Court of Appeals considers ‘castle’ cases

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“You are a king by your own fireside as much as any monarch on the throne.”

M. Cervantes, Don Quixote (1605-1615)

It took 10 years to flesh out the fictional errant knight who roamed the countryside trying to right wrongs, some real and others imaginary. Protection of property rights was at the heart of many of those clashes. The syndrome still exists today with litigation replacing lances.

A handful of recent rulings of the Minnesota Court of Appeals reflect the type of disputes that can cloud the quiet enjoyment by homeowners of their properties.

Exemption enigmas

Minnesota, like most states, provides an exemption of homestead property from debts of the homeowners. Under Minn. Stat. sec. 510.02, a homestead is exempt for up to one-half acre of property within a “laid out or platted portion of a city,” not to exceed $200,000, and the exemption extends to 160 acres and up to $500,000 if the property is used primarily for “agricultural purposes.”

The statute raised a pair of enigmas that were addressed by the Court of Appeals in Harlan Baumann v. Chaska Building Center, Inc., 2001 WL 69474 (Minn. Ct. App. Jan. 31, 2001). A couple that owned approximately 4 acres of real estate in an unplatted section of Carver County sought to re-open a $15,000 default judgment that had been obtained as a result of a loan guarantee by one of them. They sold the property and used the sale proceeds to pay off mortgages on the property, which exceeded the sale price. The principal issue was whether the $200,000 exemption applies to the market value of the property, as claimed by the creditor, or the debtor’s equity, as asserted by the homeowners. The Carver County District Court held that the exemption applies to market value, but since the land was not platted, it qualified for the full agricultural exemption and barred enforcement of the debt.

Noting that “courts have long struggled with the language of the homestead-exemption statute,” the Court of Appeals reversed. It reviewed the history of the homestead exemption, which most recently was expanded to $200,000 in 1993. Based upon remarks made by the bill’s author, it concluded that the statutory amendment was intended to cover “homestead equity.” This reasoning was consistent with “public policy,” which prohibits executing for debts on homestead “unless the debtor’s equity exceeds $200,000.” Since no equity existed the debt could not be enforced on urban property.

However, the court sent the case back to determine whether the property is “rural in nature or urban in nature.” If agricultural, the land fell within the rural acreage exemption. But if urban, the exemption would only cover one-half acre of the property and the debt could be enforced on the remainder.

Possession and prescription

The doctrine of adverse possession allows transference of property rights due to long-term dominion of property by someone other than the owner of record. In a rarity, the doctrine was successfully invoked by a couple who obtained title to a 16-foot strip of land in Grant County owned by their neighbor in Prader v. Lien, 2001WL 50930 (Minn. Ct. App. Jan. 23, 2001) (unpublished).

The parcel, which straddled the two homes, belonged to one of the abutting landowners, but had been used by the other homeowner for “various activities” for nearly 40 years without dispute. The Grant County District Court, after hearing conflicting evidence about the disputed property, concluded that the users were entitled to ownership because they exercised “continuous adverse possession for over 15 years” of the strip.

The Court of Appeals affirmed, holding that adverse possession had been established by “clear and convincing evidence [of] an actual, open, hostile, continuous, and exclusive possession for 15 years.” The activities conducted on the property by the nonowner were “constant” and “significant,” including installing a water line on the property; storing vehicles and equipment in the area; planting, maintaining, and removing foliage from the property; and other acts that were “consistent” with a claim of adverse possession. As a result, ownership of the property was transferred from the titleholder to the neighboring users of the site.

But in another case, landowners’ use of a private roadway over the property of their neighbors for accessing a highway and lake was considered “permissive” and not “sufficiently hostile” to create a prescriptive easement. New property owners had placed a fence across the roadway to deny the landowners the access they formerly had when a new highway was constructed in the vicinity in Bassett v. Thompson, 2001 WL 69466 (Minn. Ct. App. Jan. 30, 2001) (unpublished).

The landowners had apparently used the roadway for more than 40 years before new owners took over the property and cut off their access to the highway. The adjoining landowners claimed they were entitled to use the roadway under the prescriptive easement doctrine, which allows a claimant to continue the rights to someone else’s property by establishing that the easement was used for a period of 15 years and the use was “hostile, actual, open, continuous, and exclusive.” All of these elements were established except the hostility requirement, which comprised a showing that the usage was “inconsistent with the owner’s rights.” The claimants had paid a nominal $1 per year fee, which reflected a desire by the property owners to maintain their “paramount rights” to the roadway. Because the owners permitted usage of the property, while charging a nominal rent for it, the utilization was deemed “permissive,” and not done under a “claim of right and contrary to the right of property owner’s rights.” Therefore, despite their long usage, the claimants did not obtain a prescriptive easement over the property.

Flooding on homeowners’ property resulting from an illegal embankment on neighboring property entitled the flooded owners to seek damages, according to the Court of Appeal’s ruling in Pulkrabek v. Novacek, 2001 WL 50886 (Minn. Ct. App. Jan. 23, 2001) (unpublished). The flooding occurred after the neighbors constructed a dam without a requisite permit, which diverted run-off water onto an adjoining farm. The Polk County District Court dismissed the lawsuit on grounds that the claimants were not able to prove damages to their rural property and loss of crops.

The Court of Appeals reversed, noting that the flooded landowner presented his own testimony showing that sale and rental value of his agricultural property had been reduced because of the neighboring dike. The landowner’s own testimony, albeit self-serving, was complemented by an insurance claim that he had made for damages to his crops, which raised a factual issue regarding damages that precluded summary disposition. The Court of Appeals remanded because the trial court did not address a request for injunction by the flooded landowner, and it directed the trial judge to pass upon that issue, along with determining damages.

Lien lawsuits

The confluence of contractual and statutory rights in construction-related disputes was at issue in Stiglich Construction, Inc. v. Larson, 2001 WL 69471 (Minn. Ct. App. Jan. 30, 2001). A general contractor agreed to build an addition to a commercial building and perform remodeling and site improvements for t
he property owner, pursuant to a standard form contract used in the construction industry. After a dispute arose over payment, the contractor filed a mechanic’s lien statement and then demanded arbitration under the mandatory arbitration provision in the contract. The contractor also started a lien foreclosure action, seeking the unpaid amount plus attorney’s fees.

The parties arbitrated their claims and counterclaims and the arbitrator made an award — which did not include any attorney fees since the contractor did not ask for any fees in the arbitration proceeding. The contractor then sought to confirm the arbitration award in Ramsey County District Court and establish the mechanic’s lien on the property, adding to the lien claim its attorney fees incurred in the arbitration. The Ramsey County District Court ruled that the contractor waived any claims for attorney fees incurred in the arbitration by not requesting an award for attorney fees in the forum.

The Court of Appeals reversed, reconciling the statutory right to attorney fees as part of a mechanic’s lien foreclosure action under Minn. Stat. sec. 514.14 with the provision in the construction contract that did not specifically allow an award of attorney fees in the mandatory arbitration proceeding. The court noted that the construction contract specifically provides for reservation of rights “otherwise imposed or available by law.” The right to attorney fees, which arises under the mechanic’s lien statute, constitutes a “component of the statutory rights the contractor may reserve for district court determination.”

The court pointed to caselaw in other jurisdictions allowing a contractor to seek attorney fees in a statutory lien action for legal expenses incurred in a mandatory arbitration as well as in the court lien enforcement proceeding. While parties can “voluntarily” arbitrate an attorney fee claim, they need to do so under the “reservation of rights provision” in the construction contract, which allows the contractor to “reserve that issue for the final phase of the entire litigation,” the mechanic’s lien enforcement flowing from the arbitration award. Accordingly, the contractor was entitled to seek attorney fees for “both the arbitration” under the contract and the court proceeding to enforce the arbitration award.

In another ruling entered the same day, the Court of Appeals allowed a reopening of a default judgment in a mechanic’s lien case in Home Gallery, Inc. v. TCF Mortgage Corp., 2001 WL 69906 (Minn. Ct. App. Jan. 30, 2001) (unpublished). The owners of a remodeling company brought a lien action to collect for labor and services furnished to a residential project, and the homeowner’s counterclaim sought damages for breach of contract and misrepresentation. The remodelers defaulted, which led the Hennepin County District Court to enter judgment and award damages to the homeowner. The trial court refused to allow the remodelers to vacate the default despite their claim that they were not aware of the trial date because they had not been notified either by the court or their former attorneys, who had been discharged months earlier.

Because notice of the trial date had been sent to the remodelers, their excuse for not appearing at trial was “weak.” However, the Court of Appeals allowed them to reopen the case largely because they acted diligently after the default and, more importantly, had shown that they had a meritorious defense, which included a favorable ruling in a nonbinding arbitration under the special rules of practice for the 4th Judicial District. Although such a proceeding cannot be referred to in litigation, the outcome of the arbitration can be taken into account in establishing that the defaulting party has a “reasonable defense on the merits,” one of four factors used to determine whether a case can be reopened. (See Perspectives, “Judgment day: exploring the vagaries of vacating,” in the March 1, 2000, edition of Minnesota Lawyer.)

Home may be where the heart is, but it is also a lively source of litigation, some successful and some quixotic, concerning a wide variety of issues.

Marshall H. Tanick is an attorney with the Twin Cities law firm of Mansfield, Tanick & Cohen, P.A. He is certified as a civil trial specialist by the Minnesota State Bar Association and represents employers and employees in a variety of workplace-related matters.