Preview
27-CV-24-9768
Filed in District Court
State of Minnesota
6/26/2024 12:44 PM
STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
CASE TYPE: CONTRACT
MANY RIVERS APARTMENTS LIMITED
PARTNERSHIP and MANY RIVERS PLAINTIFFS’ MEMORANDUM OF LAW
WEST LIMITED PARTNERSHIP, IN SUPPORT OF MOTION FOR
ATTACHMENT
Plaintiffs,
v. COURT FILE NO. 27-CV-24-9768
FLEETHAM ADVANTAGE, INC. d/b/a
PERENNIAL MANAGEMENT, Honorable Laurie J. Miller
Defendant.
I. FACTS
Plaintiff Many Rivers Apartments Limited Partnership (“Many Rivers East”) is the
owner of a low-income housing development in Minneapolis called “Many Rivers East
Apartments.” (Complaint, ¶ 11.) American Indian Community Development Corporation
(“AICDC”) is the general partner of Many Rivers East. (Id.) AICDC is a Minnesota non-profit
corporation. (Id.)
Plaintiff Many Rivers West Limited Partnership (“Many Rivers West”) is the owner of a
low-income housing development in Minneapolis called, “Many Rivers West Apartments.”
(Complaint, ¶ 2.) AICDC, through a 100% owned subsidiary, is the general partner of Many
Rivers West.
Many Rivers West and Many Rivers East collectively provide 81 units of low-income
housing to Minneapolis residents. (Complaint, ¶ 4.) The State of Minnesota, acting through the
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The allegations of the Complaint are verified by the Declaration of Nathan Wright Sr. (“Wright Dec.”)
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Minnesota Housing Finance Agency (“MHFA”), is the mortgage lender for both housing
developments. (Id.)
Many Rivers West and Many Rivers East contracted with Perennial Management, LLC –
the predecessor to Fleetham – to provide management services for Many Rivers West
Apartments and Many Rivers East Apartments pursuant to separate contracts for each
development (“Management Agreements”). (Wright Dec., Exs. 1, 2.) As the manager of Many
Rivers West Apartments and Many Rivers East Apartments, Perennial Management, LLC was
responsible for leasing the units, collecting rents, maintaining financial records, and paying bills,
including the mortgage loan payments to MHFA, among other duties. (Id.)
The Management Agreements required Perennial Management, LLC to provide Many
Rivers West and Many Rivers East detailed monthly financial reporting for the two
developments. (Wright Dec., Exs. 1, 2; Declaration of Eric Thiewes (“Thiewes Dec.”), ¶ 4.)
Within 15 days of the close of each month, the Management Agreements required Perennial
Management, LLC to provide to Many Rivers West, Many Rivers East, and MHFA a monthly
operating report comparing actual and budgeted income and expenses for the month and year to
date, a monthly aged schedule of accounts receivable and accounts payable, a monthly analysis
of security deposits and cash reconciliations, an itemized list of rent delinquencies, and a
monthly occupancy report (collectively “Monthly Financial Reporting”). (Id.)
The Management Agreements required Perennial Management, LLC to have separate
bank accounts for Many Rivers West Apartments and Many Rivers East Apartments and to have
each account designated “Operating Receipts and Expense Account” for the development.
(Wright Dec., Exs. 1, 2.) The Management Agreements also required that Perennial
Management, LLC maintain separate accounts for each development for holding tenant security
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deposits. (Id.) Importantly, the Management Agreements required that Many Rivers West and
Many Rivers East be signatories on all of their respective accounts. (Wright Dec., Exs. 1, 2;
Thiewes Dec., ¶ 5.)
Under the Management Agreements, Perennial Management, LLC agreed to be bound
by the provisions of Minnesota Chapter 462A, the regulations of the MHFA, and the terms
contained in the loan documents signed by Many Rivers West and Many Rivers East with
MHFA, which include an assignment of rents to MHFA as security for the loans. (Wright Dec.,
Exs. 1, 2.) Because of this, MHFA was a signatory on the Management Agreements. (Id.)
Defendant Fleetham Advantage, Inc. d/b/a Perennial Management (“Fleetham”) is a
property management company. (Complaint, ¶ 3.) In approximately April 2023, Fleetham
acquired Perennial Management, LLC and assumed its obligations under the Management
Agreements. (Complaint, ¶ 11.) Prior to Fleetham’s acquisition, Perennial Management, LLC
had performed for years in compliance with the terms of the Management Agreements.
(Complaint, ¶ 12.)
For 2024, Fleetham has not provided any of the Monthly Financial Reporting to Many
Rivers West, Many Rivers East, and MHFA despite repeated requests from all parties.
(Complaint, ¶ 13; Thiewes Dec., ¶ 8.) This has included the following requests and responses:
(a) On March 25, 2024, MHFA emailed Fleetham that it had not received the
Monthly Financial Reporting for February; the January 2024 Monthly Financial
Reporting had also not yet been provided. Fleetham did not respond. (Complaint, ¶ 14;
Thiewes Dec., Ex. E.)
(b) On March 27, MHFA emailed Fleetham that it had not received the
Monthly Financial Reporting for January and February and that this monthly reporting
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was due on the 15th of each month. (Thiewes Dec., Ex. E.) MHFA explained to Fleetham
the significance of this monthly data to stakeholders in publicly-financed housing
developments. (Id.) MHFA demanded the Monthly Financial Reporting by the end of the
day. (Id.) That same day, the owner of Fleetham emailed MHFA that she would provide
the data the next day, March 28. (Id.) That statement was false, and the owner knew it
was false when she made it.
(c) On March 28, MHFA emailed Fleetham to ask when the Monthly
Financial Reporting would be ready. The owner of Fleetham responded, “I’m trying – I
really am…” (Thiewes Dec., Ex. E.) On March 29, the owner of Fleetham emailed,
“Closer…” This statement was false, and the owner of Fleetham knew it was false when
she made it.
(d) On April 4, MHFA again emailed Fleetham’s owner to ask for the
Monthly Financial Reporting for January and February and to inform Fleetham that the
March Monthly Financial Reporting was due April 15. (Thiewes Dec., Ex. E.)
(e) On April 5, the owner of Fleetham responded, “I am to submit the first
quarter all together on 4/15 as our system will be fully integrated and we can operate
back to a normal pace.” (Thiewes Dec., Ex. E.) This statement was false, and the owner
of Fleetham knew it was false when she made it.
(f) On April 16, MHFA emailed the owner of Fleetham to ask for the
December 2023 through March 2024 Monthly Financial Reporting. (Thiewes Dec., Ex.
E.) Fleetham did not respond.
(g) On April 25, MHFA emailed the owner of Fleetham to request the
Monthly Financial Reporting for January through March, emphasizing, “It is critical that
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you send the operating reports in as soon as possible!” The owner of Fleetham responded
that she was sorry she had “failed.” (Thiewes Dec., Ex. E.)
(h) On April 29, AICDC emailed Fleetham offering to convert Fleetham’s
financial data into the format used by MHFA. (Wright Dec., Ex. 8.) Fleetham did not
respond. On May 9, AICDC again requested financial data from Fleetham. Fleetham did
not respond. (Id.)
(i) On May 21, 2024, after being unable to reach Fleetham’s owner by
telephone, AICDC’s Chief Financial Officer went in person to Fleetham’s office to
attempt to obtain the financial data after his phone calls to Fleetham went unanswered.
(Wright Dec., ¶ 19.) The Fleetham employee he encountered stated that he had nothing
to provide and that all the information was held by Fleetham’s owner. (Id.)
(j) After giving Fleetham notice of termination of the Management
Agreements, on May 2, AICDC requested that Fleetham provide the replacement
management company with access to the YARDI data for Many Rivers West
Apartments and Many Rivers East Apartments. (Wright Dec., Ex. 7.) YARDI is
computer software used by property management companies to manage property data. It
includes data on tenants, rental income, and property expenses, among other items.
Fleetham did not respond to the request for the YARDI data. (Complaint, ¶ 27.)
(k) Because the June 30 transition to a new management company was
imminent, on May 31, AICDC again requested the YARDI data. (Wright Dec., Ex. 10.)
Fleetham responded, “I will NOT provide you data just so you have data – if that’s
wrong, then call me wrong… I will not sign over our database to another company – I
will not. The data is ours.” (Id.)
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AICDC was copied on the emails between MHFA and Fleetham concerning the Monthly
Financial Reporting. (Complaint, ¶ 23.) Many Rivers West and Many Rivers East relied on the
false statements from Fleetham concerning the Monthly Financial Reporting and delayed
replacing Fleetham as their management company because of their reliance on those statements.
(Complaint, ¶ 24.) This resulted in hundreds of thousands of dollars in rent being paid to
Fleetham by tenants of Many Rivers West Apartments and Many Rivers East Apartments. (Id.)
In November and December 2023 and in February, May, and June 2024, Fleetham was
late in making the monthly mortgage loan payments to MHFA for Many Rivers West
Apartments and Many Rivers East Apartments, requiring follow-up from MHFA. (Complaint, ¶
29; Thiewes Dec., ¶ 7.) By email dated May 22, 2024, the owner of Fleetham stated that the May
mortgage payments for Many Rivers West Apartments and Many Rivers East Apartments had
been sent by mail to MHFA. (Complaint, ¶ 30; Wright Dec., Ex. 9.) This statement was false,
and she knew it was false when she made it.
Though the Management Agreements require that Many Rivers West and Many Rivers
East be signatories on the bank accounts for both developments, Fleetham’s accounts for the
developments do not include them as signatories. (Wright Dec., ¶ 20.) Many Rivers West and
Many Rivers East discovered this when, at the end of May 2024, the CFO of AICDC contacted
Fleetham’s bank, Associated Bank, about obtaining access to the accounts for Many Rivers
West Apartments and Many Rivers East Apartments. (Id.) Associated Bank informed the CFO
that he could not have access to information about the accounts because he was not a signer on
them. (Id.)
Fleetham has likely received in excess of $500,000 in rental income in 2024 from Many
Rivers West Apartments and Many Rivers East Apartments because approximately $1.1 million
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in rental income had been forecasted for the two developments for 2024. (Wright Dec., ¶ 21.) To
date, Many Rivers West and Many Rivers East have not seen or received any of these funds, nor
has Fleetham accounted for any of these funds. (Id.)
II. ATTACHMENT IS WARRANTED
Plaintiffs move this Court for an order attaching Fleetham’s bank accounts for Many
Rivers West Apartments and Many Rivers East Apartments. “[T]he claimant, at the time of
commencement of the civil action or at any time afterward, may have the property of the
respondent attached in the manner and in the circumstances prescribed in sections 570.01 to
570.14, as security for the satisfaction of any judgment that the claimant may recover.”
Minn. Stat. § 570.01. A motion for attachment “shall be accompanied by an affidavit setting
forth in detail: (1) the basis and amount of the claim in the civil action; and (2) the facts which
constitute one or more of the grounds for attachment as specified in section 570.02.” Minn. Stat.
§ 570.026. Minnesota Statute section 570.02 provides,
An order of attachment… may be issued only in the following situations:… when
the respondent has committed an intentional fraud giving rise to the claim upon
which the civil action is brought… [or]… when the respondent has violated the
law of this state respecting unfair, discriminatory, and other unlawful practices in
business, commerce, or trade, including but not limited to any of the statutes
specifically enumerated in section 8.31, subdivision 1.
Minn. Stat. § 570.02. The Prevention of Consumer Fraud Act (sections 325F.68 to 325F.70) is
one of the statutes listed in Minnesota Statute section 8.31. Here, Plaintiffs have brought claims
for fraud under the common law and for violations of the Prevention of Consumer Fraud Act,
entitling them to assert the prejudgment attachment protections of Minnesota Statutes Chapter
570.
To obtain an order for attachment, Plaintiffs must have “demonstrated the probability of
success on the merits, and… facts that show the existence of at least one of the grounds stated in
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section 570.02.” Minn. Stat. § 570.026. Plaintiffs meet this burden, and their motion should be
granted.
To prove fraud under the common law, Plaintiffs must prove that Fleetham “made a false
representation of a past or existing material fact, susceptible of knowledge, knowing it to be false
or without knowing whether it was true or false, with the intention of inducing the person to
whom it was made to act in reliance upon it or under such circumstances that such person was
justified in so acting and was thereby deceived or induced to so act to his damage.” Berryman v.
Riegert, 175 N.W.2d 438, 442 (Minn. 1970). Here, Plaintiffs have presented evidence that
Fleetham repeatedly stated that it would be providing the Monthly Financial Reporting, often
giving specific dates when it would be provided. Then, when the promised dates came and went,
Fleetham was silent, occasionally offering false excuses after the fact. Had this occurred once
and the Monthly Financial Reporting been later provided, Fleetham’s statements could be
excused as honest mistakes. The fact that Fleetham repeatedly misrepresented that it would be
providing the Monthly Financial Reporting and later told Plaintiffs that it would not provide any
data shows that Fleetham never intended to provide the data in the first instance. Furthermore,
Fleetham could have at a minimum provided bank statements for the accounts it controlled for
the housing developments, as it had done previously. (Wright Dec., ¶ 18.) Instead, Fleetham
disclosed nothing. Finally, Fleetham has taken advantage of its subterfuge to receive hundreds of
thousands of dollars in rental revenue. Plaintiffs have presented evidence establishing the
elements of fraud – false statements of fact, justifiable reliance, and damages – and have
demonstrated the probability of success on the merits of their claim for common law fraud.
To prove a violation of the Prevention of Consumer Fraud Act, Plaintiffs must show that
Fleetham engaged in the “act, use, or employment… of any fraud, unfair or unconscionable
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practice, false pretense, false promise, misrepresentation, misleading statement or deceptive
practice, with the intent that others rely thereon in connection with the sale of any merchandise,
whether or not any person has in fact been misled, deceived, or damaged thereby…” Minn. Stat.
§ 325F.69. “For purposes of this section, an unfair method of competition or an unfair or
unconscionable act or practice is any method of competition, act, or practice that: (1) offends
public policy as established by the statutes, rules, or common law of Minnesota; (2) is unethical,
oppressive, or unscrupulous; or (3) is substantially injurious to consumers.” Id. The Act applies
to the business of Fleetham because it includes “services” within the definition of
“merchandise.” Minn. Stat. § 325F.68. The conduct proscribed by the Prevention of Consumer
Fraud Act is broader than that covered by common law fraud. Accordingly, Fleetham’s conduct
in committing common law fraud also violates the Act. Furthermore, Fleetham’s consistent
refusal to provide MHFA and Plaintiffs with any financial documents – not even bank statements
– shows “unethical” and “unscrupulous” business practices in violation of the Act. Plaintiffs
have thus also established likelihood of success on their claims for violations of the Prevention
of Consumer Fraud Act.
The record is also clear that Plaintiffs have standing to pursue their claims for violations
of the Prevention of Consumer Fraud Act. Private parties asserting violations of the Prevention
of Consumer Fraud Act must “demonstrate that their cause of action benefits the public.” Ly v.
Nystrom, 615 N.W.2d 302, 314 (Minn. 2000). Here, that requirement is met because Fleetham
engaged in its unlawful conduct to profit from publicly-financed affordable housing and directed
many of its false statements to the State itself. Moreover, Fleetham was responsible for managing
over 80 units of low-income housing on behalf of Plaintiffs. Its unlawful conduct potentially
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impacted far more than just Plaintiffs. Plaintiffs thus have standing to pursue this claim and have
established a likelihood of success on the merits of their claim for violations of the Act.
Chapter 570 imposes two other conditions on the issuance of an order for attachment:
However, even if those standards are met, the order may not be issued if:
(1) the circumstances do not constitute a risk to collectibility of any judgment that
may be entered; or
(2)
(i) respondent has raised a defense to the merits of the claimant’s claim or has
raised a counterclaim in an amount equal to or greater than the claim and the
defense or counterclaim is not frivolous; and
(ii) the interests of the respondent cannot be adequately protected by a bond filed
by the claimant pursuant to section 570.041 if property is attached; and
(iii) the harm suffered by the respondent as a result of seizure would be greater
than the harm which would be suffered by the claimant if property is not attached.
Minn. Stat. § 570.026. Here, the risk of collectability is real, there is no valid defense, and
Plaintiffs – not Fleetham – will be harmed if the accounts for the developments are not attached.
The risk of collectability is high. In the six months during which Fleetham has actively
avoided providing financial data, it has likely received over $500,000 in rental income from
Many Rivers West Apartments and Many Rivers East Apartments. This sum is substantial, and
when coupled with Fleetham’s evasiveness, raises the specter that Fleetham simply does not
have all of the funds owed to Plaintiffs. Indeed, Fleetham has been routinely late in making the
mortgage loan payments to MHFA, another sign that funds are lacking. Yet another indication
that Fleetham presents a risk of collectability is that is facing another recently filed lawsuit in
Ramsey County District Court, Dayton’s Bluff, et al. v. Fleetham, et al., Court File No. 62-CV-
24-3357. (Shulman Dec., Ex. I.) The Ramsey County case raises allegations similar to those
present here, and counsel for the Plaintiffs in that case has informed the undersigned counsel that
Fleetham has failed to return the Plaintiffs’ funds. The risk of collectability here is thus real and
warrants attachment.
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Finally, Fleetham does not have a valid defense for its conduct. Fleetham has repeatedly
hid the ball for over six months, ending its relationship with Plaintiffs by declaring, “I will NOT
provide you data just so you have data – if that’s wrong, then call me wrong.” (Wright Dec., Ex.
10.) Also, the balance of harms weighs in Plaintiffs’ favor if this motion is not granted. Plaintiffs
are the owners of Many Rivers West Apartments and Many Rivers East Apartments. The rental
income in the accounts maintained by Fleetham for the two properties belongs to Plaintiffs – not
Fleetham. Fleetham has no interest in the funds other than being responsible for managing them.
There is thus no harm to Fleetham if the accounts are attached, and Plaintiffs face significant
financial harm if the accounts are not attached. The additional conditions of Minnesota Statute
section 570.026 do not bar attachment here.
III. CONCLUSION
For the foregoing reasons, Plaintiffs respectfully request that this Court grant their motion
and order attachment of all accounts maintained by Defendant for Many Rivers West Apartments
and Many Rivers East Apartments, order that Defendant account for all funds handled by said
accounts in 2024, and order that Defendant immediately provide all Yardi data to Plaintiffs.
Dated: June 26, 2024 SHULMAN BUSKE REAMS PLLC
/s/ David L. Shulman
David L. Shulman (#260721)
Craig Buske (#390941)
Shulman Buske Reams PLLC
126 North Third St., Suite 402
Minneapolis, MN 55401
Tel: 612-870-7410
david@shulmanbuske.com
craig@shulmanbuske.com
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ACKNOWLEDGEMENT
The undersigned hereby acknowledges that sanctions may be imposed under Minn. Stat.
§549.211.
/s/ David L. Shulman
David L. Shulman
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Preview
27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM STATE OF MINNESOTA DISTRICT COURT COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT CASE TYPE: CONTRACT MANY RIVERS APARTMENTS LIMITED PARTNERSHIP and MANY RIVERS PLAINTIFFS’ MEMORANDUM OF LAW WEST LIMITED PARTNERSHIP, IN SUPPORT OF MOTION FOR ATTACHMENT Plaintiffs, v. COURT FILE NO. 27-CV-24-9768 FLEETHAM ADVANTAGE, INC. d/b/a PERENNIAL MANAGEMENT, Honorable Laurie J. Miller Defendant. I. FACTS Plaintiff Many Rivers Apartments Limited Partnership (“Many Rivers East”) is the owner of a low-income housing development in Minneapolis called “Many Rivers East Apartments.” (Complaint, ¶ 11.) American Indian Community Development Corporation (“AICDC”) is the general partner of Many Rivers East. (Id.) AICDC is a Minnesota non-profit corporation. (Id.) Plaintiff Many Rivers West Limited Partnership (“Many Rivers West”) is the owner of a low-income housing development in Minneapolis called, “Many Rivers West Apartments.” (Complaint, ¶ 2.) AICDC, through a 100% owned subsidiary, is the general partner of Many Rivers West. Many Rivers West and Many Rivers East collectively provide 81 units of low-income housing to Minneapolis residents. (Complaint, ¶ 4.) The State of Minnesota, acting through the 1 The allegations of the Complaint are verified by the Declaration of Nathan Wright Sr. (“Wright Dec.”) 1 27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM Minnesota Housing Finance Agency (“MHFA”), is the mortgage lender for both housing developments. (Id.) Many Rivers West and Many Rivers East contracted with Perennial Management, LLC – the predecessor to Fleetham – to provide management services for Many Rivers West Apartments and Many Rivers East Apartments pursuant to separate contracts for each development (“Management Agreements”). (Wright Dec., Exs. 1, 2.) As the manager of Many Rivers West Apartments and Many Rivers East Apartments, Perennial Management, LLC was responsible for leasing the units, collecting rents, maintaining financial records, and paying bills, including the mortgage loan payments to MHFA, among other duties. (Id.) The Management Agreements required Perennial Management, LLC to provide Many Rivers West and Many Rivers East detailed monthly financial reporting for the two developments. (Wright Dec., Exs. 1, 2; Declaration of Eric Thiewes (“Thiewes Dec.”), ¶ 4.) Within 15 days of the close of each month, the Management Agreements required Perennial Management, LLC to provide to Many Rivers West, Many Rivers East, and MHFA a monthly operating report comparing actual and budgeted income and expenses for the month and year to date, a monthly aged schedule of accounts receivable and accounts payable, a monthly analysis of security deposits and cash reconciliations, an itemized list of rent delinquencies, and a monthly occupancy report (collectively “Monthly Financial Reporting”). (Id.) The Management Agreements required Perennial Management, LLC to have separate bank accounts for Many Rivers West Apartments and Many Rivers East Apartments and to have each account designated “Operating Receipts and Expense Account” for the development. (Wright Dec., Exs. 1, 2.) The Management Agreements also required that Perennial Management, LLC maintain separate accounts for each development for holding tenant security 2 27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM deposits. (Id.) Importantly, the Management Agreements required that Many Rivers West and Many Rivers East be signatories on all of their respective accounts. (Wright Dec., Exs. 1, 2; Thiewes Dec., ¶ 5.) Under the Management Agreements, Perennial Management, LLC agreed to be bound by the provisions of Minnesota Chapter 462A, the regulations of the MHFA, and the terms contained in the loan documents signed by Many Rivers West and Many Rivers East with MHFA, which include an assignment of rents to MHFA as security for the loans. (Wright Dec., Exs. 1, 2.) Because of this, MHFA was a signatory on the Management Agreements. (Id.) Defendant Fleetham Advantage, Inc. d/b/a Perennial Management (“Fleetham”) is a property management company. (Complaint, ¶ 3.) In approximately April 2023, Fleetham acquired Perennial Management, LLC and assumed its obligations under the Management Agreements. (Complaint, ¶ 11.) Prior to Fleetham’s acquisition, Perennial Management, LLC had performed for years in compliance with the terms of the Management Agreements. (Complaint, ¶ 12.) For 2024, Fleetham has not provided any of the Monthly Financial Reporting to Many Rivers West, Many Rivers East, and MHFA despite repeated requests from all parties. (Complaint, ¶ 13; Thiewes Dec., ¶ 8.) This has included the following requests and responses: (a) On March 25, 2024, MHFA emailed Fleetham that it had not received the Monthly Financial Reporting for February; the January 2024 Monthly Financial Reporting had also not yet been provided. Fleetham did not respond. (Complaint, ¶ 14; Thiewes Dec., Ex. E.) (b) On March 27, MHFA emailed Fleetham that it had not received the Monthly Financial Reporting for January and February and that this monthly reporting 3 27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM was due on the 15th of each month. (Thiewes Dec., Ex. E.) MHFA explained to Fleetham the significance of this monthly data to stakeholders in publicly-financed housing developments. (Id.) MHFA demanded the Monthly Financial Reporting by the end of the day. (Id.) That same day, the owner of Fleetham emailed MHFA that she would provide the data the next day, March 28. (Id.) That statement was false, and the owner knew it was false when she made it. (c) On March 28, MHFA emailed Fleetham to ask when the Monthly Financial Reporting would be ready. The owner of Fleetham responded, “I’m trying – I really am…” (Thiewes Dec., Ex. E.) On March 29, the owner of Fleetham emailed, “Closer…” This statement was false, and the owner of Fleetham knew it was false when she made it. (d) On April 4, MHFA again emailed Fleetham’s owner to ask for the Monthly Financial Reporting for January and February and to inform Fleetham that the March Monthly Financial Reporting was due April 15. (Thiewes Dec., Ex. E.) (e) On April 5, the owner of Fleetham responded, “I am to submit the first quarter all together on 4/15 as our system will be fully integrated and we can operate back to a normal pace.” (Thiewes Dec., Ex. E.) This statement was false, and the owner of Fleetham knew it was false when she made it. (f) On April 16, MHFA emailed the owner of Fleetham to ask for the December 2023 through March 2024 Monthly Financial Reporting. (Thiewes Dec., Ex. E.) Fleetham did not respond. (g) On April 25, MHFA emailed the owner of Fleetham to request the Monthly Financial Reporting for January through March, emphasizing, “It is critical that 4 27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM you send the operating reports in as soon as possible!” The owner of Fleetham responded that she was sorry she had “failed.” (Thiewes Dec., Ex. E.) (h) On April 29, AICDC emailed Fleetham offering to convert Fleetham’s financial data into the format used by MHFA. (Wright Dec., Ex. 8.) Fleetham did not respond. On May 9, AICDC again requested financial data from Fleetham. Fleetham did not respond. (Id.) (i) On May 21, 2024, after being unable to reach Fleetham’s owner by telephone, AICDC’s Chief Financial Officer went in person to Fleetham’s office to attempt to obtain the financial data after his phone calls to Fleetham went unanswered. (Wright Dec., ¶ 19.) The Fleetham employee he encountered stated that he had nothing to provide and that all the information was held by Fleetham’s owner. (Id.) (j) After giving Fleetham notice of termination of the Management Agreements, on May 2, AICDC requested that Fleetham provide the replacement management company with access to the YARDI data for Many Rivers West Apartments and Many Rivers East Apartments. (Wright Dec., Ex. 7.) YARDI is computer software used by property management companies to manage property data. It includes data on tenants, rental income, and property expenses, among other items. Fleetham did not respond to the request for the YARDI data. (Complaint, ¶ 27.) (k) Because the June 30 transition to a new management company was imminent, on May 31, AICDC again requested the YARDI data. (Wright Dec., Ex. 10.) Fleetham responded, “I will NOT provide you data just so you have data – if that’s wrong, then call me wrong… I will not sign over our database to another company – I will not. The data is ours.” (Id.) 5 27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM AICDC was copied on the emails between MHFA and Fleetham concerning the Monthly Financial Reporting. (Complaint, ¶ 23.) Many Rivers West and Many Rivers East relied on the false statements from Fleetham concerning the Monthly Financial Reporting and delayed replacing Fleetham as their management company because of their reliance on those statements. (Complaint, ¶ 24.) This resulted in hundreds of thousands of dollars in rent being paid to Fleetham by tenants of Many Rivers West Apartments and Many Rivers East Apartments. (Id.) In November and December 2023 and in February, May, and June 2024, Fleetham was late in making the monthly mortgage loan payments to MHFA for Many Rivers West Apartments and Many Rivers East Apartments, requiring follow-up from MHFA. (Complaint, ¶ 29; Thiewes Dec., ¶ 7.) By email dated May 22, 2024, the owner of Fleetham stated that the May mortgage payments for Many Rivers West Apartments and Many Rivers East Apartments had been sent by mail to MHFA. (Complaint, ¶ 30; Wright Dec., Ex. 9.) This statement was false, and she knew it was false when she made it. Though the Management Agreements require that Many Rivers West and Many Rivers East be signatories on the bank accounts for both developments, Fleetham’s accounts for the developments do not include them as signatories. (Wright Dec., ¶ 20.) Many Rivers West and Many Rivers East discovered this when, at the end of May 2024, the CFO of AICDC contacted Fleetham’s bank, Associated Bank, about obtaining access to the accounts for Many Rivers West Apartments and Many Rivers East Apartments. (Id.) Associated Bank informed the CFO that he could not have access to information about the accounts because he was not a signer on them. (Id.) Fleetham has likely received in excess of $500,000 in rental income in 2024 from Many Rivers West Apartments and Many Rivers East Apartments because approximately $1.1 million 6 27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM in rental income had been forecasted for the two developments for 2024. (Wright Dec., ¶ 21.) To date, Many Rivers West and Many Rivers East have not seen or received any of these funds, nor has Fleetham accounted for any of these funds. (Id.) II. ATTACHMENT IS WARRANTED Plaintiffs move this Court for an order attaching Fleetham’s bank accounts for Many Rivers West Apartments and Many Rivers East Apartments. “[T]he claimant, at the time of commencement of the civil action or at any time afterward, may have the property of the respondent attached in the manner and in the circumstances prescribed in sections 570.01 to 570.14, as security for the satisfaction of any judgment that the claimant may recover.” Minn. Stat. § 570.01. A motion for attachment “shall be accompanied by an affidavit setting forth in detail: (1) the basis and amount of the claim in the civil action; and (2) the facts which constitute one or more of the grounds for attachment as specified in section 570.02.” Minn. Stat. § 570.026. Minnesota Statute section 570.02 provides, An order of attachment… may be issued only in the following situations:… when the respondent has committed an intentional fraud giving rise to the claim upon which the civil action is brought… [or]… when the respondent has violated the law of this state respecting unfair, discriminatory, and other unlawful practices in business, commerce, or trade, including but not limited to any of the statutes specifically enumerated in section 8.31, subdivision 1. Minn. Stat. § 570.02. The Prevention of Consumer Fraud Act (sections 325F.68 to 325F.70) is one of the statutes listed in Minnesota Statute section 8.31. Here, Plaintiffs have brought claims for fraud under the common law and for violations of the Prevention of Consumer Fraud Act, entitling them to assert the prejudgment attachment protections of Minnesota Statutes Chapter 570. To obtain an order for attachment, Plaintiffs must have “demonstrated the probability of success on the merits, and… facts that show the existence of at least one of the grounds stated in 7 27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM section 570.02.” Minn. Stat. § 570.026. Plaintiffs meet this burden, and their motion should be granted. To prove fraud under the common law, Plaintiffs must prove that Fleetham “made a false representation of a past or existing material fact, susceptible of knowledge, knowing it to be false or without knowing whether it was true or false, with the intention of inducing the person to whom it was made to act in reliance upon it or under such circumstances that such person was justified in so acting and was thereby deceived or induced to so act to his damage.” Berryman v. Riegert, 175 N.W.2d 438, 442 (Minn. 1970). Here, Plaintiffs have presented evidence that Fleetham repeatedly stated that it would be providing the Monthly Financial Reporting, often giving specific dates when it would be provided. Then, when the promised dates came and went, Fleetham was silent, occasionally offering false excuses after the fact. Had this occurred once and the Monthly Financial Reporting been later provided, Fleetham’s statements could be excused as honest mistakes. The fact that Fleetham repeatedly misrepresented that it would be providing the Monthly Financial Reporting and later told Plaintiffs that it would not provide any data shows that Fleetham never intended to provide the data in the first instance. Furthermore, Fleetham could have at a minimum provided bank statements for the accounts it controlled for the housing developments, as it had done previously. (Wright Dec., ¶ 18.) Instead, Fleetham disclosed nothing. Finally, Fleetham has taken advantage of its subterfuge to receive hundreds of thousands of dollars in rental revenue. Plaintiffs have presented evidence establishing the elements of fraud – false statements of fact, justifiable reliance, and damages – and have demonstrated the probability of success on the merits of their claim for common law fraud. To prove a violation of the Prevention of Consumer Fraud Act, Plaintiffs must show that Fleetham engaged in the “act, use, or employment… of any fraud, unfair or unconscionable 8 27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM practice, false pretense, false promise, misrepresentation, misleading statement or deceptive practice, with the intent that others rely thereon in connection with the sale of any merchandise, whether or not any person has in fact been misled, deceived, or damaged thereby…” Minn. Stat. § 325F.69. “For purposes of this section, an unfair method of competition or an unfair or unconscionable act or practice is any method of competition, act, or practice that: (1) offends public policy as established by the statutes, rules, or common law of Minnesota; (2) is unethical, oppressive, or unscrupulous; or (3) is substantially injurious to consumers.” Id. The Act applies to the business of Fleetham because it includes “services” within the definition of “merchandise.” Minn. Stat. § 325F.68. The conduct proscribed by the Prevention of Consumer Fraud Act is broader than that covered by common law fraud. Accordingly, Fleetham’s conduct in committing common law fraud also violates the Act. Furthermore, Fleetham’s consistent refusal to provide MHFA and Plaintiffs with any financial documents – not even bank statements – shows “unethical” and “unscrupulous” business practices in violation of the Act. Plaintiffs have thus also established likelihood of success on their claims for violations of the Prevention of Consumer Fraud Act. The record is also clear that Plaintiffs have standing to pursue their claims for violations of the Prevention of Consumer Fraud Act. Private parties asserting violations of the Prevention of Consumer Fraud Act must “demonstrate that their cause of action benefits the public.” Ly v. Nystrom, 615 N.W.2d 302, 314 (Minn. 2000). Here, that requirement is met because Fleetham engaged in its unlawful conduct to profit from publicly-financed affordable housing and directed many of its false statements to the State itself. Moreover, Fleetham was responsible for managing over 80 units of low-income housing on behalf of Plaintiffs. Its unlawful conduct potentially 9 27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM impacted far more than just Plaintiffs. Plaintiffs thus have standing to pursue this claim and have established a likelihood of success on the merits of their claim for violations of the Act. Chapter 570 imposes two other conditions on the issuance of an order for attachment: However, even if those standards are met, the order may not be issued if: (1) the circumstances do not constitute a risk to collectibility of any judgment that may be entered; or (2) (i) respondent has raised a defense to the merits of the claimant’s claim or has raised a counterclaim in an amount equal to or greater than the claim and the defense or counterclaim is not frivolous; and (ii) the interests of the respondent cannot be adequately protected by a bond filed by the claimant pursuant to section 570.041 if property is attached; and (iii) the harm suffered by the respondent as a result of seizure would be greater than the harm which would be suffered by the claimant if property is not attached. Minn. Stat. § 570.026. Here, the risk of collectability is real, there is no valid defense, and Plaintiffs – not Fleetham – will be harmed if the accounts for the developments are not attached. The risk of collectability is high. In the six months during which Fleetham has actively avoided providing financial data, it has likely received over $500,000 in rental income from Many Rivers West Apartments and Many Rivers East Apartments. This sum is substantial, and when coupled with Fleetham’s evasiveness, raises the specter that Fleetham simply does not have all of the funds owed to Plaintiffs. Indeed, Fleetham has been routinely late in making the mortgage loan payments to MHFA, another sign that funds are lacking. Yet another indication that Fleetham presents a risk of collectability is that is facing another recently filed lawsuit in Ramsey County District Court, Dayton’s Bluff, et al. v. Fleetham, et al., Court File No. 62-CV- 24-3357. (Shulman Dec., Ex. I.) The Ramsey County case raises allegations similar to those present here, and counsel for the Plaintiffs in that case has informed the undersigned counsel that Fleetham has failed to return the Plaintiffs’ funds. The risk of collectability here is thus real and warrants attachment. 10 27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM Finally, Fleetham does not have a valid defense for its conduct. Fleetham has repeatedly hid the ball for over six months, ending its relationship with Plaintiffs by declaring, “I will NOT provide you data just so you have data – if that’s wrong, then call me wrong.” (Wright Dec., Ex. 10.) Also, the balance of harms weighs in Plaintiffs’ favor if this motion is not granted. Plaintiffs are the owners of Many Rivers West Apartments and Many Rivers East Apartments. The rental income in the accounts maintained by Fleetham for the two properties belongs to Plaintiffs – not Fleetham. Fleetham has no interest in the funds other than being responsible for managing them. There is thus no harm to Fleetham if the accounts are attached, and Plaintiffs face significant financial harm if the accounts are not attached. The additional conditions of Minnesota Statute section 570.026 do not bar attachment here. III. CONCLUSION For the foregoing reasons, Plaintiffs respectfully request that this Court grant their motion and order attachment of all accounts maintained by Defendant for Many Rivers West Apartments and Many Rivers East Apartments, order that Defendant account for all funds handled by said accounts in 2024, and order that Defendant immediately provide all Yardi data to Plaintiffs. Dated: June 26, 2024 SHULMAN BUSKE REAMS PLLC /s/ David L. Shulman David L. Shulman (#260721) Craig Buske (#390941) Shulman Buske Reams PLLC 126 North Third St., Suite 402 Minneapolis, MN 55401 Tel: 612-870-7410 david@shulmanbuske.com craig@shulmanbuske.com 11 27-CV-24-9768 Filed in District Court State of Minnesota 6/26/2024 12:44 PM ACKNOWLEDGEMENT The undersigned hereby acknowledges that sanctions may be imposed under Minn. Stat. §549.211. /s/ David L. Shulman David L. Shulman 12