Opinion
No. A03-12.
Filed August 12, 2003.
Appeal from the District Court, Anoka County, File No. C5026137.
Patrick M. O'Donnell, Smith, Paulson, O'Donnell Associates, P.L.C., (for appellants)
Charles E. Lundberg, Matthew J. Franken, Bassford, Lockhart, Truesdell Briggs, P.A., (for respondents)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Appellants challenge the district court's order canceling their notice of lis pendens. The district court found that because appellants' claims sought monetary damages rather than specific performance, the claims did not affect or involve title to the property and therefore did not meet the statutory requirements for filing a notice of lis pendens. We reverse.
DECISION
Appellants challenge the district court's findings of fact and conclusions of law. When reviewing mixed questions of fact and law, the
scope of our review is a careful examination of the record to ascertain whether the evidence as a whole fairly supports the findings of the district court and whether these in turn support its conclusions of law and judgment.
Carlson-Lang Realty Co. v. City of Windom, 307 Minn. 368, 373, 240 N.W.2d 517, 521 (1976) (citation omitted). This court will reverse a district court's findings of fact only if, upon review of the entire record, it is left with a firm and definite conviction that a mistake has been made. City of Minnetonka v. Carlson, 298 N.W.2d 763, 766 (Minn. 1980). But this court need not defer to the district court's decision on questions of law. A.J. Chromy Constr. Co. v. Commercial Mech. Servs., Inc., 260 N.W.2d 579, 582 (Minn. 1977).
An order discharging a notice of lis pendens is appealable. Nelson v. Nelson, 415 N.W.2d 694, 696 (Minn.App. 1987). In all actions in which the title to, or any interest in, real property is involved or affected or is brought into question, a party may file with the county recorder a notice of lis pendens. Minn. Stat. § 557.02 (2002). The purpose of a lis pendens is to warn prospective purchasers "that title to property is in litigation and impedes a property owner's right to free alienability of real estate." Bly v. Gensmer, 386 N.W.2d 767, 769 (Minn.App. 1986).
A notice of lis pendens may not be based on an action whose sole purpose is recovery of money, where the plaintiff neither sought nor recovered a lien. Melin v. Mott, 212 Minn. 517, 518, 4 N.W.2d 600, 601 (1942) (lis pendens not valid where action was to recover money and sole relevancy of property was to determine how much money should be recovered). But a lis pendens may be based on an equitable lien arising from a constructive trust that affects the title to the property. Rehnberg v. Minn. Homes, Inc., 236 Minn. 230, 234, 52 N.W.2d 454, 456 (1952).
[A] constructive trust is a judicially created equitable remedy imposed to prevent unjust enrichment of a person holding property under duty to convey it or use it for a specific purpose.
Wright v. Wright, 311 N.W.2d 484, 485 (Minn. 1981) (citations omitted). When a party obtains legal title to property "through fraud, oppression, duress, undue influence, force, crime, or similar means, or by taking improper advantage of a confidential or fiduciary relationship," the person equitably entitled to the property is entitled to a constructive trust. Id. (citations omitted). The constructive trust, however, is not in itself a lien that affects property and "does not exist so as to affect the property held by the wrongdoer until it is declared by a court as a means of affording relief." Bly, 386 N.W.2d at 769 (citation omitted).
If appellants' complaint establishes that they are entitled to a constructive trust on the property, legal title would be held in trust for their benefit. An equitable lien would arise for the enforcement of this trust, thus bringing their cause of action within the lis pendens statute.
Id. (citing Rehnberg, 236 Minn. at 234, 52 N.W.2d at 456). Thus, when a party establishes a constructive trust by alleging that the defendants acquired title to the specific property through fraud perpetrated on that party, there is "a sufficient proprietary interest to support the filing of the notice of lis pendens." Fingerhut Corp. v. Suburban Nat'l Bank, 460 N.W.2d 63, 67 (Minn.App. 1990).
This dispute arises out of the termination of a partnership agreement between appellant Timothy Strong and respondents David Harris and Randi Erickson. The general partnership, respondent Atlantis Developers, was established to develop a one-acre site in Andover, Minnesota, for townhouses. Erickson and Harris each had a 40% interest and Strong had a 20% interest in the partnership. All profits and losses, as well as income and expenses, were to be shared pro rata according to ownership interests.
Around the time the partnership was formed, Strong's construction company, appellant Strong Construction Co., Inc., had entered into a purchase agreement to buy the subject property. Strong agreed to assign his rights in the property to the partnership. In turn, the partnership agreed to resell the property to Strong Construction in a development agreement between the partnership and Strong Construction. In essence, the development agreement appears to be a purchase agreement contingent on the development being approved by the Andover City Council. The development agreement provides for Strong Construction to build townhomes and allow Harris and Erickson to sell the completed homes through their real estate business, respondent Towne Centre Real Estate Services.
The partnership agreement prohibits the purchase or sale of any real estate without the written consent of all the partners. The agreement also provides, under a general insolvency/bankruptcy provision, that if any partner fails to pay his debts as they come due, he will be deemed separated as a partner. In the absence of the separated partner, the business of the partnership is to continue without interruption. The partnership agreement also has provisions for the remaining partners to purchase the interest of the separated partner.
Respondents claim that Strong became separated from the partnership in October 2000 after he failed to pay his share of the partnership's expenses. In July 2001, the partnership conveyed the subject property to Harris by quit-claim deed without notice to or consent from Strong. Simultaneously, Harris conveyed his property rights to respondent Creekside Homes, a limited liability corporation owned by Erickson and Harris. After the property was platted as Devonshire Estates, a portion of the property was conveyed to respondent Devonshire Townhome Association, Inc., in October 2001.
Appellants assert that Strong did not receive any requests or notifications for payment from the partnership, and in July 2002, commenced this action against respondents seeking damages in excess of $500,000. The complaint consists of eight counts: (1) breach of partnership agreement; (2) breach of fiduciary duty to partner; (3) tortious interference with contract and business relations; (4) fraud and misrepresentation; (5) conversion; and (6) civil conspiracy. The remaining two counts seek dissolution of the partnership and an equitable accounting of the partnership assets by way of receivership. The complaint seeks primarily monetary relief; it does not explicitly request specific performance involving title to the property, but it does seek both legal and equitable relief.
The record contains a copy of a memo from Harris dated September 14, 2000, and allegedly mailed to Erickson and Strong.
In August 2002, appellants filed a notice of lis pendens against the property with the Anoka County Recorder. Respondents moved the court for an order canceling the notice because it interfered with the sale of the townhouse units, and the district court granted respondents' motion. On appeal, appellants allege that the district court erred when the court, inter alia, refused to find that appellants were entitled to an equitable lien and/or constructive trust on the property. The determinative issue is whether appellants' complaint sufficiently pleads a cause of action that involves or affects the title to, or any interest in or lien upon, the subject property entitling them to file a notice of lis pendens.
Respondents argue that appellants (1) have made no claim to title in the property; (2) have not alleged an interest in the property; and (3) have not alleged that they are entitled to an equitable lien or constructive trust on the property. Given the district court's findings of fact and conclusions of law, the court essentially agreed.
This court reviews de novo the legal sufficiency of a claim. Stead-Bowers v. Langley, 636 N.W.2d 334, 338 (Minn.App. 2001), review denied (Minn. Feb. 19, 2002). Appellants' complaint does not directly make a claim that involves title to or alienability of the property, such as specific performance or a quiet-title action. Minnesota Rule of Civil Procedure 8.01 provides for broad pleadings, also known as notice pleading. "The primary function of notice pleading is to give the adverse party fair notice of the theory on which the claim for relief is based." Barton v. Moore, 558 N.W.2d 746, 749 (Minn. 1997) (citation omitted). "A specific legal theory does not need to be stated if the pleadings contain factual notice of the claim and a request for relief." Padco, Inc. v. Kinney Lange, 444 N.W.2d 889, 891 (Minn.App. 1989) (citation omitted), review denied (Minn. Nov. 15, 1989); see Goeb v. Tharaldson, 615 N.W.2d 800, 818 (Minn. 2000) (stating "pleadings need not allege facts to support every element of a cause of action"); Hutton v. Bosiger, 366 N.W.2d 358, 360 (Minn.App. 1985), review denied (Minn. June 27, 1985) (pleadings are to be liberally construed, even when plaintiff misconceives the nature of the claim). Thus, specific performance need not be pled to establish an interest in the property, as long as the complaint seeks equitable relief.
Here, in addition to their fraud, contract, and other claims, appellants sought in their complaint equitable accounting of the partnership assets via appointment of a receiver and "other and further legal and equitable relief as may be found appropriate and as the Court may deem just to [sic] equitable." Under modern pleading rules, appellants have not abandoned any equitable claims as respondents imply in their brief.
As to whether appellants pleaded that a constructive trust or other form of equitable lien applied, the complaint is silent as to those theories. But Minn.R.Civ.P. 15.02 provides:
When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of a trial of these issues.
The record reveals that both parties argued equitable-lien and constructive-trust theories to the district court in their motions concerning the notice of lis pendens. Under rule 15.02, when issues not raised by the pleadings are tried by express or implied consent of the parties, it is as if the issues were raised in the pleadings. Thus, respondents were put on notice that appellants' claims involved both equitable-lien and constructive-trust theories as well as an interest in the property.
The same cannot be said, however, of appellants' argument that they have an equitable lien in the form of a joint venture between the parties. Appellants did not make that argument in the district court. Thus, appellants' claim that a joint venture exists between Strong, Harris, and Erickson is not properly before this court. Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988).
The district court did not find that appellants' complaint established a constructive trust. While it is true that appellants do not explicitly use the words "constructive trust" in their complaint, a constructive trust nonetheless "arises whenever legal title to property is obtained through fraud committed by a fiduciary." Fingerhut Corp., 460 N.W.2d at 67. Appellants' complaint alleges that respondents were under a duty to convey the subject property to Strong Construction and that respondents obtained legal title to the subject property through fraud committed by a fiduciary. A "constructive trust is a judicially created equitable remedy imposed to prevent unjust enrichment of a person holding property under duty to convey it." Wright, 311 N.W.2d at 485. If the party establishes entitlement to a constructive trust, an equitable lien then arises to enforce the trust, bringing the cause of action within the lis pendens statute. Bly, 386 N.W.2d at 769.
Here, the development agreement imposed a duty on the partnership to convey the property to Strong Construction once the development was approved by the city council. Appellants' complaint clearly alleges fraud in the conveyance of the property first to Harris personally and subsequently to Creekside and ultimately Devonshire. We, therefore, conclude that the complaint did allege a constructive trust that could constitute an equitable lien within the meaning of the statute and that the district court erred in canceling the notice of lis pendens. Rehnberg, 236 Minn. at 234, 52 N.W.2d at 456; Bly, 386 N.W.2d at 769. Having decided in appellants' favor, we need not address appellants' other arguments.
Reversed.