STATE OF MINNESOTA

IN COURT OF APPEALS

C2-99-1342

RPC Properties, Inc.,

Appellant,

vs.

Leighton & Crabtree f/k/a

Leighton, Karney & Crabtree, et al.,

Respondents.

Filed April 4, 2000

Affirmed

Randall, Judge

Ramsey County District Court

File No. C1-96-8540

Bradley J. Martinson, Law Offices of Bradley J. Martinson, 701 Fourth Avenue South, Suite 300, Minneapolis, MN 55415 (for appellant)

Joseph A. Nilan, James W. Delaplain, 1600 Park Building, 650 Third Avenue South, Minneapolis, MN 55402 (for respondents)

Considered and decided by Randall, Presiding Judge, Amundson, Judge, and Foley, Judge.^*

U N P U B L I S H E D O P I N I O N

RANDALL, Judge

Appellant challenges the district court's award of summary judgment in favor of respondents. Appellant argues the district court erred as a matter of law in ruling that respondents validly exercised the escape clause contained in the parties' lease, did not breach the lease agreement by withholding rent to offset a garnishment summons served on them, were not in default for withholding one month’s rent, and post-notice defaults by respondents did not void their exercise of the escape clause. We affirm on all issues.

FACTS

Appellant RPC Properties, Inc. (RPC), is the owner of a commercial building known as the Roseville Professional Center. In 1989, RPC entered into a lease agreement with respondents Leighton & Crabtree, f/k/a Leighton, Karney, & Crabtree, for suite 620. The lease provided that respondents would pay monthly rent and RPC would provide improvements to the premises, including carpeting. The lease also contained an escape clause, providing that respondents could terminate the lease early if they completed 36 months of continuous tenancy, were not in default under the terms of the lease, and gave RPC 120 days' written notice. Respondents commenced occupancy on January 1, 1990. Later, the parties executed a lease for suite 601. This lease contained the same escape clause as the lease for suite 620.

When respondents commenced occupancy of suite 620, RPC had not completed the improvements listed in the lease. The carpet ordered by RPC was defective and had to be returned to the manufacturer. Despite the lack of carpeting, respondents continued to occupy the suite and conduct their law practice. According to respondents, RPC told them to deduct $1,824.23 from their February 1990 rent. Although RPC denies that such an agreement existed, between February 1990 and July 29, 1994, the rent invoices submitted by RPC to respondents did not charge nor make mention of the $1,824.23 withheld from the February 1990 rent payment.

In April 1992, the carpet vendor served on respondents a garnishment summons in the amount of $1,900.95, naming RPC as the judgment debtor. The summons was addressed to Leighton & Associates, rather than Leighton, Karney, & Crabtree. Respondents deposited the $1,900.95 into an escrow account and deducted the amount from the May 1992 rent. The December 1992 invoice submitted by RPC credited the escrowed amount, but the amount reappeared as a balance on the March 25, 1993 invoice.

In April 1994, respondents notified RPC that, pursuant to the escape clause in the lease, they would be moving effective August 31, 1994. Respondents gave the required 120 days' notice and had been in continuous occupancy for 36 months.

In May 1994, respondents informed RPC that they discovered that the actual square footage for suite 601 was 805.78 feet, and not the 1,054 called for in the lease. Respondents expressed concern that they had made overpayments in excess of $15,000 because of the discrepancy.

On June 17, 1994, RPC sent a letter to respondents, alleging respondents were in default under the lease because they failed to pay the $1,824.23 in February 1990 withheld for the defective carpet and for escrowing the $1,900.95 pursuant to the garnishment action. RPC claimed respondents breached the lease agreement and they could not exercise the escape clause.

Respondents withheld rent for the final two months of July and August 1994, insisting they were entitled to a set-off because they had been overcharged for rent of the suite 601 space during the entire term of the lease. In July 1994, RPC initiated an unlawful-detainer action against respondents. The premises were vacated by respondents before August 31, 1994.

In October 1995, RPC commenced this action, alleging that respondents breached the lease agreement. Following a hearing, the district court granted respondents' motion for summary judgment, ruling that respondents were not in breach of the lease at the time they exercised their rights under the escape clause and the withholding of rent in July and August 1994 did not invalidate respondents' exercise of the escape clause.

D E C I S I O N

On appeal from summary judgment, the reviewing court determines whether any genuine issues of material fact exist and the district court correctly applied the law. Offerdahl v. University of Minn. Hosps. & Clinics, 426 N.W.2d 425, 427 (Minn. 1988). A genuine issue of material facts exists when the nonmoving party presents evidence that creates more than a metaphysical doubt as to a factual issue and it is "sufficiently probative with respect to an essential element of the nonmoving party's case to permit reasonable persons to draw different conclusions." DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (Minn. 1997).

RPC concedes respondents provided 120 days' written notice and had occupied the premises continuously for 36 months, but argues that respondents were in default because they (1) withheld rent to offset the garnishment served by the carpet vendor, (2) withheld rent in the dispute over the carpeting, and (3) failed to pay rent during the 120-day notice period.

A garnishee is a third party on whom a garnishment summons has been served. Minn. Stat. § 571.712, subd. 2(c) (1998). Generally, service of the garnishment summons on the garnishee, "obligate[s] the garnishee to retain possession and control of the disposable earnings, indebtedness, money, and property of the debtor." Minn. Stat. § 571.73, subd. 1 (1998). Once served with the garnishment summons, the garnishee must (1) complete and return the garnishment-disclosure form to the creditor and serve a copy on the debtor; (2) retain nonexempt disposable earnings, indebtedness, money, or other property belonging to the debtor up to 110% of the claimed amount in the garnishment summons; and (3) deliver the garnished nonexempt disposable earnings, indebtedness, money, or other property to the creditor on levy, written authorization of the debtor, court order, or operation of law, or return the garnished items to the debtor after the garnishment retention period expires as set forth in Minn. Stat. § 571.79 (1998). Minn. Stat. § 571.78 (1998). If the garnishee fails to serve a disclosure statement, the court can render judgment against the garnishee, on a motion by the creditor, "for an amount not exceeding the creditor's claim against the debtor or 110 percent of the amount claimed in the garnishment summons, whichever is less." Minn. Stat. § 571.82, subd. 1 (1998).

Similarly,

a garnishee who releases garnished funds without an order of the court directing it to so do, or in reliance on apparent statutory authority for release of such funds, does so at its own peril and the [creditor] is entitled to judgment against the garnishee based on its disclosure at the time of the garnishment.

Nielsen Stock & Blackburn, Ltd. v. Financial Acceptance Corp., 299 Minn. 81, 86-87, 216 N.W.2d 693, 697 (1974).

Once respondents were served with the garnishment summons, they were required to retain possession and control of the rent owed to RPC. See Minn. Stat. § 571.73, subd. 1 (requiring garnishee to retain possession and control of garnished property or money). By statute, respondents could then deliver the garnished funds to the creditor only on "levy, written authorization of the debtor, court order, or operation of law or when the applicable garnishment retention period set forth in Minn. Stat. § 571.79 expires." See Minn. Stat. § 571.78 (3). If respondents failed to comply with this process, they would be liable to RPC's creditor. See Nielsen Stock & Blackburn, 299 Minn. at 86-87, 216 N.W.2d at 697 (holding garnishee who releases garnished funds without court order or in reliance on apparent statutory authority, "does so at its own peril and the [creditor] is entitled to judgment against the garnishee based on its disclosure at the time of the garnishment").

Here, compliance with the statute required respondents to withhold rent. By placing the $1,900.95 in escrow, respondents were simply avoiding exposure to inconsistent obligations and complying with the garnishment statute. The district court did nor err when it concluded that respondents properly escrowed the garnished rent, deducted that amount from rent owed, and were not, thereby, in default under the lease.

RPC contends that the escrowing of funds was improper because the garnishment summons was served on "Leighton & Associates" and not "Leighton, Karney, & Crabtree," the name that appeared on the lease. Under the circumstances, it was reasonable for respondents to believe that the garnishment summons had been served properly and the amount shown in the summons was properly garnished. If RPC believed the garnishment was improper, the duty to challenge a garnishment is on the debtor, here RPC, not the innocent third-party garnishee, here respondents.

Next, RPC argues that the district court improperly resolved a fact issue when it ruled that respondents were not in default under the lease when they withheld $1,824.23 from the February 1990 rent because of the carpet problem. The district court determined that respondents withheld the rent pursuant to an agreement between the parties. The district court recognized that RPC's president, through an affidavit, made a simple denial that such an agreement existed. Normally, a dispute over a substantive factual issue is sufficient to defeat summary judgment. But the district court concluded that "the overwhelming facts of this case show that an agreement was entered into, and that [RPC] is only claiming a breach to create fact issues."

It is undisputed that under the lease, RPC was responsible for carpeting the suite. The carpet ordered by RPC was defective and respondents were forced to conduct their law practice without carpet. The invoices submitted by RPC establish that for four and a half years, between February 1990 and July 1994, RPC did not bill the $1,824.23 it now alleges "is due" as back rent. The only time the alleged back rent appears on a rent invoice is in July 1994, after respondents gave notice of early termination of the lease. Although Charles Kadrie, RPC's president, submitted an affidavit denying that the parties ever entered into such an agreement, the district court was within its bounds in rejecting it as an attempt by RPC to create a fact issue merely to defeat respondents' motion for summary judgment. See Banbury v. Omnitrition Int'l, Inc., 533 N.W.2d 876, 881 (Minn. App. 1995) (holding "self-serving affidavit that contradicts earlier damaging deposition testimony is not sufficient to create a genuine issue of material fact" (citation omitted)). In light of the undisputed evidence, the district court concluded properly that Kadrie's affidavit was self-serving and filed merely to attempt to create a fact issue to defeat summary judgment.

Finally, RPC argues that the district court erred when it concluded that, as a matter of law, respondents' failure to pay the last two months' rent during the 120-notice period did not retroactively invalidate respondents' right to exercise the escape clause. The district court ruled that the escape clause could be exercised by respondents only if they were not in default at the time they exercised their rights under the escape clause. The court determined that respondents "were not in default when they exercised the escape option, and therefore, the exercise of that option was valid."

To exercise early termination under this provision, respondents were required to satisfy three requirements. They must have occupied the premises continuously for 36 months, could not be in default under the lease, and had to give 120 days' written notice of their intent to terminate the lease early. The lease agreement is silent regarding any post-notice default occurring during the previous 120-day notice period. If RPC wanted a default during the notice period to work retroactively to cancel or invalidate early termination of the lease, it could have provided for such a contingency in the lease agreement. It did not do so. The language of the escape-clause is unambiguous. RPC provided no authority for its contention that a post-notice breach retroactively voids respondents' rights under an otherwise valid escape clause. The district court reasonably construed the escape clause language and did not err when it ruled that respondents' post-notice breach did not void respondents' rights under the escape clause.

Affirmed.

^* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. Art. VI, § 10.