This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat § 480A.08, subd. 3 (1996)




Asha Enterprises, Inc.,



Peterson, Fram & Bergman,



Victor N. Stein, intervenor/plaintiff,



Peterson, Fram & Bergman,


Filed January 12, 1999


Lansing, Judge

Ramsey County District Court

File No. C8975418

Richard D. Donohoo, 2116 Second Avenue South, Minneapolis, MN 55404 (for appellant)

Scott R. Carlson, Duckson & Carlson, 10 South Fifth Street, Suite 300, Minneapolis, MN 55402 (for respondent)

Considered and decided by Lansing, Presiding Judge, Randall, Judge, and Short, Judge.



In a dispute arising from a failed settlement agreement, Asha Enterprises appeals a summary judgment that released to an intervening settling party funds that Asha sued to recover from a law firm's trust account. We conclude that neither res judicata nor the statute of limitations barred the settling party's claim, and affirm.


Two entities, Asha Enterprises and Fourth and Cedar Limited Partnership (Fourth & Cedar), were each obligated for payment of promissory notes to the First National Bank of St. Paul on a related business enterprise. Victor Stein, the general partner in Fourth & Cedar, was represented by the law firm of Peterson, Franke, and Raich, renamed Peterson, Fram & Bergman (law firm). As of June 1989, both Asha's and Fourth & Cedar's notes were in default, and First Bank sued Asha, Stein, and others. Asha and Fourth & Cedar subsequently agreed to each contribute $32,500 to a "full and final settlement" with First Bank. Asha delivered to the law firm a check for $32,500, and the law firm placed the funds in a trust account.

Asha later withdrew from the settlement and, in November 1989, unsuccessfully demanded that the law firm return the money. On behalf of Fourth & Cedar, Stein proceeded with the settlement and personally paid the entire $65,000. First Bank then released both Asha and Fourth & Cedar from their notes.

More than six years later, Stein brought an action against Asha in Hennepin County to recover the additional contribution he had made to the settlement (Stein v. Asha). Stein claimed Asha breached an agreement to pay half the settlement amount and that Asha had been unjustly enriched. In April 1997 the Hennepin County District Court found that Asha had breached its agreement to pay half the settlement but that the statute of limitations barred Stein's action.

A month later Asha filed this action in Ramsey County against the law firm to recover $32,500 and accrued interest. Stein moved to intervene, and the law firm moved to deposit the trust account money with the court under Minn. R. Civ. P. 67.01. The district court granted both motions. Stein and Asha then each moved for summary judgment. The district court found no disputed material facts and held that Stein had a better claim to the deposited money. Asha appeals the summary judgment ordering the release of the funds to Stein. We address, in turn, Asha's challenges to the district court's (1) declining to apply the doctrine of res judicata, and (2) deciding that the statute of limitations did not bar Stein's equitable remedy.


On appeal from summary judgment, this court must determine whether there are any genuine issues of material fact and whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). This court reviews de novo a district court's decision on a purely legal issue and, on undisputed facts, the district court's application of law to those facts. Almor Corp. v. County of Hennepin, 566 N.W.2d 696, 700 (Minn. 1997) (legal issue); Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn. 1989) (application of law to undisputed facts).


Under Minnesota law, a judgment on the merits is an absolute bar to a second suit for the same cause of action and is conclusive between parties and privies on matters that were litigated or could have been litigated. Dorso Trailer Sales, Inc. v. American Body & Trailer, Inc., 482 N.W.2d 771, 774 (Minn. 1992). To prevail on its argument that res judicata bars Stein's claim for the deposit, Asha must show that the earlier Hennepin County case, Asha v. Stein, (1) was a final judgment, (2) on the same cause of action, (3) between identical parties or parties in privity. See State v. DeSchepper, 304 Minn. 399, 410, 231 N.W.2d 294, 300-01 (1975) (party asserting bar of res judicata has burden to prove its application).

It is undisputed that Stein v. Asha is a final judgment on the merits. See Sautter v. Interstate Power Co., 567 N.W.2d 755, 759 (Minn. App. 1997) (dismissal based on statute of limitations is decision on merits) (citing Nitz v. Nitz, 456 N.W.2d 450, 452 (Minn. App. 1990)), review denied (Minn. Oct. 31, 1997). But the remaining elements of res judicata, the identity of parties and cause of action, are disputed. The district court found that Stein v. Asha did not involve the same cause of action or the same parties as the current litigation, and we agree.

In Stein v. Asha, an in personam action, Stein sought a money judgment against Asha for breach of their agreement to jointly settle First Bank's claims and unjust enrichment. The subject matter of that litigation was primarily Stein's and Asha's agreement with First Bank. The current suit is an in rem action brought by Asha against the law firm. The complaint does not allege a specific cause of action, but demands the return of money in the firm's trust account. The specific issue in this action is who has the better claim to money now on deposit with the court. Neither the claimed wrong nor the method of redress is the same in these separate actions. The actions involve some of the same facts, but different facts are necessary to resolve each action. For instance, the law firm's possession of the money in the trust account and the nature of the ownership of the money were facts unnecessary to the resolution of Stein v. Asha, but are necessary to the resolution of this action. The district court correctly determined that the causes of action in this suit and in Stein v. Asha are not the same.

Furthermore, the two actions do not have identical parties. Through intervention Stein is now a party in this action, and thus two of the parties are the same in both actions. But the law firm, the defendant in the current suit, was not a party in Stein v. Asha. Asha incorrectly contends that the law firm is no longer a party. Even though the district court granted the rule 67.01 motion to deposit the trust account money into court, the law firm is still a party. See 2A David F. Herr & Roger S. Haydock, Minnesota Practice § 67.3 (1998) (a district court's grant of rule 67.01 motion does not cause party depositing funds with court to be dropped from action). The district court, in its order, limited the law firm's participation and liability for the money, but it did not dismiss the law firm from the action. Neither is the law firm in privity with either Stein or Asha because its interests were not represented by either in Stein v. Asha. See Hentschel v. Smith, 278 Minn. 86, 95, 153 N.W.2d 199, 206 (1967) ("[p]rivity depends upon the relation of the parties to the subject matter"). And because the issue in Stein v. Asha was the agreement between Stein and Asha, the law firm had no interest in the outcome of the case.

The district court correctly concluded that res judicata did not bar this action. The two suits lack identity of parties or cause of action.


Actions based on contract, on other obligation, and to enforce a trust are to be commenced within six years, Minn. Stat. § 541.05, subd. 1 (1996). The six-year limitation period had expired by the time Asha brought its action against the law firm. The district court recognized this, stating that the statute of limitations barred "both Stein and Asha from suing [the law firm]." The court reasoned that in such a case, "it is appropriate for equity to step in and fashion an appropriate remedy."

Asha argues that Stein is not entitled to an equitable remedy because he had an available legal remedy. Asha relies on AMF Pinspotters, Inc. v. Harkins Bowling, Inc., for this argument. 260 Minn. 499, 110 N.W.2d 348 (1961). But injunctive relief was denied in AMF because a legal action was still available. Id. at 507, 110 N.W.2d at 353. As the district court correctly observed, neither Stein nor Asha brought an action against the law firm within the time allowed by the statute. Asha cannot assert the statute of limitations as an affirmative defense against Stein without Stein being equally able to assert it as an affirmative defense against Asha.

Under these circumstances, the court properly imposed a constructive trust on the deposited funds and weighed the competing equities. The court considered that the settlement amount paid by Stein benefited Asha, the settlement was according to terms contemplated by Asha when the funds were deposited, Stein had relied on Asha's settlement agreement, Asha breached the agreement, and Stein incurred damage of $32,500. Asha does not dispute these facts. The court's actions were justified by the facts, and neither res judicata nor collateral estoppel bars the court's order releasing the deposited funds to Stein.