Virginia R. Scally, Appellant, vs. Norwest Mortgage, Inc., et al., Respondents, Donald Myhre, Respondent.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

C4-02-2181

 

Virginia R. Scally,

Appellant,

 

vs.

 

Norwest Mortgage, Inc., et al.,

Respondents,

 

Donald Myhre,

Respondent.

 

Filed September 2, 2003

Affirmed in part, reversed in part, and remanded;

motion granted

Halbrooks, Judge

 

 

Hennepin County District Court

File No. CT0115068

 

 

Donald Chance Mark, Jr., Shannon M. McDonough, Erik F. Hansen, Fafinsky Mark & Johnson, P.A., 775 Prairie Center Drive, Suite 400, Eden Prairie, MN 55344 (for appellant)

 

Charles F. Webber, Aaron D. Van Oort, Faegre & Benson, LLP, 2200 Wells Fargo Center, 90 South 7th Street, Minneapolis, MN 55402 (for respondents Norwest Mortgage, Inc. and Wells Fargo Home Mortgage, Inc.)

 

Donald Myhre, 15071 96th Avenue North, Maple Grove, MN 55369 (pro se respondent)

 

 

            Considered and decided by Halbrooks, Presiding Judge, Shumaker, Judge, and Anderson, Judge.

U N P U B L I S H E D   O P I N I O N

HALBROOKS, Judge

Appellant argues that the district court abused its discretion by concluding that appellant failed to meet the heightened burden of proving promissory estoppel in cases related to the statute of frauds and that the district court erred by (1) dismissing appellant's consumer-fraud-act claim; (2) denying appellant's motion for default judgment; and (3) denying appellant's motion to amend her complaint to assert a punitive-damages claim.  Because there are remaining material issues of fact, we reverse and remand the district court's issuance of summary judgment on the issue of promissory estoppel.  Because the district court denied appellant's motion to amend the complaint to assert punitive damages based on its summary-judgment decision, without determining the punitive-damages claim on the merits, we reverse and remand that issue as well.  Because the district court denied appellant's motion for default judgment against respondent Myhre based on the summary-judgment decision that we reverse in part, we also reverse on the default-judgment issue and reinstate appellant's claims of promissory estoppel against Myhre.  We affirm summary judgment on the other issues and the dismissal of appellant's consumer-fraud-act claim.

FACTS

            In May 1998, appellant Virginia Scally began working with respondent Donald Myhre, a loan officer at respondent Norwest Mortgage, Inc.[1]  Scally wanted to refinance her home and consolidate her credit-card debt with an existing home-equity loan.  She was familiar with the lending process, having obtained four previous loans secured by mortgages.

            Scally first met with Myhre on May 4, 1998 and signed a uniform residential-loan application and a general loan acknowledgement.  Her application stated that she was applying for a loan of $60,000 at an interest rate of 7.25%.  A loan application Scally later completed on September 28, 1999 quoted a rate of 6.5%.  The general loan acknowledgement that Scally signed indicated that she elected to "float" her interest rate rather than lock it in at a fixed rate.  Scally conceded that she did not sign a written agreement that locked in a rate with Wells Fargo.  But Scally claims that Myhre orally promised her a consolidated loan at an interest rate of 6%. 

In order to qualify for a loan with Wells Fargo, an applicant's home must be appraised at a value that is high enough to support the amount of the requested loan.  Scally's home was appraised for 10% less than her requested loan amount, thereby disqualifying Scally for a loan.  Myhre testified that, upon learning that Scally did not qualify, he could not bring himself to tell her.  Rather than denying Scally's loan application, Myhre informed her that the appraisal had come in too low and that he would attempt to get a higher one.  From May 1998 until September 1999, nearly one and one-half years later, Myhre repeatedly scheduled and then postponed meetings with Scally to sign final loan documents.  Myhre later testified that he postponed the meetings in an attempt to gain enough time to make it possible to give her the loan.  He stated that he attempted to obtain a more favorable appraisal for Scally's home by contacting additional appraisers over the course of the next 18 months. 

            Scally testified that Myhre told her at their first meeting to stop making payments on her mortgage and home-equity loans so that she would not "mess up the totals" on her new loans.  While Myhre testified that he did not recall telling Scally to cease making payments, it is undisputed that she stopped making them.  As a consequence, Scally began to receive nonpayment notices from her mortgage company.  According to Scally, Myhre told her not to worry about the notices.  But in August 1999, a sheriff served Scally with notice of a foreclosure action against her home.  Scally then contacted Myhre, who ultimately paid more than $4,400 of his own money in an effort to bring Scally's accounts up to date. 

            Myhre and Scally had another meeting in September 1999.  At that time, Scally signed a number of papers that she testified she did not read, but that she believed to be closing papers.  In reality, the documents Scally signed were for a new loan application.  Myhre later characterized the meeting as a "dry closing," a meeting where the loan applicant signs all the papers that are ready at that time so that the closing can take place later, once all the loan requirements are fulfilled.  Myhre stated that he explained to Scally that the meeting was a dry closing, but she testified that she remembered nothing about that.

            Wells Fargo learned about Scally's circumstances in November 1999 when Scally contacted Kevin Greene, a branch manager for Wells Fargo and Myhre's supervisor.  Scally called Greene when she encountered problems with her credit rating while attempting to buy a car.  Greene investigated Scally's claims and found that Scally had no loan with Wells Fargo.  There was no file set up for Scally and her loan application was inactive. 

            Wells Fargo apologized to Scally and, on her behalf, paid $1,714.49 (the remainder of Scally's outstanding mortgage payments) and $1,863.70 (the amount outstanding on her home-equity loan).  In addition, the bank gave Scally a letter to provide to her creditors that explained that Scally was not to blame for the tardy loan payments on her credit history.  John Roti, Wells Fargo area manager, later testified that the letter, if presented by Scally, would be sufficient to correct her credit rating for any damage attributable to Scally's failure to make timely loan payments.  Wells Fargo also agreed to waive the standard loan-origination fee if Scally wanted to re-apply for a loan. 

            Myhre acknowledged that he was struggling with alcoholism throughout his dealings with Scally, and in April 1999, he entered treatment.  Myhre, who had a history of poor reviews and evaluations with Wells Fargo aside from this issue, was suspended immediately after Scally called Greene in November 1999 and fired in December 1999.   

            According to Scally, she had difficulty with her credit after her experience with Myhre and Wells Fargo.  Scally applied for two types of credit in 1999 a lease on a new Jaguar and a credit card.  Scally stated that the terms of the vehicle lease were less favorable because of her poor credit rating and that she was denied the credit card.  In 2000, Scally claimed that she was denied a credit card and a loan through Bank of America.  In 2001, she claimed to have been denied a refinancing loan from a mortgage company in Virginia.  But Scally conceded that she never showed any potential creditors the letter that Wells Fargo prepared on her behalf. 

            Scally sued Wells Fargo and Myhre, asserting claims for (1) breach of contract, (2) promissory estoppel, (3) breach of good faith and fair dealing, (4) fraud and misrepresentation, (5) negligent misrepresentation, (6) intentional interference with credit expectancy, (7) defamation, (8) violation of Minnesota's Deceptive Trade Practices Act, (9) violation of the Minnesota Prevention of Consumer Fraud Act, and (10) negligent supervision.  Wells Fargo moved for summary judgment, and Scally filed a motion to amend her complaint to assert a claim of punitive damages.  The district court held a hearing on Wells Fargo's summary-judgment motion on August 7, 2002 and on Scally's motion to amend the complaint the following day.  On September 4, 2002, Scally submitted the affidavit of Xavier Saavedra to the court.  Xavier Saavedra is a loan officer at Greater Acceptance Mortgage Co. (GAMC).  His affidavit stated that Scally's mortgage application to GAMC was denied based on her credit history that reflected a foreclosure on a residential property and nine missed mortgage payments.

The district court refused to consider the submission, finding it to be untimely.  The district court subsequently granted Wells Fargo's motion for summary judgment and denied Scally's motion to amend her complaint to assert a claim of punitive damages.  

In its order granting summary judgment, the court found that Scally conceded that summary judgment was appropriate on count 1 (breach of contract) and count 3 (breach of duty of good faith and fair dealing).  The court concluded that Minn. Stat. § 513.33 (2002), the Minnesota credit-agreement statute of frauds, barred the first six counts of Scally's complaint.  The court also held that Minnesota does not recognize a claim for intentional interference with credit expectancy and found no reason for a good-faith extension of the law.  The court held that Scally's claims for fraud, misrepresentation, and negligent misrepresentation were barred because Myhre intended to perform on his representations and because documents in the record contradicted Scally's statements.  The court dismissed Scally's claim for defamation on the grounds that Wells Fargo had not published the allegations and because the allegations were true.  The court concluded that the claim brought under the Minnesota Prevention of Consumer Fraud Act failed because the suit would not benefit the public.  Finally, the court held that, because Scally faced no ongoing injury, her claim under the Deceptive Trade Practices Act also failed. 

Following the district court's rulings on Wells Fargo's motion, Scally's claims against Myhre remained.  On September 16, 2002, Myhre failed to attend a pretrial conference.  In response, Scally brought a motion for default judgment against Myhre.  The court denied the default judgment and dismissed Scally's claims against Myhre with prejudice on the same bases on which the court had granted Wells Fargo's motion for summary judgment. 

Following Scally's appeal to this court, Wells Fargo moved to strike the affidavit of Xavier Saavedra from Scally's appendix and brief on the ground that it is outside the record.

D E C I S I O N

 

I.          Standard of Review

On an appeal from summary judgment, this court asks two questions:  (1) whether there are any genuine issues of material fact and (2) whether the district court erred in its interpretation of the law.  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  No genuine issue of material fact exists where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party.  DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997).  The nonmoving party must do more than rest on mere averments; a genuine issue for trial must be established by substantial evidence.  Id. at 69-71.  "On appeal, the reviewing court must view the evidence in the light most favorable to the party against whom [summary] judgment was granted."  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (citation omitted).  But this court need not defer to the district court's decision on a pure question of law.  Frost-Benco Elec. Ass'n v. Minn. Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 2000).

II.        Promissory Estoppel

Scally is attempting to enforce Myhre's alleged oral promise that she had a mortgage agreement at an interest rate of 6% and that, as a result of the agreement, she should stop payments on existing loans.  In the order granting summary judgment, the district court concluded that Minn. Stat. § 513.33 (2002), the Minnesota credit-agreement statute of frauds, barred the first six counts of Scally's complaint.  Scally contends that the doctrine of promissory estoppel precludes application of the statute of frauds to Myhre's promise and argues that the district court incorrectly concluded that she failed to meet her burden of proof on the issue of promissory estoppel.  We agree.  "Granting equitable relief is within the sound discretion of the trial court.  Only a clear abuse of that discretion will result in reversal."  Nadeau v. County of Ramsey, 277 N.W.2d 520, 524 (Minn. 1979). 

The Minnesota credit-agreement statute of frauds mandates that, in order to maintain an action on a credit agreement, the agreement must be signed by both parties, express consideration, and establish the relevant terms and conditions.  Minn. Stat. § 513.33, subd. 2.  A credit agreement is defined as "an agreement to lend or forebear repayment of money . . ., to otherwise extend credit . . . ."  Minn. Stat. § 513.33, subd. 1(1).  But "[a]n agreement may be taken outside the statute of frauds by equitable or promissory estoppel."  Norwest Bank, N.A. v. Midwestern Mach. Co., 481 N.W.2d 875, 880 (Minn. App. 1992) (citing Berg v. Calstrom, 347 N.W.2d 809, 812 (Minn. 1984)), review denied (Minn. May 15, 1992).  There is no dispute that final loan documents were never signed.  But that does not end our inquiry, given the oral representations that Myhre allegedly made to Scally.

Generally, in order to invoke the doctrine of promissory estoppel, a plaintiff must prove the existence of (1) a clear promise, (2) reasonable reliance that the defendant should have expected and (3) injustice if the promise is not enforced.  Ruud v. Great Plains Supply, Inc., 526 N.W.2d 369, 372 (Minn. 1995).  The reasonableness of a promisee's reliance on a promise is a question of fact for the jury.  Norwest Bank, 481 N.W.2d at 880.

            In Del Hayes & Sons, Inc. v. Mitchell, 304 Minn. 275, 283-84, 230 N.W.2d 588, 593-94 (1975), the Minnesota Supreme Court set forth certain principles regarding whether and when the doctrine of promissory estoppel can defeat the statute of frauds.

The Restatement rule is that promissory estoppel will defeat the statute of frauds only when the promise relied upon is a promise to reduce the contract to writing. . . .  Some jurisdictions adopt the slightly less restrictive view . . . and permit promissory estoppel where the detrimental reliance is of such character and magnitude that refusal to enforce the contract would permit one party to perpetrate a fraud.  A mere refusal to perform an oral agreement, unaccompanied by unconscionable conduct, however, is not such a fraud as will justify disregarding the statute.

 

Id. (citations omitted). 

            In support of her claim, Scally cites Norwest Bank, where a customer alleged that Norwest Bank promised to extend an indefinite $5 million credit line to his company as an inducement to get the customer to sign a buy-sell agreement.  481 N.W.2d at 880.  The district court in Norwest Bank found that the customer's claim was barred by Minn. Stat. § 513.33 because the agreement was not in writing.  Id.  This court reversed, holding that promissory estoppel may take an agreement outside of the statute of frauds.  Id.  This court concluded that, where there were affidavits by the customer and his lawyer asserting the promise and evidence that the customer attempted to use the promised "credit line," there was a jury question as to the factual basis of the claims and as to whether the customer's reliance was reasonable.  Id.

            Scally argues that she has alleged sufficient disputed material facts on the elements of both promise and reliance to avoid summary judgment.  We agree.  Scally provided the court with an affidavit asserting that she was promised and relied on the promise of a mortgage at the rate of 6% when she stopped making payments on her then-existing mortgage and loan.  There is also evidence that Scally eventually went to Myhre's supervisor and told him that she was waiting for loan coupons that she had never received.  The terms of the promise and whether or not Scally's reliance on the promise was reasonable are for a jury's determination. 

            The issue of whether Scally will suffer an injustice if the promise is not enforced is a closer question on this record.  While Scally alleges an adverse effect on her credit rating as a result of her dealings with Myhre, the record contains her allegations only.  It is undisputed that (1) the payments made by Myhre and Wells Fargo made Scally "whole" with respect to arrearages, and (2) she has never used the credit letter that Wells Fargo prepared as a means of clearing her credit history and, therefore, does not know what, if any, salutary effect it will have.  But, as with the first two factors, we conclude that there are genuine issues of material fact on this issue as well.  We, therefore, reverse the district court's conclusion that Scally was not entitled to a trial to determine whether the doctrine of promissory estoppel defeats the statute of frauds in this matter and remand for trial on this issue.

III.       Equitable Estoppel

            Scally asserts that this case presents the precise type of injustice that equitable estoppel is designed to prevent and that the district court improperly failed to address the issue.  But the issue of equitable estoppel was never properly raised and this court will not review an issue not brought before the district court.  See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (stating that appellate courts will generally not consider matters not argued and considered in the district court).

IV.       Consumer Fraud Act Claim

Scally contends that the district court erred in concluding that she has no cause of action under the Minnesota Prevention of Consumer Fraud Act (CFA) because Scally has failed to show that her case would benefit the public.  The CFA defines consumer fraud in part as

[t]he act, use, or employment by any person of any fraud, false pretense, false promise, misrepresentation, misleading statement or deceptive practice, with the intent that others rely thereon in connection with the sale of any merchandise, whether or not any person has in fact been misled, deceived or damaged thereby, is enjoinable as provided herein.

 

Minn. Stat. § 325 F. 69, subd. 1 (2002).  Under the private attorney general statute,

[i]n addition to the remedies otherwise provided by law, any person injured by a violation of any of the laws referred to in subdivision 1 [which includes the Consumer Fraud Act] may bring a civil action and recover damages, together with costs and disbursements, including costs of investigations and reasonable attorney's fees, and receive other equitable relief as determined by the court.

 

Minn. Stat. § 8.31, subd. 3a (2002). 

In Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000), the buyer of a restaurant brought a CFA claim against the seller after the seller misrepresented monthly profits and the condition of the restaurant and its inventory.  The supreme court held the CFA may afford coverage to a one-on-one transaction, but that the private attorney general statute "applies only to those claimants who demonstrate that their cause of action benefits the public."  Id. at 314.  Scally argues that under Ly, the lack of a resulting public benefit does not preclude a consumer from asserting a claim under the CFA.  Instead, she asserts that a consumer may not be awarded attorney's fees on CFA claims unless the cause of action was of benefit to the public. 

The United States District Court, District of Minnesota, recently examined the language and reasoning set forth in Ly and recognized that a "public benefit requirement . . . was announced in Ly v. Nystrom."  Behrens v. United Vaccines, Inc., 228 F. Supp. 2d 965, 971 (D. Minn. 2002).  The federal district court also explained that "the Private AG Statute was the measure that instilled authority, in individual consumers, to bring actions under the CFA."  Id. at 968.  In its analysis, the Behrens court specifically relied on the idea that the parties' "CFA claim is not an action that could properly have been pursued by the Minnesota Attorney General, and consequently, [the parties] may not pursue the claim in the Attorney General's stead."  Id. at 972. 

            We conclude that the private attorney general statute cannot be used as a vehicle to litigate a CFA claim unless the cause of action benefits the public.  Therefore, the district court properly considered whether a public benefit would accrue.  A public benefit has been found where the fraudulent misrepresentations about a sports-medicine-technician program was advertised to the public at large, and the misleading ads would have continued, but for the lawsuit.  Collins v. Minn. Sch. of Business, Inc., 636 N.W.2d 816, 821 (Minn. App. 2001).  In contrast, in Ly there was no public benefit where the "fraudulent misrepresentation, while evincing reprehensible conduct was made only to appellant."  Ly, 615 N.W.2d at 314. 

This case is similar to Ly because appellant engaged in a one-on-one interaction with Myhre.  There is no evidence that Wells Fargo knew of Myhre's treatment of Scally until she contacted Myhre's supervisor at the bank.  Scally contends that a successful prosecution would deter lenders from defrauding their customers and, that if Wells Fargo would better supervise its loan officers, it would benefit the public.  But, as argued by Wells Fargo, Myhre has been terminated and he is no longer in any position to harm the public.  Scally's argument is not persuasive because the "metaphysical potential" for a public benefit does not support a claim under the private attorney general statute.  Behrens, 228 F. Supp. 2d at 971.  We affirm the district court on the dismissal of this claim.

V.        Default Judgment

Scally argues that the district court abused its discretion by refusing to grant default judgment against Myhre and by dismissing on its own motion the claims against Myhre.  A default judgment may be entered against a party for failure to plead or otherwise defend within the timeline established by law.  Minn. R. Civ. P. 55.01. "[D]enial of a motion for a default judgment is proper when four requirements are met: defendant has a reasonable defense on the merits; defendant has a reasonable excuse for his failure to answer; defendant acted with due diligence after notice of the entry of judgment; and no substantial prejudice will result to other parties."  Coller v. Guardian Angels Roman Catholic Church of Chaska, 294 N.W.2d 712, 715 (Minn. 1980) (citations omitted).  The standard for a decision to grant or vacate a default judgment is the same.  Guillaume & Assocs., Inc. v. Don-John Co., 371 N.W.2d 15, 18 (Minn. App. 1985).  The district court has discretion in ruling on a motion to vacate a default judgment, and its decision will not be reversed absent an abuse of that discretion.  Foerster v. Folland, 498 N.W.2d 459, 460 (Minn. 1993); Guillaume, 371 N.W.2d at 18.  The record is viewed in the light most favorable to the district court's decision.  Imperial Premium Fin., Inc. v. GK Cab Co., 603 N.W.2d 853, 857 (Minn. App. 2000).

The district court made findings of fact that Myhre was served with a summons and complaint on September 21, 2001, but that he did not answer or appear.  But the court denied Scally's motion for default and dismissed the complaint in its entirety with prejudice stating "[a]lthough Defendant Myhre did not join in Defendants' motion for summary judgment, it is appropriate that the complaint be dismissed for the same reasons and based upon the same facts as set forth in the September 13, 2002 Order [granting summary judgment to Wells Fargo]."  Scally contends that dismissal of her claim against Myhre was improper because it, like the grant of summary judgment to Wells Fargo, was erroneously based on the conclusion Scally had failed to show issues of material fact concerning the application of the doctrine of promissory estoppel.  We agree, and we reverse and remand for trial the promissory estoppel claim against Myhre.

VI.       Punitive Damages

When reviewing a trial court's pretrial order denying a motion to amend pleadings to assert a punitive-damages claim, the reviewing court makes an independent assessment of whether the evidence is sufficient to present a fact question to the jury.  Swanlund v. Shimano Indus. Corp., 459 N.W.2d 151, 155 (Minn. App. 1990), review denied (Minn. Oct. 5, 1990).  "[I]f the court finds prima facie evidence in support of the motion, the court shall grant the moving party permission to amend the pleadings to claim punitive damages."  Minn. Stat. § 549.191 (2002); Shetka v. Kueppers, Kueppers, Von Feldt & Salmen, 454 N.W.2d 916, 918 n.1 (Minn. 1990).  Here, the district court denied Scally's motion for punitive damages because Wells Fargo prevailed on summary judgment.  Because we reverse the grant of summary judgment on the promissory-estoppel issue, we remand this claim to the district court for a decision on the merits.

VII.     Motion to Strike

Although Scally submitted a letter explaining the delay in filing Saavedra's affidavit, the district court was within its discretion in declaring that the submission of the affidavit was untimely.  Scally does not now argue that the district court abused its discretion in finding her affidavit to be untimely, but instead contends that Minn. R. App. P.110.01 places the affidavit properly before the appellate court.  "The general rule is that an appellate court must decide an appeal based solely upon the evidence actually presented to the trial court and shown by the record on appeal."  Western World Ins. Co. v. Anothen, Inc., 391 N.W.2d 70, 73 (Minn. App. 1986).  Therefore, because the affidavit was not part of the record on appeal, Scally's claim is without merit, and the motion to strike is granted.

Affirmed in part, reversed in part, and remanded; motion to strike granted.

 

 

[1]  Norwest Bank merged with Wells Fargo Bank.  Norwest and Wells Fargo also merged their separate home mortgage divisions.  Both will be referred to as "Wells Fargo."