Town Square Realty, LLC, Appellant, vs. City of St. Paul, Respondent, Michael Wong, d/b/a Town Square Gardens, Incorporated, Defendant.

Town Square Realty, LLC, Appellant, vs. City of St. Paul, Respondent, Michael Wong, d/b/a Town Square Gardens, Incorporated, Defendant. A04-1957, Court of Appeals Unpublished, June 21, 2005.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-1957

 

Town Square Realty, LLC,

Appellant,

 

vs.

 

City of St. Paul,

Respondent,

 

Michael Wong,

d/b/a Town Square Gardens, Incorporated,

Defendant.

 

Filed June 21, 2005

Reversed and remanded

Gordon W. Shumaker, Judge

 

Ramsey County District Court

File No. C5-02008373

 

 

Howard A. Roston, Malkerson Gilliland Martin LLP, 220 South Sixth Street, Suite 1750, Minneapolis, MN  55402; and

 

Thomas F. Pursell, Lindquist & Vennum P.L.L.P., 4200 IDS Center, 80 South Eighth Street, Minneapolis, MN  55402 (for appellant)

 

Manuel Cervantes, St. Paul City Attorney, Louise Toscano Seeba, Assistant City Attorney, 550 City Hall and Courthouse, 15 West Kellogg Boulevard, St. Paul, MN  55102 (for respondent)

 

            Considered and decided by Klaphake, Presiding Judge; Shumaker, Judge; and Crippen, Judge.*

U N P U B L I S H E D   O P I N I O N

GORDON W. SHUMAKER, Judge

            Appellant Town Square Realty, LLC, sued respondent City of St. Paul and defendant Michael Wong, d/b/a Town Square Garden, Inc. (TSG), alleging trespass, negligence, nuisance, and breach of contract related to damage from water that leaked from the city's property into appellant's building.  Because of the complex nature of the action, the district court referred the matter to a referee under Minn. R. Civ. P. 53.  After hearing evidence, the referee reported his findings of fact and conclusions of law.  Relying on the referee's report, the district court granted summary judgment to the city on the merits and based on statutory and official immunity and the statute of repose.

            Because (1) genuine issues of material fact exist that preclude summary judgment; (2) the statute of repose does not apply to claims based on negligent maintenance; and, (3) the city failed to give appellant timely notice of its intention to claim immunity, we reverse the district court's order and remand.

FACTS

            Respondent City of St. Paul operated an indoor park on an upper level of the Town Square building complex from 1981 to 2000.  The city had an operating agreement with the former building owners under the terms of which the city agreed to assume the cost of operating, maintaining, and repairing the park, including replacing park features, and keeping the park in conformance with the standards for public places in retail shopping centers.  The park had an unusual roof, consisting of more than 1,000 glass panels and featuring planters with live plants and various water items, including a water wall and a stream.  Over the years, the roof leaked intermittently, as did the planters and water features.  Each time a leak occurred, the city traced the source, repaired the leak, and remedied damage; the city also replaced some of the glass roof panels when they lost their seals and became fogged.  Replacement was done only when funds were available for these expensive repairs.

            Originally, the city paid for park utilities and operating costs through an annual assessment from downtown business owners.  During the 1990s, the business owners objected to this assessment, which was phased out by 2000.  The city's Park and Recreation Department began paying the entire $325,000 in annual operating costs, which were only partially offset by about $75,000 in revenue.  In 2000, the city decided to permanently close the park because of the high operating costs and concerns about rising future costs, including the anticipated replacement of the roof which was already 20 years into its expected life of 25-30 years.  City workers gave a rough estimate of $1.8 million to replace the roof.  Because the city's tax levy had been held flat for 11 years, the Park and Recreation Department did not have funds for repairs or replacement of this magnitude.  The city also began exploring the possibility of selling the park. 

            In 2000, appellant purchased the Town Square building, but not the city's park.  Before the purchase, appellant's structural engineer examined the roof of the park, looked at the fogged panes and cracked glass, and studied the leakage issues.  Appellant was aware that the city intended to close the park and possibly sell it.  Appellant agreed to be bound by its predecessor's operating agreement with the city. 

            The city leased the park to TSG for use as a party and reception site.  During the first months of the lease, there were several incidents of leakage from the planters or the water features; and, at one point, the city cut off water to the park to remedy the problem.  Flooding occurred in the offices of some of appellant's tenants.  The city made repairs and instructed TSG on the proper watering of the planters and use of the water features, which alleviated some of the problems. 

            In 2002, the city formally advertised the park for sale.  Both appellant and TSG bid on it.  TSG offered the winning bid and became the fee owner of the park on December 31, 2002.  Appellant, however, had previously dealt with TSG's owner, Wong, at another site and was upset to learn that he had successfully purchased the park.  Appellant began to systematically document all problems with TSG, including leakage incidents.

            At the evidentiary hearing before the referee, appellant's expert testified that the cause of the leakage was a poor roof design.  On rebuttal, the same witness also testified that the roof had been poorly maintained, but admitted he had not seen the roof until 2003.  Other witnesses testified that the market value of appellant's building had fallen because of the leakage problems.

            The city generally pleaded the statute of limitations in its answer to appellant's complaint.  After the close of the evidentiary hearing, but before the matter was placed on the trial calendar, the city also raised the issue of immunity in its proposed findings to the referee.  Appellant responded with a memorandum opposing the city's immunity claims. 

            The referee issued his report on June 8, 2004, finding for the city on the merits because the city had paid for all damage for any acts of trespass or nuisance, had committed no fraud or misrepresentation, and owed appellant no duty of care.  The referee further found that the city was immune from various claims and that the statute of repose precluded claims against it.  He recommended dismissing the city from the action.

            On June 22, 2004, the district court sua sponte issued an order adopting the referee's findings and conclusions, dismissing the city from the action, and setting the matter between TSG and appellant on for trial.[1]  On August 27, 2004, the district court ordered summary judgment in favor of the city and dismissed the city from the case.  This appeal followed.

D E C I S I O N

1.         Summary Judgment

            Although its order for judgment lacks specificity, we conclude that the district court granted summary judgment sua sponte to the city, and we therefore review it as such.  Summary judgment may be granted when the pleadings, discovery, and any affidavits on file show that there is no genuine issue of material fact and that either party is entitled to judgment as a matter of law.  Minn. R. Civ. P. 56.03.  The reviewing court must consider 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).  For purposes of a summary-judgment motion, a fact is "material" if its resolution will affect the outcome of the case.  Bebo v. Delander, 632 N.W.2d 732, 737 (Minn. App. 2001) review denied (Minn. Oct. 16, 2001).  "The trial court may not decide factual issues on a motion for summary judgment; its sole function is to determine whether fact issues exist."  TCF Bank & Sav. v. Marshall Truss Sys., Inc., 466 N.W.2d 49, 51 (Minn. App. 1991) review denied (Minn. Apr. 29, 1991). 

            The district court may grant summary judgment sua sponte when (1) there are no genuine issues of material fact; (2) one of the parties deserves judgment as a matter of law; and (3) the lack of a formal motion does not prejudice the party against whom judgment is granted.  Hebrink v. Farm Bureau Life Ins. Co., 664 N.W.2d 414, 419 (Minn. App. 2003).  The party against whom judgment is granted must have a meaningful opportunity to oppose the action.  Id.  

            Under the circumstances of this case, we are troubled by the district court's wholesale adoption of the referee's report and resulting sua sponte grant of summary judgment dismissing the claims against the city.

            Minn. R. Civ. P. 53.05(c) provides that, in jury actions, as here, the referee's findings are admissible in evidence, subject to objections and rulings by the court.  But the findings are factually binding under Minn. R. Civ. P. 53.05(d) only if the parties stipulate that the findings are final.  If they do so stipulate, only questions of law remain.  Id.  Appellant did not stipulate to the finality of the referee's factual findings, and the referee noted the existence of factual disputes but resolved them.  The district court adopted the referee's factual resolutions, thus depriving the appellant of the opportunity to litigate its claims through a trial.  This was error.

            In particular, the district court apparently agreed with the referee that appellant failed to offer proof of damages, an essential element of the tort causes of action.  We note, however, that appellant offered evidence of a diminution in its property's market value.  Damages may be proved in different ways, including loss of value of real property.  See Snyder v. City of Minneapolis, 441 N.W.2d 781, 789 (Minn. 1989); Skinner v. Great Northern Ry. Co., 129 Minn. 113, 116-17, 151 N.W. 968, 969 (1915).   The issue of damages was thus generally disputed between the parties and gave rise to a fact issue for trial.

            Even if appellant arguably might not ultimately prevail in its claims, the district court may not resolve factual disputes in order to grant summary judgment, but must view the evidence in the light most favorable to the party against whom judgment is to be granted.  We conclude that because there were genuine issues of material fact, the district court erred by granting summary judgment on the merits of appellant's causes of action.

2.         Statute of Repose

            Actions in contract or tort that arise out of the defective or unsafe condition of an improvement to real property, whether against the owner or the builder, architect or suppliers, must be brought within two years after discovery of the injury and not more than ten years after substantial completion of construction.  Minn. Stat. § 541.051, subd. 1(a) (2002).  If actions for nuisance or trespass are based on the defective or unsafe condition of an improvement to real property, the appropriate limitation period is under this statute and not under Minn. Stat. § 541.05 (2002) (setting six-year statute of limitations for various actions).  Nolan & Nolan v. City of Eagan, 673 N.W.2d 487, 496-97 (Minn. App. 2003) review denied (Minn. Mar. 16, 2004). 

            This section does not apply, however, to actions against owners or a person in possession for damages based on negligent maintenance, operation, or inspection of real-property improvements.  Minn. Stat. § 541.051, subd. 1(c) (2002).  The referee concluded, and the district court apparently agreed, that appellant had failed to provide evidence of negligent maintenance or operation and that all injuries were the result of defective roof design.  But appellant did show 21 leaks that occurred during the city's ownership that could be tied to gaps in the roof windows, broken drains in the planters and water features, or misuse of the planters and water features.  Further, appellant's expert testified on rebuttal that in his opinion the roof structure showed evidence of negligent maintenance, including the growth of a small tree in a gap in the roof.  Viewed in the light most favorable to appellant, this is sufficient to raise a genuine issue of material fact.  We therefore conclude that the district court erred by granting summary judgment based on the statute of repose.

3.         Immunities

            The referee concluded, and the district court agreed, that the city was immune from suit based on statutory, official, and recreational-land immunity.  Unlike an affirmative defense, immunity protects a municipality from the lawsuit itself.   Sletten v. Ramsey County, 675 N.W.2d 291, 299-300 (Minn. 2004).  Unlike an affirmative defense, immunity is not waived if not included in the answer, but because it acts to preclude suit, it is best raised early in the process.  Id. The city did not raise the immunity defense until after the conclusion of the evidentiary hearing before the referee, when it submitted its proposed findings.  Appellant responded to the issue in its proposed findings and memorandum.

            Although we acknowledge that the question of immunity is best resolved early in the hearing process and that the defense of immunity is not waived even if not pleaded in the initial pleadings, we cannot agree that appellant was given a meaningful opportunity to meet and respond to the city's immunity claim.  The city did not raise this defense until the discovery period had ended and a multi-day evidentiary hearing had concluded, leaving appellant with no meaningful opportunity to test the legitimacy of the city's claim.  The district court then sua sponte granted summary judgment, in part based on the city's immunity defense.  We can only conclude that appellant was prejudiced by the lack of a formal motion for both summary judgment and for the application of the claimed immunity defense and that the district court therefore erred by granting summary judgment to the city based on immunity.  See Hebrink, 664 N.W.2d at 419 (stating that party against whom sua sponte summary judgment is granted must have meaningful opportunity to oppose action).

            Reversed and remanded.

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

[1] Appellant and TSG later settled along the lines of the referee's recommendations.