70. memorandum of law and order on reconsideration

1

UNITED STATES DISTRICT COURT

DISTRICT OF MINNESOTA

MAVIS HARTMAN; ROGER

HARTMAN; and MAUL LEE

HARTMAN,

Plaintiffs,

v. MEMORANDUM OF LAW & ORDER

Civil File No. 09‐1618 (MJD/LIB)

BRIAN J. SMITH; JENNIFER

SMITH; MIDWEST EQUITY

CONSULTANTS, INC., a

Minnesota corporation; MIDWEST

EQUITY CONSULTANTS INC.,

an Illinois Corporation; and

PRIME SECURITY BANK,

Defendants.

Jeramie Richard Steinert, Steinert P.A., Counsel for Plaintiffs.

Campbell Knutson, Counsel for Defendant Prime Security Bank.

Defendant Bryan J. Smith, pro se, Defendant Jennifer Smith, pro se.

Defendant Midwest Equity Consultants, Inc., no representation, default.

I. INTRODUCTION

CASE 0:09-cv-01618-MJD-LIB Document 70 Filed 06/16/11 of 16

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This matter is before the Court on Plaintiffs’ Motion to Reconsider [Docket

No. 63] and Defendant Prime Security Bank’s (“Prime”) Motion to Reconsider

[Docket No. 65] this Court’s September 17, 2010 Order [Docket No. 50]. For the

foregoing reasons, both motions are DENIED.

II. FACTUAL BACKGROUND

The Court has previously articulated the factual background of this case in

its September 17, 2010 Order. Accordingly, the Court will not describe the facts

in detail. In summary, the parties in this case engaged in a number of real estate

transactions concerning the property located at 1031 74th Street, Victoria,

Minnesota (hereinafter “the Subject Property”). With regard to these

transactions, Plaintiffs filed a thirteen count Complaint, seeking numerous forms

of relief, under a number of different theories. On April 22, 2010, Defendant

Prime Security Bank (“Prime”) filed a Motion for Summary Judgment [Docket

No. 21] on all claims filed against it. Plaintiffs responded, stating that the only

claims asserted directly against Prime are counts 2 and 10. On May 14, 2010,

Plaintiffs filed a Motion for Partial Summary Judgment against all Defendants

[Docket No. 30] on Counts 1, 2, 4, 10, and 11, as well as on the counterclaim of

Defendant Brian and Jennifer Smith.


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On September 17, 2010, the Court issued an Order on Plaintiffs’ and

Prime’s motions. In the Court’s September 17 Order, it granted in part and

denied in part Prime’s Motion for Summary Judgment [Docket No. 21] and

granted in part and denied in part Plaintiffs’ Motion for Partial Summary

Judgment [Docket No. 30]. The Court held that Plaintiffs Roger Hartman and

Mavis Hartman could not rescind the subject mortgages because, at the relevant

time, they held no ownership interest in the Subject Property. Specifically, the

Court explained:

[N]either Roger Hartman nor Mavis Hartman held an ownership

interest in the Subject Property at the time of the transactions at

issue here. They placed fee title to the Subject Property in Mavis

Hartman’s name on June 23, 2006, and Mavis Hartman transferred

that ownership interest to Maul Lee Hartman by a quitclaim deed on

August 3, 2006. Moreover, by treating the February 2007 transaction

as an equitable mortgage, Maul Lee remained the sole owner of the

Subject Property after November 13, 2007, subject to the Smith

equitable mortgage and the Prime mortgage. Therefore, at all

material times in this case, Maul Lee Hartman was the sole owner of

the Subject Property. As a result, Plaintiffs Roger Hartman and

Mavis Hartman could never rescind because they did not have the

requisite ownership. Further, because the Subject Property was not

Maul Lee Hartman’s principal dwelling at the time of these

transactions, she also did not have a right of rescission under the

TILA. Accordingly, Defendants are entitled to summary judgment

on Plaintiffs’ TILA rescission claim and Plaintiffs’ motion is

correspondingly denied.

(Sept. 17 Order at 22‐23.)


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On October 4, 2010, Plaintiffs sent a letter [Docket No. 52] to this Court

requesting permission to file a Motion for Reconsideration of this Court’s

Memorandum of Law & Order [Docket No. 50] entered on September 17, 2010.

On October 7, 2010, Defendant similarly sent a letter [Docket No. 54] to this

Court requesting permission to file a Motion for Reconsideration of this Court’s

Memorandum of Law and Order [Docket No. 50]. On December 16, 2010, this

Court granted Plaintiffs’ Letter Request to File a Motion for Reconsideration and

Defendant’s Letter Request to File a Motion for Reconsideration [Docket No. 62].

In its December 16 Order the Court stated:

Plaintiffs assert that the Court erred because, under Minnesota law,

Mavis Hartman could not covey fee title to Maul Lee Hartman

without Roger Hartman’s signature. Defendant Prime argues that

the Court erred by failing to address the argument that the August

2007 and November 2007 transactions were residential mortgage

transactions exempt from TILA rescission provisions.

(December 16 Order at 3.) The Court went on to state:

The Court has thoroughly reviewed Plaintiffs’ and Defendant’s

letter requests and concludes that both parties have shown

compelling circumstances which justify granting the parties

permission to file motions to reconsider relating to the arguments

above.

(Id.)


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Subsequent to the Court’s December 16, 2011 Order, Plaintiffs filed a

Motion to Reconsider [Docket No. 63], and Defendant filed a Motion to

Reconsider [Docket No. 65].

III. DISSCUSSION

A. Motion for Reconsideration Standard

The district court’s decision on a motion for reconsideration rests within its

discretion. Hagerman v. Yukon Energy Corp., 839 F.2d 407, 414 (8th Cir. 1988).

Motions for reconsideration serve a limited function: to correct

manifest errors of law or fact or to present newly discovered

evidence. Such motions cannot in any case be employed as a vehicle

to introduce new evidence that could have been adduced during

pendency of the summary judgment motion. . . . Nor should a

motion for reconsideration serve as the occasion to tender new legal

theories for the first time.

Id. Ultimately, however, a district court maintains broad discretion in

determining whether to grant a motion to alter or amend judgment, and such a

determination will not be reversed on appeal absent a clear abuse of discretion

on the part of the district court. Id. at 413‐14.

1. Plaintiffs’ Motion for Reconsideration

Plaintiffs argue that this Court should reconsider its decision that, because

Plaintiff Mavis Hartman transferred the Subject Property by quitclaim deed to


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her daughter and held no ownership interest in the Subject Property at the time

of the transactions, the Plaintiffs cannot rescind under the TILA. Plaintiffs argue

that this Court should alter or amend its Order granting Defendant’s Motion for

Summary Judgment to reflect that the Plaintiffs do fully satisfy the definition of a

“consumer” under 15 U.S.C. §1635 and thus hold TILA rescission rights in this

matter.

According to 15 U.S.C. §1602(h) “[t]he adjective ‘consumer,’ used with

reference to a credit transaction, characterizes the transaction as one in which the

party to whom credit is offered or extended is a natural person, and the money,

property, or services which are the subject of the transaction are primarily for

personal, family, or household purposes.” The relevant federal regulations

describe a consumer’s right to cancel as follows:

In a credit transaction in which a security interest is or will be

retained or acquired in a consumer’s principal dwelling, each

consumer whose ownership interest is or will be subject to the

security interest shall have the right to rescind the transaction,

except for transactions described in paragraph (f) of this section.

12 CFR § 226.23(a)(1). The regulations go on to provide a broader definition of

the word consumer for rescission cases.

Consumer means a cardholder or natural person to whom consumer

credit is offered or extended. However, for purposes of rescission


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under §§ 226.15 and 226.23, the term also includes a natural person in

whose principal dwelling a security interest is or will be retained or

acquired, if that person’s ownership interest in the dwelling is or will

be subject to the security interest.

12 C.F.R. § 226.2(a)(11). The Official Staff Commentary explains:

For purposes of rescission under §§ 226.15 and 226.23, a consumer

includes any natural person whose ownership interest in his or her

principal dwelling is subject to the risk of loss. Thus, if a security

interest is taken in A’s ownership interest in a house and that house

is A’s principal dwelling, A is a consumer for purposes of rescission,

even if A is not liable, either primarily or secondarily, on the

underlying consumer credit transaction.

Official Staff Commentary to 12 C.F.R. § 226.2(a)(11)‐2.

Based on these definitions, a plaintiff qualifies as a consumer in a TILA

rescission case if she holds an ownership interest in her principal dwelling that is

subject to the security interest. See Scott v. Long Island Sav. Bank, 937 F.2d 738,

741 (2d Cir. 1991) (affirming dismissal of a TILA rescission claim because the

property was not the plaintiff’s principal dwelling). Thus, as long as Mavis and

Roger Hartman held an ownership interest in the Subject Property at the time of

the transactions at issue here, they could qualify as consumers under TILA. The

Plaintiffs argue that they did hold the requisite ownership interest in the Subject

Property at the time of the transactions and thus have a right to rescind. They

base their argument on two grounds: (1) that the quitclaim deed, signed and


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delivered by Mavis Hartman to Maul Lee Hartman, is void as a matter of law

under Minn. Stat. § 507.02, and (2) that under the Torrens Act, Defendant must

properly petition a court to challenge a certificate of title before the matter can be

considered by this Court.

a. Validity of the August 3, 2006 Quitclaim Deed

Under Minn. Stat. § 507.02, “[i]f the owner is married, no conveyance of

the homestead . . . shall be valid without the signatures of both spouses.”

Conveyance includes “every instrument in writing whereby any interest in real

estate is created, aliened, mortgaged, or assigned or by which the title thereto

may be affected in law or in equity . . . .” Minn. Stat. § 507.01. A person’s

“homestead” is “the house owned and occupied by a debtor as the debtor’s

dwelling place.” Minn. Stat. § 510.01. The Minnesota Supreme Court has held

these statutes to mean that without the signatures of both spouses, a conveyance

of homestead property is not merely voidable but is void, and the buyer acquires

no rights whatsoever in the property. Dvorak v. Maring , 285 N.W.2d 675, 677

(Minn. 1979).

The public policy reasoning behind the statute at issue here is to ensure “a

secure homestead for families” by “protecting the alienation of the homestead


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without the willing signature of both spouses.” Id. at 677‐678. The statute is

meant to “protect the non‐signing spouse from an unknowing conveyance of his

or her interest in the homestead.” National City Bank v. Engler, 777 N.W.2d 762,

766 (Minn. Ct. App. 2010).

Plaintiffs argue that because the quitclaim deed that Mavis Hartman

signed and delivered on August 3, 2006 to Maul Hartman purported to transfer

title to the Hartmans’ homestead and did not contain Roger Hartman’s signature

the quitclaim deed is void as a matter of law under Minn. Stat. § 507.02. While

Defendant does not dispute that Roger Hartman did not sign the quitclaim deed

as required by Minnesota law, it initially argues that the Subject Property was

not the Plaintiffs’ homestead at the time of the transfer.

As mentioned above, a person’s homestead is the property that he or she

owns and occupies as his or her dwelling place. Minn. Stat. § 510.01. Mavis

Hartman owned the Subject Property up until August 3, 2006, when she

transferred it to her daughter by quitclaim deed. Notwithstanding Mavis’

ownership interest in the property, Defendant denies that Mavis sufficiently

occupied the Subject Property as her dwelling place prior to conveying it to her

daughter. The Court disagrees. Up until June 2006, Mavis was living in the


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house located at the 1041 74th Street property, next door to the Subject Property.

At that time, the Plaintiffs entered into a purchase agreement for the sale of that

property and allowed the buyers to occupy the property at that time. As a result

of the buyers’ occupation of the 1041 74th Street property, Mavis moved to the

Subject Property, where her husband had already been living for quite sometime,

even though the sale did not ultimately close until January 2007. Thereafter, on

August 3, 2006, Mavis gave her daughter a quitclaim deed for the Subject

Property. Thus, the Subject Property was Mavis’ homestead, because Mavis not

only owned the Subject Property but also occupied it has her primary dwelling

place, fully satisfying the statutory requirements. Accordingly, Minn. Stat. §

507.02 is applicable to the case at hand.

b. Defendant’s Defenses of Estoppel & Waiver

Defendant argues that regardless of the application of Minn. Stat. § 507.02

Plaintiffs Roger and Mavis Hartman should be estopped from denying the

conveyance or be considered to have waived Roger’s homestead rights in the

property. Plaintiffs correctly assert that estoppel and waiver are affirmative

defenses that are waived if not pled. Jacob Mfg. Co. v. Sam Brown Co., 19 F.3d

1259, 1266 (8th Cir. 1994). Prime did not plead these affirmative defenses in its


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Answer. However, “[w]hen an affirmative defense is raised in the trial court in a

manner that does not result in unfair surprise, . . . technical failure to comply

with Rule 8(c) is not fatal.” First Union Nat’l Bank v. Pictet Overseas Trust Corp.,

Ltd., 477 F.3d 616, 622‐23 (8th Cir. 2007) (citation omitted). Defendant Prime

raised its estoppel and waiver arguments in relation to Minn. Stat. § 507.02

immediately after Plaintiffs first raised the application of the statute in their letter

request to file a motion for reconsideration. Plaintiffs were given an opportunity

to brief the issue in a response brief, and Plaintiffs took advantage of this

opportunity and addressed the issue. Accordingly, the Court concludes that

Prime raised its estoppel and waiver arguments at a reasonable time, and the

Court will consider the merits of these arguments.

The Minnesota Supreme Court has recognized that even though great

importance is attached to the homestead right, a party may be estopped from

denying a sale of the homestead under certain circumstances even if the

requirements of Minn. Stat. § 507.02 are not met. Dvorak v. Maring, 285 N.W.2d

675, 677 (Minn. 1979). This was reaffirmed in National City Bank v. Engler,

which stated that the protection of Minn. Stat. § 507.02 could be waived. 777

N.W.2d 762, 766 (Minn. Ct. App. 2010). The court in National City Bank held:


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Although a mortgage conveyance of a homestead is generally void

under Minn. Stat. § 507.02 if both spouses do not sign the

conveyance, when the non‐signing spouse actively and knowingly

participates in the transaction and waives his or her homestead

rights, the purpose of the statute is fulfilled and the mortgage may

be enforced.

Id. In order to establish an estoppel defense, the party seeking relief must show

that (1) the non‐signing spouse consented and had prior knowledge of the

transaction, (2) the non‐signing spouse retained the benefits of the transaction,

and (3) the party seeking to invoke estoppel sufficiently changed its position to

invoke the equities of estoppel. Karnitz v. Wells Fargo Bank, N.A., 572 F.3d 572,

574‐575 (8th Cir. 2009) (citing Dvorak, 285 N.W.2d at 678). Prime has established

these elements, and accordingly has established a valid estoppel defense. Thus,

the quitclaim deed is not void pursuant to Minn. Stat. § 507.02.

Based on the Plaintiffs’ depositions it is clear that Mavis and Roger

Hartman intended to convey the Subject Property to their daughter, with the

specific intent that they would not retain any ownership interest. Roger

Hartman testified in his deposition that he intended to no longer have an

ownership interest in the Subject Property. (Roger Hartman Dep. at 61‐62.)

Although Roger did not sign the deed, he sought to have title placed in his wife’s


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name, and thereafter transferred into his daughter’s name. Accordingly, Roger

had prior knowledge and consented to the transaction.

With respect to the second element, the non‐signing spouse must retain

some benefit from the transaction. Through the issuance of the quitclaim deed

Roger Hartman benefited in two ways. First, as more fully explained below,

Roger benefited from the fact that Prime, through many different transactions,

loaned a large amount of money to Plaintiffs, pursuant to a mortgage signed by

Roger, Mavis, and Maul Lee Hartman. Second, as Plaintiffs argue in support of

their motion, the quitclaim deed served the estate planning purposes of Roger

Hartman, because the deed allowed Roger and Mavis to take care of their

daughter. (Mavis Hartman Dep. 25‐27.) Thus, Roger retained the benefit of the

quitclaim deed.

Finally, the party seeking to invoke estoppel must show that it has

sufficiently changed its position to its detriment. The record indicates that, in

relation to the transactions between Prime and Plaintiffs, Prime drafted a

mortgage listing the Plaintiffs, including Maul Lee, as “grantors” and required

all three Plaintiffs to sign (Hartman Aff. Ex. 12 at 6). Thus, Prime understood

Maul Lee to have an interest in the Subject Property, and Prime relied on the fact


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that the quitclaim deed provided Maul Lee Hartman with an interest in the

Subject Property. Pursuant to this mortgage, Prime loaned $495,000 to the

Defendants Brian and Jennifer Smith. Pursuant to a number of other contracts,

the Hartmans obtained a large cash sum from this $495,000. Prime thus

significantly changed its position in reliance on the quitclaim deed by lending

$495,000 pursuant to a mortgage on the Subject Property which was signed by

Maul Lee Hartman. Karnitz, 572 F.3d at 575.

In this case more than four years have passed since the Subject Property

was conveyed to Maul Lee Hartman. Over this time period Roger Hartman has

not demanded that his daughter deed the property back to him, nor has he

started a declaratory judgment to ask a court to determine that the deed was

invalid. Given these facts, Plaintiffs are estopped from claiming that the

quitclaim deed is void. “Strict compliance with the statute in these

circumstances does not further the policy behind the statute; rather, it flaunts it

by converting what the Legislature intended as a shield into a sword.” Karnitz,

572 F.3d at 575. Accordingly, the Court denies Plaintiffs’ motion for

reconsideration. Since the Court finds that Prime has established a valid

estoppel defense, the Court will not address the issue of waiver.


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c. The Torrens System

In addition to its argument that the quitclaim deed executed by Mavis is

void, the Plaintiffs argue that because part of the Subject Property is Torrens

property, the Court should reconsider the issue of title and find that the Plaintiffs

hold conclusive title in the Subject Property. This issue is beyond the scope of

the Court’s Order granting Plaintiffs’ request to file a motion to reconsider. The

Court’s December 16 Order stated that Plaintiffs could file a motion to reconsider

concerning whether or not the quitclaim was valid despite the lack of Roger

Hartman’s signature. Since this issue is beyond that scope, the Court will not

address Plaintiffs’ arguments concerning whether the Subject Property is Torrens

property.

d. Mistake Arguments

Plaintiffs also argue that even if a conveyance took place, the Court should

still reconsider its decision because the conveyance resulted from mutual mistake

in fact or unilateral mistake accompanied by fraud. These arguments are not

properly before this Court on the Plaintiffs’ motion and will not be addressed.

2. Defendant’s Motion for Reconsideration


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In its Motion to Reconsider, Prime argues that the August and November

2007 transactions are residential mortgage transactions exempt from TILA

rescission provisions, and that the Court erred by not addressing this argument.

Since the Court has denied Plaintiffs’ motion, the Court need not consider

Prime’s argument. In denying Plaintiffs’ motion, the Court affirms its September

17, 2010 finding that none of the Plaintiffs had an ownership interest in the

Subject Property such that they would have a right of rescission under TILA.

Thus, Defendants are entitled to summary judgment on Plaintiffs’ TILA

rescission claims, and accordingly, the Court need not discuss Prime’s argument

concerning whether the transactions in question were in fact residential

mortgage transactions exempt from TILA rescission provisions.

IV. CONCLUSION

Accordingly, based upon the files, records, and proceedings herein, IT IS

HEREBY ORDERED that:

1. Plaintiffs’ Motion to Reconsider [Docket No. 63] is DENIED.

2. Defendant Prime’s Motion to Reconsider [Docket No. 65] is DENIED.

Date: June 16, 2011 s/Michael J. Davis

Michael J. Davis

Chief Judge

United States District Court


70. memorandum of law and order on reconsideration

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