Opinion
No. A04-1266.
Filed June 14, 2005.
Appeal from the District Court, Washington County, File No. C8-00-2529.
Patrick J. McLaughlin, Charles C. Moore, Jonathan D. Wilson, Dorsey Whitney, (for respondents).
Lisa M. Agrimonti, Margaret E. Adamczyk, Briggs and Morgan, P.A., (for appellants).
Considered and decided by Kalitowski, Presiding Judge; Klaphake, Judge; and Poritsky, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
This mortgage-foreclosure proceeding involves a parcel of land with multiple mortgages on it. Respondents mortgagees brought an action to foreclose their mortgages, but did not join appellants, one of which also held a mortgage on the same property, and the other of which was the entity servicing the first appellant's mortgage. Respondents, after obtaining a foreclosure judgment, moved to join appellants as defendants in the action, and the district court granted the motion. Subsequently, the district court ruled that appellants were collaterally estopped from challenging the foreclosure of respondents' mortgages. Appellants challenge both the district court's order joining them and the court's application of collateral estoppel against them. We affirm the district court's ruling allowing respondents to join appellants to the action, but reverse the district court's use of collateral estoppel to preclude appellants from challenging respondent's foreclosure judgment, and remand for further proceedings.
FACTS
Roberto and Lydia Contreras moved to Minnesota in 1996. The Contreras family were major shareholders in Technimar, Inc., and Mr. Contreras was the company's president until November 1997, when he resigned. To finance the purchase of a home in Minnesota, the Contrerases borrowed $530,000 from respondents Minneapolis Police Relief Association, Minneapolis Police Benevolence Association, and Police Officers Federation of Minneapolis (collectively the "Police"). Respondents are Minneapolis-based, non-profit agencies that each provide various services to, and on behalf of, Minneapolis police officers. To secure the debt, the Contrerases mortgaged their home to the Police. The Police also made loans to the Contrerases' business.
Throughout the relevant events, David Welliver acted on behalf of both parties. As the Police describe it, with commendable understatement, "Welliver wore several hats." He was the investment advisor for the Police, and among other responsibilities, the Police relied on him to insure that they had funds to meet various obligations. But he also raised money for Technimar and caused the Police to invest millions in Technimar. Ultimately, Technimar failed, and because of the Police's investments in the company, the Police incurred substantial losses.
Union Bank acted as the trust bank for the Police. In the fall of 1997, the Contrerases borrowed funds from Marquette Bank. Mr. Contreras testified that the funds were to pay off the mortgage debt to the Police. On September 30, 1997, Union Bank received a wire $530,000 transfer from Marquette Bank. On October 1, Union Bank received a check from Welliver in the amount of $357,000. Mr. Contreras testified at trial that he and his wife were acting on the advice of Welliver. But also on October 1, Union Bank received a letter from Welliver, instructing the bank to allocate the funds from his check and from the Marquette Bank wire transfer in part to the mortgage and in part to the debts of Technimar. As a result, the mortgage debt was not completely paid off.
Alleging that they thought that the 1997 payment paid off the mortgage, the Contrerases stopped making mortgage payments, causing a mortgage default. During the resulting foreclosure-by-action brought by the Police, but before the Police filed a notice of lis pendens, the Contrerases mortgaged their home to another lender who assigned the mortgage to appellants Chase Manhattan Bank, et al. (Chase).
In the Police's foreclosure action, a jury returned a verdict stating that the 1997 payment did not satisfy the Contrerases' mortgage. Three months after the trial, the Police's counsel learned of the Chase mortgage, but because of negotiations between the Police and Chase, neither the Police nor Chase took action to bring Chase into the foreclosure action. Based on the jury's verdict, the Police sought a summary judgment in the foreclosure action against the then-named defendants, which the district court granted. Subsequently, and apparently because the Police-Chase negotiations broke down, the Police moved to amend its complaint to name Chase as a defendant in the foreclosure action. The district court granted that motion in October 2003, and in May 2004, the district court granted summary judgment in favor of the Police, holding that Chase was collaterally estopped from challenging the determination that the Contrerases' mortgage was in default. Chase appeals from the grant of the Police's motion to amend its complaint to name Chase as a defendant and from the summary judgment collaterally estopping it from challenging the determination that the Contrerases defaulted on the mortgage.
DECISION I
Under Minn. R. Civ. P. 15.01, a party may amend a pleading "by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." Here, Chase did not consent to the Police's proposed amendment of its complaint to add Chase as a defendant. The district court cited Johns v. Harborage I, Ltd., 664 N.W.2d 291, 295 (Minn. 2003), and granted the Police's motion to add Chase as a defendant. Chase challenges this ruling. Generally, whether to grant a motion to amend a complaint is discretionary with the district court, and its decision "will not be reversed absent a clear abuse of discretion." Id.
A. Applicability of Johns
Chase argues that Johns cannot be used to allow amendment of the Police's complaint because Rogers v. Holyoke, 14 Minn. 220, 14 Gil. 158 (1869), and its progeny require a second foreclosure action against an omitted interest holder when a mortgage-foreclosure plaintiff fails to sue an interest holder. All of the cases that Chase cites on this point were decided before 1920. But because rule 15.01, under which the district court granted the amendment, became effective in 1952, none of the cases Chase cites addresses rule 15.01.
Under rule 15.01, prejudice is critical to deciding whether to allow a party to amend a complaint. Wilson v. City of Eagan, 297 N.W.2d 146, 151 (Minn. 1980). Here, in addressing the prejudice to Chase of allowing the Police to add Chase as a defendant, the district court (a) showed that it was aware of Chase's allegations both of prejudice and that the alleged prejudice centered on Chase's inability to litigate whether the mortgage was satisfied by the wire transfer in question; (b) ruled that Chase had failed to articulate any fact, defense, or theory that had not been addressed in the first proceeding; and (c) recognized that Chase was arguing that it needed to conduct its own discovery in order to avoid prejudice. The district court then ruled that whether Chase would be bound by the jury verdict that the wire transfer did not pay off Contrerases' mortgage "can be presented following the amendment adding the new defendants." This ruling acknowledges Chase's allegations that adding Chase as a defendant would prejudice Chase and that Chase needs to conduct discovery to identify that prejudice. Absent a showing of prejudice as of the time of the motion to amend, we cannot say that Holyoke and its progeny require a reversal of the district court's grant of the Police's motion to amend, especially when the district court stated that whether Chase would be bound by the jury verdict was still an open question.
Chase also argues that Johns is inapplicable here because Johns did not allow entry of judgment and involved (a) a plaintiff's ability to amend a complaint to add a defendant that had derivative liability for the debts of the named defendant, which is not the case here; (b) an entity that had notice of the suit to which it was added as a defendant; and (c) an admission by counsel for the added defendant that the amendment would not prejudice that party. But here, the order allowing the amendment explicitly reserved the question of whether Chase would be bound by the jury's verdict finding that Contrerases' mortgage was not satisfied. Thus, in the order granting the amendment, the district court ruled that Chase was not necessarily bound by the foreclosure judgment nor was Chase necessarily bound by the jury verdict on which the judgment was based. Also, Chase does not explain why the presence of derivative liability in Johns should be dispositive or relevant to the amendment decision; Johns does not refer to the derivative liability in its analysis of the propriety of the amendment. Johns, 664 NW.2d at 295-96.
Regarding notice, here, when the district court granted the motion to amend, it left open the question of whether Chase would be bound by the jury verdict and did so in a manner that made clear that Chase would not be bound by the jury verdict, if binding Chase to that verdict would be unduly prejudicial to Chase. In doing so, the district court recited the prejudice that the Police would suffer if their motion to amend was denied. Thus, after the motion to amend was granted, Chase still had an opportunity to avoid being bound by the jury verdict if it were to show prejudice. A similar analysis addresses Chase's argument that Johns is distinguishable because it involved an admission that there was no prejudice.
B. Delay in Seeking Amendment
Whether a party acts diligently is a consideration in addressing whether to allow a party to amend a pleading. Willmar Gas Co. v. Duininck, 239 Minn. 173, 176, 58 N.W.2d 197, 199 (1953); Meyer v. Best Western Seville Plaza Hotel, 562 N.W.2d 690, 694 (Minn.App. 1997), review denied (Minn. June 26, 1997). Here, Chase argues that because 19 months passed between when the Police learned of Chase's mortgage and when the motion to amend was brought, and because the Police knew of Chase's mortgage before it sought summary judgment against the named defendants, the Police did not act diligently and should not have been allowed to amend its complaint. We reject this argument for three reasons.
First, the rule does not state a time limit for amendment. Minn. R. Civ. P. 15.01; see, e.g., Fedie v. Mid-Century Ins. Co., 631 N.W.2d 815, 822 (Minn.App. 2001) (noting that rule 15.01 authorizes amendment when justice requires, but imposes no time limit for moving to amend), review denied (Minn. Oct. 16, 2001). Second, while an appellate court may affirm a denial of a motion to amend when the district court deems the motion untimely, to reverse a grant of motion to amend because it is untimely generally requires a showing of prejudice. Compare Willmar, 239 Minn. at 176, 58 N.W.2d at 199 (affirming denial of motion to amend on grounds of lack of diligence, noting that amendment would cause delay and prejudice) with Colstad v. Levine, 243 Minn. 279, 284-85, 67 N.W.2d 648, 653 (1954) (stating, where on day before trial, district court granted plaintiff's motion to amend complaint to change theory of case: "[i]n the absence of a showing of prejudice — and such prejudice could not very well be shown since the defendant voluntarily elected to go to trial without delay —, it was clearly within the court's discretionary power to permit plaintiffs to amend their complaint"). Thus, here, Chase's failure to show prejudice when motion was heard, combined with the district court leaving open whether Chase would be bound by the jury's verdict, allows us to affirm the district court's grant of the motion to amend. Third, the affidavit of the Police's counsel suggests that a major reason why the Police, after learning about Chase's mortgage in April 2002, did not promptly move to amend its complaint was that there was an agreement between counsel for the Police and Chase that relitigating whether the 1997 wire transfer satisfied the Police's mortgage was not economically prudent.
A similar analysis addresses the cases that Chase cites to support its argument that the Police were not diligent: Chase admits both of those cases it cites involve affirming a district court's denial of a motion to amend.
We also reject Chase's argument that the Police's failure to file a notice of lis pendens when it started its foreclosure action precludes granting the Police's motion to amend. A party litigating an interest in real property "may" file a notice of lis pendens, may is permissive not mandatory, and the purpose of a notice of lis pendens is to protect the litigating party (here, the Police) from having a third party (here, Chase) take an interest in the property without necessarily being subject to the result of the litigation. See Minn. Stat. § 557.02 (2004) (party "may" file notice of lis pendens); Minn. Stat. § 645.44, subd. 15 (2004) ("may" is permissive); see generally, Chaney v. Cmty. Dev. Agency, 641 N.W.2d 328, 333 (Minn.App. 2002) (stating purchaser's title to property pursuant to conveyance made before recording of notice of lis pendens, but not recorded until after filing of notice of lis pendens, is unaffected by notice of lis pendens where purchaser does not have constructive notice of notice of lis pendens when purchaser acquired interest in the property), review denied (Minn. May 28, 2002).
II
Chase argues that the district court should not have granted the Police summary judgment applying collateral estoppel to preclude Chase from addressing whether the 1997 wire transfer satisfied the Police's mortgage. On appeal from a summary judgment, appellate courts
review whether there are any genuine issues of material fact and whether the district court erred in its application of the law. We view the evidence in the light most favorable to the party against whom summary judgment was granted. We review de novo whether a genuine issue of material fact exists. We also review de novo whether the district court erred in its application of the law.
STAR Centers, Inc. v. Faegre Benson, L.L.P., 644 N.W.2d 72, 76-77 (Minn. 2002) (citations omitted).
A party invoking a collateral-estoppel defense has the burden of proof. Brooks Realty, Inc. v. Aetna Ins. Co., 268 Minn. 122, 125, 128 N.W.2d 151, 153 (1964). Generally, collateral estoppel is available when (1) the issue sought to be raised is identical to one in a prior adjudication; (2) there was a final judgment on the merits in the prior proceeding; (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 Civil Rights, 319 N.W.2d 702, 704 (Minn. 1982).
Collateral estoppel is an equitable doctrine. Colonial Ins. Co. of California v. Anderson, 588 N.W. 2d 531, 533 (Minn.App. 1999). The availability of collateral estoppel is a mixed question of law and fact subject to de novo review. Pope County Bd. of Comm'rs v. Pryzmus, 682 N.W.2d 666, 669 (Minn.App. 2004).
We conclude that the Police did not sustain their burden of showing that there was privity between Chase and Contrerases. Accordingly, we reverse the summary judgment and remand the case.
The supreme court has stated:
Although there is no precise test of "privity," it is, as stated in Restatement, Judgments, § 83, Comment a, `a word which expresses the idea that as to certain matters and in certain circumstances persons who are not parties to an action but who are connected with it in their interests are affected by the judgment with reference to interests involved in the action, as if they were parties.' Those in privity would include, according to the Restatement, `those who control an action although not parties to it . . .; those whose interests are represented by a party to the action . . .; successors in interest to those having derivative claims. . . .'
Margo-Kraft Distrib., Inc. v. Minneapolis Gas Co., 294 Minn. 274, 278, 200 N.W.2d 45, 47-48 (1972). Citing Margo-Kraft, this court has noted the flexible definition of privity: "Because there is no prevailing definition of privity that is applied automatically, the distinctive facts of each case must be carefully examined." State v. Victorsen, 627 N.W.2d 655, 660-61 (Minn.App. 2001).
There is a difference between applying collateral estoppel against a party who was a plaintiff in the prior action and applying it against a party who was a defendant: the application of collateral estoppel against a defendant is not favored. This court has noted, "Offensive collateral estoppel, where a party seeks to estop a defendant from relitigating an issue which the defendant previously litigated and lost, is discouraged." Miller v. Northwestern Nat'l Ins. Co., 354 N.W. 2d 58, 61, n. 1 (Minn. App. 1984); citing Parklane Hosiery Co. v. Shore, 439 U.S. 322, 329-34, 99 S. Ct. 645, 650-52 (1979). In our opinion, if the application of collateral estoppel against a defendant who actually litigated an issue is to be discouraged, the application against a defendant who did not litigate is even less favored.
Here, the district court ruled:
[T]he interests of [Chase] were represented by a party to the action, the Contrerases. Any interest in the real estate held by [Chase] is derivative of the interest held by the Contrerases, as owners and mortgagors. Both the Contrerases and [Chase] had a common interest in asserting a defense of satisfaction against the claim of [the Police] that the property remained subject to the [the Police] mortgages. Had the Contrerases conceded this issue or defaulted by failing to appear or defend against the foreclosure action, then [Chase] would not have had a common interest and would not have had their interest represented in the lawsuit.
Although the court mentioned, in passing, a derivative interest held by Chase, the court's analysis centered on whether Chase and the Contrerases had a common interest in asserting the same defense and whether or the Contrerases represented Chase's interest in that respect. On the issue of a common defense and whether an absent party is represented by a party to the litigation, we have said: "Parties in privity with those involved in the earlier action include those whose interests are represented by a party to the action, sufficiently enough so that the application of collateral estoppel is not inequitable." Victorsen, 627 N.W.2d at 661 (quotation marks and citations omitted) (emphasis added). Thus, the question is not merely whether the parties had a common claim or defense, but whether the party to the original proceeding sufficiently represented the absent party such that equity would not be offended if the absent party were not allowed a day in court.
We conclude that the Contrerases did not sufficiently represent Chase's interests such that collateral estoppel may be equitably applied against Chase. In determining that the Contrerases' representation of the Chase interests was insufficient, we note the following.
First, because Chase was not a party to the first proceeding, it did not have the opportunity to draft pleadings and frame a defense to the Police's foreclosure action. In this connection, Chase argues that the defense of unconditional tender was not raised by the Contrerases and that it is an appropriate defense to the foreclosure. We agree. "Tender" in this context, means an offer, but the Contrerases' defense was satisfaction by reason of full payment. A finding of full payment would not only satisfy the mortgage, it would relieve the Contrerases of the underlying debt. The defense of tender was never raised in the Contrersases' pleadings or in their final argument. As they argued to the jury, the "simple issue" in the case was "whether this $530,000 should be considered to be payment to the [Police] to satisfy their mortgage." Because the Contrerases did not raise the issue of tender, the district court did not define the term or instruct the jury on its effect, which would have been to discharge the lien. The issue presented to the jury was whether the $530,000 transfer "satisf[ied]" the mortgage.
"Tender. A formal offer, as an offer of money . . . in payment of an obligation." American Heritage Dictionary, 1397 (3d ed. 2000).
The sole question to the jury was: "Did the $530,000 wire transfer from Marquette Bank to the Minneapolis Police Relief Association on September 30, 1997 satisfy the mortgage on the [Contrerases'] property," to which the jury answered, "No."
The Contrerases argued that because Welliver was the agent of the Police, when the Contrerases directed that the $530,000 be sent to the bank where the Police kept their accounts and Welliver, as agent of the Police, took charge of the funds, the mortgage was satisfied because it was paid off. The Police countered that in the transaction Welliver was acting as either agent for the Contrerases or acting on his own but in any event not on behalf of the Police. The trial court had properly placed on the Contrerases the burden of persuasion on the issue of payment. In order to find that the $530,000 did not satisfy the debt, the jury must have rejected the Contrerases' argument that Welliver was acting as an agent for the Police when he took control of the funds. If the jury had found that Welliver was acting as agent for the Police, then it would have found that the full amount due on the debt had been paid to the Police, and the mortgage would have been satisfied by reason of full payment. To arrive at its answer, however, the jury did not have to make findings either that Welliver was acting for the Contrerases or that he was acting on his own account.
It is undisputed that the Contrerases directed that $530,000 — which figure, we note, is the exact amount of the debt secured by the mortgage — be sent to the bank where the Police kept their funds. And based on that fact, Chase argues that the Contrerases made an unconditional tender of the full amount due. Chase cites Moore v. Norman, 43 Minn. 428, 45 N.W. 857 (1890), and Balme v. Wambaugh, 16 Minn. 116, 16 Gil. 106 (1870), in support of its argument that, even if the transfer of $530,000 may not have paid off the debt, it was a tender sufficient to discharge the mortgage lien. Had tender been raised as an issue, the jury could have concluded that, although the debt has never been paid, the mortgage lien was discharged by reason of tender. In that case, the Police would still be allowed to pursue the Contrerases on the debt, but would not be entitled to a foreclosure.
The district court ruled that the issue of tender was "implicitly determined" by the jury verdict. We disagree. The jury rejected the Contrerases' position that the mortgage was satisfied by reason of full payment. Payment of any debt requires an offer to pay and an acceptance of that offer. A finding by the jury that the mortgage had been paid in full would have necessarily have included an implicit finding that there had been an offer, that is, a tender, of the payment. It does not logically follow, however, that the absence of payment implies the absence of tender, as there can be an offer to pay without an acceptance of the offer. Based on the record, it well might be that Welliver was acting on his own account when he wrote the October 1, 1997, letter allocating the $530,000, and thus there was no acceptance of the Contrerases' tender — to pay off the mortgage — through no fault of either the Police or the Contrerases.
Chase's argument in this respect is a plausible argument that was not litigated by the Contrerases. Its absence in the first trial supports the conclusion that the Contrerases' representation of Chase's interest was not sufficient to foreclose Chase from its day in court.
Moreover, because Chase was not a party to the first litigation, it did not have the opportunities to (a) participate in that trial by planning strategy; (b) conduct discovery for the first trial; and (c) control the litigation in that trial.
Finally, on the issue of whether Chase's interests were sufficiently represented in the original proceeding, one cannot help but note that the Contrerases were portrayed in an unfavorable light at the trial. Their credibility, especially Mr. Contreras's credibility, was attacked, with apparent success. The Contrerases, along with Welliver, were portrayed as having engaged in deft financial maneuvering, which resulted in substantial sums of money going to the Contreras family and substantial losses being incurred by the Police. This portrayal could well have influenced the jury's opinion of the merits of the Contrerases' defense, and the jury might have taken a different view of things if an innocent third-party lien-holder, such as Chase, had been present in court. In any event, the portrayal of the Contrerases at the trial, which apparently was successful, supports the conclusion that it is not equitable to hold Chase to the results of the suit against the Contrerases.
We conclude that the Police did not meet their burden of showing that the Contrerases sufficiently represented Chase's interests such that collateral estoppel may be equitably applied against Chase. Therefore, we reverse the district court's determination that privity existed between Chase and Contrerases and remand the matter for further proceedings. Because we have concluded that the Police have failed to sustain their burden on the issue of privity, we do not address Chase's arguments that the Police have likewise failed to sustain their burden on the elements of identity of the issues and full and fair opportunity to be heard.
III
Because the lack of privity precludes application of collateral estoppel, and hence requires a remand for the district court to address the merits of the parties' dispute, we need not address whether Chase was denied due process of law.
Affirmed in part, reversed in part, and remanded.
I concur that the district court did not abuse its discretion by granting the motion of respondents Minneapolis Police Relief Association, et al. to amend their complaint to add appellants Chase Manhattan Bank, et al. as defendants. But I respectfully dissent from the determination that the privity necessary to invoke collateral estoppel is absent in this case.
In a thorough and thoughtful order, the same district court judge who heard the trial ruled that there was privity because, at trial, Chase's interests were adequately represented by the Contrerases. See Ellis v. Minneapolis Comm'n on Civil Rights, 319 N.W.2d 702, 704 (Minn. 1982) (collateral estoppel requires one to be estopped to have been, or been in privity with, a party to litigation). Parties who are in privity with a party to an action include those whose interests are represented by the party and successors in interest to those having derivative claims. Margo-Kraft Distrib., Inc. v. Minneapolis Gas Co., 294 Minn. 278, 200 N.W.2d 45, 47-48 (1972). Chase, as assignee of the first lender Ameriquest's mortgage, is a successor in interest to Ameriquest's mortgage-based (derivative) claim against the property.
Moreover, Chase and the Contrerases had an interest that was identical in this matter: both wanted to show that the Contrerases paid, or should be deemed to have paid, the mortgage. And Chase's allegation that the question of tender was not presented at trial is incorrect: the Contrerases' defense that they paid the mortgage required that they have tendered payment. Thus, Chase did not lack a day in court regarding whether the Contrerases paid the mortgage when the Contrerases litigated that exact issue. Nor can Chase, which did not acquire an interest in the property until more than two years after the events at issue here, be said to have information regarding the Contrerases' payment that the Contrerases lacked. Finally, Chase's argument that it cannot be in privity with the Contrerases because mortgagors and mortgagees have different interests in mortgaged property is incorrect: collateral estoppel requires coincidental interests in the litigation, not the property. See State v. Victorsen, 627 N.W.2d 655, 661 (Minn. App. 2001) (privity can exist if, with reference to interests involved in the action, a nonparty is affected by a judgment as if it were a party).
In addition, the questions of identity of issues and full and fair opportunity to be heard are satisfied here because (1) the issues that Chase seeks to litigate were either presented at trial by the Contrerases or Chase's arguments regarding those issues are not properly before this court; and (2) there is no allegation that the Contrerases lacked a full and fair opportunity to be heard on the issues Chase seeks to raise. See Reil v. Benjamin, 584 N.W.2d 442, 444-45 (Minn.App. 1998), review denied (Minn. Nov. 17, 1998).
I would affirm the district court in all respects.