Rice Lake Contracting Corp. v. Rust Environment and Infrastructure, Inc., C2-95-2529

• Decision Date: 04 June 1996
• Docket Number: No. C2-95-2529,C2-95-2529
• Citation: 549 N.W.2d 96
• Parties: RICE LAKE CONTRACTING CORPORATION, City of Two Harbors, Respondents, v. RUST ENVIRONMENT AND INFRASTRUCTURE, INC., GME Consultants, Inc., Appellants.
• Court: Minnesota Court of Appeals

Page 96

549 N.W.2d 96

RICE LAKE CONTRACTING CORPORATION, City of Two Harbors, Respondents, v. RUST ENVIRONMENT AND INFRASTRUCTURE, INC., GME Consultants Inc., Appellants.

No. C2-95-2529.

Court of Appeals of Minnesota.

June 4, 1996.

Review Denied Aug. 20, 1996.

Syllabus by the Court

In a declaratory judgment proceeding, a "present controversy" exists if the "ripening seeds" of a dispute are about to affect the rights or interests of a party in a prejudicial manner. The ripening seeds of a controversy may be apparent prior to the final conclusion of a contractual relationship where it would be unrealistic to expect a party or parties to the controversy to finally conclude their agreement without a determination of its legal consequences.

Gregory T. Spalj, Holly A. R. Hart, Mark A. Mortenson, Fabyanske, Svoboda, Westra & Hart, P.A., Minneapolis, for Respondent Rice Lake Contracting Corporation.

Larry M. Nord, Orman & Nord, Duluth, for Respondent City of Two Harbors.

Robert J. Huber, Dwight A. Larson, Leonard, Street & Dienard, Minneapolis, for Appellant Rust Environment and Infrastructure, Inc.

Thomas F. Nelson, Popham, Haik, Schnobrich and Kaufman, Ltd., Minneapolis, for Appellant GME Consultants, Inc.

Considered and decided by CRIPPEN, P.J., and SHORT and FOLEY, JJ. ^*

OPINION

CRIPPEN, Presiding Judge.

Appellants challenge the trial court order denying their motion to dismiss respondents' declaratory judgment action for lack of subject matter jurisdiction. We affirm.

FACTS

This case arises from a contract between respondents City of Two Harbors and Rice Lake Contracting Corporation for the construction of improvements to the city's sewage treatment plant. After completing excavation for the improvements, Rice Lake demanded $2,166,750 above their estimated price, claiming unanticipated expense in performing the work. The city refused to pay and Rice Lake sued for breach of contract.

The city had engaged two consultants, appellants Rust Environment & Infrastructure and GME Consultants, to advise it in connection with the sewage project. When Rice Lake initiated its suit, the city filed a third-party complaint against Rust and GME, asserting that the consultants were bound to indemnify the city for any money owed Rice Lake. This lawsuit is still pending.

Attempting to simplify the suit, Rice Lake and the city entered into a settlement agreement that compromises the amount of the city's obligation to Rice Lake under the original construction contract. The parties agreed that the city would pay Rice Lake $200,000 immediately and would give Rice Lake a promissory note for the balance, payable only out of proceeds from the city's legal claims against Rust and GME. Finally, Rice Lake agreed to fund the city's suit against Rust and GME and exercise full control over the prosecution of the case.

Reluctant to activate the settlement agreement without knowing whether it might operate in some way to extinguish the city's claims against Rust and GME, respondents conditioned the agreement upon a declaratory judgment establishing its legal effect upon the city's third-party claims:

Upon execution of this Settlement Agreement, Rice Lake shall prepare, for joint submission by Rice Lake and Two Harbors, a declaratory judgment action seeking a declaration by the Court that the Settlement Agreement does not, as a matter of law, extinguish, bar or prohibit Two Harbors' claims against Rust and GME. If the court rules that the Settlement Agreement does extinguish, bar or prohibit Two Harbors' claims, and Rice Lake is unable to obtain immediate and final appellate review reversing the court then the parties shall be returned to the status quo as if this Agreement had not been entered into. If the court rules as a matter of law that the Settlement Agreement does not extinguish, bar or prohibit Two Harbors' claims against Rust and GME then this Settlement Agreement shall be fully effective and not subject to any other condition.

When respondents filed a complaint for declaratory relief pursuant to the settlement clause, appellants ¹ moved to dismiss, contending that the trial court had no subject matter jurisdiction, that the court could not give an "advisory opinion" about the legal effect of a "hypothetical" agreement. Respondents argued that their settlement agreement was a fully developed contract, not hypothetical, and that the trial court was within its province under the Declaratory Judgment Act to determine the agreement's legal effect. The trial court held that it was not precluded from addressing respondents' declaratory judgment motion by lack of jurisdiction.

ISSUE

Have respondents shown the kind of present controversy that makes appropriate the jurisdiction of the trial court for deciding their declaratory judgment claim?

ANALYSIS

On appeal from a declaratory judgment, we apply a clearly erroneous standard to the factual findings, but review the trial court's determination of questions of law de novo. Waste Recovery Coop. v. County of Hennepin, 475 N.W.2d 892, 894 (Minn.App.1991), review denied (Minn. Dec. 9, 1991). The existence of jurisdiction is a question of law subject to de novo review. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn.1984).

I.

Minnesota's declaratory judgment statute affords courts the power "to declare rights, status, and other legal relations whether or not further relief is or could be claimed." Minn.Stat. § 555.01 (1994). Parties to a contract may "have determined any question of construction or validity arising under the instrument." Minn.Stat. § 555.02 (1994). The only prerequisite for a court's exercise of jurisdiction in declaratory judgment actions is the presence of a "justiciable controversy." Seiz v. Citizens Pure Ice Co., 207 Minn. 277, 290 N.W. 802 (1940); Graham v. Crow Wing County Bd. of Comm'rs, 515 N.W.2d 81, 84 (Minn.App.1994) review denied (June 2, 1994).

Justiciability generally requires (1) a genuine or present controversy (2) presented by persons with truly adverse interests and (3) capable of specific rather than advisory relief by a decree or judgment. Graham, 515 N.W.2d at 84. In declaratory judgment actions, the "present controversy" requirement of justiciability is viewed leniently and is satisfied if there is a controversy of "sufficient immediacy and reality" to warrant issuance of a judgment. Holiday Acres No. 3 v. Midwest Fed. Sav. & Loan, 271 N.W.2d 445, 448 (Minn.1978); see also Minn.Stat. § 555.12 (1994) (stating that declaratory judgment statute is remedial: "its purpose is to settle and to afford relief from uncertainty and insecurity with respect to rights, status and other legal relations; and [it] is to be liberally construed and administered"); Harrington v. Fairchild, 235 Minn. 437, 440-41, 51 N.W.2d 71, 73 (1952) (same).

As Minnesota courts have phrased it, a "ripening seeds" inquiry replaces the usual "present controversy" justiciability inquiry in declaratory judgment situations: if a declaratory judgment claimant possesses "a bone fide legal interest which has been, or with respect to the ripening seeds of a controversy is about to be, affected in a prejudicial manner," jurisdiction exists. State v. Haveland, 223 Minn. 89, 92, 25 N.W.2d 474, 477 (1946); see also Holiday Acres, 271 N.W.2d at 448; Minneapolis Fed'n of Men Teachers v. Board of Education, 238 Minn. 154, 157, 56 N.W.2d 203, 205 (1952).

II.

The "ripening seeds" standard is fulfilled prior to the final conclusion of a contractual relationship where it would be "unwarranted and unrealistic" in today's marketplace to expect parties to finally conclude their contract without judicial resolution of some issue and better to permit the parties to avoid unacceptable risks. Holiday Acres, 271 N.W.2d at 448-49. In Holiday Acres, the Minnesota Supreme Court found jurisdiction to decide a real estate owner's declaratory judgment challenge of the application of a "due-on-sale" clause in its mortgage to a prospective sale of the property. The court did not require the mortgagor to attempt to sell without complying with the clause before seeking a declaration of the clause's validity. Citing an Illinois case deciding a like question, the court held that declaratory judgments are "ideally" appropriate when withholding judgment would present a claimant with an impossible choice between proceeding without a determination of her rights and accepting an unsatisfactory status quo:

[T]hese facts present an ideal situation for use of declaratory judgment proceedings prior to execution of the proposed agreement. Plaintiff claims the right to assign its interest * * *. This claim is countered by defendant's asserted right to foreclosure under the "due on conveyance" clause. To require plaintiff to enter into a contract with the buyer as a condition precedent to judicial review would, in our opinion, place plaintiff in the untenable position of being obliged to choose between foreclosure by defendant and a potential action for breach of contract by the buyer. Surely the modern remedy of declaratory judgment should be available to assist litigants to avoid this type of Scylla-Charybdis situation.

Id. (quoting Amos v. Norwood Fed. Sav. & Loan Ass'n, 47 Ill.App.3d 643, 646, 7 Ill.Dec. 772, 775, 365 N.E.2d 57, 60 (1977)).

This case presents a Holiday Acres/ Amos situation. Appellants Rust and GME stand like the mortgagees in those cases, concerned not for the sanctity of the court's jurisdiction, but for obtaining an advance attack on and perhaps altogether preventing the opportunity of respondents to settle, adding to appellants' adequate options to contest respondents' settlement in further proceedings. See, e.g., Miller v. Shugart, 316 N.W.2d 729 (Minn.1982) (proponents of contested settlement agreement must prove the agreement is "reasonable and prudent"); Johnson v. Moberg, 334 N.W.2d 411, 415 (Minn.1983) (settlement agreements between some parties...