Opinion
A21-0397
12-07-2021
Fern Hill Place Retail Association, Inc., Appellant, v. Fern Hill Place Homeowners Association, Inc., et al., Respondents, The Cincinnati Insurance Company, Respondent.
Hennepin County District Court File No. 27-CV-20-8591
Considered and decided by Bratvold, Presiding Judge; Larkin, Judge; and Jesson, Judge.
ORDER OPINION
Diane B. Bratvold Judge
BASED ON THE FILE, RECORD, AND PROCEEDINGS, AND BECAUSE:
1. Appellant Fern Hill Retail Association Inc. (RA) challenges a district court judgment for respondents Fern Hill Place Homeowners Association Inc. (HOA), Cities Management Inc. (Cities), and The Cincinnati Insurance Company (Cincinnati). The district court granted respondents' motions to dismiss two counts in RA's complaint as collaterally estopped and granted HOA and Cities' summary judgment motion on a third count because the parties settled this claim.
2. RA and HOA are common-interest communities that control different portions of the same property, Fern Hill Place. RA and HOA signed a declaration that governs their relationship and respective duties (Declaration). RA is responsible for the property's street-level retail space while HOA is responsible for the residential units occupying the property's upper floors and a below-ground parking garage. Cities is HOA's property manager. Cincinnati insured Fern Hill Place under a business owners' policy and a residential condominium association and townhouses policy (the policies).
3. This lawsuit is the latest in a series of disputes between RA and HOA beginning in October 2014. The first dispute involved an arbitration decision. Fern Hill Place Retail Ass'n, Inc. v. Fern Hill Place Homeowners Ass'n, Inc., No. A14-1318, 2016 WL 1551669 (Minn.App. Apr. 18, 2016) (affirming order denying RA's motion to vacate arbitration) (Fern Hill I), rev. denied (Minn. June 29, 2016).
4. While Fern Hill I was pending in this court, RA sued HOA under the Minnesota Common Interest Ownership Act (the Act) in March 2015, alleging damages because of unperformed repairs (the 2015 litigation). HOA prevailed on its motion for summary judgment in the 2015 litigation and, in June 2016, the district court granted HOA's motion for attorney fees, directing entry of judgment for $272,546.77. The district court's fee award relied on a provision in the Act that allows the prevailing party to seek attorney fees. Minn. Stat. § 515B.4-116(b) (2020).
5. The district court rejected RA's arguments against the fee award, two of which are relevant to the issues in this appeal. First, the district court determined HOA's insurance, which provided coverage for HOA's defense, did not prevent recovery of attorney fees under the Act. The district court reasoned "nothing in the statute mandates that a prevailing party must have personally incurred attorneys' fees and costs in order for the court to grant an award, and there is no prohibition in the Act on an award of attorneys' fees that are covered by insurance." Second, the district court determined HOA did not waive its attorney-fee claim because RA and HOA were co-insureds under the policies, nor was it relevant that Cincinnati may have a subrogation right to recover payments to HOA. The district court reasoned in three steps: (a) RA failed to prove it was a coinsured of HOA; (b) RA's reading of the parties' Declaration as waiving claims against co-insureds was incorrect; and (c) the Act provided independent grounds for the fee award. The district court concluded, "this is not a subrogation or waiver issue," in part, because the insurance company is not a party and "is not exercising its right to subrogation."
6. RA appealed and challenged the district court's determination that HOA was a prevailing party under the Act, among other issues. RA did not raise its other arguments against the attorney-fee award. We affirmed the attorney-fee award and stated, "[RA's] lawsuit against HOA is meritless, and HOA is plainly entitled to attorney fees as a prevailing party." Fern Hill Place Retail Ass'n, Inc. v. Fern Hill Place Homeowners Ass'n, Inc., No. A17-1923, 2018 WL 3716261, at *8 (Minn.App. Aug. 6, 2018) (Fern Hill II). RA did not petition for further review in the supreme court.
7. In 2020, RA sued HOA for the third time, this time joining Cities and Cincinnati. RA's complaint alleges three counts: (1) subrogation law bars enforcement of the judgment for attorney fees because, after 2015 litigation, "circumstances have changed" since Cincinnati paid HOA's attorney fees under the policies; (2) HOA's fraud requires setting aside the attorney-fee judgment under Minn. Stat. § 548.14 (2020) because HOA moved for fees without disclosing that Cincinnati paid for HOA's attorney fees; and (3) Cities improperly deposited funds paid by Cincinnati under the policies by depositing a check made out to RA into HOA's bank account (the 2020 complaint).
8. HOA and Cities jointly moved to dismiss the first two counts and moved for summary judgment on the third count. Cincinnati separately moved to dismiss the first count. After a hearing, the district court issued an order determining collateral estoppel barred counts one and two and the parties had settled count three. RA appeals.
9. We will consider each count of the 2020 complaint in turn. First, RA argues the district court erred by applying collateral estoppel and thus count one should not have been dismissed under Minn. R. Civ. P. 12.02(e).
10. "When reviewing a case dismissed pursuant to Minn. R. Civ. P. 12.02(e) for failure to state a claim on which relief can be granted, the question before this court is whether the complaint sets forth a legally sufficient claim for relief. Our review is de novo." Hebert v. City of Fifty Lakes, 744 N.W.2d 226, 229 (Minn. 2008) (citation omitted). "Whether collateral estoppel precludes litigation of an issue is a mixed question of law and fact that we review de novo." Hauschildt v. Beckingham, 686 N.W.2d 829, 837 (Minn. 2004) (citation omitted). "Once the reviewing court determines that collateral estoppel is available, the decision to apply collateral estoppel is left to the [district] court's discretion." In re Est. of Perrin, 796 N.W.2d 175, 179 (Minn.App. 2011) (quotation omitted).
11. Collateral estoppel bars relitigation of previously decided issues and applies when: (1) the issue is "identical" to one raised in prior adjudication; (2) "there was a final judgment on the merits" of the identical issue; (3) "the estopped party was a party or in privity with a party to the prior adjudication"; and (4) "the estopped party was given a full and fair opportunity to be heard on the adjudicated issue." Ellis v. Minneapolis Comm'n on Civ. Rts., 319 N.W.2d 702, 704 (Minn. 1982).
12. The first element of collateral estoppel requires identical issues. The 2020 complaint asserts HOA's judgment for attorney fees was defeated by subrogation, waived by the Declaration, or satisfied by Cincinnati's payments under the policies to HOA for attorney fees. The 2015 litigation addressed the same issues, rejecting RA's reading of the Declaration and stating, "this is not a subrogation or waiver issue." The district court also reasoned the statute independently authorized recovery of attorney fees and costs by the prevailing party and concluded, "there is no prohibition in the Act on an award of attorneys' fees that are covered by insurance." Thus, the issue raised on appeal is identical to the one raised and decided in the 2015 litigation.
13. The second element of collateral estoppel requires a final judgment on the merits. RA does not challenge the finality of the judgment in the 2015 litigation. Thus, this element is satisfied.
14. The third element of collateral estoppel requires the party being estopped to have been a party or in privity with a party in the prior litigation. RA argues the 2020 complaint added Cincinnati as a party to the litigation so the third element cannot be satisfied. This argument fails to differentiate between res judicata and collateral estoppel. While the two are related doctrines, "each doctrine is distinct in its effect." Beckingham, 686 N.W.2d at 837. Collateral estoppel requires "the estopped party was a party or was in privity with a party to the prior adjudication." Ellis, 319 N.W.2d at 704. RA is the "estopped party" and cannot avoid collateral estoppel by adding new parties and continuing to relitigate the same claims.
15. The fourth element of collateral estoppel requires a full and fair opportunity to litigate the issue. RA argues it has not had an opportunity to litigate whether subrogation bars HOA's attorney fees claim based on intervening facts. According to RA, Cincinnati paid HOA for attorney fees after the 2015 litigation ended. Thus, RA contends the subrogation issue in the 2015 litigation was hypothetical because no payment had been made. This is unpersuasive because RA had a full and fair opportunity to litigate whether Cincinnati's obligation to pay attorney fees to HOA under the policies (i.e., RA's claimed "subrogation interest") defeated HOA's claim or judgment for attorney fees.
16. Finally, RA argues the application of collateral estoppel is not equitable because the district court in the 2015 litigation erred in its statutory analysis when awarding attorney fees and failed to make necessary findings under the Act, relying on Minn. Stat. § 515B.4-116(a). The district court in the 2015 litigation rejected the same argument and reasoned, "RA effectively asks the court to read additional language into the statute, but the court declines to do so." RA did not raise this argument during its prior appeal. See Fern Hill II, 2018 WL 3716261, at *8. Thus, equity favors applying collateral estoppel to count one of the 2020 complaint, RA's subrogation claim.
17. Because all four elements of collateral estoppel are satisfied and the district court properly exercised its discretion by applying collateral estoppel to bar relitigation of an issue, we affirm the district court's dismissal of count one.
18. Count two of the 2020 complaint alleges, in the alternative, that HOA's motion for attorney fees was fraudulent because HOA failed to disclose Cincinnati's obligation to pay attorney fees. RA does not raise count two in its brief to this court. Thus, RA forfeited its claim under count two. See Frank v. Winter, 528 N.W.2d 910, 913 (Minn.App. 1995) ("[A] party's failure to address an argument in its brief results in waiver of that argument."), rev. denied (Minn. Apr. 27, 1995).
19. Finally, we turn to count three of the 2020 complaint. Count three is unrelated to counts one and two as it is based on different facts. In August 2013 and June 2017, Fern Hill Place suffered hail damage, which Cincinnati determined had a replacement-cost value of $124,090.67 and an actual-cash value, minus the deductible, of $81,549. Cincinnati issued one check each to RA and HOA to pay the actual-cash value of the hail damage. Cincinnati mailed the two checks to Cities, which deposited the checks in HOA's bank account, apparently without RA's consent. Cincinnati acknowledged it may cover depreciation from the hail damage, depending on the actual cost of repairs.
20. Count three of the 2020 complaint stated two theories related to the hail damage. First, RA claimed damages for diminished property value based on HOA's delay in repairing the property. RA claimed that, during previous litigation, the parties agreed HOA would oversee all maintenance and repair of the roof. Second, RA claimed it is entitled to one of the two checks issued by Cincinnati as well as one-half of any depreciation recovery issued by Cincinnati. On appeal, RA contends the district court failed to address all of count three when it determined the parties had settled by agreeing to escrow Cincinnati's disputed insurance payments to RA.
21. During the summary-judgment hearing, the district court asked whether the parties could resolve count three and to advise the court if they did not succeed. The district court stated, "based on what [it] heard both sides say during the argument today, it seems to [the court] there is grounds for reaching an agreement." In its order granting summary judgment on count three, the district court reported the parties agreed to hold the disputed checks in escrow, and, for that reason, the district court granted the motion for summary judgment.
22. In its brief to this court, RA does not dispute the parties agreed to alert the district court if they could not resolve count three. From the district court's order, we infer RA failed to notify the district court that its hail-damage claim was not resolved by holding the disputed checks in escrow. We conclude the district court did not abuse its discretion by concluding the parties settled count three. See Johnson v. St. Paul Ins. Co., 305 N.W.2d 571, 573 (Minn. 1981) (vacating a settlement is "largely within the discretion of the trial court" and will not be "reversed unless it be shown that the court acted in such an arbitrary manner as to frustrate justice").
23. Alternatively, any error in granting summary judgment on count three is harmless. See Minn. R. Civ. P. 61 (requiring the court to disregard harmless error). In RA's memorandum in opposition to summary judgment on count three, RA made one argument: it was entitled to recovery of one of the checks issued by Cincinnati. RA did not raise a diminution-in-value claim based on HOA's delay in performing repairs. A party forfeits any argument not raised in district court and we decline to consider the diminution-in-value claim because it is raised for the first time on appeal. Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988). Thus, the district court did not err by granting summary judgment on count three.
IT IS HEREBY ORDERED:
1. The judgment is affirmed.
2. Pursuant to Minn. R. Civ. App. P. 136.01, subd. 1(c), this order opinion is nonprecedential, except as law of the case, res judicata, or collateral estoppel.