Summary
In St. Stephen, the Minnesota Court of Appeals read House differently and rejected the argument that tort counterclaims cannot be compulsory counterclaims under Rule 13.01.
Summary of this case from Estavilla v. The Goodman Grp.Opinion
No. C5-02-1654.
Filed April 15, 2003.
Appeal from the Pope County District Court, File No. C20258.
Gerald W. Von Korff, Rinke-Noonan, (for respondent)
Richard E. Bosse, Law Offices of Richard E. Bosse, Chartered, (for appellants)
Considered and decided by Klaphake, Presiding Judge, Lansing, Judge, and Stoneburner, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Appellants argue that the district court erred by granting summary judgment to respondent bank, dismissing counterclaims raised in an eviction action that were not asserted in a prior foreclosure action, as barred by the doctrine of res judicata. We affirm.
FACTS
Respondent St. Stephen State Bank initiated foreclosure proceedings in 1998 on property owned by appellants Valerie and Robert Johannsen that was mortgaged as security for loans that were in default. Appellants, who were represented by counsel, opposed foreclosure. They challenged the amount of indebtedness claimed by the bank, argued that they were coerced into signing a loan modification and repayment agreement that acknowledged the validity of the mortgages, argued that the agreement was unconscionable, and argued that they had not signed documents verified in the loan modification and repayment agreement. In September 1999, the district court granted summary judgment to the bank on the amount of the debt, granted a foreclosure judgment, and ordered the property sold. The district court addressed each of appellants' claims in a detailed memorandum attached to the judgment. The bank bought the property at the foreclosure sale. In December 2000, the district court issued an order confirming the sale and amending the deficiency judgment to reflect the sale proceeds. There was no appeal.
In January 2002, when the redemption period ended, the bank brought an eviction action against appellants to obtain possession of the land. Appellants counterclaimed alleging conversion, trespass, and fraud. Appellants sought to vacate the foreclosure judgment and alleged that eviction violates their rights under Minn. Stat. § 500.245 (2002). The bank moved for summary judgment. Appellants requested a continuance to pursue discovery, moved to sever their counterclaims, and requested that the district court stay entry of a writ of restitution pending resolution of the counterclaims. The district court concluded that all of appellants' claims were litigated, or could have been litigated, in the foreclosure action and are barred by res judicata. The district court denied appellants' motions for a continuance, discovery, and to sever the counterclaims. The court also rejected appellants' claim under Minn. Stat. § 500.245, granted the bank's motion for summary judgment, and issued an immediate writ of restitution to the bank. This appeal followed.
DECISION
On appeal from summary judgment, we ask two questions: "(1) whether there are any genuine issues of material fact and (2) whether the lower courts erred in their application of the law." State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990) (citation omitted). "The reviewing court must view the evidence in the light most favorable to the party against whom judgment was granted." Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (citation omitted). In this case, appellants agree that the facts are not in dispute. They argue that the district court erred by (1) applying the doctrine of res judicata;(2) concluding that their request to vacate the foreclosure judgment for fraud was untimely; and (3) not allowing them to continue to possess the property until the bank has a buyer or lessor, under Minn. Stat. § 500.245 (2002). Appellants also argue that the district court abused its discretion by denying their discovery motion and their motion to sever the counterclaims.
In their brief, appellants also assert as an issue their right to bring a counterclaim in an eviction action, but neither respondent nor the district court challenged appellants' assertion of counterclaims in this action.
1. Res judicata
We review de novo the availability of the doctrine of res judicata. Hennepin County v. Hanneman, 472 N.W.2d 149, 152 (Minn.App. 1991), review denied (Minn. Aug. 29, 1991). Res judicata is applicable when there has been (1) a final judgment on the merits; (2) the same cause of action is involved; and (3) the parties are identical. Id.
A second suit on the same cause of action is barred "not only as to every matter which was actually litigated, but also as to every matter which might have been litigated therein." * * * "A change in [the] theory [of liability] cannot be used to avoid res judicata." * * * .
Id. (citations omitted).
In this case, it is undisputed that the foreclosure judgment was a final judgment on the merits and that the parties are identical. And the district court found that the same cause of action is involved. Two causes of action are the same when they involve the same facts or when the same evidence would support both judgments. Meyers v. Price, 463 N.W.2d 773, 777 (Minn.App. 1990), review denied (Minn. Feb. 14, 1991).
Appellants argue that res judicata cannot be applied to the tort counterclaims they assert in the eviction action because tort counterclaims are not compulsory counterclaims under Minn.R.Civ.P. 13.01, and can therefore be asserted in a separate action. We disagree with the proposition that appellants' tort counterclaims were not compulsory counterclaims under Rule 13.01. The rule provides:
A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction that is the subject matter of the opposing party's claim * * * .
Minn.R.Civ.P. 13.01. The supreme court held that the word "transaction," as used in rule 13.01, does not embrace claims in tort, therefore a defendant's failure to assert as a counterclaim, in a tort action, any claim defendant has against plaintiff does not estop defendant from asserting such claim in a subsequent action against the plaintiff. House v. Hanson, 245 Minn. 466, 472, 72 N.W.2d 874, 878 (1955). Appellants misread House to say that counterclaims that sound in tort are never compulsory claims. But House actually says that there are no compulsory counterclaims in a tort action.
The 1998 foreclosure action initiated by the bank against appellants was not a tort action. It arose out of a transaction between the parties, and rule 13.01 requires that appellants had to assert any claim arising out of the same transaction in the 1998 foreclosure action. All of the counterclaims that appellants asserted in the bank's 2002 eviction action arose out of the same transaction that was the subject matter of the 1998 foreclosure action and, therefore, were compulsory counterclaims in the 1998 action. But whether the current claims were compulsory counterclaims in the foreclosure action is not the issue in this appeal because the district court did not apply estoppel by rule to bar the appellants' tort claims. See id. at 877 (distinguishing the bar created by rule 13.01 from the absolute bar which arises under the doctrine of res judicata). Appellants have no authority for the proposition that non-compulsory claims cannot be barred by application of the doctrine of res judicata. Res judicata has consistently been held to bar claims that could have been litigated and claims that have already been litigated under a different legal theory. Nitz v. Nitz, 456 N.W.2d 450, 452 (Minn.App. 1990) (stating application of res judicata cannot be avoided merely by a change in legal theory); Antonson v. Ekvall, 295 Minn. 558, 204 N.W.2d 446, 447 (1973) (affirming district court's holding that unsuccessful prior tort action precluded relitigation of same basic claims as a contract action).
The district court's thorough memorandum of law analyzes how each counterclaim asserted by appellants in the eviction action arises out of the same transaction and depends on the same facts and circumstances that were resolved in the prior action. The district court did not err in concluding that the current claims are barred by the doctrine of res judicata.
Appellants assert that the bank failed to meet its burden of proof to show that the prior case involved the same cause of action. See Virsen v. Rosso, 356 N.W.2d 333, 337 (Minn.App. 1984). Although the bank did not provide a record of the foreclosure proceedings to the district court or to appellants, appellants attached the foreclosure judgment to their answer and counterclaim in the eviction action. The same judge heard both cases and appellants do not allege any error by the district court in its consideration of the prior action or any prejudice from the bank's failure to provide more of the record.
2. Request to vacate foreclosure judgment for fraud
The district court also concluded that appellants' claim for relief from the foreclosure judgment based on fraud was untimely because it was not filed within one year after the date of the foreclosure judgment. See Minn.R.Civ.P. 60.02(c) (providing that the court may relieve party from final judgment for fraud, but motion for such relief must be made within reasonable time, not more than one year after judgment was entered). Appellants argue that their motion is based on fraud on the court, which takes it out of the one-year limitation. See id. (providing that the rule does not limit the power of a court to entertain an action to relieve a party for a judgment for fraud on the court). Fraud on the court exists where a party's malfeasance either abuses the court's processes or misleads the court as to a dispute's material circumstances. Halloran v. Blue White Liberty Cab Co., 253 Minn. 436, 442, 92 N.W.2d 794, 798 (1958). At oral argument, appellants clarified, for the first time, that the bank's failure to inform the court in the foreclosure action that it had received a payment from the SBA is the basis for their claim of fraud on the court. But the district court addressed the SBA loan in the foreclosure action and in the current action, and has implicitly rejected any notion that the bank committed fraud on the court with regard to the bank having received payment from SBA. There was no fraud on the court and the district court correctly determined that appellants' request to vacate the foreclosure judgment for fraud was untimely.
3. Appellants' rights under Minn. Stat. § 500.245
Appellants argue that their right of first refusal under Minn. Stat. § 500.245 (2002) prevents the bank from obtaining possession of the property because the bank has no buyer or tenant for the property. They assert that the intent of the statute, to protect a family farm, and the public interest that land should not remain unproductive, precludes the bank from possession unless it has a ready buyer or tenant. We rejected this argument in Federal Land Bank of St. Paul v. Obermoller:
[N]either the state nor the federal statute contains any language indicating previous owners should be allowed to remain on the property until the property is sold or leased. Inferring a right to retain possession until the previous owner is afforded an opportunity to exercise its right of first refusal conflicts with the unlawful detainer statute which expressly allows a party to recover possession from persons holding lands after a mortgage foreclosure.
429 N.W.2d 251, 258 (Minn.App. 1988) (affirming ruling that previous owners may not assert this alleged implied right as a defense in bank's unlawful detainer action), review denied (Minn. Oct. 26, 1988). Appellants have no right under Minn. Stat. § 500.245 to remain on the property and the district court did not err by issuing a writ of recovery to the bank.
4. Motions for discovery and to sever counterclaims
Appellants argue that the district court abused its discretion by denying their discovery motion and their motion to sever their counterclaims from the eviction action. We have stated that, in order to retain the summary nature of eviction proceedings, even though a district court has jurisdiction to hear counterclaims, the better practice would be to sever those claims and stay the eviction actions pending resolution. Amresco Residential Mort. Corp. v. Strange, 631 N.W.2d 444, 446 (Minn.App. 2001). In this case, however, the district court addressed the counterclaims in the eviction action and found them barred by res judicata. There was nothing to sever and no reason for discovery. The district court did not abuse its discretion by denying appellants' motions for discovery and to sever their counterclaim.