Hennepin County District Court File No. MC0011193
Considered and decided by Schumacher, Presiding Judge, Willis, Judge, and
A sanction for a violation of Minn. R. Civ. P. 11 cannot be imposed when the moving party does not follow the 21-day safe-harbor requirement of Minn. R. Civ. P. 11.03(a)(1).
The opinion of the court was delivered by: Willis, Judge
Appellant law firm challenges the district court's imposition of a Minn. R. Civ. P. 11 sanction. By notice of review, respondents contend that the sanction is an insufficient deterrent against further litigation abuses by appellant. Because respondents failed to follow the 21-day safe-harbor provision of Minn. R. Civ. P. 11.03(a)(1), we conclude that the district court abused its discretion and reverse the imposition of the sanction.
In the fall of 1997, respondents Richard and Cheryl Gibson owned a house in Minneapolis, and from that time until the spring of 1999, they were involved in a dispute over the potential sale of the house to Jo Davison.
In the real-estate transaction, the Gibsons were represented by real-estate agent Fran Davis, and Davison was represented by real-estate agent Keni Johnson; both agents worked for the firm Coldwell Banker Burnet ("Coldwell"). The transaction fell through, and the Gibsons eventually brought a lawsuit alleging, inter alia, breach of fiduciary duty against Davis and Coldwell, who were represented by appellant law firm Lind, Jensen, Sullivan & Peterson ("Lind Jensen").
In the course of their business relationship with Davis, the Gibsons received a document from Coldwell entitled "Agency Relationships in Real Estate Transactions," which stated that a "Seller's broker owes to the Seller the fiduciary duties described below." The duties described are loyalty, obedience, disclosure, confidentiality, reasonable care, and accounting.
In October 1997, Davison offered to buy the Gibsons' house for $350,000, and a purchase agreement was drafted. The Gibsons wanted to accept what they considered to be a good offer but also wanted to be certain that before the transaction closed they had another suitable home to move into. The Gibsons thus agreed that Davis would draft an addendum to the purchase agreement that provided that the Gibsons would have three weeks "from acceptance of the purchase agreement to verify that they can find a home of their choice in the time period allowed for closing."
The Gibsons and Davis had different understandings about the legal effect of the addendum. In discussions with Davis, the Gibsons stressed that the addendum was supposed to ensure that if they could not find a suitable home within three weeks, they would be under no obligation to sell the house to Davison. But in a deposition taken on January 24, 2001, Davis admitted that at the time she drafted the addendum, she knew that only the execution of a cancellation agreement could accomplish this result:
Q. Did you believe that the purchase agreement expired automatically after the three weeks had ended and the Gibsons hadn't found a new house?
A. I didn't think it expired automatically, but again I thought there was clear understanding among everybody after the three weeks, we hadn't found a house, we would continue to look, and if in fact they found a house, then we would make appropriate modifications to the purchase agreement.
Q. So it was always your opinion that a cancellation agreement would need to be signed in order to terminate that purchase agreement with Jo Davison?
A. Well, a cancellation [agreement] would have to be signed in order to release [Davison's] earnest money. That is our procedure at the office.
Q. Did you ever inform the Gibsons of ...