This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2006).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A06-949

 

 

Charles H. Reinhardt, et al.,

Appellants,

 

Cecil H. Bell,

Appellant,

 

vs.

 

Certain Underwriters at Lloyd’s, London, et al.,

Respondents.

 

 

Filed March 27, 2007

Affirmed

Halbrooks, Judge

 

 

Hennepin County District Court

File No. 27-CV-05-016648

 

 

James H. Kaster, Sofia B. Andersson, Nichols, Kaster & Anderson, PLLP, 4600 IDS Center, 80 South 8th Street, Minneapolis, MN 55402 (for appellants Charles H. Reinhardt and Louise B. Reinhardt)

 

Richard T. Ostlund, Randy G. Gullickson, Janel M. Dressen, Anthony Ostlund & Baer, P.A., 90 South 7th Street, Suite 3600, Minneapolis, MN 55402 (for appellant Bell)

 

Alec J. Beck, Corie J. Tarara, Seaton Beck & Peters, P.A., 7300 Metro Boulevard, Suite 500, Minneapolis, MN 55439; and

 

Kari A. Timm, Walker Wilcox Matousek LLP, 225 West Washington Street, Suite 2400, Chicago, IL 60606 (pro hac vice) (for respondents)

 

 

            Considered and decided by Halbrooks, Presiding Judge; Kalitowski, Judge; and Collins, Judge.*

U N P U B L I S H E D   O P I N I O N

HALBROOKS, Judge

            Appellants challenge the district court’s decision to grant respondents’ motion for judgment on the pleadings, arguing that the district court erred (1) because issues of fact exist with regard to whether appellants were provided with “professional services” by Family Financial Strategies, Inc. (FFS), and (2) by granting respondents’ motion without oral argument on the motion.  Because we conclude that the district court did not err, we affirm. 

FACTS

            Appellants Charles H. Reinhardt and Louise Reinhardt are husband and wife.  Prior to their marriage, Louise was known as Louise Bell; appellant Cecil Bell is Louise’s brother.  Louise and Cecil’s grandparents, James F. Bell and Louise H. Bell, created trusts for the benefit of both Louise and Cecil.  Family Financial Strategies, Inc. (FFS) is a Minnesota corporation that served as trust manager and equity-investment manager of appellants’ trusts. 

In December 2002, Cecil Bell sent a demand letter to FFS, asserting various claims against FFS and alleging that FFS’s actions and omissions resulted in damages estimated to be in excess of $75,000,000.  Similarly, in March 2003, Charles and Louise Reinhardt brought suit against FFS and its President and CEO, John D. Wunsch, alleging that the market value of their trusts’ assets decreased from $32,660,290 in July 2000 to $7,172,106 in April 2002 as a direct result of improprieties committed by FFS.[1] 

            FFS was insured by respondents Certain Interested Underwriters at Lloyd’s of London (Lloyd’s) and Wachovia Insurance Agency, Inc., d/b/a/ E-risk Services (E-risk).[2]  Respondents denied coverage for appellants’ claims, declining to either indemnify FFS for appellants’ losses or to defend FFS in the claims brought by appellants on the ground that the policy excluded coverage for claims arising out of “professional services.”

The renewal application for insurance was completed by FFS’s Chief Operating Officer on March 11, 2000.  The application provides, in relevant part:

The undersigned declares that to the best of his/her knowledge the statements herein are true.  Signing of this Application does not bind the undersigned to complete the insurance, but it is agreed that this Application shall be the basis of the contract should a Certificate be issued, and this application will be attached to and become a part of such Certificate, if issued.

 

The application allowed an applicant to request up to five separate types of coverage, including: (1) Employment Practices Coverage; (2) Directors & Officers and Assured Organization Coverage; (3) Fiduciary Coverage; (4) Crime Coverage; and (5) Miscellaneous Professional Services Coverage.  FFS completed only the “Employment Practices Coverage Section” and the “Directors & Officers and Assured Organization Coverage Section” and did not fill out the “Miscellaneous Professional Services Coverage Section.”[3]  Further, the “Directors & Officers and Assured Organization Coverage Section” asked in question 4: “Does the Assured Organization render any professional services for others for a fee or compensation?”  FFS checked “No,” but qualified its answer by writing in “No one outside of our client base.”[4] 

Based on the application completed by FFS, respondents issued an insurance policy, which states in pertinent part:

DIRECTORS & OFFICERS AND ASSURED ORGANIZATION COVERAGE SECTION

 

                        . . . .

 

A.  INSURING CLAUSES

 

1.  Underwriters shall pay on behalf of the Directors and Officers Loss resulting from any Claim first made against the Directors and Officers during the Certificate Period for a Wrongful Act.

                 

2.  Underwriters shall pay on behalf of the Assured Organization Loss which the Assured Organization is required or permitted to pay as indemnification to any of the Directors and Officers resulting from any claim first made against the Directors and Officers during the Certificate Period for a Wrongful Act.

                       

3. Underwriters shall pay on behalf of the Assured Organization Loss resulting from any Claim first made against the Assured Organization during the Certificate Period for a Wrongful Act.

                       

Endorsement No. 1 is a professional services errors-and-omissions exclusion which states:

C.  EXCLUSIONS

 

1.  Underwriters shall not be liable to make any payment under this Coverage Section in Connection with any Claim:

 

                        . . . .

 

q)  based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way relating to any act, error or omission in connection with performance of any professional services by or on behalf of any of the Assureds for the benefit of any other entity or person; provided, however, this exclusion shall not apply to any such Claim brought directly, derivatively or otherwise by one or more securities holders of the Assured Organization. 

 

            FFS entered into a Miller-Shugart agreement with appellants, assigning appellants its right to commence suit against respondents to obtain a declaration of coverage for the trust damages.  The agreement also assigned appellants the right to bring suit against respondents for any bad-faith claims that FFS may have had against respondents for their refusal to provide coverage or to negotiate a settlement of appellants’ claims against FFS.  An order for judgment was subsequently entered pursuant to the agreement in the amount of $15,000,000.  The district court later amended the caption of the order for judgment to include Cecil Bell as a plaintiff in addition to Charles and Louise Reinhardt.

Appellants brought a declaratory-judgment action seeking, among other things, (1) a declaration that the insurance policy required respondents to defend FFS in the action brought against it by appellants; (2) a declaration that the insurance policy provided liability coverage for the acts committed by FFS up to the policy limit; (3) a declaration that respondents were liable for an additional amount as a result of their bad faith in refusing to provide FFS with coverage or to negotiate a settlement of appellants’ claims; and (4) a declaration that the Miller-Shugart agreement was reasonable when entered into.   

            Respondents requested the district court’s permission to file a rule 12.03 motion to be considered without oral argument due to the district court’s busy schedule and respondents’ desire to save the available hearing date for a potential summary-judgment motion.  A few days later, the district court delivered a letter giving permission for respondents to “bring a motion to dismiss without oral argument.”

Respondents subsequently moved for judgment on the pleadings under Minn. R. Civ. P. 12.03, arguing that the “professional services” exclusion of the insurance policy excluded coverage for appellants’ claims against FFS, and therefore respondents were not liable for appellants’ losses.  Appellants filed a memorandum in opposition to respondents’ motion, arguing that FFS did not provide “professional services” to appellant and requesting oral argument on the motion. 

Without oral argument, the district court issued an order granting respondents’ motion, concluding: “[b]ecause of the plain language of the Application, Declarations, Policy, and Endorsements, it is clear that FFS did not seek and [respondents] did not provide any coverage for actions arising out of FFS providing professional services to either clients or non-clients.”  The district court specifically noted that FFS, in its application, checked the box stating that it did not render any professional services for others for a fee or compensation, but later qualified its answer by writing in “No one outside of our client base.”  The district court reasoned that, “[e]ven liberally construing the pleadings in favor of [appellants], it is clear that by qualifying its answer, FFS admitted that it provided professional services to those within its client base,” and that appellants were clearly “members of FFS’s client base.”   

            This appeal follows. 

D E C I S I O N

            A district court may dismiss a claim on the pleadings when a plaintiff fails to set forth a legally sufficient claim for relief.  Minn. R. Civ. P. 12.03.  Judgment on the pleadings is proper when the dispute centers around the meaning of a contract and the contract language unambiguously entitles the movant to judgment.  McReavy v. Zeimes, 215 Minn. 239, 243-45, 9 N.W.2d 924, 926-27 (1943).  The facts alleged in the complaint must be taken as true and all reasonable inferences drawn in favor of the nonmoving party.  Bodah v. Lakeville Motor Express, Inc., 663 N.W.2d 550, 553 (Minn. 2003).  “Only if the pleadings create no fact issues should a motion for judgment on the pleadings be granted.”  Ryan v. Lodermeier, 387 N.W.2d 652, 653 (Minn. App. 1986).   

On appeal from judgment on the pleadings, this court focuses on the pleadings’ allegations.  Minn. R. Civ. P. 12.03.  If “matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment.”  Id.; see also N. States Power Co. v. Minn. Metro. Council, 684 N.W.2d 485, 491 (Minn. 2004) (reviewing district court’s decision using the standard of review for summary judgment because district court considered matters outside of the pleadings in ruling on a motion for judgment on the pleadings).  But a district court is allowed to consider additional documents and statements incorporated by reference into the pleadings, such as copies of the underlying complaint and insurance policies.  Piper Jaffray Cos., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 967 F. Supp. 1148, 1152 (D. Minn. 1997); Marchant Inv. & Mgmt. Co. v. St. Anthony W. Neighborhood Org., Inc., 694 N.W.2d 92, 95 (Minn. App. 2005). 

Here, in their motion for judgment on the pleadings, respondents relied on the relevant insurance policy and accompanying documents, all of which were either referred to within or attached to the complaint or answer.  Therefore, respondents did not rely on matters outside of the pleadings, and the district court properly treated respondents’ motion as a motion for judgment on the pleadings. 

I.

            Appellants do not dispute that the insurance policy excludes coverage for “professional services.”  They argue that the district court erred when it granted respondents’ motion for judgment on the pleadings because genuine issues of material fact exist with regard to whether FFS actually provided appellants with “professional services.” 

            In construing a contract, a court must “give effect to the intention of the parties as expressed in the language they used in drafting the whole contract.”  Art Goebel, Inc. v. N. Suburban Agencies, Inc., 567 N.W.2d 511, 515 (Minn. 1997).  A court “must look both to the circumstances surrounding the making of the contract and the parties’ own subsequent interpretations of its terms.”  Piper Jaffray, 967 F. Supp. at 1154.  Whether a contract is ambiguous is a question of law.  Id.  If the terms of a contract are ambiguous or uncertain, summary judgment is not appropriate.  Donnay v. Boulware, 275 Minn. 37, 45, 144 N.W.2d 711, 716 (1966).  But if the terms of the contract are unambiguous and may be given their plain and ordinary meaning, summary judgment is appropriate because the construction of the contract is a matter for the court.  Denelsbeck v. Wells Fargo & Co., 666 N.W.2d 339, 346-47 (Minn. 2003).  “Because a word has more than one meaning does not mean it is ambiguous.  The sense of a word depends on how it is being used; only if more than one meaning applies within that context does ambiguity arise.”  Bd. of Regents of the Univ. of Minn. v. Royal Ins. Co. of Am., 517 N.W.2d 888, 892 (Minn. 1994).  In addition, the initial existence of a contractual ambiguity does not necessarily mean that the drafter will lose.  Davis by Davis v. Outboard Marine Corp., 415 N.W.2d 719, 724 (Minn. App. 1987), review denied (Minn. Jan. 28, 1988). 

“When interpreting an insurance policy, a court should examine the insurance policy, together with any endorsements.”  Steele v. Great W. Cas. Co., 540 N.W.2d 886, 888 (Minn. App. 1996), review denied (Minn. Feb. 9, 1996).  In addition, “[e]xclusions merit the same consideration as other provisions in a policy or endorsement.”  Id.  “Insurance contracts and policies are assumed to have been made in reference to trade usages and customs of the place where the business is transacted.  In the absence of express terms of the contract . . . they can form part of the contract.”  Quinlivan v. EMCASCO Ins. Co., 414 N.W.2d 494, 497 (Minn. App. 1987), review denied (Minn. Jan. 15, 1988). 

            Appellants point to the section on the renewal application where FFS checked the box indicating that it did not render “professional services for others for a fee or compensation,” arguing that “[b]ecause the insurance policy should be construed against the insurer, and in favor of the insured, the Court can easily find that a question of fact exists as to whether FFS rendered professional services” to appellants.  But, as the district court noted, appellants “ignore the fact that FFS qualified its answer by writing in ‘No one outside of our client base,’” thereby admitting that FFS did in fact provide “professional services” to those within its client base, a group that included appellants. 

Further, relevant caselaw supports the district court’s determination that FFS provided appellants with “professional services.”  Minnesota courts have stated that “[a] ‘professional service,’ within the meaning of an insurance exclusion, ‘is one calling for specialized skill and knowledge in an occupation . . . [t]he skill required to perform a professional service is predominantly intellectual or mental rather than physical.’”  Piper Jaffray, 967 F. Supp. at 1156 (second alteration in original) (quoting Ministers Life v. St. Paul Fire & Marine Ins. Co., 483 N.W.2d 88, 91 (Minn. App. 1992)).  In Piper Jaffray, the United States District Court for the District of Minnesota concluded that under Minnesota law, managing the assets and investments of investors requires specialized skills and thus “clearly involve[s] professional services.”  Id.  Here, FFS served as trust manager and equity-investment manager of appellants’ trusts and therefore provided “professional services” to appellants under Minnesota law. 

The pleadings and accompanying insurance documents, even when construed in favor of appellants, support the district court’s conclusion that FFS provided “professional services” to appellants.  Because FFS provided “professional services” to appellants and because the insurance policy issued by respondents clearly excludes coverage for “professional services,” we conclude that the district court did not err when it granted respondents’ motion for judgment on the pleadings.

II.

            Appellants also contend that they were entitled to oral argument on respondents’ motion for judgment on the pleadings under Minn. R. Civ. P. 7.02(a) and that the district court committed reversible error in granting respondents’ motion without such a hearing. 

            Minn. R. Civ. P. 7.02(a) provides, in relevant part:

Motions provided in these rules are motions requiring a written notice to the party and a hearing before the order can be issued unless the particular rule under which the motion is made specifically provides that the motion may be made ex parte.  The parties may agree to written submission to the court for decision without oral argument unless the court directs otherwise.

 

Respondents argue that appellants waived their right to oral argument by failing to object to respondents’ initial request that the district court consider its motion for judgment on the pleadings without oral argument, failing to object when the district court gave its approval, and failing to independently schedule oral argument on the motion.  Parties may waive oral argument on a motion.  Thompson v. Thompson, 359 N.W.2d 311, 313 (Minn. App. 1984).  Waiver is the “intentional relinquishment of a known right, and while both knowledge and intention are essential elements, the knowledge may be actual or constructive and the intention can be inferred from conduct.”  Stephenson v. Martin, 259 N.W.2d 467, 470 (Minn. 1977).  As respondents note, appellants did initially fail to object to the district court’s consideration of respondents’ motion without a hearing.  But appellants did specifically request oral argument in their memorandum in opposition to respondents’ motion.  Therefore, we conclude that appellants did not waive their right to a hearing. 

The only case appellants cite for the proposition that a district court’s refusal to hear oral arguments constitutes reversible error is Thompson.  But in Thompson, the motion was not one for judgment on the pleadings, and the district court there committed reversible error because it issued an order on the basis of only one of the parties’ affidavits.  359 N.W.2d at 313.  On review, this court stated that the order was improper because both parties were not given an equal opportunity to be heard or to present their positions.  Id. 

The facts here are distinguishable from Thompson.  Appellants had an equal opportunity to present their position, despite the absence of a hearing, as they submitted a memorandum in opposition to respondents’ motion, which the district court had the opportunity to consider before issuing its order.  This is not a case like Thompson where the district court granted a motion ex parte or where appellants were not given an opportunity to respond. 

In addition, Minn. R. Civ. P. 61 states:

No error in either the admission or the exclusion of evidence and no error or defect in any ruling or order or in anything done or omitted by the court or by any of the parties is ground for granting a new trial or for setting aside a verdict or for vacating, modifying, or otherwise disturbing a judgment or order, unless refusal to take such action appears to the court inconsistent with substantial justice.  The court at every stage of the proceeding must disregard any error or defect in the proceeding which does not affect the substantial rights of the parties. 

 

See also Bloom v. Hydrotherm, Inc., 499 N.W.2d 842, 845 (Minn. App. 1993) (noting that appellant bears the burden of demonstrating that error is prejudicial), review denied (Minn. June 28, 1993).  Moreover, Minnesota courts have held that district courts may grant summary judgment sua sponte where there is no genuine issue of material fact, when neither party is prejudiced by the absence of a formal motion, and when a party has a meaningful opportunity to oppose summary judgment.  See Kellar v. VonHoltum, 568 N.W.2d 186, 192 n.2 (Minn. App. 1997) (concluding that the district court did not err by failing to conduct a summary-judgment hearing without giving a party an opportunity to respond because summary judgment may be sua sponte), review denied (Minn. Oct. 31, 1997); Doe v. Brainerd Int’l Raceway, Inc., 514 N.W.2d 811, 822 (Minn. App. 1994) (stating that “[u]nless an objecting party can show prejudice from lack of notice or other procedural irregularities, or was not afforded a meaningful opportunity to oppose summary judgment, the court’s judicious exercise of its inherent power to grant summary judgment in appropriate cases should not be disturbed”), rev’d on other grounds, 533 N.W.2d 617 (Minn. 1995); Modern Heating & Air Conditioning, Inc. v. Loop Belden Porter, 493 N.W.2d 296, 299 (Minn. App. 1992) (stating that a district court “has inherent authority . . . to grant summary judgment sua sponte without notice to either party where there remains no genuine issue of material fact, one of the parties deserves judgment as a matter of law, and the absence of a formal motion creates no prejudice to the party against whom summary judgment is entered”).  Here, the district court’s decision to grant respondents’ motion without oral argument on the motion did not affect appellants’ substantial rights or otherwise prejudice appellants.  Despite the district court’s decision, appellants were still able to submit a memorandum in support of their position, giving them a meaningful opportunity to oppose judgment on the pleadings. 

Therefore, we conclude that the district court did not commit reversible error when it granted respondents’ motion for judgment on the pleadings without oral argument on the matter.

            Affirmed.