• July 22, 2015
West Side Grocery, St. Paul (Google Street View)

West Side Grocery, St. Paul (Google Street View)

Updated post (July 22, 2015): It is more than two years after the original post about a previous appeal in this dispute, below. The case has dragged on. The parties entered into a settlement agreement at one point but it seems the agreement unraveled because it was premised on the purchase of a business and the buyer explained, “At this time, we don’t have a business to purchase.” Even though the settlement agreement was never consummated, the Ramsey County District Court was nevertheless done with the case and threw it out. But the Court of Appeals reversed the dismissal, ruling this week:

Although the district court has broad discretion to dismiss claims under [Minnesota Rule of Civil Procedure] 41.02, ‘such discretion should be tempered by the well-settled tenet that a Rule 41.02 dismissal is a severe remedy because it operates as an adjudication on the merits.’…. Given the facts of this case, we conclude that the court abused its discretion by dismissing the parties’ claims with prejudice.

Original post (May 15, 2013) (under the headline “Court of Appeals Distinguishes Dirty Tactics from Unclean Tactics: District Court Ruling on “Unjust Enrichment” Reversed” (slightly revised from earlier post)): “The district court may have been accurate in treating A&M Market’s hard-edged business tactics as dirty, so to speak, but they were not unclean.” (Got that? “Dirty” but “not unclean…”)

So held the Minnesota Court of Appeals this week in a battle over ownership of a corner grocery market in St. Paul (in an unpublished decision).

In a case pending in Ramsey county before District Court Judge Elena L. Ostby, Hamza Abualzain was a tenant with a commercial lease for the West Side Grocery.  Property owners, Khaffak and Tawfiq Ansari, were alleged to have deprived Abualzain of his contractual “right of first refusal” when the Ansaris sold the property to A & M Market.

In multi-party business transactions, in particular, unscrambling the egg is a challenge.  After a bench trial, the district court determined that, indeed, Abualzain was not properly accorded his contractual right of first refusal.  The Court of Appeals affirmed that determination.  But, as for the appropriate remedy, the Court of Appeals imposed a somewhat different “reverse recipe.”

The case is somewhat complicated and might make for an interesting model for a law school property exam.

A &M really wanted to buy the property.  West Side Grocery really wanted to buy the property (and had right of first refusal on any purchase offer made to the owners, the Ansaris).

So, A & M and the Ansaris rushed a sale and A & M bought out out the Ansaris mortgagee, Central Bank.  Then, A & M, s the property’s new owner, went to court to evict West Side, claiming that it was the now property owner and owed no obligation to West Side under West Side’s lease with the Ansaris.

The district court awarded West Side an option to buy the property for its market value according to tax records ($288,100).  The district court ordered that A & M had to convey a quitclaim deem if West Side exercised its option.  The court held that A & M had no right to foreclose and an anti-merger clause in its transaction with the Ansaris could not “wipe out” West Side’s lease.

West Side also appealed because it wanted to the court to order that it could, in its purchase option, obtain the property free and clear of various liens on the property recorded against the property while under the Ansaris ownership.

The Court of Appeals, in a decision by Judge Kevin G. Ross (joined by judges Peterson and Chutich), held that the district court had improperly applied the remedy of “specific performance.”

It was incorrect to permit West Side to buy the property for the market value in tax records. That was never the deal.  West Side only had a valid right of first refusal of the terms offered to A & M — that, no more, and no less.

As for A & M’s foreclosure strategy based on its acquisition from the Ansaris, which included an anti-merger clause, the Court of Appeals held that “The district court’s distaste for [A & M’s] confiscatory motives and harsh tactics cannot control.”  But, the Court of Appeals continued, everyone in the case seems to have overlooked a deeper question, “What mortgage?”

By agreeing to release the debt in exchange for the quitclaim deed, A&M Market seems to have extinguished the very mortgage that it plans to rely on to eliminate [West Side’s] leasehold….In sum, although the unambiguous quitclaim deed’s antimerger clause would prevent merger of the mortgage, it appears that the execution of A&M Market’s purchase terms has independently defeated the mortgage.

I shudder to think of the attorneys’ fees for this fight.  On the other hand, there can be no question that West Side has a sweet deal going and wants to hang on to it for years to come and A & M knows it.

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