Darel Lounsbury, as Personal Representative of the Ruth G. Lounsbury Estate, Respondent, vs. City of Savage, et al. Appellants.

STATE OF MINNESOTA
IN COURT OF APPEALS
C2-98-441

Darel Lounsbury, as Personal
Representative of the Ruth G. Lounsbury Estate,
Respondent,

vs.

City of Savage, et al.
Appellants.

Filed August 4, 1998
Reversed
Holtan, Judge

Scott County District Court
File No.  9719764

Jerome V. Blatz, 191 Valley Office Park, 10800 Lyndale Avenue South, Bloomington, MN 55420 (for respondent)

David G. Keller, William L. Bernard, Grannis & Hauge, P.A., Suite 200, 1260 Yankee Doodle Road, Eagan, MN 55121 (for appellants)

Considered and decided by , Presiding Judge, Davies, Judge, and Holtan, Judge.

1. A grantor-grantee relationship is not sufficient to put the grantee in privity with a third party who, along with the grantors, entered into an agreement on the amount of a special assessment that was subsequently adjudicated void as to the third party.

2. Where a property owner easily could have joined in an earlier action, it was error to apply offensive collateral estoppel.

3. A property owner who paid assessments for more than 12 years after another party commenced an action that successfully challenged the validity of the assessment agreement is barred from seeking reimbursement by the doctrine of laches.

HOLTAN, Judge

Appellants City of Savage, et al., appeal a summary judgment requiring them to reimburse respondent landowner for special assessments respondent paid under a special assessment agreement later voided for mutual mistake and frustration of purpose. Because the trial court erred in its application of the doctrines of res judicata and collateral estoppel and because the trial court erred by failing to invoke the doctrine of laches, summary judgment was inappropriate. We reverse.

In June 1984, several property owners entered into an assessment agreement with appellants City of Savage and the Savage Housing and Redevelopment Authority. Pursuant to the agreement, the city constructed public improvements to allow future commercial development, assessing a portion of the costs to the property owners for a period of 20 years. The construction was completed in early 1985. In March 1985, the Army Corps of Engineers designated the property as protected wetlands and as a result any new development of the land required a Corps permit. Subsequent attempts to obtain such permits were largely futile, effectively halting development of the property.

After the property was designated protected wetlands, the Formaneks, owners of a three-quarter undivided interest in the property, made only one assessment payment and then refused to make further payments. The City of Savage sued the Formaneks to enforce the agreement and the Formaneks counterclaimed that the agreement was unenforceable and that the payment should be refunded. In August 1990, we affirmed a judgment that the assessment agreement between the Formaneks and the city was void under the doctrines of mutual mistake and frustration of purpose. City of Savage v. Formanek, 459 N.W.2d 173, 175-77 (Minn. App. 1990), review denied (Minn. Oct. 25, 1990).

The owners of the remaining one-quarter interest, attorney Jerome Blatz and his wife, Mary, and Johan and Joanne Larsen, who were neither named nor joined in the prior suit, sold their property to Ruth Lounsbury in August 1986. At the time of her purchase, Ruth Lounsbury was aware of the property's wetlands designation, the assessment agreement, and the pending litigation. Pursuant to the agreement, Ruth Lounsbury and her estate paid just over $150,200 in annual assessments over the next 12 years.

Representing his wife's estate, respondent Darel Lounsbury brought this action in October 1997 seeking refund of the assessment payments. Determining that the only question of law presented regarded the validity of the assessment agreement, the trial court held that appellants were precluded from relitigating the issue under the doctrine of res judicata and granted respondent summary judgment. Appellants were ordered to refund the assessments plus interest.

ISSUES

1. Did the trial court err in holding that the privity element necessary for application of res judicata had been met?

2. Did the trial court abuse its discretion in applying offensive collateral estoppel?

3. Does the doctrine of laches bar reimbursement of assessments that were paid for more than 12 years after commencement of the prior action?

On appeal from summary judgment, where the material facts are not in dispute, we need not defer to the trial court's application of the law. Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn. 1989). Likewise, we review de novo whether the doctrine of res judicata applies to a given set of facts. Erickson v. Commissioner of Dep't of Human Servs., 494 N.W.2d 58, 61 (Minn. App. 1992).

In granting summary judgment, the trial court applied the doctrine of res judicata, which has "two distinct and important aspects: 1) merger and bar and 2) collateral estoppel." Hauser v. Mealey, 263 N.W.2d 803, 806 (Minn. 1978). While the former precludes subsequent suits on the same claim regardless of the issues raised or litigated in the original action and is conclusive between parties and their privies, collateral estoppel precludes relitigation of the issues that "were actually litigated, determined by, and essential to the previous judgment." Id. at 806-07. Before res judicata applies, there must be (1) a judgment on the merits; (2) a second suit involving the same cause of action; and (3) identical parties or their privies. Id. In addition to requiring a final judgment and the same parties or privies, application of collateral estoppel is appropriate when the estopped party was given a full opportunity to be heard on the adjudicated issue. Id. at 808.

1. Res Judicata/Privity

Respondent argues that Ruth Lounsbury's chain of title, which derives from original parties to the assessment agreement, places her in privity with the Formaneks. Although we agree Ruth Lounsbury, as grantee, was in privity with the grantors, we do not find respondent's privity argument as to the Formaneks persuasive. "Privity" has no precise definition, but rather "expresses the idea that as to certain matters and circumstances, people who are not parties to an action but who have interests affected by the judgment as to certain issues in the action are treated as if they were parties." Johnson v. Hunter, 435 N.W.2d 821, 823 (Minn. App. 1989), rev'd in part on other grounds, 447 N.W.2d 871, 876 (Minn. 1989). Privies are those who are so connected with one another in law as to be identified with each other in interest. Id.

In our earlier decision, we considered the assessment agreement void as to the Formaneks based on frustration of purpose and mutual mistake. Formanek, 459 N.W.2d at 175-77. We are troubled by allowing a party who was aware that the property had been declared wetlands at the time of purchase to avoid litigation by clinging to the frustration of purpose of a party in an earlier action. [1] This is especially true because one of the facts we considered in the prior decision was that "[t]he Formaneks [had] not found anyone interested in purchasing their property." Id. at 174. Clearly, that same assertion could not be made by Ruth Lounsbury's predecessors in interest, making it even more troublesome to allow respondent to rely on their conjectured frustration of purpose.

Applying a case-by-case analysis in which precedent plays only a small part, we are satisfied that the facts here do not support a finding that Ruth Lounsbury was in privity with the Formaneks and thus, the doctrines of res judicata and collateral estoppel do not bar litigation of this action. [2] Miller v. Northwestern Nat'l Ins. Co., 354 N.W.2d 58, 62 (Minn. App. 1984) (privity is generally a question of fact requiring a case-by-case determination); see also AFSCME Council 96 v. Arrowhead Reg'l Corrections Bd., 356 N.W.2d 295, 299 (Minn. 1984) (noting that collateral estoppel and res judicata are not rigidly applied and that "`[b]oth rules are qualified or rejected when their application would contravene an overriding public policy * * *.'") (citation omitted).

2. Offensive Collateral Estoppel

Even if we were to find all of the elements of res judicata were satisfied, allowing respondent to use collateral estoppel offensively under the circumstances presented here would be fundamentally unfair to appellants. "Offensive collateral estoppel arises where a plaintiff seeks to estop a defendant from relitigating an issue which the defendant previously litigated and lost against another plaintiff." Bogenholm by Bogenholm v. House, 388 N.W.2d 402, 407-08 n.6 (Minn. App. 1986), review denied (Minn. Aug. 13, 1986). Although trial courts have "broad discretion in determining whether offensive collateral estoppel should be applied," Wills v. Citizens State Bank of Silver Lake, 399 N.W.2d 626, 628 (Minn. App. 1987) (citation omitted), its use is not permitted where the application of the doctrine would be unfair to a defendant. Bogenholm, 388 N.W.2d at 407-08. Offensive collateral estoppel should not be allowed "in cases where a plaintiff could easily have joined in the earlier action." Falgren v. State, Bd. of Teaching, 545 N.W.2d 901, 907 (Minn. 1996) (quoting Park Lane Hosiery Co. Inc. v. Shore, 439 U.S. 322, 331, 99 S. Ct. 645, 651-52 (1979)).

Nothing in this record provides a rationale for why neither Ruth Lounsbury's predecessors in interest, who owned the property at the time the prior action was filed, nor Ruth Lounsbury, who purchased the property during the pendency of the litigation, failed to join in a suit that clearly would have benefited them. If, as respondent insists, the issues now being considered are identical to those previously litigated, Ruth Lounsbury could easily have joined in the prior action and should have done so to avoid unnecessary relitigation of the issues.

3. Laches

The purpose of laches is to "prevent one who has not been diligent in asserting a known right from recovering at the expense of one who has been prejudiced by the delay" and its application largely depends on the facts of each case. Aronovitch v. Levy, 238 Minn. 237, 242, 56 N.W.2d 570, 574 (1953). Whether delay is reasonable is measured from when a party knew or should have known the relevant facts. See Briggs v. Buzzell, 164 Minn. 116, 120, 204 N.W. 548, 549 (1925) (stating that ignorance of facts due to negligence "does not excuse laches" because a party "must be diligent and make such inquiry as the known facts and circumstances reasonably suggest or permit").

Here, the property was designated wetlands prior to Ruth Lounsbury's purchase in 1986 and the assessment agreement was declared void in 1990 after more than three years of litigation. Significantly, these were all matters of public record. See id. at 120-21, 204 N.W.2d at 549 (stating "[a] greater degree of diligence is required where the facts are a matter of public record and an inspection of the record is suggested by ordinary prudence"). And Ruth Lounsbury knew that the Formaneks were not making payments. Yet, no legal action was taken until 1997. The only explanation offered for the continued payments was that Ruth Lounsbury believed that payments would be equalized and that it was only after the city refused reimbursement that she logically asserted her legal rights. [3] But considering the 13-year delay and the fact that the city has already expended the monies paid to cover the cost of the improvements, we conclude that appellants are prejudiced by the delay and thus, respondent's reimbursement claim is barred by laches. Shortridge v. Daubney, 425 N.W.2d 840, 842 (Minn. 1988) (since "[m]unicipalities are prejudiced if there is no point in time at which their assessments become final," property owners' four-year delay in challenging a special assessment precluded relief despite a technical defect in the notice of assessment).

4. Voluntary Payment

Because appellants raise for the first time on appeal the issue of whether the payments were voluntary and as a result repayment is precluded, we decline to reach this issue. Thiele v. Stich, 425 N.W.2d 580, 582-83 (Minn. 1988) (appellate courts generally refuse to address issues and theories not raised before or decided by the trial court).

D E C I S I O N

The trial court erred in concluding that res judicata was applicable here and that respondent could invoke offensive collateral estoppel. It was also error not to apply the doctrine of laches.

Reversed.

*Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. const. art. VI, § 2.

[1] Respondent concedes that mutual mistake is not present.

[2] Without providing a legal basis for the assertion that Ruth Lounsbury had an "undivided ownership interest," respondent infers that such an interest affects the determination of privity. But an "undivided interest" generally references a tenancy in common. Minn. Stat. § 500.19, subd. 2 (1996) (all grants of lands made to two or more persons, unless expressly declared to be in joint tenancy, are construed to create a tenancy in common). And tenants in common, holding several and distinct titles, enjoy unity of possession, not unity of title. 86 C.J.S. Tenancy in Common § 3 (1997). Thus, even if Ruth Lounsbury held an undivided interest, there is no merit in respondent's assertion that this affects the disposition of this case.

[3] During oral arguments, appellant city restated its intent to equalize the assessment upon development of the property.