Fifth Side Lodging, LLC v. Rise Construction Services, LLC

U.S. District Court, District of Minnesota February 27, 2024

Trial Court Opinion

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Fifth Side Lodging, LLC,
Civil No. 23-cv-2649 (JMB/ECW)
Plaintiff,

v. ORDER

Rise Construction Services, LLC and
Christian Lawrence,

Defendants and
Counterclaim Plaintiffs,

Fifth Side Lodging, LLC, Jayshal Bhakta,
Ravikumar Patel, and Balvant Patel,

Counterclaim Defendants.

This matter is before the Court on Plaintiff Fifth Side Lodging, LLC’s (“Fifth
Side”) Motion for Prejudgment Attachment. (Dkt. 21.) For the reasons stated below, the
Motion is denied.
I. BACKGROUND
A. Pleadings
On August 28, 2023, Fifth Side initiated this action alleging, among other things,
breach of a construction contract between Fifth Side and Defendant Rise Construction
Services, LLC (“the Agreement”). (See generally Dkts. 1, 7, 18.) Fifth Side filed an
Amended Complaint on September 12, 2023, which is the operative complaint in this
case. (Dkt. 7.) Pursuant to the Agreement, executed on June 1, 2023, Rise Construction
Services (“Rise Construction”) was to serve as Fifth Side’s general contractor in the
construction of a hotel in Edina, Minnesota (“the Project”). (See Dkt. 7 ¶¶ 8, 32; Dkt. 18
at 4 ¶ 20, 6 ¶ 44.)1 Rise Construction terminated the Agreement on August 18, 2023.

(See Dkt. 7 ¶ 53; Dkt. 18 at 7 ¶ 53, 30 ¶ 92.)
In the Amended Complaint, Fifth Side seeks a declaratory judgment with respect
to the parties’ rights and obligations under the Agreement, asserts claims for breach of
contract and breach of the implied duty of good faith and fair dealing against Rise

Construction, and seeks injunctive relief prohibiting the dispersal of a $2.4 million down
payment made by Fifth Side. (Dkt. 7 ¶¶ 70-89.) Fifth Side also asserts claims of
fraudulent misrepresentation against Rise Construction and its CEO, Defendant Christian
Lawrence. (Id. ¶¶ 90-10.) The Amended Complaint also asserted a claim for civil theft
against Rise Construction and Christian Lawrence. (Id. ¶¶ 101-05.) However,

Defendants moved to dismiss the fraudulent misrepresentation and civil theft claims and
all claims against Christian Lawrence on December 22, 2023 (Dkt. 39) and Fifth Side
dismissed the civil theft claim on January 29, 2024 (Dkt. 51). The remainder of the
Motion to Dismiss is under advisement. (Dkt. 53.)
In Defendants’ Answer and Defendant Rise Construction’s Counterclaims filed on

November 13, 2023, Defendants deny the allegations in the Amended Complaint and
assert several defenses. (See Dkt. 18 at 1-10; see also id. at 11-12 ¶¶ 1-9.) Rise
Construction also asserts counterclaims against Fifth Side for breach of contract and

1 Unless otherwise indicated, all page citations are to the CM/ECF pagination.
seeks a declaratory judgment as to the parties’ rights and obligations under the
Agreement. (Id. at 31-32 ¶¶ 95-108.)

Rise Construction has also asserted a third counterclaim seeking enforcement of
guarantees against Jayshal Bhakta, Ravikumar Patel, and Balvant Patel (collectively, “the
Guarantors”). (Id. at 33-34 ¶¶ 109-115.)
On December 21, 2023, Fifth Side and the Guarantors filed a Reply generally
denying the allegations in the Answer and Counterclaim. (Dkt. 38.)

B. Factual and Procedural Background
The parties have submitted several affidavits and exhibits in connection with the
Motion. (See, e.g., Dkts. 24 (Affidavit of Jayshal Bhakta), 25 (Affidavit of Balvant
Patel), 25-1 (Exhibits 1-9 to Balvant Patel Affidavit), 29 (Affidavit of Christian
Lawrence), 29-1 to 29-3 (Exhibits 1-3 to Christian Lawrence Affidavit)), 30 (Affidavit of
Jeff Kacerik), 30-1 (Exhibits 1-5 to Jeff Kacerik Affidavit), 31 (Affidavit of Troy

Tiddens), 31-1 (Exhibits 1-6 to Troy Tiddens Affidavit), 32 (Affidavit of James
Lawrence), 33 (Affidavit of Sean Stiras), 35 (Supplemental Affidavit of Jayshal Bhakta),
35-1 (Exhibits 10-11 to Supplemental Affidavit of Jayshal Bhakta), 37 (Post-hearing
Exhibit filed by Timothy Sullivan), 37-1 (Exhibits 1-2 to Post-hearing Exhibit ).) The
Court has reviewed the evidence and summarizes the relevant aspects below, referring to

the affidavits and exhibits by their CM/ECF docket number.
According to Guarantor Balvant2, Fifth Side is an affiliate of a privately owned
hospitality firm called Hawkeye Hotels, Inc., which develops, constructs, and manages

properties in over 15 states. (Dkt. 25 ¶¶ 2-4; see Dkt. 7 ¶ 6.) Balvant is the CEO of
Hawkeye Hotels and a principal of Fifth Side. (Dkt. 25 ¶ 2.) The other principals of
Fifth Side are Guarantor Ravikumar (“Ravi”) Patel, also the President of Hawkeye
Hotels, and Guarantor Jayshal (“Jay”) Bhakta. (Id. ¶ 4.)
According to Christian Lawrence, Rise Construction was founded in 2020 and

serves as the general contractor on modular construction projects. (Dkt. 29 ¶¶ 1-2, 7.)
He describes “volumetric modular construction” as “including multi-family and
hospitality projects,” where “[v]olumetric modular structures provide fully enclosed six-
sided modules with completed interiors.” (Id. ¶ 5.) Christian Lawrence is the CEO of
Rise Construction, as well as the CEO of Rise Modular, LLC, which he founded in 2019

“to fill a void in the middle American market and particularly Minnesota.” (Id. ¶¶ 2, 6.)
Rise Construction and Rise Modular have the “financial support” of Christian’s father,
James Lawrence, as Christian detailed in his affidavit:
My companies have had the financial support of my father throughout the
process of building a factory in Owatonna, MN and launching a modular
building business. My father invested in an entity, Ninth Street Investments,
LLC (“Ninth Street”). Ninth Street has financed general operations and
provided operating capital for Rise Construction and Rise Modular. This
includes capital for projects not slated to make profit. We have taken jobs at
a loss to build our portfolio and enhance long range prospects.

(Id. ¶ 9.)

2 As many of the persons involved in the negotiations share last names, to avoid
confusion, the Court uses first names to refer to those people.
By affidavit, James confirms his investment in Ninth Street and Ninth Street’s
investment in Rise Construction and Rise Modular. (Dkt. 32 ¶¶ 3, 5.) James describes

his support for his son’s businesses as follows:
Over the approximately five (5) years that I have been an investor in Ninth
Street, I have funded each and every capital request Ninth Street has made of
me (as, when and in the manner requested). The principal purpose of these
capital calls have been, and will likely continue to be, to satisfy the capital
needs of Ninth Street’s investments, including the working capital [Rise
Modular] and [Rise Construction] require from time-to-time.

(Id. ¶ 5.)
According to Christian, Rise Modular has a “preconstruction team” that “works on
design integration, drafting, show drawings, finding material vendors, and buying
materials and equipment for the job.” (Dkt. 29 ¶ 15.) The Rise Modular factory is
“specially outfitted,” with “various cranes and moveable platforms allowing a module to
go from framing to fully furnished units with complete kitchens, bathrooms, flooring,
paint, light fixtures, appliances, and in some cases, even furniture.” (Id. ¶ 10.) The
modules move through approximately 25 stations during a project, depending on the
project, and “[t]he interior hallway wall sections are left open to allow on-site structural,
mechanical, electrical, and plumbing connections between modules.” (Id. ¶¶ 11-12.) The
completed modules are then “shrink-wrapped, transported on special trailers, and lifted
into place by cranes at a project site.” (Id. ¶ 13.) They may be outfitted with finished
kitchens, bathrooms, flooring, paint, light fixtures, appliances, and “in some cases even
furniture before they leave the Rise Modular factory.” (Id. ¶ 14.) Christian affirms that
the Rise Modular factory can only “accommodate one project at a time,” and the cost to
operate Rise Modular’s “production line is at least $36,000 per day, and the cost of the
factory space alone is an additional $36,000 per day.” (Id. ¶ 19.)

As for Rise Construction, Christian states that its “general contracting pre-
construction activities include finding, bidding, negotiating, and executing subcontracts,
coordinating site logistics, scheduling, and sequencing work, etc.” (Id. ¶ 15.) This work
is “vital,” must be done with precision, and requires custom materials “well in advance to
keep a project moving in time,” where the custom materials “cannot be cancelled without
difficulty,” if at all. (Id. ¶¶ 16-17.)

Turning to the parties’ negotiations, beginning in May 2019, Jay, Ravi, and
Balvant began negotiating with Christian for Rise Modular to provide modular units for
the construction of a Fairfield Inn and Townplace Suites located in Edina, Minnesota.
(Dkt. 25 ¶ 5; Dkt. 29 ¶ 21.) Negotiations continued, including “at least twelve occasions”
where Jay, Ravi, Balvant, and Christian personally met to better understand each

company’s history in the industry, general business practices, overall ability to bring the
Project to timely completion, and financial health.” (Dkt. 25 ¶¶ 6-7.) In addition, Fifth
Side personnel “took multiple tours” of Rise Modular’s factory in Owatonna and paid for
the construction of a mock model modular unit. (Id. ¶¶ 6-8.) Christian told Fifth Side
that Rise Modular “was financially backed by significant personal family liquidity as well

as several outside investors.” (Id. ¶ 8.)
The Project was put on hold due to the Covid-19 pandemic in 2020, but
negotiations renewed in 2022, after Christian had formed Rise Construction. (Id. ¶¶ 11-
12; Dkt. 29 ¶¶ 22-23.) Balvant states that Rise Construction submitted bids of $27.8
million, $26.86 million, $26.669 million, and $26.28 million to Fifth Side, all of which
were rejected because the Project was only budgeted for $25 million, and on March 16,

2023, Rise Construction agreed to do the Project for $25 million. (Dkt. 25 ¶¶ 12-13.)
Fifth Side accepted the $25 million bid. (Id. ¶ 13.)
However, by May 8, 2023, Lawrence and “a team of Fifth Side executives” met to
discuss Rise Construction’s roughly $1.6 million deficit arising from a difference
between Rise Construction’s “scope narrative” and “the matrix used to price” the Project.
(Id. ¶¶ 14-15.) Balvant states that “[a]s a gesture of good faith and in an attempt to

maintain the schedule,” Fifth Side assumed approximately 50 percent of the deficit costs
while Rise Construction assumed the remaining costs, so they could keep the overall
Project price at $25 million. (Id. ¶ 15.)
Contract negotiations continued, during which Rise Construction added provisions
to Section 5 of the Agreement requiring an initial $2.4 million down payment by Fifth

Side and a $2 million termination fee. (Id. ¶ 16; Dkt. 29 ¶ 34.) Also added to Section 5
were terms establishing Rise Construction’s right to seek reasonable assurances of Fifth
Side’s ability to meet its financial obligations when Rise Construction saw fit and
establishing Fifth Side’s obligation to pay “all progress payments” to Rise Construction,
including payments under purchase orders (sometimes referred to as “pay application

requests” or “Pay Apps”) for materials and equipment for the Project after execution of
the Agreement. (Dkt. 29 ¶ 34; see Dkt. 25 ¶ 22 (describing pay application requests).)
Rise Construction also required personal guarantees from the Guarantors, which they
provided. (Dkt. 29 ¶ 24; Dkt. 25 ¶ 16.)
In late May 2023, Hawkeye Hotel’s Vice President of Investment, Parth Patel, sent
Christian “a timeline with closing details” that included “a credit commitment from

Minnwest Bank to move forward by May 26,” an appraisal to occur around June 16, and
to have the loan documents finalized around June 23. (Dkt. 25 ¶ 17.) Christian
responded on the same day by email, thanking Parth for the update and stating he
appreciated “the transparency.” (Id. ¶ 17; Dkt 25-1 at 1.)
Fifth Side and Rise Construction executed the Agreement on June 1, 2023. (Dkt.
25 ¶ 18; Dkt. 29 ¶ 39.) Article 5, which includes the $2.4 million “non-refundable, fully-

vested down payment” and additional terms negotiated by Rise Construction, is
reproduced below:
§ 5.0 Initial Down Payment and Security Owner shall make a series of
payments to Contractor and provide additional security for these payments
as follows:

§ 5.0.1 Once Contractor executes this Agreement, Owner shall owe and
pay Contractor a non-refundable, fully-vested down payment to be
credited against the Contract Sum in the amount of two million four
hundred thousand dollars ($2,400,000) (“Owner’s Down Payment”),
which will be paid as follows:

§ 5.0.1.1 One million dollars ($1,000,000.00 within forty-eight (48)
hours of Contractor executing this Agreement.

§ 5.0.1.2 One million and four hundred thousand dollars
($1,400,000.00) within thirty (30) days of the Contractor executing
this Agreement.

§ 5.0.2 In addition to making the Owner’s Down Payment, Owner will
pay all progress payments to Contractor according to the terms of this
Agreement. After receiving the second installment of the Owner’s Down
Payment, Contractor may request and Owner shall provide reasonable
evidence that Owner has the financial capability to continue fulfilling all
of its financial obligations under this Agreement (“Owner’s Financial
Assurances”).

§ 5.0.3 Upon full execution of this Agreement, Contractor will begin
issuing purchase orders to vendors, suppliers, and Subcontractors for
Project materials and equipment. The Owner agrees that it is, and remains
responsible and liable for, all vendor, supplier, and Subcontractor
payments under any purchase order that Contractor issues for Project
materials and equipment after full execution of this Agreement.

§ 5.0.4 Owner will obtain and pay for the Project’s building permit from
the City of Edina within three (3) business days after Owner is informed
that the permit is ready to be picked up.

§ 5.0.5 On the date that Contractor executes this Agreement, the Owner’s
three (3) principals—Ravi Patel, Bob Patel, and Jay Bhakta—will each
execute and provide personal guarantees making each of them jointly and
severally liable for all of Owner’s financial obligations set forth in this
Section 5.0. The parties agree that these personal guarantees will be
released upon the Owner (a) closing on its construction loan for the
Project, and (b) providing Contractor with evidence that the loan funds
have been deposited into escrow with a reputable title company.

§ 5.0.6 If the Owner (a) fails to pay the Owner Down Payment as required
above, (b) fails to make any progress payment owed to Contractor
according to the terms of this Agreement, (c) fails to provide Contractor
with the Owner’s Financial Assurances, or (d) fails to obtain and pay for
the Project’s building permit (each an “Owner Financing Default”), then
upon fourteen (14) days’ written notice and the Owner having an
opportunity to cure, the Contractor may terminate this Agreement if the
Owner Financing Default is not cured. If, however, there are more than
two (2) instances of an Owner Financing Default, then Contractor may
terminate this Agreement upon forty-eight (48) hours’ notice to Owner.

§ 5.0.7 If Contractor terminates this Agreement due to an Owner
Financing Default, then Owner shall pay to Contractor within five (5)
days an amount equal to the Owner’s Down Payment, plus any progress
payments owed to Contractor, less any Owner’s Down Payment and
progress payment amounts previously paid by Owner, plus a termination
fee as follows:

1. $1,000,000 if termination occurs between July 1 and July 31, 2023;
2. $2,000,000 if termination occurs any time after July 31, 2023;

Notwithstanding anything in this Section 5.0.7, Contractor agrees that it
shall not be entitled to recover a termination fee from the Owner
following the Owner (a) closing on its construction loan for the Project,
and (b) providing Contractor with evidence that the loan funds have been
deposited into escrow with a reputable title company.

§ 5.0.8 Following Contractor’s termination of this Agreement due to an
Owner Financing Default, Owner shall also directly pay all vendor,
supplier, and Subcontractor invoices for any purchase order that
Contractor issued for the Project. Contractor will work with the Owner
and use commercially reasonable efforts to terminate any purchase order
issued before Contractor terminates this Agreement so that the Owner can
obtain returns, discounts, refunds, and restocking arrangements with the
vendors, suppliers, and Subcontractors in order to reduce the amounts that
Owner is required to pay under those vendor, supplier, and Subcontractor
purchase orders.

(Dkt. 29-1, Ex. 2 at 7-8.)
Fifth Side made the first partial payment of $1 million on June 2, 2023 and the
second partial payment of $1.4 million, on June 30, 2023. (Dkt. 25 ¶ 19; Dkt. 29 ¶ 39.)
Fifth Side acknowledges these payments were “[p]er the terms of the Agreement.” (Dkt.
25 ¶ 19.)
Between the two partial payments, on June 20, 2023, Christian emailed Parth and
Jay asking about financing for the Project and for confirmation that Fifth Side would
make the second partial payment the following week. (Dkt. 25 ¶ 20; Dkt. 25-1, Ex. 3 at
13.) Parth replied the next day that: “From loan standpoint, we have the approval
appraisal in is the process. Minnwest bank is our lender, they need 2.5M in participation
so they working towards getting this lined up.” (Dkt. 25-1, Ex. 3 at 12-13.) Christian did
not respond to that email. (Dkt. 25 ¶ 20; see Dkt. 25-1, Ex. 3 at 12.)
On July 11, 2023, after Fifth Side made the second partial payment, Parth told
Christian by email that: “The bank has participants lined up and they are waiting on their

final approval, we did receive draft loan docs so we are hoping to close in the next 3-4
weeks.” (Dkt. 25-1, Ex. 3 at 12.) Christian responded, “Glad to hear it! Keep us
posted.” (Id.)
However, on July 24, 2023, Rise Modular’s general counsel Stephanie Sundry sent
Fifth Street a letter noting that Rise Construction had begun issuing purchase orders for
the Project, noting that the Project was not yet fully financed, and invoking Section 5.0.2

of the Agreement to request “evidence that [Fifth Side] has the capability to continue
fulfilling all its financial obligations under the Agreement regardless of whether a
construction loan is in place.” (Dkt. 25-1, Ex. 4 at 19-21.) Parth responded the next day
that: “[L]oan closing is in process, we have received the draft loan docs and we are
waiting on few items from Marriott. We expect to close on the loan in the next 2-3

weeks.” (Id. at 18.) Parth further stated: “Most of the upfront cost would be funded from
our equity so we do not expect any delays from our end.” (Id.)
Sundry responded the same day with additional questions, reiterating that the next
purchase orders would be significant, and again requesting documentation regarding
ability to pay:

Thank you, Parth. It’s good to hear that things are progressing with the loan.
Has an actual date been set for closing? Are there things you’re waiting to
receive from Marriott that put the project, or timing of closing, at risk? Any
additional risks we should be aware of?

The next couple of Pay Apps you will receive from Rise Construction
Services will not be insignificant. Do you have cash available to make the
payments if the loan doesn’t close in the next 2-3 weeks? Are those funds
verifiable (ie. bank statements, etc.)?

We are confident things will come together for the project, but we too have
a risk management process. We need some type of documentation
substantiating your future ability to pay as we continue to submit additional
purchase orders and make additional project commitments. Please provide
whatever information you have. Of course, once the loan is closed and the
project is fully funded and held in escrow, this type of seemingly intrusive
diligence will no longer take place. Until then, however, we need to monitor
our downside risk, even if it’s a low probability, so please provide whatever
documentation you have.

Thank you again!

(Id. at 17-18.)
Parth responded to this request on the same day with the short statement: “The
items we are waiting on from Marriott do not put the timing of closing at risk, it can be a
post-closing item as well. Survey needed to be updated and that is in process as well, as
soon as that is completed we should be able to close.” (Id. at 17.)
The next day, July 27, 2023, Sundry responded to Parth’s email noting “the
contract was signed almost 60 days ago and financing is not yet secured,” and again
invoking the financial assurances provision in the Agreement:
Per the financial assurance provision in the contract, Rise requires verifiable
documentation evidencing that Owner has sufficient funds to satisfy all its
financial obligations outlined in the Construction Agreement.

Please provide a copy of an updated Commitment Letter from your lender
detailing terms and conditions to closing and the closing date, as well as
copies of Owner’s most recent bank statements evidencing cash on hand. As
you know, Rise has assumed a great deal of risk proceeding to procure
materials, submit purchase orders, engage subcontractors, and set aside
factory production time. The contract is clear that Rise is entitled to evidence,
satisfactory to Rise, that Owner has adequate financial resources to fund the
project.
Please send materials my way no later than end of the day tomorrow, the 28th
of May. Thank you.

(Id. at 16-17.)
Parth responded the same day:
I don’t believe the bank issue an updated commitment letter, they issue it
once and then the loan moves into the closing stage. As an alternative, I will
put you in an email thread with our lender so that he can confirm where the
loan stands for you for your comfort.

As per the bank statement, I will send that directly to you as well.

We do have over 2M in deposits at this point in time, so you can be assured
that the loan will close and this project is moving forward.

(Id. at 16.)
Fifth Side also sent bank statements from their principals “showing $6,077,835.60
in available cash flows continue fulfilling its financial obligations and paying any draw
requests.” (Dkt. 25 ¶ 24.) The next day, July 28, 2023, the lender at Minnwest Bank sent
an email to Parth and Sundry stating: “Yes, we are still working towards closing. My
attorney is out of the country this week, but I will touch base with him Monday. Parth, I
will reach out to you right after so we can jump on a call to go through the closing
checklist.” (Dkt. 25-1, Ex. 5 at 23.)
On August 2, 2023, Rise Construction, through outside counsel, sent Fifth Side a
letter stating the bank records showing $6 million in cash and email from Minnwest Bank
did not meet the contractual requirements for financial assurances under Section 5.0.2,
and in fact showed Fifth Side “[did] not have the financial capability to continue fulfilling
all of its obligations under the Agreement,” because approximately $22.7 million
remained on the Agreement balance and the bank records showed a balance of
approximately $6 million. (Dkt. 25-1, Ex. 6 at 26-27.) Rise Construction therefore gave

notice under Section 5.0.6 of the Agreement that it would “terminate the Agreement in
fourteen (14) days if [Fifth Side] fails to deposit all amounts due and payable under the
Agreement with a mutually agreed upon third-party title company that will disburse the
funds in accordance with the terms of the Agreement.” (Id. at 27.)
On August 3, 2023, Rise Construction informed Jay that, consistent with Section 3
of the Agreement, “Rise will only sign [a consent form required by the bank] and agree to

the representation in Section 3 once the Loan Agreement and Settlement Statement are
signed and the loan is funded. We trust you’ll have this discussion with the Minn[w]est
[Bank] to ensure they agree with this order of operations.” (Dkt. 35-1, Ex. 10 at 2.) Rise
Construction further stated: “[Fifth Side] is still in default under the Owner's Financial
Assurances provision of the Contract and Rise reserves all rights.” (Id.)

On August 15, 2023, Christian emailed Parth and Jay: “Do you guys have a [sic]
update on timing for the environmental review and new closing date?” (Dkt. 25-1, Ex. 7
at 33.) Parth responded the same day: “We received confirmation that the environmental
will be delivered 8/24, we expect closing to be after the delivery of the environmental
report. I will confirm the date once it is confirmed from the Banks [sic] end.” (Id. at 32.)

The next day, on August 16, 2023, Fifth Side, through outside counsel, sent a
letter to Rise Construction denying that the financial assurances term of the Agreement
required Fifth Side to “have the entire Contract Sum balance in an account in order to
provide reasonable evidence that the Owner has the financial capability to continue
fulfilling all of its financial obligations.” (Dkt. 25-1, Ex. 8 at 35.) Fifth Side referenced
an attached letter from the Vice President of Investment for Hawkeye Hotels describing

the financial state of that entity and concluding “with over $27 million in recurring free
cash flow and $37 million in upcoming positive liquidity events, Hawkeye [sic] more
than capable of satisfying any upcoming draw requests for Fifth Side Lodging, LLC.”
(Dkt. 25-1, Ex. 8 at 35-39.) Fifth Side further stated:
[Fifth Side] is also in the process of obtaining a construction loan for the
project set forth in the Agreement. The loan is expected to close by the end
of the month. Enclosed is an email from Brad Steiner, the Senior Vice
President at Minnwest Bank, reflecting that the construction loan has been
approved and the loan documents have been prepared and the terms agreed
upon. The lender is waiting on a new environmental report which is supposed
to be received the middle of next week. The lender has indicated that the
report will be reviewed immediately upon receipt so that the loan can be
closed.

(Id. at 36.) Finally, Fifth Side argued that its cure rights “would reasonably require
adequate opportunity for” Fifth Side “to close on its construction loan” and that it had
“provided everything that is required under the Agreement to provide evidence of [its]
continued ability to meet its financial obligations.” (Id.)
Two days later, on August 18, 2023, Rise Construction responded: “[Fifth Side’s]
interpretation of Article 5 in the Agreement is wrong. [Fifth Side] has been in default
and has not timely cured the defaults. Accordingly, Rise is terminating the Agreement
effective immediately.” (Dkt. 25-1, Ex. 9 at 23; see Dkt. 25 ¶ 29.)
Notwithstanding this letter, as of August 22, 2023, it appears that Fifth Side was
still attempting to secure financing for the Project, as an August 22, 2023 email from
counsel indicates Fifth Side was targeting August 24, 2023 for the “proposed closing”
and identifying “open legal items.” (Dkt. 35-1, Ex. 11 at 7-9.) The open legal items
included a “Phase I Environmental,” expected on August 23, 2023, and a survey. (Id. at

8-9.) According to Balvant: “If Rise Construction had not wrongfully terminated the
Agreement, Fifth Side would have closed on the Minnwest Bank loan on August 25,
2023.” (Dkt. 25 ¶ 30.)
Fifth Side filed the instant Motion for Prejudgment Attachment and supporting
papers on November 28, 2023. (Dkt. 21.) Fifth Side seeks attachment of the $2.4 million
down payment. (Dkt. 27 ¶¶ 1, 9.) Rise Construction filed its opposition on December 5,

2023. (Dkt. 28.) Fifth Side filed a supplemental affidavit from Jay on December 11,
2023. (Dkt. 35.) The Court accepted Fifth Side’s supplemental affidavit during the
December 12, 2023 hearing and also gave Rise Construction leave to file additional
materials at that time. (Dkt. 36.) Rise Construction filed those materials on December
13, 2023. (Dkts. 37, 37-1, Ex. 1-2.) The Motion is now ripe for decision.

II. LEGAL STANDARD
Fifth Side seeks the remedy of prejudgment attachment under Federal Rule of
Civil Procedure 64 and

Minn. Stat. § 570.01

.  (Dkt. 21.)  Rule 64(a) provides: “At the 
commencement of and throughout an action, every remedy is available that, under the 
law of the state where the court is located, provides for seizing a person or property to 

secure satisfaction of the potential judgment.”  Fed. R. Civ. P. 64(a).  One such remedy is 
attachment.  Fed. R. Civ. P. 64(b).                                       
    Under Minnesota law:                                                 
    As a proceeding ancillary to a civil action for the recovery of money and to 
    any action brought by the attorney general under the authority of section 
    8.31, subdivision 1, or any other law respecting unfair, discriminatory, or 
    other unlawful practices in business, commerce, or trade, the 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

 (2022).                                              
    As to the procedural requirements, the statute provides:             
    A  claimant  seeking  to  obtain  an  order  of  attachment  in  other  than 
    extraordinary circumstances shall proceed by motion. The motion 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

, subd. 1(1), (2) (2022).                            
    Section 570.02 sets forth several grounds for attachment.  See

Minn. Stat. § 570.02

, subd. 1 (2022).  Here, Fifth Side seeks attachment on two grounds.3  First, that 
Rise Construction has committed an intentional fraud giving rise to the claim upon which 
the civil action is brought, and second, that Rise Construction “has violated the law of 
this state respecting unfair, discriminatory, and other unlawful practices in business, 

3    In a footnote, Fifth Side appears to argue that it can also establish grounds for 
section 570.02, subdivision 1(1) which identifies as a ground “when the respondent has 
assigned, secreted, or disposed of, or is about to assign, secrete, or dispose of, any of the 
respondent’s nonexempt property, with intent to delay or defraud the respondent’s 
creditors.”

Minn. Stat. § 570.02

, subd. 1(1).  Fifth Side provides no evidence supporting 
this ground, and the Court does not address it further.                   
commerce, or trade, including but not limited to any of the statutes specifically 
enumerated in section 8.31, subdivision 1.”  (Dkt. 23 at 21-23 (citing

Minn. Stat. § 570.02

, subd. 1(4), (6)).)                                              
    An order for attachment will issue “only if the claimant has demonstrated the 
probability of success on the merits, and the claimant has demonstrated facts that show 
the existence of at least one of the grounds stated in section 570.02.”

Id.

 § 570.026, subd. 
3 (2022).                                                                 
    However, even if Fifth Side demonstrates a probability of success on the merits 

and one of the section 570.02 conditions is met, prejudgment attachment will not issue 
under two sets of circumstances.  The first is if “the circumstances do not constitute a risk 
to collectibility[4] of any judgment that may be entered.”

Minn. Stat. § 570.026

, subd. 
3(1).  The second circumstance is if:                                     

    (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

, subd. 3(2).                                        

4    The statute uses “collectibility” rather than “collectability.”

Minn. Stat. § 570.026

, 
subd. 3(1).  The Court does the same in this Order.                       
    Evidence supporting an order of attachment must be by testimony or affidavit 
alleging specific facts and must be more than a mere recitation of the statutory grounds 

for attachment.  Greene v. Env’t Dev. Corp.,

415 N.W.2d 374, 377

 (Minn. Ct. App. 
1987).  “Prejudgment attachment is a statutory remedy unk[n]own to the common law 
and is available only in extraordinary circumstances.”  Prospect Commc’ns, Inc. v. 
Herman, No. CIV. 13-2557 JNE/FLN,

2014 WL 65822

, at *2 (D. Minn. Jan. 8, 2014) 
(citing Connecticut v. Doehr,

501 U.S. 1, 16

 (1991)).                     

                       III.  DISCUSSION                                  
    The parties do not dispute that this lawsuit falls within the scope of

Minn. Stat. § 570.01

 and permits an attachment proceeding.  Rather, they focus their arguments on 
whether Fifth Side has demonstrated grounds for attachment, whether Fifth Side is likely 
to succeed on the merits of its claims, the risk of collectibility of $2.4 million from Rise 
Construction, whether Rise Construction has meritorious defenses or counterclaims, and 

whether the harm to Fifth Side if there is no attachment is greater than the harm to Rise 
Construction if the Court permits attachment.  (See generally, Dkt. 23 at 14-27; Dkt. 28 at 
18-39.)  However, “even though a claimant has demonstrated a probability of success on 
the merits and has demonstrated one of the specific grounds for an order of attachment, 
the order for attachment may not be granted if” one of the two bases under

Minn. Stat. § 570.026

, subdivision 3 are met.  Greene,

415 N.W.2d at 378

.  The Court therefore first 
addresses whether one or both of those bases are satisfied.               
A.   Risk of Collectibility                                               
    Prejudgment attachment will not issue if: “the circumstances do not constitute a 

risk to collectibility of any judgment that may be entered.”

Minn. Stat. § 570.026

, subd. 
3(1).  No party addressed who bears the burden of proving whether the requirement of 
section 570.026, subdivision 3(1) is met.  A nonprecedential case from the Minnesota 
Court of Appeals suggests that the burden may be on Rise Construction.  See Pietz v. 
Fedor, No. C1-88-1398,

1988 WL 120265

, at *1 (Minn. Ct. App. Nov. 15, 1988) (“At the 
subsequent hearing [to entry of an ex parte order of attachment], the burden of proof was 

on respondent to demonstrate that the statutory standards set forth at

Minn. Stat. § 570.026

, subd. 3 (1986) were met.”).  However, other cases suggest that the burden 
remains on Fifth Side as the party seeking the attachment.  See JA-Father Doe 1 v. 
Lazzaro, No. 21-CV-1985 (JWB/DJF),

2023 WL 9284429

, at *5 (D. Minn. Dec. 19, 
2023) (“The only significant issue in dispute is thus whether Plaintiffs can establish a 

‘risk of collectability’ of any future judgment in their favor.”), R. & R. adopted sub nom.,

2024 WL 169099

 (D. Minn. Jan. 16, 2024); see also Prospect Commc’ns,

2014 WL 65822

, at *2 (concluding no risk of collectibility where the plaintiff did not suggest any 
defendant planned to transfer the funds at issue and the evidence suggested that disputed 
money was “entirely secure”); MWEM, LLC v. HDC Cos., No. C6-01-2196,

2004 WL 2375824

, at *3 (Minn. Dist. Ct. July 22, 2004), amended sub nom.,

2004 WL 2375827

(Minn. Dist. Ct. Sept. 9, 2004) (concluding no risk to collectibility where there was “no
showing” that the assets of the defendants were “somehow extremely limited or subject
to immediate foreclosure or disbursement”). Here, the Court concludes that the
requirements of section 571.026, subdivision 3 are met, precluding attachment, regardless
of which party bears the burden of proof.

Fifth Side first argues that there is a risk of collectibility because “RISE
Modular—Rise Construction’s affiliate and the modular building company to which Rise
Construction subcontracted construction of the Project’s modular units—has furloughed
workers and reduced its work load [sic].” (Dkt. 23 at 24 (citing Dkt. 25 ¶ 32).)
According to Fifth Side, this demonstrates “that it does not have sufficient work or
resources to continue operations.” (Id.) Fifth Side further asserts through Balvant’s

affidavit that it “has also learned from industry sources that RISE Modular is facing
financial difficulties that may prevent it from continuing as a going concern.” (Id. (citing
Dkt. 25 ¶ 32) (emphasis added).) Fifth Side reasons: “RISE Modular is also owned by
Lawrence and is the flagship company for Lawrence’s modular activities. In other
words, if RISE Modular cannot continue its operations, Rise Construction cannot either.”

(Id.) Fifth Side’s support for these contentions are Balvant’s affidavit, which provides no
specifics as to the industry sources regarding Rise Modular’s financial difficulties and
lack of work and only speculates about Rise Modular’s ability to continue as a going
concern (Dkt. 25 ¶ 32 (using “may” and “potentially” when describing Rise Modular’s
ability to continue operations)), and a September 14, 2023 news article reporting that

Rise Modular “has instituted a ‘partial, temporary furlough’ . . . ‘in direct response to the
company’s recent loss of its next scheduled project’” (Dkt. 23 at 2 (citing Some Workers
Temporarily Furloughed at Owatonna Manufacturer, Steele County Times (Sept. 14,
2023), http://steeledodgenews.com/breaking-news-someworkers-temporarily-furloughed-
owatonna-manufacturer (last visited February 27, 2024)).

Rise Construction counters that Fifth Side has “no reasonable basis to fear it will
not be able to collect” because Rise Modular—the entity allegedly experiencing financial
difficulties—is not a party to the case and because a temporary furlough at Rise Modular
does not lead to the conclusion that Rise Construction—the named defendant—will not
pay any potential judgment entered against it. (Dkt. 28 at 33.) Rise Construction also
argues that it was Fifth Side’s failure to secure financial backing to cover the costs of the

project that caused Rise Modular “significant harm,” resulting in the “temporary financial
issues.” (Id. at 33-34.) While such equitable considerations may not be relevant to the
collectibility analysis, linking Rise Modular’s financial issues to the failure of the Project
supports the conclusion that Rise Modular is not fundamentally unstable.
Fifth Side’s “risk of collectibility” evidence consists of a 6-month-old article about

a partial, temporary furlough at non-party Rise Modular and unsubstantiated and
speculative reports from “industry sources” about Rise Modular’s financial difficulties.
This is not particularly persuasive as to Rise Construction’s ability to satisfy a judgment
of $2.4 million. Rise Modular and Rise Construction are two different entities. (Dkt. 29
¶¶ 6-7.) Fifth Side has offered no evidence of Rise Construction’s financial status or

demonstrating that Rise Construction is as dependent on Rise Modular as Fifth Side
argues. Both entities appear to be adequately funded as to their respective operations.
(Id. ¶ 9; see also Dkt. 32 ¶¶ 3, 5.) Indeed, Fifth Side previously seemed content to rely
on the fact that Rise Modular was “financially backed by significant personal family
liquidity as well as several outside investors” before executing the Agreement. (See Dkt.
25 ¶ 8.) The Court recognizes that James’ support of his son’s business interests (Rise

Construction and Rise Modular) through Ninth Street does not constitute a commitment
to satisfy a judgment, but finds this source of funding relevant to the issue of collectibility
given that Fifth Side’s argument is based on Rise Modular’s alleged inability to continue
operations.
Cases finding a risk of collectibility typically involve concrete evidence of
financial instability of the defendant or intent to hide or dispose of assets. For example,

in Greene, the Minnesota Court of Appeals found “ample evidence of a clear risk to
collectibility” where the defendant, the chairman of a construction firm, was unable to
secure a $65,000 bond for a cost of “only $1,300,” the construction firm asked the owners
of the home at issue for an additional $5,000 to $6,000 beyond the agreed-upon payments
to keep sheetrockers on the job and refused to perform more work when they refused the

request, the chairman admitted to the diversion of the homeowner’s funds during a
deposition, and the construction firm was unable to obtain construction financing.

415 N.W.2d at 375-59

.  In Lazzaro, the court found a risk of collectibility when the defendant 
transferred “half of his interest in an apartment to his girlfriend while criminal 
proceedings seeking forfeiture of that same apartment were pending”; had “offshore bank 

accounts and cryptocurrency holdings that put him in the unique position of being able to 
retain his wealth while rendering himself judgment-proof”; and, after initiation of the 
civil lawsuit, “sold off a second property he owned in Hennepin County and four of the 
six properties he owned in North Carolina.”

2023 WL 9284429

, at *5-6, R. & R. adopted 
sub nom.,

2024 WL 169099

 (D. Minn. Jan. 16, 2024).  In Dehn v. Dehn, the court found a 
risk of collectibility where the defendant had encumbered property that may have been 

used, in part, to satisfy a civil judgment against him through mortgages where the timing 
was “suspect” because the closing of one of the mortgages occurred “at or around the 
time defendant was scheduled for trial involving the criminal charges” associated with 
the civil claims and “the defendant’s son inquired when a civil suit might be filed so that 
the defendant could transfer at least one property to him.”  No. PI04-01473,

2004 WL 5322255

 (Minn. Dist. Ct. July 07, 2004).  No such circumstances are present here. 

    Rise Construction relies on Pietz v. Fedor to support its collectibility arguments.  
(Dkt. 28 at 34.)  In Pietz, after the district court ordered attachment of rent proceeds, the 
Minnesota Court of Appeals reversed the order based on “evidence that (1) [the 
appellants] were good citizens of the community, (2) they had families in the community, 
(3) the allegedly converted assets had been in their bank accounts for months prior to 

respondent’s application for a writ of attachment, and (4) they had no intentions of 
disposing of the assets.”

1988 WL 120265

, at *2.  Fifth Side is correct that Rise 
Construction did not provide this level of evidence to show no risk of collectibility.  But 
Fifth Side has cited no case where vague, unsubstantiated allegations of financial 
difficulties and a six-month-old article about a furlough are sufficient to show a risk of 

collectability.  Here, where there is evidence that both Rise Construction and Rise 
Modular are adequately funded through James and Ninth Street to continue operations, 
and apparently remain in operation as of the date of this Order, the Court finds the 
circumstances do not constitute a risk of collectibility.5  See MWEM,

2004 WL 2375824

, 
at *2 (finding no risk of collectibility where newly added defendant was “a going entity 

with assets,” including recent payments, and there was no showing that other defendants’ 
assets “[we]re somehow extremely limited or subject to immediate foreclosure or 
disbursement in some fashion”).  The Court denies the Motion because attachment is 
precluded under

Minn. Stat. § 570.026

, subdivision 3(1).                  
B.   Merits of Defenses or Counterclaims, Bond, and Harm                  

    Section 570.026, subdivision 3 provides a second ground precluding attachment, 
namely if the following three conditions are met:                         
    (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

, subd. 3(2).
Fifth Side argues that Rise Construction has not raised a meritorious defense
because Rise Construction was not justified in terminating the agreement given that Fifth
Side timely paid the $2.4 million down payment, “was transparent and forthcoming with

5 Rise Construction argues that the law does not support a finding of a risk to
collectibility because the $2.4 million is not Fifth Side’s property. (Id. at 34.) The
question of which entity owns the $2.4 million is more relevant to the merits of the
claims and defenses and harm, and the Court addresses it in those contexts.
the timing for future Project funding,” and timely and appropriately responded to requests
for financial assurances. (Dkt. 23 at 25.) Rise Construction counters:

[Rise Construction] raises several valid defenses to Fifth Side’s baseless
claims, including that Fifth Side materially breached the Agreement, [Rise
Construction] did not legally cause any damages or injuries allegedly
suffered by Fifth Side, and Fifth Side’s claims are barred by the express terms
of the Agreement. These meritorious defenses find support in several facts,
including Fifth Side’s failure to secure proper funding for the Project, Fifth
Side’s express agreement to pay a fully vested, nonrefundable downpayment,
and Fifth Side’s contractual duty to provide reasonable evidence of financial
capability when asked.

(Dkt. 28 at 37 (citations omitted).)
The fact that the $2.4 million down payment was “fully vested” and “non-
refundable” renders meritorious Rise Construction’s defense that the request for return of
that down payment is barred by the express terms of the Agreement. Perhaps in an
attempt to avoid that fact, Fifth Side’s brief is replete with allegations of misconduct,
including those of untrue statements, bad faith conduct, fraud, theft, an “ulterior motive,”
a “scheme,” and bad intent. (See generally Dkt. 23 at 17-20.)
To demonstrate the alleged misconduct, Fifth Side first relies on “the financial
challenges evidenced by the $1.6 million budget deficit soon after the contract closed.”
(Dkt. 28 at 19 (emphasis added).) As Fifth Side knows, this statement is incorrect. Rise
Construction told Fifth Side about the $1.6 million deficit on May 8, 2023, before the
parties executed the Agreement. (Dkt. 25 ¶¶ 15, 18.) The Court is not persuaded at this
point that the $1.6 million deficit shows intent to defraud or bad motive when Fifth Side
knew about the deficit before signing the Agreement and the parties resolved the deficit
with each party taking responsibility for about half of the deficit. (Id. ¶ 15.)
Fifth Side also relies on what it describes as a lack of “meaningful work” and
“escalating and inexplicable requests for greater financial assurances” to show Rise

Construction’s fraudulent intent. (Dkt. 28 at 18, 19, 21.) According to Fifth Side: “The
only logical explanation for these financial requests was to ultimately undermine the
Project as a cover so Rise Construction could use its ill-gotten gains to satisfy its
financial shortcomings.” (Id. at 21.) In other words, Fifth Side is arguing Rise
Construction committed to a $25 million Project, then committed at least approximately
$400,000 in materials to the Project, and then terminated the Agreement in an elaborate

scheme to solely obtain $2.4 million from Fifth Side.
This Court is not persuaded that defrauding Fifth Side is the “only logical
explanation” for Rise Construction’s requests for financial assurances. There is sufficient
evidence in the record that Rise Construction was genuinely concerned about whether
Fifth Side would receive the funding it sought. Further, Rise Construction has offered

evidence of other financial commitments it made based on the Project, including
reserving space at Rise Modular’s factory using the $2.4 million down payment, and
“over $14 million in subcontracts” entered into by Rise Construction. (Dkt. 29 ¶¶ 40, 80;
Dkt. 30 ¶ 9; Dkt. 30-1, Ex. 2 at 6.) The parties dispute to what extent Fifth Side knew
that the downpayment would be needed to secure factory space at Rise Modular.

(Compare Dkt. 29 ¶ 31 (“[Rise Construction] explained to Fifth Side that there would be
large upfront costs for materials, equipment, engaging subcontractors, and reserving and
setting up the factory to perform the Project.”), with Dkt. 35 ¶ 3 (“[Jay] had numerous
conversations with Christian Lawrence prior to signing the construction agreement
regarding the purpose of the $2.4 million downpayment. [Christian] explained to me that
the purpose of the deposits was primarily to secure materials needed to create the

modular boxes for the project. I was never told that the downpayment was for securing
space at RISE Modular’s factory.”).) Nevertheless, there is sufficient evidence of Rise
Construction’s financial commitments arising from the Project and concern about Fifth
Side’s ability to obtain funding to render meritorious its defense to Fifth Side’s claims of
bad faith and fraud to the extent they are based on a scheme to obtain $2.4 million for
purposes other than the Project.

Moreover, while the parties hotly dispute whether Fifth Side’s assurances about its
ability to meet its financial obligations were “reasonable,” Rise Construction has a
meritorious defense that the assurances Fifth Side provided were not “reasonable.” The
record is clear that Rise Construction raised concerns about obtaining financing at least as
early as July 24, 2023 and engaged with Fifth Side regarding its requests before sending a

default letter with a 14-day cure period on August 2, 2023. (E.g., Dkt. 29 ¶¶ 50-52, 58-
59, 65, 75.) There is also evidence of why Rise Construction was not satisfied by what
Fifth Side provided. (E.g.,

id. ¶¶ 66-74

.)  At the hearing, both sides stated they would 
likely call experts on the issue of reasonableness.  Based on the Court’s review of the 
current evidence, and the complexity of the issue, the Court finds that Rise 

Construction’s defense is meritorious and is not frivolous.  The Court therefore does not 
address whether Rise Construction’s counterclaims are in an amount equal to or greater 
than the claims.                                                          
    The Court turns to the bond.  The statute provides, “[b]efore issuing any order of 
attachment, the court shall require the claimant to post a bond in the penal sum of at least 

$500,” and if considering an amount greater, the court must “consider the value and 
nature of the property attached, the method of retention or storage of the property, the 
potential harm to the respondent or any party, and other factors that the court deems 
appropriate.”

Minn. Stat. § 570.041

, subd. 1. Fifth Side urges the Court to find that “a
bond in the amount of $500 is reasonable” (Dkt. 27 at 3) but made no argument as to
whether or how the bond could adequately protect Rise Construction’s interests (see Dkt.

23 at 26-27). Rise Construction argues that it would not be adequately protected by such
a bond. (Dkt. 28 at 37-38.) Rise Construction specifically identifies its over $2.8 million
in non-refundable obligations to its subcontractors, including the $2.4 million payment to
Rise Modular, and states it negotiated the non-refundable $2.4 million down payment
from Fifth Side “to ensure unforeseen delays or termination would not leave [Rise

Construction] entirely exposed to the Project’s financial obligation” as evidence that a
bond would not protect its interest. (Dkt. 28 at 37-38; see also Dkt. 29 ¶¶ 29, 31, 34-36,
78-83; Dkt. 30 ¶ 9; Dkt. 30-1, Exs. 2, 5.) The Court finds that a $500 bond would not
adequately protect Rise Construction’s interests if the $2.4 million were attached. As
Fifth Side proposed no other bond, the Court does not consider alternative amounts.

Finally, the Court turns to the third factor of whether the harm suffered by Rise
Construction would be greater than the harm suffered by Fifth Side if attachment were
granted. Fifth Side argues it:
[I]s merely asking that the significant down payment it paid to Rise
Construction (the vast amount of which has not been spent) be attached by
the Court pending the litigation so that Fifth Side may recover it upon an
entry of judgment. These funds were intended to be spent on the Project,
which is no longer going forward, so Defendants could not possibly be
harmed by the requested attachment.

(Dkt. 23 at 26-27.)
The Agreement states the $2.4 million down payment was non-refundable. (Dkt.
25-1, Ex. 2 at 8.) Further, contrary to Fifth Side’s argument, there is evidence that the
$2.4 million was spent on the Project, specifically to cover most of the $2.7 million cost
of reserving factory space at Rise Modular. (Dkt. 29 ¶ 40.) Attachment would result in a
loss of another $2.4 million from Rise Construction’s accounts at a time when it still
owes money to other subcontractors. The Court therefore finds that the harm to Rise
Construction if it orders attachment outweighs the harm to Fifth Side if the Court does
not attach a $2.4 million “non-refundable” and “fully-vested” payment made by Fifth
Side pursuant to agreed-upon contract terms.
In sum, all three requirements of section 570.026, subdivision 3(2) are met. This
is an independent basis for denying the Motion.
IV. ORDER
For the reasons stated above, and based upon all the files, records, and proceedings
herein, IT IS ORDERED THAT: Plaintiff Fifth Side Lodging, LLC’s Motion for
Prejudgment Attachment (Dkt. 21) is DENIED.

Dated: February 27, 2024 s/Elizabeth Cowan Wright
ELIZABETH COWAN WRIGHT
United States Magistrate Judge

Trial Court Opinion

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Fifth Side Lodging, LLC,
Civil No. 23-cv-2649 (JMB/ECW)
Plaintiff,

v. ORDER

Rise Construction Services, LLC and
Christian Lawrence,

Defendants and
Counterclaim Plaintiffs,

Fifth Side Lodging, LLC, Jayshal Bhakta,
Ravikumar Patel, and Balvant Patel,

Counterclaim Defendants.

(Id. ¶ 9.)

§ 5.0.1.1 One million dollars ($1,000,000.00 within forty-eight (48)
hours of Contractor executing this Agreement.

§ 5.0.1.2 One million and four hundred thousand dollars
($1,400,000.00) within thirty (30) days of the Contractor executing
this Agreement.

§ 5.0.4 Owner will obtain and pay for the Project’s building permit from
the City of Edina within three (3) business days after Owner is informed
that the permit is ready to be picked up.

1. $1,000,000 if termination occurs between July 1 and July 31, 2023;
2. $2,000,000 if termination occurs any time after July 31, 2023;

Thank you again!

As per the bank statement, I will send that directly to you as well.

We do have over 2M in deposits at this point in time, so you can be assured
that the loan will close and this project is moving forward.

II. LEGAL STANDARD
Fifth Side seeks the remedy of prejudgment attachment under Federal Rule of
Civil Procedure 64 and

Minn. Stat. § 570.01

.  (Dkt. 21.)  Rule 64(a) provides: “At the 
commencement of and throughout an action, every remedy is available that, under the 
law of the state where the court is located, provides for seizing a person or property to 

secure satisfaction of the potential judgment.”  Fed. R. Civ. P. 64(a).  One such remedy is 
attachment.  Fed. R. Civ. P. 64(b).                                       
    Under Minnesota law:                                                 
    As a proceeding ancillary to a civil action for the recovery of money and to 
    any action brought by the attorney general under the authority of section 
    8.31, subdivision 1, or any other law respecting unfair, discriminatory, or 
    other unlawful practices in business, commerce, or trade, the 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

 (2022).                                              
    As to the procedural requirements, the statute provides:             
    A  claimant  seeking  to  obtain  an  order  of  attachment  in  other  than 
    extraordinary circumstances shall proceed by motion. The motion 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

, subd. 1(1), (2) (2022).                            
    Section 570.02 sets forth several grounds for attachment.  See

Minn. Stat. § 570.02

, subd. 1 (2022).  Here, Fifth Side seeks attachment on two grounds.3  First, that 
Rise Construction has committed an intentional fraud giving rise to the claim upon which 
the civil action is brought, and second, that Rise Construction “has violated the law of 
this state respecting unfair, discriminatory, and other unlawful practices in business, 

3    In a footnote, Fifth Side appears to argue that it can also establish grounds for 
section 570.02, subdivision 1(1) which identifies as a ground “when the respondent has 
assigned, secreted, or disposed of, or is about to assign, secrete, or dispose of, any of the 
respondent’s nonexempt property, with intent to delay or defraud the respondent’s 
creditors.”

Minn. Stat. § 570.02

, subd. 1(1).  Fifth Side provides no evidence supporting 
this ground, and the Court does not address it further.                   
commerce, or trade, including but not limited to any of the statutes specifically 
enumerated in section 8.31, subdivision 1.”  (Dkt. 23 at 21-23 (citing

Minn. Stat. § 570.02

, subd. 1(4), (6)).)                                              
    An order for attachment will issue “only if the claimant has demonstrated the 
probability of success on the merits, and the claimant has demonstrated facts that show 
the existence of at least one of the grounds stated in section 570.02.”

Id.

 § 570.026, subd. 
3 (2022).                                                                 
    However, even if Fifth Side demonstrates a probability of success on the merits 

and one of the section 570.02 conditions is met, prejudgment attachment will not issue 
under two sets of circumstances.  The first is if “the circumstances do not constitute a risk 
to collectibility[4] of any judgment that may be entered.”

Minn. Stat. § 570.026

, subd. 
3(1).  The second circumstance is if:                                     

    (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

, subd. 3(2).                                        

4    The statute uses “collectibility” rather than “collectability.”

Minn. Stat. § 570.026

, 
subd. 3(1).  The Court does the same in this Order.                       
    Evidence supporting an order of attachment must be by testimony or affidavit 
alleging specific facts and must be more than a mere recitation of the statutory grounds 

for attachment.  Greene v. Env’t Dev. Corp.,

415 N.W.2d 374, 377

 (Minn. Ct. App. 
1987).  “Prejudgment attachment is a statutory remedy unk[n]own to the common law 
and is available only in extraordinary circumstances.”  Prospect Commc’ns, Inc. v. 
Herman, No. CIV. 13-2557 JNE/FLN,

2014 WL 65822

, at *2 (D. Minn. Jan. 8, 2014) 
(citing Connecticut v. Doehr,

501 U.S. 1, 16

 (1991)).                     

                       III.  DISCUSSION                                  
    The parties do not dispute that this lawsuit falls within the scope of

Minn. Stat. § 570.01

 and permits an attachment proceeding.  Rather, they focus their arguments on 
whether Fifth Side has demonstrated grounds for attachment, whether Fifth Side is likely 
to succeed on the merits of its claims, the risk of collectibility of $2.4 million from Rise 
Construction, whether Rise Construction has meritorious defenses or counterclaims, and 

whether the harm to Fifth Side if there is no attachment is greater than the harm to Rise 
Construction if the Court permits attachment.  (See generally, Dkt. 23 at 14-27; Dkt. 28 at 
18-39.)  However, “even though a claimant has demonstrated a probability of success on 
the merits and has demonstrated one of the specific grounds for an order of attachment, 
the order for attachment may not be granted if” one of the two bases under

Minn. Stat. § 570.026

, subdivision 3 are met.  Greene,

415 N.W.2d at 378

.  The Court therefore first 
addresses whether one or both of those bases are satisfied.               
A.   Risk of Collectibility                                               
    Prejudgment attachment will not issue if: “the circumstances do not constitute a 

risk to collectibility of any judgment that may be entered.”

Minn. Stat. § 570.026

, subd. 
3(1).  No party addressed who bears the burden of proving whether the requirement of 
section 570.026, subdivision 3(1) is met.  A nonprecedential case from the Minnesota 
Court of Appeals suggests that the burden may be on Rise Construction.  See Pietz v. 
Fedor, No. C1-88-1398,

1988 WL 120265

, at *1 (Minn. Ct. App. Nov. 15, 1988) (“At the 
subsequent hearing [to entry of an ex parte order of attachment], the burden of proof was 

on respondent to demonstrate that the statutory standards set forth at

Minn. Stat. § 570.026

, subd. 3 (1986) were met.”).  However, other cases suggest that the burden 
remains on Fifth Side as the party seeking the attachment.  See JA-Father Doe 1 v. 
Lazzaro, No. 21-CV-1985 (JWB/DJF),

2023 WL 9284429

, at *5 (D. Minn. Dec. 19, 
2023) (“The only significant issue in dispute is thus whether Plaintiffs can establish a 

‘risk of collectability’ of any future judgment in their favor.”), R. & R. adopted sub nom.,

2024 WL 169099

 (D. Minn. Jan. 16, 2024); see also Prospect Commc’ns,

2014 WL 65822

, at *2 (concluding no risk of collectibility where the plaintiff did not suggest any 
defendant planned to transfer the funds at issue and the evidence suggested that disputed 
money was “entirely secure”); MWEM, LLC v. HDC Cos., No. C6-01-2196,

2004 WL 2375824

, at *3 (Minn. Dist. Ct. July 22, 2004), amended sub nom.,

2004 WL 2375827

request, the chairman admitted to the diversion of the homeowner’s funds during a
deposition, and the construction firm was unable to obtain construction financing.

415 N.W.2d at 375-59

.  In Lazzaro, the court found a risk of collectibility when the defendant 
transferred “half of his interest in an apartment to his girlfriend while criminal 
proceedings seeking forfeiture of that same apartment were pending”; had “offshore bank 

accounts and cryptocurrency holdings that put him in the unique position of being able to 
retain his wealth while rendering himself judgment-proof”; and, after initiation of the 
civil lawsuit, “sold off a second property he owned in Hennepin County and four of the 
six properties he owned in North Carolina.”

2023 WL 9284429

, at *5-6, R. & R. adopted 
sub nom.,

2024 WL 169099

 (D. Minn. Jan. 16, 2024).  In Dehn v. Dehn, the court found a 
risk of collectibility where the defendant had encumbered property that may have been 

used, in part, to satisfy a civil judgment against him through mortgages where the timing 
was “suspect” because the closing of one of the mortgages occurred “at or around the 
time defendant was scheduled for trial involving the criminal charges” associated with 
the civil claims and “the defendant’s son inquired when a civil suit might be filed so that 
the defendant could transfer at least one property to him.”  No. PI04-01473,

2004 WL 5322255

 (Minn. Dist. Ct. July 07, 2004).  No such circumstances are present here. 

    Rise Construction relies on Pietz v. Fedor to support its collectibility arguments.  
(Dkt. 28 at 34.)  In Pietz, after the district court ordered attachment of rent proceeds, the 
Minnesota Court of Appeals reversed the order based on “evidence that (1) [the 
appellants] were good citizens of the community, (2) they had families in the community, 
(3) the allegedly converted assets had been in their bank accounts for months prior to 

respondent’s application for a writ of attachment, and (4) they had no intentions of 
disposing of the assets.”

1988 WL 120265

, at *2.  Fifth Side is correct that Rise 
Construction did not provide this level of evidence to show no risk of collectibility.  But 
Fifth Side has cited no case where vague, unsubstantiated allegations of financial 
difficulties and a six-month-old article about a furlough are sufficient to show a risk of 

collectability.  Here, where there is evidence that both Rise Construction and Rise 
Modular are adequately funded through James and Ninth Street to continue operations, 
and apparently remain in operation as of the date of this Order, the Court finds the 
circumstances do not constitute a risk of collectibility.5  See MWEM,

2004 WL 2375824

, 
at *2 (finding no risk of collectibility where newly added defendant was “a going entity 

with assets,” including recent payments, and there was no showing that other defendants’ 
assets “[we]re somehow extremely limited or subject to immediate foreclosure or 
disbursement in some fashion”).  The Court denies the Motion because attachment is 
precluded under

Minn. Stat. § 570.026

, subdivision 3(1).                  
B.   Merits of Defenses or Counterclaims, Bond, and Harm                  

    Section 570.026, subdivision 3 provides a second ground precluding attachment, 
namely if the following three conditions are met:                         
    (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

id. ¶¶ 66-74

.)  At the hearing, both sides stated they would 
likely call experts on the issue of reasonableness.  Based on the Court’s review of the 
current evidence, and the complexity of the issue, the Court finds that Rise 

Construction’s defense is meritorious and is not frivolous.  The Court therefore does not 
address whether Rise Construction’s counterclaims are in an amount equal to or greater 
than the claims.                                                          
    The Court turns to the bond.  The statute provides, “[b]efore issuing any order of 
attachment, the court shall require the claimant to post a bond in the penal sum of at least 

$500,” and if considering an amount greater, the court must “consider the value and 
nature of the property attached, the method of retention or storage of the property, the 
potential harm to the respondent or any party, and other factors that the court deems 
appropriate.”

Minn. Stat. § 570.041

Dated: February 27, 2024 s/Elizabeth Cowan Wright
ELIZABETH COWAN WRIGHT
United States Magistrate Judge

Reference

Status: Unknown