Michael O'Byrne, et al., Appellants,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2016).

STATE OF MINNESOTA
IN COURT OF APPEALS
A17-0455

Michael O'Byrne, et al.,
Appellants,

vs.

Bremer Bank, National Association,
Respondent.

Filed October 30, 2017
Affirmed
Connolly, Judge

Olmsted County District Court
File No. 55-CV-16-1391

David W. VanDerHeyden, VanDerHeyden Law Office, P.A., Rochester, Minnesota (for
appellants)

Ken D. Schueler, Dus tin C. Jones, Dunlap & Seeger, P.A., Rochester, Minnesota (for
respondent)

Considered and decided by Connolly, Presiding Judge; Ross, Judge; and
Rodenberg, Judge.
U N P U B L I S H E D O P I N I O N
CONNOLLY, Judge
Appellants who are borrowers challenge the summary judgment g ranted to
respondent lender, arguing that a 2009 loan did not extinguish a 2007 mortgage and that
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respondent’s predecessor breached a settlement agreement. Because the district court did
not err in concluding that the 2009 loan did extinguish the 2007 mortgage and that
respondent’s predecessor did not breach the settlement agreement, we affirm.
FACTS
In 2007, appellants Michael O’Byrne (M.), and his daughter Allison O’Byrne Stoehr
(A.), obtained financing from Eastwood Bank (Eastwood), the predecessor of respondent
Bremer Bank (Bremer), to build a spec home on A.’s property (the 2007 loan). M. signed
a promissory note for $125,000 due on July 15, 2008; A. signed a mortgage (the 2007
mortgage) for the loan, with the property as collateral. A. was required to maintain
insurance and to name Eastwood as the loss payee; in the event of total loss, insurance
proceeds were to be applied to appellants’ debt, with any ex cess going to A. The insurer
was Spring Valley Mutual Insurance (Spring Valley). The spec home wa s constructed,
insured, and placed on the market.
In 2009, the spec home remained unsold and the 2007 loan unpaid. M. and his wife,
appellant Beverly O’Byrne (B.), refinance d the spec home lo an and another loan with
Eastwood by taking out a new loan of $156,000, which had a maturity date of July 10, 2010
(the 2009 loan). Collateral for the 2009 loan was M. and B.’s homestead.
In 2010, M. and B. defaulted on the 2009 loan. In 2011, the spec home, still unsold,
was destroyed by a fire of unknown origin , and M. and A. brought a claim against Spring
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Valley.1 While Spring Valley was evaluating the claim, M. personally demolished the
remains of the spec home without Spring Valley’s permission.
M. and A. submitted a claim for $270,000, of which $30,000 was for loss of personal
property. This loss was inconsistent with Spring Valley’s findings before the demolition ,
and Spring Valley denied the claim on the ground that M. and A. submitted a false p roof-
of-loss form for nonexistent personal property. M. and A. then brought an action against
Spring Valley (the Spring Valley action).
In 2012, the default of M. and B. on the 2009 loan was resolved with a settlement
agreement (the agreement). Eastwood said it would not foreclose if M. and B. paid off the
loan by June 30, 2013; M. and A. assign ed Eastwood the right to any settlement proceeds
of the Spring Valley action until the agreement was fully satisfied; and Eastwood agreed
to testify in the Spring Valley action.
The trial in that action took place in 2013. Testimony from Eastwood
representatives indicated that, while the 2007 loan was satisfied by the 2009 mortgage, the
satisfaction document had not been sent out. Eastwood issued a satisfa ction of the 2007
mortgage the same day this testimony was given.
The jury returned a special verdict for Spring Valley, finding that M. and A. had
breached their insurance contract and were not entitled to damages. A. moved for judgment
as a matter of law (JMOL). The district court found that A. did not breach the agreement
but, following a hearing to determine the amount to which A. was entitled, concluded that

1 This was the second claim for loss of a home by a fire of unknown origin filed with Spring
Valley; B. filed a claim in April 2009 on a home she shared with M.
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she was not entitled to recover because her mortgage was extinguished when fire destroyed
the spec home and anything she received would go to M. M. and A. appealed; this court
reversed the grant of JMOL, concluded that A. could not recover for the loss, and reinstated
the jury verdict. O’Byrne v. Spring Valley Mutual Ins. Co. , No. A14 -0886, 201 5 WL
4527650, at *9 (Minn. App. July 6, 2015), review denied (Minn. Sept. 29, 2015).
When M. and B. failed to make timely payments on the 2009 loan, Eastwood issued
a notice of default and right to cure. M. and B. then refinanced with another lender and
paid off the 2009 loan, thus complying with the agreement.
In February 2016, appellants brought this action against respondent Bremer Bank,
successor to Eastwood. They sought damages of over $270,000 on seven claims: (1) failure
to enforce the mortgage clause in the Spring Valley policy; (2) abuse of process; (3) breach
of the agreement; (4) breach of fiduciary duty; (5) negligence; (6) breach of implied
covenant of good faith and fair dealing; and (7) invasion of privacy.2
Respondent moved for summary judgment; appellants moved to amend their
complaint and for partial summary judgment. Following a hearing, the district court denied
appellants’ motions and granted respondent’s motion. Appellants challenge the grant of
summary judgment, arguing that the district court erred in concluding that the 2007
mortgage was satisfied by the 2009 loan and that Eastwood did not breach the agreement.

2 Appellants also brought, but later dismissed , a claim of tortious interference with
contractual relations.
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D E C I S I O N
“We review a district court’s summary judgment decision de novo. In doing so, we
determine whether the district court properly applied the law and whether there are genuine
issues of material fact that preclude summary judgment.” Riverview Muir Doran, LLC v.
JADT Dev. Grp., LLC, 790 N.W.2d 167, 170 (Minn. 2010).
1. Effect of the 2009 Loan
As the district court noted , “[appellants’] claims are premised on their allegation
that the 2007 mortgage remained in effect following the 2009 loan refinance.” Appellants
argue that, because the 2009 loan was not a refinance but a renewal and Eastwood did not
issue a satisfaction for the 2007 mortgage until 2013, the 2007 mortgage was in effect at
the time of the 2011 fire and, under its terms, Eastwood was required to exercise its right
to the insurance proceeds as the loss payee . But the supreme court rejected this argument
long ago.
[Payment of a m ortgage debt] completely extinguishe[s] the
mortgage, for it [is] a mere incident of the debt. The fact that,
though paid, the mortgage was not satisfied of record, does not
change the situation; for it is well settled that an assignee of a
mortgage takes it subject to the defense that it has been paid,
even though not discharged of record.

Hendricks v. Hes s, 112 Minn. 256, 127 N.W. 995, 997 (Minn. 1910) (citation omitted) .
The district court correctly concluded that, as a matter of law, the 2007 mortgage was
extinguished with the 2009 refinancing and that Eastwood’s failure to provide a statement
of satisfaction of the 2007 mortgage until 2013 was irrelevant to the satisfaction.
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Appellants also argue that whether the 2007 mortgage was extinguished when the
loan it secured was paid off is not a question of law but a question of fact, the relevant fact
being the intent of the parties. Assuming this is true, M., the only party to both the 2007
and the 2009 loans, testified that the 2009 loan was intended to pay off the 2007 loan. He
answered affirmatively when asked if the 2009 loan document said it was paying off two
separate Eastwood loans, one of which was the 2007 loan. M.’s testimony is corroborated
by the Real Estate Worksheet for the 2009 transaction, which has the blank after “loan
purpose” filled in with the words “refinance spec house.” Thus, M.’s own testimony
defeats appellants’ argument that “the parties intended that the [2009] note was a renewal
note that continued an obligation under the prior note(s) and that as a resul t this renewal
did not discharge, extinguish, or satisfy the $125,000 note . . . or . . . the 2007 mortgage.”
The district court was also correct in concluding that, “even if the [2007] mortgage
was in effect at the time of the 2011 fire, enforcement of the clause at issue [in Minn. Stat.
§ 65A.01, subd. 3 (2016)] would not have benefitted [appellants].” That clause provides
the text of the Minnesota Standard Fire Insurance Policy, including:
[W]henever this [insurance] company shall be liable as to a
mortgagee or vendor for any sum for loss under this policy . . .
this company shall elect by itself, or with others to pay the
mortgagee or vendor the full amount secured by such mortgage
or contract for deed, then the mortgagee or vendor shall assign
and transfer to the company the mortgag ee’s or vendor’s
interest, upon such payment, in the said mortgage or contract
for deed together with the note and debts thereby secured.

Minn. Stat. § 65A.01, subd. 3. “This policy language creates a contractual right to assume
any and all benefits flowing from the assigned note and mortgage.” TIG Ins. Co. v.
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Anderson, 663 N.W.2d 1, 4 (Minn. 2003). Thus, if the mortgage had not been extinguished
in 2011 and Eastwood had recovered under the policy, appellants would have been liable
to Spring Valley instead of to Eastwood.
The district court did not err in concluding as a matter of law that the 2009 loan
satisfied the 2007 loan in full and extinguished the 2007 mortgage.
2. Breach of the Mediation Agreement
Appellants argue that Eastwood breached its 2012 settlement agreemen t with M.
and B. by failing to cooperate in the Spring Valley action by providing a satisfactio n for
the 2007 mortgage. This argument is based on the clause in the agreement requiring
Eastwood “to cooperate and appear in such action [i.e., the Spring Valley action] to testify,
if subpoenaed, however, [Eastwood] does not warrant or represent that such testimony will
be helpful to [M. and B.]’s prosecution of [the Spring Valley] action.” A representative of
Eastwood was subpoenaed, appeared, and testified at the trial that the 2007 loan had been
paid off in 2009. Although this testimony was not helpful to M. and B., it does not support
appellant’s argument that Eastwood breach ed the agreement by failing to cooperate and
appear in the action.
Appellants also argue that Eastwood breached the agreement by foreclosing on
appellants’ home, thus helping to defeat their claims in the Spring Valley action. But the
agreement provided that M. and B. would pay off the 2009 loan in full by June 30, 2013 ;
they breached it by not paying off the loan by that date. The loan was secured by their
home, and they provide no reason why Eastwood should not have foreclosed when they
breached. M. and B. do not dispute the debt or that they were in default; nor do they argue
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that the foreclosure of their home was procedurally defective. Thus, neither of appellants’
assertions of breach of the settlement agreement has merit.3
The district court did not err in determining that the 2007 mortgage was satisfied by
the 2009 loan and that Eastwood did not breach the parties’ 2012 agreement.
Affirmed.

3 Appellants also argue that Eastwood breached the settlement agreement by failing to
recover insurance proceeds under the 2007 mortgage after the fire in 2011 and by not timely
assessing its legal capability to enforce its right to the insurance proceeds. These arguments
fail because they are based on the premise that the 2007 mortgage was still in effect at the
time of the fire, which we have already rejected.