Opinion
Nos. C5-96-39, CX-96-148.
Filed July 2, 1996.
Appeal from the District Court, Anoka County, File No. C1-94-1762.
Kenneth R. Hertz, Hertz Associates, (for appellant Chaudhary).
Robert A. Hill, Robert Hill Associates, (for respondent Tyler Apartments Partnership).
Richard I. Diamond, Diamond, Liszt Grady, P.A., (for respondents Gupta, et al.).
Considered and decided by Kalitowski, Presiding Judge, Parker, Judge, and Randall, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1994).
UNPUBLISHED OPINION
Respondent Tyler Apartments Partnership sued appellant S.P.S. Chaudhary for contribution due to debts incurred by the partnership owned principally by the parties to this lawsuit. Appellant counterclaimed and brought a third-party complaint against two of his partners, Ramesh Gupta and Satya P. Garg, for recision of the partnership agreement based on an alleged breach of a fiduciary duty by these partners. Appellant also sought, among other remedies, to be paid the amount of a commission that had been retained by two of his partners when they purchased an apartment building for the partnership. The trial judge refused to rescind the partnership agreement based on the defense of laches and ordered that appellant contribute $26,930.80 to the partnership as his pro rata share of contribution. The judge also ordered that appellant's partners return the $15,000 commission to the partnership.
Appellant alleges that the trial court erred by (1) applying the defense of laches to his claim for recision, and (2) determining his pro rata share of contribution based on insufficient evidence. Respondents Gupta and Garg cross-appeal, arguing that the trial court erred by (1) concluding that they had waived their statute of limitations defense regarding the commission, and (2) granting relief that was not requested by any party. We affirm in part and reverse in part.
DECISION
1. Appellant Chaudhary argues that he is entitled to recision of the partnership agreement as a matter of law. It is undisputed that respondents Gupta and Garg obtained a $15,000 commission in 1983 when they brokered a transaction between Mir Ali and the partnership for the sale of an apartment building to the partnership. Relying on Olson v. Pettibone , 168 Minn. 414, 210 N.W. 149, 150 (1926), the trial judge asserted that a principal unaware of a dual agency relationship is entitled to recision. The judge pointed out, however, that recision is an equitable remedy that is subject to the defense of laches.
Chaudhary cites Anderson v. Anderson , 293 Minn. 209, 197 N.W.2d 720 (1972), in which the Minnesota Supreme Court stated:
Nothing will defeat the principal's right or remedy except his own prior consent or ratification after full disclosure of all the facts.
Id. at 213, 197 N.W.2d at 724 (citing Olson , 168 Minn. 414, 210 N.W.2d at 149). Assuming, for the sake of analysis, that Chaudhary was once entitled to recision of the partnership agreement, we conclude that if Chaudhary's conduct was not a ratification of the agreement, it has at least made him subject to the defense of laches. Chaudhary remained in the partnership after full knowledge of the "secret commission" and took no action to rescind the partnership agreement for nine years.
Chaudhary cites a federal case in support of his contention that a showing of prejudice is a prerequisite to the defense of laches:
Dismissal of a claim on the ground of laches requires that there be (1) unreasonable and unexcused delay in bringing the claim, and (2) material prejudice to the defendant as a result of the delay.
Advanced Cardiovascular Systems, Inc. v. Scimed Life Systems, Inc. , 988 F.2d 1157, 1161 (Fed. Cir. 1993) (citing A.C. Aukerman Co. v. R.L. Chaides Construction Co. , 960 F.2d 1020, 1028 (Fed. Cir. 1992)). That case, however, appears to be inconsistent with Minnesota law:
Prejudice "to those who have equities to be protected" is not always essential for application of laches but is significant in the determination whether the delay was reasonable.
Wheeler v. City of Wayzata, 533 N.W.2d 405, 409 (Minn. 1995) (citing Aronovitch v. Levy , 238 Minn. 237, 242-43, 56 N.W.2d 570, 574 (1953)) (footnote omitted). Thus, even if Chaudhary were correct in arguing that there was no prejudice, the defense of laches might still be applicable because his nine-year delay was unreasonable.
The trial judge also found that recision would be inequitable because the partnership would be prejudiced, stating:
The business of the partnership from 1983 to the present, including the settlement of the lawsuit against the Partnership, was conducted on the presumption of four rather than three contributing partners as was agreed upon in the Partnership agreement. The Partnership is and was prejudiced by Chaudhary's nine year delay in requesting rescission.
We perceive no error in this finding.
Chaudhary's argument that there was no prejudice due to his delay is based in part on his underlying argument that the trial court erred in finding that he had discovered the "secret commission" in 1985. Because there is evidence in the record to support that finding, however, we cannot say that it was clearly erroneous.
Chaudhary also argues that there was no actual prejudice because "[t]he mere passage of time does not constitute laches." Advanced Cardiovascular , 988 F.2d at 1161. However, the trial judge did not rely solely on the passage of time. Instead, he found prejudice due to the fact that the business of the partnership was "conducted on the presumption of four rather than three contributing partners as was agreed upon in the Partnership agreement."
Accordingly, we conclude that the trial judge's application of the doctrine of laches to Chaudhary's claim for recision, in light of his nine-year delay, was not erroneous.
2. Chaudhary next argues that there is insufficient evidence in the record to support the finding that his pro rata share for contribution is $26,930.80. The trial judge found the following:
38. After March, 1990, all of the partners were required to contribute to the Partnership pursuant to the Partnership Agreement for settlement of a different lawsuit asserted against the Partnership and the partners individually. The Court has no record of the nature of this suit, the time that cause of action accrued or the justification of liability.
39. Gupta, Garg and Kumar contributed a combined total of $103,580 to the settlement of the other suit. Chaudhary did not contribute any funds. A 26% portion of the partner's settlement contribution is $26,930.80.
Kumar testified as to his portion of the contribution, and Gupta attested to the validity of an exhibit he prepared for trial titled "Contributions Made By Tyler Apartment Partnership." The exhibit showed contributions from all of the partners, except Chaudhary, totaling $103,580. At trial, Chaudhary did not object to the exhibit, did not challenge the numbers, and did not present any contrary evidence. Accordingly, we affirm the trial court's finding on this issue.
3. Respondents Gupta and Garg argue that the trial court erred in concluding that they had waived their statute of limitations defense. Although they had pled both a statute of limitations defense and a laches defense in response to Chaudhary's claims, they did not explicitly argue the statute of limitations defense at trial. However, they did offer proof that Chaudhary was aware of the "secret commission" as early as 1985, and they also argued the defense of laches at trial. In rejecting the statute of limitations defense as waived, the trial judge relied on Hydra-Mac, Inc. v. Onan Corp. , 430 N.W.2d 846, 853 (Minn.App. 1988), rev'd , 450 N.W.2d 913 (Minn. 1990).
In Hydra-Mac, a party pled the statute of limitations as a defense but did not mention it in its pretrial statement and, during the course of the proceedings, did not refer to the defense by name. The court of appeals affirmed the trial court's conclusion that the defense had been waived. The supreme court reversed:
Onan not only pled the statute of limitations, but, in addition, at trial Onan proved it by placing in evidence invoices * * *.
* * *
While we acknowledge that we are troubled by Onan's omission to list the statute of limitations defense in its pre-trial statement, and while we do not condone a party's omission to fully and adequately inform the court and opposing parties of its contentions in a pre-trial statement, and while we reserve to another day a determination whether failure to give notice of a party's defense in a pre-trial statement may even, in appropriate circumstances, result in waiver * * *, in this case we reject International Harverster's waiver assertion.
Id. at 918. In this case, respondents pled the statute of limitations defense and, at trial, proved that Chaudhary knew about the secret commission in 1985 but did not take legal action until nine years later. Accordingly, we conclude that under the authority of Hydra-Mac , respondents cannot be held to have waived their statute of limitations defense.
The relief granted in this case was based on an alleged breach of a fiduciary duty that all of the partners knew about in 1985. No legal action was taken, however, until nine years later. Accordingly, we conclude that the trial court improperly granted relief for a claim that was barred by Minn. Stat. § 541.05, subd. 1(1) (1994).
In light of this decision, it is unnecessary to address respondents' contention that the relief granted was improper because no party had requested it.
We reverse the trial court's order regarding the commission. The order is affirmed in all other respects.