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Village Lofts at St. Anthony Falls Association v. Housing Partners III-Lofts LLC

Court of Appeals of Minnesota

February 4, 2019

Village Lofts at St. Anthony Falls Association, Appellant,
v.
Housing Partners III-Lofts LLC, Respondent, Kraus-Anderson Construction Company, Respondent, Doody Mechanical, Inc., et al., Respondents, Elness Swenson Graham Architects, Inc., Defendant, Kenneth Kendle, P.E., Respondent, M&E Engineering, Inc., Respondent.

          Hennepin County District Court File No. 27-CV-15-19425

          Einar E. Hanson, Jonathan A. Edin, Nathaniel J. Weimer, Strobel & Hanson, P.A., Hudson, Wisconsin; and John D. Hagen, Jr., Minneapolis, Minnesota (for appellant)

          Timothy P. Tobin, Brock P. Alton, Gislason & Hunter, LLP, Minneapolis, Minnesota (for respondent Housing Partners III-Lofts LLC)

          Jonathon M. Zentner, Steven J. Erffmeyer, Jeffrey M. Markowitz, Arthur, Chapman, Kettering, Smetak & Pikala, P.A., Minneapolis, Minnesota (for respondent Kraus-Anderson Construction Company)

          Keith J. Kerfeld, Wade T. Johnson, Tewksbury & Kerfeld, P.A., Minneapolis, Minnesota (for respondent Doody Mechanical, Inc., and Metropolitan Mechanical Contractors, Inc.)

          Matthew W. Moehrle, Kevin F. Gray, Rajkowski Hansmeier, Ltd., St. Cloud, Minnesota (for respondent Kenneth Kendle, P.E.)

          Lindsey J. Woodrow, Waldeck Law Firm, P.A., Minneapolis, Minnesota (for respondent M&E Engineering, Inc.)

          Considered and decided by Johnson, Presiding Judge; Ross, Judge; and Tracy M. Smith, Judge.

         SYLLABUS

         1. For purposes of the statute of repose in Minnesota Statutes section 541.051, subdivision 1(a) (2014), which applies to common-law claims and runs from the date of "substantial completion of the construction" of an "improvement to real property," the two buildings in the condominium development in this case are two independent improvements.

         2. For purposes of the statute of repose in Minnesota Statutes section 541.051, subdivision 4 (2018), which applies to claims of breach of the statutory warranties arising under Minnesota Statutes section 327A.02, subdivision 1 (2018), and runs from the applicable "warranty date," it is necessary to determine the warranty date of each condominium unit in a multi-unit condominium building.

          OPINION

          JOHNSON, Judge

         This appeal concerns a condominium development that consists of two buildings. Alleged defects were discovered in the buildings. The homeowners' association sued the developer, the architect, the contractor, and three subcontractors. The district court granted summary judgment to all defendants on all of the association's claims on the ground that the claims are barred by the statutes of repose in Minnesota Statutes section 541.051.

         We conclude that the district court did not err with respect to the association's common-law claims but that the district court erred in part with respect to the association's breach-of-statutory-warranty claims. We also conclude that the district court did not err by refusing to approve a settlement agreement between the association and the developer that would have allowed the association to pursue the developer's cross-claims against co-defendants. Therefore, we affirm in part, reverse in part, and remand for further proceedings.

         FACTS

         Village Lofts at St. Anthony Falls is a condominium development in northeast Minneapolis that consists of a seven-story building at 100 Second Street Northeast (known by the parties as Building A) and a six-story building at 150 Second Street Northeast (known by the parties as Building B). The developer was Housing Partners III-Lofts, LLC. Housing Partners hired Elness Swenson Graham Architects, Inc. (ESG), to be the architect for the development. Housing Partners hired the Kraus-Anderson Construction Company to be the general contractor.

         Building A

         Housing Partners and Kraus-Anderson entered into a written agreement with respect to Building A on April 23, 2001. Kraus-Anderson hired Doody Mechanical, Inc. (which later was acquired by Metropolitan Mechanical Contractors, Inc.) to design and build the plumbing and heating, ventilation, and air conditioning (HVAC) systems. Kraus-Anderson and Doody entered into a written agreement with respect to Building A on December 20, 2001. Doody hired Kenneth Kendle, P.E., to provide mechanical-engineering services for Building A.

         On September 5, 2002, the City of Minneapolis issued a partial certificate of occupancy for Building A, which included the base building, public spaces, and one condominium unit. The city later issued partial certificates of occupancy for seven additional condominium units in 2002 and 30 condominium units in 2003. On November 4, 2003, the city issued a certificate of occupancy for the entire building, with the exception of two units. The city issued a certificate of occupancy for one of the last two units on July 20, 2006.

         On October 4, 2002, Housing Partners created the Village Lofts at St. Anthony Falls Association, which is the plaintiff in this action and the appellant in this appeal, by executing and recording a declaration pursuant to the Minnesota Common Interest Ownership Act. See Minn. Stat. § 515B.2-101 (2018). Shortly thereafter, Housing Partners began to sell condominium units. The first warranty deed for a condominium unit in Building A was executed on October 10, 2002. The last warranty deed for a condominium unit in Building A was executed on March 25, 2005.

         Building B

         Housing Partners and Kraus-Anderson entered into a written agreement with respect to Building B on May 30, 2003. Kraus-Anderson hired Doody to design and build the plumbing and HVAC systems for Building B. Kraus-Anderson and Doody entered into a written agreement with respect to Building B on September 29, 2003. Doody hired M&E Engineering, Inc., to provide mechanical-engineering services for Building B.

         On September 24, 2004, the association amended its original declaration to include owners of condominium units in Building B. See Minn. Stat. § 515B.2-111 (2018). On October 14, 2004, the city issued a certificate of occupancy for all of Building B pursuant to a revised policy of issuing a single certificate of occupancy for an entire multi-unit building. The next day, ESG issued a certificate of substantial completion. The first three warranty deeds for condominium units in Building B were executed on October 19, 2004. The last warranty deed for a condominium unit in Building B was executed on June 5, 2006.

         Discovery of Alleged Defects

         On or about January 30, 2014, a resident in Building A notified the property manager that the floor in her condominium unit was discolored. The association hired an engineering firm, Encompass, Inc., to investigate. As part of its investigation, Encompass cut open a wall in the resident's condominium unit to inspect the fan coil stack, which is part of the HVAC system. Encompass observed a broken joint on the water pipe connected to the unit's fan coil stack. On March 28, 2014, Encompass issued a written report to the association. Encompass later discovered the same type of problem in other condominium units in Building A.

         The following year, on May 22, 2015, the association provided written notice to Kraus-Anderson of the problems with fan coil stacks in Building A. In April 2015, Encompass discovered the same type of problem in condominium units in Building B. The association repaired pipes connected to the fan coil stacks in every condominium unit in both buildings at a cost of $842, 585.

         District Court Proceedings

         On August 5, 2015, the association commenced this action against Housing Partners, Kraus-Anderson, and Doody. The association later amended its complaint to assert claims against ESG, Kendle, and M&E. In its second amended complaint, which was served and filed in May 2016, the association asserted the following claims: (1) negligence and breach of implied warranty against Housing Partners, Kraus-Anderson, and Doody; (2) breach of contract against Housing Partners; (3) breach of contract (on a third-party-beneficiary theory) against Kraus-Anderson and Doody; (4) breach of statutory warranties under Minnesota Statutes chapter 327A against Housing Partners and Kraus-Anderson; (5) negligence against ESG; (6) negligence against Kendle; and (7) negligence against M&E.

         In April 2016, Kraus-Anderson moved for summary judgment on the ground that the association's claims against it are barred by the statutes of repose in section 541.051. ESG, [1] Doody, and Kendle (but not Housing Partners and M&E) joined in the motion with respect to the claims filed against each of them. M&E later filed its own motion for summary judgment.

         On September 29, 2016, the district court filed a 45-page order in which it ordered summary judgment in favor of all defendants. Shortly thereafter, the association asked the district court by letter to amend its order on the grounds that Housing Partners had not moved for summary judgment and that M&E's motion had not yet been considered. On October 5, 2016, the district court filed an amended order for summary judgment in favor of Kraus-Anderson, ESG, Doody, and Kendle.

         While the summary judgment motions were pending, the association and Housing Partners negotiated a settlement agreement. The association's president signed a written settlement agreement on September 28, 2016, one day before the district court filed its first summary-judgment order. The agreement provides that Housing Partners is obligated to pay the association $675, 000 in exchange for a release of the association's claims against Housing Partners. The agreement also provides that, because Housing Partners (which had ceased doing business in 2004) has insufficient funds to pay the entire settlement amount, it was obligated to make immediate payment to the association of only $10, 000. The agreement further provides that Housing Partners will execute a promissory note in the amount of $665, 000, which may be satisfied only from the proceeds of Housing Partners' cross-claims against its co-defendants. The agreement further provides that the association has the right to "step into the shoes" of Housing Partners to pursue its cross-claims.

         On October 10, 2016, five days after the district court filed its amended summary-judgment order, the association notified the district court and the other parties that it had entered into a settlement with Housing Partners (although Housing Partners did not actually sign the agreement until October 19, 2016). On November 7, 2016, the association filed a motion for approval of the settlement agreement. Kraus-Anderson sought leave to conduct discovery concerning the proposed settlement. On April 14, 2017, the district court ordered the association and Housing Partners to respond to Kraus-Anderson's discovery requests. Shortly thereafter, Kraus-Anderson filed a motion to declare the settlement agreement invalid.

         In September 2017, the district court filed an order making several rulings. The district court granted M&E's motion for summary judgment. The district court sua sponte granted summary judgment to Housing Partners on the association's claims. The district court also denied the association's motion for approval of its settlement agreement with Housing Partners. In December 2017, the district court directed the entry of a partial final judgment. See Minn. R. Civ. P. 54.02. The association appeals.

         ISSUES

         I. Are the association's common-law claims and statutory claims against defendants-respondents barred by the statutes of ...


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