This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat § 480A.08, subd. 3 (1996)




Christoffel, Elliott & Albrecht, P.A.,



Sharron F. Grohoski in her individual capacity,

and as Trustee of the Bess Premack Revocable Trust

created by Trust Agreement dated September 1, 1988,


Filed November 3, 1998


Lansing, Judge

Hennepin County District Court

File No. 978792

Christopher A. Elliott, Garrett M. Vail, John A. Pecchia, Christoffel & Elliott, P.A., 4900 U.S. Bank Place, 601 Second Avenue South, Minneapolis, MN 55402 (for appellant)

Sharron F. Grohoski, 18390 Jamaica Path, Lakeville, MN 55044 (respondent pro se)

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

U N P U B L I S H E D   O P I N I O N


This is the second of two declaratory judgment actions to determine a law firm's ownership rights to stock shares purchased at a sheriff's sale in satisfaction of a judgment against a former client. The only issue raised on appeal is the denial of the law firm's attorneys' fees and costs under Minn. Stat. § 549.21 and Minn. R. Civ. P. 11. Because the district court did not abuse its discretion in denying fees and costs, we affirm.


Consumers Realty and Development Co., Inc. (Consumers Realty), is a Minnesota corporation founded by respondent's husband, Steven Grohoski. Appellant Christoffel, Elliott & Albrecht, P.A. (law firm) represented Consumers Realty in bankruptcy proceedings. When Consumers Realty was unable to pay its attorneys' fees and expenses, the law firm obtained a $40,000 judgment against Grohoski and Consumers Realty. The law firm executed the judgment by seizing, and subsequently purchasing at a sheriff's sale, 1,000 shares of Consumers Realty stock.

Just over two years later, the law firm brought a declaratory judgment action against Steven Grohoski and Consumers Realty to determine its ownership rights. After a bench trial, a Dakota County district court declared the law firm the owner of Steven Grohoski's 1,000 shares of Consumers Realty stock and further declared that the 1,000 shares constituted the total outstanding stock of Consumers Realty. The court denied Steven Grohoski's posttrial motions, which were predicated on his trial theory that Consumers Realty had issued an additional 2,800 shares to him, 8,000 shares to his wife, Sharron Grohoski, and 700 shares to a trust maintained for the benefit of his mother-in-law.

In an appeal to this court, Steven Grohoski unsuccessfully challenged the nonjoinder of Sharron Grohoski and the trust and the findings that he was Consumers Realty's sole owner, that Consumers Realty's value was zero, and that the law firm was entitled to $80,000 in attorney fees. See Christoffel, Elliott & Albrecht v. Consumers Realty & Dev. Co., Nos. CO-97-1450, C4-97-1614, 1998 WL 218177 (Minn. App. May 5, 1998) (holding joinder issue did not affect validity of the judgment, court's findings were not clearly erroneous, and award of attorneys' fees not an abuse of discretion).

Just before Steven Grohoski brought that appeal, the law firm brought this declaratory judgment action against Sharron Grohoski in response to her notice of a special meeting of Consumers Realty's shareholders. In defense of her actions, Sharron Grohoski maintained that she owned shares of Consumers Realty and that her ownership claim had not been litigated in the first action. The district court granted summary judgment for the law firm, concluding that the doctrine of collateral estoppel precluded Sharron Grohoski from relitigating the facts determined in the first action. The district court denied the law firm's motion for attorneys' fees and costs under Minn. Stat. § 549.21 and Minn. R. Civ. P. 11, and the law firm appeals that denial.



A district court's ruling on attorneys' fees under Minn. Stat. § 549.21 and Minn. R. Civ. P. 11 is reviewed under an abuse-of-discretion standard. Blattner v. Forster, 322 N.W.2d 319, 321 (Minn. 1982) (Minn. Stat. § 549.21); Uselman v. Uselman, 464 N.W.2d 130, 145 (Minn. 1990) (rule 11). An award of attorney fees under Minn. Stat. § 549.21 "requires bad faith, a frivolous claim which increases the opponent's costs, an unfounded position taken to delay the action or harass the opponent, or fraud upon the court." Radloff v. First American Nat'l Bank, 470 N.W.2d 154, 156 (Minn. App. 1991), review denied (Minn. July 24, 1991). Awarding attorneys' fees under rule 11 requires violation of an attorney's or party's affirmative duty reasonably to investigate the factual and legal bases of claims to ascertain that they are well grounded and not made for an improper purpose. Id.

Both the statute and the rule measure a party's conduct under an objective standard. Id. at 157. The existence of bad faith that triggers the statutory sanction is an issue of fact, best determined by the district court. State Bank of Young America v. Fabel, 530 N.W.2d 858, 863 (Minn. App. 1995) (citing Uselman, 464 N.W.2d at 140), review denied (Minn. June 29, 1995). In determining whether rule 11 sanctions apply, the district court must analyze whether there was "an objectively reasonable basis for pursing a factual or legal claim." Uselman, 464 N.W.2d at 143. Rule 11 is to be narrowly construed, id. at 142, and is not triggered "merely because a party does not prevail on the merits." Radloff, 470 N.W.2d at 157.

The law firm maintains that the district court's finding that the record contained no evidence of bad faith or fraud is clearly erroneous because Sharron Grohoski submitted falsified stock certificates into evidence, lied under oath about when she obtained the certificates, and purposefully attempted to deceive the court about the extent of her involvement in the earlier declaratory judgment action.

On the issues of the validity of the stock certificates and the date of their receipt, Sharron Grohoski testified that she received the stock in December 1993. She claimed that she had purchased the stock in exchange for $200,000 of debt. Other evidence showed that her husband ordered the blank certificates in January 1994. Although the district court characterized Steven Grohoski's evidence on the issuance of the shares as "conflicted and contradictory," it concluded that the actual date of issuance was "therefore questionable and has not been proven." The record does not conclusively show that the certificates were issued in January 1994 rather than December 1993 or that Sharron Grohoski knowingly submitted false certificates or intentionally lied about when she received them. The district court's finding that the record contained no evidence of Sharron Grohoski's bad faith or fraud relating to the stock certificates is not clearly erroneous.

On the issue of whether Sharron Grohoski purposefully attempted to deceive the court about her involvement in the previous declaratory judgment action, we reach the same conclusion. Sharron Grohoski was closely involved in the first action, but despite the district court's suggestion, neither the law firm nor Consumers Realty sought to join her as a party. She was not represented by an attorney at the trial, and the record demonstrates no consultation or specific contribution during the litigation.

Grohoski argued that the Dakota County District Court acknowledged that the first action did not resolve the question of her ownership rights. In advancing this argument, Grohoski pointed to a memorandum accompanying the court's denial of her husband's post-trial motions and the court's statements at a subsequent hearing to collect payments to Consumers Realty. The court's memorandum indicated that "[t]he issue of whether unnamed parties are bound by the court's judgment has not been properly raised before this court." At the subsequent hearing in August 1997, the court told the parties that "the crucial issues" involving the alleged ownership rights of other shareholders had not been litigated and were "now pending in a suit in Hennepin County."

We agree with the Hennepin County district court's characterization of her reliance on these statements as "misplaced." But that assessment does not equate to the absence of an "objectively reasonable basis" for pursuing her defense. Cf. id. (affirming sanctions when appellants asserted "multiple baseless causes of action" that increased all parties' costs and distracted the court). Our analysis of Sharron Grohoski's separate litigation also applies to the law firm's claim at oral argument that Sharron Grohoski thwarted the district court's cooperation order by attempting to hold a shareholders meeting. We perceive no clear error in the district court's finding that Grohoski's attempted defense in the second action did not constitute fraud or bad faith.