All Finish Concrete, Inc. v. Erickson

• Decision Date: 03 July 2017
• Docket Number: A16-1780
• Citation: 899 N.W.2d 557
• Parties: ALL FINISH CONCRETE, INC., Respondent, v. Roger ERICKSON, Appellant.
• Court: Minnesota Court of Appeals

899 N.W.2d 557

ALL FINISH CONCRETE, INC., Respondent,

v.Roger ERICKSON, Appellant.

A16-1780

Court of Appeals of Minnesota.

Filed July 3, 2017

Jon R. Brakke, Drew J. Hushka, Vogel Law Firm, Fargo, North Dakota (for respondent).

Mark R. Hanson, Nilles Law Firm, Fargo, North Dakota (for appellant).

Considered and decided by Halbrooks, Presiding Judge; Schellhas, Judge; and Smith, John, Judge.^*

OPINION

SMITH, JOHN, Judge

We affirm the judgment entered on a creditor's suit that pierces the corporate veil to hold appellant personally liable for a judgment entered against a corporation in a previous action because the district court correctly (1) rejected appellant's argument that recovery was barred by the creditor's failure to exhaust remedies, laches, and unclean hands; (2) applied offensive collateral estoppel to hold appellant liable; and (3) amended the judgment to award postjudgment interest on the judgment.

FACTS

Appellant Roger Erickson (Erickson) formed Erickson Contracting of Fargo-Moorhead, Inc. (Erickson Contracting) in 1988. Erickson Contracting is a construction business that is set up as a corporation, and Erickson is the sole shareholder, officer, and director of the corporation.

On May 4, 2012, respondent All Finish Concrete, Inc. (All Finish) obtained a judgment against Erickson Contracting in the amount of $33,849.58. Several years later, All Finish brought this action to recover the entire judgment sum from Erickson personally under a corporate veil-piercing theory. All Finish moved for summary judgment, claiming that a prior decision involving Erickson and a different judgment creditor should be afforded collateral-estoppel effect in the instant action to make Erickson personally liable under the "alter ego" theory of corporate veil piercing. See Stenerson Bros. Lumber Co. v. Erickson , No. 14-CV-12-1525 (Minn. Dist. Ct. Aug. 28, 2013). Erickson moved for summary judgment arguing that All Finish failed to exhaust legal remedies before filing this suit. Erickson also argued for dismissal of All Finish's claims under the doctrines of laches and unclean hands.

The district court denied Erickson's motion for summary judgment, granted All Finish's motion for summary judgment, and entered judgment against Erickson in the amount of $33,849.58. All Finish moved to amend the judgment, claiming that it was entitled to postjudgment interest against Erickson Contracting from the May 2012 judgment. The district court granted All Finish's motion to amend the judgment. The amended judgment was entered "in the amount of $39,838.91, the amount of the underlying judgment plus interest at the statutory rate from May 4, 2012, the date that judgment was entered against Erickson Contracting, through the date of this order."

ISSUES

I. Did the district court err in denying Erickson's motion for summary judgment because All Finish's recovery was barred by the doctrines of laches and unclean hands, and it failed to exhaust legal remedies?

II. Did the district court err in granting All Finish's motion for summary judgment by applying offensive collateral estoppel?

III. Did the district court err by amending the judgment to award postjudgment interest to All Finish?

ANALYSIS

I.

A district court must grant a motion for summary judgment if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law." Minn. R. Civ. P. 56.03. On appeal from summary judgment, this court reviews de novo whether there are genuine issues of material fact and whether the district court erred in applying the law. Commerce Bank v. West Bend Mut. Ins. Co. , 870 N.W.2d 770, 773 (Minn. 2015). We need not adopt the reasoning of the district court, and "may affirm a grant of summary judgment if it can be sustained on any grounds." Doe v. Archdiocese of St. Paul , 817 N.W.2d 150, 163 (Minn. 2012).

Erickson argues that All Finish's claims are barred by (A) the failure to exhaust legal remedies; (B) the doctrine of latches; and (C) the doctrine of unclean hands. Thus, Erickson argues that the district court erred by denying his motion for summary judgment.

A. Failure to exhaust legal remedies

A creditor's suit/creditor's bill¹ is "an equitable action to satisfy a judgment ‘out of the equitable assets of the debtor which could not be reached on execution.’ " Brakemeier v. Wittek , 386 N.W.2d 408, 410 (Minn.App. 1986) (quoting Wadsworth v. Schisselbaur , 32 Minn. 84, 86, 19 N.W. 390, 390 (1884) ). A creditor's suit is " ‘in essence an equitable execution comparable to proceedings supplementary to execution.’ " Id. (quoting Pierce v. United States , 255 U.S. 398, 401-02, 41 S.Ct. 365, 366, 65 L.Ed. 697 (1921) ). In Minnesota, a creditor's suit is ancillary to the original judgment. Newell v. Dart , 28 Minn. 243, 249, 9 N.W. 732, 733 (1881). It is not "an action brought upon the judgment as a cause of action, in order to obtain a new judgment, but simply an action ancillary to and for the purpose of obtaining satisfaction of, an existing judgment." Id. at 249-50, 9 N.W. at 733. The general rule is that a creditor must "first exhaust his remedy at law by the issuance of an execution and its return unsatisfied, for until then the remedy at law ha[s] not been shown to be inadequate." Brakemeier , 386 N.W.2d at 410 (quotation omitted).

It is undisputed that the action brought by All Finish is in the nature of a creditor's suit. As such, Erickson contends that All Finish "must show that it exhausted its remedies at law by issuing an execution on the May 4, 2012 judgment against [Erickson Contracting] that was returned unsatisfied." Erickson argues that because "it is undisputed" that All Finish did not make any attempt to recover on its judgment, All Finish failed to exhaust its remedies. For these reasons, Erickson argues that the district court erred by denying his motion for summary judgment.

To support his claim that the district court erred in denying his motion for summary judgment, Erickson relies on Brakemeier and Amica Mut. Ins. Co. v. Wartman , 841 N.W.2d 637 (Minn.App. 2014), review denied (Minn. Mar. 18, 2014). In Brakemeier , this court noted that in a creditor's suit, the general rule is that the creditor is "required to first exhaust his remedy at law by the issuance of an execution and its return unsatisfied." 386 N.W.2d at 410 (quotation omitted). This court concluded that the district court correctly determined that the Brakemeier creditors could not recover from the debtor because they did not present any evidence that execution was returned unsatisfied. Id.

In Wartman , a homeowners' insurer obtained a judgment against a construction company and then brought an action against the owner and sole shareholder of that construction company, seeking to pierce the corporate veil and hold the owner personally liable for the judgment. 841 N.W.2d at 639. This court noted that "[h]istorically, a party could bring a suit in the form of a pleading known as a creditor's [suit]." Id. at 641. In Minnesota, there were two types of creditor's suits in equity:

The first was where the judgment creditor sought to satisfy his judgment out of the equitable assets of the debtor which could not be reached by execution. The second was where the property legally liable to execution had been fraudulently conveyed and the creditor attempted to have the conveyance set aside.

Id. (quoting Lind v. O.N. Johnson Co. , 204 Minn. 30, 36, 282 N.W. 661, 665-66 (1938) ). The first type of creditor's suit requires the creditor to exhaust its remedy at law by having an execution returned unsatisfied. Id. But, for the second type, the creditor is not required to first exhaust its other remedies. Id.

All Finish argues that under Wartman , it was not required to exhaust remedies. We agree. The first type of creditor's suit, which is codified in chapter 575 of the Minnesota Statutes, occurs when the creditor is seeking to satisfy a judgment out of the assets of the debtor that could not be reached by execution. See Lind , 282 N.W. at 665-66. Here, the debtor is Erickson Contracting. All Finish is not seeking to satisfy the judgment from Erickson Contracting. Rather, All Finish is seeking to satisfy the judgment from Erickson because Erickson Contracting is insolvent due to Erickson's alleged fraudulent activity by Erickson. This action falls squarely into the second type of creditor's suit, where property subject to execution had been fraudulently conveyed and the creditor attempted to have the conveyance set aside. See Lind , 282 N.W. at 665-66.

Erickson argues that All Finish's claim cannot fall into the second type of creditor's suit because it makes "no claim in the complaint of a fraudulent conveyance or that All Finish has ever sought to set aside a specific conveyance." But All Finish's complaint alleged that Erickson (1) did not adequately capitalize Erickson Contracting; (2) failed to observe corporate formalities; (3) "siphoned assets from Erickson Contracting" for his benefit; (4) operated Erickson Contracting as "his alter ego"; and (5) caused Erickson Contracting to incur debt when he knew the company was insolvent. The allegations in All Finish's complaint, although not using the word fraud, are framed as a fraudulent claim. All Finish sought to pierce the corporate veil based on this fraudulent conduct. See Roepke v. Western Nat'l Mut. Ins. Co. , 302 N.W.2d 350, 352 (Minn. 1981) ("The practice of piercing the corporate veil is generally a creditor's remedy used to reach an individual who has used a corporation as an instrument to defraud creditors."). All Finish's action to pierce the corporate veil to hold Erickson liable for his fraudulent transfer of corporate funds to himself falls under the second type of creditor's suit discussed in Lind . Thus, All Finish was not required to exhaust other legal remedies...