Trips, Inc., Appellant, vs. Yaggy Colby Associates, Inc., et al., Respondents, Tech Builders, Inc., Respondent, Lloyd Refrigeration, Inc., d/b/a Northern Insulation Products, Respondent.

Trips, Inc., Appellant, vs. Yaggy Colby Associates, Inc., et al., Respondents, Tech Builders, Inc., Respondent, Lloyd Refrigeration, Inc., d/b/a Northern Insulation Products, Respondent. A04-718, Court of Appeals Unpublished, January 4, 2005.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-718

 

 

Trips, Inc.,

Appellant,

 

vs.

 

Yaggy Colby Associates, Inc., et al.,

Respondents,

 

Tech Builders, Inc.,

Respondent,

 

Lloyd Refrigeration, Inc., d/b/a Northern Insulation Products,

Respondent.

 

 

Filed January 4, 2005

Affirmed in part, reversed in part, and remanded

Halbrooks, Judge

 

 

Olmsted County District Court

File No. C0-02-3107

 

 

Wilbur W. Fluegel, Fluegel Law Office, 701 Fourth Avenue South, Suite 1260, Minneapolis, MN 55415; and

 

Jeffrey A. Hanson, Hanson Law Firm, 402 South Mantorville Avenue, Kasson, MN 55944 (for appellant)

 

Rob Stefonowicz, Meagher & Geer, P.L.L.P., 4200 Multifoods Tower, 33 South 6th Street, Minneapolis, MN 55402 (for respondent Yaggy Colby)

 

David E. Rollwagen, Jerome B. Abrams, Abrams & Smith, P.A., 220 South 6th Street, Suite 1250, Minneapolis, MN 55402 (for respondent Tech Builders)

 

Dustan J. Cross, Peter D. Favorite, Gislason & Hunter, LLP, 2700 South Broadway, P.O. Box 458, New Ulm, MN 56073 (for respondent Lloyd Refrigeration)

 

 

 

            Considered and decided by Shumaker, Presiding Judge, Halbrooks, Judge, and Huspeni, Judge.*

U N P U B L I S H E D   O P I N I O N

HALBROOKS, Judge

            Appellant Trips, Inc. challenges the district court's order granting summary judgment to respondents Tech Builders, Inc. (Tech) and Northern Insulation Products (Northern).  The district court determined that Trips' claim against Tech is barred by the statute of limitations, the settlement agreement between Trips and Tech, and the doctrine of res judicata.  Trips also contests the district court's decision that the settlement agreement between Trips and Tech bars Trips' current claim against Northern.  Northern appeals the district court's order on the ground that the district court erred in concluding that the statute of limitations does not bar Trips' claim against Northern.

            We affirm the district court's order granting summary judgment to Tech, but reverse the district court's order granting summary judgment to Northern and remand because we conclude that there are genuine issues of material fact concerning whether Trips' claim against Northern is barred by the statute of limitations or the settlement agreement.

FACTS

            In 1999, Trips decided to build a hotel in Rochester.  Trips hired an architectural firm, respondent Yaggy Colby Associates, Inc. (Yaggy), to review plans and prepare specifications for construction of the hotel.  Yaggy hired respondent Allman & Associates to design the mechanical engineering for the hotel and poolroom building, including the heating, venting, and air conditioning systems (HVAC) in the poolroom building.  Trips selected Tech to build the hotel, and Tech hired Northern as the subcontractor to install a vapor barrier in the walls and ceiling areas of the poolroom building in order to prevent moisture from penetrating the walls.  The hotel opened for business in June 2000.

            After noticing defects in the hotel's construction, Trips hired a structural consultant to inspect the building on several occasions between August and December 2000.  The consultant's report, completed in December 2000, listed numerous problems with the hotel's construction, including several moisture-related problems.  Trips also received a report from Steen Engineering in November 2000, noting multiple problems with the hotel, including concerns that water was dripping off the ceiling in the poolroom because the HVAC system's capacity was only 40 percent of the capacity required.

            In January 2001, a hotel maintenance manager observed mold on a bathroom ceiling in the poolroom building.  Trips notified Tech of the mold and the continuing problem of excessive moisture in the poolroom building.  Tech examined the mold on the bathroom ceiling and told Trips that it was caused by an exhaust vent near the bathroom.  Tech subsequently repaired the exhaust vent.  Trips did not find any additional mold in the poolroom bathroom until late 2002.

            In March 2001, Tech filed an amended complaint against Trips, seeking to recover the remaining balance due under the construction contract.  Trips counterclaimed against Tech, claiming that Tech was negligent and had breached the contract.  The dispute was resolved by arbitration, and the parties entered into a settlement agreement in January 2002 to implement the terms of the arbitrator's award.  As part of that settlement, Trips agreed to release

only that fraction, portion or percentage of the total cause of action or claim for damage that it [had at the time] or may have against all parties responsible for damages to the Project . . . for which Tech Builders, Inc., its employees, officers, directors, agents, subcontractors or suppliers . . . may be found liable as a result of any and all claims[,] . . . demands, damages, costs, expenses, loss of services, actions and causes of action which Trips, Inc. may have . . . asserted or which could have been asserted in this lawsuit . . . .

 

Trips expressly reserved all other claims not released.

            In October and November 2002, one of Trips' employees again observed mold in the poolroom building.  When he went into the attic to investigate, he saw that some of the insulation was soaked with water and that mold was growing.  In January 2003, part of the bathroom ceiling in the poolroom building collapsed from the weight of the moisture.  In March 2003, the employee went back into the attic and removed the 12 to 36 inches of insulation above the bathroom and shower room ceilings.  Once he removed the insulation, he saw that the ceilings were rotten and moldy and that the vapor barrier was both improperly installed and not continuous over the entire ceiling. 

            Trips then hired an architect to inspect the ceilings, wall interiors, and the attic of the hotel.  The architect found in June 2003 that the vapor barrier in the walls and ceilings was not continuous and was completely missing in some places.  The architect concluded that the undersized HVAC system caused the excess moisture in the poolroom building, but that the defective vapor barrier caused the moisture and mold damage in the ceilings and walls.

            In August 2003, Trips amended a complaint it had filed against Yaggy to add Tech and Northern as defendants, alleging negligence and breach of contract.  Tech and Northern moved for summary judgment, asserting that Trips' claims were barred by the statute of limitations governing claims related to improvements to real property, Minn. Stat. § 541.051 (2002); the earlier settlement agreement; and the doctrine of res judicata.

The district court determined that the injuries caused by the HVAC system and those caused by the defective vapor barrier were all part of one moisture problem.  The district court found that Trips knew by January 2001 that severe excess moisture problems causing moisture-related damage existed in the poolroom building and concluded that Trips' claim against Tech had accrued by January 2001.  Therefore, the district court concluded that Trips' claim against Tech was barred by the two-year statute of limitations in Minn. Stat. § 541.051 (2002), was or could have been asserted in the arbitration, was released by the January 2002 settlement agreement, and was barred by res judicata.

The district court next examined when Trips' claim accrued against Northern.  Noting that the two-year statute of limitations in Minn. Stat. § 541.051 starts running at the discovery of the injury, the district court found that Trips' claim again Northern accrued when Trips discovered or should have discovered an injury caused in part or in whole by Northern.  While Northern argued that if Trips had acted reasonably, Trips would have found the damage sooner, the district court found no evidence to indicate that Trips had specific knowledge of the defective vapor barrier or the moisture-related damage caused by the defective water vapor barrier before November 2002, even though the district court determined that Trips should have known of general moisture-related problems by January 2001.  The district court determined that reasonable minds could disagree as to whether Trips should have discovered the damage sooner.  Therefore, the district court denied Northern's motion for summary judgment on a statute-of-limitations basis.

But because the district court decided that an addendum to the arbitration settlement agreement released claims against Tech's subcontractors, the district court determined that Northern was a third-party beneficiary to the agreement and was therefore entitled to enforce the terms of the settlement agreement.  Because the district court concluded that the terms of the release did not distinguish between claims against Tech or its subcontractors, the district court held that Trips' claim against Northern was released.  This appeal follows.

D E C I S I O N

            On appeal from summary judgment, this court determines (1) whether there are any genuine issues of material fact and (2) whether the district court erred in applying the law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  The district court properly grants a motion for summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law."  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  A genuine issue of material fact exists where the record taken as a whole could lead a rational trier of fact to find for the appellant.  DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997).  On appeal, this court will view the evidence in the light most favorable to the party against whom judgment was granted in the district court.  Fabio, 504 N.W.2d at 761.  "Any doubt as to the existence of a material fact must be resolved in favor of finding a fact issue exists."  Lake City Apartments v. Lund-Martin Co., 428 N.W.2d 110, 111 (Minn. App. 1988), review denied (Minn. Oct. 19, 1988).

I.

            We first examine whether the district court erred by granting summary judgment for Tech based on the statute of limitations, the prior settlement agreement, and res judicata.

A.        Statute of Limitations

The statute of limitations for actions related to damages based on improvements to real property states:

(a) Except where fraud is involved, no action by any person in contract, tort, or otherwise to recover damages for any injury to property, real or personal . . . arising out of the defective and unsafe condition of an improvement to real property . . . shall be brought against any person performing or furnishing the design, planning, supervision, materials, or observation of construction or construction of the improvement to real property . . . more than two years after discovery of the injury . . . .

(b) For purposes of paragraph (a), a cause of action accrues upon discovery of the injury . . . .

 

Minn. Stat. § 541.051, subd. 1 (2002).  The statute of limitations begins to run when a party discovers an actionable injury or should have discovered such an injury with reasonable diligence, whether or not the party knows the exact nature of the defect causing the injury.  Dakota County v. BWBR Architects, Inc., 645 N.W.2d 487, 492 (Minn. App. 2002), review denied (Minn. Aug. 20 2002); Indep. Sch. Dist. No. 775 v. Holm Bros. Plumbing & Heating, Inc., 660 N.W.2d 146, 150 (Minn. App. 2003).

To pinpoint the discovery of "injury" that triggered the statute of limitations, the district court treated the injuries caused by the HVAC system and the injuries caused by the defective vapor barrier as one injury"excess moisture" problems.  In its memorandum accompanying its order, the district court stated that it was prohibited from defining separate construction defects as distinct injuries for statute-of-limitations accrual purposes based on the supreme court's decision in HylandHill N. Condo. Ass'n v. Hyland Hill Co., 549 N.W.2d 617 (Minn. 1996).  In Hyland Hill, the supreme court concluded that the district court did not abuse its discretion by rejecting the argument that multiple defects in the condominium building construction were separate injuries.  Id. at 621.  But the court also stated that "it would not have been unreasonable to distinguish between the different types of defects involved in this case, [roof, masonry, patio and sundeck defects]").  Id.  Therefore, while the district court here did not abuse its discretion by choosing to treat all of Trips' moisture-related injuries as one injury, we read Hyland Hill to stand for the proposition that the district court would have acted within its discretion if it had chosen to regard the HVAC problems and vapor barrier defects as separate injuries.

Because the district court treated all the moisture problems as one injury, it determined that Trips was or should have been aware of an actionable moisture-related injury by January 2001.  We examine the district court's finding of fact to determine if it is clearly erroneous.  Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999).  In January 2001, a Trips maintenance manager noticed mold on a bathroom ceiling in the poolroom building.  Although Trips was not yet aware of the full extent of damage that the excess moisture had caused or of the defective vapor barrier, Trips knew then that there was excess moisture in the poolroom building and that the moisture was damaging the woodwork, ceiling, and other surfaces.  Based on the structural consultant's report in December 2000, Trips also knew that "[t]here was evidence of substantial condensation in many areas of the building" and there "may be insufficient insulation in [the] attic area."  Trips did not bring this suit against Tech until August 2003, more than two years later.  Because the district court's determination that Trips was or should have been aware of an actionable injury by January 2001 is not clearly erroneous, we affirm the district court's decision that the statute of limitations bars Trips' claim against Tech.

Trips argues that the statute of limitations was tolled by Tech's "misrepresentation" that a faulty vent caused the mold that Trips found in January 2001.  The statute of limitations permits action to be brought more than two years after discovery of the injury if fraud is involved. Minn. Stat. § 541.051, subd. 1(a).  But "fraud is relevant only to the extent that it postpones the time until a party discovers or in the exercise of reasonable diligence, should have discovered, the defective conditions."  BWBR, 645 N.W.2d at 494.  In other words, fraud only tolls the statute of limitations until a party discovers an actionable injury.  Id.  Here, because Trips discovered the actionable injury before the alleged misrepresentation took place, the district court was correct in concluding that fraud did not toll the statute of limitations.

B.        Settlement Agreement

The settlement agreement that Trips and Tech entered into in January 2002, provides that

[t]he parties to this agreement mutually agree that this agreement constitutes a full and complete [r]elease by and among the parties to this action with regard to any claims asserted or which could have been asserted[] . . . with regard to the development, financing, design, or construction of the Project.

 

(Emphasis added.)  The district court determined the settlement agreement bars Trips' claims against Tech.  Because Trips' claim against Tech accrued by January 2001, Trips could have asserted its claim in the prior lawsuit.  Thus, we affirm the district court's decision that the settlement agreement bars Trips' claim against Tech.

C.        Doctrine of Res Judicata

According to the doctrine of res judicata or claim preclusion, "[a] judgment on the merits constitutes an absolute bar to a second suit for the same cause of action, and is conclusive between parties and privies . . . as to every matter which might have been litigated therein."  Dorso Trailer Sales, Inc. v. Am. Body & Trailer, Inc., 482 N.W.2d 771, 774 (Minn. 1992) (quotation omitted).  For res judicata to apply, there must be "(1) a final judgment on the merits; (2) a second suit involving the same cause of action; and (3) identical parties or parties in privity."  Myers v. Price, 463 N.W.2d 773, 776 (Minn. App. 1990), review denied (Minn. Feb. 4, 1991).

In order for the 2002 settlement agreement to bar Trips' current claim against Tech, the settlement agreement must satisfy the three elements of Myers.  First, the settlement agreement must be a final judgment on the merits.  A judgment based on a settlement agreement is a final judgment on the merits with respect to those issues and claims actually settled.  Goldberger v. Kaplan, Strangis & Kaplan, P.A., 534 N.W.2d 734, 736 n.1 (Minn. App. 1995).  Thus, the first element is met.  Second, the current lawsuit must involve the same cause of action as the prior lawsuit.  "Two causes of action are the same when they involve the same set of factual circumstances or when the same evidence will sustain both actions."  Myers, 463 N.W.2d at 777.  In 2001, Trips' cause of action against Tech was for Tech's "fail[ure] to timely advise [Trips] of defects in the design of the building, including defective design of . . . [the] pool room" and Tech's "fail[ure] to correct and complete portions of the construction as required by its contract . . . ."  The prior claim and the current claim involve the same set of circumstances: mold growing on the walls and ceilings, excess moisture in the pool building, and other evidence of Tech's defective construction.  Thus, the second element is met.  Third, the lawsuits must involve the same parties.  Because Trips and Tech are opposing parties in both lawsuits, the third element is met.  Thus, the doctrine of res judicata bars Trips' current claim against Tech.

II.

            We now turn to whether the district court erred in granting summary judgment to Northern.  While the district court concluded that Northern was released by the language in the addendum to the settlement agreement, the district court also found that reasonable minds could differ as to when Trips' cause of action against Northern accrued.  Northern argues that Trips' cause of action against both Tech and Northern accrued at the same time.

            The statute of limitations and the settlement agreement bar Trips' claim against Northern if Trips' claim against Northern accrued by August 2001 and January 2002, respectively.  Although Trips was aware of some moisture problems before these dates, the district court found that the date when Trips knew or should have known about the vapor-barrier defect is uncertain.  While the evidence shows that ice was hanging down from the pool roof in 2001, it is unclear whether the ice was related to or caused by the defective vapor barrier.  Trips did not go into the attic and discover the defect until November 2002, and the evidence is not clear as to whether Trips should reasonably have gone into the attic and/or cut into the walls earlier.  Therefore, the district court's finding that reasonable minds could differ as to when the cause of action accrued is not clearly erroneous.  Because the date when Trips should have discovered the injury caused by the defective vapor barrier is a genuine issue of material fact, the district court erred by granting summary judgment to Northern.  Minn. R. Civ. P. 56.03; DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997).  

The settlement agreement would bar Trips' claim against Northern only if the claim could have been asserted at the time of the agreement.  Because that determination is dependent upon the factual finding of when Trips knew or should have known about the vapor-barrier defects, we reverse the district court's order granting summary judgment for Northern.

Affirmed in part, reversed in part, and remanded.

*  Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.