Opinion
No. C1-01-1592.
Filed March 19, 2002.
Appeal from the District Court, Hennepin County, File No. CT00001519.
Jonathan M. Bye, (for respondent)
Bradley J. Martinson, (for appellant)
Considered and decided by Lansing, Presiding Judge, Klaphake, Judge, and Huspeni, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Appellant challenges the district court's decision to apply the doctrine of res judicata to a federal court order granting summary judgment that addressed the enforceability of a clause that limited respondent's contractual liability to appellant. Appellant also challenges the district court's award of attorney fees to respondent pursuant to the contract between the parties. Because we see no error in either the application of the doctrine of res judicata or the award of attorney fees, we affirm.
FACTS
Appellant Weston, Inc. asked respondent Nova Consulting Group, Inc. to submit a proposal to conduct inspections on six warehouses that Weston was considering purchasing. William Thrush, Weston's Vice President of Operations, signed a proposal, forming a contract between Weston and Nova. Thrush, who was a Certified Public Accountant and had an M.B.A. degree, did not have Weston's in-house counsel review the contract before signing it because he "was comfortable with the contract [he] was signing."
Three earlier proposals had been submitted by Nova; a fourth proposal was the one actually signed.
The last line in the contract states "[t]erms of payment for services are * * * as specified on our attached General Conditions which are part of this proposal." The general conditions form attached to the contract contained the following clause:
LIMITATION OF LIABILITY.
NOVA's liability to [Weston] * * * for damages * * * will be limited to an amount not to exceed NOVA's charges for the Services.
The limitation of liability clause is at issue in this appeal, as is section 9 of the contract, which reads as follows:
DISPUTES.
9.1 If NOVA prevails in a lawsuit against [Weston] to collect its fees, then all collection expenses, including, without limitation, reasonable attorneys' fees, will be paid by [Weston].
9.2 If [Weston] brings a lawsuit against NOVA which is dismissed, or as to which a verdict is rendered for NOVA, in whole or in part, [Weston] will pay NOVA its costs of defense, including, without limitation, reasonable attorneys' fees.
Nova inspected the buildings, submitted written reports to Weston regarding the condition of the buildings, and charged Weston $34,180 for these services. Subsequently, Weston brought a breach of contract suit against Nova in the U.S. District Court in the Northern District of Illinois, alleging that Nova estimated roof repairs of $63,350 when, in fact, the estimated repair costs exceeded $1 million. Weston asserted that the amount in controversy exceeded $75,000. Both parties moved for summary judgment on the issues of whether the clause limiting Nova's potential liability was adequately incorporated into the parties' contract, and if so, whether that clause was enforceable.
To invoke diversity jurisdiction in federal court, damages of at least $75,000 must be reasonably alleged. 28 U.S.C. § 1332(b) (1994).
The federal court, in granting partial summary judgment for Nova and dismissing the case for lack of subject-matter jurisdiction, stated:
The contract at issue contains an enforceable liability limitation, which precludes Weston from reasonably alleging the jurisdictional minimum amount of recovery required [for diversity jurisdiction].
Weston, Inc. v. Nova Consulting Group, Inc., 75 F. Supp.2d 914, 914 (N.D.Ill. 1999). In concluding that the liability limitation was incorporated into the contract and that it was enforceable, the federal court stated:
[N]or is it possible to find any ambiguity in the contract, read as a whole, with respect to the incorporation of the General Conditions form. The General Conditions form was bound into each of the three formal proposals initially submitted to Weston by Nova. The very first line of the General Conditions form dictates that Nova proposals are governed by the form: "[Nova] shall provide [Weston] the services described in the Nova proposal * * * attached hereto in accordance with the terms thereof and hereof." (R. 8, Nova Ex. 6). This notice in conjunction with the final proposal's explicit incorporation of the General Conditions form neutralizes Weston's claim that it did not know the entire form was part of the contract.
* * * For the reasons stated above, we dismiss this case for lack of federal jurisdiction without prejudice to Weston's rights to refile this litigation in an appropriate state court. Weston's motion for summary judgment regarding the enforceability of the liability limitation * * * is denied. Nova's motion for partial summary judgment on the same issue * * * is granted to the extent discussed in this opinion.
Id. at 916. Weston did not appeal the federal court's order.
Three days after the federal court issued its opinion, Nova brought suit against Weston in district court in Minnesota, seeking attorney fees under section 9 of the parties' contract. Weston counterclaimed, alleging breach of contract, misrepresentation, and negligence, and claiming damages of "in excess of $50,000."
The inescapable inference from this pleading is that Weston believed it could recover more than $34,180 from Nova.
Nova moved for judgment of dismissal of Weston's counterclaim. The first district court that considered the matter dismissed Weston's counterclaim to the extent it exceeded $34,180, having concluded that res judicata barred relitigation of the liability limitation issue, and even if res judicata did not apply, the contract contained an enforceable liability limitation clause. The court also concluded that Nova's motion for attorney fees was premature because liability had not yet been determined and requirements for recovery of attorney fees under the parties' contract had not been met. Subsequently, the parties entered into a stipulation whereby Nova, without admitting liability, consented to judgment of $34,180 against it. A second district court later granted Nova's motion for attorney fees and costs. Judgment was entered and this appeal of both district court decisions followed.
DECISION
On appeal from summary judgment, the reviewing court asks whether there are any genuine issues of material fact to be determined and whether the district court erred in its application of the law. O'Malley v. Ulland Bros., 549 N.W.2d 889, 892 (Minn. 1996). In making this determination, the reviewing court views the evidence in the light most favorable to the party against whom summary judgment was granted. Id. A reviewing court need not defer to the district court's application of the law when the material facts are not in dispute. Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn. 1989).
The material facts are not disputed; the parties have stipulated to entry of judgment against Nova in the amount of $34,180. Thus, we must determine whether, as a matter of law, the first district court erred in its resolution of the res judicata and enforceability issues, and whether the second district court erred in its award of summary judgment for Nova on the issue of attorney fees.
I.
"We review de novo whether the doctrine of res judicata can apply to a given set of facts." Erickson v. Comm'r of Dep't of Human Servs., 494 N.W.2d 58, 61 (Minn.App. 1992) (citation omitted). "If the doctrine applies, the decision whether to actually apply it is left" to the district court's discretion. Id. (citation omitted).
Weston argues that the district court erred in applying the doctrine of res judicata to the federal court opinion because that opinion does not meet res judicata requirements. Thus, argues Weston, Minnesota courts are not barred from reexamining whether the damage limitation clause was enforceable. We find no merit in Weston's argument.
As a threshold matter, this court must apply the federal common-law rule in determining the preclusive effect of a judgment in a diversity action, and the federal common-law rule incorporates the law of the state in which the federal court rendered its judgment. Marshall v. Inn on Madeline Island, 631 N.W.2d 113, 118 (Minn.App. 2001), review denied (Minn. Sept. 25, 2001). Accordingly, this court looks to federal common law incorporating Illinois law to determine the claim-preclusive effect of the federal court's judgment in this case.
At oral argument, Weston conceded that determination of the claim-preclusive effect under Illinois law would be the same as determination under Minnesota law.
Under Illinois law, the doctrine of res judicata holds that a final judgment on the merits is conclusive as to the rights of the parties, and constitutes an absolute bar to a subsequent action involving the same claim, demand or cause of action.
Lo ng v. Shorebank Dev. Co., 182 F.3d 548, 560 (7th Cir. 1999) (quotation omitted). Res judicata bars relitigation if the following three requirements are satisfied:
(1) there was a final judgment on the merits rendered by a court of competent jurisdiction, (2) there is an identity of cause[s] of action, and (3) there is an identity of parties or their privies.
4901 Corp. v. Town of Cicero, 220 F.3d 522, 529 (7th Cir. 2000) (quotation omitted).
The second and third elements are not at issue; thus, the central question is whether the federal decision was a final judgment on the merits. Weston argues that the federal court did not decide the liability issue and, therefore, could not have made a final determination on the merits. We disagree.
Although Illinois law rejects an absolute rule that summary judgment is a judgment on the merits, "a judgment on the merits will oftentimes be the reason for granting summary judgment." Downing v. Chicago Transit Auth., 642 N.E.2d 456, 460 (Ill. 1994). Courts should consider "the basis on which the summary judgment was granted." Id.
We conclude that in this case the federal court granted summary judgment as a result of deciding the question before it on the merits. The court stated:
[U]pon careful review of the record, we conclude that we lack subject matter jurisdiction over the case. The contract at issue contains an enforceable liability limitation, which precludes Weston from reasonably alleging the jurisdictional minimum amount of recovery required [for diversity jurisdiction].
Weston, 75 F. Supp.2d at 914. The federal court could only have concluded that it lacked jurisdiction by first deciding that not only was the limitation clause enforceable, but that damages were limited to $34,180. Later language in the federal court opinion indicating that dismissal is "without prejudice to Weston's rights to refile this litigation in an appropriate state court," id. at 916, must be read as incorporating that $34,180 limitation into Weston's right to seek relief in state court. Additional language in the federal court opinion supports such a limited reading:
The Seventh Circuit's decision in Pratt Central seems to suggest that * * * this Court has the option of either dismissing the case for lack of jurisdiction or granting partial summary judgment in favor of Nova by limiting Weston's possible remedy. See Pratt Cent. [ Pk. Ltd. v. Dames Moore, Inc., 60 F.3d 350, 353 (7th Cir. 1995)]. We, however, believe that the proper thing to do under the circumstances is to decide the pending motions and dismiss the case simultaneously because the dismissal is based on an inherent partial ruling on the limitations clause, which was the subject of the summary judgment motions.
Weston, F. Supp.2d at 915 n. 2. Notably, Weston did not appeal the federal court's decision, despite Nova's almost immediate commencement of suit in state court seeking payment of its attorney fees.
Because the federal court granted summary judgment on the merits of the liability limitation issue rather than dismissing the case outright, the Minnesota district court did not err in concluding that res judicata prevents Weston from relitigating the issue of the enforceability of the contract clause limiting Weston's recovery to the amount it paid to Nova for services.
II.
Weston argues further that res judicata should not bar relitigation because the federal court applied Illinois law rather than Minnesota law in determining the enforceability of the limitation of liability clause. Weston's argument on this issue must fail. The contract does provide that Minnesota substantive law governs the contract's terms. Weston does not dispute, however, that in federal court it argued for application of Illinois law. Weston, 75 F. Supp.2d at 915. After requesting that the federal court apply Illinois law, and after the federal court did apply Illinois law, Weston was unhappy with the result. Weston, in now arguing to this court that the federal court should have applied Minnesota law, has taken a position that is clearly inconsistent with its earlier position. Therefore, we may decline to address Weston's argument. See Bauer v. Blackduck Ambulance Ass'n, 614 N.W.2d 747, 749 (Minn.App. 2000) (recognizing judicial estoppel prevents a party that has taken one position from later reversing its position when it is to its advantage to do so).
Even if we were to analyze the enforceability of the limitation of liability clause under Minnesota law, however, we would conclude, as did the federal court by applying Illinois law, and as did the state district court, that the clause was enforceable. When construing an unambiguous contract, "it is neither necessary nor proper * * * to go beyond the wording of the instrument itself." Telex Corp. v. Data Prods. Corp., 271 Minn. 288, 295, 135 N.W.2d 681, 686-87 (1965) (citation omitted). Here, the parties' agreement unambiguously limits Nova's damages to the amount charged for Nova's services. A general conditions form was attached to the three formal proposals and the final proposal that Nova submitted to Weston. The form included a liability limitation clause that stated "NOVA's liability to CLIENT * * * for damages * * * will be limited to an amount not to exceed NOVA's charges for the Services." Because the agreement is unambiguous, what the parties intended the agreement to mean is not relevant. See Metro. Sports Facilities Comm'n v. Gen. Mills, Inc., 470 N.W.2d 118, 123 (Minn. 1991) (stating "[a] party cannot alter unequivocal language of a contract with speculation of an unexpressed intent of the parties" (citation omitted)). Thus, the issue to be resolved is whether the parties' limitation of liability clause should be enforced as it is written.
"Generally, exculpatory clauses are not favored by the law and are strictly construed against the benefited party." In re Trusteeship of Williams, 591 N.W.2d 743, 747 (Minn.App. 1999).
If the clause is either ambiguous in scope or purports to release the benefited party from liability for intentional, willful or wanton acts, it will not be enforced.
Schlobohm v. Spa Petite, Inc., 326 N.W.2d 920, 923 (Minn. 1982). Schlobohm sets forth a two-prong test for analyzing the policy considerations of enforcing an exculpatory clause:
(1) whether there was a disparity of bargaining power between the parties (in terms of a compulsion to sign a contract containing an unacceptable provision and the lack of ability to negotiate elimination of the unacceptable provision), and (2) the types of services being offered or provided (taking into consideration whether it is a public or essential service).
Id. (footnote and citations omitted). Weston has not established that any disparity of bargaining power existed between the parties. In fact, Weston had in-house counsel, and Weston's Vice President of Operations did not have counsel review the contract before signing it because he "was comfortable with the contract [he] was signing."
Weston's argument focuses on the second prong of the Schlobohm test. Specifically, Weston argues that the liability limitation clause is unenforceable as a matter of law because the clause violates public policy by limiting the liability of a party that provides a professional opinion on which the other party will rely. We disagree. Nova's service is not a public or essential service. See, e.g., Arrowhead Elec. Coop. v. LTV Steel Mining Co., 568 N.W.2d 875, 878-79 (Minn.App. 1997) (stating liability limitation should be enforced because "public policy requires that freedom of contract shall remain inviolate, except only in cases which contravene public right or public welfare" (quotations omitted)).
Weston cites several cases to support its position that enforcement of the exculpatory clause is against public policy. Reliance on these cases is misplaced. In McCarthy Well Co. v. St. Peter Creamery, Inc., 389 N.W.2d 514, 518 (Minn.App. 1986), aff'd in part, reversed in part, 410 N.W.2d 312 (Minn. 1987), this court concluded that an exculpatory clause was unenforceable because it contained miniscule print and limited liability for all acts including reckless or intentional conduct. Upon review, however, the supreme court specifically stated that the clause was not unconscionable, overreaching, or unduly harsh, and affirmed the decision only because the clause was unreadable. Id., 410 N.W.2d at 315-16. In Bunia v. Knight Ridder, 544 N.W.2d 60, 63 (Minn.App. 1996), review denied (Minn. May 9, 1996), this court invalidated an exculpatory clause in a newspaper carrier's contract with the newspaper where the carrier assented to the clause from a position of inferior bargaining power. There was no similar disparity of bargaining power between Weston and Nova.
Thus, even if we were to test the enforceability of the damage limitation clause under Minnesota substantive law, we would find no public policy violation and conclude that the clause is enforceable.
III.
Finally, Weston argues that the district court erred by awarding Nova attorney fees under the parties' contract. We disagree.
Whether a contract is ambiguous is a legal determination, and an appellate court reviews such a determination de novo. State by Humphrey v. Delano Cmty. Dev. Corp., 571 N.W.2d 233, 236 (Minn. 1997). When construing an unambiguous contract, "it is neither necessary nor proper * * * to go beyond the wording of the instrument itself." Telex Corp., 271 Minn. at 295, 135 N.W.2d at 686-87 (citation omitted). The parties' agreement unambiguously provides that Weston will pay Nova's attorney fees in certain circumstances. Under Section 9.2 of the parties' contract, Nova is entitled to reasonable attorney fees in the event the Weston suit against Nova is dismissed, in whole or in part.
Nova initiated the present action to collect attorney fees incurred in the federal action and argues that the federal action was dismissed as provided in section 9.2. Nova argues it is entitled to attorney fees incurred in the present action under section 9.2 because the district court dismissed Weston's counterclaim in part, and under section 9.1 (which provides for payment of reasonable attorney fees in a suit by Nova against Weston to collect Nova's attorney fees) because Nova incurred fees attempting to collect fees. We agree.
The district court awarded Nova fees of $77,094 incurred in the federal action, $8,456 incurred in obtaining the dismissal of Weston's counterclaim in this action, and $5,929 incurred in collecting the fees owed. Weston does not challenge the reasonableness of the amount of attorney fees claimed by Nova.
The parties' contract provides that Weston will pay Nova's attorney fees if Weston brings "a lawsuit against NOVA which is dismissed." Our decision that Nova is entitled to attorney fees is supported by the plain meaning of the word "dismiss," which is defined as "[t]o put (a claim or action) out of court without further hearing." The America Heritage College Dictionary 399 (3d ed. 1997). The federal court's decision put Weston's claim out of federal court without further hearing.
Weston asserts that a dismissal in part does not entitle Nova to attorney fees under the contract because the phrase "in whole or in part" refers only to a verdict. The provision states that Nova is entitled to attorney fees if Weston "brings a lawsuit against NOVA which is dismissed, or as to which a verdict is rendered for NOVA, in whole or in part." But the clause is not ambiguous; it requires a dismissal and it does not require a dismissal in its entirety. Moreover, the federal court, by granting Nova's motion for summary judgment in part, did dismiss the case in its entirety. Therefore, Nova is entitled to fees incurred in the federal action.
Weston argues further, however, that the question of Nova's liability to Weston remains undecided, and, therefore, Nova was not entitled to recover fees. We disagree. As the district court recognized, section 9.2 does not limit Nova's recovery of fees to a dismissal on the merits. And Weston does not cite any case for support of its position that "dismissal" must mean "dismissal on the merits." Weston cites only the district court order, which determined the res judicata issue and found the attorney fee request to be premature. The only law Weston cites is the general proposition that exculpatory clauses in contracts are construed against the benefited party. Because section 9 is unambiguous, there is nothing to construe against the benefited party.
In this order, the district court concluded that because there had been no determination on the issue of liability, there had been no dismissal or verdict under section 9.2 and the issue of an award of attorney fees was premature. After the parties entered into the stipulation, a second district court addressed the issue of attorney fees under section 9 and concluded that the stipulation did not require a judgment or verdict on the merits in order to permit resolution of the attorney fee issue. Although the two district court orders may appear to be inconsistent, if there was error, it occurred in the earlier order requiring dismissal on the merits before the attorney fee issue was ripe for adjudication.
The district court neither erred in applying the doctrine of res judicata to prevent Weston from relitigating the enforceability of a liability limitation clause nor in awarding attorney fees to Nova.