This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).




General Engineering Development Corporation,

a South Dakota corporation,



Murnane, Conlin, White & Brandt,

a Minnesota professional association,


Filed December 9, 1997

Reversed and remanded

Lansing, Judge

Ramsey County District Court

File No. C8-968826

Brian N. Toder, Brian N. Toder, Ltd., 1622 Pioneer Building, 336 North Robert Street, St. Paul, MN 55101 (for appellant)

Michael A. Klutho, Charles E. Lundberg, Bassford, Lockhart, Truesdell & Briggs, P.A., 3550 Multifoods Tower, 33 South Sixth Street, Minneapolis, MN 55402 (for respondent)

Considered and decided by Lansing, Presiding Judge, Davies, Judge, and Willis Judge.


Lansing, Judge

The district court entered summary judgment against a corporation's legal malpractice claim, concluding that the corporation had failed to adequately demonstrate the essential element of damages. Because a collateral source indemnification does not extinguish damages, we reverse and remand.


General Engineering Development Corporation sued Murnane, Conlin, White & Brandt (law firm) for malpractice in a loan transaction. The $41,000.00 loan, from General Engineering to B. O'Donnell's Pizza Restaurant, Inc., was secured by collateral that consisted primarily of commercial kitchen equipment that O'Donnell's Pizza purchased with the loan proceeds.

Walter Pistner, on behalf of General Engineering, retained the law firm to represent it in the investment transaction. General Engineering is a small, closely held family corporation that exists to provide income for Pistner's mother. General Engineering and B. O'Donnell's both signed a legal representation agreement with the law firm that purportedly allowed the law firm to provide joint representation. The agreement provides that in the event of default, the law firm would represent only General Engineering.

O'Donnell's Pizza defaulted on the loan with $38,998.74 unpaid. The commercial kitchen equipment listed in the security agreement was not available as collateral because it was subject to a prior UCC lien that was on file at the time of the loan transaction. General Engineering claims that the law firm failed to either perform a standard UCC lien search or to advise it of the results of the search before filing the lien.

After the investment failed, Pistner and General Engineering took several actions apparently attempting to maintain an income flow for Pistner's mother. In December 1995, Pistner paid General Engineering an amount equivalent to the outstanding balance of the loan. Pistner's affidavit states that he felt morally obligated to cover the bad investment. General Engineering issued a corporate resolution stating Pistner's indemnification was in exchange for an assignment of General Engineering's rights under the loan and the security agreement. Pistner then obtained a judgment for the outstanding loan balance against O'Donnell's Pizza and O'Donnell personally. It is undisputed that the judgment is worthless because O'Donnell's Pizza has no unencumbered assets and O'Donnell has declared personal bankruptcy. General Engineering then brought this malpractice action.

The law firm moved for summary judgment on several grounds. The district court granted the motion, and General Engineering appeals.


A defendant is entitled to summary judgment when there are no facts in the record giving rise to a genuine material issue as to the existence of an essential element of the plaintiff's case. Nicollet Restoration, Inc. v. City of St. Paul, 533 N.W.2d 845, 847-48 (Minn. 1995) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322, 325, 106 S. Ct. 2548, 2552-53). A reviewing court views the evidence in the light most favorable to the party against whom judgment is granted. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (citation omitted). But the evidence in support of the necessary elements must be equivalent to evidence that would withstand a directed verdict at trial. Murphy v. Country House, Inc. 307 Minn. 344, 351, 240 N.W.2d 507, 512 (Minn. 1976).

The district court's order did not state a specific ground on which summary judgment was granted, but the motion-hearing transcript includes the district court's statements that General Engineering could not pursue its claim because it had not adequately demonstrated that it had sustained damages and it was not the real party in interest. The law firm has not raised the real-party-in-interest issue on appeal, and we reject it as a viable basis for summary judgment. The suit on the note and General Engineering's malpractice case are two separate causes of action and the assignment of the note does not prevent General Engineering from pursuing a malpractice claim against the law firm. The relevancy, if any, of the assignment in this appeal is to the issue of damages.

A claim for legal malpractice has as a necessary component the element of causative damages. See Wartnick v. Moss & Barnett, 490 N.W.2d 108, 112 (Minn. 1992) (listing elements necessary to prima facie case of legal malpractice). The law firm asserts that Pistner's voluntary indemnification of the investment loss to his mother extinguished any possible damage to General Engineering and, without evidence of damages, summary judgment must be entered. We disagree.

First, the indemnification does not extinguish damages; at most, it subjects the claimed damages to a posttrial recalculation under the collateral source rule. Minnesota has long applied the common law collateral source rule in considering the effect of gratuitous or non-gratuitous indemnifications. See Restatement (Second) Torts § 920A (1977); Hueper v. Goodrich, 314 N.W.2d 828, 830 (Minn. 1982). Under the collateral source rule, a plaintiff may still recover damages from a tortfeasor even though the plaintiff has received money as reparation from a source other than the tortfeasor. Id.

Although the Minnesota Legislature has adopted a statute that limits the scope of the common law collateral source rule, the limitation applies only to "cases involving physical injury to the person." Minn. Stat. § 548.36 subd. 1 (1996); Duluth Steam Co-op Ass'n. v. Ringsred, 519 N.W.2d 215, 217 (Minn. App. 1994). The statutory procedures to determine collateral sources for physical injuries did not supplant the common law collateral source rule. Id. The rationale for holding that gratuitous indemnification does not affect damage remains: if the benefit is a gift from a third party such as a relative, the donor may well have "intended that the injured party receive the gift and not that the benefit be shifted to the tortfeasor." Hueper, 314 N.W.2d at 830.

Second, the lapse between the date of the claimed legal malpractice (alleged to have occurred at the May 20, 1994 loan closing) and Pistner's conditional indemnification (December 1995) leaves a time period exceeding one year. General Engineering's damages during that year could not have been affected by the indemnification.

Because the gratuitous indemnification did not extinguish damages, we reverse. At oral argument the law firm raised additional arguments for summary judgment that were not argued or decided in the district court. These alternative issues may be argued on remand but cannot be reviewed in this appeal. Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988), quoting Thayer v. American Fin. Advisors, Inc., 322 N.W.2d 599, 604 (Minn. 1982).

Reversed and remanded.