This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2000).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

C3-00-1194

 

 

Richard E. Raatz, et al.,

Appellants,

 

vs.

 

Lowell Koerner, et al.,

Respondents.

 

 

Filed January 30, 2001

Affirmed

Anderson, Judge

 

Hennepin County District Court

File No. CT9914412

 

Alan J. Albrecht, Albrecht & Associates, Ltd., 7066 Brooklyn Blvd., Brooklyn Center, MN  55439 (for appellants)

 

Richard A. Glassman, Glassman Law Firm, 701 Fourth Avenue South, Suite 500, Minneapolis, MN  55415 (for respondents)

 

            Considered and decided by Harten, Presiding Judge, Klaphake, Judge, and Anderson, Judge.


U N P U B L I S H E D   O P I N I O N

ANDERSON, Judge

            The district court ruled that appellant’s action to set aside a previous district court judgment, involving the amendment of a restrictive covenant in a residential subdivision, was barred by the doctrines of res judicata and collateral estoppel.  Appellant challenges this result as well as the district court’s award of attorney’s fees to respondent.  We affirm. 

FACTS

            Appellants and respondents own residential real estate in the Sunny Acre subdivision.  Property in the subdivision is subject to restrictive covenants including a requirement prohibiting the construction of temporary or permanent outbuildings.  In June 1996, respondents built a shed on their property, an act alleged by appellant to violate the restrictive covenant.

            In the original action, commenced in November of 1996, appellants brought a motion for summary judgment asserting the supremacy of the restrictive covenant.  This motion was denied.

            In an effort to resolve the matter, in the winter of 1997-98, with court involvement and by agreement of the parties, property owners in the subdivision voted on the narrow question of whether the restrictive covenants were still applicable.  The basis of respondents’ argument was that the neighborhood had sufficiently changed so that the covenants were no longer reasonable or enforceable.  

To conduct the vote, the district court referred the matter to a neutral third party.  The results of the vote indicated that a majority of the residents wanted to amend the restrictive covenants.  On April 23, 1998, appellants brought a motion to vacate the results of the vote.  Appellants argued that respondents acted in a fraudulent manner in relation to the vote.  Appellants alleged that respondents had contacted individual property owners by letter, implying that this frustrated the agreement to put the matter to an impartial vote of the neighbors.  Appellants also claimed the letter contained misrepresentations.  In an order dated May 5, 1998, the district court denied the request to vacate the vote, and granted the amendment to the restrictive covenants.  Appellants then sought to appeal this decision.  On September 22, 1998, we dismissed this first appeal as untimely. 

            On August 20, 1999, approximately 17 months after the original May 5, 1998 order, appellants brought the present lawsuit challenging the settlement of the original lawsuit.  In the new complaint, appellants allege fraud and breach of contract.  The relief sought, however, is the same requested in the earlier action: removal of the outbuilding.  Respondents brought a motion to dismiss, which was granted in an order dated December 15, 1999.  Respondents also brought a motion for costs and attorney’s fees, which was granted in an order dated March 3, 2000.  This appeal follows. 

D E C I S I O N

            Both res judicata and collateral estoppel are subject to de novo review.  Falgren v. State, Bd. of Teaching, 545 N.W.2d 901, 905 (Minn. 1996); Hennepin County v. Hanneman, 472 N.W.2d 149, 152 (Minn. App. 1991), rev. denied (Minn. Aug. 29, 1991).  Res judicata bars relitigation of claims while collateral estoppel bars relitigation of issues.  Holtz v. Beighley, 211 Minn. 153, 154-55, 300 N.W. 445, 446 (1941). 

I.          Res Judicata

            Appellants challenge the district court’s conclusion that the May 5, 1998 order has a res judicata effect, barring the present action.  Res judicata is designed to prevent the relitigation of claims determined in a prior action and applies to matters actually litigated as well as to all matters that could have been litigated.  Beutz v. A.O. Smith Harvestore Prods., Inc., 431 N.W.2d 528, 531 (Minn. 1988); Demers v. City of Minneapolis, 486 N.W.2d 828, 830 (Minn. App. 1992).  In determining the applicability of res judicata, the court considers whether the following three factors are present: (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.  Dixon v. Depositors Ins. Co., 619 N.W.2d 752, 755 (Minn. App. 2000).  Appellants do not dispute that the May 5, 1998 order operated as a final judgment on the merits, thus satisfying the first factor.

            The test to determine if the second suit involves the same cause of action is whether the same evidence will support judgments in both cases.  McMenomy v. Ryden, 276 Minn. 55, 58, 148 N.W.2d 804, 807 (1967).  Claims are identical “if the same operative nucleus of facts is alleged in support of the claims.”  Anderson v. Werner Continental, Inc., 363 N.W.2d 332, 335 (Minn. App. 1985), review denied (Minn. Jun. 24, 1985).  Here, the same nucleus of facts, relating to the restrictive covenant, the construction of the outbuilding, and the neighborhood vote, are used by appellants in both the current action as well as the earlier litigation.  No new facts or evidence are offered.  The second factor is met. 

            The third factor is fulfilled because appellant Raatz and respondents, Mr. and Mrs. Koerner, were the parties in the previous action.  We therefore affirm the district court’s conclusion that the present case is barred by res judicata. 

II.        Collateral Estoppel

            The doctrine of collateral estoppel is employed to prevent “parties to an action from relitigating in subsequent actions issues that were determined in the prior action.”  Northwestern Nat. Life Ins. Co. v. County of Hennepin, 572 N.W.2d 51, 53 (Minn. 1997) (citation and quotation omitted).  “Collateral estoppel limits the burden of relitigating issues and promotes judicial economy.”  Colonial Ins. Co. v. Anderson, 588 N.W.2d 531, 533 (Minn. App. 1999). 

            To invoke collateral estoppel, the following circumstances must exist:

(1) The issue was identical to one in a prior adjudication;

(2) There was a final judgment on the merits;

(3) The estopped party was a party or in privity with a party to the prior adjudication; and

(4) The estopped party was given a full and fair opportunity to be heard on the adjudicated issue. 

 

Bublitz v. Commissioner of Revenue, 545 N.W.2d 382, 385 (Minn. 1996) (citation omitted). 

            Since there is no significant doubt that a final judgment was rendered here, that the parties were the same in both actions, and that appellants were given a full and fair opportunity to be heard, the only remaining hurdle to application of the doctrine of collateral estoppel is the possibility that the issues in the current litigation were not raised in the earlier action.  Appellants argue that the issue of fraud is a claim not previously litigated.  But the memorandum submitted by appellants in connection with the April 23, 1998 motion to vacate the results of the neighborhood vote argues fraud and misrepresentation.  Since the issue here is identical to the fraud allegation in the earlier adjudication, collateral estoppel on this issue is appropriate. 

            Appellants also argue that the breach of contract claim was not previously litigated.  But the original motion brought by appellants implicitly argued that respondent’s direct attempts to contact property owners by letter frustrated the agreement of the parties.  It is hard to see this argument as anything other than a claim that respondents breached the contract between the parties, and that the argument in the present litigation is inseparable from the original challenge to respondent’s actions relating to the neighborhood voting agreement.  We thus affirm the district court’s conclusion that appellants are barred by collateral estoppel from relitigating these issues.

III.       Attorney’s Fees

            Appellants also challenge the district court’s March 2, 2000 award of costs and attorney’s fees to respondents.  The district court found cause for rule 11 sanctions against appellants and awarded $2,412.  A district court’s decision on a motion for rule 11 sanctions is reviewed under an abuse of discretion standard.  Uselman v. Uselman, 464 N.W.2d 130, 145 (Minn. 1990). 

            Under this standard, this court asks whether there was “an objectively reasonable basis for pursuing a factual or legal claim or [whether] a competent attorney could form a reasonable belief [that] a pleading is well-grounded in fact and law” and is not interposed for any improper purpose.  Id. at 143; Minn. R. Civ. P. 11.  If it is determined that rule 11 has been violated, sanctions are mandatory.  Uselman, 464 N.W.2d at 142.  Awarding attorney’s fees under rule 11 requires a violation of an attorney’s or party’s affirmative duty to reasonably investigate the factual and legal bases of claims to ascertain that they are well grounded and not made for an improper purpose.  Radloff v. First Am. Nat’l Bank, 470 N.W.2d 154, 156 (Minn. App. 1991), review denied (Minn. July 24, 1991). 

            The Minnesota Supreme Court has established minimum procedural guidelines to facilitate an orderly and uniform approach to the imposition of sanctions under rule 11.  Uselman, 464 N.W.2d at 143.  First, an attorney or party “must have fair notice of both the possibility of a sanction and the reason for its proposed imposition.”  Id. (citing Donaldson v. Clark, 819 F.2d 1551, 1559-60 (11th Cir. 1987)).  Second, the attorney or party against whom sanctions are contemplated should have the opportunity to respond to the notice of possible sanctions and be given a hearing on the record.  Id. at 144. 

            The procedural safeguards were satisfied here.  Upon commencement of the current action, appellants were properly put on notice by respondents that attorney’s fees and costs would be sought if the suit was not dismissed.  Respondents then brought their motion to dismiss the action.  The district court put appellants’ counsel on notice that it would consider the motion for imposition of rule 11 sanctions.  Appellant had an opportunity to oppose the motion, and did in fact submit written arguments on the issue.

            The district court concluded that respondents were entitled to an award of attorney’s fees and costs because the present action was, at “its essence,” a collateral attack on the outcome of the original action.  Because res judicata and collateral estoppel apply here, it follows that the district court did not abuse its discretion in awarding costs and attorney’s fees. 

            Affirmed.