Paidar v. Hughes, No. C6-98-2192.

• Decision Date: 03 August 2000
• Docket Number: No. C6-98-2192.
• Citation: 615 N.W.2d 276
• Parties: Peter R. PAIDAR, et al., Plaintiffs, v. Charles E. HUGHES, defendant and third-party plaintiff, Appellant, v. Guardian Title, Inc., et al., Third-Party Defendants, Fidelity National Title Insurance Company of New York, third-party defendant, Respondent.
• Court: Minnesota Supreme Court

615 N.W.2d 276

Peter R. PAIDAR, et al., Plaintiffs, v. Charles E. HUGHES, defendant and third-party plaintiff, Appellant, v. Guardian Title, Inc., et al., Third-Party Defendants, Fidelity National Title Insurance Company of New York, third-party defendant, Respondent.

No. C6-98-2192.

Supreme Court of Minnesota.

August 3, 2000.

Rehearing Denied September 1, 2000.

Joseph B. Marshall, Marshall and Associates, P.A., Circle Pines, for appellant.

James A. Beitz, Micahel C. Hagerty, Hagerty, Johnson, Albrightson & Beitz, P.A., Minneapolis, for respondent.

Heard, considered, and decided by the court en banc.

OPINION

LANCASTER, Justice.

This slander of title action comes to us on appeal from summary judgment in favor of respondent, Fidelity National Title Insurance Company of New York (Fidelity). The district court implicitly held that attorney fees cannot constitute special damages¹ necessary to plead a slander of title action. The Minnesota Court of Appeals affirmed. See Paidar v. Hughes, No. C6-98-2192, 1999 WL 300910 (Minn. App. May 11, 1999). We hold, consistent with the Restatement (Second) of Torts § 633 (1977),² and the rule adopted in a majority of jurisdictions, that reasonable attorney fees that are a direct consequence of an action to quiet title that results from slander of title constitute special damages. We therefore reverse and remand for proceedings consistent with this opinion.

Appellant Charles E. Hughes (Hughes) is the father-in-law of Joel Holstad (Holstad), the principal shareholder and officer of two separate corporations, Guardian Title, Inc. (Guardian) and National Title Resources Corp. (National). Hughes is a former member of the Board of Directors of National. Prior to March 31, 1995, Guardian was the owner of the Forest Lake property subject to the slander of title action in this case.

From approximately 1992 to 1995, National was an agent of Fidelity. In 1995, Fidelity terminated its agency agreement with National due to shortages in National's escrow accounts and National's breach of its agency agreements with Fidelity. To forestall legal proceedings, Holstad assigned the title interests for various properties allegedly possessed by National to Fidelity. In March 1995 Holstad represented to Fidelity that National had an interest in the Forest Lake property-and at Fidelity's request National conveyed a security interest in the property to Fidelity. National, in fact, had no interest in the property and the "assignment" to Fidelity was a nullity. Two weeks after National conveyed the illusory interest in the property to Fidelity, Guardian transferred the same property to Hughes by warranty deed for $40,000. Hughes promptly filed the deed from Guardian and it was recorded before Fidelity's illusory security interest was recorded on April 4, 1995.

Two years thereafter Hughes decided to sell the property and in May 1997 he found buyers in Peter and Ardith Paidar. Hughes agreed to sell the property to the Paidars on a contract for deed for a purchase price of $217,000. The contract for deed in pertinent part: (a) required Hughes to deliver marketable title, and (b) permitted the Paidars to take immediate possession pending the sale. The Paidars were also permitted to make limited improvements to the property provided that lien waivers were obtained and Hughes consented in writing to any improvement in excess of $10,000. The purchase agreement made no reference to any interest held by Fidelity. The Paidars immediately took possession of the property and made approximately $50,000 in improvements.

A title search revealed the Fidelity assignment.³ When the Paidars learned of the encumbrance, they refused to close until the encumbrance was removed. When Hughes attempted informally to obtain a release of the assignment, Fidelity refused unless Hughes would submit to a deposition in an unrelated matter being litigated between Fidelity and Holstad.

On June 26, 1997, Hughes served notice on the Paidars that he had declared the Paidars' purchase agreement null and void. Hughes then commenced an unlawful detainer action against the Paidars to evict them from the property. Trial on the unlawful detainer action commenced on July 28, 1997. A settlement was reached prior to the end of the trial. The settlement agreement provided in pertinent part that: (1) the settlement agreement would constitute the new purchase agreement at the same price; (2) the Paidars would take the contract for deed (and eventually title) in its present condition; and (3) the Paidars would guarantee to defend, hold, and save Hughes harmless from any claims made by Fidelity on its security interest. The unlawful detainer action was then dismissed on its merits with prejudice.

On July 21, 1997, prior to the trial on the unlawful detainer action, the Paidars sued Hughes in a declaratory judgment action for fraud and specific performance of the contract for deed. Hughes answered the Paidars' complaint and then named, inter alia, Fidelity as a third-party defendant in both a slander of title action and an action to quiet title. In his action against Fidelity, Hughes states that the Paidars waived any objections to title based on Fidelity's security interest. By November 5, 1997, all remaining claims between the Paidars and Hughes were resolved and the property was transferred.

However, the slander of title action remained, Hughes claiming Fidelity's refusal to release its security interest in the property caused him to incur attorney fees and costs. Fidelity moved for summary judgment, claiming Hughes could not prove special damages required for an action for slander of title. The district court granted Fidelity's motion, stating the following:

Minnesota requires a showing of special damages in slander of title actions. Wilson v. Dubois , 29 N.W. 68, 69 (Minn.1886). Legal fees incurred to pursue the cause of action are not recoverable without a showing of special damages. Advanced Training Sys., Inc. v. Caswell Equip. Co., Inc., 352 N.W.2d 1 (Minn.1984). Wilson at 69.

Hughes claims to have incurred over $20,000.00 in legal fees to pursue this action. He is not claiming any special damages. Since no special damages have been alleged, Hughes' slander of title action cannot proceed. Fidelity's motion for summary judgment must be granted.

On review of this determination, the court of appeals did not address the question whether attorney fees constitute special damages. While observing that special damages are a necessary element of the cause of action, the court of appeals specifically found that, "[a]ny attorney fees amassed during [the] litigation did not arise as a consequence of Fidelity's actions" and affirmed summary judgment.

I.

When we review an order for summary judgment, we examine whether there are any genuine issues of material fact and whether the trial court erred in its application of the law. See State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990). Whether attorney fees may be considered special damages for purposes of a slander of title action is a question of law. Our review is therefore de novo. See Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn.1984).

The elements required for a slander of title claim are:

(1) That there was a false statement concerning the real property owned by the plaintiff;

(2) That the false statement was published to others;

(3) That the false statement was published maliciously;

(4) That the publication of the false statement concerning title to the property caused the plaintiff pecuniary loss in the form of special damages.

See Wilson v. Dubois, 35 Minn. 471, 472-73, 29 N.W. 68, 68-69 (1886); see also Kelly v. First State Bank of Rothsay, 145 Minn. 331, 332, 177 N.W. 347, 347 (1920). The filing of an instrument known to be inoperative is a false statement that, if done maliciously, constitutes slander of title. See Kelly, 145 Minn. at 332, 177 N.W. at 347.

Both Hughes and Fidelity agree that in Minnesota a slander of title action requires a showing of special damages. Hughes asserted to the district court that attorney fees necessary to clear title resulting from slander on the title are special damages. Without expressly addressing that assertion, the district court granted summary judgment to Fidelity stating only that "Hughes has admitted he has suffered no special damages in this action." In fact, Hughes' admission on special damages was simply that he suffered no loss attributable to a lost sale or any damages attributable to anything other than attorney fees. The district court apparently ruled based on the implicit assumption that attorney fees cannot be special damages in a slander of title action.

The issue of whether attorney fees incurred to remove a cloud on title constitute special damages in a slander of title action is one of first impression in Minnesota. The clear majority of states that have considered this issue hold, consistent with the Restatement (Second) of Torts § 633(1)(b) (1977), that attorney fees are special damages in a slander of title action. See James O. Pearson Jr., Annotation, What Constitutes Special Damages in Action for Slander of Title, 4 A.L.R.4th 532, 560-62 (1981) & 92-93 (Supp.1999). Professors Prosser and Keeton have noted the soundness of the policy contained in the Restatement: "It would also appear obvious that special damages include the expenses of legal proceedings necessary to remove a cloud on the plaintiff's title caused by the [slander of title] * * *." W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 128, at 972 (5th ed.1984). Only Texas requires proof of the loss of a particular sale to establish special damages. See Clark v. Lewis, 684 S.W.2d 161, 164 (Tex.App.1984) (holding attorney fees not recoverable as special damages in slander of title action because attorney fees are not a pecuniary loss); A.H. Belo Corp. v. Sanders, 632 S.W.2d 145, 146 (Tex.1982).

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