A civil lawsuit brought against Community National Bank (CNB) by
MinnWest Bank, and served in Anoka County court on Nov. 19, presents a
whole new set of allegations and questions regarding CNB’s role in the
troubled Ramsey Town Center (RTC) development in Ramsey. But it also
answers existing questions, such as the status of any federal case
against the bank and its officers, and what was being sought by federal
agents when they served a search warrant there on the afternoon of June
By Patrick Tepoorten
The Post Review
A civil lawsuit brought against Community National Bank (CNB) by MinnWest Bank, and served in Anoka County court on Nov. 19, presents a whole new set of allegations and questions regarding CNB’s role in the troubled Ramsey Town Center (RTC) development in Ramsey. But it also answers existing questions, such as the status of any federal case against the bank and its officers, and what was being sought by federal agents when they served a search warrant there on the afternoon of June 18.
The federal criminal case
Documents pertaining to a federal investigation against CNB and various officers were submitted to the court by CNB attorney Mark D. Larsen in support of a Nov. 30 motion to stay Minnwest’s civil case pending the outcome of a federal criminal investigation.
Among those documents is a “target letter” signed by Assistant U.S. Attorney John Marti confirming that William Sandison is “a target of a federal investigation in the District of Minnesota related to allegations of bank fraud,” and a subpoena commanding Sandison to testify before a grand jury in August and to provide handwriting samples at that time.
Also presented as evidence is the details of the search warrant served last June. Federal agents were seeking a laundry list of financial information pertaining to officers of the bank and its financial dealings. Included were any and all papers, records, documents and information related to:
• Participation loans in which CNB was the lead bank;
• Compensation, fees or payments made to or on the behalf of William Sandison, Connie Sandison, Ross Sandison, J. Scott Renne, Bruce Nedegaard, Peterson North Branch Mill and Jerome Peterson;
• The accounting and financial statements of Community Investment Service, Inc. and CNB.
• The preparation and filing of federal and state income tax records of William Sandison, Connie Sandison, Ross Sandison, J. Scott Renne, Bruce Nedegaard, Peterson North Branch Mill and Jerome Peterson.
The warrant also sought all documents and information “evidencing the obtaining, secreting, transfer, and or concealment of income and assets; and the obtaining, secreting, transfer, concealment, and/or expenditure of money related to William Sandison, Connie Sandison, Ross Sandison, and Jerome Peterson,” and gave agents permission to confiscate the contents from safe deposit boxes in the name of William Sandison, Connie Sandison and Ross Sandison.
Minnwest’s civil suit
A civil suit brought by Minnwest against CNB and its officers alleges the bank failed to disclose facts and administer a RTC loan in which Minnwest was a participating bank.
According to Minnwest’s suit, CNB approached Minnwest about entering a loan “participation agreement” in 2003. Around Sept. 24 of that year, Minnwest purchased a $7 million “participation” in the $35 million loan. In return, CNB agreed to:
• Pay Minnwest 6.65 percent interest;
• Deposit sale proceeds into escrow, with 80 percent of deposits to be applied to the loan balance;
• Regularly provide Minnwest with complete and current loan information;
• Refrain from reducing principal or interest, or take any action that would “substantially reduce the possibility of payment of the loan,” without Minnwest’s consent;
• Notify Minnwest of any loss of property or change in the financial condition of Ramsey Town Center that would have an affect on loan repayment.
Minnwest alleges that CNB failed to disclose pertinent facts before the participation agreement was reached. Included were the facts that:
• Powerhouse Title Company, used by CNB, was actually an entity owned by William Sandison, Curtis Martinson, Jerome Peterson and now deceased RTC developer Bruce Nedegaard and that the three received proceeds from various closings;
• A portion of the participation loan was used to repay CNB or individual defendants for loans they had already made to RTC or Nedegaard;
• CNB “secretly” negotiated a “restrictive covenant” which gave it the right to be the only bank in RTC;
• William and Ross Sandison and Jerome Peterson had previously agreed to loan Nedegaard $990,000, secured by a mortgage on RTC, and which triggered a default on the loan;
• Builder DR Horton Inc., previously characterized as committing to purchase 900 residential lots, was “backing out of the project,” reducing its commitment to 179 lots;
• The project was underfunded from inception due to additional loans made by defendants;
• The cost of developing was different than represented;
• Project costs had not been contractually established;
• Loan disbursements were used to pay “soft costs” instead of project improvements;
• The title commitment provided participants was revised at closing, “to the detriment of participants’ interests.”
Minnwest proceeds to detail problems with the project and the loan, including Nedegaard’s 2004 guilty plea to federal charges of bank fraud, CNB’s failure to inform Minnwest of that, and a host of relevant issues with the development: infrastructure costs three times higher than projected; changes to the developer’s agreement; failure to apply 80 percent of proceeds against loan balances; diverted funds; failure to pay contractors in a timely way; and a secret “side deal” for the sale of a 60-foot strip of land.
Furthermore, CNB entered into an agreement with Pentagon Credit, including interest payments, which William and Ross Sandison and Jerome Peterson, failed to disclose was their own entity.
In February of 2006, Minnwest took over as the lead bank for the loan. Later that year, an involuntary bankruptcy petition was filed against Nedegaard, who died shortly thereafter. In order to minimize losses, Minnwest is now trying to sell or foreclose the RTC property. Due to CNB’s actions above, and others, Minnwest alleges it will suffer “substantial losses” on its investment.
It charges that CNB is guilty of breach of contract, breach of implied covenant of good faith and fair dealing, gross negligence and willful misconduct, and unjust enrichment. It further alleges that CNB, William Sandison and Curt Martinson are guilty of fraudulent inducement; that they, and Ross Sandison and Jerome Peterson, engaged in fraud and misrepresentation; and that all defendants engaged in a conspiracy for “jointly develop(ing) a secret plan and scheme by which they obtained personal benefits and financial gain through self-dealing and other actions adverse to Minnwest’s interests.”
According to court records, attorneys for the defense have filed multiple motions in the civil case, including a “stay” due to the ongoing federal investigation. As well, a motion to strike exhibits presented by Minnwest having to do with Nedegaard’s plea agreement – called “an obvious attempt to bolster the attenuated allegations of fraud and conspiracy” by Larsen – as well as voluntary consent orders regarding both CNB and Powerhouse Title.
Says Hansen in the motion, “these documents have no place in this litigation and are not relevant to any claim asserted by Minnwest.”
There is also a motion to dismiss the claims made by Minnwest. In that motion, Larsen notes Minnwest has “failed” to provide specifics to go along with allegations on a number of fronts, and has not stated circumstances “with particularity.”
Says Larsen in the motion, “Mere boilerplate recitation of the elements of fraud does not suffice, nor do allegations of fraud.”
In fact, in allegation after allegation, Larsen notes that Minnwest has failed to provide any detail or particularity. The motion further argues that CNB was under no obligation to disclose information when “both parties are intelligent and fully capable of taking care of themselves.”
Larsen also points to the participation agreement itself, in which Minnwest noted it had made an “independent investigation of the loan,” and did not rely on CNB’s judgement before entering the agreement.
The motion concludes that Minnwest has not provided specific evidence of fraudulent inducement, fraud, and misrepresentation. Also, it alleges that CNB did not commit gross negligence because it did not owe Minnwest and such diligence. Lastly, that charges of conspiracy should be dismissed because, “Minnwest failed to plead any factual basis to support a civil conspiracy claim, which requires a showing of a ‘meeting of the minds’ among individuals regarding a specific plan or a purpose to achieve ‘an unlawful purpose or a lawful purpose by unlawful means.’”
A motion hearing has been set for Jan. 17, 2008, in Anoka County court.