bank, not generate extra legal fees.

My motion to reinstate the mortgage (and dismiss the motion for foreclosure) is based upon Minnesota statute 580.30, Subd. 1 which reads:

“In any proceedings for the foreclosure of a real estate mortgage, whether by action or by advertisement, if at any time before the sale of the premises under such foreclosure the mortgagor, the owner, or any holder of any subsequent encumbrance or lien, or any one for them, shall pay or cause to be paid to the holder of the mortgage so being foreclosed, or to the attorney foreclosing the same, or to the sheriff of the county, the amount actually due thereon and constituting the default actually existing in the conditions of the mortgage at the time of the commencement of the foreclosure proceedings, including insurance, delinquent taxes, if any, upon the premises, interest to date of payment, cost of publication and services of process or notices, attorney's fees not exceeding $150 or one-half of the attorney's fees authorized by section 582.01, whichever is greater, any costs incurred when an order to reduce a mortgagor's redemption period under section 582.032 is entered, including costs and disbursements awarded under section 582.032, subdivision 9, together with other lawful disbursements necessarily incurred in connection with the proceedings by the party foreclosing, then, and in that event, the mortgage shall be fully reinstated and further proceedings in such foreclosure shall be thereupon abandoned.”

The key points here are:

1. If the mortgagor (me) pays the actual amount of the default - in this case, $15, 297.60 - and half of the attorney’s fees as authorized in statute 582.01 and other lawful disbursements in connection with the proceedings, then the mortgage is fully reinstated and the foreclosure must be abandoned.

2. This legal provision applies both to foreclosures by advertisement and by action.

2. The question of attorney fees and other costs:

Minnesota Statute 580.30 refers the question of attorney fees to statute 582.01.

(a) Subdivision 1 specifies that, for foreclosures by advertisement, the attorney fees shall be a minimum of $500 and, for mortgages exceeding $10,000, a maximum of $275 plus $35 for each $5,000 additional of mortgage. In this case, the original loan amount according to Boundary Waters Bank was $171,937.49. According to the statutory formula, the maximum allowable attorney fee would be $1,430 of which half - $715 - could be charged to me. Calculation is $275 plus $1,155 (33 units of $5,000 mortgage beyond $10,000 times $35). This calculation applies only to foreclosures by advertisement but it does indicate the realm of magnitude contemplated by legislators in determining attorney fees.

(b) Subdivision 2 of statute 582.01 pertains to foreclosures by action. The law states: “The court shall establish the amount of the attorney's fee in case of foreclosure by action.”

It is, therefore, totally up to the court to decide how much the mortgagor should be charged for attorney fees in the case of foreclosures by action, including this case. I would imagine that two considerations come into play: (1) what the law firm representing the bank proposes to charge and (2) what the judge believes is appropriate and fair. Keep in mind that statute 580.30, Subd. 1 allows only half of the attorney fees to be charged to the defendant. In a telephone conversation on April 29, 2015, I asked attorney Kelly Hadac to disclose the likely attorney fees and also asked for a breakdown of the charges. Remarking that his legal services were “not cheap”, Mr. Hadac subsequently said the charges would be in the range of $9,000 to $10,000. He did not provide a breakdown of those charges.

I would ask the court to find that charges of $9,000 to $10,000 by the HKM law firm are excessive. If $9,000 is the amount of fees, that would represent nearly 60 percent of the amount sought by Boundary Waters Bank to reinstate the mortgage - and we have not even had mediation, discovery, or a trial. The only work that I can see having been performed was for the HKM to prepare its original filing for foreclosure, its motion for summary judgment, and its reply to my motion. There were also three five or ten minute telephone conversations.

I would ask the court, in particular, to find that all work done by HKM attorneys in connection with its motion for summary judgment - which appears to be the majority of its work - not be charged to me, the defendant. The reason is that the HKM attorneys pursued summary judgment knowing that there were substantial unresolved issues relating to this particular foreclosure and, therefore, a summary judgment could not be granted. Nevertheless, these attorneys proceeded to seek a summary judgment.

I would argue that if the legal descriptions of the foreclosed property differed between the mortgage document and the Quit Claim deed - that on the Quit Claim deed is also shown for the property on Hennepin County’s property website - there is a genuine issue needing to be resolved. Attorney Kelly Hadac’s biography on the HKM website states that “Kelly’s attention to detail and dedication to representing the best interests of his clients is second to none.” Taking this claim at its word, I would conclude that, in filing the motion for summary judgment and being attentive to detail, attorney Hadac compared the legal description of the property on the Hennepin County property website with that in the mortgage document, that he noticed that the two legal descriptions differed, and that he nevertheless proceeded to file a motion for summary judgment knowing that a substantial issue relating to the property remained unresolved. Therefore, it was obviously wasted effort in terms of recovering money for Boundary Waters Bank although it did generate fees for the HKM law firm.

There was also the issue that the property being foreclosed upon did not have a buildable lot according to current Minneapolis building code. (The lot was only 38 feet wide but city code requires 40 feet.) Mr. Hadac must have realized that something was wrong because, in the complaint dated January 22, 2015, on page 2, Mr. Hadac writes: “It has come to plaintiff’s attention that the legal description contained in the Mortgage is in error in that it fails to include that portion of the property that is described as follows:

The East 2.0 feet of the North 138 feet of the East 42.5 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26.”

How did attorney Hadac know this was an “error”. He did not know and, in fact, it was no error. Still, this claim indicates the Mr. Hadac knew that he was dealing with a non-conforming lot which might pose a problem in court. The extra two feet which he falsely claimed had been “erroneously” excluded would have satisfied that deficiency. But the point is, again, that Mr. Hadac proceeded with a motion for a summary judgment, after dropping the claim for the extra two feet, and therefore knowing that there was a genuine issue of fact still to be resolved. He also knew that according to Rule 56. motions for a summary judgment must not include cases where there is a genuine issue of fact in dispute. This case has several. Not only should the plaintiff’s motion for summary judgment be disallowed, but also the plaintiff’s request that the defendant pay attorney fees related to that obviously faulty motion. Boundary Waters Bank, in authorizing this work, should be required to pay the entire cost of work related to its pursuit of a summary judgment.

CONCLUSION

The defendant proposes that he assume the plaintiff’s filing fee of $324 plus $715 of the attorney fees (based upon half of the statutory guidelines for foreclosures by advertisement, there being no trial), or a total of $1,039, and that upon payment of this sum of money and $15,297.60 plus accrued interest to the time of payment by the end of May, 2015, the mortgage with Boundary Waters Bank be reinstated and the motion for foreclosure dismissed.

 

dated May 5, 2015 ____________________________

William McGaughey

McGaughey Exhibits

Last will and testament of Aura May Durham, page 2

Email from attorney John Zeiner showing date of disbursement


Appearance before Judge Vasaly

I could not sleep soundly the night before the hearing. To spend the entire inheritance from my aunt taking care of the foreclosure problem troubled me. I still hadn’t paid the property taxes on the apartment and the first half of this year’s tax on this and several other properties was due in less than ten days. I owed lots of money for utility bills. Various creditors were calling me. If I spent the money on this foreclosure, I would surely fall behind again and the same hard-ball law firm would again come after me. But I had tipped my hand on the inheritance and made a commitment to use the money, once it arrived after May 18th, to get the bank and its lawyers off my back.

Therefore, I resolved to tell the judge up front that I could not use the inheritance money to pay the bank. I would also continue to oppose summary judgment. Didn’t the law provide for a trial? Wasn’t summary judgment meant to be used only if there were no issues in the trial. Yes, I had admitted to being behind on my payments; but aren’t most or perhaps all defendants in foreclosure cases behind on their payments? If so, what is the point to having a trial? Why isn’t summary judgment used in all foreclosure cases? It could be because the HKM law firm is an unusually aggressive and merciless litigator that pushes things to the limit. And, of course, it generates an enormous amount of fees in the process of doing so. Its push for summary judgment alone would earn the firm thousands of dollars. I was hoping that the judge would take some of these concerns into consideration.

My main concern on the morning of May 6th was to arrive at the court room on time. The hearing would be held in room 1955, Judge Vasaly’s chambers. I parked my car near Stevens square and walked to the Government Center. An elderly gentleman whose case was ahead of ours also waited for the judge as I sat quietly in the visitor’s section. Christian Brandt, my legal adversary, arrived at 9:00 a.m. when our proceedings were scheduled to start.

*** ***** *** ***** *** ***** ***

Brandt spoke first in a standing position. He merely restated that I had admitted to being behind on my payments and there were no issues that could be raised at trial. The bank wanted a summary judgment to end this process. His statement took less than five minutes.

I could sense trouble when I rose to speak. The judge said that she had received a reply brief from me but its submission was untimely. Still she had glanced at it. I started by saying that I could not use my inheritance to reinstate the mortgage. I then cited rule 56.03 that allows summary judgments noting that this is allowed only when there are no genuine issues in the case. I said that I had at least three significant issues and proceeded to name them.

When I raised the issue of the 38-foot lot, the judge remarked that this might be a problem for the bank in trying to sell the property after foreclosure but it had nothing to do with my obligation. Again, when I mentioned that the legal descriptions on the mortgage document and the Quit Claim deeds did not match, the judge remarked that I was conveying my interest in the property, whatever that might be. When I cited my friend’s believe that the original mortgage-holder or the underwriter might have been negligent, the judge said that I might have have been negligent, too, in not catching the mistake. In other words, the judge was saying beforehand that she did not think that my arguments had merit. They would not stop summary judgment. It was no use to argue with this judge.

I then pivoted to the issue of attorney’s fees. I said that Mr. Hadac had estimated that they would be in the range of $9,000 to $10,000 - and there had not yet been any discovery or work in connection with a trial. The judge remarked that the legal bill would be much higher if the case went to trial. I was getting a bargain with summary judgment. I pointed out that the case had been referred to mediation but the law firm had filed a motion for summary judgment weeks before the appointment of a mediator was scheduled. In case the two parties could not agree, the court order stated that the court would appoint the mediator. Summary judgment undermined that process that the court itself had prescribed.

In truth, I was dealt a losing hand. In the U.S. justice system, costs mean little. An attorney could charge $1,000 an hour and assess it to a party with limited means. Anything was “reasonable” in this context. My trump card, I thought beforehand, was that the law firm had pursued summary judgment and done lots of billable work even though it knew the bid for summary judgment was unreasonable because of real issues needing to be resolved. But the judge had already declared that the ill-sized lot and faulty legal description were not issues standing in the way of a summary judgment. She was setting me up to be fleeced.

So I sat down knowing that I would probably lose this case if it went to trial. It was still better to defeat the summary judgment in case money came through to reinstate the mortgage. The judge then said a few things that I have forgotten. But there was one hopeful development. The judge also said she was troubled that an extra lot was included in the legal description of the mortgaged property. Shouldn’t the owner of that lot be given an opportunity to protect his or her interest before judgment was declared? Her parting words to us were that she would issue a decision soon. My parting thought was that maybe she had remembered that I had once pled “guilty-continuance” before her for domestic abuse.

Afterwards, Christian Brandt spoke with me privately while in the court room. He said the bank was primarily interested in getting paid. If I did find money to reinstate the mortgage, I should let him know as soon as possible. I said that it might take a month or two to get the money.

 

What next?

When I returned home, my former wife said that she had heard from Mr. Johnston that morning. He had stopped payment on transfer of the funds from the Canadian bank to Wells Fargo. The good news was that we would be getting our $15,000 soon. The bad news was that we might not be getting the remaining $25,000. Evidently a relative of the man for whom she had gone to Haiti had recently contacted Mr. Johnston. Some criminal acts might have been committed in the process of taking the Haitian money, not by her but by others involved in the scheme. Mr. Johnston could promise her immunity from prosecution if she would limit her share of the proceeds and testify against others.

I was less than pleased to hear of this development. Yes, the $15,000 would help. But the deficiency owed to Boundary Waters Bank was now at least $1,000 more than $15,000 and thousands of dollars more to pay in legal fees. Couldn’t she ask Mr. Johnston for at least $25,000?

The latest news is that Mr. Johnston is coming to town on May 18th to meet with us. (Haven’t I heard that before?) But, again, some hope is better than none. To date, I had received not a dime from my former wife’s sources. Even the $500 had to be repaid to cover the negative balance in her checking account.

Since I had sold stock to have money for that purpose, I now had a few thousand dollars to reinstate my business insurance which I had recently let lapse. I contacted the insurance agent, he came over to my house, I paid the required money for a down payment, and we talked on the front porch for a few minutes. From previous conversations, I knew that he, too, had been through the wringer of the Minnesota justice system so I told him of my experience earlier in the week. His parting words to me were that in Minnesota “justice” means “just us” - the judges and attorneys. The rest of us are sheep to be fleeced by that tight-knit community.

Interestingly, on the same day as my appearance before the judge, I had a letter in the mail from the Court appointing a mediator. He or she was Leslie Sinner McEvoy of Bloomington, Minnesota. Frankly, I did not see how mediation would help in this case. The issue was money. Either I had it or I did not. However, it was mildly encouraging to see that the Court was keeping the case alive as if it would go to trial.

 

The judge’s decision in the summary-judgment case

I thought it would take weeks, if not months, for the judge to issue her decision. To my surprise, it took about a week. I opened the envelope from the court with great apprehension. To my surprise, Judge Vasaly had ruled in my favor. The court order was as follows:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
________________________________________________________________

Court file number 27-CV-15-1090
Judge Mary R. Vasaly

Boundary Waters Bank,
a Minnesota Banking Corporation

Plaintiff

ORDER DENYING SUMMARY JUDGMENT

vs.

William H. McGaughey and Lian Y. McGaughey

defendants
________________________________________________________________

The above-titled matter came before Judge Mary Vasaly, pursuant to Plaintiff’s Motion for Summary Judgment on May 6, 2015.

Christian A. Brant, Esq. and HKM, appeared on behalf of Plaintiff, in support of the motion.

Defendant, William H. McGaughey, appeared pro se in opposition to the motion.

Defendant, Lian Y. McGaughey, did not appear.

Based upon the affidavits of the parties, the arguments of counsel, and all of the records, fives and proceedings herein, theCourt makes the following:

ORDER

Plaintiff’s motion for summary judgment is DENIED.

The attached memorandum of law is incorporated herein.

BY THE COURT:

Date: May 11, 2015 ________________________
Mary J. Vasaly
Judge of District Court

This document was attached to the order.

MEMORANDUM OF LAW

On November 29, 2007, Defendant William H. McGaughey executed a Note in the amount of $182,000.00 (“Note”) Pursuant to the Note, Mr. McGaughey was required to make monthly payments until the debt was paid in full.The Note defines failure to make the monthly payments as a default. Upon default, the Note allows the Plaintiff to accelerate the balance of the loan due, plus interest, fees, requiring Mr. McGaughey to pay the entire balance plus interest at 6.875%, reasonable attorneys’ fees, and costs.
The Note is secured by a Mortgage dated November 29, 2007, executed and delivered by both Defendants in favor of Mortgage Electronic Registration Systems Inc. (“MERS”), as nominee for Bear Stearns Residential Mortgage Corporation, on the following described real property in Hennepin County, Minnesota:

The front or Northerly 145 feet of Lot 16, Auditor’s Subdivision No. 26, including any part or portion of any street or alley adjacent to said premises vacated or to be vacated; AND The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, except the East 2.0 feet thereof.

(“Mortgage”) The Mortgage was filed on December 28, 2007, as Document No. 9078879 in the office of the County Recorder of Hennepin County, Minnesota. Per the terms of the Mortgage, Defendants agreed to make payments as required by the Note. In the event Defendants breached any term of the Mortgage, the Mortgage gave MERS the right to accelerate the loan, require immediate payment of the outstanding balance, invoke the power of sale, and pursue all other remedies permitted by law. The Mortgage further entitles MERS to recover all its fees and costs, including reasonable attorneys’ fees, incurred in connection with pursuing its remedies under the Mortgage.

The Mortgage was assigned by MERS to Bayview Loan Servicing LLC, by Assignment of Mortgage dated May 22, 2012, filed for record June 5, 2012, as Document No. A9797962. Then, Bayview Loan Servicing, LLC, assigned the Mortgage to Plaintiff by Assignment of Mortgage dated December 26, 2014, filed for record January 7, 2015, as Document No. A10152692. There was also an Allonge to Note naming Plaintiff as the holder of Note “without recourse.”

Mr. McGaughey defaulted in the payment of the monthly principal and interest installments due under the Note. By virtue of this default, Defendants are also in default under the Mortgage.

Notice of the defaults was sent to Mr. McGaughey by Plaintiff on November 7, 2014. The notice letter advised that if the defaults were not cured, Plaintiff would pursue its remedies under the Note and Mortgage.

Plaintiff commenced this action against Defendants by service of the Complaint on Mr. McGaughey on January 26, 2015, and on Liam McGaughey on February 7, 2015. Lian McGaughey did not serve or file an answer. Mr. McGaughey served an Answer, which acknowledged his failure to make the payments on the Note when due, but stated that Plaintiff was not entitled to a two foot portion of property that they sought to add to the mortgage and that the action was premature due to past or ongoing negotiations regarding resolution of the default with Plaintiff.

As of April 1, 2015, there was due and owing under the Note an unpaid principal amount of $167,236.04, interest of $8,236.04, and late charges of $538.02 for a total of $175,981.98. Interest and late charges have continued to accrue since that date.

On April 3, 2015, Plaintiff moved for summary judgment on its claim, except that it indicated that it had abandoned its request that the Court add the two foot parcel of land to the mortgage. Thus, it seeks $175,981.98 plus interest, late fees and costs after April 1, 2015, on the Note, plus an order permitting foreclosure and an award of attorney’s fees and costs.

Mr. McGaughey filed a memorandum opposing summary judgment on the following grounds:

The legal description of land subject to the mortgage includes land that Mr. McGaughey does not own, i.e., The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, Hennepin county, except the East 2.0 feet thereof;

Fact issues preclude summary judgment including whether the lot is not sufficiently wide to be buildable under city code; that Liam McGaughey’s status as a party is unclear; that Mr. McGaughey and Plaintiff had an agreement to enter into a “deed in lieu of foreclosure”; that Plaintiff refused to consider loan modification offers and during the action has not made efforts to resolve the case; and Mr. McGaughey intends to reinstate the loan.

In addition, Mr. McGaughey contends that Plaintiff’s claim for attorney’s fees is excessive.

In support of Mr. McGaughey’s argument that the mortgage describes property he does not own, he has submitted a quit claim deed describing the sale of the other portion of the property to him on January 14, 2004.

LEGAL ANALYSIS

A. Summary Judgment Standard

The standard for summary judgment is set forth in Minnesota Rule of Civil Procedure 56.03: “Summary judgment is appropriate where the record shows there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.” In deciding summary judgment motions, “[t]he evidence [must be] construed in the light most favorable to the party opposing summary judgment.” J.E.B. v. Danks, 785 N.W.2d 741, 747 (Minn. 2010) “[A]ll factual interference are resolved in favor of the non-moving party.” Northland Ins. Co. v. Bennett, 533 N.W.2d 867, 871 (Minn. Ct. App. 1995) “the party moving for summary judgment has the burden to show that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law.” Valspar Refinish, Inc. v. Gaylord’s Inc., 764 N.W.2d 359, 364 (Minn. 2009) (citing O’Malley v. Ulland Bros., 549 N.W.2d 889, 897 (Minn. 1996)).

To raise a genuine issue of material fact, the nonmoving party must present more than evidence that “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) Mere allegations [are insufficient] to survive summary judgment.” Id.

B. Mr. McGaughey is in Default on the Note.

The Court finds that there are no disputed issues of fact regarding Plaintiff’s entitlement to judgment on its claim for damages for mr. McGaughey’s default on the Note. In fact, Mr. McGaughey has agreed that he is in default. Although he has argued that Plaintiff is not entitled to summary judgment because the parties had orally agreed to a “deed in lieu” of foreclosure, which Plaintiff denies, an oral agreement of this kind is not enforceable. See Min. Stat. § 513.33. The Court must also reject Mr. McGaughey’s argument that Plaintiff’s motion is premature because it has not attempted to mediate or otherwise negotiate to resolve the matter. Although mediation is required before a case proceeds to trial on the merits, the mediation requirement does not prohibit a party from moving for summary judgment if such motion can be properly supported.

Similarly, the fact that Ms. McGaughey is not a party to the Note, but is a party to the mortgage does not create a barrier to entry of judgment against Mr. McGaughey on the Note. Finally, Mr. McGaughey admits that he does not have the wherewithal to bring the Note current at the present time.

Based on the undisputed facts, the Court finds that Mr. McGaughey is in default on the Note and owes Plaintiff the principal amount of $167,236.04, plus interest of $8,207.92 and late charges of $538.02 for a total of $175,981.98 through April 1, 2015, and additional accruing interest thereafter. However, there is a genuine issue of material fact preventing the Court from entering summary judgment in favor of Plaintiff.

C. Mr. McGaughey Presented a Genuine Issue of Material Fact Precluding Foreclosure on the Mortgage.

The Court finds that Plaintiff is not entitled to summary judgment because issues of fact preclude an award of a judgment for foreclosure on the mortgage. It appears that there is an issue of fact regarding whether Mr. McGaughey owns all of the property that is the subject of the Mortgage. Mr. McGaughey submitted proof of his ownership of only part of the parcel that is the subject of the Mortgage, and Plaintiff has provided no response to this submission. It may be that Mr. McGaughey is the record owner of all the property, but until that question is determined, the Court cannot enter a judgment that would allow a foreclosure and sheriff’s sale to proceed.

D. Plaintiff is Not Entitled to Partial Summary Judgment.

Based on the Court’s findings, it would be inclined to enter a partial summary judgment for Plaintiff if Plaintiff had asserted a claim based on default on the Note. Although Plaintiff does request judgment on the Note in its prayer for relief, Plaintiff has not constructed its Complaint to include separate claims. Rather, Plaintiff presents a single claim as to which it request multiple forms of relief. Although the Rules permit entry of a partial judgment on less than all claims, they do not permit entry of a judgment on a part of a claim. T.A. Schifsky & Sons, Inc. v. Bahr Const., LLC, 773 N.W.2d 783, 788 (Minn. 2009). The Court cannot sua sponte carve out separate “claims for relief” from a complaint that seeks relief pursuant to a single claim. As a result, the Court’s conclusion that Plaintiff is not entitled to foreclose on the mortgage, means that the Court must deny Plaintiff’s motion for summary judgment.

Plaintiff’s Motion for Attorney Fees is denied at This Time.

The court also agrees with Mr. McGaughey that Plaintiff’s request for attorney’s fees must be denied at tis time. Any request for attorney’s fees must be supported by the information required by Minn. Gen. R. Prac. 119.02. Rule 119.02 requires that the motion for attorney’s fees be accompanied by an affidavit of an attorney of record which establishes the following:

A description of each item of work performed, the date upon which it was performed, the amount of time spent on each item of work, the identity of the lawyer or legal assistant performing the work, and the hourly rate sought for the work performed;

The normal hourly rate for each person for whom compensation is sought, with an explanation of the basis for any difference between the amount sought and the normal hourly billing rate, if any;

A detailed itemization of all amount sought for disbursements or expenses, including the rate for which any disbursements are charged and the verification that the amounts sought represent the actual cost to the lawyer or firm for the disbursements sought; and

That the affiant has reviewed the work in progress or original time records, the work was actually performed for the benefit of the client and was necessary for the proper representation of the client, and that charges for any unnecessary or duplicative work has been eliminated from the application or motion.

In this case, Plaintiff has not submitted an affidavit that satisfies any of these requirements. Accordingly, even if the Court had granted summary judgment, Plaintiff’s request for attorney’s fees would be denied as procedurally defective.

III. CONCLUSION

Based on the foregoing, Plaintiff’s motion for summary judgment and request for attorney fees are denied at this time.

 

After a brief pause, I hear from the HKM law firm again.

Hooray! I had dodged this bullet. The judge was fair. However, I needed to find the money to reinstate the mortgage to be out of the woods.

I was too optimistic. Another month went by. Still the money expected from Mr. Johnston did not materialize.

I did receive the money from my aunt’s inheritance. Half of the $20,000 from the inheritance disappeared immediately in paying past debts. I paid the back taxes on the Milford property, the apartment building at 1715 Glenwood Avenue, and my home at 1702 Glenwood Avenue. I paid a past-due gas bill from Milford totaling $2,600. Another $750 went toward the last installment on the Milford electric bill from the winter. This check was returned to me because of past payment history; from now on, I would have to pay in cash. Then there were the Minneapolis water bills.

The other half went toward paying down balances on my $10,000 line of credit at Wells Fargo. My aunt’s check had gone into my checking account at US Bank which was being phased out because I had hired a California law firm to negotiate with the creditors to settle for a reduced amount. It took almost a week for the $20,000 check to clear. I deposited $8,300 in my Wells Fargo credit account on June 4th to pay down the balance. Part of this deposit was available in several days but the remainder was not available until June 22nd. I later had need to borrow small amounts from this line of credit to pay remaining bills, whether my own or Sheila’s. Still I had received not a dime from her. The $31,000 expected from Mr. Johnston still had not arrived. Neither had the $7,000 to $8,000 reimbursement for Dale’s care. Not a dime.

On or around June 23rd, a large white envelope arrived in the mail. I could see from the label that the contents were from the HKM law firm. A quick examination showed that HKM was filing another motion for summary judgment. The hearing would take place on July 23, 2015. This came as a shock in view of the discussion that I had with attorney Christian Brandt after the May 6th hearing. I thought I had stated clearly that I expected to reinstate the mortgage but that it would take several months to get the money. But these lawyers were not giving me the chance. They would try to force a foreclosure before the money arrived. The judge had ruled against this once before. It was by no means certain that I would be so fortunate the next time around.

I thought I needed to make the record clear that the best solution to the bank’s legitimate pursuit of the money owed on the mortgage was for me to reinstate the mortgage. The HKM’s “best solution” was to maximize fees. Would the court side with me? This was by no means certain. Having another month before the court hearing to wait for the money from Sheila to materialize, I did not devote full attention to this new threat for several weeks. In the meanwhile, I fired off the following letter to the HKM law firm, coping the bank. It read:

June 24, 2015

Christian A. Brandt
HKM law firm
30 East 7th Street
suite 3200
St. Paul, MN 55101

Dear Mr. Brandt:

I have received today from you and your firm in the mail documents relating to another motion for summary judgment the the case of Boundary Water Bank’s mortgage at 1715 Glenwood Avenue in Minneapolis. This is completely uncalled for. It does not advance the cause for which your firm is supposedly engaged, namely to collect the money due to the bank.

Judge Vasaly denied your previous motion. At the end of the hearing, we had a brief discussion. You said that the bank was still interested in a settlement short of trial in which it would recoup the money. I stated my interest in reinstating the mortgage. Originally, I had hoped to do this with money received from an inheritance. But I realized that the inheritance money was not enough. I told you after the hearing that I expected to have enough money to reinstate the mortgage within several months. I still expect it within the same time frame.

I expect soon to have enough money to reinstate the mortgage now within several weeks. A problem is that the bank in which the money is sitting holds large deposits sometimes for several weeks before funds become available; and I do not want to promise to pay anything unless I have ready cash.

I need to know more precisely how much money I will need to satisfy the mortgage so that the bank will drop the foreclosure suit. The monthly statements tell me the principal, interest, late fees, etc. but make no mention of legal fees. The contract and the law says that these fees must be reasonable.

It is quite unreasonable that your firm has chosen to file another motion for summary judgment, especially in light of my stated desire to reinstate the mortgage. I would appreciate it if you and the bank would act in a more cooperative way so that we can resolve the issues leading to the lawsuit. And that means communicating with me to learn my situation and intentions before churning more court papers.

Again, I restate my intention to reinstate the mortgage. Would you cooperate toward that end?

Sincerely,

William McGaughey

cc: Allan Hilgers, Boundary Waters Bank

Neither the law firm nor the bank responded to this letter. More weeks went by. I had to deal with drafting an appeal in my divorce case and dealing with tenants and housing inspectors. I was hoping that the situation with Mr. Johnston would be resolved. Finally, around July 10th, I turned my full attention to the packet of materials from the HKM law firm. Yes, the law firm was doing a rerun of the motion for summary judgement, again putting me in extreme danger.

 

Another motion for summary judgment

The letter from HKM law firm, dated June 22, 2015, read:

Dear Mr. McGaughey and Ms. McGaughey:

Enclosed herewith and served upon you by United States Mail relative to the above matter please find the following:

Notice of Motion and Motion;

Plaintiff Boundary Waters Bank’s Memorandum of Law in Support of Motion For Summary Judgment;

Affidavit of Allan Hilgers; and,

Proposed Findings of Fact, Conclusions of Law and Order, Order for Judgment, and Judgment.

Very truly yours,

Christian A. Brandt
Attorney at Law

*** ***** *** ***** *** ***** *** ***** *** *****

The second document in the packet of materials, the "Notice of Motion and Motion", read:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Type of case: Civil/Other

File No. 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank

Plaintiff

PLAINTIFF BOUNDARY WATERS BANK’S NOTICE OF MOTION AND MOTION
FOR SUMMARY JUDGMENT

and

William Howard Taft McGaughey, Jr. and
Lian Y. McGaughey

Defendants

___________________________________________________________

TO: Defendants above named.

PLEASE TAKE NOTICE that the undersigned will bring the following motion on for hearing before The Honorable Mary R. Vasaly, at the Hennepin County District Court, Hennepin County Government Center, 300 South Sixth Street, Courtroom 1955, Minneapolis, MN 55487-0332 on the 23rd day of July, 2015, at 8:30 a.m,. or as soon thereafter as counsel can be heard.

MOTION

Pursuant to rule 56 of the Minnesota Rules of Civil Procedure, Plaintiff Boundary Waters Bank will move this Court for an order for Summary Judgment against as follows:

Granting Plaintiff Boundary Waters Bank’s Motion for Summary Judgment;

entering a money judgment against William McGaughey; and,

Granting Plaintiff a decree of foreclosure of the subject mortgage.

Said motion will be based upon the accompanying Memorandum of Law, Affidavit of Allan Hilgers and all of the files, records and proceedings herein and the arguments of counsel at the motion hearing.

Dated: June 22, 2015 HKM, P.A.

Kelly S. Hadac
Christian A. Brandt,
Attorneys for Plaintiff Boundary Waters Bank

*** ***** *** ***** *** ***** *** ***** *** *****

Next came the Plaintiff’s Memorandum of Law in Support of Motion for Summary Judgment. It read:

INTRODUCTION

Plaintiff Boundary Waters Bank (“Bank”) respectfully submits this Memorandum of Law in support of its Motion for Summary Judgment.

The above-captioned matter was commenced by Plaintiff after Defendants filed to abide by their contractual obligations. Mr. McGaughey executed a note requiring him to make monthly payments to Plaintiff. The debt evidenced by the subject promissory note was secured by a mortgage, and Mr. McGaughey is the owner of all the mortgaged property. Mr. McGaughey failed to make the payments as required and is therefore in default under the note. By extension, the Defendants are in default under the subject mortgage. Upon an event of default, the loan documents allow Plaintiff to seek a judgment against Mr. McGaughey and to foreclose the subject mortgage. Given the fact that there is no dispute the loan is in default, Plaintiff is entitled to entry of judgment and a decree of foreclosure.

The matter was previously before the court on a motion for summary judgment, but that motion was ultimately denied due to questions relating to Mr. McGaughey’s ownership of the mortgaged property. As this second motion will establish, there is no question that Mr. McGaughey is the owner of the subject property. The evidence Mr. McGaughey presented tells only a portion of the story regarding his ownership interest. Accordingly, summary judgment is appropriate, as no fact questions remain.

STATEMENT OF FACTS

William McGaughey submitted a Response to the complaint on February 4, 2015. In the response, he admits that he failed to make the required payments under the loan documents. (See Exhibit 1 to the Affidavit of Ranee R. Holmboe (“Holmboe Aff.”) Thus, there can be no legitimate question of fact with regard to the critical material facts in this case, as set forth in the ensuing paragraphs.

I. THE NOTE

On November 29, 2007, Defendant William H. McGaughey executed and delivered to Bear Sterns Residential Mortgage Corporation a Note in the original amount of $182,000.00 (“Note”) (See Exhibit 2 to the Hilgers Aff.). Exhibit 2 also contains an Allonge to Note naming Plaintiff as the holder of Note. (ld.) Pursuant to the Note, Mr. McGaughey was required to make monthly payments until the debt was paid in full. (ld. at ¶3.) The Note defines failure to make the monthly payments as a default. (ld at ¶6.) Upon default, the Note allows the Bank to call the balance of the loan due, plus interest, fees, including reasonable attorneys’ fees, and costs. (ld)

II. THE MORTGAGE

The Note is secured by a Mortgage dated November 29, 2007, executed and delivered by Defendants in favor of Mortgage Electronic Registration Systems Inc., as nominee for Bear Stearns Residential Mortgage Corporation, on the following described real property in Hennepin County, Minnesota:

The front or Northerly 145 feet of Lot 16, Auditor’s Subdivision No. 26, including any part or portion of any street or alley adjacent to said premises vacated or to be vacated; AND The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, except the East 2.0 feet thereof.

(“Mortgage”) ( See Exhibit 3 to the Hilgers Aff.) [Footnote 1: The Complaint seeks a revision to the Mortgage’s legal description of the property. At this point, and by this motion, the Bank is no longer pursuing that claim.]

The Mortgage was filed for record December 28, 2007, as Document No. 9078879 in the office of the County Recorder of Hennepin County, Minnesota. (ld.) Per the terms of the Mortgage, Defendants agreed to make payments as required by the Note. (ld. at p. 4 ¶ 1). In the event Defendants breach any term of the Mortgage, the Bank has the right to accelerate the loan, require immediate payment of the outstanding balance, invoke the power of sale, and pursue all other remedies permitted by law. (ld. at p. 13, ¶22). The Mortgage further entitles the Bank to recovery of all fees and costs, including reasonable attorneys’ fees, incurred in connection with pursuing its remedies under the Mortgage. (ld.)

III. ASSIGNMENTS

The Note and Mortgage were assigned by Mortgage Electronic Registration Systems, Inc. as nominee for Bears Stearns Residential Mortgage Corporation to Bayview Loan Servicing LLC, by Assignment of Mortgage dated May 22, 2012, filed for record June 5, 2012, as Document No. A9797962. (See Exhibits 2 and 4 to the Hilgers Aff.) Then, Bayview Loan Servicing, LLC, made an assignment to Plaintiff by Assignment of Mortgage dated December 26, 2014, filed for record January 7, 2015, as Document No. A10152692. (See Exhibit 5 to Hilgers Aff.).

IV. DEFAULTS AND NOTICE

Mr. McGaughey has defaulted in the payment of the monthly principal and interest installments due under the Note. By virtue of this default, Defendants are in default under the Mortgage. (See Hilgers Aff. at ¶ 7). Notice of the defaults was sent to Mr. McGaughey by Plaintiff on November 7, 2014. The notice letter advised that if the defaults were not cured, Plaintiff would take the action now underway before this Court. (See Exhibit 6 to the Hilgers Aff.) In his response to the Complaint, Mr. McGaughey acknowledges the failure to make the payments. (See Exhibit 1 to the Hilgers Aff.)

Mr.McGaughey further admitted his defaults in his recently filed opposition to Plaintiff’s first summary judgment. (See Memorandum of Law in Opposition to Plaintiff’s Motion for Summary Judgment and Affidavit of Defendant (“McGaughey Brief”) at pp. 2, 5, on file with the Court.) [Footnote 2: In the interest of avoiding an unnecessarily voluminous filing, the Bank has not attached certain materials already on file. The Bank is happy to provide those materials, however, in the event the Court would prefer that it do so.]

V. TOTAL AMOUNT DUE AND OWING

As of June 19, 2015, there was due and owing under the Note an unpaid principal amount of $167,236.04, interest of $10,699.04, and late charges of $717.36 for a total of $178,652.44. Interest, late charges, fees and costs continue to accrue. (See Hilgers Aff. at ¶ 9).

VI. ANSWERS
Both Defendants have appeared in this matter. Lian McGaughey’s daughter provided a letter on her behalf to our office, indicating that she has no further interest in the subject property following her divorce from Mr. McGaughey. Mr. McGaughey provided a Response to complaint on or about February 4, 2015. (See Exhibit 1 to the Hilgers Aff.)

VII. FIRST SUMMARY JUDGMENT MOTION AND FACTS ESTABLISHING MR. MCGAUGHEY’S OWNERSHIP OF ALL OF THE MORTGAGED PROPERTY

On May 11, 2015, the Court filed its Order Denying Summary Judgment. (See Order Denying Summary Judgment, on file with the Court.). In opposing summary judgment, Mr. McGaughey took the position that he did not own all of the mortgaged property. (See McGaughey Brief at pp. 2-3). In support of this position, Mr. McGaughey attached a quit claim deed dated March 17, 2004. (See Exhibit 7 to the Hilgers Aff.) While it is true that the 2004 deed only conveyed a portion of the subject property, that deed - and the evidence presented by Mr. McGaughey - tells only a portion of the story.

The fact is Mr. McGaughey owns all of the property subject to the mortgage and legally described as follows:

The front or Northerly 145 feet of Lot 16, Auditor’s Subdivision No. 26, including any part or portion of any street or alley adjacent to said premises vacated or to be vacated; AND The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, except the East 2.0 feet thereof.

* The land which is described following the word “AND” in the above description was conveyed to Mr. McGaughey by way of a quite claim deed dated November 29, 2006. (See Exhibit 8 to the Hilgers Aff.)

* The 2 feet, which is excepted from the mortgaged property, is also owned by Mr. McGaughey, having been conveyed to him via a March 15, 2004 quit claim deed. (See Exhibit 9 to the Hilgers Aff.)

In addition, Mr. McGaughey provided the Court with Minneapolis property records evidencing his ownership of 1715 Glenwood Ave. (See Exhibit 10 to the Hilgers Aff.) Here again, Mr. McGaughey told only half the story. What he omitted is the fact that, per the City’s records, he is also the owner of 1719 Glenwood Ave., the neighboring property. (See Exhibit 11 to the Hilgers Aff.) An examination of Exhibit 11 reveals even more compelling information. First, the Property ID number indicated on the quit claim deed conveying the property identified after the word “AND” in the mortgage. (Id.; Exhibit 8). Second, the address referenced on that quit claim deed is 1719 Glenwood. (See Exhibit 8 to the Hilgers Aff.) And, third, the last date of sale contained in the City’s records - 11/29/2006) - is the exact same date the City conveyed the property to Mr. McGaughey via the quit claim deed. (id.; Exhibit 11 to the Hilgers Aff.).

Accordingly, there is no question that Mr. McGaughey is the owner of all the mortgaged property, despite his claim to the contrary in connection with Plaintiff’s previous summary judgment motion.

Again, Mr. McGaughey previously took the position that he didn’t own all of the mortgaged land (i.e., he didn’t own the land described after the word “AND” and that he only owned the land which precedes “AND”). In denying the motion, the court stated in the Order: “It may be that Mr. McGaughey is the record owner of all the property, but until that question is determined, the Court cannot enter a judgment that would allow a foreclosure and sheriff’s sale to proceed.” (See Court’s may 11, 2015, Order at p. 5). It is now clear that Mr. McGaughey is, in fact, the owner of all of the mortgaged property. Entry of summary judgment is, therefore, appropriate.

In connection with its first summary judgment motion, Plaintiff also filed Plaintiff Boundary Waters Bank.s Reply memorandum of Law in Support of Motion for Summary Judgment (“Plaintiff’s reply” on May 1, 2015. Plaintiff’s Reply and the May 1, 2015 Supplemental Affidavit of Ranee R. Holmboe, set forth additional facts and discussion replying to Mr. McGaughey’s opposition, and providing further support for its motion for summary judgement. The points of discussion contained therein are: that Mr. McGaughey is in default and did not make/has not made any recent payment to Bank; and, that alleged deed-in-lieu is not enforceable. (See Plaintiff’s Reply, at pp. 2-5, on file with the Court.) The Court’s Order Denying Summary Judgment acknowledges the fact of a default, that the Bank is entitled to a money judgement, and that the alleged agreement is not enforceable. (See Court’s May 11, 2015 Order at pp. 4-5.) As such, the Bank will not repeat those arguments at this time, but incorporates therm herein by reference (along with the supplemental Affidavit of Ranee R. Holmboe), and reserves the right to re-assert and/or supplement Plaintiff’s Reply and the supporting affidavit as may be necessary in the course of this second motion.

ARGUMENT

I. SUMMARY JUDGMENT STANDARD

“Rule 56 of the Minnesota Rules of Civil Procedure is designed to implement the stated purpose of the rule - securing a just, speedy, and inexpensive determination of an action - by allowing a court to dispose of an action on the merits if there is no genuine dispute regarding the material facts, and a party is entitled to judgment under the law applicable to such facts.” DLH, Inc. v. Russ, 566 N.W. 2d 60, 69 (Minn. 1997), citing, In re Estate of Bush, 302 Minn. 188, 211 N.W.2d 489, 503 (1974), cert. denied, Lee v. Arrowwood 420 U.S. 1008 (1997). “Accordingly, [R]ule 56 provides that summary judgment is proper when the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any, submitted show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law.” DLH, Inc. v. Russ, 566 N.W. 2d at 69, citing, Minn. R. Civ. P. 56.03. A fact is material only when its resolution affects the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

“Upon a motion for summary judgment *** the adverse party cannot preserve his right to a trial on the merits merely by referring to unverified and conclusionary allegations in his pleadings or by postulating evidence which might be developed at trial.” Lubbers v. Anderson, 539 N.W.2d 398, 401 (Minn. 1995); see also Bob Useldinger & Sons, Inc. v. Hangsleben, 505 N.W.2d 323m 328 (Minn. 1993) (concluding that summary judgment is properly granted when the nonmoving party relies on mere conjecture or speculation as opposed to concrete evidence). Accordingly, if the party moving for summary judgment makes out a prima facie case, the burden on producing facts that create a genuine issue for trial shifts to the opposing party. Thiele v. Stich, 425 N.W.2d 580, 583 (Minn. 1988).

In ruling on a motion for summary judgment, the court should not consider evidence, such as inadmissible hearsay statements or vague, conclusory allegations, which would not be admissible at trial. Miller v. Solem, 728 F.2d 1020, 2026 (8h Cir. 1984) There is no genuine issue of fact for trial if the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party. Matsushita Electric Industrial Co. v, Zenith Radio Corp., 475 U.S. 574, 587 (1986). Nor is there a genuine issue of material fact when the nonmoving party presents evidence that creates only 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. 566 N.W.2d at 71.

II. THE BANK IS ENTITLED TO AN ORDER FOR ENTRY OF A MONETARY JUDGMENT AND A DECREE OF FORECLOSURE.

A breach of contract claim requires the plaintiff to show “(1) formation of a contract; (2) performance by plaintiff of any conditions precedent; (3) a material breach of the contract by defendant; and (5) damages.” Briggs Trans. Co. v. Razenberger, 299 Minn. 127, 217 N.W.2d 198, 200 (1970) ; Boatwright Const. Inc. v. Kemrich Knolls, 306 Minn. 519,238 N.W.2d 606, 607 (1976).

In this case, it is undisputed that the Note and Mortgage represent enforceable contracts and that Mr. McGaughey/Defendants have breached the Note and Mortgage. In specific, Mr. McGaughey has failed to make the required monthly payments, which constitutes a default/breach under the Note and, by extension, the Mortgage. In addition, Plaintiff has provided the required notice.

Based on the above undisputed facts, the Bank respectfully requests an order granting summary judgment in its favor against Defendant as follows: (1) a monetary judgment against William McGaughey for $178,652.44 plus additional late charges, interest, costs, expenses, and attorneys’ fees; and (2) an order allowing the Bank to foreclose the Mortgage.

CONCLUSION

It is undisputed that the Defendants have enforceable contracts with the Bank and that those contracts have been breached. As such, the Bank respectfully requests an Order granting its summary judgment motion and entering judgment in its favor and against William McGaughey in the amount of $178,652.44, plus continually accruing interest, late charges, fees, and costs. In addition, the Bank respectfully requests that this Court a decree of foreclose which allows the Bank to foreclose the Mortgage.

Dated: June 22, 2015

HKM

__________________
Kelly S. Hadac
Christian A. Brandt

Attorneys for Plaintiff Boundary Waters Bank

*** ***** *** ***** *** ***** *** ***** *** *****

Then came the largest bundle of papers in the packet. It was the affidavit of the bank’s branch manager, Allan Hilgers. This document is as follows:

 

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________

Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank,
a Minnesota Banking Corporation
Plaintiff


AFFIDAVIT OF ALLAN HILGERS


v.

William H. McGaughey and Lian Y. McGaughey
defendants
________________________________________________________________

STATE OF MINNESOTA )
) ss.
COUNTY OF WASHINGTON )

Allan Hilgers, being first duly sworn upon oath, deposes and states as follows:

1. I am Senior vice President at Plaintiff Boundary Waters Bank in the above-captioned matter. I make this affidavit on personal knowledge and in support of our Motion for Summary Judgment.

2. Attached hereto as Exhibit 1 is a true and correct copy of the Response to Complaint from William McGaughey.

3. Attached hereto as Exhibit 2 is a true and correct copy of the November 29, 2007 Note in the principal amount of $182,000.00.

4. Attached hereto as Exhibit 3 is a true and correct copy of the Mortgage, dated November 29, 2007.

5. Attached hereto as Exhibit 4 is a true and correct copy of the assignment from Mortgage Electronic Registration Systems, Inc., as nominee for Bear Stearns Residential Mortgage Corporation to Bayview Loan Servicing, LLC, dated May 22, 2012.

6. Attached hereto as Exhibit 5 is a true and correct copy of the assignment from Bayview Loan Servicing , LLC, to Plaintiff, dated December 26, 2014.

7. William McGaughey has failed to make the required monthly payments per the terms of the Note and the Mortgage and is therefore in default under both the Note and the Mortgage.

8. Attached hereto as Exhibit 6 is a true and correct copy of the notice-of-default letter I sent to William McGaughey on November 7, 2014.

9. As of June 19, 2015, the total amount due and owing on the Note is $178,652.44 - inclusive of late charges and interest - plus attorneys’ fees, costs and expenses of collection.

10. Attached hereto as Exhibit 7 is a true and correct copy of the March 17, 2004, quit claim deed submitted by Mr. McGaughey.

11. Attached hereto as Exhibit 8 is a true and correct copy of the quit claim deed dated November 29, 2006.

12. Attached hereto as Exhibit 9 is a true and correct copy of the quit claim deed dated March 15, 2004.

13. Attached hereto as Exhibit 10 is a true and correct copy of the City of Minneapolis’ property records relating to 1715 Glenwood Ave. 55405.

14. Attached hereto as Exhibit 11 is a true and correct copy of the City of Minneapolis’ property records relating to 1719 Glenwood Ave. 55405.

FURTHER YOUR AFFIANT SAYETH NOT.

Dated and notarized: June 22, 2015
_______________________

Signed: Allan Hilgers

The exhibits, too long to reproduce here, are self-explanatory.


*** ***** *** ***** *** ***** *** ***** *** *****


Finally, the packet of materials from HKM law firm included the Plaintiff’s Findings of Fact, Conclusions of Law and Order, Order for Judgment, and Judgment. This document reads:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Type of Case: Civil/Other
________________________________________________________________
Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank,
a Minnesota Banking Corporation
Plaintiff


FINDINGS OF FACT, CONCLUSIONS OF
LAW AND ORDER, ORDER FOR
JUDGMENT, AND JUDGMENT

William H. McGaughey and Lian Y. McGaughey
Defendants
________________________________________________________________

The matter came on for hearing before the Honorable Mary R. Vasaly, at the Hennepin County District Court, Hennepin County Government Center, 300 South Sixth Street, MC 332, Minneapolis, MN 55487-0332, on the 23rd day of July, 2015, upon the Plaintiff’s Motion for Summary Judgment.

Appearances were duly noted on the record.

The Court, having reviewed the memoranda submitted by the parties, as well as the affidavits, pleadings and proceedings herein, makes the following:

FINDINGS OF FACT

1. On November 29, 2007, Defendant William McGaughey executed the subject Note in the principal amount of $182,000.00 (“Note”). Pursuant to the Note, Mr. McGaughey was required to make monthly payments until the debt was paid in full. The Note defines failure to make the monthly payments as a default. Upon default, the Note allows the Plaintiff to call the balance of the loan due, plus interest, fees, including reasonable attorneys’ fees and costs.

2. The Note is secured by a Mortgage dated November 29, 2007, executed and delivered by Defendants in favor of Mortgage Electronic Registration Systems Inc., as nominee for Bear Stearns Residential Mortgage Corporation, on the following described real property in Hennepin County, Minnesota:

The front or Northerly 145 feet of Lot 16, Auditor’s Subdivision No. 26, including any part or portion of any street or alley adjacent to said premises vacated or to be vacated; AND The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, except the East 2.0 feet thereof.

(“Mortgage”) The Mortgage was filed for record December 28, 2007, as Document No. 9078879 in the office of the County Recorder of Hennepin county, Minnesota. Per the terms of the Mortgage, Defendants agreed to make payments as required by the Note. In the event Defendants breach any term of the Mortgage, the Bank has the right to accelerate the loan, require immediate payment of the outstanding balance, invoke the power of sale, and pursue all other remedies permitted by law. The Mortgage further entitles the Bank to recovery of all fees and costs, including reasonable attorneys’ fees, incurred in connection with pursuing its remedies under the Mortgage.

3. The Note and Mortgage were assigned by Mortgage Electronic Registration Systems, Inc. as nominee for Bears Stearns Residential Mortgage Corporation to Bayview Loan Servicing LLC, by Assignment of Mortgage dated May 22, 2012, filed for record June 5, 2012, as Document No. A9797962. Then, Bayview Loan Servicing, LLC, made an assignment to Plaintiff by Assignment of Mortgage dated December 26, 2014, filed for record January 7, 2015, as Document No. A10152692. There was an Allonge to Note naming Plaintiff as the holder of Note.

4. Mr. McGaughey has defaulted in the payment of the monthly principal and interest installments due under the Note. By virtue of this default, Defendants are in default under the Mortgage.

5. Notice of the defaults was sent to Mr. McGaughey by Plaintiff on November 7, 2014. The notice letter advised that if the defaults were not cured, Plaintiff would take the action now underway before this Court. In his response to the Complaint, Mr. McGaughey acknowledges the failure to make the payments.

6. As of April 1, 2015, there was due and owing under the Note an unpaid principal amount of $167,236.04, interest of $8,236.04, and late charges of $538.02 for a total of $175,981.98. Interest, late charges, fees and costs continue to accrue.

7. Mr. McGaughey is the owner of all of the mortgaged property.

CONCLUSIONS OF LAW AND ORDER

1. Plaintiff is entitled to judgment against William McGaughey in the amount of $178,652.44 plus continually accruing late charges, interest, fees, including attorneys’ fee, and costs, expenses, and such other and further sums as may be now or will become due and payable post-judgment to the Plaintiff, which additional amounts may be added to the judgment amount by motion and supported by an affidavit of the Plaintiff or its legal counsel.

2. The Court Administrator shall immediately enter and docket the monetary judgment described in paragraph 1 above. In the event the Plaintiff recovers any amount of money from conducting any foreclosure sale(s), the Bank shall timely file a partial/full satisfaction of judgment, in the manner required by law for the amount of the net proceeds from any collections (after deducting the expenses of the executions or other process). In the event the Bank schedules and conducts any Sheriff’s sale under the decree of foreclosure under this order and obtains a further court order confirming the Sheriff’s sale, now or in the future, the Court Administrator shall partially satisfy the remaining amount of the monetary judgment entered an docketed pursuant to this Order by the amount of the successful bid at any confirmed Sheriff’s sale.

Plaintiff is hereby granted a decree of foreclosure of the Mortgage to partially satisfy the judgment described in paragraph 1 above, and additionally as follows:

(a) Upon the Plaintiff’s request to the Sheriff of Hennepin, the Property shall be sold by the Sheriff in the manner provided by law;

(b) The proceeds of any Sheriff’s sale are to be applied, first, to the payments of costs and disbursements of the sale, second, to the amount of the judgment remaining unpaid;

(c) Order that the purchaser at any Sheriff’s sale or assigns, if no redemption is made within the period fixed by statute, be decreed to be the absolute owner of the Property purchased at the Sheriff’s sale;

(d) The Mortgage is a valid mortgage that is prior and superior to all other liens and encumbrances against the Property, and barring and foreclosing all Defendants from any equity of redemption, equity, lien or interest in the Property, except the right to redeem from the Sheriff’s sale as provided by statute.

4. The Bank’s rights to an immediate monetary judgment, decree of foreclosure, deficiency judgment or other contract rights shall be cumulative remedies, and the Bank shall be entitled to exercise one or more of these rights, in any order and/or simultaneously in its sole discretion.

5. The Court shall retain jurisdiction over this matter for the purposes of making amendments to the judgment as provided for in paragraph 1 above and for all other post-judgment purposes.

ORDER FOR JUDGMENT

IT IS HEREBY ORDERED, that pursuant to Rule 56.03 of the Minnesota Rules of Civil Procedure, Boundary Waters Bank’s motion for summary judgment is GRANTED in all respects.

BY THE COURT:

Dated _________________
_______________________
Mary R. Vasaly
Judge of District Court

JUDGMENT

I herby certify that the above Conclusions of Law and Order and Order for Judgment constitute the Judgment of the Court.

Dated ________________ Court Administrator

By _____________________
Deputy

*** ***** *** ***** *** ***** *** ***** *** *****

Finally, there was the affidavit of service:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Type of Case: Civil/Other
________________________________________________________________
Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank,
Plaintiff


AFFIDAVIT OF SERVICE

William H. McGaughey and Lian Y. McGaughey
Defendants
________________________________________________________________

STATE OF MINNESOTA )
) ss.
COUNTY OF RAMSEY )

Gail Chapman, being first duly sworn, deposes and states that on the 22nd day of June, 2015, she served the attached:

1. Plaintiff Boundary Waters Bank’s Notice of Motion and Motion for Summary;

2. Plaintiff Boundary Waters Bank’s Memorandum of Law in Support of Motion for Summary Judgment;

3. Affidavit of Allan Hilgers; and,

4. Proposed Findings of Fact, Conclusion of Law and order, Order for Judgment, and Judgment

Upon:

William H. McGaughey Lian Y. McGaughey
(address) (address)

By depositing a true and correct copy thereof in the United States mail with postage prepaid thereon.

__________________________
Gail Chapman

sworn and notarized June 22, 2015

 

I ponder a response

This latest motion had to be viewed in light of the judge’s ruling on the previous one. I was lucky that Judge Vasaly had not granted the bank a summary judgment then. The criterion for such a judgment was that there be “no genuine issues of material fact”. Also, the issues could not be mere technicalities but arguments that could influence the trial outcome. I had proposed three issues: 1. the fact that the legal description on the mortgage document did not match that of the lot on which the duplex at 1715 Glenwood Avenue sat. 2. The fact that, being 38 feet wide, it was not a buildable lot. 3. The uncertainty who was being sued, me and my former wife or just me.

At the hearing and in her legal analysis, the judge had indicated that none of these issues was a genuine issue of material fact. I suppose she did not think my objections were of a nature that could sway the decision at trial. Fortunately, she did find one small issue that precluded a summary judgment at this time: the uncertainty over who owned the property described after the “AND”. If I did not own this parcel of land, then the bank would not be able to foreclose on it. If I did, then the remaining objection to a summary judgment would be removed. For the time being, there was a sliver of doubt.

The land legally described after the “AND” was, in fact, property that I owned. It was the vacant lot at 1719 Glenwood Avenue which I bought from the city in 2006. I had not realized that the mortgage was on this property, too. Because the legal descriptions are not readily available on the county web site or tax statement, I had not bothered to check who owned this property. All I knew - from Keith Schroeder’s quit claim deed - was that it did not match the legal description for 1715 Glenwood Avenue. I probably should not have said in my filing I did not own this parcel of land. The truth was that I did not bother to investigate.

I knew, however, that if I did not find a genuine issue of fact, the judge might well grant the summary judgment. But I had to make that type of argument. Recognizing its weakness, I found a genuine issue of material fact in the absence of two feet of land from the double property upon which the bank was foreclosing. The foreclosure covered the 38 feet of land upon which the duplex sat in Lot 16 and it also covered Lot 17 which was the 42 1/2 feet wide “except the East 2.0 feet thereof”. In other words, it did not own the two-feet-wide strip of land in the vacant lot that was adjacent to the house.

I thought that might give me an opening. If the bank did not own those two feet, the duplex would not sit on a buildable lot. The city could conceivably order that the duplex be converted to a single-family dwelling. Even though the judge had declared at the hearing that this would not be a problem for the foreclosure (only for the bank after it acquired the property), I at least had an issue. I thought the fact that the lawsuit involved both me and my former wife, Lian, might be another issue. What had I to lose in mentioning these issues in my latest motion? I could well lose the argument but something is better than nothing.

The ace in the hole was that I was within striking distance of being able to reinstate the mortgage. If I could do that, the law said that the foreclosure had to be abandoned. I knew I could not reinstate the mortgage with the vague promise that the money from Mr. Johnston would come through. I had never met Mr. Johnston. Previous expectations had always been dashed. The problem was that I did not have credible evidence that at least $20,000 was sitting in a bank which would be used to pay Boundary Waters Bank, The money had not yet been deposited in Sheila’s account at a bank and, if it had been, Boundary Waters had no assurance that Sheila would pay this money to me.

Somewhat better evidence was that I would be receiving more than $100,000 from my father’s inheritance after the Conservation Fund paid my sister and me for the land in Pennsylvania. I had an email from my sister saying that the Conservation Fund had decided to exercise its option. An earlier email told how much would be paid. Perhaps the attorney administering the estate could send me a letter on letter head stationery to this effect which I could read at the hearing before the judge on July 23rd.

I was upset that the HKM law firm had decided to pursue a summary judgment for a second time after I had made clear to attorney Christian Brandt that I intended to reinstate the mortgage. I had told him specifically that my goal was to reinstate the mortgage but that it might take several months to get the money. He had said nothing in response. And now the law firm was renewing its attack with a motion for summary judgment which might come before the money arrived. There had been no telephone calls to ask for clarification of my position - only another motion for summary judgment. This was nasty behavior; but nastiness or the lack thereof is evidently not a factor in court decisions.

I questioned the legitimacy of summary judgments. Yes, I had admitted that I had made no recent payments on the mortgage. That was because I could not afford the payments, having received no rent from one of the tenants at 1715 Glenwood Avenue and having had to make payments to a debt-management firm. But weren’t most persons served with foreclosure lawsuits behind on their payments? If that admission alone would justify summary judgments, then 99% of foreclosures would be settled that way. Why then do courts set trial dates far into the future or order mediation? Why go through that pretense if aggressive law firms can bypass trials with motions for summary judgment that would have to be granted if banks show that property owners are behind on their payments?

I would have to throw myself on the mercy of the court. If the allegation of “genuine issues” did not work, I would have to show the court some evidence of my ability and willingness to restate the mortgage and hope that the judge would consider this a better and fairer option than granting the bank a summary judgment.

But the immediate task was to draft a response to HKM’s latest motion within the allowed time. Otherwise, the court would automatically grant its request. The court hearing was on July 23rd. My response was ready on July 15th. Alan Morrison personally delivered a copy of my responsive motion to HKM law firm on the 23rd floor of the Wells Fargo building. (Its office has a magnificent view of the state capitol.) He then had the signed affidavit of service notarized and delivered this and the original motion to the civil filing desk at the Hennepin Government Center.

 

My responsive motion

The following is the response I made to the court:

 

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Type of case: Civil/Other
File No. 27-CV-15-1090
Boundary Waters Bank

Plaintiff


DEFENDANT’S OPPOSING MOTION
IN OPPOSITION TO PLAINTIFF’S MOTION
FOR SUMMARY JUDGMENT

and


William Howard Taft McGaughey, Jr.
and Lian Y. McGaughey

Defendants
Judge: Hon. Mary R. Vasaly

___________________________________________________________
TO: Kelly S. Hadac, attorney for Boundary Waters Bank

PLEASE TAKE NOTICE that the undersigned will bring the following motions on for the hearing before the Honorable Mary R. Vasaly at the Hennepin County District Court, Hennepin County Government Center, 300 South Sixth Street, MC 332, Minneapolis, MN 55487-0332, on the 23rd day of July, 2015, as soon as counsel can be heard.

MOTIONS

Pursuant to Rule 56.02 of the Minnesota Rules of Civil Procedure, Defendant William H.T. McGaughey, Jr. will move the Court for an order to dismiss the motion for a summary judgment because the impending prospect of reinstating the mortgage voluntarily constitutes a more just and cost effective means of settling this matter and because of some still unresolved issues relating to the identity of the defendants and the legal description and dimensions of the lot for property that is the subject of foreclosure proceedings.

The defendant moves that the court set a date for mediation between the two parties for the purpose of determining evidence of his capacity and willingness to reinstate the mortgage while waiting for expected cash to be released.

The defendant moves that his share of attorney fees be capped at $2,000.

Said motions are based on the accompanying Memorandum of Law, Affidavit of William H. T. McGaughey, Jr. and all of the files, records, and proceedings herein and the arguments of the defendant, appearing pro se, at the motion hearing.

Dated: July 15, 2015 ______________________________

William H.T. McGaughey, Jr.
1702 Glenwood Avenue
Minneapolis, MN 55405

*** ***** *** ***** *** ***** *** ***** *** *****

The Memorandum of Law was as follows:

___________________________________________________________
STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Type of case: Civil/Other

File No. 27-CV-15-1090
Boundary Waters Bank
Plaintiff


DEFENDANT’S MEMORANDUM OF LAW
IN OPPOSITION TO PLAINTIFF’S MOTION
FOR SUMMARY JUDGMENT
AND AFFIDAVIT OF DEFENDANT


and
William Howard Taft McGaughey, Jr. and
Lian Y. McGaughey
Defendants
Judge: Hon. Mary R. Vasaly
___________________________________________________________

INTRODUCTION

Defendant William H. T. McGaughey, Jr. respectfully submits this memorandum of law in opposition to plaintiff’s motion for summary judgment and in support of his own motions.

The defendant would ask the court to deny this motion in order to give him time to reinstate the mortgage voluntarily. The stated purpose of Rule 56, permitting a summary judgment, is to secure “a just, speedy, and inexpensive determination of an action” DLH, Inc. v. Russ, 566 N.W.2d 60,69 (Minn. 1997) The plaintiff’s motion for a summary judgment, if the defendant can reinstate the mortgage by paying the bank the entire sum of money due, is neither just, nor speedy, nor inexpensive, compared with the alternative. Furthermore, certain material facts remain in dispute.

STATEMENT OF FACTS

William H.T. McGaughey, Jr. and his wife, Lian Y. McGaughey concluded a loan agreement with Bear Stearns Residential Mortgage Corporation in November, 2007, placing a mortgage in the amount of $182,000 and bearing an interest rate of 6.875 percent on property owned at 1715 Glenwood Avenue in Minneapolis. The successive mortgage holders have been NationStar Mortgage, Bayview Loan Servicing, and finally Boundary Waters Bank.

Mr. McGaughey made regular mortgage payments of around $1,530 through July 2014 when he was unable to sustain the payments and the bank refused to accept a lesser amount. The bank branch president, Ranee Holmboe, proposed to take the property in lieu of foreclosure in a telephone conversation with Mr. McGaughey in September, 2014 and McGaughey accepted the offer, but their agreement was never put in writing. The bank later decided to foreclose on the property through court action. Ms. Holmboe also refused to accept partial payments on the debt. The HKM law firm of St. Paul is representing the bank.

The HKM law firm previously filed a motion for Summary Judgment claiming there were no genuine issues of fact in the case. The defendant cited three issues. A representative of the plaintiff, Christian Brandt, and defendant William McGaughey appeared personally before Judge Mary Vasaly on May 6, 2015, at 9:00 a.m., to argue their respective cases. Judge Vasaly’s order, dated May 11, 2015, denied the plaintiff’s motion for summary judgment and award of attorney’s fees.

Immediately after their appearance before Judge Vasaly, Mr. Brandt and Mr. McGaughey had a private discussion in which Mr. Brandt said that the bank was interested in the possibility of reinstating the mortgage. Mr. McGaughey said it was his intention to do so but that it might take several months to raise the money. The money received as an inheritance from his aunt was not enough to pay off the bank and it was still unclear when the rest that was expected would be received.

Ignoring the possibility of reinstatement, the HKM law firm filed another motion for Summary Judgment on June 22, 2015. The case will be heard on July 23, 2015.

FACTS IN DISPUTE

The defendant confesses that he mistakenly believed that the mortgage was placed only on the duplex and its underlying lot at 1715 Glenwood Avenue which he purchased from Keith Schroeder in 2002 when he filed his motions before the May 6th hearing. However, the legal description after the “AND” does indeed pertain to a vacant lot at 1719 Glenwood Avenue which the defendant purchased from the city in 2006.

It important to note, however, that the legal description of the second lot specifically excludes two feet of land adjacent to the other property so that, if the bank successfully forecloses on the mortgage, it would not own those two feet. And if it did not own the two feet, the 38-foot wide property at 1715 Glenwood would not be a buildable lot according to City of Minneapolis specifications. The bank would own two non-adjacent properties (separated by two feet) with a non-conforming structure on one of them. The HKM attorneys seemed to recognize a problem here when they claimed, without providing any evidence, that the lack of ownership of those two feet was a “mistake”.

Uncertainty also remains with respect to ownership. On one hand, the bank’s attorney argues that William McGaughey’s former wife is not a party to this lawsuit because “Lian McGaughey’s daughter provided a letter on her behalf to our office indicating that she has no further interest in the subject property following her divorce from Mr. McGaughey.” On the other hand, the former wife was a party to the original loan and papers from the HKM law firm continue to be addressed to both husband and wife.

The standard for summary judgments is supposed to be a strict one. To grant or deny this motion is discretionary with the judge. The judge notes in her legal analysis: In deciding summary judgment motions, “[t]he evidence [must be] construed in the light most favorable to the party opposing summary judgment.” J.E.B. v. Danks, 785 N.W.2d 741, 747 (Minn. 2010) “[A]ll factual interference are resolved in favor of the non-moving party.” Northland Ins. Co. v. Bennett, 533 N.W.2d 867, 871 (Minn. Ct. App. 1995) “the party moving for summary judgment has the burden to show that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law.” Valspar Refinish, Inc. v. Gaylord’s Inc., 764 N.W.2d 359, 364 (Minn. 2009) (citing O’Malley v. Ulland Bros., 549 N.W.2d 889, 897 (Minn. 1996)).

PROSPECT OF REINSTATING THE MORTGAGE

Minnesota statute § 580.30, Subd. 1, provides that foreclosure proceedings shall be abandoned when the mortgagor pays to the holder of the mortgage, or to an attorney handling the foreclosure, “the amount actually due thereon and constituting the default actually existing in the conditions of the mortgage at the time of the commencement of the foreclosure proceedings, including insurance, delinquent taxes, if any, upon the premises, interest to date of payment, cost of publication and services of process or notices, attorney’s fees not exceeding $150 or one-half of the attorney’s fees authorized by section 582.01, whichever is greater”, etc.

The defendant expected to be able to reinstate the mortgage according to this statute before his court appearance on May 6th; however the money did not materialize. The money will still not be available on July 23rd. The defendant petitions the court to dismiss the motion for a summary judgment if he can reasonably show ability and intention to pay the full sum of money required to reinstate the mortgage according to an agreed upon plan.

The money to reinstate the mortgage is expected to come from two different sources.

(A) First, the defendant’s second wife and current housemate is owed $31,000. This money, which came from a foreign source, has been tied up in the courts. She engaged the services of a Canadian investigator and paralegal to obtain the money.

The defendant’s former wife has promised to pay all this money to the defendant when she receives it to satisfy past debts. The money has been sitting in the investigator’s account in Canada for several months. Despite several attempts, he has been unable to transfer it to the former wife’s account at Wells Fargo in Stillwater because a hold was once placed upon this account. Recently, the investigator urged her to open a new account at TCF, where he also has an account, so that the transfer will go through more quickly. She has opened the account and has an appointment to meet with the investigator on July 16th to make the deposit.

According to defendant’s former wife, the problem is not only that banks sometimes block deposits of large sums of money but they also place lengthy holds on deposited money. She says it would take 21 business days for a deposit of $31,000 at Wells Fargo to clear. Then, if she wrote the defendant a check for that amount from her account, it might take another 21 business days. The defendant himself testifies that it recently took 18 days for the bulk of money to be available in a Wells Fargo account from deposit of an $8,000 check drawn on his account at US Bank in the same city.

The bottom line is that the defendant does not have ready cash to reinstate the mortgage because of processing delays in the banking system. While he believes that his former wife will keep her promise to pay the $31,000 to him, he cannot provide proof that she will until the event itself takes place. Under those circumstances, he is willing to provide any kind of evidence that Boundary Waters might require to give assurance that money will be received from that source and that he will use it to reinstate the mortgage.

(B) The defendant has also been expecting an inheritance of more than $100,000 from his father. Most of his father’s estate consists of wooded land. The Conservation Fund obtained a two-year option to purchase this land for a certain amount, with the proceeds being split evenly by his sister and himself. The option was up last September but the estate executor extended it through June of this year. The Conservation Fund then said it would exercise the option; however, the money will not actually be paid until December of this year.

In this case, the executor of the estate may have signed documents from the Conservation Fund to the effect that it will pay the estate a certain sum of money for the land and could also testify that the defendant will receive money by a certain date. However, this would, again, not be ready cash but evidence of a future payment. The defendant has no control over release of funds owed to him.

If the foreclosure case had been allowed to proceed as originally planned, the defendant believes he would have little trouble reinstating the mortgage on a timely basis. The motion for Summary Judgment is unhelpful in that regard because it creates a deadline that comes in conflict with policies of the banking system for accepting or releasing funds. The defendant urges the court to allow some flexibility so the bank can be repaid without the cumbersome and unjust processes of foreclosure. He urges that the motion for a summary judgment be denied on condition that the defendant provide the bank with a credible proposal for reinstating the mortgage supported by evidence.

ATTORNEY FEES

The bank could have obtained security for its loan by taking a deed for the property in lieu of foreclosure as Ms. Holmboe, then branch manager, once proposed. It could inexpensively have pursued foreclosure by advertisement. However, it chose to pursue expensive court action. The defendant had little choice but to be involved in the process.

The law allows a party that forecloses on the property of another to receive reasonable attorney fees in addition to what is required to reinstate the mortgage. The consistently heavy-handed approach pursued by the HKM law firm, with the presumed consent of the Boundary Waters Bank, has been anything but reasonable.

What is “reasonable”? Is it not a fair and efficient pursuit of what the bank is owed? If the debtor has professed the ability to reinstate the mortgage and expressed interest in doing so, would it not be in everyone’s interest to achieve this goal cooperatively? How is it reasonable for the law firm instead to move up the time table to make it more difficult for the debtor to raise the money in the time? And if this is not reasonable, why should the attorney fees involved in the motions for Summary Judgment, especially the second one, be considered reasonable? They are not. This case seems to have been designed to give the law firm a big pay day rather than collect money for the bank. The defendant should not have to pay for this if the legal activities are excessive, unnecessary, and unreasonable.

The court originally set a trial date in January of next year. It also ordered mediation and appointed a mediator. This would suggest that even for foreclosures, whose debts would normally be beyond dispute, justice requires some degree of collaboration between the parties, not a sledge-hammer approach.

The HKM law firm has instead churned legal documents to generate fees. It killed an effort in January to refinance the debt through Home Mortgage Solutions of California by refusing even to talk with these people. It has made no attempt to talk with me, the debtor, to assess my situation or try to find an agreement. It has given no itemized account of intended fees or even a total. This is not being reasonable. The law firm’s behavior has made it more difficult, not less, to settle this case.

It is up to Judge Vasaly to set the level of attorney fees. I would propose that my share of these fees be capped at $2,000 provided that I am able to reinstate the mortgage without further difficulty. Again, the timing of funds release is largely beyond my control but I can produce evidence of ability to pay if the bank will accept this.

dated July 15, 2015 _________________________

William H.T. McGaughey, Jr.
1702 Glenwood Avenue
Minneapolis, MN 55405

612-374-5916

My response also required that an affidavit of service be submitted. Alan Morrison personally served the HKM law firm at its offices in St. Paul.

 

I raise money to reinstate the mortgage

The story should have ended here until the hearing of July 23rd took place; but it did not. When Alan Morrison and I went to the Wells Fargo bank on Olson highway to have his signature notarized, I picked up a copy of City Pages, a free-circulation newspaper, in the news rack in the bank lobby and read a short article that described how hard it was for a young Twin Cities couple to buy a house in Minneapolis. Evidently, the real-estate market was booming. The featured couple had to spend tens of thousands of dollars more to purchase a suitable house than what they had originally planned.

I discussed this article with Alan Morrison. He said, yes, the housing market was booming. He thought prices were back to where they were in 2007. Maybe the duplex was not under water any more. He had seen people taking photographs of the duplex. My neighborhood was coming back. It was important to try to save this property from foreclosure, if possible, even if the duplex was in north Minneapolis (not a desirable real-estate location).

I had mentioned to Alan that my insurance agent had given me the name and phone number of a “hard lender”. I had spoken briefly with this man once before. I had hoped to borrow the entire $175,000 to pay off Boundary Waters Bank at a lower interest rate, but the hard lender had money to lend at 8 percent interest as opposed to 6.875 percent on the mortgage with Boundary Waters Bank. I was not interested in that proposition.

From several discussions with bankers, I knew that no regular bank would lend me money, even if I had ample collateral (my unencumbered apartment building) . After the financial collapse of 2008, commercial banks have stopped making such loans. They instead follow a one-size-fits-all policy of lending only if the borrower has a good credit score and a favorable income-to-debt ratio. I failed on both accounts. My credit score had plummeted with the impending foreclosure. As a retired person, I had low income. As a divorced man stuck by the judge with more than $300,000 of marital debt, I had relatively high debts. In short, I was in banking “hell”. However, “hard lenders”, using money from private-equity funds, were a bit more flexible.

I called “Dave”, the hard lender, and explained my situation. I needed $20,000 in about a week to be able to reinstate the mortgage. He asked me to fill out an online application that included obtaining my credit scores from an organization called Free Score 360. I used to be in the 700s. Now, with an impending foreclosure, my credit score was 646 with Experian, 661 with Equifax, and 701 with Transunion. The lender’s website indicated that they liked to see credit scores at 680 or above. I was not sure if I was still in the running.

The hard lender’s website asked for the credit report and credit scores from Free Score 360 to be sent back by PDF file. But I could not create a PDF file from Score 360’s site. I could, however, print the reports. I called Dave to ask if I could instead drop off copies of the printed report at his office. He said I could. The office was in Bloomington.

I sat in Dave’s office for a time as he entered my data into the system. Evidently, my application had been approved. Only after I had filled out and signed several sheets were the terms of the loan made clear. Basically, I would have to pay 15 percent interest up front as a finder’s fee. Dave’s organization did not make the loans itself but worked with various sources of funds. In this case, I would have to borrow $23,000 to obtain $20,000 to reinstate the mortgage and pay the 15 percent origination fee. It was a steep price but one I was still willing to make to be assured that the judge would not grant the bank a summary judgment because I had ready cash to reinstate the mortgage at the time of the hearing.

Even though I eventually signed all the papers, I did condition the loan on the bank agreeing to reinstate the mortgage. I would call the bank to learn its attitude. If the $20,000 sufficed to end the foreclosure, then I would borrow the money. If not, I would not borrow the money. Dave agreed to that; however, he made clear that once his organization had commitments to lend me the money, I owed him the $3,000 origination fee. In other words, the clock was ticking.

On the same day that I contacted Dave (July 15th), I also sent the following email to my sister, who was the executor of my father’s estate. It read:

“As you may know, a duplex that I own in Minneapolis is headed for foreclosure. I would need about $20,000 to reinstate the mortgage.  I have prospects of receiving that amount from another source but the cash never appears.  

In a week, I will be headed to court to try to stop a motion for summary judgment.  I was fortunate to have beaten this once before but this time the judge may grant the motion unless I have the cash on hand at the time of the hearing.

At one time you were agreeable to the idea of my getting an advance on the inheritance settlement.  Are you still open to this idea?  You know that after the estate is settled, I will have the money to pay back the advance.  We are talking about a six month time period.  I may also have enough money before that but cannot make any promises at this point.

The hearing on summary judgment is July 23rd in the morning.  I could probably raise some of the $20,000 by selling property but would appreciate it if the bulk of the funds came from an advance or short-term loan.”

My sister responded later that day:

“Although I understand your need for immediate funds, I could not advance you anything without the assurance of the lawyer for the estate that I have the authority to do so.  If I were authorized to give you an advance, the only condition under which I would agree to do so would be if you agreed that there would be no quarrels about the settlement of Mom and Dad's estate - whether concerning my commission or any other aspect of the estate or its proceeds.”

This response left a bitter taste. For at least several months, I had asked my sister, the executor of my father’s estate, to let me know exactly what was happening with the estate. (It had been over ten years since my father had died and still the estate was not settled.) I raised questions about her proposed executor fees and her agreement with the Conservation Fund to purchase land from the estate. She had always declined to answer my questions. And now she was possibly agreeing to advance funds if I agreed to stop asking questions about the estate but simply let her do what she wanted to do. But I did need the money. It would save me $3,000 if the funds came from an advance on the inheritance payment rather than from the hard lender’s sources.

First I called the bank to announce the prospect of reinstating the mortgage. Allan Hilgers, the bank’s senior vice president, was on the line. I told them that I could pay the amount in arrears and was willing to pay $2,000 of the attorney fees. He bristled at that suggestion. The bank had paid more than $6,000 in attorney fees and I would pay only $2,000!!! I cited the law that limited my share to half of the fees and argued that most of the fees represented unnecessary litigation. Mr. Hilgers had other issues with me: In my previous filing, I said I would reinstate the mortgage but had not done so. I was continuing to collect rent on the duplex but not making payments to the bank. (But of course Ms. Holmboe had refused to accept partial payments.)

Hilgers said he would check with the law firm to see what to do if I had the money this time. He later called back to say that the bank would accept the money in arrears if payment was made in a certified check, a cashier’s check, in wired funds, or in cash. He would give me a payoff amount. We could decide the legal fees later. I said that arrangement was acceptable to me. I immediately called Dave to say that we were a “go” with the loan, leaving a message on his answering machine.

Shortly afterwards, I checked my telephone messages and found a call from Joe Kosierowski, an attorney in Milford, Pennsylvania, whom my sister had engaged to help settle the estate. I left my own message. A short time later, Mr. Kosierowski called to discuss the estate and my particular request. Yes, my sister was willing to offer me an advance of funds. However, I would have to agree to letting her settle the estate on her terms. He explained that, as the estate’s executor, my sister had the right to sell the land to whomever she chose. My only recourse was to sue if I believed that the price was inadequate.

Mr. Kosierowski explained that the executor’s fees would be set by the “Johnson estate” scheme by which the executor would get 5% for the first $100,000 of assets administered, 4% for the next $100,000, and then 3 % for the remaining assets, up to $1 million. Also, he would get around $15,000 for attorney fees. He said my sister was willing to give me the remaining Milford Boro land for a nominal price - around $2,000 - and he would check to make sure none of the land sold to the Conservation Fund was on that side of the Sawkill. There was also discussion of Pennsylvania inheritance taxes.

This conversation did much to reassure me. My sister had originally proposed receiving a 5% commission across the board. This would average around 3.8% and was considered normal in Pennsylvania. There was no use fighting about commissions or about the proposed terms of sale to the Conservation Fund. I immediately emailed my sister to consent to her terms; and when she emailed me asking for a more specific commitment that I would not challenge the commission, I sent another email reaffirming my commitment. My sister then asked for the bank’s wiring instructions. The personal banker at Wells Fargo gave me that information. Because it was late on Friday, the money would be transferred on Monday, July 20th.

In the afternoon of Friday, July 17th, I was quite nervous about whether I could depend on my sister to send the money. The lawyer had said she would but I wanted to hear from my sister herself. At this point, I had told Dave that I needed the money from him. If he was able to move quickly to find lenders, I would owe him the $3,000. On the other hand, I did not want to tell Dave that I no longer needed the money if there was uncertainty regarding my sister. The worst thing would be to have no money on or before July 23rd, Fortunately, I did hear from my sister and was able to call Dave in time to cancel the loan.

I could breathe a sigh of relief. Now there was virtual certainty that the foreclosure would not go through if I reinstated the mortgage. There was a big question how much of HKM’s legal fees I would be required to pay. I was prepared to argue for the minimum before Judge Vasaly. Also, I needed some assurance from the bank that if I paid the arrearage on the mortgage, it would drop the foreclosure proceedings, given uncertainty regarding the legal fees. And, of course, I would have to supply the money for those fees even after my sister wired the funds. She would wire this money on Monday, July 20th, and the funds would be available the next day.

 

On to reinstatement

My sister was good as her word. I received an email from her Monday morning to the effect that the money had been wired. I thought it would take a day for the funds to clear but they were in my account Monday afternoon. The next step would be to notify Boundary Waters Bank that I was prepared to reinstate the mortgage immediately. I imagined that I would call the bank, talk with Allan Hilgers, obtain a cashier’s check for the payoff amount, and then deliver this check to the bank.

But I was worried. Hadn’t I been warned by an attorney to get something in writing if I delivered a large sum of money to the bank. But what type of statement did I want? I thought I needed clarification of procedure before paying nearly $20,000 to Boundary Waters Bank.

An option was to consult with a self-help attorney at the Hennepin Government Center. On Tuesday morning, July 21, 2015, I parked my car across I-94 and walked to the Government Center. I signed in at 10:10 a.m. For some reason, the clerks at the counter forgot to contact me - or they said they had tried but failed - so that it was not until 11:30 that I was able to see a volunteer attorney. It was worth the wait.

The attorney said I needed to ask for a “settlement agreement” if I gave the bank any money. This is a signed statement from a bank officer that the bank is willing to drop the foreclosure suit. It does not mean that an action for foreclosure cannot be filed again if I again default on the payments but only that the mortgage would be reinstated. I was unsure if Mr. Hilgers would give me such a statement if we had not resolved the issue of attorney fees. If he did not, I could always tell the judge that I had tried to reinstate the mortgage but the bank had refused. The tender of money could then be made before the judge. The judge can’t force the bank to settle but the bank would have an incentive to do so.

It was important for me to show up in court and oppose the motion for a summary judgment. Otherwise, it would be granted by default. Also, I needed a statement from the bank showing the exact amount owed. If there is even the smallest discrepancy in this amount, the bank would not be entitled to a summary judgment.

I explained how the HKM law firm was trying to maximize legal fees. The attorney said, yes, that is the “business model” of some law firms. They do not try to negotiate and they do not even check documents carefully. They make lots of money by taking lots of cases and following set procedures.

The volunteer lawyer gave me a sheet titled “Here are the next steps I recommend you take on your issue:

- attend hearing
- make settlement offer to bank

before hearing to Bank
at hearing in front of judge

- don’t pay settlement until you have a signed settlement agreement”

Back at home, I called Boundary Waters Bank. As before, Mr. Hilgers was at the Woodbury office. However, he was at a meeting for several hours that afternoon. I went to have my hair cut. A voice message from Hilgers was waiting when I returned. Hilgers said he had sent me an invoice on Friday for the amount owed. There were two amounts actually. I owed Boundary Waters Bank $18,416.90 as of July 1st and $19,886.88 as of August 1st. I had calculated that I owed slightly less than $19,000 on July 23rd. But the big issue was legal fees. The bank had recently received another bill for $3,000 from the HKM law firm. I said that the two motions for summary judgment were not “reasonable” legal activities. Hilgers said that was my option and he would not say anything more. However, he himself would be at the court session on July 23rd.

It was important for me to make an effective presentation before Judge Vasaly. Being a writer rather than a public speaker, I sometimes have trouble with courtroom testimony. For example, I was not completely effective in representing myself in court during the two-day divorce trial. I might have limited time. My knowledge of the law was incomplete. Obviously, I had to write out my case before hand and perhaps practice my presentation a time or two.

 

Talking points before Judge Mary Vasaly

I was due to appear in court at 8:30 a.m. on Thursday, July 23, 2015. In preparation, I typed the following five-page document to guide my testimony:

1. cashier’s check: I have a cashier’s check payable to Boundary Waters Bank for $19,886.88 to reinstate the mortgage. This includes everything except for legal fees. In return, I want a settlement agreement that the foreclosure suit would be dropped.

2. Dismiss motion for summary judgment: I ask that the mortgage be reinstated in accordance with statute 580.30, Subdivision 1, which states that the owner of mortgaged property can reinstate the mortgage at any time before the property is sold by paying the entire amount owed to the bank including late fees plus up to one-half of the attorney's fees authorized by section 582.01. Section 582.01 says that, in the case of foreclosure by action, the judge decides the amount of legal fees. Mr. Hilgers and I agreed in a telephone conversation for me to pay first to reinstate the mortgage and settle the question of attorney fees later.

3. What is my share of attorney fees? Boundary Waters Bank has engaged the services of HKM law firm to help collect money owed from me. Minnesota statute 580.30, Subdivision 1 states that the bank is entitled to be reimbursed “up to one-half of the attorney's fees authorized by section 582.01.” However, the bank is entitled only to collect “reasonable” attorney fees from me. The mortgage contract in exhibit 3, page 12, states that the borrower will pay expenses related to enforcing the contract including “reasonable attorney fees”. The letter to me from Ms. Holmboe dated November 14, 2014 states that the bank can collect reasonable costs including “reasonable attorney fees”. This wording implies that some attorney fees might be unreasonable.

Therefore, we have three categories of legal expense: (1) the half of attorney fees that the bank has to assume, (2) unreasonable attorney fees in my half, and (3) reasonable attorney fees in my half. The bank would have to eat attorney fees in the first two categories. I would have to eat expenses in the third category.

4. What are reasonable or unreasonable attorney fees? This is up to the judge. Minnesota statute 582.01, subd. 2 states that “The court shall establish the amount of the attorney's fee in case of foreclosure by action.”

There seem to be no statutory guidelines for the amount of legal fees. I would note, however, that 582.01, subdivision 1, contains a schedule of maximum fees for foreclosure by advertisement, based on the original principal amount of the mortgage. In the case of this mortgage, the maximum fee under those guidelines would be $1,500. ($275 + (35x$35)

5. A large part of the attorney fees from HKM are unreasonable. I would propose that the court use as a standard of reasonableness whether the legal action undertaken by HKM is necessary and helpful in furthering the stated objective of this lawsuit: for Boundary Waters Bank to recover all the money owed to it under the mortgage contract. The bank could have recovered this money much more efficiently if it had attempted to discuss the situation with me. It was always my intention to pay the money but I needed to raise it first.

a. Neither the bank nor the HKM made any attempt to contact me to discuss settlement options. The other side initiated no phone calls to me. It sent no letters except for those related to legal motions.

b. I sent the law firm and the bank several letters clarifying my situation. However, I could not make promises to have the cash in hand unless I had a reasonable prospect of achieving this objective. I knew the bank would not rely on vague promises but needed credible evidence that I had the money. In May, I thought I had a reasonable prospect of paying the money at the hearing but my expectations were dashed. I informed Mr. Hadac of this a week before the hearing.

c. In January, I had been accepted into a program to restructure mortgages facing foreclosure by Home Mortgage Solutions of Santa Ana, California, that included new sources of funding. The bank referred this organization to its lawyers who refused to talk with them. So the deal fell through. We might have been able to reinstate the mortgage then.

d. I also agreed to the deal proposed by Ranee Homboe in September 2014 to deed the property to the bank in lieu of foreclosure to minimize legal expenses. Granted, this oral contract was unenforceable, but it does suggest a way that the bank could achieve satisfaction of its contract without incurring high legal fees.

In summary, the expensive production of documents and other costs generated by the HKM law firm was neither necessary nor useful in getting the bank its money. In fact, those activities were counterproductive since the strict time limits imposed by the two motions for summary judgment made it less likely that I could raise the money in time to reinstate the mortgage.

6. Both motions for summary judgment were unreasonable because they were unnecessary and unhelpful in getting the bank its money. They were also unreasonable since the HKM was on shaky grounds in claiming that there were no genuine issues of fact left to be litigated in this case.

a. In the first motion, the KHM lawyers knew they had a problem with summary judgment because they tried to claim the two feet of land to create a buildable lot for the duplex. But they went ahead with the motion anyhow. I cited three genuine issues of fact. In the end, the judge did deny the plaintiff’s motion for summary judgment on the grounds that it was unclear who owned the second parcel of land.

b. The second motion was filed five weeks after the judge announced her decision on the first motion. It was even more unjustified than the first.

1. After the hearing before Judge Vasaly, Christian Brandt from HKM law firm and I conferred informally. Brandt said that the bank preferred a voluntary settlement if I had the money. I told Brandt that this was my preference, too. I intended and expected to reinstate the mortgage although, now, it seemed it might take several months to raise the money. Despite this conversation, HKM promptly filed another motion for summary judgment. It made no attempt to contact me to see how my money raising was coming along.

2. The only reason that HKM law firm filed a second motion for summary judgment was to say that it had discovered who owned the parcel of land legally described after the “AND” in the mortgage contract - me. Therefore, the judge’s objection to summary judgment was overcome. I would point out, however, that my arguments against summary judgment, including the one relating to the legal description, were included in a brief that the HKM law firm received on April 24, 2014. This was twelve days prior to the May 6th hearing before Judge Vasaly.

The proper time for the HKM law firm to refute my arguments against their motion for summary judgment was at the May 6th hearing. Evidently, the lawyers had not studied my arguments closely enough for them to want to check the legal descriptions. (I myself did not realize then that the parcel of land described after the “AND” was a vacant lot that I had bought a year before obtaining this mortgage. I thought the mortgage was on the duplex alone.) Instead of incurring thousands of dollars of additional legal expense in filing a second motion for summary judgment, the attorneys from HKM should have raised the issue at the hearing on May 6th. Laziness or incompetence account for the fact that they came unprepared. (I am frankly glad that they were because the judge might otherwise have granted the motion for summary judgment.) It is unfair for the law firm to bill the bank for expenses related to the second motion; and it is certainly unfair and unreasonable for me to be billed. The attorneys had twelve whole days to prepare adequately for the hearing. They should not be financially rewarded for dropping the ball.

7. I made a motion for attorney fees but the bank’s attorneys did not. The court should grant my motion and settle the case now.

In my opposing motion to the second motion for summary judgment submitted on July 15, 2015, I stated: “The defendant moves that his share of attorney fees be capped at $2,000.”

The plaintiff’s motion dated June 22, 2015, moves only that the bank be granted a summary judgment, that a money judgment be entered against me, and that the bank be granted a decree of foreclosure. It says nothing about attorney fees.

This is surprising in view of the judge’s denial of plaintiff’s request for attorney fees which includes the following statement: “Minn. Gen. R. Prac. 119.02. Rule 119.02 requires that the motion for attorney’s fees be accompanied by an affidavit of an attorney of record which establishes the following:” And then there a number of requirements for specific information.

In this case, the plaintiff’s motion for summary judgment has made no request for attorney fees and it has therefore provided none of the information required by Rule 119.02. As of this date, I have received no specific information about attorney fees, only a suggestion that they might be in the range of $9,000 to $10,000 in a telephone conversation some time ago.

The bank would have gotten its money if it had done nothing other than filed the case and waited for the January 2016 trial. That would have given me time to receive funds that I been expecting for several years. Instead, the HKM law firm has churned legal documents to generate fees. That is evidently its business model. But all this activity is unnecessary and unreasonable in terms to getting the bank its money. I would urge the court to find that both motions for summary judgment generated unreasonable attorney fees and therefore their expense should not be billed to me.

My motion made on July 15, 2015, was to pay up to $2,000 of the attorney fees in this case and reinstate the mortgage. It appears that this motion is unopposed and there is no counter-proposal, properly itemized according to Rule 119.02.

I would therefore urge the court to settle the case on the basis of an immediate payment of $19,886.88 to catch up on the mortgage plus $2,000 for reasonable attorney fees and expenses related to reinstatement of the mortgage.

The court appearance on July 23rd

I was nervous about this appearance despite having the money to reinstate the mortgage. Anything could happen in court. I might bungle my testimony. In her previous decision, the judge had signaled willingness to grant a summary judgment; it was only a small point of misunderstanding - whether or not I owned the vacant lot at 1719 Glenwood Avenue - that kept her from ruling in favor of the plaintiff. Now the HKM law firm was bringing another motion for summary judgment to deal with that issue. Yes, I did own the vacant lot. Had I run out of defenses? My only defense was to try to reinstate the mortgage.

Another problem was the 8:30 a.m. court time. I did not usually start my daily work routine by then. If I overslept or was otherwise late, the court would grant the plaintiff’s motion be default. I thought I needed to leave the house at 7:30 a.m. to guarantee that I would be at the court house in time.

Something always happens in situations like this. First, I could not find my glasses. The solution was to use an older pair with an outdated prescription. (I later found my glasses in the waste basket in my bedroom.) Then the cashier’s check was missing in the jacket; it had fallen through to the bottom of the liner. I parked my car near the Stevens neighborhood park; but, of course, every parking space was taken near where I usually park. I had to drive to the other end of the park to find an open space. Walking as fast as I could to cover this greater distance, I reached court room 1955 at the Government Center around 7:27 a.m.

Attorney Christian Brandt and Allan Hilgers of Boundary Waters Bank were conferring in the hallway. We shook hands and I excused myself to visit the men’s room and take a drink from the water fountain.

Sitting in the courtroom, I asked the court clerk if I would be permitted to give my testimony from written notes. He thought I could. Then Christian Brandt and Allan Hilgers entered the room and sat at the other end of the witness table. We all rose when Judge Vasaly entered the courtroom.

Christian Brandt first made a short statement to the effect that the only remaining obstacle to the bank’s motion for summary judgment was the question of who owned the other property described in the mortgage document. Now that it has been established that I owned this property, the bank wanted a summary judgment.

Next it was my turn to speak. I asked Judge Vasaly if I would be permitted to use written notes to guide my testimony. I offered to give the judge and the opposing party a copy of those notes. To my surprise, the judge refused to allow this. She said she would not accept any additional evidence beyond what was included in the briefs.

I then started my testimony by declaring that I had a check for $19,886.88 to give the bank which would get the mortgage caught up as of August 1, 2015. With this check, I intended to reinstate the mortgage. The judge seemed taken aback. She wondered out loud whether the bank would accept the check. I sensed a hostile attitude with this judge. The judge said she would recess the court for ten minutes of so giving the parties a chance to confer. Mr. Brandt and Mr. Hilgers went out into the hallway for a few minutes. Then they summoned me.

The two men told me that they would accept the check. This was good news for all parties concerned, they said. We would leave the issue of attorney fees to a later date. First, HKM law firm would prepare a complete itemized bill for its client and send me a copy. I could then challenge the reasonableness of those charges. If Hilgers and I could not agree, the matter would go back to court for the judge’s decision. Brandt proposed continuing the motion for six months or so. If I kept up the payments, the foreclosure would be decided. If not, it could resume collection efforts without the additional expense of refiling the case. I was not opposed to that suggestion.

I argued with Hilgers about attorney fees in the hallway. It was clear that the bank wanted me to pay all the fees. After all, I had clearly defaulted on the loan. I reminded Hilgers that state law required him to assume half of the legal fees. He did not know about this and Christian Brandt made no comment. I proposed to discuss the matter with Hilgers in the bank’s Woodbury office. He gave me his card.

Back in court, Christian Brandt told the judge of our agreement. The judge would not allow the present motion to be continued for several months. She would entertain another motion only about attorney fees. The HKM firm would submit an itemized bill within 45 days. If we could not agree, then the court would decide my share of the fees.

On the whole, this was as much as I could expect. The motion for summary judgment was in the past. I would have to return to court to make the arguments about attorney fees that I had expected to make on July 23rd.

It seemed to me that statute 580.30, Subdivision 1 put me in a strong position in insisting that my share of the bank’s attorney fees be limited to one half. The only discomforting aspect was that I had not yet reinstated the mortgage because my cashier’s check did not cover all the items listed in the statute. It had caught up with the mortgage payments but had not included attorney fees. However, that was not my fault. I might have been willing to pay attorney fees but I did not know how much they were. The judge had not yet made a ruling. Also, I never received adequate information about attorney fees from the law firm or from the bank. It was not my fault that I was unable to pay those fees on July 23rd. But when I did receive concrete information about fees and did pay them, my share should be limited to one half. That would be my argument.

When I next appeared before the judge, I also expected to argue that part of the law firm’s fees were unreasonable, especially those pertaining to summary judgment. But anything could happen. If the judge sided with the other side, I might not have enough money to reinstate the mortgage in accordance with statute 580.30, Subdivision 1. But, if the case warranted it, I could always go to the Court of Appeals.

 

The bill for attorneys' fees arrives

Nothing much happened with this case until September. I was hoping that the law firm would forget the 45-day deadline. But, of course, that was wishful thinking. Labor Day weekend arrived. On Saturday, September 5, 2015, at 5 p.m. - the 44th day of the time period given by the judge - I opened the day’s mail. Among the items was a large manila envelope from the HKM law firm. There was a “September surprise”. The law firm was making a motion that I pay $21,519.55 for work done on its client’s behalf through August 14, 2015.

On HKM letterhead (“innovation, passion, results”), this letter was addressed to me and my former wife:

Dear Mr. McGaughey and Mrs. McGaughey:

Enclosed herewith and served upon you by United States Mail relative to the above matter please find the following:

1. Plaintiff Boundary Waters Bank’s Notice of Motion and Motion for Attorneys’ Fees Award Pursuant to Minn. Gen.R. Prac. 119;

2. Plaintiff Boundary Waters Bank’s Memorandum of Law in Support of Motion for Attorneys’ Fees Award Pursuant to Minn. Gen.R. Prac. 119;

3. Affidavit of Kelly S. Hadac;

4. Affidavit of Allan Hilgers in Support of Motion for Award of Attorneys’ fees and Costs;
and,

5. Proposed order.

Very truly yours,

Kelly S. Hadac
Attorney at Law

*** ***** *** ***** *** ***** ***

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________
Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank,
a Minnesota Banking Corporation
Plaintiff

PLAINTIFF BOUNDARY WATERS
BANKS’S NOTICE OF MOTION AND
MOTION FOR ATTORNEYS’ FEES
AWARD PURSUANT TO
MINN. GEN. R. PRAC. 119


v.
William H. McGaughey and Lian Y. McGaughey
defendants
________________________________________________________________

TO: Defendants William H. McGaughey and Lian Y. McGaughey

PLEASE TAKE NOTICE that the undersigned will bring the following motion before the Honorable Mary R. Vasaly, at the Hennepin County District Court, Hennepin County Government Center, 300 South sixth Street, Courtroom 1955, Minneapolis, MN 55487-0332. Pursuant to the order dated July 23, 2015, a hearing on this motion is not required.

MOTION

Pursuant to Rule 119 of the General Rules of Practice, Plaintiff Boundary Water Bank will move this Court for an order granting its Motion for Attorneys’ Fees against Defendants William H. McGaughey and Lian Y. McGaughey jointly and severally.

Said motion will be based upon the accompanying Memorandum of Law, Affidavit of Kelly Hadac in Support of Motion for Award of Attorneys’ Fees and Costs, Affidavit of Allan Hilgers in Support of Motion for Award of Attorneys’ fees and Costs, and all of the files, records, and proceedings herein.

Dated: September 3, 2015 HKM, P.A.
________________________
Kelly S. Hadac
Julie N. Nagorski

*** ***** *** ***** *** ***** ***

A second document was the following:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________
Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly
Boundary Waters Bank,
a Minnesota Banking Corporation
Plaintiff


PLAINTIFF BOUNDARY WATERS
BANKS’S MEMORANDUM OF LAW IN
SUPPORT OF MOTION FOR
ATTORNEYS’ FEES AWARD
PURSUANT TO
MINN. GEN. R. PRAC. 119


v.
William H. McGaughey and Lian Y. McGaughey
defendants
________________________________________________________________

INTRODUCTION

Only July 23, 2015, following a hearing resulting in an agreement between the parties then present to settle all the claims Plaintiff Boundary Waters Bank (the “Bank”) asserted in this matter against Defendants William H. McGaughey and Lian Y. McGaughey (collectively “Defendants”), the Court issued an Order permitting the Bank to serve a motion for an award of attorneys’ fees if the parties were unable to amicably resolve the fees before September 7, 2015. The parties have not resolved the attorneys’ fees. For the reasons stated below, the Bank should be awarded $21,519.55 as of August 14, 2015 in attorneys’ fees and costs against Defendants, jointly and severally, plus additional fees, costs, and expenses that have been or will be incurred by the Bank through any decision on its motion, any appeals, or any collection activities.

STATEMENT OF FACTS

I. THE NOTE AND THE MORTGAGE

On November 29, 2007, Defendant William H. McGaughey (“McGaughey” executed and delivered to Bear Stearns Residential Mortgage Corporation (“Bear Stearns”) a Note in the original amount of $182,000 (the “Note”). See Affidavit of Ranee R. Holmboe dated April 3, 2015 (“Holmboe Aff.”), Ex. 2. Pursuant to the Noted, McGaughey was required to make monthly payments until the debt was paid in full. Id. ¶ 3. The Note defines failure to make the monthly payments as a default. Id. ¶ 6. Upon default, the Note allows the Bank to call the balance of the loan due, plus interest, fees, including reasonable attorneys’ fees, and costs incurred in connection with pursuing its remedies under the Note. Id.

The Note is secured by a mortgage executed and delivered by McGaughey and Defendant Lian Y. McGaughey (“Mrs. McGaughey) in favor of Mortgage Electronic Registration Systems, Inc. (“MERS”), as nominee for Bear Stearns, against real property in Hennepin County (the “Mortgage”). Holmboe Aff., Ex. 3. Per th Mortgage, Defendants agreed to make payments required by the Note. Id. ¶ 1 In the event Defendants breach any term of the Mortgage, the Bank has the right to accelerate the loan, require immediate payment of the outstanding balance, and pursue all other remedies permitted by law. Id. ¶ 22 The mortgage further entitles the Bank to recover all fees and costs, including reasonable attorneys’ fees, incurred in connection with pursuing its remedies under the Mortgage. Id.

The Note and Mortgage were assigned by MERS to Bayview Loan Servicing, LLC and then to the Bank. Holmboe Aff. Exc. 2, 4. 5.

II. THE COMPLAINT AND ANSWERS

After Defendants defaulted under the Note and the Mortgage, the Bank sued Defendants, serving a Complaint on McGaughey in January 2015 and Ms. McGaughey in February 2015. See Affidavits of Service of Summons and complaint. Both Defendants appeared. Ms. McGaughey provided a letter indicating that she has no interest in the property following her divorce from McGaughey. McGaughey provided a Response to Complaint in February 2015. Holmboe Aff. Ex. 1 There he admitted that he failed to make the required payments under the loan documents. Id.

III. SUMMARY JUDGMENT MOTIONS

Because McGaughey admitted that he failed to make the required payments, no legitimate question with regard to the material facts existed and the Bank, therefore, moved for summary judgment in April 2015. McGaughey opposed the motion, claiming that he did not own all of the property that was subject to the Mortgage. The court, in a decision in May 2015, determined that the Bank was not entitled to partial summary judgment due to that issue and due to the construction of the complaint, but found in the Bank’s favor:

Based on the undisputed facts, the Court finds that Mr. McGaughey is in default on the Note and owes Plaintiff the principal amount of $167,236.04, plus interest of $8,207.92 and late charges of $538.02, for a total of $175,981.98, through April 1, 2015, and additional accruing interest thereafter.

Order Denying summary Judgment, p. 5. The court also denied the Bank’s request for attorneys’ fees at that time, finding that it was “procedurally defective” because the Bank had not submitted the materials required by Rule 119 of the Minnesota general Rules of Practice in support of its request. Id., p. 6.

The Bank then incurred attorneys’ fees and costs to research the title to the Property. That research proved that McGaughey’s factual assertions that prompted the denial of the Bank’s first motion for summary judgment were inaccurate. The Bank, therefore, moved again for summary judgment in June 2015. McGaughey again opposed the motion. At the hearing on that motion, the Bank and McGaughey “reached a resolution regarding all of the claims except Plaintiff’s claim for recovery of attorneys’ fees. Order dated July 23, 2015.

Since the July 2015 motion hearing, the Bank attempted to resolve the fees issue with Defendants, but Defendants failed to communicate with theBank and the Bank, therefore, makes this application for an award of tits fees. Hilgers Aff., ¶ 3. The Bank has incurred fees and costs in the amount of $21,519.55 as of August 15, 2015, and will incur additional fees, costs, and expenses through any post-award motions, appeal, or collection activities. See Affidavit of Kelly S. Hadac in Support of Motion for Award of Attorneys’ Fees andCosts. (“Hadac Aff.”)

DISCUSSION

I. PURSUANT TO MINN. GEN. R. PRAC. 119, THE BANK IS ENTITLED TO AN AWARD FOR ATTORNEYS’ FEES AND COSTS AGAINST DEFENDANTS JOINTLY AND SEVERALLY.

An award of attorney’s fees is permissible when “there is a specific contract permitting or a statute authorizing such recovery. Barr/Nelson, Inc. v. Tonto’s, Inc. 336 N.W.2d 46, 53 (Minn. 1983). A party seeking an award of attorneys fees in an amount exceeding $1,000.00 must make such a request by motion. Minn. R. Gen. Prac. 119.01. Such a motion must be supported by an attorney’s affidavit which establishes the following:

1. A description of each item of work performed, the date upon which it was performed, the amount of time spent on each item of work, the identity of the lawyer or legal assistant performing the work, and the hourly rate sought for the work performed.

2. The normal hourly rate for each person for whom compensation is sought, with an explanation of the basis for any difference between the amount sought and the normal hourly billing rate, if any;

3. A detailed itemization of all amounts sought for disbursements or expenses, including the rate for which any disbursements are charged and the verification that the amounts sought represent the actual cost to the lawyer or firm for the disbursements sought; and

4. That the affiant has reviewed the work in progress or original time records, the work was actually performed for the benefit of the client and was necessary for the proper representation of the client, and that charges for any unnecessary or duplicative work has been eliminated from the application or motion.

Minn. R. Gen. Prac. 119.02

The Bank meets the criteria for an award of attorneys’ fees. It has a contractual basis for the award. See Holmboe Aff., Ex. 2 ¶ 6 (“ ... the Note Holder will have the right to be paid back by me for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys’ fees.”); Ex. 3, p. 13, ¶ 22 (“Lender shall be entitled to collect all expenses incurred in pursuing the remedies ... including, not not limited to, reasonable attorneys’ fees”). Additionally, the Bank has submitted the requisite documents supporting this motion. See Hadac Aff. The Bank should, therefore, be awarded its fees.

II. THE COSTS AND FEES TOTALING $21,519.55 AS OF AUGUST 15, 2015 ARE REASONABLE.

A district court has wide discretion in determining the amount of fees to be awarded but generally the amount allowed under a contract must be reasonable. State Bank of Cokato v. Ziehwein, 510 N.W.2d 268, 270 (Minn. App. 1994) (citing O’Donnell v. McGee Trucks, Inc., 294 Minn. 110, 113, 199 N.W.2d 432, 434-35 (1972). Factors considered in determining the reasonableness of attorneys’ fees include the time and labor required, the nature and difficulty of the responsibility assumed, the amount involved and the results obtained, the fees customarily charged for similar legal services, the experience, reputation, and ability f counsel, and the fee arrangement existing between counsel and the client. Milner v. Farmers Ins. Exch., 748 N.W.2d 608, 621 (Minn. 2008) In Musicland Group, Inc. v. Ceridian Corp, the Court of Appeals affirmed the district court’s award of attorneys’ fees despite the fact that some of the claims in the lawsuti were unsuccessful, because the legal theories “depended on proving a common core of facts” and the types of claims were related. 508 N.W.2d 524, 535 (Minn. App. 1993) “In these circumstances the fee award should not be reduced simply because the plaintiff failed to prevail on every contention raised in the lawsuit.” Id. (quoting Hensley v. Eckerhardt, 461 U.S. 424, 103 S. Ct. 1993 (1983); See also Riverview Muir Doran, LLC v. JADT Dev. Group, LLC, 776 N.W.2d 172 (Minn. App. 2009)

Here the Bank prevailed on its claims. First, it obtained the May 2015 decision of the Court finding that Defendants defaulted and owed the Bank $175,981.98 as of April 1, 2015. Then, it achieved a settlement with McGaughey at the July 2015 hearing whereby McGaughey paid the Bank the past-due amounts and cured his defaults. (Hilgers Aff., ¶ 2) and, in exchange, the Bank agreed to dismiss its Complaint against Defendants following resolution of the attorney’s fees issue. This outcome on the merits is precisely what the Bank intended to obtain in the litigation. Although the May 2015 Order determined that the Bank could not foreclose its mortgage because of fact issues regarding the ownership of the property, the fact that the Bank obtained a cure of the defaults and payment from MrGaughey shows that the temporary delay in foreclosing the mortgage was a de minimis glitch in its path to success in the litigation.

Moreover, the litigation was more complex than the ordinary foreclosure by action solely because of McGaughey himself. In response to the Bank’s initial motion for summary judgment, he raised an incorrect fact issues, claiming that he did not own all of the property that was subject to the mortgage. Relying on that baseless assertion, the Court denied the Bank’s motion. The Bank then had no choice but to incur additional legal fees and expenses to research the ownership of the property and then present the undisputed evidence proving McGaughey’s ownership of the property to the Court in a second summary judgment motion. McGaugheys’ strenuous and erroneous opposition to the Bank’s exercise of its remedies thus prompted the need for two motions for summary judgment with a total of three briefs on the Bank’s behalf and two hearings. In light of the facts, the fees of $21,519.55 are reasonable.

Furthermore, the fees charged by the lawyers and assistants in this case are reasonable and customary based on the experience, reputation, and ability of the lawyers and firms involved, along with the complexity of the base. See Hadac Aff. ¶ 13. Accordingly, the Bank satisfied all the prerequisites for an award of its fees and the requested amount of fees and costs is reasonable.

CONCLUSION

For all the reasons stated above, the Bank should be awarded $21,519.55 as of August 15, 2015 in attorneys’ fees and costs against Defendants, jointly and severally, plus additional fees, costs, and expenses that have been or will be incurred by the Bank through any decision on this motion, any appeal, or any collection activities.

Dated: September 3, 2015 HKM, P.A.
__________________________
Kelly S. Hadac
Julie N. Nagorski

*** ***** *** ***** *** ***** ***

Evidently, Christian Brandt had been dropped from the case. Julie N. Nagorski appeared to be stepping in to take his place under the direction of Kelly s. Hadac. Did that mean that additional papers might be filed in court?

The affidavit of Kelly S. Hadac then was presented along with the law firm’s billing records as required by Minn. R. Gen. Prac. 119.02. It follows:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________
Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly
Boundary Waters Bank,
a Minnesota Banking Corporation
Plaintiff


AFFIDAVIT OF ALLAN HILGERS IN
SUPPORT OF MOTION FOR AWARD
OF ATTORNEYS’ FEES AND COSTS


v.
William H. McGaughey and Lian Y. McGaughey
defendants
________________________________________________________________
STATE OF MINNESOTA )
) ss.
COUNTY OF WASHINGTON )

Allan Hilgers, being first duly sworn upon oath, deposes and states as follows:

1. I am Senior Vice President at Plaintiff Boundary Waters Bank (the “Bank”) in the abve-captioned matter. I make this affidavit on personal knowledge and in support of the Bank’s motion for an award of attorneys’ fees.

2. The partial settlement that the Bank and DefendantWilliam H. McGaughey (“McGaughey”) reached at the July 23, 2015 hearing on the Bank’s second motion for summary judgment was McGaughey’s payment of the amount then-past due on the Bank’s loan, without the payment of the attorneys’ fees and costs the Bank incurred in connection with his defaults.

3. After the July 23, 2015 hearing, the Bank attempted to work with McGaughey to resolve his obligation to pay the attorneys’ fees and costs the Bank incurred in this matter. I personally met with him and told him that the Bank would likely be willing to negotiate, but he would need to come in and talk with us. He failed to communicate in response and I have not heard from him again.

FURTHER YOUR AFFIANT SAYETH NOT.
___________________
Allan Hilgers

signed and notarized on September 3, 2015

*** ***** *** ***** *** ***** ***

The affidavit of service was also included:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________
Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly
Boundary Waters Bank,
a Minnesota Banking Corporation
Plaintiff


AFFIDAVIT OF SERVICE BY MAIL

v.
William H. McGaughey and Lian Y. McGaughey
defendants
________________________________________________________________

STATE OF MINNESOTA )
) ss.
COUNTY OF WASHINGTON )

Gail Chapman, being first duly sworn, deposes and states that on the 3rd day of September, 2015, she served the attached:

1. Plaintiff Boundary Waters Bank’s Notice of Motion and Motion for Attorneys’ Fees Award Pursuant to Minn. Gen.R. Prac. 119;

2. Plaintiff Boundary Waters Bank’s Memorandum of Law in Support of Motion for Attorneys’ Fees Award Pursuant to Minn. Gen.R. Prac. 119;

3. Affidavit of Kelly S. Hadac;

4. Affidavit of Allan Hilgers in Support of Motion for Award of Attorneys’ fees and Costs;
and,

5. Proposed order.

Upon:

William H.McGaughey Lian Y. McGaughey
1702 Glenwood Avenue 2433 Corn Crib Court
Minneapolis,MN 55405 Herndon, VA 20171

By depositing a true and correct copy thereof in the United States mail with postage prepaid thereon.

_______________________
Gail Chapman

signed and notarized September 3, 2015

In shock, I prepare a response

This was becoming a nightmare. Not only was the $21,519.55 attorneys’ fee completely unexpected but the bank and its lawyer were maneuvering to make it impossible for me to respond.

Unlike previous motions, we did not have a hearing date. I did not know how much time I would have to respond. If the judge issued a written order, I did not have a copy. I heard her say that the law firm had 45 days to prepare and present a complete itemized billing for its services in accordance with Minn. Gen.R. Prac. 119.02. But now the bank’s pleading suggested that the judge had ordered the two parties to negotiate a settlement of the fee issue within 45 days; and, if they did not, she would set the fee. And it was my fault, of course, that I had not responded to the bank’s earnest effort to negotiate. This was another example of the lies that lawyers tell. But lies do not necessarily hurt a party’s chances of prevailing. I learned that hard lesson in my divorce case.

Since the bank’s papers had arrived on Saturday of Labor Day weekend, I could do nothing about it immediately except to begin preparing a response in case the court allowed time for me to do this. Early Tuesday morning, I called Judge Vasaly’s law clerk. He said he would have to check to answer my question. Later in the day another person called to say that I had two weeks to respond to the bank’s motion regarding fees. I breathed a sigh of relief.

I was so upset at receiving the bill for $21,519.55 that I could not sleep that night. My mind was not quite up to writing so I decided to copy the bill on a computer spreadsheet so I could analyze the parts later. Though the schedule of expenses was extensive, that project did not take too long. I had much of Sunday and Monday, Labor Day, to work on the response, canceling everything else on my schedule. Then, with two weeks from Saturday allowed for a response by the court, I could work most of the following week using the other side’s papers as a model for what I needed to do.

The idea occurred to me during my overnight insomnia that any facts I put in my pleading has to be put in a notarized affidavit. I was swearing from personal knowledge that the alleged facts were true. That was the first document that I worked on after the attorneys’ fee schedule had been put on a spreadsheet. I prepared an affidavit with 37 paragraphs. I felt I was making progress.

Now came the hard part. I needed to prepare a Memorandum of Law that would make an argument against the court’s ordering me to pay $21,519.55. I had previously started to prepare such a statement. It was stored in a computer file. This could be the basis of my argument but it needed to be much more. It had to refer to facts in my affidavit. The two main arguments would be: 1. Minnesota statute § 580.30, Subd. 1 limits the attorneys’ fees charged to the creditor to one half of the total fees if the mortgage is reinstated. 2. The law firm’s billed activities were unreasonable in terms of collecting the debt, especially the two motions for summary judgment. On the other hand, state statute allowed creditors to seek summary judgments quite apart from their desirability. It took me through Thursday, September 10th, to complete most of the work on my submission.

I knew I needed case citations to prevail in court but I knew little about this in foreclosure cases. Fortunately, the other side cited case precedents that might steer me in the right direction. For me, one of the less reasonable aspects of the bank’s case was the sheer magnitude of the billing ($21,519.55) in relation to the debt being collected ($19,886.88). I was shocked, but would the judge be? Probably not. Legal fees seem to be exempt from normal economic considerations.

Then, by some miracle, one of the cases cited by the opposition - O’Donnell v. McGee Trucks, Inc. - included a reference to a Hennepin County Bar Association Minimum Fee Schedule. Judge Vasaly had once been president of the Hennepin County Bar Association. That organization’s Minimum Fee Schedule recommended that fees be roughly 15 percent of the debt collected. Voila! Fifteen percent of $20,000 would be $3,000 - much more affordable than $21,519.55. The bad news, however was that the Hennepin County Bar Association repealed its Minimum Fee Schedule in 1972. The courts do not seem to be using such standards any more. Instead, reasonableness seems to be based more on the hours that attorneys put into cases and what they normally charge, adjusted upward for case complexity. Mr. Hadac’s argument seemed to be directed along those lines.

Another of the opposition’s case citations led me to another angle of attack on the proposed recovery of fees. The U.S. Supreme Court case Hensley v. Eckerhart ruled that an important consideration in attorneys’ fees was whether or not the attorney’s efforts had been successful. In this case, the bank had failed in its first motion for summary judgment; and the second motion was inconclusive. I therefore made an argument to limit attorneys’ fees both by showing that the motions for summary judgment were unreasonable in terms of the stated objective and that they had been unsuccessful.

 

My responsive motion to the court


With this explanation, the following papers were prepared for the court.

First came my affidavit:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Type of case: Civil/Other

File No. 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank, plaintiff

AFFIDAVIT OF WILLIAM MCGAUGHEY IN OPPOSITION TO PLAINTIFF’S MOTION FOR AWARD OF ATTORNEYS’ FEES AND COSTS

and
William Howard Taft McGaughey, Jr. and
Lian Y. McGaughey
Defendants
___________________________________________________________
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )

I am William McGaughey, a party to this lawsuit. Under oath, I state the following on the basis of personal knowledge and experience:

1. In November 2007, my wife and I secured a loan from Bear Stearns for $182,000 by placing a mortgage on our duplex located at 1715 Glenwood Avenue in Minneapolis. Thinking that the mortgage was only against the duplex, I did not realize that the legal description in the loan document also included a vacant lot that we owned at 1719 Glenwood Avenue. That legal description specifically excluded two feet of land on the east side of the lot between the two included properties.

2. After purchasing the duplex, I learned that the building sat on a lot that was only 38 feet wide. City ordinance required that duplexes be on a lot at least 40 wide. Conceivably, the city of Minneapolis could have required us to convert the duplex to a single-resident dwelling. I asked a representative of a non-profit developer if he would sell me the two feet of his 42-foot wide lot adjoining my properties so that the two parcels together would produce a 40-foot-wide lot conforming to city requirements. He agreed. I did purchase the two feet of land. However, it was not included in the legal description in the mortgage executed in November 2007.

3. The mortgage executed in November 2007 bore an interest rate of 6.875 percent, which is unusually high for mortgages of this kind. The mortgage was later sold to Bayview Loan Servicing LLC and then to Boundary Waters Bank, the plaintiff in this case. The monthly mortgage payment was around $1,530. I made all the required payments from late 2007 until July 2014.

4. The mortgaged property is located in the Harrison neighborhood of north Minneapolis, an area characterized by poverty and racial division. A report on the Minnesota Compass website discloses that median household income in Harrison neighborhood dropped from $32,843 in 1999 to $30,588 in 2012. The median household income for Minneapolis as a whole is $50,563. The McGaughey residence at 1702 Glenwood Avenue is also located in the Harrison neighborhood.

5. The collapse in the housing market that occurred in 2008-09 hit north Minneapolis especially hard. The McGaugheys had an agreement to sell the duplex at 1715 Glenwood Avenue for $280,000 in 2003 but the financing arrangements fell through. An appraisal done in 2012 determined that fair market value of the two properties together, 1715 Glenwood Avenue and 1719 Glenwood Avenue, was $110,000. Housing prices may have risen somewhat since then but no appraisals have been done.

6. I, William McGaughey, am a 74-year-old man who supports himself on retirement income of roughly $2,000 per month plus fluctuating income from rental property. The latter source has shown negative income after depreciation for the past five years due to inability to collect the full rent from tenants and continuing maintenance costs. I kept up payments to Boundary Waters Bank and other creditors by selling stock and exhausting my remaining credit.

7. Having been married for ten years, Lian McGaughey filed for divorce against me, her husband, in March 2011. Having initially engaged the services of an attorney, I was unable to afford an attorney at the time of trial. (Lian’s attorney fees were paid by her relatives.) The trial-court judge assigned me responsibility for paying all of our $325,000 marital debt, awarded Lian $500 in permanent spousal maintenance, and also ordered me to pay Lian $50,000 from sale of my non-marital assets. The Minnesota Court of Appeals reversed the last order.

8. I began to experience a significant cash-flow problem about this time. In 2012 or 2013, I contacted Ranee Holmboe, branch president of Boundary Waters Bank, to ask about restructuring the mortgage through certain federal programs, with a particular focus upon lowering the interest rate. Ms. Holmboe said that Boundary Waters Bank did not participate in those programs. However, she did refer me to two mortgage brokers who she said might be able to help. I applied for a loan modification with these brokers but my applications were rejected in both cases. Since 2008, commercial banks have tightened loan requirements considerably. The chief qualification is a favorable income-to-debt ratio which I, having a high debt and low fixed income, have been unable to meet. I also made loan applications with two or three banks, hoping to pay off the Boundary Waters Bank debt, but was rejected by them.

9. By the late summer of 2014, I was unable to continue to satisfy creditor demands. I placed most of my short-term debt with a debt-management firm, Credit Advisors Foundation of Omaha, Nebraska. I continued to pay the mortgage to Boundary Waters Bank through May 2014, then skipped the June payment, and made a double payment in July from sale of some of my remaining stocks. After July, I was unable to make the mortgage payments and keep a positive balance in my checking account.

10. In late September, after my account had been delinquent for a month or two, I received a telephone call from Ranee Holmboe of Boundary Waters Bank. We discussed my financial situation. Ms. Holmboe wanted to know if I would consider giving the bank a “deed in lieu” for the property as a means of resolving the delinquency. I was unfamiliar with the term. Ms. Holmboe said that I would simply give the bank a deed to the property and there would be no foreclosure or deficiency judgment. I said that I would consent to that arrangement. However, I asked Ms. Holmboe to send me something in writing to explain the arrangement. She promised to do that.

11. Weeks went by. The promised letter concerning the “deed in lieu” never arrived. Instead, I received a form letter from Ms. Holmboe dated September 30. 2014, announcing the bank’s intention to foreclose on the mortgage unless full payment of the debt was received by October 15, 2014. I had not the resources to comply with this demand and did not make the payment. I then received another similar letter demanding payment by November 15, 2014; and then another, by December 15, 2014. I sent Ms. Holmboe a letter dated November 13, 2014, referring to Ms. Holmboe’s earlier proposal, in which I said I did not have the money to satisfy the bank’s latest demand and did not expect to have it in the near future. However, I did send the bank a check for partial payment which it returned.

12. In truth, I had been expecting to receive money that would allow me to catch up on the mortgage and resume payments. My late father’s estate had not yet been settled. My sister, an attorney, was the executor. Most of the estate consisted of undeveloped wood land in Pennsylvania. My sister had negotiated a two-year option with the Conservation Fund to sell most of the wood land to this organization for a certain price. My sister and I would split the proceeds equally. This would have provided enough money to reinstate the mortgage with Boundary Waters Bank. The option was up in September 2014. However, the Conservation Fund claimed it needed an extension of time because of difficulties with local government officials. My sister granted the extension without consulting me. This was up at the end of June 2015. The Conservation Fund then decided to exercise its option. However, payment would not be made until December 2015. I criticized my sister for letting the Conservation Fund out of its earlier agreement and causing me stress.

13. Money was also expected from my former wife who lived in the downstairs unit of my home at 1702 Glenwood Avenue. First, my former wife was owed around $31,000 for services to another party which had been tied up in the courts. Second, she was owed more than a year of child-care expenses for a toddler, amounting to $8,000. The toddler was her grandson, born to a son who had been incarcerated and a native American mother addicted to heroin. My former wife promised to give me all the money from both sources because I had been supporting her and her grandson in their period of need. I was led to believe that this money would be received in March 2015 and at various other times but it has not yet happened.

14. I should also mention that my aunt, who died in January 2015, left me $20,000 in her will. This money was, in fact, received in late May, 2015. Although it would cover the deficiency to Boundary Waters Bank, I also had a number of other pressing obligations, including tax delinquencies and unpaid utility bills, that needed to be paid so I could not count on this money alone to reinstate the mortgage.

15. In late January 2015, I received a letter from an organization called Home Mortgage Solutions that offered to help avert foreclosure. The letter stated: “Eligible Applicants in the State of Minnesota may also receive a Principal Reduction, Payment Relief, an interest free loan to pay mortgage payments, or the elimination of their 2nd Mortgage.” Normally, such programs pertain only to owner-occupied buildings and mine was rental. However, I was assured by a customer representative that the program would cover rental property at 1715 Glenwood Avenue, too. Home Mortgage Solutions required an application, copies of my income-tax statements, and a statement to the effect that I was facing hardship. I complied with this request and was accepted into the program. The next step was for this organization to contact the bank and negotiate a settlement. Boundary Waters Bank referred the request to its attorney. According to Brenda Rivera of Home Mortgage Solutions, the attorney refused to talk with her and so nothing further could be done on my behalf.

16. I received a letter and summons from the Murnane Brandt law firm dated January 22, 2015 commencing a foreclosure lawsuit. The motion sought an order to collect $173,626.80 immediately from me and authorize the sheriff to conduct a sale of the property. It also took note of the fact that two feet of land were missing claiming, without justification, “that the legal description contained in the Mortgage is in error.” I denied that the legal description was in error. I also filed a response on February 5, 2015, including a motion that the bank or its attorney be required to negotiate with Home Mortgage Solutions or its partner, the Roosevelt law firm, and, if a settlement was not reached, settle the foreclosure on the basis of Ms. Holmboe’s original proposal regarding the “deed in lieu”. I wrote a letter to Kelly Haldac dated February 24, 2015 pointing out the inadequate width of the lot at 1715 Glenwood Avenue and also requesting that his firm talk with Home Mortgage Solutions to seek a mutually agreeable settlement.

17. Instead of responding to that proposal, I received a packet of materials in the mail dated April 3, 2015, from the bank’s attorney, now named HKM law firm, that included a motion for summary judgment. After researching the issue, I concluded that there were genuine issues of fact that would preclude granting summary judgment: 1. The legal description on the mortgage document did not match the legal description on the property deed for 1715 Glenwood Avenue, 2. The property foreclosed upon was not a buildable lot according to Minneapolis ordinance, and 3. uncertainty as to Lian McGaughey’s status in this lawsuit.

18. There was an error of fact in my response to the bank’s motion for summary judgment. I noted that the legal description for the land on which the duplex sat differed from that in the mortgage document. I wrote: “Thus the legal description following “AND” (The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, Hennepin County, except the East 2.0 feet thereof) does not pertain to any property owned by William McGaughey and should not have been included in a loan document to which he was a party.” In truth, I did not then know who owned the property with that legal description. In rummaging through drawers in my office, I had come across the Quit Claim deed for the property at 1715 Glenwood, compared its legal description with that on the mortgage document, and concluded that there was a problem because the two differed. I had believed that the mortgage was on 1715 Glenwood Avenue alone. The thought never occurred to me that the vacant lot at 1719 Glenwood Avenue had been added to the mortgage. But I should not have jumped to the conclusion that the property after the AND belonged to someone else.

19. My response to the law firm’s motion for summary, dated April 24, 2015, suggested that I would reinstate the mortgage by bringing a money order or cashier’s check to court at the hearing scheduled on May 6, 2015. When I prepared this document, I had a firm expectation of receiving enough money from my former wife. I understood that the money was already in her bank account. I even received $500 from it as an initial payment. Then, those arrangements fell through. Evidently her bank, Wells Fargo, was rejecting the transfer of money from an account in a Canadian bank that her legal representative controlled. I had to return the $500. When Kelly Hadac of HKM law firm called to inquire about this money on April 29, 2015, I said that I expected to have it by May 6th but the money was not yet in hand. I promised to call him on May 1st to report if I had the money. I did not. I called Hadac again on May 4th, but again did not have the money. That was the situation at the May 6th hearing. My reply document had promised money on May 6th. I had later informed the bank’s attorney in three telephone conversations that my expectations of receiving money by then had not materialized.

20. Expecting to reinstate the mortgage, I also asked Kelly Hadac in the telephone conversation on April 29th about attorney fees. He said his services were “not cheap”. I could expect to pay in the range of $9,000 to $10,000.

21. The bank’s law firm replied to my brief in a submission dated May 1, 2015. Under “pertinent facts and discussion”, it made three misleading or invalid points. First, it said that there was “no question of fact” because I had admitted that the loan was in default. No, I had raised three other issues in dispute. Second, it said that I had not made a recent payment to the bank curing the default. That was true but I had explained the situation to Mr. Hadac in three separate telephone conversations prior to the May 6th hearing. This argument, implying deception, assumes that those conversations never took place. Third, it argued at length that I should never have mentioned the deed in lieu because such agreements are invalid unless expressed in writing. I knew that. I mentioned the conversation with Ms. Holmboe as evidence of my willingness to come to an amicable settlement, not to suggest that we had a legally binding contract. This fact bears on the question of whether HKM’s fees were reasonable if the dispute could have been resolved by other means. With respect to Ms. Holmboe’s affidavit, she orally proposed a “deed in lieu” in her telephone conversation with me; the word “accept” is debatable if she never followed through on my statement of interest. Ranee Holmboe no longer works at Boundary Waters Bank so it might not have been possible to summon her as a witness if this case had gone to trial.

22. I myself replied to the law firm’s reply in a late submission to the court, both arguing that the court should not grant a summary judgment and raising the question of attorney fees. My submission was dated May 5, 2015 - the day before the hearing. With respect to attorney fees, I argued that the motion for summary judgment was unnecessary and unproductive so that fees related to it should not be allowed. I also proposed that the judge allow $1,039 for attorney fees.

23. Christian Brandt, representing the HKM law firm, and I attended the hearing before Judge Mary R. Vasaly. We made our respective arguments in a session that lasted about fifteen minutes.

24. Immediately after the hearing, Mr. Brandt approached me with the statement that the bank was primarily interested in getting its money. If I managed to raise the money, I should let him know as soon as possible. I said I still expected to get the money but it might take a few months. That is how we left it.

25. Judge Mary Vasaly issued her order denying the motion for summary judgment on May 11, 2015. The main reason for denying the motion was because of uncertainty over who owned the lot at 1719 Glenwood Avenue. Significantly, Judge Vasaly also found that the plaintiff was not entitled to reimbursement of attorney fees at that time because it had not complied with Minn. Gen. R. Prac. 119.02 that required claims for attorney fees to be accompanied by detailed schedules of the fees incurred. No such schedules had accompanied the motion.

26. After six weeks had elapsed, I received another packet of materials from the HKM law firm, dated June 22, 2015, including another motion for summary judgment. Evidently, the lawyers at this firm had discovered that the legal description after the AND referred to another property - the vacant lot - that I also owned. Since this had been a principal reason that Judge Vasaly had denied the first motion for summary judgment, the law firm was arguing that the second motion should prevail. Curiously, the law firm in its motions did not request that I pay any attorney fees and it had not provided a detailed schedule of expenses although Judge Vasaly’s ruling on the previous motion had noted that failure to provide this schedule precluded seeking reimbursement from the defendant. The date of the hearing before Judge Vasaly was July 23, 2015.

27. I wrote a letter to Christian Brandt on June 24, 2015, complaining that the bank had filed a second motion for summary conversation despite our post-hearing conversation about reinstating the mortgage. I had expressed my interest and ability to do that in the coming months yet the bank was pursuing a harsher solution. Mr. Brandt did not reply to my letter.

28. I filed my responsive motion on July 15, 2015 arguing that several genuine issues of fact yet remained in this case and the best solution would be if I reinstated the mortgage. The problem, of course, was that I did not yet have the money to reinstate the mortgage. I also admitted that I owned the property described after the AND on the legal description but argued that previous statements to the contrary were an innocent mistake. Most emphasis, however, was put upon the prospect of reinstating the mortgage. I cited money from my former wife and from my father’s estate as likely sources of funds. Throwing myself at the mercy of the court, I offered either of these sources as reasonable evidence of my ability to reinstate the mortgage even if the cash was not yet in hand. I also questioned the reasonableness of attorney fees if the HKM law firm continually filed motions for summary judgment which made it harder for me to raise the money in time. I moved that my share of the HKM firm’s fees be capped at $2,000.

29. In a glum mood, I discussed with a friend the prospect of losing the properties at 1715 Glenwood Avenue and 1719 Glenwood Avenue to foreclosure, thinking that I could not do anything about it. He suggested that I try to raise the money from a loan shark. Normally such an idea would have been unattractive but in this context it made sense. Since banks will not lend money to persons such as myself, I would have to take extraordinary measures. My insurance broker suggested someone to call - a so-called “hard lender”. I did visit this person in his Bloomington office and was approved for a loan of $20,000. The loan called for a fee of fifteen percent of the loan value up front ($3,000 in this case) plus normal interest on the outstanding loan balance. I later thought to call my sister to ask for an advance on my inheritance. She said she might be willing to release some funds if I agreed to drop all complaints about her handling my father’s estate as executor. I did agree and she released $20,000 as promised. Just in time, I was thus able to offer the bank a cashier’s check to reinstate the mortgage as of September 2015. This was arranged three days before the hearing. Fortunately, the hard lender had not yet found a lending source which would have obligated me to pay $3,000 for money no longer needed.

30. I needed to know the payoff amount to reinstate the mortgage. I called the vice president of Boundary Water Bank, Allan Hilgers, on Monday, July 20th, to ask about this. He said that it would take $19,886.88 to bring the loan current through August, 2015. We also discussed attorney fees. I said I would move to cap my share of the fees at $2,000. Mr. Hilgers complained that the bank had already paid its lawyers “more than $6,000” and had recently received another bill for $3,000. I took this to mean that the attorney fees totaled slightly more $9,000 at this point.

31. The hearing before Judge Vasaly was held at 8:30 a.m., on Thursday, July 23, 2015. First, Christian Brandt made a statement to the effect that the path to summary judgment was clear now that it was established that I owned the second parcel of land mentioned in the legal description. When it was my turn to speak, I held up the cashier’s check for $19,886.88, stating that I intended to reinstate the mortgage. Judge Vasaly asked if the bank would accept this check and requested that the two parties confer in the hallway. The representatives of the bank, Christian Brandt and Allan Hilgers, and I came to an agreement that the bank would accept the money to reinstate the mortgage but that the matter of attorney fees would be left to the judge to decide later.

32. My notes of the understanding reached in the hall outside the court room are the following: “ We would leave the issue of attorney fees to a later date. First, HKM law firm would prepare a complete itemized bill for its client and send me a copy. I could then challenge the reasonableness of those charges. If Hilgers and I could not agree, the matter would go back to court for the judge’s decision. Brandt proposed continuing the motion for six months or so. If I kept up the payments, the foreclosure would be decided. If not, it could resume collection efforts without the additional expense of refiling the case.” I also recall proposing to Mr. Hilgers that I visit his office in Woodbury after I received the billing from the HKM law firm for the purpose of discussing a settlement. He was receptive to that idea.

33. My notes of the court session are as follows: “ The judge would not allow the present motion to be continued for several months. She would entertain another motion only about attorney fees. The HKM firm would submit an itemized bill within 45 days. If we could not agree, then the court would decide my share of the fees.”

34. There was no further word from either the HKM law firm or Allan Hilgers for the next six weeks. Then on the 44th day, Saturday, September 5th, around 5 p.m., on Labor Day weekend, I received another thick packet of materials from the HKM law firm in the mail. There was a computerized schedule of expenses totaling $21,519.55 and a motion that I be required to pay all of this. Coming so late in the 45-day period prescribed by the judge, it was unclear if I was being allowed time to respond.

35. The affidavit from Allan Hilgers stated: “After the July 23, 2015, hearing, the Bank attempted to work with McGaughey to resolve his obligation to pay the attorney’s fees and costs the Bank incurred in this matter. I personally met with him and told him the Bank would likely be willing to negotiate, but he would need to come in and talk with us. He failed to communicate in response and I have not heard from him again.” That was not our understanding. The judge gave the HKM law firm 45 days to present a detailed schedule of its fees and expenses. I finally received this information on the 44th day of that period. Prior to receiving this information, I had no idea of the amount of the legal expenses. I therefore had nothing to discuss with the bank. If I did not communicate with the bank while awaiting the information, neither did the bank nor the law firm attempt to communicate with me.

36. The balance of communications initiated by one party or another (other than motions submitted in court or other formal notices) may indicate willingness to settle voluntarily which, in turn, would suggest whether the foreclosure could have been settled by other, less expensive means.

a. There were no emails sent by either party to the other in the past year.

b. Telephone calls initiated by the bank or its attorneys include: 1. a call by Ranee Holmboe to me in September 2014 proposing the deed in lieu, 2. a call from Kelly Hadac to me on April 29, 2015, inquiring about the proposed cash payment, 3. A return call from Alan Hilgers in return to my previous call disclosing the payoff balance.

c. Telephone calls by me to the bank or its law firm: 1. Two calls to Kelly Hadac in late April and early May, 2015, concerning whether I had cash in hand, 2. A call to Alan Hadac inquiring about the payoff balance

d. Other than motions submitted to the court or form letters related to foreclosure, there were no letters to me from bank officials or its law firm.

e. Other than motions or form letters related to foreclosure, I initiated the following: 1. A letter to Ranee Holmboe dated September 30, 2014, concerning my financial situation, 2. another letter to Ranee Holmboe dated November 14, 2014, 3. a letter to Kelly Hadac dated February 24, 2015, related to Home Mortgage Solutions, 4. a letter to Christian Brandt dated June 24, 2015, related to our conversation after the May 6th hearing.

37. Pertinent information about the HKM law firm and attorneys Kelly Hadac and Christian Brandt is as follows:

The KHM law firm is located on the 32nd floor of the Wells Fargo building in St. Paul. The name was changed from Murnane Brandt in February 2015 after a shake up. When I accompanied the person who served my reply brief to the firm’s office, there was a terrific view of the state capitol looking down through a conference-room window behind the front desk.

Kelly Hadac is listed as a staff attorney and shareholder on the firm’s website; Christian Brandt is not listed. Mr. Hadac’s billing rate of $335 puts him above the 90th percentile of the most highly paid attorneys according to a May 2011 survey of Twin Cities law firms (including Murnane Brandt) conducted by Denarius Human Resources. (See denariussurveys.com) Mr. Brandt’s billing rate of $295 per hour puts him around the 90th percentile. The median rate in this survey was $215 an hour. The $170 per hour paid to the paralegal, Renee Andreotti, is the same rate as what I paid to James Gurovitsch, my divorce attorney, who was a partner in his firm and a perennial “Super Lawyer” as judged by Minnesota Law and Politics. The point is that the hourly rates being charged by all these individuals at the KHM law firm are well above the prevailing rate. Mr. Hadac and Mr. Brandt are both listed on Avvo.com as specializing in areas of the law other than foreclosure or real estate. I can find nothing on the internet about these two gentlemen indicating top performance.

I asked a volunteer attorney at the Hennepin Government Center why the attorneys at the HKM law firm failed to communicate with me or seek a mutually agreeable settlement. Without referring specifically to the HKM firm, he explained that this was the “business model” of certain law firms. They never negotiate and are sometimes sloppy in their work but they make lots of money by taking many cases and maximizing the revenue from each by filing numerous motions.
______________________ ____________

William H. McGaughey, Jr. date

*** ***** *** ***** *** ***** ***

Then came my Memorandum of Law in opposition to the Plaintiff’s motion for attorneys’ fees:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Type of case: Civil/Other

File No. 27-CV-15-1090
The Honorable Mary R. Vasaly

Boundary Waters Bank, Plaintiff

DEFENDANT WILLIAM MCGAUGHEY’S MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFF’S MOTION FOR AWARD OF ATTORNEYS’ FEES AND COSTS

and

William Howard Taft McGaughey, Jr. and
Lian Y. McGaughey
Defendants
___________________________________________________________

INTRODUCTION

On July 23, 2015, a hearing took place before Judge Mary R. Vasaly regarding a second motion for summary judgment filed in this foreclosure case. Defendant William McGaughey presented a check for $19,886.88 to Allan Hilgers, vice president of Boundary Waters Bank, in court on July 23, 2015, which was the amount needed to bring the mortgage current through August, 2015. Mr. Hilgers accepted this as partial satisfaction of the delinquency which would reinstate the mortgage.

However, the defendant’s share of attorney fees could not be determined at this time since the bank’s law firm, HKM, had not submitted a detailed listing of expenses in accordance with Minn. Gen. R. Prac. 119.02 even though Judge Vasaly’s order of May 11, 2015, relating to the first motion for summary judgment had specifically ruled that the law firm needed to provide this information if it wished to have the defendant pay legal fees. In fact, the HKM law firm did not even request legal fees in its second motion for summary judgment.

To the best of the defendant’s knowledge and understanding, it is untrue that Judge Vasaly ordered the parties to attempt to resolve the issue of legal fees before September 7, 2015. His understanding is that the judge ordered the law firm to provide the required detailed information about legal fees to the defendant within 45 days (ending Labor Day, September 7, 2015) and that, provided with this information, the two parties might negotiate an agreement. If that effort failed, then the issue of attorney fees would be decided by the judge.

The fact is that the defendant did not receive any specific information relating to attorney fees before 5 p.m. on September 5, 2015, when he opened the day’s mail. He therefore had no information on which to negotiate an agreement with the bank. Now that he has this information, he is preparing a response to the plaintiff’s motion and will attempt to negotiate with the bank.
The plaintiff’s request that the defendant reimburse the bank for $21,519.55 in attorneys’ fees and costs relating to this foreclosure case is quite unreasonable for reasons that will be given in this Memorandum.

STATEMENT OF FACTS

I. Reinstatement of the mortgage

Although he was not able to raise the money until several days before the July 23, 2015, hearing, defendant William McGaughey came to court on July 23rd intending the reinstate the mortgage and so end the foreclosure proceeding. He presented a cashier’s check for $19,886.88 to Allan Hilgers, vice president of Boundary Waters Bank, who accepted this as partial satisfaction of the mortgage.

The amount of attorneys fees charged to the defendants could not be determined since the HKM law firm had provided any information about this. It had not met its reporting requirements under Minn. Gen. R. Prac. 119.02. However, William McGaughey had indicated his willingness to pay up to $2,000 in attorneys’ fees and costs in a motion accompanying his reply. He was expecting to resolve this issue in court on July 23, 2015. Judge Vasaly ordered the HKM law firm to provide the detailed accounting of attorneys’ fees and other costs to the defendant within 45 days. This information was provided on the 44th day after the hearing.

II. Pertinent statutes

The matter of attorney fees in foreclosures by action is governed by two Minnesota statutes.

Minnesota statute § 580.30, Subd. 1 states: “In any proceedings for the foreclosure of a real estate mortgage, whether by action or by advertisement, if at any time before the sale of the premises under such foreclosure the mortgagor, the owner, or any holder of any subsequent encumbrance or lien, or any one for them, shall pay or cause to be paid to the holder of the mortgage so being foreclosed, or to the attorney foreclosing the same, or to the sheriff of the county, the amount actually due thereon and constituting the default actually existing in the conditions of the mortgage at the time of the commencement of the foreclosure proceedings, including insurance, delinquent taxes, if any, upon the premises, interest to date of payment, cost of publication and services of process or notices, attorney's fees not exceeding $150 or one-half of the attorney's fees authorized by section 582.01, whichever is greater ...”

This statute establishes a firm upper limit on the amount of attorneys’ fees that can be charged to the defendant in a Minnesota foreclosure case where the mortgage is reinstated. Even if the court does not question the reasonableness of the fees, state statute does not allow the bank to recover more than one half of the fees charged by its law firm in prosecuting this case. Half of the claimed $21,519.55 equals $10,759.78. That would be the most that the bank could recover for legal fees from the defendants.

Since Minnesota statute § 580.30, Subd. 1 governs the situation where a defendant has paid the entire amount due on the mortgage, it is unclear why the plaintiff in its latest pleading omits any reference to this law. The defendant pointed this out many times in communications with the other party, both formally (e.g., defendant’s Memorandum of Law, dated July 15, 2015, under “prospect of reinstating the mortgage”) and informally (e.g., during the July 23rd conference in the hall outside the court room). Was there a particular reason that this law did not apply here? Were there case precedents that allowed statute § 580.30, Subd. 1 to be overruled? If so, the plaintiff’s Memorandum of Law dated September 3, 2015, failed to address those questions.

The other pertinent statute is Minnesota statute § 582.01, Subd. 2 referenced in the first statute. This reads: “Foreclosure by action The court shall establish the amount of the attorney's fee in case of foreclosure by action.” In other words, the judge has sole discretion to award attorneys’ fees within the limits of law.

III. The issue of reasonableness

Another consideration in awarding attorneys’ fees, however, is that the fees must be reasonable if their cost is to be assigned to the defendant. If assigned to the bank, they can be either reasonable or unreasonable since the bank has hired the law firm and presumably can oversee the work being done. Normally in a civil suit, each party pays its own attorney fees. However, the mortgage contract with Bear Stearns provides on page 12 that, in the event of reinstatement, the borrower pay “reasonable attorneys’ fees” incurred in the process of enforcing the contract. This statement implies that some attorneys’ fees might not be reasonable. The determination of reasonableness is left up to the judge who, again, has sole authority under Minnesota statute § 582.01, Subd. 2 to assign fees.

In its September 3, 2015, pleading, the plaintiff argues that “the costs and fees totaling $21,519.55 as of August 15, 2015, are reasonable ... Factors considered in determining the reasonableness of attorneys’ fees include the time and labor required, the nature and difficulty of the responsibility assumed, the amount involved and the results obtained, the fees customarily charged for similar legal services, the experience, reputation, and ability of counsel, and the fee arrangement existing between counsel and the client.” The defendant respectfully suggests that these are not the only criteria of reasonableness. Even more important is whether the attorneys’ activities and related costs are directed toward the clients’ legitimate interest in recovering its money under the mortgage contract with minimal effort and expense.

The defendant would ask the court also to consider reasonableness by the following criteria:

1. To what extent were the HKM law firm’s activities necessary and helpful in enabling the bank to recover all the money owed to it under the mortgage contract?

2. Were the fee rates reasonable in terms of the complexities of this case and comparative rates of other attorneys?

IV. Whether the HKM law firm’s activities were necessary and helpful in achieving the bank’s legitimate objectives

No, the law firm’s activities were not reasonable. The bank could have recovered the money for Boundary Waters Bank much more efficiently if it had attempted to discuss the situation with the defendants and reach an agreement. After he fell behind on the mortgage, it was always William McGaughey’s intention to pay the money to reinstate the mortgage but he never had the required cash in hand. Partial payments were refused.

During most of the past year, William McGaughey expected to receive money both from his former wife and from an inheritance from his father which would have been more than enough to reinstate the mortgage but expectations always fell through. (See defendant’s affidavit paragraphs 12 and 13.) Of course, the bank did not know this. McGaughey was never in a position to approach the bank with cash or with credible evidence that he would soon receive cash. Vague assertions that cash was on the way would not have been believed. However, it was the bank’s prerogative to inquire of Mr. McGaughey whether he intended to reinstate the mortgage and, if so, what prospects he had to raise the required money.

Neither the bank nor the HKM law firm made any attempt to contact McGaughey to discuss settlement options. After Ms. Holmboe’s telephone call proposing a “deed in lieu”, the other side initiated no telephone calls to McGaughey other than a call in late April 2015 to clarify a statement made in the defendant’s brief. Neither the bank or its law firm tried to communicate by letter other than those filed with court papers. William McGaughey, on the other hand, did try to communicate in several letters but they all went unanswered. (See defendant’s affidavit paragraph 36.) The bank made no attempt whatsoever to settle the case amicably.

Boundary Waters Bank could have accomplished the same thing for less than $1,000 in legal fees (even including the $255 exorbitantly spent for “process service fees”) if it had filed the court case and then simply waited for the January 2016 court date to arrive. The defendant would then have had time to collect the money from his father’s estate to catch up on the mortgage. Granted, it might have received the money in December rather than in August. The bank also had no assurance that, without pressure, the money would be paid. But it also never asked. In real terms, all the papers filed by the HKM law firm did nothing to further the bank’s objectives other than to put stress on the defendants and force William McGaughey to seek an advance on his inheritance to meet the hearing deadline. The bottom line is that the HKM law firm refused to communicate with the defendants. It refused to explore options other than churning legal papers.

If reasonableness is defined in terms of cost effectiveness in settling the case, the bank could have pursued foreclosure by advertisement, which would have cost far less. It could also have followed through on Ranee Holmboe’s offer to take the duplex at 1715 Glenwood and the vacant lot through the “deed in lieu”, thus avoiding the need for teams of lawyers. Having no prospect to acquire money at that point, William McGaughey told Ms. Holmboe that he was agreeable to such an arrangement. But instead the bank chose to litigate the case in an unusually expensive manner. Perhaps that was because the law firm may have promised that the defendants would bear the cost. The bank should therefore bear the consequences of that decision. It, rather than the defendants, should pay the “lion’s share” of the attorneys’ fees since the more expensive approach it chose was quite unnecessary.

The HKM law firm did not seek an efficient and cost-effective solution to the bank’s legitimate need to be paid money under the mortgage contract. It had an opportunity to put the mortgage on a more sound basis, if not reinstate it, through the mortgage restructuring program offered by Home Mortgage Solutions which included injection of new money. Brenda Rivera, whose work was supported by the Roosevelt law firm, told William McGaughey that the HKM law firm refused even to talk with her. The firm’s expense log on page 2 notes three items totaling 0.6 hours of Kelly Hadac’s expensive time with two of them devoted to telling Ms. Rivera to stop contacting the HKM law firm. Not only was this not aiding a plausible solution to the bank’s problem, the law firm was actively impeding one.

It will never be known if Ms. Rivera’s proposal would have satisfied the bank. If it had, that outcome would have been in the bank’s best interest. But a settlement in February would also have deprived the law firm of opportunities to earn revenue from fees. The HKM law firm was therefore not acting in good faith when it refused to consider a settlement proposal from Home Mortgage Solutions. If the case could have been settled amicably in early February 2015, the legal activities that followed were quite unnecessary. Therefore, the related billings do not represent “reasonable” attorneys’ fees.

V. Whether the motions for summary judgment generated “reasonable” attorneys’ fees

The bulk of the law firm’s billable activity pertained to the two motions for summary judgment that it made. The motions presented the argument that, since the defendant had admitted that he was behind on the mortgage payments, that was all that needed to be established for a summary judgment to be granted. But do not 99 plus percent of foreclosure cases involve situations where the borrower is behind on the payments? Are 99 plus percent of foreclosure cases settled by courts awarding summary judgments? Of course not. Is it only when a hyper-aggressive law firm represents the creditor that cases are settled this way? Are most borrowers coached by attorneys never to admit that they are behind on their payments? How do summary judgments advanced by such means serve the cause of justice?

Something here does not make sense. There is no point to courts scheduling trial dates if the summary-judgment option will normally be used in foreclosure cases. There is no point to scheduling mediation between the two parties.

The question, however, is whether the bank’s interests were well served in the law firm’s decision to seek a summary judgment? Conceivably, it could get its money more quickly but there is no pain to the bank when delayed payments produce late fees. Does a summary judgment increase the chances that the bank will be paid at all? No, the more time a debtor has to raise the money, the greater the bank’s chances of being paid. Is it worth seeking a summary judgment when such a motion is unlikely to prevail? The law firm certainly benefits from fees produced by this activity but the two parties involved must bear an additional cost, making it more difficult to settle. In short, the HKM law firm’s decision to seek, not one but two summary judgments generated attorneys’ fees that were not a reasonable expense.

The law authorizing summary judgments, Minnesota Rule of Civil Procedure, 56.03, requires that there be “no genuine issue as to any material fact” for a summary judgment to be granted. William McGaughey raised three issues of material fact in his defense. Those issues were no mere “unverified and conclusionary allegations” but verified facts. Whether or not they might have influenced the outcome at trial could not be determined through a five-minute hearing but only when the arguments were developed at trial, including the opportunity to present witnesses. In motions for summary judgment, “[t]he evidence [must be] construed in the light most favorable to the party opposing summary judgment.” J.E.B. v. Danks, 785 N.W.2d 741, 747 (Minn. 2010) The main effect of the motion for summary judgment in this case was to seek to deprive the defendants of their right to a trial. The case for it was relatively weak.

A question that the court should consider in its award of attorneys’ fees is whether the plaintiff was reasonably entitled to a summary judgment in preparing the expensive paperwork toward that end? In the initial summons on January 22, 2015, the plaintiff attorney noted that the property covered by the mortgage did not include two feet of land. This attorney, without explanation, claimed that this omission was due to an “error” and petitioned that the error be corrected. Apart from the dishonesty of making such a claim without knowledge, the fact that the attorney made an argument about the missing two feet indicates that he knew there might be a problem with the foreclosure unless the two feet were added back. Its omission did, in fact, present a “genuine issue of fact” because, without the two feet, the duplex at 1715 Glenwood Avenue did not sit on a buildable lot according to Minneapolis code. Possibly the underwriter had been negligent in drafting the mortgage document. Such issues could be raised at trial.

If Mr. Hadac, the lead attorney in this case, did realize that the omission of the two feet of land represented a significant defect in the plaintiff’s case, then he must have known that a motion for summary judgment might well fail because there was a “significant issue” of fact. That being the case, it was not “reasonable” to pursue a motion for summary judgment. This made sense only from the standpoint of generating additional revenue for the law firm since its billings do not discriminate between legitimate and illegitimate claims. The law firm stood to gain in either case.

Judge Vasaly did not grant the bank’s first motion for summary judgment. In her order dated May 6, 2015, the judge found that there was a genuine issue of material fact regarding ownership of the property referenced after the AND in the legal description in the mortgage document. The plaintiff had made no response to the defendant’s claim of ownership. While it is true that defendant William McGaughey was mistaken in stating that someone else owned the second property, he did so believing that the mortgage had been applied only to the duplex and its underlying land. As soon as he discovered that the legal description in question also pertained to the vacant lot which he owned, he promptly admitted this error in court papers. (See defendant’s Memorandum of Law dated July 15, 2015, under “facts in dispute”.)

This incident, however, raises a question of competence on the part of the HKM law firm. Defendant William McGaughey asserts that he made an innocent mistake in stating that the land referenced in the second part of the legal description belonged to someone else. Innocent or not, however, the law firm had a duty to investigate that claim before the hearing before Judge Vasaly on May 6, 2015.

McGaughey incorrectly stated that he did not own the second parcel of land in his Memorandum of Law signed on April 24, 2015, and hand-delivered to the HKM law firm on the same day. The hearing before Judge Vasaly took place on May 6, 2015. This gave the lawyers at the HKM firm ten days to examine the defendant’s documents and prepare a response.

If such an examination was ever done, it was not apparent in Christian Brandt’s testimony before the judge. No objection was made by him to the claim of unknown ownership of that second parcel of land in the mortgage’s legal description. Frankly, the defendant was lucky that this did not happen.

The KHM law firm’s web site makes this claim about the lead attorney, Kelly Hadac: “As a skilled litigator, Kelly’s attention to detail and dedication to representing the best interests of his clients is second to none. His belief in hard work and zealously representing his clients has consistently led to favorable results.”

In this case, however, Mr. Hadac ‘s attention to detail was lacking. He evidently did not supervise his colleagues closely enough to have them investigate the other party’s claim about property ownership made in the April 24th filing with the court. There may have been a sense of complacency that the motion for summary judgment would be granted. Only after the judge denied this motion on the grounds of uncertain ownership did the KHM attorneys bestir themselves to check the ownership of that second parcel of land.

Had attorney Brandt or his supervisors caught the problem regarding the defendant’s statement of ownership of that second parcel of land, he might then have brought it to the attention of the judge and quite possibly prevailed in the first motion for summary judgement. But he did not because he was unprepared. The judge’s denial of the first motion for summary judgment then precipitated a second motion for summary judgment that was made on June 22, 2015.

The defendant now claims that the second motion for summary judgment was made primarily because the HKM law firm was incompetent in failing to support its first motion for summary judgment. The issue could have been resolved at the first hearing but it was not because the plaintiff’s attorney came unprepared to refute the defendant’s arguments relating to the legal description. The second motion would therefore have been unnecessary had the HKM law firm adequately done its job. Because of this, its work related to the second motion for summary judgment did not constitute a “reasonable” set of activities to generate legal fees. Therefore, costs related to the second motion should not be assigned to the defendant. Really, the bank should not have to pay for the law firm’s mistakes either.

There is also a second reason why costs related to the second motion for summary judgment should not be assigned to the defendant. In its first and only move to settle the case amicably, attorney Brandt approached William McGaughey after the May 6th hearing to say that the bank preferred to settle the foreclosure case by receiving the required money and reinstating the mortgage. McGaughey responded by saying that he still expected to receive money to do that but it might take several months. That is how they left it. McGaughey had just been through a disappointing set of experiences in expecting to receive money from his former wife but then, several times, having those hopes suddenly dashed. But he still believed that the money would arrive and be available for payment within the next month or two so he could make the promise.

Six weeks later, on June 22, 2015, the HKM law firm filed its second motion for summary judgment. William McGaughey felt betrayed. He thought he had an understanding with Christian Brandt that the preferred option would be to try to resolve the foreclosure amicably by having the defendants reinstate the mortgage. At a minimum, someone at the law firm should have called McGaughey to ask how his efforts to raise the money were coming. But there were no such calls. Instead, without warning, the legal sledge hammer came down for a second time. And again, this was because the law firm had incompetently represented its client at the first hearing, thus bringing on a second one. No, the related costs did not represent “reasonable” attorneys’ fees.

In summary, the main reasons that the bulk of the proposed attorneys’ fees are unreasonable and therefore should not be assigned to the defendants are, first, that state statute precludes awarding more than half of those fees to a borrower who reinstates the mortgage and, second, that the HKM law firm’s efforts in collecting the money went far beyond what was necessary to accomplish the bank’s objectives in terms of time and expense. There was no real attempt to negotiate with the defendants or even discuss their financial situation for the purpose of determining whether mortgage reinstatement could be made. The motions for summary judgment were directly unhelpful in that they imposed an artificial time limit upon the defendants’ efforts to raise the required money which made it much less likely that this could be done successfully. On the other hand, they did help to maximize fees for the law firm. The bank should have been more alert to that situation. It hired the law firm and should therefore be made to absorb the unreasonable portion of the expense.

VI. An analysis of legal expenses

The schedule of expenses which the defendant received on September 5, 2015, showed $916.05 in filing and recording fees and $20,593.5 in attorneys’ fees, for a total of $21,519.55. The attorneys’ fees were incurred at various times between November 5, 2014 and August 14, 2015. The fees were based on hours for Kelly S. Hadac whose time was billed at $335.00 per hour, Christian Brandt whose time was billed at $295.00 per hour, and paralegal Renee Andreotti whose time was billed at $170.00 per hour. Mr. Brandt did the majority of the billed work.
To make sense of the billings, the total expense is broken down into time segments associated with the output of these labors. Since the HKM law firm worked almost exclusively to file motions in court and generate the required papers (as opposed to negotiating settlements), this analysis associates billed expenses with production of papers filed in court at various times, excluding the filing and recording fees.

paper filed at end of this period ............................................ dollar amount of billings

summons issued to the other party on January 22, 2015: ..............$3,169.50
first motion for summary judgment filed on April 3, 2015: .............$5,050.50
reply to defendant’s reply to first motion on May 1, 2015: ............$3,474.00
second motion for summary judgment filed on June 22, 2015: .......$6,598.50
activities after second S.J. motion was filed until Sept. 3, 2015: .....$2,301.00

total ...........................................................................................$20,593.00

It appears that the vast majority of attorneys’ fees was incurred in connection with the two motions for summary judgment. The law firm’s two submissions for the first motion cost $8,524.50, and the single submission for the second motion cost $6,598.50. Their combined cost was $15,123.00. This was done to collect a debt of about the same size well in advance of the scheduled trial date.

The expenses on the time sheet are also compared with information received from the plaintiff in telephone conversation:.

In a conversation on April 29, 2015, Kelly Hadac told defendant William McGaughey that he could expect to pay $9,000 to $10,000 in attorneys’ fees. This was fairly accurate. The reported expense for attorneys’ fees through April 29, 2015, on the schedule totaled $9,801.55.

In telephone conversations on July 15, 2015 and July 21, 2015, Allan Hilgers of Boundary Waters Bank told defendant McGaughey that the bank had been billed “more than $6,000” and then, five days later, that it had recently received another bill for $3,000. Combining the two numbers, it would seem from Mr. Hilgers’ testimony that the bank had been billed between $9,000 and $10,000 up to July 21, 2015. However, the expense schedule shows that attorneys’ fees alone amounted to $19,690.55 through July 15, 2015, with another $400 of expense reported through July 21, 2015. This is a huge discrepancy. There is no reason to doubt Allan Hilgers’ information. It does seem, then, that either there was a significant delay in the billings or else the law firm may have been keeping two different sets of books. If the court decides to charge the defendants more than $2,000, it would be well to require the plaintiffs to produce additional records as it provided in Minn. Gen. R. Prac. 119.03.

What is fair? William McGaughey made a motion in response to the plaintiff’s second motion for summary judgment that his share of attorneys’ fees be capped at $2,000. He was willing to pay up to that amount. He is now challenging the legitimacy of the two motions for summary judgment.

The HKM law firm’s reported expenses through January 22, 2015, when the initial summons was filed, totaled $3,169.50. The total of all expenses other than attorneys’ fees are $926.05. Those two items together total $4095.55. If we exclude half of that expense in accordance with Minnesota statute § 580.30, Subd. 1, the defendants under this calculation would be required to pay $2,047.78, which is fairly close to what is being proposed here.

VII. Was the billing rate reasonable?

In his affidavit, Kelly S. Hadac suggests that his charging rates were reasonable since he has been licensed to practice law in Minnesota since 2003, he is a shareholder in the HKM law firm, and his $335 fee in this case is within his normal range of fees charged to clients. Christian Brandt, described in the affidavit as a “junior attorney”, did most of the work and charged $295 per hour - at the upper end of his pay scale. The paralegal, Renee Andreotta, charged $170 per hour, which was the same rate charged in 2011 by a top-flight attorney in the defendant’s divorce case.

On the face of it, those rates are high. A survey of major law firms in the Twin Cities conducted in May 2011 by Denarius Human Resources showed that Kelly Hadac’s fee of $335 per hour was above the 90th percentile, or in the top ten percent of fees charged by attorneys in that survey, which included Murnane Brandt attorneys. Christian Brandt’s fee of $295 per hour puts him close to the 90th percentile - in other words, above nearly nine out of ten of attorneys in the Twin Cities survey - although this assignment may have been primarily a training experience for him. A question is why the Boundary Waters Bank would hire some of the most expensive attorneys in the Twin Cities to collect a relatively modest debt pertaining to a low-priced duplex in a relatively poor neighborhood of Minneapolis. Perhaps the bankers were led to believe that they would not be required to pay any of this bill.

VIII. Whether high fees correlate with superior work performance

It can be argued that the bank was buying legal expertise needed to enforce its claims under the mortgage contact. Yet, previous discussions have shown that the methods used by the HKM law firm were quite unnecessary and unreasonable. With respect to expertise, Mr. Hadac and Mr. Brandt are both listed on Avvo.com as specializing in areas of the law other than foreclosure or real estate. The defendant can find nothing on the internet about these two gentlemen indicating top performance. Mr. Hadac’s affidavit includes nothing beyond his own claims to document superior qualifications or work performance.

To the contrary, the HKM law firm’s handling of the present case provides several examples of inadequate, if not shoddy, workmanship. Consider these:

1. As previously mentioned, these lawyers had not bothered to check the legal descriptions that were on the mortgage document to see if the defendant owned the property described after the AND, which turned out to be his vacant lot. They had ten full days until the May 6th to research this question but failed to do. As a result, it became necessary to file a second motion for summary judgment associated with $6,500 of cost. That is not superior performance.

2. The HKM attorneys failed to provide the schedule of attorneys’ fees required under Minn. Gen. R. Prac. 119.02. The judge herself pointed out this deficiency in her order of May 6, 2015, denying an award for attorneys’ fees. Then, remarkably, the same thing happened again. The HKM law firm again presented a motion for summary judgment, again omitting the required schedule of attorneys’ fees. This time, however, the motion did not request attorneys’ fees. It may therefore technically be within the law not to submit the required detailed accounting of fees if no fees were requested. But because the motion to grant fees was not made with the motion for summary judgment, the parties could not settle all their issues at the hearing. The judge needed then to grant a 45-day extension to the plaintiff to provide the required accounting which it did on the 44th day.

3. A example of dubious legal representation would be that the plaintiffs made a claim for the full amount of the attorneys’ fees even though Minnesota statute § 580.30, Subd. 1 clearly states that only half of the fees can be charged to the borrower. Was this ignorance of the law or an attempt to deceive someone who might not know the law? The HKM lawyers refused to acknowledge the existence of Minnesota statute § 580.30, Subd. 1 in any of their papers.

Two other positions taken by the lawyers at the HKM firm are likewise morally ambiguous.

4. In their initial summons filed on January 22, 2015, the plaintiff stated in its claim for relief that the description in the mortgage document was “in error” because it did not include the two feet of land in the north 138 feet of the east 42.5 feet of Lot 15. The suggestion that this was a simple error was untrue and the statement was made without explanation. Were the lawyers incompetent in making such a claim? Were they hoping that the claim would go undetected? In either case, this was not honest, high-quality work.

5. Another dubious position taken by the plaintiff is the assertion in its latest Memorandum of Law, on page 4: “Since the July 2015 motion hearing, the Bank attempted to resolve the fees issue with Defendants, but Defendants failed to communicate with the Bank and the Bank, therefore makes this application for an award of its fees.” In truth, the Bank did nothing after the motion hearing to resolve the fees issue. Both parties were waiting for the schedule of fees from the law firm to arrive which finally happened after six weeks. Mr. Hilger’s statement made in paragraph 3 of his affidavit is therefore totally misleading. Yes, the two parties met in the hallway outside the court room and agreed to meet to discuss a settlement, but that was understood to be after they received the fee statement from the law firm and had something to discuss. That did not happen until 5 p.m. on Saturday, September 5th. Therefore, the claim that the defendant “failed to communicate” within an allowed time period does not fairly represent the situation.

From the plaintiff’s pleadings, one has the impression that, after the 45-day period elapsed on September 7, 2015, time had run out on the period of negotiations and there was nothing left to do other than grant the plaintiff’s motion. Fortunately, that is not the case. This response is being offered.

The above examples of work done by lawyers with the HKM firm ought to be enough to dispel the idea that the attorneys’ high hourly fees are tied to superior work performance. The fees are high but the work done was not of superior quality.

IX. Whether the case’s complexity justified high fees

Mr. Hadac also argues that the high fees can be justified by the “complexity” of the work performed in this case and that the defendant, William McGaughey, made the work unnecessarily complex by his “conduct” in the litigation. That conduct included strenuously opposing the bank’s two motions for summary judgment. The complexity was increased by the attorneys having to research a claim, which turned out to be false, that the defendant did not own certain property described in the mortgage’s legal description.

In response, the defendant would point out that it takes less than five minutes to research the ownership of any real estate in Hennepin County. An experienced real-estate lawyer would know immediately where to locate this information. Why the need to perform a single act of unexpected research would add to the “complexity” of a case is quite baffling.

This was not a complex foreclosure case. It did not involve a large commercial building with complicated lease agreements or a mystifying structure of ownership. Instead, it was a relatively inexpensive duplex owned by a natural person with two tenants on leases. There must have been hundreds of such duplexes in the Twin Cities that have gone into foreclosure in the past several years. It did not take the defendant much time to figure out the legal issues involved in this case, and it should not have taken an experienced attorney much time either.

The perplexing “conduct” of the defendant in opposing the bank’s motions represented a legitimate effort to defend himself against motions that should never have been brought. Any complexity encountered along the way was due to the unjustified nature of the plaintiff’s case. From its inflexibility, one has the impression that the KHM law firm was following a template in representing foreclosure cases.

X. Whether statute or case law provides guidelines to the reasonableness of attorneys’ fees

On the face of it, a request to pay $21,519.55 in attorneys’ fees to collect a debt of $19,886.88 on an unpaid mortgage is unreasonable. If the bank had to pay this, its entire debt collection and more would go to the attorneys. But are there any statutes or case precedents that prevent this type of situation where attorneys run up the bill to a maximum?

1. Minnesota statute 582.01, Subd. 1, while it does not directly apply to cases of foreclosure by action, it does provide clues to legislative thinking about this matter. In cases of foreclosure by advertisement, this legislation authorizes the mortgagee to retain an attorney fee not exceeding $275 for the first $10,000 of principal amount of the mortgage plus $35 for each additional $5,000 amount where the mortgage was executed after May 31, 1971. In this case, if the original mortgage was for $182,000, there would be 35 units of $5,000 in mortgage principal above the first $10,000 so that the total allowable fee would be $1,500, which is $275 plus $1,225 (35 times $35). This is considerably less than $21,519.55.

2. Rule 119.05(a) of the Minnesota General Rules of Practice provides that, in default proceedings, “(1) the fees requested do not exceed fifteen percent (15%) of the principal balance owing as requested in that party's pleadings, up to a maximum of $3,000.00.”

3. The plaintiff’s argument refers to the case of O’Donnell v. McGee Trucks, Inc., 294 Minn. 110, 113, 1199 N.W.2d 432, 434-35 (1972). That case, in turn, refers to testimony at a hearing in regard to whether the reasonable value of the attorneys' fees should be based on a standard set by the Hennepin County Bar Association Minimum Fee Schedule. That standard set “15 percent of the amount collected in excess of $1,000 as the recommended fee in collection cases of this type.” The court upheld a fee based on the Hennepin County Bar Association standard. If that standard had been applied to the present case, then the allowable attorneys’ fee would be roughly $3,000 -15 percent of $20,000. Again, this is considerably less than $21,519.55. While times have changed and the Hennepin County Bar Association no longer maintains a minimum fee schedule, it does indicate what reasonable persons have thought appropriate if attorneys’ fees are based on a percentage of the debt collected.

The idea that attorneys’ fees should not exceed 15 percent of the debt collected seems to be a common theme in these rules.

XI. The relationship of attorneys’ fees to successful or unsuccessful outcome

A more recent approach has been to evaluate attorneys’ fees on the basis of whether the attorneys achieved their objective. The plaintiff in its pleading referred to the case of Hensley v. Eckerhart, 461 U.S. 424, 103 Supreme Court 1993 (1983), in which the court ruled that the claimed attorneys’ fees might be excessive. The court ruling stated that “the most critical factor is the degree of success obtained. ... had (the plaintiffs) prevailed on only one of their six general claims ... a fee award based on the claimed hours clearly would have been excessive.”

This concept is supported by other cases. In Wal-Mart Stores, Inc. v. Barton, 223 F.3rd 770, 773 (8th Cir. 2000), a plaintiff who prevailed on only some of his claims was not entitled to any fees for unsuccessful, unrelated claims. If the success on the prevailing claims was limited, then the plaintiff was “entitled only to an amount of fees that was reasonable in relation to the results obtained.” In the case of Scott v. Forest Lake Chrysler-Plymouth-Dodge, 668 N.W.2d 45, 50-51 (Minn. Ct. App. 2003), the court divided the proposed fee by seven because the attorney had succeeded in only one of seven claims.

So how did the HKM law firm do? The case did not go to trial so success or failure must rest on other efforts. Instead, the attorneys brought a motion for summary judgment against the defendants. That effort failed. The judge did not grant the motion. Then, the law firm brought a second motion for summary judgment because it had forgotten to check something in the first motion. The judge did not rule on that second motion because the defendant presented a check to catch up on the mortgage. The overall result was that the plaintiff “batted zero for one”, so to speak. If we applied a standard based on success, the HKM law firm would not be entitled to any reimbursement of fees.

Kelly Hadac in his Memorandum of Law suggests, however, that his firm was at least partially successful: “First, it obtained the May 2015 decision of the Court finding that Defendants defaulted and owed the Bank $175,981.98 as of April 1, 2015. Then it achieved a settlement with McGaughey at the July 2015 hearing whereby McGaughey paid the Bank the past-due amounts and cured his defaults.” (page 7, Hadac Memorandum.)

However, as the plaintiff repeatedly pointed out in its filings, William McGaughey had already admitted that his loan was in default. The court’s acknowledgment of that fact had no bearing on the outcome of this case. Therefore, the law firm achieved nothing for its client in that regard. With respect to “achieving a settlement with McGaughey”, it is true that filing the motions for summary judgment produced a crisis situation for McGaughey where he felt he had to go to a loan shark to raise the money sooner rather than later. However, that settlement was not arranged by negotiation; neither did the court order it because of the plaintiff’s pleading. Financial bullying rather than skill in drafting legal papers is what persuaded McGaughey to seek borrowed funds first from a loan shark and then from his sister. To produce such motivations should not be a measure of legal success.

Mr. Hadac argued that in Musicland Group Inc. v. Ceridian Corp., the Court of Appeals affirmed the district court’s award of attorneys’ fees despite the fact that some of the claims in the lawsuit were unsuccessful, because the legal theories “depended on proving a common core of facts” and the types of claims were related. 508 N.W.2D 524, 535 (Minn. Appl.1993) “In these circumstances the fee award should not be reduced simply because the plaintiff failed to prevail on every contention raised in the lawsuit.” That might be a legitimate argument if the plaintiff had prevailed on any claim raised in the lawsuit (other than what the defendant had already admitted.)

The court here was looking at separating segments of the overall fee to see which efforts were successful and which not. It ruled: “Where the claims are unrelated, fees should not be awarded for time expended on the unsuccessful claims.” In this case, not only was the motion for summary judgment unsuccessful but also the motion for attorneys’ fees. Where is the “common theme” connected to a successful claim? Such an argument based upon case precedent does not support the assignment of attorneys’ fees to the defendants.

XII. General considerations related to costs

Finally, Mr. Hadac justified the high fees by the general “experience, reputation, and ability” of the lawyers involved, again failing to substantiate any of those claims. Regarding reputation, the defendant can himself testify that he was impressed by the magnificent view of the Minnesota state capitol from the HKM law firm’s office window, giving the impression that only a highly successful and competent firm could afford such space. But reputation gained by such means does not imply high-quality work.

In conclusion, the claim of attorneys’ fees in the amount of $21,519.55 is unreasonable, especially considering that its amount exceeds the deficiency in the mortgage being cured. If granted, it would set the defendant up for failure in making future payments to the bank.

This is not a case where the defendant was hiding assets or refusing to pay but where he was facing a tough financial situation as a retired person living in a troubled neighborhood of Minneapolis who was helping to raise an abandoned toddler. Boundary Waters Bank should have sought a negotiated settlement with some understanding of the defendant’s situation, but instead it took the route of hard-ball litigation. The bank is much more able than the defendant to absorb this legal expense and, having hired an abnormally high-priced law firm for a routine case of missed payments on a mortgage, it should.

CONCLUSION

The current motion relating to attorneys’ fees is an extension of the plaintiff’s second motion for summary judgment that has been satisfied by the payment of $19,886.88 to bring the mortgage current through August 2015. In that motion presented on July 23, 2015, the plaintiff did not request attorneys’ fees. The defendant moved that his share of the fees be capped at $2,000. A good outcome would be simply to approve the defendant’s motion of July 23rd and assign $2,000 of the attorneys’ fees to him in reinstating the mortgage since the plaintiff presented no argument or motion at that time relating to the issue of fees.

Dated _________________ ______________________________

William H. T. McGaughey, Jr.
defendant pro se

1702 Glenwood Avenue
Minneapolis, MN 55405
(612) 374-5916

*** ***** *** ***** *** ***** ***

Finally, there was the proposed order:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Type of case: Civil/Other

File No. 27-CV-15-1090
The Honorable Mary R. Vasaly
Boundary Waters Bank,
Plaintiff and

ORDER

William Howard Taft McGaughey, Jr. and
Lian Y. McGaughey,
Defendants
___________________________________________________________

This matter came before the Honorable Mary R. Vasaly, Judge of Hennepin County District Court, upon Plaintiff Boundary Waters Bank’s Motion for Attorneys’ Fees.
The Court, having reviewed the Memorandum of Law and accompanying affidavits submitted by both parties, now therefore orders:

IT IS HEREBY ORDERED:

1. Plaintiff Boundary Waters Bank’s Motion for Attorneys’ Fees amounting to $21,519.55 is hereby DENIED; and

2. Defendant William McGaughey’s motion that he be made responsible for paying $2,000 of the attorneys’ fees and costs charged to Boundary Waters Bank is hereby GRANTED; and

3. Considering that William McGaughey has made payment of $19,886.88 to Boundary Waters Bank to bring the mortgage current through August, 2015, this foreclosure case is hereby dismissed and the mortgage is reinstated once the defendant additionally pays the bank $2,000 toward attorneys’ fees.

Dated: _________________________ BY THE COURT:

_________________________

THE HONORABLE MARY R. VASLY
JUDGE OF DISTRICT COURT

 

A conversation with Allan Hilgers

It was Friday, September 11, 2015 - a fateful day in American history. Other than seeking the advice of an attorney, I was done with my work. One task remained. Having received the bank’s attorney’s bill, I felt obligated to negotiate fees with the bank’s representative, Allan Hilgers. I therefore placed a call to Mr. Hilgers at the bank’s Woodbury office where he worked. I left a message for Hilgers and he returned the call an hour or so later.

Hilgers’ first reaction was to say it was too late: We should have finished the negotiations within the 45-day period. I said the judge was giving me two weeks to respond.

The two sides were obviously far apart. I was offering to pay $2,000 of the bill. Hilgers wanted the full $21,519.55. Rather generously, Hilgers offered to see if his board would accept a settlement where I paid $10,000. I responded by pointing out that Minnesota statute already limited my share to one half of the fees if the mortgage was reinstated. Hilgers responded with the opinion that that law was unclear if there had been several motions for summary judgment.

Hilgers and I agreed therefore to let the judge set the fee. We would talk again after the order was issued. Hilgers advised me in the future to contact him immediately if it seemed I could not make the payment.

Hilgers said he had 30 years of experience and had been involved in hundreds of foreclosure cases. He had picked up this case from Ranee Holmboe.

I remarked that I thought we were both victims of the HKM law firm. I offered to be a witness for the bank if it ever decided to dispute the bill. Hilgers said the bank had already paid the law firm. It was not feasible to seek to recover some of that money. The $21,519.55 was a hard number. But he said there was some truth to my assertion that the bank had been victimized. Legal fees were becoming absurdly high. On that pleasant note, we ended the conversation. I had a more favorable impression of Hilgers than before.

Judge Vasaly issues her order

Mercifully, nothing had to be done for another month or so. The judge had my pleading. The bank offered no rebuttal. Then, on Thursday, October 15, 2015, a letter arrived in the mail bearing the district court’s return address. Judge Vasaly had issued her order.

Frankly, I was shocked to read the decision. The judge was ordering me to pay $14,726.00 of the bank’s attorneys’ fees. She had knocked off $6,628.00 in attorneys’ fees and $165.55 in costs from the initial request of $21,519.55. This represented legal expenses related to HKM’s second motion for summary judgment. I had successfully argued that the second motion would not have been necessary had the bank’s attorneys done their homework in checking the property description for my vacant lot. All other expenses were allowed.

What surprised me is that the judge ignored the provision of Minnesota statute § 580.30, Subd. 1 which said that if the mortgage was reinstated the mortgagee might be required to pay “one-half of the attorney's fees authorized by section 582.01.” There was no explanation why this provision of law might be invalid; the judge simply ignored it. Half of $21,519.55 was $10,759.78, but the judge was ordering me to pay $14,726.00. Once again, I was facing a Hennepin County district court judge who ignored written law. (See divorce case for another example.)

The other deficiency, from my point of view, is that the judge took it for granted that all the billings from HKM, except for those related to the second motion for summary judgment, were “reasonable” legal expenses. My brief had explained at length why many of the expenses were unreasonable but, again, the judge ignored my arguments. Did she even read my brief? What was her “reasoning” for this type of decision?

Judge Vasaly took pains in the order to hold my former wife, Lian, harmless from any claim for attorneys’ fees. I had to recall that I pled “guilty-continuance” to a charge of domestic assault before this same judge in March 2011. She would certainly have remembered me from that incident. Since I was a self-confessed wife beater in the eyes of the law, I could expect no mercy.

The text of the judge’s order is as follows:

 

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
__________________________________________________________

File No. 27-CV-15-1090
Judge: Mary R. Vasaly

Boundary Waters Bank

Plaintiff

ORDER

v.

William Howard Taft McGaughey, Jr. and
Lian Y. McGaughey
Defendants
_______________________________________________________

The above-entitled matter came before Judge Mary R. Vasaly on Plaintiff Boundary Waters Bank’s Motion for Attorney Fees pursuant to the Court’s July 23, 2105, Order. The parties have settled all issues between them except the determination of the reasonable amount of attorney’s fees to be awarded to Plaintiff pursuant to the parties’ contract and Minnesota law. The parties filed affidavits and memoranda regarding the attorney’s fees issue on September 3 and September 15, 2015 The matter was thereafter taken under advisement.

Plaintiff is represented by Christian A. Brandt, Esq. and Kelly S. Hadac, Esq.
Defendant William H. McGaughey is pro se.

Based upon the affidavits filed by the parties, the arguments in the written memoranda, and all of the files, records, and proceedings herein, the Court makes the following:

FINDINGS

On November 29, 2007, Defendant William H. McGaughey executed a Note in the amount of $182,000.00 (the “Note”). Defendant Lian Y. McGaughey did not execute or co-sign the Note.

The Note is currently held by Plaintiff Boundary Waters Bank (the “Bank”).

The Note defines failure to make monthly payments as a default. Upon default, the Bank has the right to accelerate the remaining balance on the loan, plus interest and fees, including reasonable attorneys’ fees and costs incurred in connection with enforcing the Note.

In addition to the Note, Mr. McGaughey also executed a Mortgage on November 29, 2007. Unlike the Note, however, the Mortgage was executed by Ms. McGaughey through Mr. McGaughey as her attorney-in-fact.

The Note was secured by real property located at 1715 Glenwood Ave., Minneapolis, MN, 55405 (the “Property”).

The Mortgage permits the Bank to pursue sale of the subject property upon default on the Note, to satisfy the amount due on the Note. The Mortgage also provides that the Bank may recover costs, including reasonable attorney fees.

Because Ms. McGaughey did not co-sign the Note, she may not be personally obligated to pay the sums due under the Note or the costs incurred in recovering under the Note. (Mortgage ¶13.) Although Ms. McGaughey is jointly liable for the costs incurred in connection with enforcing the Mortgage, the Property was not actually foreclosed upon. Therefore, the Court finds that Ms. McGaughey is not jointly and severally liable for costs, including attorney fees, incurred in this action.

Mr. McGaughey, on the other hand, has admitted to defaulting on the Note. Mr. McGaughey has also paid his arrears on the Note, including interest, in full. The Bank has agreed to reinstate the Note and Mortgage, subject to Mr. McGaughey’s payment of the Bank’s attorney fees incurred in enforcing the Note.

Minnesota follows the “American rule”, which provides “that attorney fees are not recoverable in litigation unless there is a specific contract permitting or a statute authorizing such recovery.” Dunn v. Nat’l Beverage Corp., 745 N.W..2d 549, 554 (Minn. 2008) (quotation omitted). Here, there is a sufficient basis for the recovery of attorney fees under the terms of the Note and Mortgage, both of which provide for the recovery of attorney fees in enforcing their respective instruments. Although Mr. McGaughey eventually brought the Note current, the Bank had to initiate judicial proceedings to obtain Mr. McGaughey’s compliance. Therefore, the Bank is entitled to recover from Mr. McGaughey the costs and reasonable attorney fees that it incurred to enforce the Note.

Pursuant to Min. Gen. R. Prac. 119, an applicant for an award of attorney’s fees must also provide an affidavit containing the following information:

A description of each item of work performed, the date upon which it was performed, the amount of time spent on each item of work, the identity of the lawyer or legal assistant performing the work, and the hourly rate sought for the work performed;

The normal hourly rate for each person for whom compensation is sought, with an explanation of the basis for any difference between the amount sought and the normal hourly billing rate, if any;

A detailed itemization of all amounts sought for disbursements or expenses, including the rate for which any disbursements are charged and the verification that the amounts sought represent the actual cost to the lawyer or firm for the disbursements sought; and

That the affiant has reviewed the work in progress or original time records, the work was actually performed for the benefit of the client and was necessary for the proper representation of the client, and that charges for any unnecessary or duplicative work has been eliminated from the application or motion.

The bank’s counsel has filed an affidavit containing all of the above-referenced information and requests payment in the amount of $21,519.55 in fees, costs and expenses.

In this case, the Bank’s counsel’s affidavit supports a finding that the hours claimed were incurred in enforcing the Note and the Mortgage. The affidavit contains a line-by-line description of the work performed, and the descriptions demonstrate the the work was necessary for enforcement of the Note and Mortgage.

Mr. McGaughey objects, however, that the individual attorney rates and overall amount requested is unreasonably excessive, that specific entries demonstrate excessive work on certain matters, that much of the law firm’s activities was not necessary or helpful in resolving the case, that the Bank was not entirely successful because Mr. McGaughey was able to survive summary judgment and reinstate the mortgage, and that the matter was not so complex that such exorbitant fees are warranted.

The Court agrees that the Bank is seeking a relatively large sum in connection with its enforcement of the Note. While the costs, fees, and work through the first summary judgment are reasonable and appropriate, this is not the case with work that occurred afterwards. In defending himself at the summary judgment stage, Mr. McGaughey raised a question of fact that the bank was unable to address regarding which property was covered by the Mortgage. The attorneys’ billing statements indicate that more research was needed to address this issue. The Bank was able to clarify the issue and bring a second summary judgment motion, but the cost of doing so should not rest with Mr. McGaughey, as the Bank had the factual information required to address this issue in the initial motion. If it had done so, a second motion would not have been necessary.

The Court will reduce the amount of fees and costs associated with bringing the second summary judgment motion, representing $165.55 in costs and $6,628.00 in fees, from the amount requested by the Bank. 1

The Court does not agree with Mr. McGaughey that the amount should be further reduced because the Bank proceeded with litigation rather than focusing on negotiations. The Note and Mortgage unequivocally permitted the Bank to proceed with litigation against Mr. McGaughey in the event he defaulted. Mr. McGaughey agreed to these terms and admitted he was in default. The costs and fees of litigation through the first summary judgement motion were ordinary and reasonable for this type of case. While the Court is sympathetic to Mr. McGaughey’s position, it cannot ignore the contracts he agreed to be bound by.

Based on the foregoing, the Court will deduct $6,793.55 from the amount of attorney fees and costs requested by the Bank. The Bank is entitled to $14,726.00 in attorney fees and costs in enforcing the Note and Mortgage.

ORDER

Plaintiff Boundary Waters Bank shall have and recover from Defendant William H. McGaughey a total of $14,726.00.

The parties have resolved all other claims pursuant to a settlement agreement. Accordingly, all remaining claims are hereby dismissed with prejudice.

LET JUDGMENT BE ENTERED ACCORDINGLY
BY THE COURT:

Date: October 12, 2015 ____________________________

Mary R. Vasaly
Judge of District Court

______________________

1. Costs from June 24, 2015, through July 23, 2015, have been excluded. Similarly, fees from June 11, 2015, through July 23, 2015, in relation to the second summary judgment motion, have also been excluded. Some of the fees incurred on July 23, 2015, and those incurred thereafter, flow from the Court’s Order reserving the issue of attorney fees and have been included in the Bank’s award.

*** ***** *** ***** *** ***** ***

On October 21, 2015, I received the following document in the mail:

STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
Type of Case: Civil/Other
________________________________________________________________
Court file number 27-CV-15-1090
The Honorable Mary R. Vasaly

Notice of Entry of Judgment

WILLIAM H MCGAUGHEY

1702 GLENWOOD AVENUE

MINNEAPOLIS, MN 55405-1238

________________________________________________________________

Boundary Waters Bank v. William H. McGaughey, Lian Y. McGaughey

WILLIAM H MCGAUGHEY

1702 GLENWOOD AVENUE

MINNEAPOLIS, MN 55405-1238

________________________________________________________________

Boundary Waters Bank v. William H. McGaughey, Lian Y. McGaughey

You are hereby notified that a judgment has been entered in the above entitled matter.

Judgment information
Entered date October 18, 2015
Debtor(s) William H. McGaughey
Creditor(s) Boundary Waters Bank

Monetary Award:
Monetary Amount: $14,726.00

A true and correct copy of this notice has been served pursuant to Minnesota Rules of Civil Procedure, Rule 77.04. Please be advised that notices sent to attorneys are sent to the lead attorney only.

Note: Costs and interest will accrue on any money judgment amounts from the date of entry until the judgment is satisfied in full.

Dated: October 18, 2015 Kate Fogarty
Court Administrator
Hennepin County District Court
300 South Sixth Street, C-3
Minneapolis, MN 55487-0332
612-348-3169

 

Should I Appeal?

This was worse than expected. Of course, I was glad that the judge had subtracted expenses related to the second motion for summary judgment but that was not nearly enough. The most glaring error was that Judge Vasaly had ignored the legal provision in Minnesota statute 580.30, Subdivision 1 which limited my share of the bank’s attorney fees to one half of the fees which the bank paid. I had pointed out that law but the judge did not even mention it in her order. Was there some reason that this law did not apply? If so, the judge should have explained this. The fact that she did not indicated to me total dishonesty or perhaps laziness if the judge had not carefully read my brief.

The other problem was that the judge skirted the issue of whether the HKM law firm’s fees were reasonable attorneys’ fees. Much of my brief had contained arguments that the law firm’s relentless pursuit of summary judgments was unreasonable. It did nothing to further the bank’s legitimate objective of collecting the money that was owed. Instead, the judge seemed to think that in excluding costs related to the second motion she was eliminating the unreasonable fees. No, to file the first motion for summary judgment was also unreasonable. The judge took note of my objections but wrote nothing in response. Her position was summed up in the statement: “The costs and fees of litigation through the first summary judgement motion were ordinary and reasonable for this type of case. While the Court is sympathetic to Mr. McGaughey’s position, it cannot ignore the contracts he agreed to be bound by.”

One point that caught my eye was that the judge took pains to exclude my former wife, Lian, from any liability in connection with the default. Frankly, I did not understand the distinction between her signing the mortgage but not the note. I knew that my former wife was not liable for any of these debts because the divorce decree had excused her. Judge Vasaly evidently did not know about that. She argued that my former wife was not responsible for any of the attorneys’ fees because the foreclosure had not been completed. That seemed to me a weak argument. The salient point, however, was that Judge Vasaly was the same judge before whom I had pled guilty-continuance in a domestic abuse case in March 2011. Did that recollection color her judgment in the foreclosure case? Accusations of domestic abuse are a powerful influence in judicial decisions in Minnesota and perhaps elsewhere.

I had promised Al Hilgers, vice president of Boundary Waters Bank, that I would visit him in his office after the judge issued her decision. When I called Hilgers on October 22nd, he checked his calendar and said his first available date for an appointment would be Tuesday, October 29th, at 2 p.m. Although I thought I would be appealing the judge’s decision, I wanted to check with Hilgers first to see if the bank would agree to accept a lesser amount. Hilgers had once suggested that the bank might be willing to accept $10,000 from me. Even that was too high from my standpoint. I might be willing to settle by paying $5,000. However, it seemed highly unlikely that the bank would agree to those terms.

On Tuesday the 29th, I drove to the Boundary Waters Bank branch in Woodbury to meet with Hilgers. The bank was actually hard to find since Eagle Creek Boulevard does not intersect Highway 19; it was tucked away in a shopping center. Alan Hilgers led me to his office and we sat down to talk.

Asked about my intentions, I said I intended to appeal the case. Hilgers seemed to have expected this. He said he would give me up to 90 days to file the appeal before taking any action. He also said that he would not be appearing in court. I took that to mean that the bank might not even file a response to my motion. I asked where I should send my brief. Hilgers said to send it to him. Evidently, the HKM law firm had been dismissed.

All in all, this seemed reasonable. For good reason, Boundary Waters Bank did not wish to sink any more money into this foreclosure. It would simply accept what the Court of Appeals decided. Hilgers confirmed that Ranee Holmboe was no longer employed at Boundary Waters Bank. He did not say if her departure was related to my case. (I had nothing against Holmboe. She seemed reasonably conscientious and helpful.) Hilgers said that the case was well underway when he became involved. The law firm had already been chosen. Since I had not paid anything for a year, the bank had no alternative but to sue. (This was not quite true. The foreclosure case had been filed when I was five months delinquent. The bank had not accepted partial payments.)

Hilgers said that at some point I would be forced to pay an amount of money for attorneys fees. He might be willing to accept an arrangement for me to pay in installments but only if I added the extra two feet to the mortgaged property. Evidently the nonconforming lot had been a major problem. This also seemed reasonable. I did not say that I expected my father’s inheritance to come through in January so I could pay the full amount of the award.

Hilgers and I seemed to share a loathing for attorneys. I advised him to go with a different firm in future foreclosure cases. He said that law firms were experiencing a profit squeeze and were consolidating. Legal work was becoming much too expensive. When I complained of Judge Vasaly ignoring written law, Hilgers commented that it was his experience that Hennepin County judges were quite “independent” - an understated euphemism.

We parted on good terms with Hilgers even proposing that I bank at Boundary Waters Bank. He said he expected to finish his 30-year career in banking at the Woodbury branch. Maybe he would work for another ten years before he retired. I said I was already retired. I did not mention that I had retired involuntarily twenty years earlier.

Later it occurred to me that Hilgers may have been trying to trick me. His duty, as an officer of the bank, was to minimize the bank's legal expense. In telling me that I had up to 90 days to file the appeal, he was creating a false sense of security. Minnesota rule of civil appellate procedure 104.01, subd. 1 clearly states: "Unless a different time is provided by statute, an appeal may be taken from a judgment within 60 days after its entry." If I filed between 60 and 90 days after the judgment was entered, the Court of Appeals would dismiss my case as being untimely. The other possible "trick" was to instruct me to send the brief to him since the bank had dismissed the HKM law firm. I had no evidence that the law firm had been dismissed. Normally, a paper is filed with the district court. Conceivably, I might fail to send a copy of my brief to the attorney on record, thinking that its receipt by the bank was sufficient, and, again, have the case dismissed.

Even so, this was a good meeting both personally and strategically. I had been worried that if I filed an appeal to the Court of Appeals, the bank might feel obliged to run up another $5,000 to $10,000 in billings with the HKM law firm. Would the Court of Appeals stick me with that expense? But now it seemed that my financial exposure would be limited to the $550 filing fee, $300 in printing costs, and perhaps $250 in consulting with attorney Stephen Nash. Of course, I needed to throw in the sweat equity of preparing the brief myself.

On the way home, I stopped at the state capitol in St. Paul. Someone had asked if the HKM law firm had contributed to Judge Vasaly’s election campaign. I checked with the state Campaign Financing and Disclosure board which is located on the first floor of the Centennial Building (where I worked fifty years ago). An employee tried to locate her file but could find nothing. Evidently, Judge Vasaly did not have a campaign committee that filed reports with this board. But even if I had found a financial connection between Judge Vasaly and the HKM law firm, I’m not sure that the Court of Appeals would look favorably upon this type of complaint.

 

In preparation for the Appeal

I had sixty days to file the appeal. Truthfully, I was tired of this routine. I would rather that the judge had given me a lower amount of expense that I could live with so that going to court again would not be necessary. But $14,726 was too much. Eventually I would have to put in the time to prepare another brief. I would have to spend the $550 on court filing fees and additional hundreds of dollars for printing the brief.

In the meanwhile, I indulged myself with other pursuits. I wrote a long article on models of world history and of big history and sent an excerpt to Comparative Civilizations Review as a possible article. I developed the idea of analyzing "things" of the triple existence. This concept could be introduced in grade schools. Later, the shooting of a young black man in north Minneapolis led to the occupation of grounds in front of the 4th precinct police station. I had to get involved in this controversy, too, in posting comments on e-democracy.org, Minneapolis discussion list. Finally, I decided to run for President again. I would be a candidate in the 2016 Democratic presidential primary in New Hampshire. This required creating a web site at http:www.billforpresident.org. All these activities were more interesting to me personally than filing another brief with the Court of Appeals. But I had to do it, and eventually I buckled down with this assignment.

My strategy was to follow closely previous appeals that I had made - two of them. I did not bother to do any more research at the Hennepin County law library. Most of the cases were on line. I followed closely my first brief in appealing the divorce decision because that appeal had partially succeeded. My two main issues would be, first, to complain that the judge's award of $14,726.00 exceeded the statutory limitation of one-half of the fees ordered by the judge according to Minnesota statute 580.30, Subd. 1 when the mortgage was reinstated. Second, the mortgage contract allowed only "reasonable" attorney's fees to be charged and many of HKM's work and related fees was unreasonable, especially the decision to pursue a motion for summary judgment.

Much of the investigative work had already been done in the Affidavit and Memorandum of Law filed with the district court in early September. Judge Vasaly had simply ignored most of my arguments. Her order seemed to have been prepared in haste. Also, I was a self-represented litigant and a person who had admitted guilt before her in a domestic-abuse case. So the judge arrived at her decision without much consideration given to my discussion of reasonableness. She said nothing in response to my argument concerning the limitation imposed by Minnesota statute 580.30, Subd. 1. I slowly began writing my brief.

Another consideration for me was money to pay the $550 filing fee and hire Bachman Legal Printing to prepare and distribute the brief. As of the day when I filed the Notice of Appeal (December 2nd), I still had not received any money from Sheila whom I had married on August 25th. Mr. Johnston had still not appeared. I suspected that he had run off with the money. We paid another attorney $500 to track him down but still were unsuccessful. Did Mr. Johnston even exist? Also, the $8,000 owed Sheila for taking care of Dale had not yet been delivered. The money had been run through Bankruptcy Court and been authorized for payment to me yet the money never came. I was delinquent on taxes owed on all my Minnesota and Pennsylvania real estate, had not paid any of my Minneapolis water bills for months, and had not paid my former wife her $600 for alimony in November. However, I had managed to pay the $1,000 filing fee in New Hampshire. Now I would have to come up with the $550 filing fee and whatever I owed Bachman Legal printing.

First, I had to prepare the Notice of Appeal (Minnesota court form 103A) and Statement of the Case (Minnesota court form 133). I had to prepare the Addendum and number its pages in order to cite evidence for the brief. This process took several days after the brief was essentially finished. My printer started to malfunction but I cleaned the head and everything was fine. I had thought I would be done by November 30 but postponed the distribution date to December 2. Sheila served the papers on the district court and opposing parties (HKM and Al Hilgers). I drove over to the Court of Appeals near the state capitol in St. Paul. The deed was done. All I had to do now was wait for the appellate court file number to be assigned. Then I could deliver the typed sheets for the brief to Bachman Legal Printing which would do the rest. I could expect a decision at some time next spring.

 

The Notice of Appeal and Statement of the Case

These two documents had to be filed with the Court of Appeals and copies sent to the opponent and to the district court before I could file a brief. The only uncertainty was whether I would be appealing from the judge's order on October 12th or from entry of the judgment on October 18th. I decided to file from the entry date. I was appealing the judgment although the judge's rationale was expressed in her order. The court forms were downloaded from a web site.

The Notice of Appeal read:

"FORM 103A. NOTICE OF APPEAL (COURT OF APPEALS)

 

STATE OF MINNESOTA
DISTRICT COURT
FOURTH JUDICIAL DISTRICT
COUNTY OF
                              
             Hennepin                  

CASE TITLE:

Boundary Waters Bank
Plaintiff,


NOTICE OF APPEAL TO COURT
OF APPEALS


vs.


DISTRICT COURT CASE NUMBER: 27-CV-15-1090

William H. McGaughey
Defendant.

DATE OF ORDER:

[OR]

DATE JUDGMENT ENTERED: October 18, 2015

TO: Clerk of Appellate Courts
305 Minnesota Judicial Center
25 Rev. Dr. Martin Luther King Jr. Blvd.
Saint Paul, MN 55155

Please take notice that the above-named defendant appeals to the Court of Appeals of the State of Minnesota from an order of the court filed on October 12, 2015, which allowed Plaintiff Boundary Waters Bank to recover $14,726.00 from defendant William McGaughey for reimbursement of the bank’s attorney fees.

DATED: December 2, 2015

Defendant Appellant
William H. McGaughey, pro se
1702 Glenwood Avenue
Minneapolis, MN 55405
374-5916
2wmcg@earthlink.net

Plaintiff’s attorney
Kelly S. Hadac #0328194
Julie N. Nagorski #389212
HKM, P.A.
30 East 7th Street suite 3200
St. Paul, MN 55101-4919
227-9411
khadac@hkmlawgroup.com

Plaintiff
Alan Hilgers, Vice President
Boundary Waters Bank
11800 Aberdeen St.
Blaine, MN 55449
           

SIGNATURE OF APPELLANT

Dated December 2, 2015

(The district court caption is used on the notice of appeal. Subsequent documents shall bear the appropriate appellate court caption. RCAP 103.01, subd. 1 specifies the contents of the notice of appeal and filings required to perfect an appeal, including filing fees. RCAP 103.03 sets forth judgments and orders which are appealable to the Court of Appeals. RCAP 104.01 specifies time limits for filing and service of the notice of appeal. RCAP 108.01 provides for a supersedeas bond. This document must be accompanied by a completed statement of the case. RCAP 133.03.)"

 

The Statement of the Case read:

"FORM 133. STATEMENT OF THE CASE

STATE OF MINNESOTA
(IN SUPREME COURT
OR
IN COURT OF APPEALS)

CASE TITLE:

William H. McGaughey
Appellant,

STATEMENT OF THE CASE OF APPELLANT

vs.

DISTRICT COURT CASE NUMBER: 27-CV-15-1090

Boundary Waters Bank
Respondent

APPELLATE COURT CASE NUMBER:

1. Court or agency of case origination and name of presiding judge or hearing officer: fourth judicial district, Hennepin County District Court, Hon. Mary R. Vasaly, judge

2. Jurisdictional Statement:

(A) Appeal from district court.

Statute, rule or other authority authorizing appeal: Minnesota Rule of Civil Appellate procedure 103.03, appeal from a final judgment

Date of entry of judgment or date of service of notice of filing of order from which appeal is taken: October 18, 2015

Authority fixing time limit for filing notice of appeal (specify applicable rule or statute): Minnesota Rule of Civil Appellate procedure 104.01 An appeal within 60 days after the entry of a judgment

Date of filing any motion that tolls appeal time: No post-trial motion was filed.

Date of filing of order deciding tolling motion and date of service of notice of filing: The Notice of Appeal was filed on November 30, 2015.

(B) Certiorari appeal.

Statute, rule or other authority authorizing certiorari appeal: This situation does not apply.

Authority fixing time limit for obtaining certiorari review (cite statutory section and date of event triggering appeal time, e.g., mailing of decision, receipt of decision, or receipt of other notice): This situation does not apply.

(C) Other appellate proceedings.

Statute, rule or other authority authorizing appellate proceeding: This situation does not apply.

Authority fixing time limit for appellate review (cite statutory section and date of event triggering appeal time, e.g., mailing of decision, receipt of decision, or receipt of other notice): This situation does not apply.

(D) Finality of order or judgment.

Does the judgment or order to be reviewed dispose of all claims by and against all parties, including attorney fees? Yes (x ) No ( )

If no:

Did the district court order entry of a final judgment for immediate appeal pursuant to MINN. R. CIV. APP. P. 104.01? Yes ( ) No ( ) or

If yes, provide date of order: n.a.

If no, is the order or judgment appealed from reviewable under any exception to the finality rule? Yes ( ) No ( )

If yes, cite rule, statute, or other authority authorizing appeal: n.a.

(E) Criminal only:

Has a sentence been imposed or imposition of sentence stayed? Yes ( ) No ( )

If no, cite statute or rule authorizing interlocutory appeal:

3. State type of litigation and designate any statutes at issue.

Civil Other Foreclosure Minnesota statute § 580.30, Subd. 1, Minnesota statute § 582.01, subd. 1 and 2, Minnesota statute § 645.16

4. Brief description of claims, defenses, issues litigated, and result below. For criminal cases, specify whether conviction was for a misdemeanor, gross misdemeanor, or felony offense.

Court ruling: The trial-court judge ordered defendant William McGaughey to pay $14,726 of Boundary Waters Bank’s attorney fees. She ruled that all of the bank’s law firm’s requested fees of $21,519.55 to collect a debt of $19,886.88 were reasonable attorney’s fees in the context of the mortgage contract with Bear Stearns except for $6,793.55 in fees and expenses that pertained to filing the bank’s second motion for summary judgment.

1. Appellant’s claim: The judge overlooked the provision of Minnesota statute § 580.30, Subd. 1 which limits recoverable attorney’s fees in foreclosures by action to one-half of the amount awarded under Minnesota statute § 582.01, subd. 2, which allows the judge to set the level of fees, when the mortgage is successfully reinstated.

2. Appellant’s claim: While the judge properly decided that fees related to the second motion were unreasonable, she erred in deciding that the remainder of the fees were reasonable attorney’s fees. The term “reasonable” in the mortgage contract imposes a duty upon the judge to determine whether or not the requested fees for this case were reasonable, especially in regard to filing the first motion for summary judgment. The judge failed to do so, stating only that “(t)he costs and fees of litigation through the first summary judgment motion were ordinary and reasonable for this type of case.” The defendant argues that some of those fees were unreasonable because (a) the filing of papers and other activities did not contribute to the bank’s legitimate interest in collecting its debt, (b) because the law firm at the outset sabotaged a possible settlement, (c) because the law firm filed the first motion for summary judgment knowing that there was at least one material issue of fact that would defeat its motion under Min. Gen. R. Prac. 119, (d) because the judge ignored case precedent that limited fees to those related to successful outcomes, and (e) because the law firm’s billing rates were excessively high especially in relation to the quality of the work.

The trial court’s reasoning: The law firm’s activities were necessary to collect the debt. Since its law firm had complied with the requirements of Min. Gen. R. Prac. 119, the bank was entitled to recovery of fees. The mortgage contract allowed the bank to pursue aggressive litigation rather than attempt to communicate or negotiate with the defendant. The fees were “reasonable and appropriate.”

5. List specific issues proposed to be raised on appeal.

(a) Does Minnesota statute § 580.30, Subd. 1 limit the amount of attorney’s fees recoverable from the defendant in cases of foreclosure by action to one half of what the judge awards under section 582.01?

(b) Does the HKM law firm’s refusal to talk with a representative of Home Mortgage Solutions which might have settled the foreclosure case on terms agreeable to both parties demonstrate that its subsequent activities were unreasonable?

(c) Did the HKM law firm’s repeated filing of motions for summary judgment facilitate or improve the bank’s chances of recovering its full debt from the defendant and, if not, were the related fees reasonable?

(d) Did the law firm’s unsubstantiated claim that two feet of land were not included in the mortgaged property because of “error” indicate that these lawyers realized that the fact of an unbuildable lot according to Minneapolis city code might cause problems for the bank and, in particular, defeat a possible motion for summary judgment and, if so, was it reasonable for the bank to pursue a summary judgment?

(e) Should the judge allow the bank to recover attorney fees for summary judgment when all such claims were unsuccessful?

(f) Does the use of a “junior attorney” who made repeated mistakes in developing this case but whose billing rate was at the high end of attorney’s fees according to a 2011 Twin Cities survey represent “reasonable” attorney’s fees?

6. Related appeals.

List all prior or pending appeals arising from the same action as this appeal. If none, so state. none

List any known pending appeals in separate actions raising similar issues to this appeal. If none are known, so state. none

7. Contents of record.

Is a transcript necessary to review the issues on appeal? Yes ( ) No (x )

If yes, full ( ) or partial ( ) transcript? n.a.

Has the transcript already been delivered to the parties and filed with the district court administrator? Yes ( ) No ( ) n.a.

If not, has it been ordered from the court reporter? Yes ( ) No ( ) n.a.

If a transcript is unavailable, is a statement of the proceedings under Rule 110.03 necessary? Yes ( ) No ( ) n.a.

In lieu of the record as defined in Rule 110.01, have the parties agreed to prepare a statement of the record pursuant to Rule 110.04? Yes ( ) No ( ) n.a.

8. Is oral argument requested? Yes ( ) No ( x)

If so, is argument requested at a location other than that provided in Rule 134.09, subd. 2? Yes ( ) No ( ) n.a.

If yes, state where argument is requested:

9. Identify the type of brief to be filed.

Formal brief under Rule 128.02. ( x)

Informal brief under Rule 128.01, subd. 1 (must be accompanied by motion to accept unless submitted by claimant for reemployment benefits). ( )

Trial memoranda, supplemented by a short letter argument, under Rule 128.01, subd. 2. ( )

10. Names, addresses, and telephone numbers of attorney for appellant and respondent.

Defendant Appellant
William H. McGaughey, pro se
1702 Glenwood Avenue
Minneapolis, MN 55405
374-5916
2wmcg@earthlink.net

Plaintiff’s attorney
Kelly S. Hadac #0328194
Julie N. Nagorski #389212
HKM, P.A.
30 East 7th Street suite 3200
St. Paul, MN 55101-4919
227-9411
khadac@hkmlawgroup.com

Plaintiff
Alan Hilgers, Vice President
Boundary Waters Bank
11800 Aberdeen St.
Blaine, MN 55449

SIGNATURE

DATED: December 2, 2015

(The Statement of Case is not a jurisdictional document, but it is important to the proper and efficient processing of the appeal by the appellate courts. The "jurisdictional statement" section is intended to provide sufficient information for the appellate court to easily determine whether the order or judgment is appealable and if the appeal is timely. The nature of the proceedings below and the notice of appeal determine the jurisdiction of the appellate court. The sections requesting information about the issues litigated in the lower court or tribunal, and the issues proposed to be raised on appeal are for the court's information, and do not expand or limit the issues that might be addressed on appeal. Likewise, the section asking counsel to identify and prior or pending appeals from the same case, and any separate appeals that raise similar issues is intended to provide more information about the procedural history of the case and to ensure that the court has early notice of other pending related matters in case consolidation is appropriate.)

My wife, Sheila, mailed copies of these documents to the HKM law firm and Boundary Waters Bank from a post office in Minneapolis. She hand-delivered a copy to the district court at the filing desk on the third floor of the Hennepin County Government Center. Her affidavit of service was notarized at the Wells Fargo bank on Olson highway. I then drove to St. Paul to visit the clerk of appellate court filing desk at the judicial center. Included with the filing were the Notice of Appeal, Statement of the Case and the three notarized affidavits of service. I also provided a check for $550.00. The clerk said I had 30 days to file the brief itself. Normally, I would do it soon after this filing but money was still short. I could expect to pay $300 or so to Bachman Legal Printing and there might also be an unpaid bill from a previous print job needing to be paid. (For some reason, the post office had returned the envelope with my check but Bachman had not called to complain.) I would, of course, need the Appellate Court case number to prepare the brief.

 

Early communications from the court

Several days later, I received this order in the mail:

STATE OF MINNESOTA
COURT OF APPEALS

[POSTAL /MAILING NOTICE OF CASE FILING
ADDRESS IF Trial Court Case #27-CV-15-1090
APPLICABLE Case Type: Other

Case Title: Boundary Waters Bank, Respondent, vs. William H. McGaughey, Appellant, Lian Y. McGaughey, Defendant
Case Filed: December 2, 2015

You are notified that case number A15-1950 has been assigned to this matter. Please include this number on all subsequent filings, including correspondence, to this office. Also, please include your attorney registration number on all filings.

Effective July 1, 2014, no party may submit an appendix to its brief, pursuant to Rule 130. If the record includes a statement of the proceedings made pursuant to Rule 110.03 or an agreed statement made pursuant to Rule 110.04, the statement shall be included in the addendum as prescribed by Rule 130.02. Please refer to Rule 130.02 for additional guidelines regarding the addendum.

This office will send notice to the trial court administrator when transmission of the trial court records and exhibits is required. If oral arguments are requested, counsel must file and update notice regarding oral arguments, to provide information about potential scheduling conflicts. The form is available at: www.mncourts.gov/argumentscheduling

IF ANY DEFICIENCIES ARE NOTED ABOVE, THEY MUST BE CORRECTED BY THE FILING PARTY (OR AS OTHERWISE NOTED) WITHIN TEN DAYS. FAILURE TO COMPLY WITH THIS NOTICE, ALL APPLICABLE RULES, COURT NOTICES, AND ORDERS MAY RESULT IN THE IMPOSITION OF SANCTIONS.

Dated: December 4, 2015
BY THE COURT

Ann Marie S. O’Neill
Office of the Clerk of the Appellate Courts
305 Minnesota Judicial Center
St. Paul, Minnesota 55155

This was expected. Another was not. But on the surface it seemed harmless. The Court of Appeals sent me the following order:

Filed December 4, 2015 Office of Appellate Courts

STATE OF MINNESOTA
IN COURT OF APPEALS

Boundary Waters Bank,
Respondent ORDER
#A15-1950
vs.

William H. McGaughey
Appellant,

Lian Y. McGaughey,
Defendant
_____________________________________________________

BASED ON THE FILE, RECORD, AND PROCEEDINGS, AND BECAUSE:

This appeal was filed on December 2, 2015. The notice of appeal states that appellant seeks review of an October 12, 2015 order awarding attorney fees to respondent.

There is no appeal from an order awarding attorney fees and instead the proper appeal lies from the judgment or amended judgment entered on the order. T.A. Schifsky & Sons Inc. v. Bahr Constr. LLC, 773 N.W.2d 783, 789-90 (Minn. 2009)

On October 18, 2015, the district court administrator certified entry of judgment on the fact of the October 12, 2015 order.

Both the supreme court and the court of appeals have construed appeals from orders for judgment as being taken from judgments entered pursuant to the order, where the judgment is entered before the notice of appeal is filed. Id. at 90.

IT IS HEREBY ORDERED: This appeal is construed as taken from the judgment entered on October 18, 2015.

Dated: December 4, 2015
BY THE COURT

___________________
Judge Louise Dovre Bjorkman

I had wondered about this in filing the Notice of Appeal and Statement of the Case. Was I appealing from the order or from the judgment? I initially thought it might be from the order since my arguments were addressed to the judge's reasoning in the order dated October 12, 2015. But now the court was telling me I had to appeal from the judgment dated October 18, 2015. But my error seemed to be corrected in the appellate court's order of December 4, 2015.

 

I file the brief

The clerk of the appellate court had told me that I had 30 days to file the brief itself so I felt under little pressure to do this. One constraint was financial. I was worried about being able to get through the month of December before my Dad’s inheritance came through. But around the 13th or 14th day of the month, I thought it was time to wrap up the brief filing. I reviewed the brief again to see if I needed more citations tying a point in the brief to evidence in the addendum.

I found more than expected. I also found that the brief was rather disorganized in the Arguments section. Therefore, I added topic headers in the section that dealt with whether the legal expenses were reasonable.

On Tuesday, December 15, 2015, I visited my old friend Steve West at Bachman Legal Printing in downtown Minneapolis (on Marquette between 7th and 8th). Once again he found something wrong. I needed to double space the text in the brief. I had set the spacing at 1.4 but it needed to be 2.0. So I had to walk back to my parking space, drive home, and retype the brief in the correct format. Because the spacing was different, I also needed to renumber the page references at the beginning. But this was eventually completed. Steve West took the materials from me and promised he would get the brief out on the following day. I would get two copies and Alan Hilgers and the law firm would each get one. Evidently, the HKM law firm had a reputation as being very difficult.

A letter from my sister containing a check for my father's inheritance was in the mail for December 14th. I quickly deposited this money in the bank.

I wanted to drop off December’s check at Boundary Waters Bank in Blaine. The problem was that I was afraid I would not have enough money in my checking account if another large payment also went through on this day, as expected. I had deposited a large check from my Dad’s inheritance in Well Fargo Bank on December 14th, but the bank held all in reserve for two days. Then, $4,000 would be released and the rest, in seven business days.

Late fees would be assessed if the payment to Boundary Waters Bank was made after December 16th. The check would not arrive by then if mailed. I called Boundary Waters Bank in Blaine to ask if I could hand-deliver a check for the full amount postdated to December 16th. I was told I would need Alan Hilger’s permission. With that, I decided to postpone my visit to December 16th when a postdated check would not be necessary. I did drive up to Blaine to deliver the check on the following day.

219

In any event, Bachman Legal Printing now had the brief. This is what it said:

 

The brief submitted to the Court of Appeals

TABLE OF CONTENTS

TABLE OF AUTHORITIES 2

LEGAL ISSUES 4

I. Does Minnesota statute § 580.30, Subd. 1 limit the amount of attorney’s fees that the bank can recover from the defendant in a foreclosure by action to one half of the fees authorized by section 582.01 of Minnesota statute if the mortgage is reinstated?

II. Were the attorneys’ fees related to the HKM law firm’s filing of papers in this foreclosure case reasonable in terms of the mortgage contract?

STATEMENT OF THE CASE 12

CASE HISTORY 15

THE COURT’S RULINGS AND DEFENDANT’S RESPONSE 22

ARGUMENTS 30

CONCLUSION 66

CERTIFICATE OF BRIEF COMPLIANCE 67

TABLE OF AUTHORITIES

Minnesota Statutes

Minnesota statute § 176.081, Subd. 1(a) 57
Minnesota statute § 580.30, Subd. 1 4, 5, 30, 31, 32, 56
Minnesota statute § 582.01, Subd. 2 4, 5, 30, 31, 33, 56, 57, 58
Minnesota statute § 645.16 5, 31, 58

Case law

Dunn v. Nat’l Beverage Corp., 745 N.W..2d 549, 554 (Minn. 2008) 22
Head v. Paulson, 188 N.W.2d 424 (1971) 11, 35, 38, 40, 52, 53, 55, 59, 60
Hensley v. Eckerhart, 461 U.S. 424 at 436 8, 11, 46, 47
J.E.B. v. Danks, 785 N.W.2d 741, 747 (Minn. 2010) 43
Musicland Group, Inc. v. Ceridian Corp. 508 N.W.2d 524, 535 (Minn. App. 1993) 48
Northland Ins. Co. v. Bennett, 533 N.W.2d 867, 871 (Minn. Ct. App. 1995) 43
O’Donnell v. McGee Trucks 199 N.W.2d 432 (1972) 11, 57
Scott v. Forest Lake Chrysler-Plymouth-Dodge, 668 N.W.2d 45, 50-51 (Minn. Ct. App. 2003) 11, 47
State ex rel. Graham v. Klumpp, 536 N.W.2d 613, 615 (Minn.1995) 58
Valspar Refinish, Inc. v. Gaylord’s Inc., 764 N.W.2d 359, 364 (Minn. 2009) 44
Wal-Mart Stores, Inc. v. Barton, 223 F.3d 770, 773 (8th Cir. 2000) 46, 47

Minnesota court rules

Minnesota General Rules of Practice 119.02 9, 10, 13, 20, 21, 24, 44, 52, 53
Minnesota Rule of Civil Procedure 56.03 7, 40, 41, 43

Other authorities

Denarius Human Resources Inc. 2011 survey Twin Cities law firms 51, 52
Hennepin County Bar Association “minimum fee schedule” 56, 57
House Research Information Brief, Attorney Fee Awards in Minnesota Statutes as updated in July 2015 38, 58, 59
The “American Rule” 34

Abbreviations

ADD-xx refers to the number of a page in the Addendum
References to a source document are in bold print.

 

LEGAL ISSUES

I. Does Minnesota statute § 580.30, Subd. 1 limit the amount of attorney’s fees that the bank can recover from the defendant in a foreclosure by action to one half of the fees authorized by section 582.01 of Minnesota statute if the mortgage is reinstated?

1. Appellant’s Argument: Minnesota statute § 582.01, Subd. 2 provides that in the case of foreclosures by action the court shall establish the amount of the attorney’s fee. In her order dated October 12, 2015, district court judge Mary R. Vasaly ordered defendant McGaughey to pay Boundary Waters Bank $14,726.00 for its attorneys’ fees. However, Minnesota statute § 580.30, Subd. 1 limits the allowable reimbursed fee to one half of the total amount. The judge’s order for payment exceeds the statutory limit.

2. Trial Court’s ruling:

(a) The Court agrees that the Bank is seeking a relatively large sum.

(b) The trial court does not mention Minnesota statute § 580.30, Subd. 1 or its requirement to limit the award of reasonable attorneys’ fees to one half of the ordered amount.

c. The Appellant filed a Notice of Appeal and Statement of the Case on December 2, 2015.

d. Minnesota statute § 580.30, Subd. 1, Minnesota statute § 582.01, subd. 2, Minnesota statute § 645.16

 

II. Were the attorneys’ fees related to the HKM law firm’s filing of papers in this foreclosure case reasonable in terms of the mortgage contract?

1. Appellant’s Argument: The plaintiff’s motion for award of attorney fees submitted to the court on September 3, 2015 sought to charge the defendant $21,519.55 for legal services performed between November 5, 2014 and August 15, 2015 in collecting a debt of $19,886.88 under the mortgage contract. plaintiff memorandum ADD-23 Judge Mary Vasaly disallowed $6,793.55 of the expenses that were related to the second motion for summary judgment as being unreasonable. That left $14,726.00 in the payment order issued by the judge on October 12, 2015. judge’s order ADD-17

The defendant is arguing that some of the $14,726.00 in remaining fees authorized by the judge are also unreasonable depending on the underlying activities and purposes for which legal work was performed. (See spreadsheet ADD-41)

The total billings of $21,519.55 are broken down in the following categories:

(a) Total recording and other costs are $926.05. Judge Vasaly disallowed $165.55 of those costs, leaving $760.50. judge’s order ADD-17 The defendant does not challenge the reasonableness of those remaining costs.

(b) Hourly billings of $3,169.50 made between November 5, 2014 and January 22, 2015 are related to the filing of the initial summons in this foreclosure case. The defendant does not challenge the reasonableness of those costs.

(c) Hourly billings of $5,050.50 for work done between January 23, 2015 and April 3, 2015 are related to filing the first motion for summary judgment on April 3, 2015. defendant memorandum ADD-60-61 The defendant challenges the reasonableness of those charges on the following grounds:

1. The law firm had an opportunity to settle this foreclosure case in late January if it had been willing to negotiate with Home Mortgage Solutions, a California non-profit that specialized in restructuring mortgages to prevent foreclosure. defendant affidavit ADD-45 ¶ 15 The defendant had been accepted into their program but was then dropped when the bank and its attorneys refused to talk with representatives of this organization. See fee schedule ADD-29, entry for Feb. 2-6 It is not reasonable to initiate adverse action in seeking a summary judgment when the case might have been concluded amicably at less expense.

2. The motion for summary judgment was both unnecessary and unhelpful in pursuing the bank’s legitimate goal of collecting all the money that it was due under the mortgage contract. The court had set a trial date in January 2016 and had also ordered mediation through ValueSolve ADR. (See scheduling order, etc.) ADD-4-5 The case might have been settled less expensively had the bank and its attorneys accepted those options. The law firm never communicated with the defendant to learn his financial situation or seek proposals that he might have made to repair the deficiency under the contract. defendant memorandum add-50 Instead, the law firm, without having such knowledge, billed the bank for 17.7 hours of work related to filing the first motion for summary judgment. spreadsheet ADD-41 That approach was unreasonable.

3. The motion for summary judgment, while authorized by Rule 56.03 of the Minnesota Rules of Civil Procedure, negated the debtor’s right to a trial in foreclosure cases. The debtor’s admission of debt is not sufficient grounds for granting a summary judgment.

4. A motion for summary judgment is supposed to be granted only if there are no genuine issues of material fact left to be decided in the case. The defendant presented three substantial issues of fact. One of them was the fact that the mortgaged duplex at 1715 Glenwood Avenue sat on an unbuildable lot. Not only was the bank’s position weak with respect to obtaining a summary judgment but its attorneys knew it was weak. In its complaint dated January 22, 2015, the bank’s attorneys sought to acquire the two feet of land that would make the mortgaged property a buildable lot claiming, without basis, that its omission was an “error”. plaintiff summons ADD-20 This shows that the attorneys recognized that there might be a problem here in pursuing the foreclosure case. The unbuildable lot was also a genuine issue of fact that precluded summary judgment. It was not reasonable that the law firm chose to proceed with the summary-judgment motion in a predictably losing case, billing first the bank and then the adverse party.

5. The bank’s first motion for summary judgment failed. In an order issued on May 11, 2015, the trial-court judge denied both the foreclosure and the motion for attorneys’ fees due to defects in the case. judge’s order ADD-13 Case precedent does not support awarding attorneys’ fees for pursuing claims that are not granted by the court. Hensley v. Eckerhart, U.S. 424, 103 Supreme Court (1983) ADD-65

6. The attorney’s hourly rate of billing was excessive.

(d) Hourly billings of $3,474.00 for work done between April 4, 2015 and May 1, 2015 are related to responding to the defendant’s motion in opposition to the bank’s first motion for summary judgment. spreadsheet ADD-41 Those responsive papers were filed on May 1, 2015. The defendant challenges the reasonableness of those charges on the same grounds as in (c). If costs related to filing the first motion for summary judgment were unreasonable, then so are the costs related to defending it and for the same reasons.

(e) Hourly billings of $6,598.50 for work done between May 2, 2015 and June 22, 2015 are related to the bank’s filing of a second motion for summary judgment. The trial-court judge disallowed this award in her order of October 12, 2015. The defendant does not challenge that decision.

(f) Hourly billings of $2,301.00 for work done between June 23, 2015 and September 3, 2015 are related to producing a schedule of the bank’s attorneys’ fees in this foreclosure case as required by Minn. Gen. R. Prac. 119.02 and ordered by the judge on May 11, 2015. This charge is unreasonably assigned to the defendant for the following reasons:

Minn. Gen. R. Prac. 119.02 requires an itemized breakdown of the billing for attorney’s fees where a motion for attorneys’ fees are made. Not only did the bank’s attorneys fail to provide this schedule of expenses in the first motion for summary judgment, but, ignoring the judge’s explicit reminder on May 11, 2015, it failed to provide the required schedule of expenses in the second motion as well. judge’s order ADD-13 This schedule should have been included with the second motion but was not. It is unreasonable to charge the defendant for the 7.8 hours of work needed to produce the schedule and file another motion after the hearing on July 23, 2015 to repair that deficiency.
2. The attorney’s hourly rate of billing was excessive.

Trial Court’s ruling:

(a) The bank had to initiate judicial proceedings to collect its mortgage debt. Therefore, the related attorneys’ fees were reasonable and proper. judge’s order ADD-15 ¶ 9

(b) The law firm presented an affidavit with detailed billing information as required by Min. Gen. R. Prac. 119. This supports a finding that the work was performed to enforce the Note and Mortgage. The descriptions in the billing show that this work was necessary for enforcement of the Note and Mortgage. judge’s order ADD-16 ¶ 12

(c) Even though the bank is seeking a relatively large reimbursement, “the costs, fees, and work through the first summary judgment are reasonable and appropriate.” judge’s order ADD-16 ¶ 14

(d) The bank was not obliged to “negotiate” with the defendants to settle the foreclosure because the mortgage contract allowed it to proceed with litigation in the event of default. judge’s order ADD-17

(e) The legal costs incurred through the first motion were reasonable. judge’s order ADD-16 #14

The Appellant filed a Notice of Appeal and Statement of the Case on December 2, 2015.

Head v. Paulson, 188 N.W.2d 424 (1971), O’Donnell v. McGee Trucks 199 N.W.2d 432 (1972), Hensley v. Eckerhart, 461 U.S. 424 at 436, Scott v. Forest Lake Chrysler-Plymouth-Dodge, 668 N.W.2d 45, 50-51 (Minn. Ct. App. 2003)

STATEMENT OF THE CASE

This case is a foreclosure by action. The case was filed by Boundary Waters Bank in Hennepin County district court on January 22, 2015 and was assigned to Judge Mary R. Vasaly. Ultimately, the foreclosure was settled when the defendant presented a check for the full amount of the deficiency to the bank’s vice president. However, the matter of attorney’s fees remained unresolved at that time. This appeal to the Court of Appeals is made from the judgment of $14,726.00 of the bank’s attorney fees ordered by the trial-court judge on October 12, 2015, which represents 74 percent of the loan deficiency. judge’s order ADD-17

The plaintiff bank, Boundary Water Bank, filed an action in court against the defendants, William and Lian McGaughey, on January 22, 2015, after they had failed to make several mortgage payments. Trial was set for January 2016. Mediation was ordered.

Instead of following the procedure initially ordered by the court, the plaintiff filed a motion for summary judgment on April 3, 2015. A hearing on this motion took place on May 6, 2015, at which both parties appeared before the judge. The judge denied both the motion for summary judgement and award of attorneys’ fees.

The plaintiff then filed a second motion for summary judgment on June 22, 2015, to correct defects in filing the first one. In this motion, the plaintiff did not request attorneys’ fees or present the schedule of fees paid required by Minn. R. Gen. Prac. 119.02. A hearing on this motion took place on July 23, 2015. At this hearing, the defendant presented a cashier’s check for $19,886.88 to the bank’s vice president, representing the total amount due under the contract. The vice president accepted this check to reinstate the mortgage. It was agreed that the issue of attorneys’ fees would be decided later.

The judge ordered the plaintiff’s attorney to prepare and deliver a schedule of fees related to this case within 45 days. Its brief was signed and delivered on September 3, 2015. The defendant prepared a response and delivered it on September 11, 2015. Judge Vasaly issued her order on October 12, 2015. Judgment was entered on October 18, 2015.

The trial court’s ruling: The trial court ordered that the defendant reimburse the bank $14,726.00 for attorneys’ fees and costs paid to litigate this case. The judge had deducted $6,793.55 from the original $21,519.55 in reimbursement sought because this represented unreasonable expenses related to the bank’s second motion for summary judgment. The court also dismissed all other claims against the defendant by the bank because the defendant’s check for $19,886.88 had reinstated the mortgage. judge’s order ADD-17

 

CASE HISTORY: See defendant affidavit

William H. T. McGaughey and his wife Lian Y. McGaughey borrowed $182,000 on November 29, 2007, by placing a mortgage on their duplex located at 1715 Glenwood Avenue in Minneapolis, Minnesota. Bear Stearns Residential Mortgage Corporation was the lender. The mortgage bore an interest rate of 6.875%. The mortgage contract was later sold to Bayview Loan Servicing LLC, which, in turn, later sold the contract to Boundary Waters Bank. ADD-42-43

The mortgage contract concluded between Bear Stearns Residential Mortgage Corporation and the defendants on November 29, 2007, provided, on pages 11 and 12, that the borrowers had the right to reinstate the mortgage if they paid the entire sum of money due under the contract plus certain other expenses including “reasonable attorneys’ fees.”

Defendant William McGaughey made regular monthly payments of roughly $1,500.00 a month from the inception of the mortgage until he was unable to continue the payments in June 2014. Skipping a month, he made a double payment in July 2014 by selling shares of stock. But then, in August 2014, he was unable to continue the payments.

In September 2014, defendant William McGaughey received a telephone call from Ranee Holmboe, branch manager of Boundary Waters Bank, in which she proposed avoiding foreclosure by giving the bank a “deed in lieu” without a deficiency judgment. McGaughey agreed to that arrangement. Holmboe said she would send him something in writing to explain it but never did. Instead McGaughey received a letter from Ms. Holmboe dated September 30, 2014 in which she announced the bank’s intention to foreclose upon the property if full payment of present and past debt plus late fees was not received by October 15, 2014. McGaughey had sent a check for a partial payment but it was returned. The letter stated that only payment in full would be accepted. ADD-44 ¶ 10

In January 2015, William McGaughey attempted to restructure the mortgage debt with an organization in California called “Home Mortgage Solutions” whose literature stated: “Eligible Applicants in the State of Minnesota may also receive a Principle Reduction, Payment Relief, an interest free loan to pay mortgage payments, or the elimination of their 2nd Mortgage.” Normally, such programs pertained only to owner-occupied buildings. However, McGaughey was assured by a customer representative that the program would cover rental properties such as 1715 Glenwood Avenue, too. McGaughey completed the application paperwork and was accepted into the program. However, when Brenda Rivera of Home Mortgage Solutions contacted Boundary Waters Bank, the later referred the request to its attorneys who refused to talk with Ms. Rivera. McGaughey’s application for debt modification through this program was thus killed. ADD-45 ¶ 15

About this time, defendant McGaughey received a summons from the bank’s lawyers, Murnane Brandt, which announced the bank’s intention to foreclose by action upon three parcels of land: a 38-foot lot with a building upon it, a 40-foot vacant lot, and a 2-foot lot between them. The lawyers claimed that the two feet of property had been omitted from the mortgage description because of an unspecified “error”. They wanted it to be added. The plaintiff bank also wanted an order to be entered immediately to sell the properties at auction. plaintiff memorandum ADD-20 The summons was dated January 22, 2015.

In his response to the complaint, dated February 5, 2015, defendant McGaughey admitted that he was behind in the mortgage payments. He explained why the omission of the two feet was not an error; it had been purchased separately from the other two parcels of land. The land upon which the duplex sat was a nonconforming lot according to city code. His response pointed out that two separate attempts had been made to settle the case amicably - the proposal to grant a deed in lieu and the attempted contract with Home Mortgage Solutions - and he urged the attorneys to seek settlement by those means before proceeding with the lawsuit. ADD-46 ¶ 17-18

A Notice of Judicial Assignment was issued on January 23, 2015, assigning Hennepin County Judge Mary R. Vasaly to the case. There was also an order scheduling a trial for some time in January 2016 and an order referring the case to mediation. Discovery had to be completed before July 17, 2015. Judge Vasaly’s order was dated March 6, 2015. Another court order, dated May 1, 2015, appointed Leslie Sinner McEvoy as mediator. ADD-1 - 7

None of this had relevance to the case. On April 3, 2015, the bank’s attorneys, now named HKM law firm, filed a motion for summary judgment. They were taking the position that, because defendant McGaughey had admitted that he was behind in his mortgage payments, there was nothing further to discuss. There were no genuine issues of fact that could presented at trial. Significantly, however, the bank had dropped its claim to the two feet of land. The motion sought immediate judgment against the defendants, followed by a sheriff’s sale of the mortgaged property. ADD-46 ¶ 17

Defendant William McGaughey filed a motion on April 24, 2015, in response to the motion for summary judgment. Because a summary judgment can be granted only if there are no genuine issues of material fact, he based his opposition to the bank’s motion on three issues of material fact that could be presented at trial: (1) The legal description on the mortgage document did not match the legal description of the mortgaged property at 1715 Glenwood Avenue. (2) If the mortgaged property did not include the two feet in dispute, then the duplex would sit on an unbuildable, 38-foot lot which might materially affect the price that could be fetched at auction. (3) There was uncertainty as to who was being sued, William McGaughey and his former wife or William alone. ADD-46 ¶ 17

McGaughey also stated in his response that he intended to reinstate the mortgage by presenting a money order or cashier’s check for the full amount at the hearing on May 6, 2015. McGaughey had been owed a large sum of money by his former wife, who, in turn, was expecting payment on a debt owed to her. She had promised to reimburse McGaughey for money borrowed from him. Full payment on these debts had been expected in March. A small amount had already been released from a bank account where it was sitting but then repayment was demanded by the bank. Therefore, the money that had been expected to reinstate the mortgage was not available on May 6, 2015. ADD-46 ¶ 19

A brief hearing on the bank’s motion for summary judgment was held before Judge Mary Vasaly on May 6, 2015. Christian Brandt represented the HKM law firm. William McGaughey represented himself. After the hearing, Brandt told McGaughey that the bank still wanted to receive the money without going to trial. McGaughey told Brandt he still expected to get the money but it might take several months. ADD-47 ¶ 24

Judge Vasaly’s order issued on May 11, 2015 denied the plaintiff’s motion for summary judgment. It also denied the plaintiff’s motion for payment of attorneys’ fees. Regarding summary judgment, the judge stated that she could not grant this if there was uncertainty over who owned one of the properties referenced on the legal description. Regarding attorneys’ fees, the bank’s attorney in making its motion had failed to provide a detailed schedule of fees as required by Minn. Gen. R. Prac. 119.02. ADD-47 ¶ 25

Instead of waiting to see if defendant McGaughey could raise the money to reinstate the mortgage, the HKM law firm filed a second motion for summary judgment on June 22, 2015. After reviewing the judge’s order, the bank’s attorneys had researched the legal descriptions on the mortgage document and discovered that McGaughey himself owned the other property in the contract besides that at 1715 Glenwood Avenue. (a vacant lot at 1719 Glenwood Ave.) ADD-47 ¶ 25 Therefore, the obstacle that the judge had cited to granting summary judgment was now removed. The bank’s second motion for summary judgement did not mention attorneys’ fees. There was also, of course, no detailed schedule of fees.

Defendant McGaughey filed a response to the bank’s motion on July 15, 2015. First, he pleaded with the judge to give him more time to raise the money to reinstate the mortgage. Second, he pointed out that, even if he did own the vacant lot, the legal description of the two mortgaged properties would exclude the two feet of land between them needed for a buildable lot at 1715 Glenwood Avenue. Therefore, a genuine issue of fact remained. Finally, he made a motion to cap his share of attorney’s fees at $2,000 provided that he was able to reinstate the mortgage in the near future. ADD-48 ¶ 28

Several days before the scheduled hearing on the second motion for summary judgment, defendant McGaughey was able to borrow the entire amount of the deficiency from his sister who was the executor of his late father’s unsettled estate. Essentially, it was an advance on his share of the inheritance. Therefore, McGaughey brought a cashier’s check for $19,886.88 to the hearing made out to Boundary Waters Bank. A bank representative accepted the money. Both parties agreed to leave open the matter of attorneys fees. Judge Vasaly then ordered the bank’s attorney, Christian Brandt, to prepare and deliver a schedule of attorneys fees according to Minn. Gen. R. Prac. 119.02 within 45 days. ADD-48 ¶ 29

The schedule was delivered on the 43rd day and defendant McGaughey delivered a response a week later. Judge Vasaly issued her order on October 12, 2015. ADD-49 ¶ 34

 

The Court’s Rulings and Defendant’s Response

(a) The court ruled that the bank had to initiate judicial proceedings to collect its mortgage debt. Therefore, the related attorneys’ fees were reasonable and proper. Specifically, it stated: “Minnesota follows the “American rule”, which provides “that attorney fees are not recoverable in litigation unless there is a specific contract permitting or a statute authorizing such recovery.” Dunn v. Nat’l Beverage Corp., 745 N.W..2d 549, 554 (Minn. 2008) (quotation omitted). Here, there is a sufficient basis for the recovery of attorney fees under the terms of the Note and Mortgage, both of which provide for the recovery of attorney fees in enforcing their respective instruments. Although Mr. McGaughey eventually brought the Note current, the Bank had to initiate judicial proceedings to obtain Mr. McGaughey’s compliance. Therefore, the Bank is entitled to recover from Mr. McGaughey the costs and reasonable attorney fees that it incurred to enforce the Note.” judge’s order ADD-16-17

Defendant’s response: The defendant does not agree that the judicial proceedings initiated by the bank’s attorneys were necessary in collecting the debt owed the bank. He does not dispute the fact that, even though the bank had originally proposed to avoid foreclosure by a deed in lieu, filing a lawsuit was a legitimate and reasonable step toward that end; but he does not believe that it was necessary to file a motion for summary judgment. The court had already set in place provisions for a trial and had ordered mediation. (See scheduling order, etc.) ADD-4-5 It would have been adequate, and less costly to the bank, in collecting the debt to reach an agreement for the defendant to pay the debt voluntarily or, failing that, to resolve the matter through mediation or go to trial.

Therefore, the court’s finding that “the Bank had to initiate judicial proceedings to obtain Mr. McGaughey’s compliance”, is untrue. The defendant concedes that filing a case in court was reasonable, but the bank did not have to authorize its attorneys to pursue a summary judgment. Although it had no way of knowing the defendant’s financial situation without asking, the bank’s law firm actually made it more difficult for the defendant to comply with his obligation to pay the bank the full amount of money due under the contract. That is because the defendant was waiting to collect substantial sums of money from two sources - money owed to his former wife and promised to him and money from his father’s estate - but the payment date was delayed. ADD-44-45 ¶ 12-13

In filing motions for summary judgment, the bank created an unnecessary time limit that would cause judgment to be entered before the defendant had a chance to receive the promised money. The fact that the attorneys made no attempt whatsoever to communicate with the defendant shows bad faith in meeting its obligation to settle the case efficiently as did its stifling of an earlier attempt to refinance the debt through Home Mortgage Solutions. The filing of repeated motions for summary judgment in the absence of communications between the two parties could be interpreted as an attempt to generate legal fees rather than settle the case in a cost-effective manner. defendant memorandum ADD-55-56

The judge’s finding also states that “the terms of the Note and Mortgage both ... provide for the recovery of attorney fees in enforcing their respective instruments.” An important element is ignored. The Mortgage document does not allow “recovery of attorney fees” but recovery of “reasonable attorney fees”. The defendant presented arguments in his brief to show that certain fees were unreasonable but the judge ignored them. Therefore, the evidence does not support the assertion that the bank was entitled to “recovery of attorney fees”, if this includes unreasonable ones. judge’s order ADD-15 ¶ 9 defendant memorandum ADD-55-65

(b) The judge ruled that the law firm presented an affidavit with detailed billing information as required by Min. Gen. R. Prac. 119.02. Specifically, she wrote: “In this case, the Bank’s counsel’s affidavit supports a finding that the hours claimed were incurred in enforcing the Note and the Mortgage. The affidavit contains a line-by-line description of the work performed, and the descriptions demonstrate that the work was necessary for enforcement of the Note and Mortgage.” judge’s order ADD-16 ¶ 12

Defendant’s response: It is also untrue that “the descriptions demonstrate that the work was necessary for enforcement of the Note and Mortgage.” As the defendant argued in his brief, much of the law firm’s work was unnecessary. The court took note of the defendant’s objections but made no attempt to answer them. judge’s order ADD-16 ¶ 13 With respect to the descriptions of work performed, nothing explains why the work was “necessary”. To the contrary, if it was unnecessary to file a motion for summary judgment as the defendant argues, then references to preparing the related documents would also indicate unnecessary work. In summary, the itemized billing to support attorneys’ fees only shows work done by the law firm; it does not show that the work done was necessary to enforce the Note and the Mortgage. fee schedule ADD-28-37

(c) The judge ruled that, even though the bank is seeking a relatively large reimbursement, “the costs, fees, and work through the first summary judgment are reasonable and appropriate.”

Defendant’s response: The judge offered no support for her conclusion that “the costs, fees, and work through the first summary judgment” were “reasonable and appropriate.” In his brief filed on September 11, 2015, the defendant argued extensively that much of the cost, fees, and work included in the bank’s attorneys’ itemized billing was not reasonable. judge’s order ADD-16 ¶ 13 The evidence therefore does not support her conclusion of reasonableness of costs related to the first motion for summary judgment. The contrary position has ample support. It should also be noted that the judge’s reference to “a relatively large reimbursement” suggests that she recognized that the reimbursement sought from the bank was a bit out of line.

It might be possible to infer from the order that the judge thought the order was reasonable because she had disallowed billings related to the HKM law firm’s second motion for summary judgment and, therefore, a certain balance had been achieved overall in the award. However, such reasoning is not stated in the order. One should also note that the second motion for summary judgment was made because the attorney was incompetent in presenting the first motion. If that motion failed because of uncertainty regarding ownership of a vacant lot, the bank’s attorney might have prevailed at the hearing had he known at the hearing who owned that lot. The HKM law firm had ten days’ advance notice of that issue but had failed to investigate. Therefore, the judge properly assigned costs related to that second motion to the bank rather than to the defendant. judge’s order ADD-16-17

(d) The court ruled that the bank was not obliged to “negotiate” with the defendants to settle the foreclosure because the mortgage contract allowed it to proceed with litigation in the event of default. Specifically, the order stated: “The Court does not agree with Mr. McGaughey that the amount should be further reduced because the Bank proceeded with litigation rather than focusing on negotiations. The Note and Mortgage unequivocally permitted the Bank to proceed with litigation against Mr. McGaughey in the event he defaulted.” judge’s order ADD-17 ¶16

Defendant’s response: The word “negotiations” is misleading because it implies that the defendant was trying to negotiate a lower payoff amount with the bank to settle the foreclosure. No, his concern was always with raising the money for a payoff of the entire debt. The defendant was really talking about communications. defendant affidavit ADD-50 ¶ 36, defendant memorandum ADD-55-56 He was complaining that a motion for summary judgment was filed without the bank’s inquiring about his intention or capacity to reinstate the mortgage voluntarily. He was arguing that it was unreasonable for the bank and its attorneys to file papers in court compelling an immediate judgment if the other party had made no attempt to let the defendant settle the foreclosure by paying the full amount. This rush to judgment was even more egregious and unfair when the HKM law firm filed the second motion for summary judgment after its attorney and the defendant had had a conversation on June 23, 2015, about their mutual desire to settle the case amicably. ADD-47 ¶ 24 The defendant does not question the plaintiff’s right to file a lawsuit, as the judge implies, but the reasonableness of filing both the first and the second motions for summary judgment.

(e) The court ruled that costs incurred through the first motion were reasonable. Specifically, the order stated: “The costs and fees of litigation through the first summary judgement motion were ordinary and reasonable for this type of case.” judge’s order ADD-17 ¶ 16

Defendant’s response: The judge offers no evidence to support this conclusion. To the contrary, she ignores many arguments and much evidence offered by the defendant in his affidavit in opposition to the plaintiff’s motion and in his memorandum of law to support an opposite conclusion. With respect to being “ordinary”, the defendant’s memorandum of law showed that the rate of hourly billings by the HKM law firm were at the upper end of the pay scale for Twin Cities attorneys while the same attorneys made many mistakes. In short, it was high-cost but low-quality work that the bank had authorized. defendant memorandum ADD-61-63, VII, VIII With respect to reasonableness, the defendant’s memorandum of law showed that the first motion for summary judgment was both unnecessary and unhelpful in collecting money due the bank. defendant memorandum ADD-56-60, V

(f) The court ruled that the defendants voluntarily agreed to a contract authorizing recovery of attorney fees. Specifically the order stated: “While the Court is sympathetic to Mr. McGaughey’s position, it cannot ignore the contracts he agreed to be bound by.” judge’s order ADD-17 ¶ 16

Defendant’s response: Again, the statement that “ the Court is sympathetic to Mr. McGaughey’s position” suggests that the judge realized that the award of attorneys fees was unfair but she felt obliged to make the award anyhow. However, her statement that the defendant agreed to certain contracts is misleading. It is true that in the fine print of the mortgage contract the borrower authorized the lender to recover attorney fees in the event of default, but it was “reasonable” attorney fees, not all fees incurred by the bank.

The defendants did not enter into this contract suspecting that the bank, in recovering its money in the event of default, would authorize its law firm to load up on fees for unnecessary work which they would later be charged. The defendants also had a right to expect the trial-court judge to protect them against a claim for unreasonable fees. In this case, however, the judge seemed uninterested in evaluating claims that the first motion for summary judgment, whose fees amount to $8,524.50 (for plaintiff’s motion and response to defendant’s motion) were unreasonable. She simply assumed that it was reasonable to file this motion, even if the motion was knowingly untenable and unjustified by the results. judge’s order ADD-14-17 She also assumed that the fee rates were appropriate. She offered no evidence or explanation for either conclusion.

ARGUMENTS

I. Minnesota statute § 580.30, Subd. 1 limits the amount of attorney’s fees that the bank can recover from the defendant in a foreclosure by action to one half of the fees authorized by section 582.01 of Minnesota statute.

1. The issue: Minnesota statute § 582.01, subd. 2 provides that in the case of foreclosures by action the court shall establish the amount of the attorney’s fee. In her order dated October 12, 2015, district court judge Mary R. Vasaly ordered defendant McGaughey to pay Boundary Waters Bank $14,726.00 for its attorneys’ fees. judge’s order 10/12/15 ADD-17 However, Minnesota statute § 580.30, Subd. 1 limits the allowable amount of the reimbursed fee to one half of the total amount. The judge’s order for payment exceeds the statutory limit.

2. Standard of review: This is a question of law. Does Minnesota statute § 580.30, Subd. 1 limit the amount of attorney’s fees that the bank can recover from the defendant in a foreclosure by action to one half of the fees authorized by section 582.01 of Minnesota statute if the mortgage is reinstated?

The law applies to all cases of foreclosure, both by advertisement and by action, before a sheriff’s sale has taken place. It authorizes the holder of the mortgage to reinstate it by paying the actual amount due on the mortgage including “attorney’s fees not exceeding $150 or one-half of the attorney’s fees authorized by section 582.01, whichever is greater ..”

3. Authorities: Minnesota statute § 580.30, Subd. 1, Minnesota statute § 582.01, subd. 2, Minnesota statute § 645.16

Section 582.01 gives the trial court discretion to determine the amount of the award. In this case, the trial-court judge awarded the bank reimbursement of $14,720.00 of its attorney fees, which is greater than $150.00. Therefore, the allowable reimbursement of fees would be one half of that amount or $7,360.00 if the law is to be interpreted literally. It could further be reduced if the Court of Appeals reduces the fee in light of the reasonableness standard.

The facts of the case are clear. Minnesota statute § 645.16 states: “When the words of a law in their application to an existing situation are clear and free from all ambiguity, the letter of the law shall not be disregarded under the pretext of pursuing the spirit.”

4. Judge’s ruling and response: The trial-court judge did not address the question of whether or how Minnesota statute § 580.30, Subd. 1 applied to this case although the issue was raised in the defendant’s memorandum of law several times in opposition to Plaintiff’s Motion for Award of Attorneys’ Fees and Costs and in previous motions. judge’s order ADD-14-17 Neither did the opposing party mention this statute in its motions presented to the court. defendant memorandum ADD-53-54 The defendant is therefore unable to make any arguments in response to other interpretations of the law that might have been presented.

It was not possible to resolve the issue of attorney fees, and therefore settle the case completely, at the hearing on July 23, 2015. Despite an explicit instruction from the judge to prepare a detailed schedule of fees in her order of May 11, 2015, the bank’s attorneys presented neither the required schedule nor a request for reimbursement of attorney’s fees. ADD-48 ¶ 26 The judge then allowed an additional 45 days for the bank to correct that deficiency. Both parties had to present motions to which the judge responded in her order of October 12, 2015. This is the order and judgment being appealed.

5. Conclusion: Minnesota statute § 580.30, Subd. 1 limits the amount of attorneys’ fees recovered in a foreclosure by action where the debtor has reinstated the mortgage to one half of the fee that the court has ordered.

Some of the attorneys’ fees billed by the HKM law firm were unreasonable in terms of enforcing the mortgage contract and, therefore, should not have been included in the trial-court judge’s determination of fees charged to the defendant.

 

a. Which portion of the fees is unreasonable:

1. The issue: The mortgage contract with Bear Stearns signed by the defendants on November 29, 2007 provides that in the event of default the party owning the mortgage is entitled to be reimbursed for “reasonable attorney fees” incurred in collecting the debt. page 12, mortgage contract Use of the term “reasonable” in the contract implies that certain fees charged by attorneys might not be reasonable. While Minnesota statute § 582.01, subd. 2 gives the trial-court judge discretion to set the amount of fees, certain standards have been developed in Minnesota for determining the level of fee in light of the reasonableness requirement.

The defendant is conceding that a portion of the $21,519.55 in fees sought by the bank was reasonable, but is claiming that a portion was unreasonable, based upon the activities and objectives that the legal work served. Most of the work went into the preparation of these papers filed with the court:

(a) the initial summons, filed on January 22, 2015,

(b) the first motion for summary judgment, filed on April 3, 2015,

(c) the plaintiff’s response to the defendant’s motion to deny that first motion, filed on May 1, 2015,

(d) a second motion for summary judgment, filed on June 22, 2015, and

(e) a motion to require the defendant to pay the bank’s attorneys’ fees, filed on September 3, 2015.

A small portion of the fees pertained to appearances by the bank’s attorney at court hearings on May 6, 2015, and on July 23, 2015. Finally, $926.05 of the fees pertained to recording fees and other costs. defendant memorandum ADD-60-61, VI spreadsheet ADD-41

The defendant is not contesting the reasonableness of the $3,169.50 in attorneys’ fees pertaining to the initial summons. He is not contesting the reasonableness of the $760.50 of recording and other costs ($926.05 minus $165.55) which the court allowed. The court in its order of October 12, 2015, disallowed reimbursement of $6,598.50 in attorneys’ fees related to the second motion for summary judgment and $165.55 of other costs. That leaves (b) attorneys’ fees of $5,050.50 related to the first motion for summary judgment, (c) fees of $3,474.00 related to a response to the defendant’s motion to deny that first motion, and (e) fees of $2,301.00 related to a motion to require the defendant to pay the bank’s attorneys’ fees, which the defendant deems unreasonable. The total is $10,825.00. spreadsheet ADD-41

The “American rule”, applicable to Minnesota, makes each party in a lawsuit responsible for paying its own attorneys’ fees unless there is a specific provision in a contract or statute permitting another arrangement. judge’s order ADD-15 ¶ 9 In this case, the 14-page contract between the defendants and Bear Stearns contains a provision that allows the bank to recover “reasonable attorneys fees” in the event that the defendants defaulted. page 12 mortgage contract This contractual provision, combined with the lack of statutory guidelines in Minnesota statute § 582.01, imposes an obligation upon the judge to determine whether the requested fees for reimbursement are reasonable.

The reasonableness of fees should include consideration of whether the legal activities for which fees are charged were necessary and reasonable in achieving the objectives of the lawsuit from the plaintiff’s point of view. If they were unreasonable had the Plaintiff challenged them in court, they are also unreasonable if assigned to the defendant under the contract with Bear Stearns.

The criteria for reasonableness under Head v. Paulson, 188 N.W. 2d 424 (Minn. 1971), are open-ended. This case law states that “all relevant circumstances” should be taken into consideration in allowing or disallowing attorneys’ fees unless there is a statutory limitation. It is a dangerous situation for a plaintiff to allow its law firm to load up on an unlimited amount of fee-generating activities that were unnecessary to achieve its legitimate objectives and then charge the fees to the defendant. The defendant had no control whatsoever over the process.

That is what happened in this case. Assuming that a representative of Boundary Water Bank was diligently supervising its law firm’s activities, there is no way that this person would knowingly have authorized activities costing $21,519.55 in attorneys’ fees and costs because all the money and more that would have come from the defendant if the mortgage were reinstated would have gone toward paying legal fees. The bank would have received nothing. Even $14,720.00 in legal expenses is grossly inflated. No sane decision maker upholding the bank’s best interests would have allowed the law firm to run up such charges. The authorization of such fees was patently unreasonable. But if the law firm convinced its client that it could stick the defendant with those costs, then a bank representative might well go along with the idea.

Only the judge stands in the way of an unjust deal such as this. The bank was able to control the legal activities and fees; the defendant was not. Moreover, the huge burden of legal fees from this foreclosure case puts the defendant in a position where he might not be able to handle his mortgage obligations in the future so that the bank will soon be back in court. Therefore, the bank should be made to absorb that portion of the fees that it authorized which were unreasonable.

The basis of the defendant’s allegation that expenses related to filing the first motion for summary judgment and responding to the defendant’s motion to deny that motion are unreasonable include the following reasons:

1. The bank might have been able to settle the case in late January, 2015, and put the mortgage on a sound basis if the Murnane Brandt law firm (later HKM) had been willing to negotiate with a California non-profit firm, Home Mortgage Solutions, which had access to new money. The defendant had applied for and been accepted into this program. He was unable to proceed because, according to Brenda Rivera of Home Mortgage Solutions, the bank’s law firm refused to talk with her. defendant affidavit ADD-45 ¶ 15, fee schedule ADD-29

Note that HKM’s itemized billing records $67.00 of expense on February 2, 2015 for 12 minutes of work identified as “receive and review correspondence and documents from Roosevelt Law”, $67.00 of expense on on February 5, 2015 for 12 minutes of work identified as “Conference call to Brenda at Roosevelt law regarding the need to stop calling BWB”, and $67.00 on February 6, 2015 for 12 minutes of work identified as “Correspondence to Brenda Rivera regarding no contact with BWB”. fee schedule ADD-29

While the settlement that might have been proposed by Roosevelt law firm representing Home Mortgage Solutions is unknown, the refusal even to talk with its representative represents bad faith on the part of the bank’s law firm. This position did not further the bank’s interests but served only to prolong the case so that the law firm could earn fees. If the foreclosure case could have been settled to the bank’s satisfaction in early February 2015, then all activity after that date represents unreasonable attorney fees.

2. Standard of Review: This is a question both of law and of fact. The factual question is whether there is sufficient evidence in the record to conclude that, with respect to Home Mortgage Solutions, the bank’s law firm refused to consider a reasonable proposal to settle the foreclosure case. The question of law is whether such refusal, if it exists, renders unreasonable the law firm’s subsequent attempts to settle the case involuntarily and more expensively.

3. Authorities: House Research Information Brief, Attorney Fee Awards in Minnesota Statutes as updated in July 2015; Head v. Paulson, 188 N.W. 2d 424 (Minn. 1971)

4.1 The Judge’s position: The judge did not mention this possible settlement in the legal analysis of either order. It was not a factor in the determination of reasonableness.

4.2 Defendant’s response: There can be no response to an issue not addressed.

5. Conclusion: Head v. Paulson recommends that a trial-court judge consider “all relevant circumstances” in allowing attorneys’ fees unless there is a statutory limitation. The attorney’s direct obstruction of a possible settlement is a factor indicating whether subsequent litigation was reasonable.

 

b. Whether it was reasonable to seek a summary judgment:

1. The Issue: The court had arranged for this case to go to trial at an early date in January 2016 and had also ordered mediation. scheduling order, etc. ADD-5 The defendant had a right to present his case at trial where he could do discovery and present witnesses. To allow only a five-minute presentation at a hearing before the judge eliminated that right. The defendant offered three genuine issues of material fact in his brief. Therefore, the bank ought not to have sought a summary judgment in that case because statute and case precedent made it impossible to win. It was also unreasonable to pursue that option when either trial or mediation posed a more attractive option from the bank’s standpoint.

As a practical matter, the defendant expected to reinstate the mortgage with money expected from either of two sources: 1. from a debt owed to him from his former wife, whose repayment was uncertain, or 2. from his father’s inheritance, whose money was more confidently expected by the end of 2015. Had the bank waited until trial, the mortgage would have been reinstated without the need for legal activity. There was no financial penalty in waiting because the bank regularly received late fees of $59.00 per month. defendant affidavit ADD-44-45, defendant memorandum ADD-55

Of course, the bank did not know about these expected sources of funds. Its law firm might have learned through telephone and personal conversations that the defendant expected to reinstate the mortgage. However, it made no attempt to inquire into the defendant’s financial situation before filing the expensive court papers. It was unreasonable to bypass the court-ordered provision for a trial and for mediation because the motion for summary judgment was neither necessary to collect the debt nor did it aid the process. ADD-50 ¶ 36

2. Standard of Review: This is a question of law.

3. Authorities: Minnesota Rule of Civil Procedure 56.03, Head v. Paulson, 188 N.W. 2d 424 (Minn. 1971)

4.1 The Judge’s position: The court found that there was a genuine issue of material fact that would prevent it from entering summary judgment in that it remained unclear whether the defendant owned all the property referenced in the legal description on the mortgage. However, it rejected the defendant’s argument that it was unreasonable to pursue summary judgment because it “had not attempted to mediate or otherwise negotiate to resolve the matter.” judge’s order ADD-11 (B)

4.2 Defendant’s response: Although the defendant agrees with the dismissal of the plaintiff’s motion, there is the question of whether it was “reasonable” to pursue the first summary judgment before determining whether the defendant intended to reinstate the mortgage.

5. Conclusion: To file a motion for summary judgment that would probably not be won is unreasonable. The court is not authorized under the mortgage contract to assign “unreasonable” attorneys’ fees to the defendant.

 

c. Whether admission of delinquency is enough to grant summary judgment:

1. The issue: It was unreasonable to argue, as the plaintiff did, that the bank was entitled to a summary judgment simply because the defendant had admitted in his response to the summons that he had not made several months of payments under the mortgage contract. plaintiff memorandum ADD-24, II & III

2. Standard of Review: This is a question of law.

3. Authorities: Minnesota Rule of Civil Procedure 56.03

4.1 The Judge’s position: The judge denied the plaintiff’s motion for summary judgment because of uncertainty over the ownership of land referenced in the mortgage document’s legal description. However, in her order of May 11, 2015, the judge found that the fact of defaulting on the loan otherwise justified a summary judgment because, due in part to the defendant’s admission, the facts were clear in this case. judge’s order ADD-11 (B)

4.2 Defendant’s response:

The fact that the defendant admitted that he was behind in payments on the mortgage is not the only issue that could be discussed at trial. Do not 99 percent or more of foreclosure cases involve parties that are behind on their mortgage payments? If so, why are not 99 percent of foreclosure cases settled by granting a summary judgment? Are the other defendants “too smart” to admit in their court filings that they are behind on their mortgage payments? Justice requires a certain amount of honesty on the defendant’s part and forbearance on the plaintiff’s part to use a legal tool that effectively denies the defendant’s right to a trial.

Even if the judge believed that the facts were clear, the defendant still had the right to a trial. In foreclosure cases, preference should be given to allowing the debtor to satisfy the debt voluntarily by raising all the money. Especially these days, with bank lending requirements so tight, it takes time to raise money. Motions for summary judgment defeat that process by imposing an artificial time limit upon opportunities that might otherwise have been available to raise money.

In this case, the defendant expected to receive money from his late father’s estate in December 2015. Trial was set for the following month. The case could have been settled without further ado if the bank had simply waited for the trial date. The defendant could have provided evidence from a credible source that the money would be available for payment by a certain time prior to the trial date. The motion for summary judgment made such arrangements impossible. defendant affidavit ADD-44-45 Therefore, rule 56.03 was misused.

5. Conclusion: It was unreasonable for the law firm to have sought a summary judgment if it made no attempt to settle the case by other means.

 

d. Genuine issues of material fact:

1. The issue: According to Minnesota Rule of Civil Procedure 56.03, a motion for summary judgment is supposed to be granted only if there are no genuine issues of material fact left to be decided in the case. The defendant presented three substantial issues of fact. One of them was the fact that the mortgaged duplex at 1715 Glenwood Avenue sat on an unbuildable lot.

Not only was the bank’s position weak with respect to obtaining a summary judgment but its attorneys knew that it was weak. In its complaint dated January 22, 2015, the bank’s attorneys sought to acquire the two feet of land that would make the mortgaged property a buildable lot claiming, without evidence, that its omission was an “error”. plaintiff summons ADD-20 This shows that the attorneys recognized that there might be a problem in pursuing summary judgment. There were two feet between the two parcels referenced in the mortgage’s legal descriptions which the defendant still owned. The fact of the duplex sitting on an unbuildable lot was a genuine issue that precluded summary judgment. defendant memorandum ADD-58

2. Standard of Review: This is a question of law.

3. Authorities: Minnesota Rule of Civil Procedure 56.03. J.E.B. v. Danks, 785 N.W.2d 741, 747 (Minn. 2010) In deciding summary judgment motions, “[t]he evidence [must be] construed in the light most favorable to the party opposing summary judgment.” Northland Ins. Co. v. Bennett, 533 N.W.2d 867, 871 (Minn. Ct. App. 1995) “[A]ll factual interference are resolved in favor of the non-moving party.” Valspar Refinish, Inc. v. Gaylord’s Inc., 764 N.W.2d 359, 364 (Minn. 2009) “The party moving for summary judgment has the burden to show that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law.”

4.1 The Judge’s position: The judge did deny the first motion for summary judgment because the bank’s attorney had been negligent in failing to ascertain the ownership of all parcels of land referenced in the legal description in the mortgage document. She also denied legal fees at that time because the bank’s attorneys had failed to comply with the requirements of Minn. Gen. R. Prac. 119.02. However, she did not deny the motion on any of the three “genuine issues of material fact” that the defendant had cited in his memorandum of law dated May 5, 2015, namely: 1. that the legal descriptions on the mortgage document and the quit claim deed for the property at 1715 Glenwood Avenue differed, 2. that the duplex at 1715 Glenwood Avenue sat on an unbuildable lot, and 3. that there was uncertainty as to whether Lian McGaughey was being sued. judge’s order ADD-10-11

4.2 Defendant’s response: The issue of reasonableness in this instance is not so much whether the three issues of fact raised by the defendant had merit (which only the judge could decide) but whether the plaintiff’s attorney could reasonably expect the motion for summary judgment to overcome those impediments and prevail.

The fact that, in his initial filing on January 22, 2005, the bank’s attorney felt it necessary or advisable to claim that the two feet of land excluded from the legal description of property in the mortgage contract be added to the foreclosed properties because its omission was an “error” shows that the attorney recognized this omission might be a problem in prosecuting the case. plaintiff summons ADD-20 He might even have realized that, if the bank’s next step was to file a motion for summary judgment, the fact of an unbuildable lot might be a genuine issue of material fact that would prevent the court from ordering a summary judgment. In a trial, the defendant might have been able to argue that the underwriter of the original mortgage was negligent in using a nonconforming property to secure a loan.

Case law clearly indicates that motions for summary judgment are not to be taken lightly. The burden of proof is on the plaintiff. If the HKM law firm recklessly rushed into filing the motion for summary judgment, having abandoned the claim of owning the two feet of land, then costs related to this motion are unreasonable and should be charged neither to the bank nor to the defendant.

5. Conclusion: Attorney Kelly Hadac, representing the bank, knew that his case for a summary judgment was defective but he pursued it anyhow, trusting that work even on defective claims could be charged to the client. Costs of $8,524.50 related to filing and pursuing this motion are unreasonable and should not be charged to the defendant.

e. Impact of failure on claims for attorney fees:

1. The issue: The fact is that the bank’s first motion for summary judgment failed. In an order issued on May 11, 2015, the trial-court judge denied both the foreclosure and the motion for attorneys’ fees due to defects in the case. judge’s order ADD-12-13 Case precedent does not support awarding attorneys’ fees for pursuing claims that were not granted by the court.

(a) In Hensley v. Eckerhart, 461 U.S. 424 at 436, the U.S. Supreme Court ruled: “If, on the other hand, a [party] has achieved only partial or limited success, the product of hours reasonably expended on the litigation as a whole times reasonable billing rate may be an excessive amount. This will be true even where the plaintiffs’ claims were interrelated, nonfrivolous, and raised in good faith. . . Again, the most critical factor is the degree of success obtained. . . ”

(b) In Wal-Mart Stores, Inc. v. Barton, 223 F.3d 770, 773 (8th Cir. 2000), the 8th Crcuit Court of Appeals ruled: “A plaintiff who prevails on only some of his claims is not entitled to any fees for unsuccessful, unrelated claims and, if the success on the prevailing claims is limited, then he is “‘entitled only to an amount of fees that is reasonable in relation to the results obtained.” (quoting Jenkins by Jenkins v. Missouri, 127 F.3d 709, 716 (8th Cir. 1997)

(c) In Scott v. Forest Lake Chrysler-Plymouth-Dodge, 668 N.W.2d 45, 50-51 (Minn. Ct. App. 2003), the Minnesota Court of Appeals affirmed the division of fees by seven to account for plaintiff’s success on only one of seven claims.
In this case, only one motion was decided by the trial-court judge: the first motion for summary judgment. The judge ruled against the plaintiff bank on all counts. judge’s order ADD-13 There was also a second motion for summary judgment but the court did not decide the merits of that case because the two parties settled. However, it did later disallow attorneys fees for the second motion because attorney negligence had caused this motion to be made. judge’s order ADD-16 ¶ 14 Although Minnesota statute § 582.01, subd. 2 sets no limits on the trial-court judge’s ability to award attorneys’ fees, she should have been guided by court precedent. In this case, the HKM law firm should not have been allowed to charge the bank for work on a wholly unsuccessful motion.

2. Standard of Review: This is a question of law.

3. Authorities: Hensley v. Eckerhart, 461 U.S. 424 at 436, Wal-Mart Stores, Inc. v. Barton, 223 F.3d 770, 773 (8th Cir. 2000), Scott v. Forest Lake Chrysler-Plymouth-Dodge, 668 N.W.2d 45, 50-51 (Minn. Ct. App. 2003)

4.1 The Judge’s position: In her order of October 12, 2015, the trial-court judge ruled that “the costs, fees, and work through the first summary judgment are reasonable and appropriate.” She offered no evidence or explanation to support that ruling. She also made no reference to the fact that the first motion for summary judgment had failed. judge’s order ADD-17 ¶ 16

4.2 Defendant’s response: The evidence shows that the judge did not grant the plaintiff’s first motion for summary judgment. judge’s order ADD-13 Case law indicates that success for failure in seeking a certain objective in court is grounds for determining whether or not the associated legal fees should be granted by the court. These two points lead to the conclusion that the court should not have granted attorney’s fees for work done that was related to the first motion for summary judgment.
The KHM law firm in filing a motion for attorneys fees on September 3, 2015, acknowledged that lack of success in the first motion for summary judgment might be an impediment in awarding the related fees to the defendant. However, its memorandum of law states: “In Musicland Group, Inc. v. Ceridian Corp, the Court of Appeals affirmed the district court’s award of attorneys’ fees despite the fact that some of the claims in the lawsuit were unsuccessful, because the legal theories “depended on proving a common core of facts” and the types of claims were related. 508 N.W.2d 524, 535 (Minn. App. 1993) “In these circumstances the fee award should not be reduced simply because the plaintiff failed to prevail on every contention raised in the lawsuit.” plaintiff memorandum ADD-26 II

However, as the defendant pointed out in his responsive motion filed on September 11, 2015, “That might be a legitimate argument if the plaintiff had prevailed on any claim raised in the lawsuit (other than what the defendant had already admitted.)” The plaintiff had prevailed neither on the motion for summary judgment itself nor the motion for attorneys’ fees. There was no successful claim whatsoever. defendant memorandum ADD-65-66

The HKM law firm dealt with that problem in the following way in its September 3rd motion and memorandum: “(T)he Bank prevailed on its claims. First, it obtained the May 2015 decision of the Court finding that Defendants defaulted and owed the Bank $175,981.98 as of April 1, 2015. Then, it achieved a settlement with McGaughey at the July 2015 hearing whereby McGaughey paid the Bank the past-due amounts and cured his defaults.” plaintiff memorandum ADD-26-7, II

The fact is that it did not take a court decision to establish that the defendants had defaulted on their mortgage obligation because the defendants had already admitted this in their response to the initial summons. defendant memorandum ADD-66 With respect to achieving a settlement, it is true that the second motion for summary judgment created a deadline that inspired the defendant to go, first, to a loan shark and, then, to his sister seeking to borrow money. But is this what is meant by success in a lawsuit? No arguments made by the HKM law firm or related order by a court brought about that result. The settlement by reinstating the mortgage would have occurred any how had the plaintiff waited until the scheduled trial date.

5. Conclusion: The judge should not have awarded attorneys’ fees for work done on unsuccessful claims. The two motions for summary judgment did not improve the bank’s chances for a settlement. To award reimbursement of fees for the related work was unreasonable.

 

f. Whether attorney billings were reasonable:

1. The issue: The attorney’s hourly rate of billing was excessive. The affidavit of Kelly S. Hadac on September 3, 2015, in support of an award of attorneys’ fees and costs states that three attorneys or paralegals from the HKM law firm worked on this case: Kelly S. Hadac, whose time was billed at $335.00 per hour; Christian Brandt, whose time was billed at $295.00 per hour; and paralegal Renee Andreotti, whose time was billed at $170.00 per hour. The itemized billing indicates that Mr. Brandt’s time accounts for 77 percent of total billings in this case. spreadsheet ADD-41 Therefore, the analysis of pay rates will focus on this attorney’s work.

Christian Brandt is described in Kelly Hadac’s affidavit of September 3, 2015, as a “junior attorney” whose billing rate varies between $230.00 and $295.00 an hour. According to a 2011 survey of Twin Cities law firms (including Murnane Brandt) done by Denarius Human Resources Inc. an hourly fee of $325 per hour puts an attorney in the 90th percentile of most highly paid attorneys; an hourly rate of $265 per hour, in the 75th percentile. According to this, Mr. Brandt, the junior attorney, would probably rank in the 80th percentile of most highly paid attorneys in the Twin Cities in being paid $295.00 per hour. This was at the upper end of his pay scale. Yet, Mr. Hadac claimed in his affidavit that Mr. Brandt’s assignment to this case was made “to keep fees to a minimum”.

It is not reasonable to charge a premium rate for the services of a “junior attorney”, which designation indicates relative lack of experience. It may also not be reasonable to charge a rate on the high end of this attorney’s customary billing rate. Such a rate might be justified if supported by superior performance in this case, but, again, the law firm’s motion failed. It failed because of sloppy work presumably done by Mr. Brandt under attorney Hadac’s supervision.

There is evidence of laziness or incompetence, first, in the attorney’s failure to check the legal description in the mortgage document to see who owned the referenced parcel of land other than for the duplex at 1715 Glenwood Avenue. This lack of knowledge caused the judge to deny the first summary judgment and the law firm to seek a second one. judge’s order 10/12/15 ADD-16 ¶ 14, defendant memorandum ADD-62 The HKM law had ten days after the defendant’s filing to check his statement of ownership regarding part of the legal description, but it neglected to do so. Besides this, Judge Vasaly’s order of May 11, 2015, denied the motion for award of attorney’s fees because this motion had not complied with the requirements of Minn. Gen. R. Prac. 119.02 which required an itemized schedule of expenses. The request for attorneys’ fees was deemed “procedurally defective.” judge’s order ADD-13 Worse yet, the attorneys failed to provide this schedule, or even a claim for attorneys’ fees, in filing their second motion for summary judgment, having previously been warned by the judge. While the defendant is happy that those mistakes were made, they do not support a claim of competent service warranting high-priced attorneys’ fees.

2. Standard of Review: This is a question both of fact and of law. The factual question is whether the 2011 Denarius Human Resources survey supports a finding of high fees. The legal question is whether high fees indicate an unreasonable charge.

3. Authorities: Head v. Paulson, 188 N.W. 2d 424 (Minn. 1971)

4.1 The Judge’s position: The judge in her findings of October 12, 2015, ruled: “The costs and fees of litigation through the first summary judgement motion were ordinary and reasonable for this type of case.” She offered no explanation or evidence for this decision. She did concede, however, that “the Bank is seeking a relatively large sum in connection with its enforcement of the Note.” judge’s order ADD-16-17

4.2 Defendant’s response: The judge ought to have been guided in her decision by some consideration of the reasonableness of fees and, in particular, by criteria established by Head v. Paulson, which refers both to “the fees customarily charged for similar services” and “the experience, reputation, and ability of counsel”. A comparison of fees charged for work by other Twin Cities attorneys and Christian Brandt, described by Mr. Hadac as a “junior attorney”, shows that his hourly rate of billing was in the upper echelon of fees charged by Twin Cities attorneys in a 2011 survey. His fee of $295.00 per hour was also at the high end of Brandt’s own pay scale. defendant memorandum ADD-61-62 With respect to the attorneys’ ability, the work done by the HKM attorneys was unmistakably sloppy as judged by failures that caused its claims in the first motion for summary judgment to be denied. defendant memorandum ADD-62-63 The HKM attorneys also failed to provide a detailed schedule of fees as required by Minn. Gen. R. Prac. 119.02 in both motions for summary judgment. judge’s order ADD-13, judge’s order ADD-14

5. Conclusion: The hourly fees charged by the HKM law firm were unreasonably high, especially considering the quality of work.

 

g. Whether the fees for work done after June 22, 2015 were reasonable:

The issue: The bank’s attorney, Christian Brandt, showed up at the hearing on July 23, 2015, with arguments for granting the plaintiff’s second motion for summary judgment but his motion included neither a request for attorneys’ fees nor an itemized schedule of fees as required by Minn. Gen. R. Prac. 119.02. This was an egregious omission considering that the judge had stressed the need for an itemized schedule of fees in her denial of attorneys’ fees for the first summary-judgment motion. judge’s order 5/11/15, defendant affidavit ADD-47 ¶ 24 Evidently, the lawyers had forgotten this instruction or were ignoring it.

The motion for attorneys fees could and should have been included with the second motion for summary judgment. Because of the omission, the judge needed to order the plaintiff’s attorneys to provide the required schedule of fees in the future. Work done on preparation and delivery of the schedule required 7.8 additional hours of work and cost $2,301.00 according to the law firm’s schedule showing work done between June 22, 2015 and September 3, 2015, when the schedule was signed and delivered. defendant memorandum ADD-61

Because the law firm’s negligence in failing to heed the judge’s explicit order caused additional work and expense, the related fees are unreasonable.

2. Standard of Review: This is a question of law.

3. Authorities: Head v. Paulson, 188 N.W. 2d 424 (Minn. 1971)

4.1 Judge’s ruling: In her order of October 12, 2015, the trial-court judge ruled that “the costs, fees, and work through the first summary judgment are reasonable and appropriate.” She ruled, however, that work done on the second motion for summary judgment should not be charged to the defendant. She did not judge the reasonableness of work done after the second motion, between June 22, 2015 and September 3, 2015, but it can be inferred that the judge thought this work proper because she included its expense in the $14,720.00 that the defendant was ordered to pay.

4.2 Defendant’s response: Even though the judge ordered this work to be done, it would not have been necessary if the schedule of itemized fees had been included with the second motion for summary judgment, heeding the judge’s instruction in her order for the first motion. Paraphrasing the judge’s words in denying reimbursement of costs related to the second motion, the work done in preparing a separate schedule of fees “would not have been necessary” if the schedule had been included with the second motion for summary judgment. Therefore, the additional work was unreasonable.

5. Conclusion: The preparation of a separate schedule of attorney fees, necessitated by the failure to include this with the second motion for summary judgment, constitutes an unnecessary expense that ought not be billed to the defendant.

 

h. Additional considerations relating to reasonableness:

An award of attorneys’ fees of $21,519.55 that amount to 108 percent of the $19,886.88 collected debt or even 74 percent of this debt (the $14,726.00 awarded by the trial-court judge) is excessive by any common-sense standard. Even the judge seems to concur with that sentiment: “The Court agrees that the Bank is seeking a relatively large sum in connection with its enforcement of the Note.” judge’s order ADD-16 ¶14 However, this statement appears to be a throw-away line rather than findings that support a decision.

The problem is that Minnesota statute § 582.01, subd. 2 provides no guidelines relating the ratio of fees to amounts collected in a foreclosure case. Case precedent also provides little guidance. All that can be done in this regard is to review percentage guidelines from the past or current statutory requirements in other fields as a guide to legislative thinking.

(a) The Hennepin County Bar Association used to have a “minimum fee schedule” which proposed “15 percent of the amount collected in excess of $1,000 as the recommended fee in collection cases of this type.” A fee of 15 percent of the amount collected was considered reasonable. However, the Hennepin County Bar Association governing council voted to repeal this standard on February 29, 1972. The minimum fee schedule was cited in the Minnesota Supreme Court case of O’Donnell v. McGee Trucks 199 N.W.2d 432 (1972) as a factor that would support a fee in that range. It was supported by the court. defendant memorandum ADD-65

(b) Minnesota statute § 582.01, subd. 1 pertains to contractual fees in foreclosure cases. According to this statute, after May 31, 1971, fees charged in foreclosures by advertisement may not exceed $275 for the first $10,000 collected plus $35 for each additional $5,000 of the original principal amount. The original amount of the mortgage in this case was $182,000.00. Therefore, the maximum attorney fee allowed would be $275 plus 35 times $35 ($1,225) or $1,500.00. This fee would be 7.5 percent of the nearly $20,000 collected in the present case.

(c) Minnesota statute § 176.081, subd. 1 (a), limits attorneys’ fees in worker compensation cases. The statute reads: “A fee for legal services of 25 percent of the first $4,000 of compensation awarded to the employee and 20 percent of the next $60,000 of the next $60,000 of compensation awarded to the employee is the maximum permissible fee ...” If this formula were applied to the present case, the bank’s attorneys could charge no more than $4,200 to collect a debt of $20,000. ($1,000 plus $3,200) This represents a 21 percent fee to debt ratio.

There seems to be consistency in supposing that maximum attorneys fees should be in the range of 10 percent to 20 percent rather than the 74 percent ordered by the judge. Such an award violates both common sense and legislative thinking to the extent that it is revealed. Minnesota Statute § 645.16 states: "The object of all interpretation and construction of laws is to ascertain and effectuate the intention of the legislature." State ex rel. Graham v. Klumpp, 536 N.W.2d 613, 615 (Minn.1995) While the statutes pertain to fees that an attorney charges a client, a client’s adversary in court should not be charged what the client himself cannot be charged.

Clearly, the trial-court judge is bound by standards of reasonableness even if Minnesota statute § 582.01, subd. 2, as written, is open-ended regarding judicial discretion. First, the mortgage contract itself does not allow reimbursement of unreasonable fees. Second, there is a certain consensus of legal opinion about permissible fees.

An analyst with the Minnesota House Research department, Mary Mullen, wrote in July 2015 in House Research Information Brief, Attorney Fee Awards in Minnesota Statutes: “The amount of attorney fees that can be awarded is sometimes limited in the statutes by use of the word ‘reasonable.’ In rare instances the statutes specify a fee formula or an actual maximum dollar amount or hourly rate that may be awarded as attorney fees. Some attorney fee statutes do not provide any guidance on the appropriate amount of fees to award. Except when a specific amount or formula is provided, the usual practice is for the court to review the statements submitted by the attorney and decide whether the amount requested is reasonable given the complexity of the case, the amount of damages at issue and the result, the actual amount of work required, the experience, reputation, and ability of the attorney, and the customary fee charged for similar services.

The House Research analyst cited the case of Head v. Paulson, 188 N.W. 2d 424 (Minn. 1971) as precedent in supporting this standard. Head v. Paulson states the principle as follows:

“Absent any statutory limitations, allowances should be made with due regard for all relevant circumstances, including the time and labor required; the nature and difficulty of the responsibility assumed; the amount involved and the results obtained; the fees customarily charged for similar legal services; the experience, reputation, and ability of counsel; and the fee arrangement existing between counsel and the client.”

The trial-court judge did not refer to this award-setting scheme in her memorandum of October 12, 2015, in which the defendant is ordered to pay $14,720.00 of the bank’s attorneys’ fees. However, the bank’s attorneys referred to several of the criteria in Head v. Paulson in their pleadings. The criteria include the following:

1. “all relevant circumstances”

2. “the time and labor required”

3. “the nature and difficulty of the responsibility assumed”

4. “the amount involved and the results obtained”

5. “the fees customarily charged for similar services”

6. “the experience, reputation, and ability of counsel”

7. “the fee arrangement existing between counsel and the client”

(1) The criterion, “all relevant circumstances”, is cited here to suggest that the other six criteria in Head v. Paulson do not exhaust the list of factors that a trial-court judge might consider in deciding whether the attorney fees are reasonable. In particular, one might add consideration of whether the legal activity contributed anything toward securing a successful result from the client’s point of view. Head v. Paulson authorizes the consideration of factors such as this in deciding if the fees are reasonable, not just the six explicitly mentioned.

(2) With respect to “time and labor required”, the billings speak for themselves.

(3) With respect to “the nature and difficulty of the responsibility assumed”, this was an ordinary case involved in foreclosure on a duplex in north Minneapolis worth perhaps $120,000.00. An individual, not a corporation or complex entity, owned it. Complicating factors were that the building being foreclosed on sat on a nonbuildable lot and the legal descriptions on the mortgage document had uncertain references. Could not high-priced lawyers specialists handle such complexities? After all, the defendant had made it easy for these lawyers in admitting forthrightly that he was behind in his payments to the bank. defendant memorandum ADD-63

In his memorandum of law submitted to the court on September 3, 2015, attorney Kelly S. Hadac wrote: “Moreover, the litigation was more complex than the ordinary foreclosure by action solely because of McGaughey himself. In response to the Bank’s initial motion for summary judgment, he raised an incorrect fact issues, claiming that he did not own all of the property that was subject to the mortgage. Relying on that baseless assertion, the Court denied the Bank’s motion. The Bank then had no choice but to incur additional legal fees and expenses to research the ownership of the property and then present the undisputed evidence proving McGaughey’s ownership of the property to the Court in a second summary judgment motion. McGaugheys’ strenuous and erroneous opposition to the Bank’s exercise of its remedies thus prompted the need for two motions for summary judgment with a total of three briefs on the Bank’s behalf and two hearings. In light of the facts, the fees of $21,519.55 are reasonable.” plaintiff memorandum ADD-27

It is true that defendant McGaughey incorrectly stated that part of the legal description on the mortgage document pertained to property that he did not own. However, it was an innocent mistake. The defendant then believed that the mortgage was being placed on the duplex at 1715 Glenwood Avenue alone. The header on page 1 of the note (Exhibit 2 accompanying Ranee Holmboe’s affidavit of April 3, 2015) states that the property address covered by the mortgage is “1715 Glenwood Avenue, Minneapolis, MN 55405”. Indeed, Judge Vasaly in her order of October 12, 2015, stated: “The Note was secured by real property located at 1715 Glenwood Ave., Minneapolis, MN, 55405 (the “Property”).” judge’s order ADD-15 ¶ 5 It was natural to assume that the mortgage pertained just to the duplex at 1715 Glenwood Avenue.

When defendant William McGaughey located the deed to 1715 Glenwood Avenue in a file cabinet and found that its legal description differed from that on the mortgage document, he assumed that the other part of the description pertained to some other property. He did not investigate the ownership. defendant affidavit ADD-46 ¶ 18 Neither did the HKM law firm, however, until it became a factor in the judge’s adverse decision regarding its first motion for summary judgment. Verification would not have been difficult but it was overlooked by the supervising attorney, Kelley Hadac, who boasts on his website of his “attention to detail .. (being)... second to none.”

Mr. Hadac also claimed that this foreclosure case was more complex than most because defendant McGaughey posed “strenuous and erroneous opposition to the Bank’s exercise of its remedies”. plaintiff memorandum ADD-27 Are not all foreclosure cases made more complex when the other party offers a defense? Is lack of a defense the “new normal” in foreclosure cases?

4. With respect to “the amount involved and the results obtained”, the amount of the debt to be collected increased from zero in August 2014 to $19,886.88 through August of the following year. It was not reasonable by any common-sense standard for the bank to seek $21,519.55 reimbursement of attorney’s fees to collect a debt of this size, or even to seek $14,200.00. With respect to “results obtained”, the bank failed in its first motion for summary judgment. Judge Vasaly granted neither the summary judgment nor an award of attorneys’ fees. judge’s order 5/11/15 ADD-13 There was no decision in the second motion for summary judgment because the defendant successfully reinstated the mortgage by paying off the debt of $19,886.88. Therefore, the bank’s attorneys batted 0 for 1 in the results category, which is not an impressive record.

(5) With respect to “the fees customarily charged for similar services”, the attorney who billed the most hours in this case - 77 percent of total billings - was Christian Brandt who charged $295.00 an hour. The question of whether his fees were reasonable is discussed above under argument #6. The fees were, in fact, unusually high. fee schedule ADD-28-37

(6) With respect to “the experience, reputation, and ability of counsel”, Kelly Hadac referred to paragraph 13 of his affidavit dated September 3, 2015, which stated: “The fees charged by the lawyers and assistants in this case are reasonable and customary based on the experience, reputation, and ability of the lawyers and firms involved, along with the complexity of the case.” No other evidence of the law firm’s “experience, reputation, and ability” was given, only the self-proclamation of excellence in Mr. Hadac’s statement. plaintiff memorandum ADD-27 To the contrary, argument #6 above presents evidence of sloppiness in the attorneys’ handling of this case. Whatever the firm’s reputation, performance fell short in this case.

(7) With reference to “the fee arrangement existing between counsel and the client” , the defendant has no information on which to make a comment or judge its relevance to the level of fees.

In summary, it would appear that the HKM law firm unreasonably charged its client by several standards commonly used by Minnesota courts to judge the reasonableness of attorneys fees. Had the judge in this case applied the criteria in Head v. Paulson to the plaintiff’s claim for reimbursement of fees, the amount allowed might have been much smaller.

CONCLUSION

The award of attorney’s fees should be reduced to one half of the amount ordered by the court, and the amount ordered by the court should be reduced from $14,726.00 to $3,901.00. Therefore, the final award of fees to the bank should be $1,952.50.

dated: Respectfully submitted,

_________________________
William H.T. McGaughey, Jr.

1702 Glenwood Avenue
Minneapolis, MN 55405

374-5916
litigant pro se, Appellant

 

Certificate of Brief Compliance

This Certificate was prepared by William H. T. McGaughey, Jr., Appellant.

Pages ’08, version 3.0.3 from Apple is the software used to prepare this brief.

Times New Roman 14 point, a proportional font, was used for this brief.

The word count per Pages, including all text from LEGAL ISSUES to this Certificate, is 13,931 words.

Signed: __________________________ Dated: __________________
William H. T. McGaughey, Jr.

 

INDEX TO ADDENDUM

judicial orders and communications

Notice of judicial assignment 1/23/15 Add-1
Scheduling order, referral to mediation, and order setting trial 3/6/15 Add-2
Order appointing mediator 5/1/15 Add-7
Order denying summary judgment 5/11/15 Add-8
Order 10/12/15 Add-14
Entry of judgment 10/18/15 Add-18

motions, affidavit, and exhibits

page 12 (of 15) defendant’s mortgage contract with Bear Stearns 11/29/07 Add-19
Plaintiff summons 1/22/15 Add-20
Plaintiff motion 9/3/15 Add-22
Plaintiff memorandum of law 9/3/15 Add-23
Plaintiff bank attorneys’ fee schedule 9/3/15 Add-28
spreadsheet to analyze fees Add-38
Defendant affidavit 9/15/15 Add-42
Defendant memorandum of law 9/15/15 Add-52

 

after filing

I had several messages from Alan Hilgers in the third week of December. He was interested in knowing when I would send the payment. I was able to tell him that the check had been delivered to the Blaine branch. He already knew that. Hilgers informed me that he expected the check to arrive within the ten days' grace period. Evidently waiting until the 16th of the month when late fees would begin was beyond the pale.

Hilgers also informed me that he had received my brief. Boundary Waters Bank would be filing an appeal. This contradicted what Hilgers had told me when I visited him in Woodbury after the judge made her ruling. When I mentioned that he had promised not to respond to my brief, Hilgers said he had been mistaken and was required to file a response. Another promise from a Boundary Waters Bank official had been broken - Ranee Holmboe's was the first. This posed a problem for me because I expected to be in New Hampshire campaigning for President for the first five weeks of 2016. The bank had 30 days to respond to my brief. I then had ten days. That meant that I would not have time to file my own response, but one was not required. Sheila suggested overnighting the brief to my New Hampshire motel but I expected to be in a different location every night.

 

The bank responds to my motion

I was in New Hampshire for the first five weeks of 2016. Upon my return to Minneapolis, I found a brief from Boundary Waters Bank in my mail. It was too late to respond. The brief read as follows:

TABLE OF CONTENTS

TABLE OF AUTHORITIES
STATEMENT OF ISSUES
STATEMENT OF THE CASE
STATEMENT OF FACTS
ARGUMENT

I. THE DISTRICT COURT DECISION MUST BE AFFIRMED BECAUSE THE DISTRICT COURT PROPERTY EXERCISED ITS DISCRETION IN DETERMINING THE AMOUNT OF ATTORNEY’S FEES AND COSTS TO AWARD TO RESPONDENT.

II. MINNESOTA STATUTES DO NOT LIMIT THE CONTRACTUAL AMOUNT OF REASONABLE ATTORNEY’S FEES RESPONDENT CAN RECOVER FROM APPELLANT.

CONCLUSION
CERTIFICATION OF BRIEF LENGTH

TABLE OF AUTHORITIES

Statutes and Rules

Minn. Stat. § 580.30

Cases

Amerman v. Lakeland Dev. Corp., 295 Minn. 536,203 N.W.2d 400 (1973)

Brickner v. One Land Dev. Co., 742 N.W.2d 706 (Minn. App. 2007)

Carlson v. SAL Architects, Inc., 732 N.W.2d 324 (Minn. App. 2007)

Cherne Indus. Inc. v. Grounds & Assoc. Inc. 278 N.W.2d 81 (Minn. 1979)

Cox v. Crown CoCo. Inc., 544 N.W.2d 490 (Minn. App. 1996)

Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1993 (1983)

Milner v. Farmers Ins. Exch. 748 N.W.2d 608 (Minn. 2008)

Musicland Group Inc. v. Ceridian Corp. 508 N.W.2d 524 (Minn. App. 1993)

O”Donnell v. McGee Trucks, Inc., 294 Minn. 110, 199 N.W.2d 432 (1972)

Potter v. Am. Bean & Grain Corp. 388 N.W.2d 22 (Minn. App. 1986)

Riverview Muir Doran, LLC v. JADT Dev. Group, LLC, 776 N.W.2d 172 (Minn. App. 2009)

State Bank of Cokato v. Ziehwein, 510 N.W.2d 268 (Minn. App. 1994)

STATEMENT OF ISSUES

I. A district court’s decision regarding the reasonable amount of attorney’s fees and costs to award must be affirmed on appeal absent an abuse of discretion. Upon Appellant William McGaughey’s breach of a note and a mortgage permitting Respondent Boundary Waters Bank to collect its attorney’s fees and costs from him, the district court decided that Respondent was entitled to an award of $14,726.000 in fees and costs. Did the district court abuse its discretion?

Trial Court Disposition and Preservation of Appellate Issue:

The district court determined in its discretion that Respondent’s application for an award of $21,519.22 in attorney’s fees and costs would be reduced to $14,726.00 and ordered the entry of judgment in that amount.

Most Apposite Authorities:

Carlson v. SALA Architects, inc., 732 N.W.2d 324 (Minn. App. 2007)

2 Brickner v. One Land Dev. Co., 742 N.W.2d 706 (Minn. App. 2007)

Amerman v Lakeland Dev. Corp., 295 Minn. 536, 203 N.W.2d 400 (1973)

Crown CoCo, Inc., 544 N.W.2d 490 (Minn. App. 1996)

II. Minnesota Statute, Section 580.30, limits the amount that a lender can require a mortgagor to pay in attorney’s fees to reinstate a mortgage to avoid forfeiture of the property through foreclosure, but does not limit the amount of attorney’s fees that can be assessed against the mortgagor as a legal remedy for his defaults of the payments obligations under the contract. The district court did not reduce the attorney’s fees awardable to Respondent on the basis of the statute. Did the court err in not applying the statute?

Trial Court Disposition and Preservation of Appellate Issue:

The district court correctly decided that the statute did not require a reduction in the fees awardable to Respondent.

Most Apposite Authorities:

Minn. Stat. § 580.30

Cherne Indus., Inc. v. Grounds & Assocs., Inc. 278 N.W.2d 81 (Minn. 1979)

3. Potter v. Am. Bean & Grain Corp., 388 N.W.2d 22 (Minn. App. 1986)

 

STATEMENT OF THE CASE

Appellant William McGaughey (“Appellant”) defaulted on his payment obligations under a note and a mortgage held by Respondent Boundary Waters Bank (“Respondent”). Pursuant to the plain language of the note and mortgage, which language is very similar to millions of other notes and mortgages used throughout Minnesota and the United States, Appellant agreed to pay Respondent for all Attorney’s fees and costs it incurred in connection with Appellant’s breaches. This was fair as Appellant agreed to reimburse Respondent if Appellant failed to pay as he promised in writing.

As a result of Appellant’s defaults, Respondent was forced to initiate a foreclosure by action, seeking an award of its monetary damages and an order permitting it to foreclose the mortgage. (DOC ID NO.1) As is typical in cases of payment defaults under a note and mortgage, Respondent moved for summary judgment on its claims. Although Respondent’s first summary judgment was initially not completely successful due to a false issue of material fact created by Appellant in opposition to the motion, Respondent did ultimately obtain payment from Appellant of the past due principal amount owed by Appellant. (RESP-ADD-01) Respondent thereby reinstated the mortgage and preserved his interests in the property. That reinstatement payment was, however, expressly made and accepted on the parties’ agreement that the amount of attorney’s fees and costs owed by Appellant to Respondent for its collection efforts would later be determined. (Id.) The parties’ agreement was memorialized in and incorporated into a district court order that permitted Respondent to obtain an order and judgment against Appellant for its fees and costs. (Id.)

Respondent applied to the district court for an award of its attorney’s fees and costs totaling $21,519.55. (DOC ID NO. 34-37) Appellant, of course, opposed the application. (DOC ID NO 38-39) The district court analyzed the facts and the procedural history of the litigation and ordered that Respondent be granted judgment in the reduced amount of $14,726.00. (RESP-ADD-06). Appellant appeals that decision.

STATEMENT OF FACTS

Appellant and his now ex-wife, co-defendant below, Lian Y. McGaughey borrowed $182,000 in November 2007 in exchange for a promissory note and a mortgage that encumbered real property. (DOC ID NO. 10, Exs. 2 and 3). Respondent acquired the lender’s interest in the note and the mortgage. (Id.) The note obligated Appellant to make monthly payments on the loan balance until it was paid in full and identified the failure to make a monthly payment as a default. (Id., Ex.2, 6) Appellant agreed, in the note and mortgage, to make payments required by the note. (Id., Ex. 3, p. 4. paragraph 1) This was a standard mortgage loan transaction.

Appellant agreed, in the note, that upon default, Respondent could call the balance of the loan due, plus interest, fees, including reasonable attorney’s fees, and costs. (DOD ID NO. 10, Ex. 2 paragraph 6) Appellant also agreed, in the mortgage, that if he breached his obligations, Respondent had the right to accelerate the indebtedness evidenced by the note, require immediate payment of the outstanding balance, invoke the power of sale, and pursue all other remedies permitted by law. (Id., Ex. 3, p. 13, paragraph 22).

Pursuant to the note, Appellant agreed to pay Respondent all reasonable attorney’s fees it incurs in enforcing the note:

Payment of Note Holder’s Costs and Expenses.

If the Note Holder has required me to pay immediately in full as described above, the Note Holder will have to the right to be paid back by me for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys’ fees. (DOC ID NO. 10, EX. 2 (emphasis added). Appellant also agreed in the mortgage that Respondent was entitled to recover from him all fees and costs, including reasonable attorney’s fees, incurred in connection with pursuing its remedies under the Mortgage:

... Lender shall be entitled to collect all expenses incurred in
pursuing the remedies provided in this Section 22, including,
but not limited to, reasonable attorney’s fees.

(Id., Ex. 3, p. 13, 22).

Appellant agreed within the note that Respondent’s acceptance of a partial payment did not constitute a waiver of its right to collect the remaining portion owed by Appellant:

No Waiver by Note Holder

Even if, at a time when I am in default, the Note Holder does not require me to pay immediately in full as described above.The Note Holder will still have the right to do so if I am indefault at a later time.

(DOC ID NO. 10, Ex. 2, 6). He made the same agreement in the mortgage:

12. Borrower Not Released; Forbearance by Lender not a Waiver. Extension of the time for payment or modification of amortization of the sums secured by this Security instrument granted by Lender to Borrower or any Successors in Interest of Borrower shall not operate to release the liability of Borrower or any Successors in Interest of Borrower. Lender shall not be required to commence proceedings against any Successor in Interest of Borrower or to refuse to extend time for payment or otherwise modify amortization of the sums secured by this Security Interest by reason of any demand made by the original Borrower or any Successors in Interest of Borrower. Any forbearance by Lender in exercising any right or remedy including, without limitation, Lender’s acceptance of payments from third persons, entities or Successors in Interest of Borrower or in amounts less than the amount then due, shall not be a waiver of or preclude the exercise of any right or remedy.

(Id., Ex. 3, p. 10).

In the mortgage, Appellant agreed to his reinstatement rights:

Borrowers’s right to Reinstate after Acceleration. If Borrower meets certain conditions, Borrower shall have the right to have enforcement of this Security Instrument discontinued at any time prior to the earliest of: (a) five days before sale of the Property pursuant to any power of sale contained in this Security Instrument; (b) such other period as Applicable Law might specify for the termination of Borrower’s right to reinstate; or (c) entry of a judgment enforcing this Security Instrument. Those conditions are that Borrower: (a) pays lender all sums which then would be due under this Security Instrument and the Note as if no acceleration had occurred; (b) cures any default of any other covenants or agreements; (c) pays all expenses incurred in enforcing this Security Instrument, including, but not limited to, reasonable attorney’s fees, property inspection and valuation fees, and other fees incurred for the purpose of protecting Lender’s interest in the Property and rights under this Security Instrument and (d) takes such action as Lender may reasonably require to assure that Lender’s interest in the Property and rights under this Security Instrument, and Borrower’s obligation to pay the sums secured by this Security Instrument, shall continue unchanged ... Upon reinstatement by Borrower, this Security Instrument and obligations secured hereby shall remain fully effective as if no acceleration had occurred. However, this right to reinstate shall not apply in the case of acceleration under Section 18.

(DOC ID NO. 10, Ex. 3, pp. 11-12) (emphasis added)

Appellant defaulted in the payment of the monthly principal and interest installments due under the note and thereby also defaulted under the mortgage. After Respondent provided Appellant with notice of the defaults and Appellant failed to cure, Respondent instituted a lawsuit to reform the mortgage with respect to the legal description of the mortgage and to foreclose it. (See DOC ID NO. 1) In the complaint, Respondent sought both a monetary judgment and an order permitting it to sell the property encumbered by the mortgage:

WHEREFORE, Plaintiff prays for relief against Defendants as follows:

1. For an Order entering judgment against Defendant William H. McGaughey for the sum of $173,626.80 together with interest from January 21, 2015, and together with Plaintiff’s costs and disbursements herein, including reasonable attorney’s fees, and such other and further sums as may be now or will become due and payable postjudgment to Plaintiff.

2. For an Order directing the Court Administrator to immediately enter and docket the monetary judgment described in Paragraph 1 above and ordering that Plaintiff shall file a partial satisfaction of said judgment for any amounts received by Plaintiff in any foreclosure sale of the Mortgage.

****

5. For an Order authorizing the Sheriff of Hennepin County, Minnesota, to conduct a foreclosure sale of the reformed Mortgage as provided by Minn. Stat. § 581 and to apply the proceeds of said sale to the partial payment of the judgment amount adjudged to be due herein, with interest thereon to the time of payment, the expenses of said sale, the costs and disbursements associated herewith and the Bank’s attorney’s fees, as allowed by applicable law.

pp. 3-4 (emphasis added)).

Appellant did not serve a formal answer to the complaint, but provided a response to the Complaint wherein he acknowledged the failure to make the payments. (DOC ID NO. 10, Ex. 1)

Because Appellant admitted that he failed to make the required payments, no legitimate question with regard to the material facts existed and Respondent, therefore, moved for summary judgment in April 2015. (DC ID No. 8) Appellant, however, opposed the motion, falsely claiming that he did not own all of the property that was subject to the mortgage. (DOC ID No. 13 and 14) Appellant now claims that this was just an “innocent mistake”. (App. Br. p. 62) The district court, in a decision in May 2015, determined that Respondent was not entitled to summary judgment due to that issue and due to the construction of the complaint, but it found in Respondent’s favor:

Based on the undisputed facts, the Court finds that Mr. McGaughey is in default on the Note and owes Plaintiff the principal amount of $167,236.04.plus interest of $8,207.92 and late charges of $538.02, for a total of $175,981.98, through April 1, 2015, and additional accruing interest thereafter.

(DOC ID NO. 23, p. 5) The Court also denied Respondent’s request for an award of attorney’s fees at that time, finding that it was “procedurally defective” because Respondent had not yet submitted the materials required by Rule 119 of the Minnesota General Rules of Practice in support of its request. (Id., p. 6)

Respondent then incurred attorney’s fees and costs to demonstrate that Appellant’s “innocent mistake” that precluded summary judgment in favor of Respondent was really a false creation of a material fact by Respondent. The unnecessary research which only became necessary after Appellant made his “innocent mistake” proved that Appellant’s factual assertions that prompted the denial of Respondent’s first motion for summary judgment were inaccurate. Respondent, therefore, moved for a summary judgment for a second time. (DOC ID NO. 23) Appellant again opposed the motion despite having no basis to do so given he was already found in default (DOC ID No. 29 and 31). However, at the hearing on that motion, Appellant and Respondent “reached a resolution regarding all of the claims except Plaintiff’s claim for recovery of attorney’s fees.” (DOC ID NO. 32; see also RESP-ADD-01). That resolution was Appellant’s payment of the amount that was then past due, without immediate payment of the attorney’s fees and costs Respondent incurred in connection with his defaults. (DOC ID NO. 36, paragraph 2) The district court retained jurisdiction over the case to consider a motion by Respondent for an award of attorney’s fees, stating

... The parties requested that the Court allow the parties some time to attempt resolution of this issue and requested that the Court retain jurisdiction over this case for the limited purpose of resolving any dispute concerning attorney fees that the parties could not resolve.

Based upon the agreement of parties, together with their submissions and all of the records, files and proceedings herein, the Court makes the following:

ORDER

1. The parties having reached an agreement to settle all of the Plaintiff’s claims except for its request for attorney fees, the Court will retain jurisdiction over this case for a period of six weeks. If the parties cannot agree regarding the attorney’s fees claim, Plaintiff shall properly file and serve a motion for attorney fees accompanied by a Rule 119 affidavit no later than September 7, 2015. Defendant will then have 14 days thereafter to file and serve his response to the motion. A hearing will not be required.

2. If the parties come to an agreement concerning attorney fees before September 7, 2015, Plaintiff shall immediately notify the Court and file a stipulated order for dismissal with prejudice.

3. If plaintiff does not file and serve a motion for attorney fees on or before September 7, 2015, the Court will dismiss this matter.

(DOC ID NO. 32 (emphasis added); see also RESP-ADD-01).

Respondent obtained a payment from Appellant that omitted any attorney’s fees and costs and it attempted to resolve the fees issue with Appellant, but Appellant failed to communicate with Respondent. (DOC ID NO. 36, paragraph 3) Respondent, therefore, applied to the district court for an award of its fees and costs which totaled $21,519.55 as of August 15, 2015. (Footnote #1: Since then, Respondent has incurred additional fees, costs, and expenses that Appellant is responsible to pay under the plain terms of the note and mortgage.) (DOC ID NO. 35). Appellant opposed the application, claiming that the amount of fees Respondent sought were unreasonable. (DOC ID NO. 39 and 40). The district court took the matter under advisement and then issued an Order on October 12, 2015, in which it thoroughly reasoned through the facts and the procedural history of the litigation. (DOC ID NO. 44; see also RESP-ADD-03). The district court exercised its considerable discretion and decided to award Respondent attorney’s fees and costs in a reduced amount.

15. The Court will reduce the amount of fees and costs associated with bringing the second summary judgment motion, representing $165.55 in costs and $6,628.00 in fees, from the amount requested by the Bank.

(Id., p. 4)

Based on the foregoing, the Court will deduct $6,793.55 from the amount of attorney fees and costs requested by the Bank. The Bank is entitled to $14,726.000 in attorney fees and costs in enforcing the Note and Mortgage.

***

Plaintiff Boundary Waters Bank shall have and recover from Defendant William H. McGaughey a total of $14,726.00.

(Id.) Judgment in Respondent’s favor against Appellant was thereafter entered in the amount of $14,726.00. (DOC ID No. 45) Appellant contests only a portion of that award with this appeal. (Footnote # 2: Of the $14,726.00 award, Appellant claims that $10,825.00 is unreasonable. App. Br., p.34.)

ARGUMENT

1. THE DISTRICT COURT’S DECISION MUST BE AFFIRMED BECAUSE THE DISTRICT COURT PROPERLY EXERCISED ITS DISCRETION IN DETERMINING THE AMOUNT OF ATTORNEY’S FEES AND COSTS TO AWARD TO RESPONDENT.

Appellant, while overlooking the deferential standard of review of that decision, challenges the district court’s award of attorney’s fees and costs primarily on the basis of his arguments that the fee award was unreasonable. App. Br., p. 32-65) The Court of appeals affords considerable deference to a district court’s decision awarding attorney’s fees and affirms the decision absent an abuse of discretion. Carlson v. SALA Architects, Inc., 732 N.W.2d 324, 331 (Minn. App. 2007), review denied (Minn. Aug. 21, 2007); Brickner v. One Land Dev. Co., 742 N.W.2d 706, 711 (Minn. App. 2007), review denied (Minn. March 18, 2008). The reasonable value of attorney’s work presents a fact question and the district court’s findings on that issue are upheld if they are not clearly erroneous. Amerman v. Lakeland Dev. Corp., 295 Minn. 536, 203 N.W.2d 536, 537, 203 N.W.2d 400, 400-01 (1973); see also Cox. v. Crown CoCo, Inc., 544 N.W.2d 490, 500 (Min. App. 1996) (affirming district court’s award of attorney’s fees due to absence of abuse of discretion).

A district court has wide discretion, subject only to limits of reasonability, in determining the amount of fees to be awarded under a contract. State Bank of Cokato v. Ziehwein, 510 N.W.2d 268, 270 (Minn. App. 1994) (citing O’Donnell v. McGee Trucks, Inc., 294 Minn. 110, 113, 199 N.W.2d 432, 434-35 (1972)). Factors considered in determining the reasonableness of attorney’s fees include the time and labor required, the nature and difficulty of the responsibility assumed, the amount involved and the result obtained, the fees customarily charged for similar legal services, the experience, reputation, and ability of counsel, and the fee arrangement existing between counsel and the client. Milner v. Farmers Ins. Exch., 748 N.W.2d 608, 621 (Minn. 2008). In Musicland Group, Inc. v. Ceridian Corp., the court of Appeals affirmed the district court’s award of attorney’s fees despite the fact that some of the claims in the lawsuit were unsuccessful, because the legal theories “depended on proving a common core of facts” and the types of claims were related. 508 N.W.2d 524, 535 (Minn. App. 1993). “In these circumstances the fee award should not be reduced simply because the plaintiff failed to prevail on every contention raised in the lawsuit.” Id. (quoting Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1993 (1983)); Riverview Muir Doran, LLC v. Jadt Dev. Group LLC N.W.2d 172 (Minn. App. 2009)

Here the district court provided a well-reasoned decision, taking into account the facts and the procedural history, and the arguments of both Respondent and Appellant. That decision was well within the district court’s discretion and it should be affirmed.

Here, the district court provided a well-reasoned decision, taking into account the facts and the procedural history, and the arguments of both Respondent and Appellant. That decision was well within the district court’s discretion and it should be affirmed.

Indeed, Respondent prevailed on its claims and the fees charged to Respondent are reasonable and customary based on the experience, reputation, and ability of the lawyers and firms involved, along with the complexity of the case. (DOC ID No. 35, paragraph 13). Despite Appellant’s false creation of material facts, Respondent obtained the May 2015 decision of the Court finding that Defendants defaulted and owed the Bank $175,981.98 as of April 1, 2015. It then obtained settlement with Appellant whereby Appellant paid it the past-due amounts and cured his defaults with the exception of paying Respondent’s attorney fees and costs. Respondent achieved nearly precisely the outcome the litigation was intended to provide: payment from Appellant and the satisfaction of the defaults in the payments of principal and interest due under the note.

Moreover, although Respondent’s initial attempt at summary judgment was not entirely successful, that result was because Appellant created a fact issue that prompted the court to deny the motion and forced Respondent to perform additional work to address and disprove those assertions and make the second motion.

Additionally, in determining the amount of attorney’s fees and costs to award to Respondent, and despite Appellant’s “innocent mistake” which prompted the second summary judgment motion, the district court subtracted the fees and costs associated with the second motion. (DOC ID NO. 44; see also RESP-ADD-06). If there was any clearly erroneous discretion exercised by the district court, it was the decision not to award Respondent the full amount of the fees it requested. The district court thus awarded, rather than the $21,519.55 sum that Respondent sought, $14,726.00, representing only 68% of the amount of fees and costs that Respondent incurred due directly to Appellant’s defaults and “innocent mistake”.

Appellant’s arguments regarding the district court’s decision primarily amount to his beliefs - not based on any licensed attorney’s analysis of the amount other attorneys would have charged in total had they handled this case - that the fees were unreasonable. App. Br. pp. 32-65 His argument that the amount of the fees was large in comparison to the amount of the default (App. Br., p. 36) completely overlooks the fact that a default is a default is a default no matter how large or small. Regardless of the amount of that default, Respondent was well within its rights to initiate and pursue the judicial foreclosure that involved monies in excess of $167,000. 3 In light of all the facts and circumstances, the district court’s decision to award Respondent $14,726.00 in attorney’s fees and costs was reasonable and should be affirmed.

(footnote #3: Appellant’s lengthy brief devotes much time and many pages to attacks on the quality of Respondent’s attorneys and their legal strategies, without regard to the latitude afforded to the district court to make the discretionary decision as to the amount of reasonable attorney’s fees and costs. All of Appellant’s arguments fail to raise any reversible errors. Appellant’s attempts to introduce failed settlement negotiations into the record in this matter (App. Br., pp. 36-38) should not be tolerated in light of Rule 408 of the Minnesota Rules of Evidence. Moreover, his opinions regarding Respondent’s responses to the settlement efforts must be disregarded as based on conjecture. His speculation regarding his ability to afford a reinstatement before trial had Respondent not moved for summary judgment (App. Br., pp. 38-42) has no bearing on Respondent’s rights to move for summary judgment as the Rules of Civil Procedure permit all parties to do so. And Respondent’s first motion was not baseless, contrary to Appellant’s assertions (App. Br., pp. 42-66) and it would have prevailed had Appellant not raised a false issue of material fact. His arguments, even if accurate - which they are not - fail to show an abuse of discretion by the district court.)

II. MINNESOTA STATUTES DO NOT LIMIT THE CONTRACTUAL AMOUNT OF REASONABLE ATTORNEY’S FEES RESPONDENT CAN RECOVER FROM APPELLANT.

Appellant incorrectly claims that because he reinstated the mortgage pursuant to an agreement between the parties that specifically preserved Respondent’s right to separately determine and collect its attorney’s fees, the amount of the fees are limited by Minnesota law. App. Br., pp. 30-32) Appellant’s arguments misconstrue the law and the facts and should be rejected.

Under Minnesota law, if a mortgagor tenders the appropriate payment to the lender during the pendency of the foreclosure proceedings, the mortgage may be reinstated. Minn. Stat.§ 580.30 The reinstatement statute sets forth the terms that the lender can impose on the mortgagor to obtain reinstatement. Id. While the statute limits the amount of attorney’s fees that can be included within the sums required to be paid to obtain reinstatement, it does not limit the amount of fees that the lender can ultimately collect from the borrower for the foreclosure efforts:

In any proceedings for the foreclosure of a real estate mortgage, whether by action or by advertisement, if at any time before the sale of the premises under such foreclosure, the mortgagor, the owner, or any holder of any subsequent encumbrance or lien, or any one for them, shall pay or cause to be paid to the holder of the mortgage so being foreclosed, or to the attorney foreclosing the same, or to the sheriff of the county, the amount actually due thereon and constituting the default actually existing in the conditions of the mortgage at the time of the commencement of the foreclosure proceedings, including insurance, delinquent taxes, if any, upon the premises, interest to date of payment, cost of publication and services of process or notices, attorney’s fees not exceeding $150 or one-half of the attorney’s fees authorized by section 582.01, whichever is greater, any costs incurred when an order to reduce a mortgagor’s redemption period under section 582.032 is entered, including costs and disbursements awarded under section 582.032, subdivision 9, together with other lawful disbursements necessarily incurred in connection with the proceedings by the party foreclosing, then, and in that event, the mortgage shall be fully reinstated and further proceedings in such foreclosure shall be thereupon abandoned.

(emphasis added)

The plain language of the statute does not permit mortgagors to avoid their contractual agreements with the lender. The statute instead merely seeks to preserve a mortgagor’s equitable rights to the property and does not alter Minnesota’s long standing rule of law that parties can contract to pay for attorney’s fees incurred by another. See Cherne Indus., Inc. v. Grounds & Assocs., Inc., 278 N.W.2d 81, 85 (Minn. 1979) (a party may recover attorney fees if a statute or a contract allows attorney fees to be shifted); see also Potter v. Am. Bean & Grain Corp., 388 N.W.2d 22, 25 (Min. App 1986) (loan contracts authorizing recovery of attorney fees associated with collecting on a debt have been interpreted broadly to make the creditor whole for efforts to collect on its debt).

In fact, no court has held that Min. Stat. 580.30 limits the amount of attorney’s fees a lender can recover from a mortgagor when the mortgage is reinstated subject to an agreement by the mortgagor that the attorney’s fees will be later determined. Nor does any decision hold that a lender who accepts a payment for reinstatement pursuant to an agreement expressly reserving the attorney’s fees issue thereby waives the right to collect the attorney’s fees after and independent of the foreclosure proceedings. Similarly, no court has addressed the effect of Minn. Stat. § 580.30 when the complaint in the foreclosure proceeding seeks relief in two forms: an order for monetary judgment against the mortgagor and an order permitting the foreclosure sale of the property.

The district court’s decision awarding Respondent $14,726.00 in attorney’s fees and costs was, contrary to Appellant’s arguments (App. Br., pp. 30-32), was legally sound and consistent with Appellant’s reinstatement rights under Minn. Stat. 580.30. First, Appellant specifically agreed in the note and the mortgage to pay Respondent for the attorney’s fees and costs it incurred in connection with those documents and that Respondent did not waive its rights to exercise its remedies if it accepted partial payments or delayed exercising its rights. (DOC ID NO. 10, Ex. 2, paragraph 6 and Ex. 3, p. 10). Second, when the parties reach the agreement resolving the litigation by way of Appellant’s payment to reinstate the mortgage, the parties expressly reserved the issues regarding the attorney’s fees. (RESP-ADD-01). And they went so far as to obtain a court order documenting their agreement and preserving Respondent’s rights to have the fees later determined. (Id.) Third, Appellant’s reinstatement of his mortgage allowed him to preserve his equitable interest in the property without impacting Respondent’s legal interests in collecting the sums to which it is entitled and which it sought as a remedy in the alternative in the complaint in the foreclosure proceedings.

Appellant can be said to have exercised his equitable rights and reinstated the mortgage. Respondent is likewise entitled to its legal remedies against Appellant, including the judgment in its favor for the attorney’s fees and costs Appellant contractually agreed he would pay. To hold differently would only lead to absurd results. The district court’s decision was consistent with the facts and with the law and it should be upheld.

CONCLUSION

Based upon the foregoing arguments, Respondent respectfully requests that the Court of Appeals affirm the district court decision.

Respectfully submitted,
HKM, P.A.

Date 1-19-16________________________

Kelly S. Hadac

Kelly S. Hadac, #328194
Julie N. Nagorski, #389212
30 East Seventh Street, Suite 3200
Saint Paul, Minnesota 55101
khadac@hkmlawgroup.com
jnagorski@hkmlawgroup. com

Attorneys for Respondent
Boundary Waters Bank

 

CERTIFICATE OF BRIEF LENGTH

The undersigned counsel for Respondent Boundary Waters Bank certifies that this Brief complies with the requirements of Minn. R. Civ. P. 132.01 in that it is preinted in proportionately spaced typeface utilizing Microsoft Word 2010 and contains 4,824 words, excluding Table of Contents and Trable of Authorities.

Date 1-19-16___________________

HKM, P.A.

____Kelly S. Hadac_______________

Kelly S. Hadac, #328194
Julie N. Nagorski, #389212
30 East Seventh Street, Suite 3200
Saint Paul, Minnesota 55101
khadac@hkmlawgroup.com
jnagorski@hkmlawgroup. com

Attorneys for Respondent
Boundary Waters Bank

some observations

It was too late to make a response to the court. I had ten days to respond to the bank's brief which had been filed on January 19th. That gave me until the end of January. I found the bank's brief in the mail when I returned home to Minnesota on February 14th. All I can do here is give my reaction to the bank's brief and make comments about the process in general.

First, I was irritated by the repeated suggestion in the brief that I had lied by use of the term "innocent mistake", in quotation marks. (Instances of this are printed in red.) I believe that such references rise to the level of a flat accusation of lying in the following sentence: "Respondent then incurred attorney’s fees and costs to demonstrate that Appellant’s “innocent mistake” that precluded summary judgment in favor of Respondent was really a false creation of a material fact by Respondent."

When I raised $182,000 in 2007 by placing a mortgage on my property at 1715 Glenwood Avenue, I believed that the mortgage was being placed only on the house and its underlying land because that is the standard type or mortgage. I had no idea that the mortgage description also included nearby but not adjacent vacant land. The realtor never said anything to me about this. After Mr. Hadac gave the legal description of the mortgaged property in his filing of January 22, 2015, I checked the legal description of the property at 1715 Glenwood Avenue with that in the Plaintiff's filing and found that the two differed. Besides that of the property at 1715 Glenwood, there was another description of property after the "AND". At the time, I had no idea what that was.

I pointed this out in my filing of April 25, 2015, stating that "the legal description following “AND” (The North 138 feet of the East 42 1/2 feet of that part of Lot 15 lying North of 3rd Avenue North, Auditor’s Subdivision No. 26, Hennepin County, except the East 2.0 feet thereof) does not pertain to any property owned by William McGaughey and should not have been included in a loan document to which he was a party. " It turned out, when I later checked, that I did own the property after the "AND" - a nearby vacant lot, although I did not know it when I prepared the filing on April 24th. To the best of my knowledge, I never used the phrase "innocent mistake" although that is what it essentially was. But to have this phrase thrown at me repeatedly in a highly suggestive manner in Hadac's filing of January 15, 2016, was quite misleading. It showed the type of people I was dealing with.

I had, yes, innocently, claimed in my April 24th filing, that the legal description in the plaintiff's motion included property that I did not own. The hearing before Judge Vasaly took place on May 6, 2015. In other words, the HKM law firm had nearly two weeks to check my claims before presenting its case. Yet, Mr. Brandt said nothing about this at the hearing. His supervisor, Kelly Hadac, who boasts on the law firm's website that "as a skilled litigator, Kelly’s attention to detail and dedication to representing the best interests of his clients is second to none" evidently did not catch this discrepancy. It was only after the judge ruled against the bank that these attorneys bothered to check my mistaken statement. And then I was portrayed as a determined liar. The lawyers would not acknowledge their own incompetence.

The crux of my argument was that the assessment of attorney's fees - either the $21,519.55 which was originally sought or the $14,726.00 which the judge ordered - was disproportionately large to collect a debt of less than $20,000. Even the judge indicated as much. But "reasonableness" is court settings is entirely different than in ordinary life. The judge let this pass. The fact that the attorney who spent by far the most time on this case, Christian Brandt, who was described as a "junior attorney" was charging $295 per hour for his work showed that there were relatively few cost restraints in this kind of legal work. Why not charge $500, $1,000, or even $10,000 per hour to prepare papers for a divorce case when the other side is paying? There was also no way to determine the reasonableness of the time logs associated with the billings.

Was there no limit to what attorneys can charge in divorce cases? I thought that Minnesota statute 580.30, subdivision 1, might bring some closure. This statute suggests that a mortgage might be reinstated if the mortgagor pays "attorney's fees not exceeding $150 or one-half of the attorney's fees authorized by section 582.01, whichever is greater". Section 582.01 simply lets the court decide the amount of attorney's fees in the case of foreclosures by action. By my literal way of reading, it would seem that the fees were limited to one half of what the judge ordered. But evidently in Minnesota courts things are sometimes not what is written in law. Kelly Hadac's brief (page 17) suggests, without explanation, that the courts have refused to be bound by that particular law.

Likewise, the court refused to consider that the Boundary Water Bank reneged on Ranee Holmboe's offer to take a deed in lieu for the property. It refused to consider that the HKM law firm, then Murnane Brandt, declined to hold discussions with a California lender about refinancing the debt. It refused to require that the bank or its legal representatives seek an amicable agreement or even contact the borrower before seeking an immediate judgment. It also refused to accept its own schedule for taking the case to trial. It refused to acknowledge that it had appointed a possible mediator for this case. As soon as the HKM law firm announced that it was seeking a summary judgment, all such options suddenly vanished. The bank's attorneys were allowed to keep filing papers and charging for this no matter what the prospects were for an amicable settlement. Reasonableness and good will disappear in that environment of black-robed justice. Was there any reason to hope that judges in the superior courts would be any different?

Ultimately, I wanted to get out from under the 6.875% rate of interest charged in this mortgage. I was getting plenty of offers in the mail to refinance at rates around 4%. But when I called the prospective lenders, I learned that the year-long dispute with Boundary Waters Bank had ruined my credit. My credit score had dropped from in the 700s to 510 in April 2016. No bank would consider lending to such a person who had mishandled his credit to such an extent. At best, I might wait a half year or so to see if, with a resumption of payments, some of this damage could be repaired.

 

The Minnesota Court of Appeals decision

The decision upheld the $14,726.00 award of the district court. This is the text of the decision.

 

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
A15-1950


Boundary Waters Bank, Respondent,

vs.

William H. McGaughey, Appellant, Lian Y. McGaughey, Defendant.

Filed April 11, 2016
Affirmed
Kirk, Judge

Hennepin County District Court
File No. 27-CV-15-1090

Kelly S. Hadac, Julie N. Nagorski, HKM, P.A., St. Paul, Minnesota (for respondent)

William H. McGaughey, Minneapolis, Minnesota (pro se appellant)

Considered and decided by Kirk, Presiding Judge; Johnson, Judge; and Smith, John, Judge.*

*Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10. 2

 

U N P U B L I S H E D O P I N I O N

KIRK, Judge

In this real-property-foreclosure action, appellant challenges the district court’s award of contractual-attorney fees to respondent. We affirm.

FACTS

In November 2007, appellant William McGaughey and his then-wife, defendant Lian Y. McGaughey, borrowed $182,000 in exchange for a promissory note and a mortgage that encumbered real property in Minneapolis. In December 2014, respondent Boundary Waters Bank (BWB) acquired the lender’s interest in the note and the mortgage. The note obligated McGaughey to make monthly payments on the loan balance until it was paid in full and identified the failure to make a monthly payment as a default.

By signing the note and mortgage, McGaughey agreed that, in the event of continued default after notice, the lender had the right to require immediate payment of the outstanding balance and sell the property. If the lender called the balance due, both the terms of the note and the mortgage allowed the lender to recover expenses incurred in enforcement, including reasonable attorney fees. Further, McGaughey agreed that he could reinstate the mortgage after default and acceleration only if, among other things, he paid “all expenses incurred in enforcing [the mortgage], including, but not limited to, reasonable attorney[] fees.”

In August 2014, McGaughey stopped paying the monthly installments due under the note and defaulted on the mortgage. After BWB provided McGaughey with notice of the defaults and McGaughey failed to cure, BWB initiated this foreclosure action.

In April 2015, BWB moved for summary judgment. McGaughey filed a pro se motion opposing summary judgment, which prompted BWB to file a reply and McGaughey to file a reply to BWB’s reply. McGaughey asserted that there were genuine issues of material fact regarding the following issues: (1) the legal description of the property subject to the mortgage did “not pertain to any property owned by [McGaughey]”; (2) the lot was “unbuildable” under city code; and (3) there was uncertainty about whether BWB intended to obtain a judgment against both McGaughey and his ex-wife.

After a motion hearing in May, the district court denied BWB’s motion for summary judgment. It found that the sole genuine issue of material fact was whether McGaughey owned all of the property subject to the mortgage. It also denied BWB’s claim for attorney fees because it failed to submit support under Minn. Gen. R. Pract. 119.02.

In June, BWB filed a second motion for summary judgment. BWB’s supporting documents provided clear evidence that McGaughey owned all of the property subject to the mortgage. McGaughey again submitted a motion opposing the motion for summary judgment. Although he admitted that he owned all of the property described in the mortgage, he reiterated his other two arguments against summary judgment.

At the motion hearing in July, the parties reached a resolution of all claims except BWB’s claim for attorney fees. Under the terms of the settlement, McGaughey paid BWB $19,886.88 to cure his defaults, and, in exchange, BWB agreed to dismiss the action following resolution of the attorney-fees issue. The district court issued an order memorializing the settlement and directing that, if the parties did not reach a resolution on attorney fees, BWB needed to file a motion for the fees by September 7, or the matter would be dismissed.

On September 3, BWB filed a motion for attorney fees in the amount of $21,519.55, which McGaughey opposed. The district court issued an order granting BWB attorney fees in the amount of $14,726.

This appeal follows.

D E C I S I O N

I. Minn. Stat. § 580.30 (2014) does not limit the amount of attorney fees that a mortgagee can recover from the mortgagor in a foreclosure action when the mortgage is reinstated.

In Minnesota, attorney fees “are not recoverable in litigation unless there is a specific contract permitting or a statute authorizing such recovery.” Dunn v. Nat’l Beverage Corp., 745 N.W.2d 549, 554 (Minn. 2008). We generally review an award of attorney fees for an abuse of discretion. Carlson v. SALA Architects, Inc., 732 N.W.2d 324, 331 (Minn. App. 2007), review denied (Minn. Aug. 21, 2007). However, we review issues of statutory construction de novo. Hous. & Redev. Auth. of Duluth v. Lee, 852 N.W.2d 683, 690 (Minn. 2014).

“The threshold issue in any statutory interpretation analysis is whether the statute’s language is ambiguous.” State v. Peck, 773 N.W.2d 768, 772 (Minn. 2009). When a statute is unambiguous, we give statutory words and phrases their plain and ordinary meaning. Id.; Minn. Stat. § 645.16 (2014) (stating that, where there is no ambiguity, “the letter of the law shall not be disregarded under the pretext of pursuing the spirit”). If the language is ambiguous, we apply the canons of construction to ascertain the legislative intent. Staab v. Diocese of St. Cloud, 853 N.W.2d 713, 718 (Minn. 2014). Statutory words and phrases are ambiguous if they are susceptible to more than one reasonable interpretation. Peck, 773 N.W.2d at 772.
Minn. Stat. § 580.30, subd. 1, provides, in pertinent part:

In any proceedings for the foreclosure of a real estate mortgage . . . if at any time before the sale of the premises under such foreclosure the mortgagor . . . shall pay or cause to be paid to the holder of the mortgage so being foreclosed . . . the amount actually due thereon and constituting the default actually existing in the conditions of the mortgage at the time of the commencement of the foreclosure proceedings, including insurance, delinquent taxes, if any, upon the premises, interest to date of payment, cost of publication and services of process or notices, attorney[] fees not exceeding $150 or one-half of the attorney[] fees authorized by section 582.01, whichever is greater . . . then, and in that event, the mortgage shall be fully reinstated and further proceedings in such foreclosure shall be thereupon abandoned.
(Emphasis added.)

In a foreclosure by action, Minn. Stat. § 582.01, subd. 2, provides that “[t]he court shall establish the amount of the attorney[] fee[s].” McGaughey argues that Minn. Stat. § 580.30, subd. 1, limits the amount of attorney fees that the district court could have awarded to one-half of the amount of reasonable fees found by the district court, which is $7,363. We disagree.

First, the plain language of Minn. Stat. § 580.30, subd. 1, unambiguously provides the amount of attorney fees that must be paid in order to reinstate a mortgage that is subject to foreclosure proceedings. It does not state that these are the only fees that may be awarded and certainly does not suggest that it precludes award of any additional fees available under contract.

Second, even if the language were ambiguous, caselaw and the canons of construction do not lead us to conclude that the legislature intended McGaughey’s interpretation of the statute. In First Trust Co. v. Leibman, 445 N.W.2d 547, 551-52 (Minn. 1989), the supreme court concluded that reinstatement of a mortgage under Minn. Stat. § 580.30, subd. 1, requires payment of the amount actually due upon the mortgage at the time of tender, plus interest and statutory costs, rather than the amount due when the foreclosure proceedings commenced. It explained that,

[The opposite] construction . . . would create an incentive for mortgagors to default, since the obligation to pay principal and interest would be suspended during the pendency of foreclosure proceedings, however long they may take. . . .

The legislature cannot have intended to allow debtors to unilaterally modify the terms of their debt simply by defaulting. Lenders do not provide loans on that basis, and to allow such restructuring would interfere with their legitimate contractual expectations and deprive them of the benefit of their bargain.

Leibman, 445 N.W.2d at 551. The supreme court further reasoned that “[t]he result of such a construction can only be that mortgage money will become more difficult to obtain and more expensive, through higher interest rates.” Id. Similarly, interpreting Minn. Stat. § 580.30, subd. 1, to preclude any additional attorney fees incurred in enforcing the terms of the note and mortgage would interfere with lenders’ contractual rights and potentially discourage lenders from facilitating reinstatements. See Davis v. Davis, 293 Minn. 44, 47-48, 196 N.W.2d 473, 475 (1972) (in interpreting Minn. Stat. § 580.30, subd. 1, applying principle favoring reinstatement of mortgagor’s equitable rights); Minn. Stat. § 645.16(6) (2014) (directing consideration of “the consequences of a particular [statutory] interpretation”).

Further, in Irwin v. Surdyk’s Liquor, 599 N.W.2d 132, 142 (Minn. 1999), the supreme court held that a statutory maximum on an attorney-fees award is unconstitutional as a violation of the doctrine of separation of powers when there is no final judicial review of the award. But see David v. Bartel Enters. (Nitro Green), 856 N.W.2d 271, 277 (Minn. 2014) (as a matter of comity, recognizing the workers’ compensation statutory-attorney-fees formula as presumptively reasonable, and that, absent exceptional circumstances, further judicial review of an award consistent with the formula is unnecessary). Therefore, even if the language of Minn. Stat. § 580.30, subd. 1, indicated that only statutory-attorney fees are available where a mortgage is reinstated, the district court would maintain an ability to consider a higher award.

II. The district court did not abuse its discretion in awarding attorney fees to BWB.

In determining “the reasonable value of the legal services,” the district court should consider “all relevant circumstances.” State v. Paulson, 290 Minn. 371, 373, 188 N.W.2d 424, 426 (1971). The circumstances informing a district court’s “determination of reasonableness include the time and labor required; the nature and difficulty of the responsibility assumed; the amount involved and the results obtained; the fees customarily charged for similar legal services; the experience, reputation, and ability of counsel; and the fee arrangement existing between counsel and the client.” Green v. BMW of N. Am., LLC, 826 N.W.2d 530, 536 (Minn. 2013) (quotations omitted). Further, when the claims in a suit “involve a common core of facts or will be based on related legal theories,” the district court should not deny attorney fees related to unsuccessful claims because “[m]uch of counsel’s time will be devoted generally to the litigation as a whole.” Musicland Grp., Inc. v. Ceridian Corp., 508 N.W.2d 524, 535 (Minn. App. 1993) (quotation omitted), review denied (Minn. Jan. 27, 1994).

The district court found that there was “a sufficient basis for the recovery of attorney fees under the terms of the [n]ote and [m]ortgage,” and that the affidavit of BWB’s counsel contained “descriptions demonstrat[ing] that the work was necessary for enforcement of the [n]ote and [m]ortgage.” It concluded that, although “the costs, fees, and work performed through the first summary judgment [motion were] reasonable and appropriate,” those associated with the second motion for summary judgment were not because BWB “had the factual information require[d] to” prove that the property was in fact covered by the mortgage at the time of the first motion, but failed to do so. Therefore, in awarding attorney fees and costs, it subtracted the $6,628 in attorney fees and $165.55 in costs associated with the second motion for summary judgment from the total amount requested by BWB.

McGaughey challenges the reasonableness of attorney fees related to: (1) bringing the first motion for summary judgment; (2) responding to his opposition to that motion; and (3) moving for attorney fees. These fees total $10,825.

McGaughey asserts that the fees imposed were unreasonable because: (1) BWB refused to negotiate with him prior to commencing the action; (2) BWB would have known about his expected future ability to reinstate the mortgage had it inquired; (3) the summary-judgment process did not afford him the time necessary to raise money to reinstate the mortgage; (4) he had a right to a trial; (5) there were genuine issues of material fact preventing summary judgment; (6) the first motion for summary judgment was unsuccessful; (7) BWB’s failure to include the motion for attorney fees with the second motion for summary judgment unreasonably increased the amount of fees; (8) its attorney-billing rates were unreasonable in light of the work involved and the quality of the representation; and (9) the fees were excessive relative to the amount at issue.

After thorough review of the record and the district court’s findings, it is evident that the district court did not abuse its discretion in awarding contractual-attorney fees to BWB. See Carlson, 732 N.W.2d at 331. As stated by the district court, BWB was not obligated to negotiate with McGaughey before commencing a foreclosure action. Likewise, BWB had no obligation to inquire as to his ability to reinstate the mortgage prior to moving for summary judgment or to delay the motion to extend his time to reinstate the mortgage. See Minn. R. Civ. P. 56. McGaughey’s trial rights also did not preclude BWB’s summary-judgment motion. Id.

Contrary to McGaughey’s assertion, BWB’s first motion for summary judgment was largely successful. The district court made clear that it would have granted summary judgment but for the genuine issue of material fact regarding his ownership of all of the real property named in the mortgage. It is undisputed that BWB submitted evidence resolving that issue in support of its second motion for summary judgment. In light of these circumstances, it was reasonable and soundly within the district court’s discretion to account for the deficiency in BWB’s first motion by denying fees and costs associated with the second motion for summary judgment. Carlson, 732 N.W.2d at 331. Disallowing fees related to the first motion for essentially the same reason would unreasonably doubly punish a single deficiency and ignore other work reasonably performed to further BWB’s interests in the litigation.

There is no evidence that BWB’s failure to properly move for attorney fees prior to September 2015 increased the fees incurred in so moving. Indeed, at the time of the second motion for summary judgment, it was not clear that such a motion would be necessary. It was within the district court’s discretion to award attorney fees related to submitting the motion for fees, as these were incurred in pursuing its rights under the note and mortgage.

In support of his assertion that BWB’s attorneys charged excessive rates for the quality of work performed, McGaughey points to a 2011 survey of the rates charged at Twin Cities law firms. However, this survey is not in the record. The only evidence of the reasonableness of the rates was submitted by BWB’s counsel, which supported both the rates and the total fees charged. In light of McGaughey’s extensive responses to the litigation, the principal amount owed on the note, the experience of the attorneys, and the results ultimately obtained, the district court did not abuse its discretion in finding the work related to the fees awarded to be reasonable.

Affirmed

 

reaction to the decision

The decision upheld the $14,726.00 award of the district court. Of greatest interest to me was the fact that the court finally reacted to the provisions of Minnesota statute § 580.30, subd. 1, which limits the award of attorney's fees to one half of the attorney's fees authorized by section 582.01, which is the district court's award. The reaction was a flat: "We disagree."

Two reasons, both puzzling, are offered for the court's "disagreement". First, it suggests that the statute "unambiguously provides the amount of attorney fees that must be paid ... It does not state that these are the only fees that may be awarded and certainly does not suggest that it precludes award of any additional fees available under contract." I do not see a particular amount of fees mentioned in the statute but only a limitation of fees to one half. The judge seems to suggest that the statute awards one half of the fees but the court has the discretion to award additional fees - perhaps the other half, if it wishes. The language of this decison is murky in comparison with the clear language of the statute.

There is also a second reason which has nothing to do with any arguments that I raised. The judge seems to suggest that my interpretation of Minnesota statute § 580.30, subd. 1 argued that I proposed to limit attorney's fees to the time when the foreclosure proceedings began rather than to the time when I made payment of what was owed to the bank. This is completely off base. None of my arguments had anything to do with the timing of payments. What was the judge smoking when he pursued that line of reasoning? Another surprising suggestion was that, according to a Supreme Court ruling, it was "unconstitutional" to establish a statutory limit on attorney's fees because the legislature had not allowed the courts to decide attorney's fees. I think the legislature does have that unequivocal authority. But the judge thinks the courts should be able to exceed statutory limits if they wish because they are, after all, the courts.

While the judge does list nine reasons why I thought the district court improperly awarded fees, he sees little merit in any of them. Law firms have no obligation whatsoever to try to reach amicable settlements or try to accommodate other parties in their effort to raise money to bring the mortgage payments up to date. I had no right to a trial once the other party sought a summary judgment even though the court had scheduled one. The bank's first motion for a summary judgement was "largely successful" even though the court denied its motion. The plaintiff would have been "doubly punished" if the court had denied both motions for a summary judgment since so much work had gone into filing these motions. Even though the plaintiff had failed to ask for attorney's fees as required in either of its two motions, the court had the discretion to award them anyhow. Finally, although my mentioning that the HKM attorney's fees were on the high end of what attorneys in the Twin Cities charged, the court could overlook this fact because "this survey is not in the record". Not being an attorney, I was not sure what that meant or why the information that I had supplied was irrelevant.

Judge Michael Kirk, who wrote the opinion, was appointed to the appeals court by Governor Mark Dayton in 2012. While a judge in the Moorhead area, he helped to establish a special court to handle domestic-abuse cases. Of the two other judges, one - John Smith - retired while this case was being decided and the other - Matthew Johnson, originally appointed by Republican governor Tim Pawlenty - was demoted from chief judge to a regular position on the bench when Governor Dayton appointed someone else to head the court when his term expired in 2013.

Needless to say, this court decision did not help restore my confidence in Minnesota courts. Some issues that I raised in my filing were ignored while others were dealt with as generalities. But I do not wish to throw good money after bad so I will not be appealing the decision to the Minnesota Supreme Court. Instead, the decision will be appealed to the court of public opinion. The judicial process itself as it exists in Minnesota can be judged. That's the beauty of the Internet.

 

an amicable settlement

Several days after the preceding section was written, the case took an unexpected turn for the better. I had intended to file an appeal to the Minnesota Supreme Court but, despite the merits of the case, I also suspected that the Supreme Court would decline to rule on the case. Here I was, a nonprofessional who was repeatedly filing appeals to higher courts on my own. Although in my opinion the appellate court’s ruling with respect to Minnesota statute § 580.30, subd. 1 was ridiculous, the chances were that the Supreme Court would not take my appeal seriously. I would be throwing another $800 (in court costs and printed briefs) at the problem with little chance of success.

So I had to weigh the chance that the Supreme Court would at last address the wording in Minnesota statute § 580.30, subd. 1 with respect to the limitation upon attorney’s fees against the extra time and expense in making an appeal. Somehow I just wanted to be done with this legal mess. My best shot was to see if the bank would accept less than the $14,726 to settle the case immediately. After all, it was costing Boundary Waters Bank a fortune to have the HKM law firm represent it in this case. I suspected that Allan Hilgers did not enjoy this ordeal any more than I did.

And so in the morning of May 2rd, I placed a call to Boundary Waters Bank in Woodbury and spoke with Mr. Hilgers. At first, the conversation did not go well. I said something about reducing the payment by $3,000. Hilgers thought I was proposing to pay only $3,000 in attorney’s fees. He said it had cost the bank another $4,000 to draft a response for the Court of Appeals. But when I explained that I wanted to reduce the $14,726 award by that amount, he seemed interested. Allen Hilgers asked me to send a written offer to him and he would see whether his superiors at the bank would be willing to settle on that basis.

Here is what I sent to Hilgers by email:

“To Allan Hilgers:

I think I can raise $11,000.00 within a week. You have a judgment against me for $14,726.00. If the bank will accept $11,000.00 to settle the case regarding attorney’s fees, I will immediately set about obtaining the money and making payment. If I fail to raise the money within a week, then we would be back to a judgment for $14,726.00.

I believe that I would have a strong case in the Minnesota Supreme Court with respect to the appellate court’s ruling on fee limitations in Minnesota statute § 580.30, Subd. 1. There are also several other issues relating to the appellate court’s decision. If we cannot come to an agreement on fees, it would be my intention to file an appeal with the Minnesota Supreme Court.

Please let me know soon if your board will accept $11,000 to settle the case regarding attorney’s fees. If not, I will need to file the appeal by May 9th.

The property in question is at 1715 Glenwood Avenue in Minneapolis. I can be reached at 612-374-5916 or 612-239-2340.

William McGaughey"

I will admit to a bit of deception here. My written offer hinted that it might be difficult to raise the $11,000. In fact, I already had it in my account - the remainder of the inheritance from my father. Also, I was taking a chance in offering to settle for $3,726 less than the judgment rather than the $3,000 mentioned in the telephone conversation but I decided to let it rip. After all, Hilgers had mentioned $10,000, not as an explicit offer but as a ballpark figure.

On the following morning, May 3rd, I received a telephone call from Allan Hilgers. The bank would accept my payment offer. It was a relief. Hilgers said he would draw up an agreement to settle the case for $11,000. I offered to deliver a cashier’s check when he was ready. And that was it. We were done with the case. The reduction in legal fees from $14,712 to $11,000 would more than pay for the 10-day tour of Europe which I had planned in July with the International Big History Association group. I promptly gave the good news to my wife and she, too, was happy.

In retrospect, we both could have done better if the bank had simply let the case go to trial. The trial was set for January 2016. I received the settlement from my father’s estate in December 2015. I was not intending to dodge my payment obligations but was strapped for cash through most of 2015. It was only because my sister agreed to advance $20,000 to me from the inheritance in July that I was able to obtain a settlement agreement from the bank and dodge a foreclosure order.

The bottom line is that, although I had some difficult moments with Allan Hilgers, in the end he gained my respect. Hilgers was only doing his job. But the HKM law firm, especially Kelly Hadac, did not gain my respect unless I was the type of person who admired an attorney’s boldness in milking a case for maximum financial advantage. The HKM law firm demonstrated incompetence on a number of occasions - for instance, not catching the discrepancy in legal descriptions on the mortgage document by the time of the May 5th appearance before Judge Vasaly - combined with personal nastiness in repeatedly accusing me of lying. The law firm’s representative in court, Christian Brandt, struck me as a decent fellow but he was taken off the case.

In the end, this case of attempted foreclosure demonstrates the weakness of the legal system in letting attorneys pursue summary judgments with little risk or restraint. What is the sense of setting trial dates a year in advance, or of offering mediation, if high-priced law firms can use this time to ding their clients and opponents with motions that essentially deprive the parties of their right to a trial? Was my mistake the fact that I admitted in court documents that I was behind in my payments? Wouldn’t that situation apply to nearly everyone who owns property being foreclosed upon? Shouldn’t courts encourage parties bringing foreclosure suits to negotiate or at least consult with the other party if there is a reasonable chance of settlement? Not in Minnesota, apparently. Here the courts offer a happy hunting ground for attorneys seeking to enrich themselves through other people’s misfortunes.

While bearing the brunt of this nasty court business, I came out of it relatively unscathed compared with what might have been. Both the bank and I were out $11,000 in professional fees and costs that could have been avoided had the case been pursued in a more cooperative manner. Having paid the price, however, I now feel inclined to give others the benefit of my experience. You legislators and other persons of influence, do with this testimony what will serve the public interest. I am spilling my guts that others may profit from the experience.

 

the concluding agreement

Allan Hilgers had an attorney draft an agreement that ended this case. He emailed it to me and I drove to the bank's Woodbury office. This is what the agreement said:

SETTLEMENT AGREEMENT AND CONDITIONAL RELEASE

            This Settlement Agreement and Conditional Release (“Agreement”) is entered into by and between Boundary Waters Bank (“the Bank”) and William H. McGaughey (“WM”).  The Bank and WM are hereinafter collectively referred to as “the Parties” where appropriate.  RECITALS

            1.         On November 29, 2007, WM executed and delivered to Bear Stearns Residential Mortgage Corporation a Note in the original amount of $182,000 (“Note”).  The Note is secured by a Mortgage dated November 29, 2007 (“Mortgage”).  Via several assignments, the Note and Mortgage are now owned and held by the Bank.        

  2.         After WM failed to make required monthly payments due under the Note, the Bank commenced suit against WM in Hennepin County, Minnesota with Court File No. 27-CV-15-1090 (“the Lawsuit”).  After some litigation, the Bank and WM settled the payment defaults that existed under the Note and Mortgage.  The Note and Mortgage are currently in good standing and fully enforceable by their terms.

3.         Despite the settlement mentioned in paragraph 2 above, WM and the Bank continued to litigate the issue of how much money WM owed the Bank for attorneys’ fees and costs relating to the Lawsuit.  Ultimately, the Hennepin County District Court in the Lawsuit awarded judgment in favor of the Bank and against WM for $14,735.68 (“Judgment”).  The Judgment was entered in the Lawsuit on October 18, 2015 and docketed on March 11, 2016.  

4.         WM appealed the Judgment to the Minnesota Court of Appeals, Appeal No. A15-1950.  The Minnesota Court of Appeals affirmed the Judgment via decision filed April 11, 2016.

5.         Rather than engage in continued litigation and/or appeals relating to the Judgment, the Parties desire to settle and resolve the issues relating to the Judgment.
           

NOW THEREFORE, in consideration of the promises and covenants set forth below, and for good and valuable consideration, receipt and sufficiency of which is acknowledged, the Parties agree as follows:

TERMS OF THE SETTLEMENT AND CONDITIONAL RELEASE

1.         DEFINITION
         

  Reference in this Agreement to “Claim(s)” shall at all times mean any and all past, present, or future rights, claims, cross-claims, counterclaims, appeals, interest, demands, liabilities, actions, causes of action, damages, losses, costs, expenses and compensation, of whatever nature whatsoever, known or unknown, anticipated or unanticipated, fixed or contingent, that the Parties, or their agents, representatives, owners, successors, assigns, insurers, subsidiaries, or affiliates, may have against each other by reason of the actions, occurrences, inactions, contracts, representations, misrepresentations, events, or any and all other conduct in any way giving rise to or relating to the Judgment. 

2.         RELEASES

A.        WM Release of Bank

In consideration of the payments and concessions provided for in this Agreement, WM hereby immediately releases fully and without limitation and forever discharges the Bank from all Claims.  Furthermore, WM waives his right, if any, to file any further appeals or petitions for review in any way relating to the Judgment.

B.        The Bank Release of WM

Upon timely completion of the payment recited in Section 3 below, the Bank will release fully and without limitation and forever discharge WM from all obligations to pay the Judgment and will provide WM a satisfaction of judgment in full.  Notwithstanding anything to the contrary, the Bank does not release WM from his continued obligations owed to the Bank under the terms and conditions of the Note and Mortgage and related loan documents.  WM agrees and fully understands that the Note and Mortgage remain fully enforceable by their terms and conditions, and that the Bank is free to exercise any applicable remedy to the extent WM defaults in the future under the terms and conditions of the Note and Mortgage and related loan documents.

3.         CONSIDERATION—PAYMENT OF $11,000 BY WM
        

WM shall deliver to the Bank $11,000 in certified and immediately available funds by May 13, 2016.  Payment shall be personally delivered to Boundary Waters Bank, c/o Allan Hilgers, 2230 Eagle Creek Lane, Suite A, Woodbury, MN  55129.  Payment shall not be considered delivered until physically received by Boundary Waters Bank.

4.         CONSEQUENCES IF WM FAILS TO TIMELY MAKE THE $11,000 PAYMENT

If the payment described in Section 3 is not timely made, then the Bank can proceed to collect from WM the full amount due under the Judgment by any and all lawful means. 

5.         REPRESENTATION BY COUNSEL

The Parties represent and warrant that, prior to executing this Agreement, they have had the advice of counsel or have had the opportunity to seek the advice of counsel and voluntarily chose not to do so, have read the Agreement, and fully understand its content, meaning and effect.

6.         NEUTRALITY IN INTERPRETATION

The Parties agree that, should any dispute arise over the interpretation of this
Agreement, the Agreement will be interpreted neutrally pursuant to Minnesota law and any rule of law regarding interpretation against the party drafting various provisions of this Agreement shall not apply.

7.         FINAL AGREEMENT

This Agreement is the final agreement between the Parties relating to the Judgment, and all prior oral and written communications, commitments, alleged commitments, promises, alleged promises, agreements and alleged agreements by and between the Parties related to the Judgment, if any, are hereby merged into this Agreement, and any documents related thereto shall be of no force and effect and shall not be enforceable unless expressly set forth or incorporated by reference in this Agreement.  All commitments, promises and agreements of the Parties relating to the Judgment are set forth in this Agreement and no other commitments, promises or agreements, oral or written, made by the Parties shall be enforceable.  This Agreement shall not be amended, except in writing, signed and agreed to by all the Parties. 

8.         EXECUTION IN COUNTERPARTS

This Agreement may be executed in one or more counterparts, including telecopy counterparts, each of which shall be deemed to be an original, and together which shall constitute one and the same document.

9.         DUTY TO COOPERATE

The Parties acknowledge and agree that each will execute the Agreement and any other documents reasonably necessary to effectuate the intent of this Agreement.

10.      BINDING AGREEMENT

This Agreement shall be binding upon and shall inure to the benefit of the Parties, together with their heirs, past, present and future beneficiaries, next of kin, agents, attorneys, insurers, representatives, administrators, custodians, executors, successors, assigns and each of them.

IN WITNESS WHEREOF, the Bank and WM acknowledge that each has read and fully understands the terms of this Agreement, that each enters into this Agreement knowingly and voluntarily, and that each agrees to all of the terms and provisions herein effective as of the 6th Day of May 2016. 

Boundary Waters Bank

Dated: ___________________, 2016               By: _____________________________
                                                                              Allan Hilgers
                                                                        Its: Senior Vice-President     

 

Dated: ___________________, 2016               _____________________________
                                                                            William McGaughey (individually)                                                               

4817-3786-2961, v. 1

We signed the written agreement in the bank's conference room. I also made May's payment of $1,490.62. Then Allan Hilgers and I had a pleasant conversation about a number of things. I disclosed that I was interested in refinancing the loan to reduce the interest rate. Because my credit score was 510 (down more than 200 points since I started defaulting on the mortgage payments), Boundary Waters Bank would not be interested in refinancing in the near future; but after a year or so, something might be possible. Hilgers knew my neighborhood well, having worked in St. Louis Park for more than twenty years. He knew Jim Moore, the Independence Party candidate for U.S. Senate whom I had run against in 2002. He knew of the plans to open up a brewery near Wirth Park involving Moore and Dan Justeson, another Independence Party stalwart. He thought my neighborhood, near downtown Minneapolis, had a bright future. We talked for twenty minutes or so, shook hands, and thus concluded the lawsuit.

 

P.S. As of May 2, 2016, I had credit scores ranging from 518 to 520 with the three agencies - Equifax, Experian, and Trans Union - a drop of more than 200 points since Boundary Waters Bank began its foreclosure against me. According to the explanation, I am in the bottom 5% to 6% of borrowers with respect to credit worthiness. That means I am stuck with this high-interest mortgage for months to come unless I sell the building in a market that remains depressed.

 

more hanky panky?

I wrote a check for $1,466.92 payable to Boundary Waters Bank on May 27, 2016, to cover my June payment. On June 14th I received a telephone call from the bank’s top manager saying that the June payment had not been received. Strangely, this was not Al Hilgers. It was a new manager (a man named Boyd); Hilgers was no longer employed by the bank. I then wrote another check in the same amount and mailed it on June 15th. As of June 21th, that check has not yet been processed. What is going on here?

(Subsequent note - Maybe this was just a case of slow processing. When I called Boyd, he said the check had been received and should clear by tomorrow.)

 

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