Walter A. Walczak, et al., Respondents, vs. Ronald Charles Keel, et al., and any unknown parties or persons claiming any right, title, interest or lien in the real estate described in the complaint, Defendants, Omasa Trust, Inc., Appellant.

Walter A. Walczak, et al., Respondents, vs. Ronald Charles Keel, et al., and any unknown parties or persons claiming any right, title, interest or lien in the real estate described in the complaint, Defendants, Omasa Trust, Inc., Appellant. A04-1391, Court of Appeals Unpublished, February 8, 2005.

This opinion will be unpublished and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

A04-1391

 

 

Walter A. Walczak, et al.,
Respondents,
 
vs.
 
Ronald Charles Keel, et al., and any unknown

parties or persons claiming any right, title, interest

or lien in the real estate described in the complaint,
Defendants,
 
Omasa Trust, Inc.,
Appellant.

 

 

Filed February 8, 2005

Affirmed

Wright, Judge

 

 

Hubbard County District Court

File No. C5-03-863

 

 

Tammy L. Merkins, Thorwaldsen, Malmstrom, Sorum, Wilson, LaFlair & Majors, P.L.L.P., 1105 Highway 10 East, P.O. Box 1599, Detroit Lakes, MN  56502-1599 (for appellant)

 

John A. Masog, 205 West Second Street, Park Rapids, MN  56470 (for respondents)

 

 

            Considered and decided by Kalitowski, Presiding Judge; Lansing, Judge; and Wright, Judge.

U N P U B L I S H E D  O P I N I O N

 

WRIGHT, Judge

 

Respondents brought an action to determine adverse claims on a timeshare condominium unit.  Appellant answered and claimed a fractional interest in the unit.  The district court entered summary judgment for respondents, concluding that equitable estoppel barred appellant from asserting its interest.  Appellant argues that (1) because equitable estoppel was not properly pleaded, it could not be raised on summary judgment; and (2) even if equitable estoppel were properly pleaded, respondents were not entitled to judgment on this basis as a matter of law.  We affirm.

FACTS

 

This action to determine adverse claims[1] involves a condominium unit (Unit) subject to time-based fractional ownership interests known as "intervals."  Purported interval holders in the Unit have included several corporations in which Charles Hagen was the controlling shareholder.  Hagen executed a corporate resolution on behalf of one such corporation, Tyme One, on May 15, 2000.  The resolution provided in relevant part:

Tyme One shall pay Charles Burnside and others the necessary dollars [for Tyme One] to perfect title to [the Unit]. . . .  For these cash and others received Charles D. Hagen shall deliver all interest in [the Unit] held by Charles D. Hagen, Omasa [Trust], Leading Edge, [North Beach Vacation Club] and all other entities controlled by Charles D. Hagen. . . .  Hagen will surrender all interest in Tyme One, Inc. owned or controlled by [Hagen].

 

            Before Hagen relinquished control of Tyme One, Hagen arranged the sale of the Unit on a contract for deed to respondents Walter and Julie Walczak (the Walczaks).  The transaction closed on June 16, 2000.  Hagen resigned as president and director of Tyme One on October 30, 2000.

            Appellant Omasa Trust, another corporation controlled by Hagen, initiated efforts to reacquire an ownership share in the Unit in 2003.  Soliciting other interval holders, it received intervals by quitclaim deed on January 18, 2003; February 13, 2004; and February 24, 2004.  None of these deeds was recorded.

            The Walczaks brought an action to determine adverse claims on the Unit in October 2003.  Seeking fee simple title, the Walczaks recorded a notice of lis pendens against the Unit and filed a complaint on October 10, 2003.  The named defendants included Hagen and Omasa Trust.  It is not disputed that Omasa Trust had actual notice of the Walczaks' action as of October 2003.

            On February 2, 2004, the Walczaks moved for summary judgment, seeking inter alia an "order quashing and dismissing any answer or counterclaim of Charles Hagen or any of his corporate entities."  No legal basis for this relief was stated in the motion, but an accompanying affidavit alleged that Omasa Trust had no interest in the Unit and was proceeding in bad faith.  Attached to the affidavit was a copy of the Tyme One resolution of May 15, 2000.

Omasa Trust responded on February 26, 2004.  Filing its first pleadings in the action, it denied the Walczaks' allegations and opposed summary judgment.  The parties appeared for a hearing on March 4, 2004, which was held without making a record.  Memoranda addressing the motions for summary judgment followed, from Omasa Trust on March 15 and from the Walczaks on March 16.  The Walczaks' memorandum argued for relief under a theory of equitable estoppel, the first express reference to this remedy in the record.  Omasa Trust did not reply to the Walczaks' memorandum or otherwise object to the Walczaks' arguments. 

In its order, the district court applied equitable estoppel and concluded that Omasa Trust was estopped from asserting any interest in the Unit.  As a result, the district court entered summary judgment for the Walczaks.  This appeal followed.

D E C I S I O N I.

            Omasa Trust initially asserts that, because the Walczaks did not give notice of equitable estoppel in their pleadings, it was procedurally improper for the district court to consider this remedy on summary judgment.  Matters relating to court procedure are questions of law, which we review de novo.  Modrow v. JP Foodservice, Inc., 656 N.W.2d 389, 393 (Minn. 2003).

            Minnesota civil procedure employs a system of notice pleading.  Its purpose is to provide adverse parties fair notice of the theory for a claim.  Goeb v. Tharaldson, 615 N.W.2d 800, 818 (Minn. 2000).  But a party is not required to name the theory for a claim explicitly, as long as the factual allegations provide fair notice of that theory.  Barton v. Moore, 558 N.W.2d 746, 749-50 (Minn. 1997); see generally 61A Am. Jur. 2d Pleading § 139 (1999).  The pleadings are construed liberally in favor of the claimant when determining whether the pleadings state a theory for a claim.  Goeb, 615 N.W.2d at 818.

Furthermore, "[w]hen 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."  Minn. R. Civ. P. 15.02.  Thus, even if a theory is not raised by the pleadings, under certain circumstances, that theory may be considered.

In Roberge v. Cambridge Coop. Creamery Co., the Minnesota Supreme Court supplied a detailed analysis of consent under rule 15.02.  243 Minn. 230, 233-36, 67 N.W.2d 400, 403-04 (1954).  The Roberge court observed that, when a party offers evidence on an issue not raised in the pleadings, consent may be implied if the adverse party fails to object or offers contrary evidence on the issue.  Id. at 233-34, 67 N.W.2d at 403.  But the supreme court also held that "consent to try an issue outside the pleadings cannot be implied where the evidence is pertinent to issues actually made by the pleadings."  Id. at 234, 67 N.W.2d at 403.  These principles have consistently guided later analysis of consent under rule 15.02.  See, e.g., Folk v. Home Mut. Ins. Co., 336 N.W.2d 265, 267-68 (Minn. 1983) (relying on principles stated in Roberge); Septran, Inc. v. Indep. Sch. Dist. No. 271, 555 N.W.2d 915, 919 (Minn. App. 1996), review denied (Minn. Feb. 27, 1997) (same).  When a plaintiff introduces evidence on an unpleaded claim and both parties brief the claim without objection, the defendant's consent to the claim is implied.  Hagen v. Burmeister & Assocs., 633 N.W.2d 497, 501 (Minn. 2001); Iacona v. Schrupp, 521 N.W.2d 70, 72 (Minn. App. 1994).  When a claim is first raised by the district court at a motion hearing and the parties are given additional time to prepare memoranda on the claim without objection by the adverse party, consent is also implied.  Septran, Inc., 555 N.W.2d at 919-20.

Here, the threshold issue is whether, based on the allegations raised in the pleadings, Omasa Trust had fair notice of equitable estoppel.  If not, the inquiry shifts to rule 15.02 to determine whether consent to equitable estoppel may be implied from the issues litigated and evidence submitted by the parties.  Thus, we begin our inquiry with an analysis of the essentials of equitable estoppel and an action to determine adverse title. 

Equitable estoppel prevents a party from "taking unconscionable advantage of [its] own wrong by asserting [its] strict legal rights."  Brekke v. THM Biomedical, Inc., 683 N.W.2d 771, 777 (Minn. 2004) (quoting N. Petrochemical Co. v. U.S. Fire Ins. Co., 277 N.W.2d 408, 410 (Minn. 1979)).  Conversely, an action to determine adverse claims, though not strictly a suit in equity, derives many governing principles from equity.  As such, a plaintiff has no affirmative obligation to establish legal title; rather, it may assert an equitable remedy against the defendants' competing legal claims.  Compare Garrey v. Nelson, 185 Minn. 487, 488-89, 242 N.W. 12, 12-13 (1932) (describing plaintiffs' equitable remedies in "a legal action" to determine adverse claims), with Mathews v. Lightner, 85 Minn. 333, 336, 88 N.W. 992, 994 (1902) (holding that statutory action to determine adverse claims "is substantially an equitable one" and that equitable remedies are properly available).

Until the parties submitted their summary judgment memoranda, the Walczaks did not expressly plead equitable estoppel.  But the Walczaks' pleadings proceeded strictly on an equitable theory.  Rather than assert superior legal title, the Walczaks claimed that Omasa Trust's bad faith should preclude its assertion of legal title.  When the Walczaks' pleadings are construed liberally in their favor, Omasa Trust had fair notice that the Walczaks' claims were based on its alleged misconduct and not its legal claim of right.  We, therefore, conclude that the district court had authority to proceed on a theory of equitable estoppel.

Even if the pleadings did not provide fair notice, Omasa Trust's consent to equitable estoppel may still be implied.  As discussed above, prior to the parties' motions for summary judgment, the Walczaks supplied no evidence on their legal claim of right but offered some evidence regarding Omasa Trust's alleged misconduct.  Only equitable estoppel could provide a meaningful context for this evidence, but Omasa Trust did not claim that this evidence was contrary to the pleadings.  When the Walczaks raised the theory of equitable estoppel in their memorandum, Omasa Trust did not raise an objection.

Because Omasa Trust did not challenge the submission of evidence relating to equitable estoppel and did not later object to argument on the theory of equitable estoppel, we conclude that its consent to equitable estoppel is implied.  See Septran, Inc., 555 N.W.2d at 919-20; cf. Roberge, 243 Minn. at 234, 67 N.W.2d at 403 (rejecting consent where evidence is relevant to other issues raised in pleadings).  Thus, the district court did not err when it considered equitable estoppel on summary judgment.

II.

            Omasa Trust argues that, if the district court properly considered equitable estoppel, genuine issues of material fact preclude summary judgment on this basis.  Whether summary judgment was properly granted is a question of law, which we review de novo.  Prior Lake Am. v. Mader, 642 N.W.2d 729, 735 (Minn. 2002).  In doing so, we consider whether any genuine issues of material fact exist and whether the district court erred in its application of the law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  A genuine issue of material fact does not exist when "the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party."  DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,475 U.S. 574, 587, 106 S. Ct. 1348, 1356 (1986)).  "[T]he party resisting summary judgment must do more than rest on mere averments."  Id. at 71.  A genuine issue for trial must be established by substantial evidence.  Id. at 69-70.  We view the evidence in the light most favorable to the party against whom summary judgment was granted.  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  Summary judgment is appropriate when a party fails to establish the existence of an element essential to the party's case.  Bersch v. Rgnonti & Assocs., 584 N.W.2d 783, 786 (Minn. App. 1998), review denied (Minn. Dec. 15, 1998).

            The availability of equitable estoppel depends heavily on the individual facts and circumstances of each case.  Thus, to prevail by equitable estoppel on summary judgment, all reasonable inferences from the record must support this theory.  Rhee v. Golden Home Builders, Inc., 617 N.W.2d 618, 622 (Minn. App. 2000).

            Addressing equitable estoppel in the context of an action to determine adverse title, the Minnesota Supreme Court in Froslee v. Sonju said:

To be estopped from asserting title, one must have led another by words or conduct to believe that the former had no interest in the property, and the other must have relied upon the misleading words or conduct in such a manner as to change [its] position for the worse. 

 

            . . . .

 

[The party seeking relief] must show that [it] acted as an innocent purchaser and that [it] relied upon [the adverse party's] words or conduct to [its] detriment.

 

209 Minn. 522, 524, 526-27, 297 N.W. 1, 3, 4 (1941); accord Brekke, 683 N.W.2d at 777-78 (holding that, to establish equitable estoppel, party seeking relief must demonstrate that adverse party made a knowing misrepresentation with intent to induce reliance and that party seeking estoppel subsequently relied on misrepresentation to its prejudice).  One common scenario in which equitable estoppel applies arises when a grantor transfers defective title to one party and later transfers legal title to another party.  Holders of the defective title may thereafter assert equitable estoppel to preclude legal title.  Macomber v. Kinney, 114 Minn. 146, 155-56, 128 N.W. 1001, 1004 (1910); Holcomb v. Indep. Sch. Dist., 67 Minn. 321, 324-25, 69 N.W. 1067, 1068 (1897).

            Viewing the record in the light most favorable to Omasa Trust, it is undisputed that, prior to the sale of the Unit to the Walczaks, Hagen was a controlling shareholder of both Tyme One and Omasa Trust.  In Tyme One's corporate resolution on May 15, 2000, Hagen represented both that Tyme One would acquire a perfected title in the Unit and that his other entities would divest their interests in the Unit.  Acting on behalf of Tyme One, Hagen then sold the Unit to the Walczaks on June 16, 2000.  Omasa Trust does not dispute that the Walczaks relied on Hagen's representations.  Moreover, that the Walczaks relied on Hagen's representations is the only reasonable conclusion that can be drawn from the record.  The Walczaks not only expected that Tyme One would obtain a perfected title, but also that neither Hagen nor his entities would have any interest in the Unit.

            Hagen counters that, because no legal relationship exists between Omasa Trust and the Walczaks, his representations on behalf of Tyme One cannot result in the equitable estoppel of Omasa Trust.  But when a person makes a representation on behalf of more than one corporation, equitable estoppel may reach both corporations.  See Anderson v. Kennebec River Pulp & Paper Co., 433 A.2d 752, 756 (Me. 1981) (holding that statement of officers, made while bankruptcy was pending, estopped both bankrupt predecessor corporation and presumptive successor corporation); Grand Lodge Indep. Order of Odd Fellows v. Marvin, 369 N.W.2d 54, 58 (Neb. 1985) (holding that representation by predecessor corporation estopped reorganized successor).  In the Tyme One corporate resolution, Hagen did not act for Tyme One alone.  Rather, he made representations on behalf of all of his corporations, including Omasa Trust.  Thus, we conclude as a matter of law that equitable estoppel properly applies to these corporations.

Hagen made representations on behalf of Tyme One and Omasa Trust, which the Walczaks relied on to their detriment.  Accordingly, the doctrine of equitable estoppel bars Omasa Trust from asserting any interest in the Unit, and the district court properly entered summary judgment for the Walczaks. 

            Affirmed.

[1] Both the district court and the parties refer to this matter as an action to quiet title.  This designation correctly states the original suit in equity.  But when codified, the statutory nomenclature distinguished between an "action to quiet title" and an "action to determine adverse claims."  Under Minn. Stat. § 284.04 (1998), an action to quiet title was limited to the determination of title following the sale of tax-forfeited property.  Conversely, Minn. Stat. § 559.01 (2002), which sets out an action to determine adverse claims, preserves the form of an equitable suit to quiet title.  See generally 6A Steven J. Kirsch, Minnesota Practice §§ 54.11, 54.20 (3d ed. 1990).  The statutory "action to quiet title" was subsequently repealed.  1999 Minn. Laws ch. 243, art. 13, § 21.  Nevertheless, we employ the existing statutory nomenclature and refer to this matter as an action to determine adverse claims.