author: HANSON, Justice.

text:
    SCHWICKERT, INC., Respondent/Cross-Appellant, v. WINNEBAGO SENIORS, LTD., a Minnesota Limited Partnership, Minnesota Housing Finance Agency, and Thies & Talle Enterprises, Inc., Respondents/Cross-Appellants, v. 11,111, Inc., d/b/a/ Energy Conservation Consultants, Inc., Respondent/Cross-Appellant, v. AMCO Insurance Company, Inc., Appellant/Cross-Respondent.
    Nos. C8-02-1972, C4-02-2083.
    Supreme Court of Minnesota.
    May 27, 2004.

      Jon A. Hanson, E. Curtis Boeder, Candy B. Olson, Hanson, Lulic & Krall, Minneapolis, MN, for Appellant/Cross Respondent AMCO.
    Scott V. Kelly, Aaron J. Glade, Farrish Johnson Law Office, Mankato, MN, for Respondent/Cross-Appellant Schwickert and ECC.
    Eric Magnuson, Richard J. Nygaard, Paula Duggan Vraa, Rider Bennett, LLP, Minneapolis, MN, for Respondent/Cross-Appellant Winnebago Seniors, Ltd., MHFA and Thies & Talle.
   OPINION

HANSON, Justice.

By a certified question contained in an order denying a property insurer’s motion for summary judgment, we are asked whether “the principles of Schmidt v. Clothier, 388 N.W.2d 256 (Minn.1983) apply in a first-party property dispute outside of the personal injury context.” [Schmidt provides a mechanism for an uninsured/un-derinsured motorist carrier to preserve its subrogation rights where the tortfeasor makes a settlement offer to the insured]. Because Schmidt was fundamentally grounded on policies of Minnesota’s No-Fault Act that are not present in first-party property insurance disputes, and issues concerning the preservation of subro-gation rights in first-party property insurance can be determined on the basis of recognized contract principles, we decline to extend Schmidt to first-party property insurance. We reverse the decision of the court of appeals that Schmidt does apply, affirm on other grounds the district court’s order denying the insurer’s motion for summary judgment, and reinstate the district court’s Rule 68 judgment determining the claims of the insured against the tort-feasor.

The Garden Court Apartments in Winnebago, Minnesota, were damaged during heavy rainfall when the roof, which was being repaired, was left uncovered. The owners of the building, respondents Winnebago Seniors, Ltd., the Minnesota Housing and Finance Agency (MHFA) and Thies & Talle Enterprises, Inc. (collectively, “Owner”) withheld payment to the roofing contractor, respondent Schwickert, Inc., and the roofing consultant, respondent 11,111 Inc., d/b/a/ Energy Conservation Consultants (ECC). The Owner also filed a claim for water damage and business interruption with its property insurer, appellant AMCO Insurance Company, Inc. (AMCO). Eight months later, AMCO informed Owner that it had completed its investigation and it denied coverage.

When Schwickert brought a mechanic’s lien action for payment, Owner counterclaimed for negligence and breach of contract and warranties; brought a third-party action against ECC for breach of contract, negligent supervision and negligent design; and also brought a third-party action against AMCO for the insured loss. AMCO brought two motions for summary judgment against Owner on coverage defenses, the first on the grounds that Owner’s claims were subject to policy exclusions, and the district court denied both motions, in whole or in part, but did not certify the questions for immediate appeal. See Minn. R. Civ.App. P. 103.03, subd. (i). Those orders are not before us on this appeal.

Schwickert and ECC made a Rule 68 offer of judgment to Owner for $800,000, an amount less than the liability limits of their respective policies. Owner gave AMCO oral notice of its intent to accept the offer and demanded that AMCO substitute its payment of $800,000 if it wished to preserve its subrogation rights. Owner apparently was attempting to follow the procedures outlined in Schmidt v. Clothier, 338 N.W.2d 256 (Minn.1983), for resolving the subrogation rights of an uninsured/un-derinsured motorist insurer when the insured has received a settlement offer from the tortfeasor. AMCO responded in writing, objecting to the settlement and refusing to substitute its payment of $800,000. AMCO argued that the procedures outlined in Schmidt did not apply; that if Schmidt did apply, Owner had not given adequate notice; and that acceptance of the settlement by Owner would impair AMCO’s subrogation rights and “AMCO will be entitled to a dismissal with prejudice.” Owner accepted the Rule 68 offer of judgment and judgment was entered for Owner against Schwickert and ECC for $800,000.

AMCO then moved for summary judgment against Owner on grounds that Owner had breached its obligation to protect AMCO’s subrogation rights. The district court denied AMCO’s motion for summary judgment against Owner, concluding that (1) the principles in Schmidt do apply; (2) AMCO had sufficient notice of the offer of judgment; (3) AMCO was given the opportunity to substitute its draft for $800,000, but it chose not to do so and did not request additional time to consider the offer; (4) AMCO waived its subrogation rights against ECC and Schwickert by failing to substitute its draft; and (5) Owner’s acceptance of the offer of judgment did not release AMCO from its contractual obligations to Owner. The district court certified as important and doubtful the question of whether the principles of Schmidt apply in a first-party property insurance dispute.

The district court also (1) granted motions by Schwickert and ECC to dismiss AMCO’s subrogation claims against them; (2) awarded Owner costs and disbursements in the amount of $34,910.44 against Schwickert and ECC on the $800,000 judgment; (3) denied Owner’s claims for attorney fees and prejudgment interest against Schwickert and ECC; and (4) ordered entry of final partial judgment under Minn. R. Civ. P. 54.02 to facilitate an immediate appeal.

AMCO appealed from the denial of its summary judgment motion against Owner, the grant of summary judgment dismissing its claims against Schwickert and ECC and the resulting partial judgments. Owner sought review of the denial of its motion for attorney fees and prejudgment interest. The court of appeals affirmed in part, reversed in part and remanded, holding that the principles of Schmidt do apply to first-party property insurance disputes but that Owner had failed to demonstrate that it gave adequate notice of intent to settle under Schmidt. The court set aside the Rule 68 judgment and the dismissal of AMCO’s subrogation claims against Schwickert and ECC and remanded all claims for trial. While acknowledging that it need not reach the issue, the court also held that Owner was not entitled to attorney fees or prejudgment interest on the Rule 68 judgment. See Schwickert v. Winnebago, 661 N.W.2d 680, 691 (Minn.App.2003).

I.

The district court certified the question of the applicability of Schmidt to Owner’s dispute with AMCO under its first-party property insurance. A certified question is a question of law which this court reviews de novo. Conwed Corp. v. Union Carbide Chems. & Plastics Co., 634 N.W.2d 401, 406 (Minn.2001); Dohney v. Allstate Ins. Co., 632 N.W.2d 598, 600 (Minn.2001). Construction of an insurance contract is also a legal issue subject to de novo review. Dohney, 632 N.W.2d at 600.

The question of whether Schmidt applies to first-party property insurance disputes, outside of the context of the No-Fault Act, is a matter of first impression. To date, Schmidt has only been applied to cases involving uninsured and underin-sured motorist insurance claims arising under the No-Fault Act. See, e.g., Malmin v. Minn. Mut. Fire Cas. Co., 552 N.W.2d 723, 724 (Minn.1996) (underinsured motorists); Employers Mut. Cos. v. Nordstrom, 495 N.W.2d 855, 855-56 (Minn.1993) (same).

In Schmidt, we considered the dilemma that is presented where the best settlement available to an insured with the tortfeasor is less than the liability limits of the tortfeasor’s policy but the insured’s policy contains an “exhaustion clause,” whereby underinsured motorist coverage is only available after the limits of the tortfeasor’s liability policy are exhausted. We held that “exhaustion clauses are void as against the policies of the no-fault act” and the “insured may recover underinsurance benefits where the total damages sustained (as determined by either arbitration or judgment) exceed the limits of the tort-feasor’s liability policy even where the insured settles with the tortfeasor for less than the liability limits.” 338 N.W.2d at 261. With respect to the insurer’s potential subrogation claim against the tortfea-sor, we adopted a procedure that balanced the right of the insurer to preserve its subrogation claim with the right of the insured to obtain full compensation. Giving more weight to the insured’s right to fall compensation, we held that if an insured gives the insurer 30-days notice of a tentative settlement agreement with the tortfeasor for an amount at or below the tortfeasor’s liability limits, the insurer must either pay the insured an amount equal to the tentative settlement, and thus preserve its subrogation rights, or waive its subrogation rights. Id. at 263.

Owner asks us to extend this procedure for resolving an insurer’s subrogation rights to first-party property insurance disputes. Schmidt, however, was grounded on the statutory policy of providing full compensation to injured persons under the No-Fault Act. We relied upon that policy to declare the insurer’s exhaustion clause void and to give greater weight to the insured’s right to compensation than to the insurer’s right to subrogation.

First-party property insurance claims, on the other hand, are not influenced by the public policies that underlie the No-Fault Act and are governed solely by the contract terms agreed to by the parties. Because there are no public policy considerations that would allow us to override the terms of the policy, we decline to add to or alter those terms by overlaying the Schmidt procedures on them. Accordingly, we answer the certified question in the negative.

II.

Owner argues that if Schmidt does not apply, then we should conclude that AMCO’s continued denial of coverage, from July 1999 until the Rule 68 offer of judgment was made in May 2002, was a material breach that relieved Owner of any obligation to protect AMCO’s subrogation rights. The Owner’s obligation to protect AMCO’s subrogation rights is described in the policy as follows:

Transfer of rights of recovery against others to us

1. If any person or organization to or for whom we make payment under this policy has rights to recover damages from another, those rights are transferred to us to the extent of our payment.
2. If we make a payment under this policy and the person or organization to or for whom payment is made recovers damages from another, that person or organization shall hold, in trust for us, the proceeds of the recovery and reimburse us to the extent of our payment. That person or organization must do everything necessary to secure our rights and must do nothing after loss to impair them.

AMCO argues that, by accepting the Rule 68 offer of judgment by the tortfeasors without AMCO’s consent, Owner breached its obligations to do “everything necessary to secure [AMCO’s] rights” and to do “nothing after loss to impair them.”

The district court and the court of appeals did not consider this issue except in the context of the Schmidt procedures. As noted earlier, the district court did consider AMCO’s defenses to coverage in two earlier orders that denied AMCO’s first summary judgment motion based on policy exclusions and its second motion based on policy time limitations for suit. But the court did not certify those questions for immediate appeal and they are not before us. Thus, we will assume for our discussion that AMCO’s denial of coverage was erroneous, but recognize that the district court’s decision on that issue is not ripe for review.

In Home Ins. Co. v. Nat’l Union Fire Ins. of Pittsburgh, we held that a third-party liability insurer’s erroneous denial of coverage and failure to defend the insured was a breach of contract that suspended the obligation of the insured to provide a notice that was otherwise required by the policy. 658 N.W.2d 522, 534 (Minn.2003) (citing Domtar, Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724, 740 (Minn.1997), which allowed recovery of attorney fees against a comprehensive general liability carrier that had breached the agreement by denying coverage, and Space Center, Inc. v. 451 Corp., 298 N.W.2d 443, 451 (Minn.1980), stating the general proposition that “a repudiating party cannot set up the other party’s subsequent nonperformance or a breach to avoid liability for its own prior total breach.”). This conclusion is consistent with the recognized contract principle announced in the Restatement (Second) of Contracts § 237 (1981), that the remaining duties of one party to a contract are conditioned on there being no previous “uncured material failure” by the other party.

Some jurisdictions have applied that principle to determine that the erroneous denial of coverage in third-party liability insurance relieves the insured of the obligation to protect the insurer’s subrogation rights and authorizes the insured to make a settlement with the tortfeasor without the consent of the insurer. See, e.g., Youell v. Grimes, 217 F.Supp.2d 1167, 1175 (D.Kan.2002) (officer’s and director’s liability insurance); Eureka Investment Corp. v. Chicago Title Ins. Co., 530 F.Supp. 1110, 1118-19 (D.D.C.1982) (title insurance). See also Great Divide Ins. Co. v. Carpenter, 79 P.3d 599, 609-10 (Alaska 2003) (holding that a settlement agreement by the insured with the tortfeasor without the consent of the insurer did not relieve the insurer of its obligations under a commercial general liability policy even where the insurer had provided a defense but materially breached the policy by unreasonably refusing to consent to the settlement).

An even greater number of jurisdictions have reached this same conclusion when an insurer makes an erroneous denial of uninsured or underinsured motorist coverage. See Fisher v. USAA Cas. Ins. Co., 973 F.2d 1103, 1107 (3d Cir.1992); Havanich v. Safeco Ins. Co. of America, 557 F.2d 948, 952 (2d Cir.1977); Stephens v. State Farm Mut. Auto. Ins. Co., 508 F.2d 1363, 1366 (5th Cir.1975); Calhoun v. State Farm Mut. Auto. Ins. Co., 254 Cal.App.2d 407, 411-12, 62 Cal.Rptr. 177 (1967); Andeen v. Country Mut. Ins. Co., 70 Ill.App.2d 357, 217 N.E.2d 814, 817 (1966); Sexton v. Cont’l Cas. Co., 816 P.2d 1135 (Okla.1991); Childs v. Allstate Ins. Co., 237 S.C. 455, 117 S.E.2d 867, 871 (1961).

In Stephens, the federal court provided a persuasive rationale for the conclusion that an uninsured motorist insurer that denies coverage has waived the policy provision requiring the insurer’s consent to any settlement between the insurer’s and a tortfeasor:

[Cjlaimant should not be required to approach his insurer, hat in hand, and request consent to settle with another when he has already been told, in essence, that the insurer is not concerned, and he is to go his way. It is difficult to see why an insurer should be allowed, on the one hand, to deny liability and thus, in the eyes of the insured, breach his contract and, at the same time, on the other hand, be allowed to insist that the insured honor all his contractual commitments. When the denied liability does not, in fact, exist, no harm can be done the insurer by the insured’s settlement with a third party. When the denied liability does exist (as may be later adjudicated), admittedly the subro-gation rights of the insurer could be compromised by settlement. However, in the case of existent, denied liability, the denial is a breach of contract on the part of the insurer and its breach should, by rights, relieve the insured of the punitive effects of his failure to comply with consent provisions of the insurance policy.

508 F.2d at 1366. See also 16 Lee R. Russ, Couch on Insurance, 224.148 (3d ed. 2000) (“[wjhere an insurer denies liability on a policy, it is estopped from thereafter claiming that it is released when the insured settled with the wrongdoer, or that the insured breached the policy’s subrogation provision, by impairing its subrogation rights, or extinguishing its subrogation rights”) and 224.152 (‘When by its own conduct an insurer places the insured at such a disadvantage that the insured must proceed against the tortfeasor in order to save himself or herself and does so, the insurer thereby waives its right to subro-gation. * * * An insurer’s failure to pay all of an insured’s claims resulted in waiver of the insurer’s claim that the insureds breached the subrogation clause by suing the tortfeasor and obtaining satisfaction of judgment.”).

Finally, courts in several other jurisdictions have likewise concluded that the erroneous denial of coverage for other first-party insurance likewise relieves the insured from the obligation to protect the insurer’s subrogation rights and authorizes the insured to reach a settlement with the tortfeasor without the consent of the insurer. See, e.g., Russell Gasket Co. v. Phoenix of Hartford Ins. Co., 512 F.2d 205, 209 (6th Cir.1975) (holding that first-party employee dishonesty insurer’s denial of coverage was a waiver of the claim that insured’s pursuit of the tortfeasor violated the insurer’s subrogation rights); Nat’l Mut. Ins. Co. v. Fincher, 428 N.E.2d 1386, 1391 (Ind.Ct.App.1981) (stating that first-party medical and disability insurer, who arbitrarily denied coverage, waived any claim that the insured’s settlement with the tortfeasors prejudiced the insurer’s subrogation rights); Community Title Co. v. Safeco Ins. Co., 795 S.W.2d 453, 462 (Mo.Ct.App.1990) (stating that once first-party fire insurer denied all coverage, insurer waived the contractual provisions requiring its consent to settle with the responsible parties even though such settlement might impair potential subrogation rights).

We are persuaded that these principles apply here. Thus, if AMCO’s denial of coverage was erroneous, such denial will have relieved Owner of the obligation to protect AMCO’s subrogation rights and will have authorized Owner to accept the Rule 68 offer of judgment without the consent of AMCO. In so concluding, we are mindful that an insurer such as AMCO must be allowed a reasonable time to investigate the claims of its insured before it can be found to have materially breached the contract by the denial of coverage. But the present facts show that AMCO had ample time to investigate Owner’s claims and even to have its coverage defenses determined by a declaratory judgment action if it did not want to be confronted with the prospect of a settlement between Owner and the tortfeasors.

Accordingly, we conclude that Owner’s acceptance of the Rule 68 offer of judgment was not a breach of its obligation to protect AMCO’s subrogation rights and we affirm the district court’s denial of AMCO’s third motion for summary judgment against Owner.

III.

AMCO argues that, notwithstanding the settlement and the release by Owner of Schwickert and ECC, AMCO’s subrogation claims against Schwickert and ECC should not have been dismissed because, if AMCO is ultimately required to pay for losses under its policy, it should be permitted to seek subrogation from Schwickert and ECC. But, as subrogee, AMCO is entitled to no greater rights against Schwickert and ECC than those that Owner possesses at the time AMCO asserts the claim. AMCO merely “steps in the shoes” of Owner. Employers Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490, 498 (Minn.1998). Generally, where an insured has provided a full release to the tortfeasor before the insured makes payment under the policy, the insured’s right of subrogation is eliminated. Great N. Oil Co. v. St. Paul Fire Marine Ins. Co., 291 Minn, at 99-100, 189 N.W.2d at 406-07.

As discussed above, if AMCO erroneously denied coverage, and persisted in that denial through months of litigation by Owner with the tortfeasor, AMCO’s denial relieved Owner of any obligation to protect AMCO’s subrogation interest and authorized Owner to make a settlement that eliminated AMCO’s subrogation rights. Again, we do not decide whether AMCO’s denial of coverage was erroneous. If it is ultimately determined that it was not erroneous, AMCO will have no liability to Owner and no need for subrogation. If it is ultimately determined that AMCO’s denial was erroneous, then AMCO will have waived its subrogation interest. Either way, dismissal of AMCO’s claims against Schwickert and ECC is appropriate.

Accordingly, we reverse the court of appeals decision to vacate the Rule 68 judgment. We reinstate that judgment and affirm the district court’s grant of summary judgment dismissing AMCO’s claims against Schwickert and ECC.

rv.

Owner cross-appealed to obtain review of its claim that attorney fees and prejudgment interest should have been awarded in addition to the $800,000 lump sum contained in the Rule 68 offer.

Attorney Fees

Recovery of attorney fees must be based on either a statute or a contract. See American Standard Ins. Co. v. Le, 551 N.W.2d 923, 927 (Minn.1996). Because no statutory basis exists for recovering attorney fees in this case, the only basis for recovery is under the terms of the Owner’s contract with Schwickert.

Rule 68 states that a party may make an offer of judgment for “a specified sum of money, with costs and disbursements then accrued,” but it does not define “costs and disbursements.” In Collins v. Minnesota School of Business, Inc., we allowed recovery of statutory attorney fees when the Rule 68 offer stated a lump sum of $200,000, “together with any costs and disbursements allowed by the District Court.” 655 N.W.2d 320, 322 (Minn.2003). Some of the claims that gave rise to the offer provided for statutory attorney fees and some did not. Id. at 327. We concluded that the drafters of the offer must “clearly express that attorney fees are included in the lump sum offer; otherwise, the offeree, if the underlying statute allows it, is entitled to recover attorney fees.” Id. at 330. Under the facts of that case, we concluded that statutory attorney fees were recoverable as “costs and disbursements” in addition to the lump sum amount. Id. at 329.

Here, the Rule 68 offer does not explicitly offer to add costs and disbursements to the lump sum amount. It simply offers “the amount of Eight Hundred Thousand Dollars ($800,000.00) and that judgment may be entered on that amount, if timely accepted, within ten (10) days after service of the offer.” The district court denied recovery of attorney fees on two grounds: first, because they were not mentioned in the offer and, second, because the Rule 68 offer “merges any prior contractual obligations Schwickert may have had, including the attorney fees provision in the Schwickert/Owner contract.” Schwickert relies on the contractual argument to distinguish Collins, where recovery of the fees was allowed by statute not by contract.

We interpret Schwickert’s Rule 68 offer to imply that costs and disbursements will be allowed in addition to the lump sum amount. Such implication is necessary to comply with Rule 68, which only permits an offer to “pay * * * a specified sum of money, with costs and disbursements then accrued.” But we agree with Schwickert that the most reasonable interpretation of its Rule 68 offer is that it was intended to resolve all claims under the contract, including contractual claims for attorney fees. Although we continue to urge all drafters of Rule 68 offers to avoid these disputes by stating whether the offer includes or excludes the payment of attorney fees in addition to the lump sum amount, we interpret this Rule 68 offer as one to resolve all claims for breach of contract and to implicitly include the claim for breach of the contractual provision for attorney fees as part of the lump sum.

Prejudgment Interest

The right to recovery of prejudgment interest, on the other hand, is statutory, not contractual. Prejudgment interest is governed by Minn.Stat. § 549.09, subd. 1 (2002), and is not affected by Rule 68. See Minn. R. Civ. P. 68 (2003) advisory committee notes (“Minn.Stat. § 549.09, subd. 1(1982), as amended by Minn. Laws 1983, ch. 399 (effective July 1, 1984), provides for recovery of prejudgment interest. Rule 68 does not affect the operation of that statute.”) Minn.Stat. § 549.09 provides, “when a judgment or award is for the recovery of money * * * interest from the time of the verdict, award, or report until judgment is finally entered shall be computed by the court administrator.” Minn. Stat. § 549.09, subd. 1 (2002) (emphasis added).

Owner sought recovery of prejudgment interest from both Schwickert and ECC. The district court denied recovery of prejudgment interest on the grounds that the Rule 68 offer did not state that it included prejudgment interest in addition to the lump sum amount offered. The court of appeals affirmed, holding that prejudgment interest was, in any event, not allowable because it was not “readily ascertainable by computation.” Schwickert, 661 N.W.2d at 690. The prejudgment interest statute does not require that the damages be readily ascertainable. See, e.g., Summit Court, Inc. v. Northern States Power Co., 354 N.W.2d 13, 16 (Minn.1984). Thus, the only question is whether the Rule 68 offer should be interpreted as including prejudgment interest in the lump sum. Because prejudgment interest is statutory, not contractual, the rule of construction followed in Collins seems most applicable. The failure of the Rule 68 offer to expressly include prejudgment interest in the lump sum offered means that prejudgment interest is separately recoverable against Schwickert and ECC as a cost and disbursement in addition to the lump sum.

In summary, we (1) reverse the court of appeals decision that Schmidt applies and answer the certified question in the negative; (2) affirm the district court’s denial of AMCO’s motion for summary judgment against Owner; (3) reverse the court of appeals decision to vacate the Rule 68 judgment and affirm the district court’s grant of summary judgment dismissing AMCO’s claims against Schwickert and ECC; and (4) affirm the denial of Owner’s claim for- attorney fees against Schwickert, but reverse the denial of Owner’s claims for prejudgment interest against Schwic-kert and ECC. The matter is remanded for determination of Owner’s prejudgment interest against Schwickert and ECC and for determination of Owner’s policy claims against AMCO. As to the latter, we do not decide whether AMCO’s denial of coverage was erroneous because that issue is not before us. Likewise, we do not decide what offset, if any, should be made for the small amount paid by AMCO for emergency services or the amounts recovered by Owner from Schwickert and ECC.

Affirmed in part, reversed in part and remanded.

      . Owner’s claim against AMCO was inappropriately styled as a third-party complaint because, under Minn. R. Civ. P. 14.01, a defendant may serve a third-party complaint against a person "who is or may be liable to the third-party plaintiff for all or part of the plaintiff's claim against the third-party plaintiff” and Owner's claim against AMCO alleges damages beyond the amounts claimed by Schwickert, including indemnification for architects, engineers, and attorney fees, business interruption losses, and environmental hazard abatement, construction, and other construction and repair/replacement costs and expenses. But AMCO did not object to the assertion of these claims by third-party complaint. Accordingly, we will proceed under the assumption that all issues concerning Owner’s claims against AMCO under the property insurance policy have been appropriately joined in this action.

      . There is some confusion as to whether uninsured and underinsured coverage should be regarded as first-party or third-party insurance. One treatise states: "You may accurately regard all forms of insurance (except liability insurance and perhaps uninsured motorist coverage) to be first-party insurance.” 1 Eric Mills Holmes, Appelman on Insurance § 3.2 (2d ed. 1996). We have consistently viewed uninsured and underinsured coverage as first-party insurance. See, e.g., Kelly v. State Farm Mut. Auto. Ins. Co., 666 N.W.2d 328, 330-31 (Minn.2003); Petrich v. Hartford Fire Ins. Co., 427 N.W.2d 244, 245-46 (Minn.1988); Myers v. State Farm Mut. Auto. Ins. Co., 336 N.W.2d 288, 291 (Minn.1983).

      . Owner raises the additional argument that AMCO has no subrogation rights because, under the policy, its rights only ripen when it has made "payment.” This requirement of payment is consistent with the common law principles of subrogation. See, e.g., American Family Mut. Ins. Co. v. Baumann, 459 N.W.2d 923, 925 (Minn.1990); Great N. Oil Co. v. St. Paul Fire Marine Ins. Co., 291 Minn. 97, 99, 189 N.W.2d 404, 406 (1971). Of course, it could be argued that an insurer has an inchoate right to subrogation before payment and, as noted above, must be allowed sufficient time to investigate the insured's claim before nonpayment may be used as a basis to defeat its subrogation rights. But given that reasonable time, the fact of nonpayment becomes relevant at the time that the insured is presented with an offer of settlement by the tortfeasor. Here, the only payment AMCO made prior to the Rule 68 offer was the one-time payment of $3,473 to Brennan Construction for emergency services. This minor payment would not eliminate AMCO's breach of contract or prevent Owner from reaching settlement with the tortfeasor. Whether this payment should be offset against Owner's remaining claims in the policy will need to be addressed on remand to the district court.


source: Caselaw Access Project

author: PAGE, Justice.

license: Public Domain

text:
    Brian Keith HOOPER, petitioner, Appellant, v. STATE of Minnesota, Respondent.
    No. A03-849.
    Supreme Court of Minnesota.
    May 27, 2004.

      Jeffrey C. Dean, Minneapolis, MN, for Appellant.
    Mike Hatch, Attorney General, St. Paul, MN, Amy Klobuchar, Hennepin County Attorney, Patrick C. Diamond, Assistant County Attorney, Minneapolis, MN, for Respondent.
   OPINION

PAGE, Justice.

In a jury trial before Hennepin County District Court Judge Patricia Kerr Kara-sov, Brian Keith Hooper was convicted of three counts of first-degree murder for the 1998 death of Ann Prazniak. Hooper was sentenced to three concurrent life sentences. Hooper’s direct appeal was stayed to allow him to seek postconviction relief based on his claim of newly discovered evidence. After Hooper was denied post-conviction relief, this court reinstated Hooper’s direct appeal and affirmed both his conviction and the postconviction court’s denial of relief. State v. Hooper, 620 N.W.2d 31, 40-41 (Minn.2000).

On March 11, 2003, Hooper filed a second petition for postconviction relief that was assigned to Judge Karasov. On March 28, 2003, Hooper’s counsel, Jeffrey Dean, filed a notice to remove Judge Kara-sov and wrote Hennepin County Chief Judge Kevin Burke a letter requesting that the matter be reassigned pursuant to the notice to remove. That same day, Dean met with the chief judge regarding the request for reassignment. On April 15, 2003, the chief judge wrote Dean a letter informing him that the matter would not be reassigned and that his choices were to either proceed with the postconviction proceeding before Judge Karasov or to file a motion to remove her for cause. On May 8, Judge Karasov denied Hooper’s petition for postconviction relief without an evidentiary hearing. On May 12, 2003, Hooper filed a motion to remove Judge Karasov for cause. By order filed June 19, 2003, the chief judge denied Hooper’s motion to remove Judge Karasov for cause. In the memorandum accompanying the order, the chief judge noted first that, under Minn. R. Crim P. 26.03, subdivision 13(4), “No notice to remove shall be effective against a judge who has already presided at the trial * * * except upon an affirmative showing of cause [on the part of the judge].” The chief judge went on to note that, because Judge Karasov presided at trial, Hooper was required to make an affirmative showing of cause, which he failed to do. Specifically, he noted that there were no facts suggesting that Judge Karasov’s “conduct revealed actual bias or the appearance of bias to such a degree that Petitioner was denied a fair hearing.”

In this appeal, Hooper makes four arguments: first, Judge Karasov did not have jurisdiction to decide the second petition for postconviction relief due to the pending notice to remove; second, the chief judge wrongly denied his motion to remove Judge Karasov; third, the postconviction court abused its discretion by denying his petition for a new trial based on newly discovered evidence and recanted trial testimony without conducting an evidentiary hearing; and, fourth, his due process and fair trial rights were violated by both the denial of a new trial and by the fact that a biased judge ruled on the second petition for postconviction relief. We affirm.

Our review of postconviction proceedings is limited to determining whether there is sufficient evidence to support the findings of the postconviction court. State v. Rainer, 502 N.W.2d 784, 787 (Minn.1993). We will not disturb those findings absent an abuse of discretion. Ferguson v. State, 645 N.W.2d 437, 446 (Minn.2002). In order to receive a new trial, the petitioner must establish by a preponderance of the evidence facts that would warrant re-opening the case. State v. Rhodes, 627 N.W.2d 74, 86 (Minn.2001). An evidentia-ry hearing is required “unless the petition and the files and records of the proceeding conclusively show that the petitioner is entitled to no relief.” Minn.Stat. § 590.04, subd. 1 (2002); see Ferguson, 645 N.W.2d at 446 (stating that a hearing is required when “facts [are alleged] that would, if proved by a fair preponderance of the evidence, entitle [one] to relief’).

I.

“No notice to remove shall be effective against a judge who has already presided at the trial, * * * except upon an affirmative showing of cause on the part of the judge.” Minn. R.Crim. P. 26.03, subd. 13(4). A postconviction proceeding is an extension of the criminal prosecution. Johnson v. State, 486 N.W.2d 825, 827 (Minn.App.), rev. denied (Minn. Aug. 27, 1992). Therefore, once the parties have already appeared before the judge, there is no automatic removal as of right in a postconviction proceeding. See id., 486 N.W.2d at 827-28.

Here, Judge Karasov presided at Hooper’s trial and first postconviction petition and was assigned the second petition. On March 28, 2003, Hooper filed a “Notice to Remove” Judge Karasov, using a form typically used by prosecutors to remove a judge as of right. That same day, Dean spoke with the chief judge, with counsel for the state present, in addition to writing the chief judge a letter requesting that the matter be reassigned pursuant to the notice to remove. According to the letter and an affidavit submitted by Dean, the basis for seeking Judge Karasov’s removal was bias on her part. On April 15, 2003, the chief judge wrote Hooper a letter informing him that he would not reassign the matter. The chief judge also informed Hooper that his only options at that point were to either proceed with the postconviction proceeding or to file a motion to remove Judge Karasov for cause. No motion to remove Judge Karasov for cause was forthcoming and on May 8, 2003, Judge Karasov denied Hooper’s petition for postconviction relief. On May 12, 2003, Hooper filed a motion to remove Judge Karasov for cause, which the chief judge denied on June 19, 2003. In denying the motion to remove for cause, the chief judge found that “there [were] no facts to suggest that Judge Karasov’s conduct revealed actual bias or the appearance of bias to such a degree that [Hooper] was denied a fair hearing.”

As indicated, Minn. R.Crim. P. 26.03, subd. 13(4), governs Hooper’s two notices to remove Judge Karasov. Under the rule, Hooper’s March 28, 2003, notice to remove was properly denied by the chief judge because Judge Karasov had presided at Hooper’s trial and there was no automatic right to remove her. We also conclude that Hooper’s May 12, 2003, motion to remove Judge Karasov for cause was properly denied. We reach that conclusion for two reasons: (1) the May 12, 2003, motion was not timely; and (2) we are satisfied that the conduct attributed to Judge Karasov does not reasonably support Hooper’s claim of actual judicial bias or the appearance of judicial bias.

The chief judge’s letter of April 15, 2003, put Hooper on notice that Hooper’s post-conviction petition was not going to be reassigned and his choices were to either proceed with the petition or move to have Judge Karasov removed for cause. More than three weeks later and almost two months after Hooper’s postconviction petition was filed, Judge Karasov denied the petition without a hearing. At the time, no motion to remove, either as of right or for cause, was pending. Thus, when Hooper’s May 12, 2003, notice to remove for cause was filed, it was not timely.

Normally, having concluded that Hooper’s motion to remove for cause was untimely, we would not address the merits of the motion. We choose, however, to do so here. A motion to remove for cause is committed to the discretion of the trial court and this court will reverse only for an abuse of that discretion. Uselman v. Uselman, 464 N.W.2d 130, 139 (Minn.1990). A motion to remove a judge for cause is procedural and is therefore governed by the rules of criminal procedure. State v. Azure, 621 N.W.2d 721, 724 (Minn.2001). Under the rules, “[n]o judge shall preside over a trial or other proceeding if that judge is disqualified under the Code of Judicial Conduct.” Minn. R.Crim. P. 26.03, subd. 13(3). The Code of Judicial Conduct provides that judges shall disqualify themselves “in [ ] proceeding^] in which [a] judge’s impartiality might reasonably be questioned.” Minn.Code Jud. Conduct, Canon 3(D)(1). While removal is warranted when the judge’s impartiality might reasonably be questioned, a petitioner’s subjective belief that the judge is biased does not necessarily warrant removal. State v. Laughlin, 508 N.W.2d 545, 548 (Minn.App.1993).

Hooper argues Judge Karasov was biased because she was angry that Hooper had filed an affidavit from an alternate juror with this court in which the alternate juror said that Judge Karasov stated that she thought the state did not have a case against Hooper. Dean contends that Judge Karasov’s anger is manifested by her hostile body language toward him and the fact that Judge Karasov would not discuss the matter with him at a social function.

Hooper’s motion to remove Judge Kara-sov for cause has little merit. In exercising his discretion in denying Hooper’s motion, the chief judge indicated that Judge Karasov’s refusal to discuss the matter may have been an effort to avoid a potentially inappropriate ex parte communication. In that Judge Karasov had presided at trial and any subsequent postconviction proceedings would likely be assigned to her, any ex parte communications with Dean discussing matters related to Hooper’s trial would have been inappropriate. Further, as the chief judge pointed out, other courts have concluded that the fact that a judge displays irritation toward or disapproval of counsel does not ordinarily justify disqualification. See Nat’l Union Fire Ins. Co. v. Cont’l Illinois Corp., 639 F.Supp. 1229, 1236 (N.D.Ill.1986) (noting that antipathy towards counsel is no reason for disqualification); see also In re Cooper, 821 F.2d 833, 844 (1st Cir.1987) (stating that judge’s statement indicating disapproval of counsel did not give rise to a question of partiality against the defendants personally). Therefore, on the record presented, we cannot conclude that the chief judge abused his discretion in denying Hooper’s motion to remove Judge Ka-rasov for cause.

II.

In order to obtain a new trial based on recanted trial testimony, a convicted defendant must satisfy the three-part test we adopted from the 7th Circuit Court of Appeals’ opinion in Larrison v. United States, 24 F.2d 82, 87-88 (7th Cir.1928), overruled by U.S. v. Mitrione, 357 F.3d 712, 718 (7th Cir.2004). State v. Caldwell, 322 N.W.2d 574, 584-85 (Minn.1982). Under that test, the following three prongs of Larrison must be established: “(1) the court must be reasonably well-satisfied that the trial testimony was false; (2) without the false testimony the jury might have reached a different conclusion; and (3) the petitioner was taken by surprise at trial or did not know of the falsity until after the trial.” Ferguson, 645 N.W.2d at 442. We have said that this last factor is not a precondition to granting a new trial. Id. at 445.

Hooper contends that witnesses Calvin King’s and Cardnel Brown’s recantations of their trial testimony entitle him to a new trial. At a minimum, he contends he is entitled to an evidentiary hearing to determine the issue. At trial, King testified that on April 9, 1998, he and Hooper bought drugs together at an apartment at 1818 Park Avenue South, in the same building that Prazniak’s apartment was located. King testified that Hooper proposed getting high in an apartment at the building, but that they went to King’s house instead. After getting high, Hooper told King he was glad they did not go to the place he had suggested because it smelled. According to King, Hooper then said, “Man, I did some f—ed up sh-t * * * I had to kill the motherf—er * * * Me and my girl * * * For real. A old bitch on top of it.” King testified that when he later saw Hooper at the Hennepin County Jail, Hooper told him that he was being held for a burglary connected to the crime he had told King about previously.

Hooper’s assertion that King recanted his trial testimony is based on an affidavit he submitted from Richard Virnig, an individual who accompanied Dean to an interview with King at the Hennepin County Adult Detention Center on July 2, 2001. According to Virnig’s affidavit, dated July 11, 2001, Dean told King that he did not believe King’s trial testimony was true and did not believe that Hooper ever told King that Hooper had anything to do with the murder. According to paragraph 6 of the affidavit, “Mr. King did not deny that his testimony implicating Hooper was untrue and at no time did Mr. King ever say his (Mr. King’s) testimony was true.” Paragraph 7 of the affidavit states, “Mr. Dean then stated to Mr. King that since Mr. King was not denying his testimony was untrue, it must not have been true. Mr. King nodded his head affirmatively, indicating to Mr. Dean that his testimony was not true.” Thus, the contention is that King’s nod of the head in response to Dean’s statement clearly indicates that King’s trial testimony was false. Finally, according to Virnig’s affidavit, King stated that he would provide a statement admitting his trial testimony was untrue once some pending charges against him were resolved. No such statement, however, is contained in the record before us.

The postconviction court applied the Larrison test to Hooper’s recantation claims. With respect to Virnig’s affidavit regarding King’s trial testimony, the post-conviction court indicated that none of the conversation set out in the affidavit “ha[d] King recanting his trial testimony or stating that his trial testimony was false.” Thus, the postconviction court was “not well-satisfied that King’s trial testimony was false.” The postconviction court, based on the evidence presented at trial, was also not satisfied that the jury would have reached a conclusion other than guilt even if King’s trial testimony had been excluded.

Generally, to “recant” means “to withdraw or renounce (prior statements or testimony) formally or publicly.” Black’s Law Dictionary 1274 (7th ed.1999). Here, King’s alleged recantation is based on nothing more than Virnig’s interpretation of King’s body language in response to Dean’s leading question, King’s failure to deny that his trial testimony was untrue, and King’s failure to say that his testimony was true. In our view, on these facts, King’s silence does not rise to the level of either formal or public withdrawal or renunciation of his trial testimony. Because King’s silence, on its face, does not rise to the level of a withdrawal or renunciation of his trial testimony, the first prong of the Larrison test has not been met. Therefore, we conclude that Hooper is not entitled to relief based on the alleged recantation of King’s trial testimony and hold that the postconviction court did not err when it denied Hooper relief without conducting a hearing with respect to King’s alleged recantation of trial testimony.

At trial, Brown testified about conversations he had with Hooper while they were both being held at the Hennepin County Workhouse in May of 1998. Brown testified that Hooper told him he was selling drugs and prostitutes out of Prazniak’s apartment. According to Brown, Hooper said that he and a “female associate” were roaming the hallway at 1818 Park when a woman came out to see what was going on and that he pushed the woman in the face, knocking her unconscious. Brown then testified that Hooper told him he wrapped the victim in bedding and plastic, placed her in a box, and put the box in the closet. In a sworn, handwritten affidavit, dated January 10, 2003, Brown stated that Hooper never admitted any role in or connection to Prazniak’s murder, that Hooper said he was getting high in the apartment and did not know there was a body in the apartment, and that Brown’s statement to the police and his testimony at trial were untrue.

In applying the Larrison test to Brown’s alleged recantation, the postcon-viction court noted that normally a hearing to assess the accurateness of the recantation would be required. The postconviction court found, however, that on the facts presented no hearing was necessary because, even without Brown’s testimony, the strength of the other evidence presented at trial was such that the jury would not likely have reached a different conclusion. Thus, the postconviction court concluded that Hooper was not entitled to relief based on Brown’s recantation because he failed to satisfy the second prong of Larri-son.

Hooper contends, relying on Ferguson v. State, that at a minimum he is entitled to an evidentiary hearing related to Brown’s recanted trial testimony. In Ferguson, the state’s key witness allegedly admitted to his father that his trial testimony implicating the defendant in the charged crime was false. 645 N.W.2d at 441. Noting that the allegedly false testimony was pivotal to the conviction and that, if proved false, the second prong of Larrison would be satisfied, we held that the appellant was entitled to an evidentiary hearing on the newly discovered evidence. Id. at 446. In contrast, we declined to grant any relief in Morgan v. State, 384 N.W.2d 458, 460 (Minn.1986), a case involving a key witness’s recanted trial testimony that went to the witness’s credibility as opposed to the defendant’s guilt. We concluded that there was other convincing evidence of the defendant’s guilt and, therefore, even without the witness’s recanted testimony the jury would not have reached a different conclusion. Id.

This case is distinguishable from both Morgan and Ferguson. Unlike Morgan, the recanted testimony went directly to Hooper’s guilt. Unlike Ferguson, however, the testimony was not pivotal to Hooper’s conviction. There was ample evidence independent of Brown’s testimony implicating Hooper in Prazniak’s murder.

Two witnesses, Lolita Fairley and Lucas James, both testified that Hooper confessed to them. Hooper, 620 N.W.2d at 36. Hooper’s statement to the police placed him in Prazniak’s apartment and his fingerprints were found on plastic bags and a beer can in the apartment. Id. at 34-35. Prazniak’s wrists, nose, and mouth were covered with tape similar to the tape that Chalaka Lewis, another of the state’s trial witnesses, testified Hooper made her tear off when they were alone in Prazniak’s apartment. Id. Also, the box containing Prazniak’s remains was wrapped in a string of Christmas lights. Id. at 34. This supports Lewis’s testimony that she picked up garbage, including Christmas lights, irom Prazniak’s bedroom after Hooper, who Lewis alleged was in the bedroom with the victim, left the bedroom, and told Lewis to clean it up. Id. at 35. Thus, we are satisfied that Hooper has failed to establish that, without Brown’s testimony, the jury might have reached a different conclusion. We therefore conclude that the postconviction court did not abuse its discretion in denying Hooper an evidentia-ry hearing on that basis.

III.

We next consider Hooper’s argument that the postconviction court abused its discretion by refusing to grant a new trial based on newly discovered evidence without conducting an evidentiary hearing. A new trial may be granted based on newly discovered evidence when: (1) the evidence was not known to the defendant or counsel at trial; (2) the failure to learn of the evidence before trial was not due to a lack of diligence; (3) the evidence is material, not merely impeaching, cumulative, or doubtful; and (4) the evidence will probably result in either an acquittal or a more favorable result for the defendant. Woodruff v. State, 608 N.W.2d 881, 888 (Minn.2000).

Hooper’s newly discovered evidence claim involves statements attributed to Vonda Quass in two affidavits submitted by Sara Gallagher, one of Hooper’s attorneys. These affidavits were a result of an interview that Gallagher, along with Dean, conducted with Quass at the Taycheedah Correctional Facility located in Fond Du Lac, Wisconsin, on January 24, 2003. At trial, Quass asserted her Fifth Amendment right against self-incrimination and did not testify. Hooper sought to introduce a videotape of an interview Quass gave to the police on May 4, 1998. In the interview, Quass admitted being in Prazniak’s apartment to smoke crack and recounted a conversation she had with a resident of 1818 Park about the foul odor in the building, from which she and the resident concluded Prazniak was dead in her apartment and that they should call 911. When the police asked Quass why she did not call 911, she responded, “That was two weeks after she died!” When asked how she knew when Prazniak died, Quass replied, “the whole building knew.” The state objected to admitting the videotape into evidence. In response, Hooper argued that Quass’s statements on the tape showed that she knew the date of Prazniak’s death, something only the killer would know. Ultimately, the court excluded the videotape of Quass’s police interview, concluding that Quass’s statements were irrelevant hearsay.

In his direct appeal, Hooper argued that the trial court improperly excluded Quass’s videotaped statement. Hooper, 620 N.W.2d at 38. In essence, Hooper claimed that Quass’s statement, “That was two weeks after she died!,” tended to show Quass knew the date of Prazniak’s death, information only the murderer or an accomplice would know, and that, as such, this statement should have been admitted as a statement against interest. Id. In evaluating this claim, we noted:

Quass did not admit to personal knowledge regarding Prazniak’s death or her murder in the videotaped interview conducted more than two weeks after police discovered Prazniak’s body. She referred to the smell in the hallways and a comment made to her by the “girl that lives next door to Lindsay,” but made no reference to timeframe, crime committed, or knowledge of any details of the crime. Importantly, she denied any involvement in the murder.

Id. Thus, we concluded that the trial court did not abuse its discretion in excluding Quass’s videotaped interview as irrelevant and not a statement against interest. Id. at 39.

In her first affidavit, dated January 29, 2003, Gallagher states that during the January 24, 2003, interview when she asked Quass about the murder and her relationship with Chalaka Lewis, Quass said, “we were lucky to have been charged only with burglary since we could have been charged with murder.” According to Gallagher, when asked to explain this statement, Quass said she remembered what happened the night of the murder as well as the fact that Lewis was living with Prazn-iak before Prazniak was murdered. When Gallagher asked Quass to explain how Prazniak died, Quass allegedly stated that Prazniak died on April 1, and that “Prazn-iak was probably duct taped and wrapped up in plastic bags while she was still alive.” Gallagher’s affidavit indicates that Quass admitted to staying in Prazniak’s apartment knowing that Prazniak was dead in the apartment and that Quass knew Prazn-iak was dead before her body was discovered “since the whole place smelled.” When Gallagher asked her why she would conclude that a bad odor meant that Prazniak was dead in her apartment, Quass allegedly altered her story, saying that she knew Prazniak was dead in the apartment because a neighbor told her so. When told that Prazniak’s neighbors had been calling the police about Prazniak’s whereabouts, Quass then said that she did not know how she knew that Prazniak was dead in her apartment. Quass then allegedly told Gallagher that she wanted to call 911 but was “too high on crack to make the call.” Paragraph 3 of Gallagher’s second affidavit, dated January 30, 2003, states, in reference to the January 24, 2003, interview with Quass, “At the beginning of our conversation, I stated that we did not believe that [ ] Hooper was guilty of Ms. Prazniak’s murder. By direct and indirect statements throughout the two hour interview [on January 24, 2003], Ms. Quass indicated that Mr. Hooper was not, in any way, connected with the murder of Ms. Ann Prazniak.”

With respect to Gallagher’s January 29 affidavit, the postconviction court found that “[t]he Petitioner fails to demonstrate how the information obtained in this interview as relayed in these affidavits is newly discovered or unique to Prazniak’s killer.” The court also found that Quass made no mention of Hooper in the affidavit, that Quass did not admit guilt on her part for Prazniak’s death, and that the information Quass provided on January 24 was just as “inconclusive, confusing, and unreliable” as the information she gave in her videotaped statement to the police. With respect to the January 30 affidavit, the postconviction court found the statement in paragraph 3 to be speculative and insufficient to support the grant of either an evidentiary hearing or a new trial.

Like the postconviction court, we also find the statements attributable to Quass in the two Gallagher affidavits to be “inconclusive, confusing, and unreliable.” While it is true that the statements attributed to Quass in the January 29 Gallagher affidavits contain statements that were not made in her earlier videotaped statement to the police, it is unclear how those statements are any more relevant than the ones we held on direct appeal to have been properly excluded. Importantly, the statements attributed to Quass in the affidavits neither contain any admission of guilt on Quass’s part nor do they exculpate Hooper. Indeed, they do not make any reference to Hooper. Because we agree with the posteonviction court that the statements attributed to Quass in the Gallagher affidavits are “inconclusive, confusing, and unreliable,” we conclude that Hooper’s claims concerning newly discovered evidence related to Quass are immaterial and doubtful and therefore fail the third prong of the test for granting a new trial based on newly discovered evidence. Woodruff, 608 N.W.2d at 888. Thus, we hold that the postconviction court did not err when it denied this claim without holding an evi-dentiary hearing.

Affirmed.

      . The facts of the underlying conviction are set forth in detail in the court’s opinion in State v. Hooper, and will be referenced in this opinion only as necessaiy to aid in the resolution of the issues presented in this appeal.

      . In addition to the issues raised, Dean has also filed a motion for sanctions, requesting that the state be sanctioned for making false and disparaging comments about him in its brief and for misrepresenting the record and the law to this court. Based on our review of the record and the parties’ briefs, we conclude that there is no basis to impose sanctions on the state and therefore deny Dean’s motion.

      . Because no motion to remove Judge Kara-sov was pending on May 8, 2003, there can be no question as to whether Judge Karasov had jurisdiction to rule on Hooper’s postconviction petition.

      . In light of our conclusion that the chief judge did not abuse his discretion in denying Hooper's motion to remove Judge Karasov for cause and our conclusion that the postconviction court did not abuse its discretion in denying Hooper’s claims without conducting an evidentiary hearing, Hooper’s claim that his due process and fair trial rights were violated by the fact that a biased judge ruled on his second petition for postconviction relief and by the denial of a new trial is rejected without further discussion.


author: /s/ James H. Gilbert Associate Justice

text:
    Steven G. AMUNRUD, Relator, v. ADVANCE UNITED EXPRESSWAY and MIGA/ASU Risk Management Services, Ltd., Respondents.
    No. A04-339.
    Supreme Court of Minnesota.
    May 27, 2004.
   ORDER

Based upon all the files, records and proceedings herein,

IT IS HEREBY ORDERED that the decision of the Workers’ Compensation Court of Appeals filed February 2, 2004, be, and the same is, affirmed without opinion. See Minn. R. Civ.App. P. 136.01.

BY THE COURT:

/s/ James H. Gilbert Associate Justice


author: PETERSON, Judge.

text:
    RIVER VALLEY TRUCK CENTER, INC., Appellant, v. INTERSTATE COMPANIES, INC., d/b/a Interstate Detroit Diesel, Respondent.
    No. A03-1273.
    Court of Appeals of Minnesota.
    May 25, 2004.

      Robert L. DeMay, Alison C. Archer, Leonard, Street and Deinard, P.A., Minneapolis, MN, for appellant.
    Lee A. Henderson, Lincolnshire, LLC, Minneapolis, MN, for respondent.
    Considered and decided by PETERSON, Presiding Judge; LANSING, Judge; and MINGE, Judge.
   OPINION

PETERSON, Judge.

Appellant River Valley Truck Center, Inc. (River Valley) is a sales/service dealer for trucks manufactured by International Truck and Engine Corporation (International) and for engines produced by Detroit Diesel Corporation (Detroit Diesel). Respondent Interstate Companies, Inc., d/b/a Interstate Detroit Diesel (Interstate), is the distributor of Detroit Diesel engines and parts in and around Minnesota. After International stopped offering Detroit Diesel engines in new International trucks, Interstate notified River Valley that its Detroit Diesel service dealership agreements would not be renewed.

River Valley brought this action under the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act (HUEMDA), contending that the nonre-newal was without good cause in violation of Minn.Stat. § 352E.0681 (2002). In this appeal from a summary judgment for Interstate, River Valley argues that (a) the district court erred because Interstate did not demonstrate it had “good cause” to nonrenew the dealerships; and (b) genuine fact issues exist, precluding summary-judgment. We affirm.

FACTS

Interstate’s principal business is selling and servicing diesel engines manufactured by Detroit Diesel. Jeffrey Caswell, Interstate’s president, stated in an affidavit:

3. In the engine business there is both an “on-highway” market and an “off-highway” market. In the on-highway market, engines are typically sold as part of another product—the truck— that is sold by a third party. That third party is either an original equipment manufacturer (“OEM”) or its dealer network. In this case International is the OEM and River Valley is part of International’s dealer network.
4. Medium duty trucks are your average delivery truck and heavy duty trucks are over-the-road trucks. Historically, medium duty trucks were sold like automobiles, as a complete package, engine included. Heavy duty trucks were more customized. The customer could choose from engines manufactured by as many as three or four different companies. The most common independent engines were those manufactured by Cummins Engine Company, Caterpillar, and Detroit Diesel Corporation. For many years International offered its customers the choice of all three of these engines.
5. In the off-highway market, the engine is typically used in an Industrial application (e.g.mining) at a specific location. Off-highway engines are sold through a mixture of direct sales and by OEM’s or a dealer network. This is a much different market environment than exists for on-highway sales.
6. Interstate does not sell new engines at retail, but rather sells to other businesses that either (a) use the engine in specific applications (i.e. transit buses or mining applications) or (b) serve as OEMs for products sold by third parties.
7. Interstate’s primary source of revenue is through service work and warranty work done on [Detroit Diesel] engines in all of these applications. Interstate does not do other types of repairs (i.e. body work, brake work, etc.), but limits its activities to the engine and Allison transmissions.
8. As part of its operations Interstate is authorized to establish a dealer network of businesses that can aid in the sales and service of [Detroit Diesel] engines. In the on-highway market, it has been a good business decision to encourage OEM dealers who offer [Detroit Diesel] engines in their product lines to become [Detroit Diesel] dealers. This relationship supports both the continuing sale of [Detroit Diesel] engines and the sale of replacement parts and service for those engines.

Any dealer for an OEM that offers Detroit Diesel engines as an option in its products is eligible to be a Detroit Diesel dealer. River Valley is a dealer for trucks manufactured by International, and, until October 2002, International offered the Detroit Diesel engine as an option in its trucks. River Valley operates International truck dealerships in New Ulm and Man-kato, Minnesota. River Valley’s Mankato operation has been an authorized overhaul dealer for two series of Detroit Diesel engines since 1994, and its New Ulm operation has been an authorized overhaul dealer for one Detroit Diesel engine series since 1997. An authorized overhaul dealer can perform all types of engine repair work, including replacement of individual internal parts and assemblies or subassem-blies, overhauling internal assemblies or subassemblies, and overhauling a complete engine. As a Detroit Diesel dealer, River Valley is authorized to perform warranty work on Detroit Diesel engines and to buy replacement parts at dealer pricing.

River Valley also operates an International truck dealership in Glencoe, Minnesota, and an independent truck service location in Faribault, Minnesota. The Glencoe and Faribault operations have never been authorized Detroit Diesel dealers. River Valley also operates a wholly owned subsidiary, River Valley Truck Rental and Leasing, Inc., that rents and leases a fleet of about 250 to 300 trucks. About 70% of those trucks contain Detroit Diesel engines. River Valley presented evidence that losing its status as an authorized Detroit Diesel dealer would have a significant negative financial impact on its business.

Caswell testified in a deposition that Interstate has “an indirect sales responsibility to position the customer to buy a Detroit Diesel engine over competitive models in that OEM’s truck.” To carry out that responsibility, Interstate will “[c]all on the OEM dealer, support their sales staff, call directly on the customer, help support in sales incentive packages to the customer.” Caswell stated in an affidavit that maintaining a population of products with Detroit Diesel engines in the field requires ongoing sales efforts by both Interstate and its dealers. Gerald Westman, River Valley’s chief executive officer, testified in a deposition that River Valley never promoted one engine over the other and that it did not matter to River Valley what engine a customer bought.

The parties stipulated that Interstate’s decision to not renew International truck dealers as Detroit Diesel authorized overhaul dealers resulted from International’s decision to drop the Detroit Diesel engine as an option on all new International trucks effective October 2002. The notice to River Valley stated that the reason for nonrenewal was because the dealership would no longer be able to meet the requirements of paragraph 2.2.1 of the dealership agreement. Paragraph 2.2.1 defines the sales and promotion responsibilities of a Detroit Diesel dealer:

Dealer shall actively and effectively promote the sale of Products and Parts to owners and users of Products and to other potential customers located in Dealer’s Area of Responsibility. Dealer shall also advertise and promote its Dealer Operations and shall participate in sales, service and parts promotional programs recommended by Distributor and shall utilize and display reasonable quantities of literature and materials promoting Products and Parts.
If Dealer represents an OEM, Dealer shall promote the sale, and maintain in stock an appropriate number of such OEM products equipped with Products.

“Products” is defined as “[n]ew or remanu-factured engines which are or have been marketed by or for Company or its predecessor and for which Dealer is appointed by Distributor under Paragraph FIRST of this Agreement.” “Parts” is defined as “[n]ew parts or remanufactured parts which are marketed by or for Company for use on, or in connection with, Products.” “Company” means Detroit Diesel, “Dealer” means River Valley, and “Distributor” means Interstate.

Caswell testified that he was unaware of any specific reason why River Valley could not continue to actively and effectively promote the sale of Detroit Diesel parts and replacement engines, either new or reman-ufactured, to current owners of Detroit Diesel engines. Caswell also testified that Interstate has never terminated an International dealership because the dealership sold virtually all of its trucks with non-Detroit Diesel engines. Interstate currently does not collect data on the number of new trucks equipped with Detroit Diesel engines that a dealership sells. River Valley presented evidence that there have been dealerships that have sold few new trucks equipped with Detroit Diesel engines.

In April 2002, International sent its dealers a memorandum regarding the transition to offering only Cummins and Caterpillar engines. The memorandum included strategies for successfully converting Detroit Diesel customers to Cummins or Caterpillar. International offered-training to help its dealers understand the advantages of an International truck with a Cummins engine.

Not all of Interstate’s authorized Detroit Diesel overhaul dealers are affiliated with an OEM. One such dealer is located in Minnesota, and counsel for River Valley stated in an affidavit that seven are located in Interstate’s territory. There are currently 53 International truck dealers in North America operating as authorized Detroit Diesel overhaul dealers despite the lack of an affiliation with any OEM that offers trucks equipped with Detroit Diesel engines. None of those dealers are located in Minnesota.

Interstate moved for summary judgment, and River Valley moved for a temporary injunction. The parties agreed that the district court should treat the motions as cross-motions for summary judgment, waived trial testimony, and submitted the case to the district court for decision on affidavits. Based on its conclusion that Interstate had good cause to refuse to renew River Valley’s dealership agreement, the district court denied River Valley permanent injunctive relief. The district court explained:

River Valley is an International truck dealership, selling vehicles that now come only with engines manufactured by Interstate’s competitors. Since April 2002 River Valley has undertaken its obligation to participate in driving Detroit Diesel out of business. Neither Interstate nor [Detroit Diesel] should be compelled to continue to sell parts at a discount or authorize warranty work to a business whose corporate objective is the economic elimination of Interstate and/or [Detroit Diesel] from the business world.

ISSUE

Did the district court err in concluding that Interstate had good cause to not renew River Valley’s dealership agreement?

ANALYSIS

Although the parties on appeal dispute the procedural posture of the case, the district court’s order shows that it decided this case as a matter of law. The district court’s order contains no factual findings, and the only facts stated in the district court’s accompanying memorandum are undisputed facts. Therefore, the appropriate standard of review is that applicable to a summary judgment.

On appeal from a summary judgment, this court must ask two questions: (1) whether there are any genuine issues of material fact in dispute; and (2) whether the district court erred in applying the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990). This court views the facts in the light most favorable to the party against whom judgment was granted and accepts as true the facts presented by that party. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn.1993). When the district court grants summary judgment based on the application of a statute to undisputed facts, the result is a legal conclusion, reviewed de novo by the appellate court. Lefto v. Hoggsbreath, Enters., Inc., 581 N.W.2d 855, 856 (Minn.1998).

The Minnesota HUEMDA provides:

No equipment manufacturer, directly or through an officer, agent, or employee may terminate, cancel, fail to renew, or substantially change the competitive circumstances of a dealership agreement without good cause. “Good cause” means failure by an equipment dealer to substantially comply with essential and reasonable requirements imposed upon the dealer by the dealership agreement, if the requirements are not different from those requirements imposed on other similarly situated dealers by their terms.

MinmStat. § 825E.0681, subd. 1 (2002). The equipment manufacturer has the burden of proving the existence of good cause to not renew a dealership agreement. See Midwest Great Dane Trailers, Inc. v. Great Dane Ltd. P’ship, 977 F.Supp. 1386, 1394 (D.Minn.1997) (stating that under HUEMDA, manufacturer must demonstrate good cause for any “substantial change” in conditions). The ultimate conclusion as to whether there was a violation of Minn.Stat. § 325E.0681, subd. 1, must be based on the specific facts of the case presented. See Astleford Equip. Co., Inc. v. Navistar Int’l Transp. Corp., 632 N.W.2d 182, 191 (Minn.2001) (in construing “substantial change of circumstances” under Minn.Stat. § 325E.0681, subd. 1, court stated that “the ultimate conclusion as to whether there was a violation of the statute must be based on the specific facts of the case presented” and “a court should engage in a case-by-case factual inquiry in reaching its ultimate conclusion of whether there has been a substantial change in the competitive circumstances”).

When interpreting a statute, the court must ascertain and effectuate the legislature’s intent. Minn.Stat. § 645.16 (2002). If a statute is ambiguous, an appellate court relies on the rules of statutory construction to determine and give effect to the legislature’s intent. In Re Estate of Nordlund, 602 N.W.2d 910, 913 (Minn.App.1999), review denied (Minn. Feb. 15, 2000). A statute is ambiguous if it is reasonably susceptible to more than one meaning. Am. Family Ins. Group v. Schroedl, 616 N.W.2d 273, 277 (Minn.2000).

The HUEMDA defines good cause as “failure by an equipment dealer to substantially comply with essential and reasonable requirements imposed upon the dealer by the dealership agreement, if the requirements are not different from those requirements imposed on other similarly situated dealers by their terms.” Minn. Stat. § 325E.0681, subd. 1. The statute then lists eight specific examples of good cause, which include a specified change in the ownership of the dealership that occurs without the equipment manufacturer’s consent, which shall not be unreasonably withheld; commencement of bankruptcy, dissolution, or liquidation of the dealer; change in the location of the dealer’s principal place of business; a default by the equipment dealer under a security agreement between the dealer and the equipment manufacturer or a revocation or discontinuance of a guarantee; abandonment of the business by the equipment dealer; the dealer’s conviction of a felony affecting the relationship between the dealer and manufacturer; the dealer’s engagement in conduct injurious or detrimental to the dealer’s customers; or “[t]he equipment dealer, after receiving notice from the manufacturer of its requirements for reasonable market penetration based on the manufacturer’s experience in other comparable marketing areas, consistently fails to meet the manufacturer’s market penetration requirements.” Id., subd. l(a)-(h).

None of the eight specific examples applies to this case. Thus, to show good cause, Interstate must show that River Valley failed to substantially comply with a requirement of the dealership agreement that is (1) essential; (2) reasonable; and (3) not different from requirements imposed on other similarly situated dealers. Id., subd. 1.

Paragraph 2.2.1 of the dealership agreement between Interstate and River Valley states:

Dealer shall actively and effectively promote the sale of Products and Parts to owners and users of Products and to other potential customers located in Dealer’s Area of Responsibility.... [.] If Dealer represents an OEM, Dealer shall promote the sale, and maintain in stock an appropriate number of such OEM products equipped with Products.

The definition of “Products” includes new and remanufactured engines. Interstate’s notice of nonrenewal states that the reason for nonrenewal is because River Valley would no longer be able to meet the requirements of this contract provision. Because River Valley, a dealer, represents International, an OEM, the last sentence of paragraph 2.2.1 requires that River Valley maintain in stock an appropriate number of International products equipped with Detroit Diesel engines. But because International decided to no longer offer Detroit Diesel engines as an option in its trucks, River Valley cannot maintain in stock International trucks equipped with Detroit Diesel engines.

River Valley argues that because all of the specific examples of good cause in Minn.Stat. § 325E.0681, subd. 1, relate to intentional conduct by the dealer, good cause cannot be based on conduct by a third party, in this case another manufacturer for which River Valley is a dealer, over which the dealer has no control. The general definition of good cause, however, does not require intentional noncompliance. See Minn.Stat. § 325E.061, subd. 1 (defining “good cause” generally). This court is prohibited from adding words to a statute and cannot supply what the legislature either purposely omitted or inadvertently overlooked. Ullom v. Indep. Sch. Dist. No. 112, 515 N.W.2d 615, 617 (Minn.App.1994).

River Valley also argues that construing good cause to include conduct over which the dealer has no control would be inconsistent with Minn.Stat. § 325E.0682(b)(4) (2002), which states:

It 'is a violation of sections 325E.068 to 325E.0684 for an equipment manufacturer to: ... attempt or threaten to terminate, cancel, fail to renew, or substantially change the competitive circumstances of the dealership agreement if the attempt or threat is based on the results of a natural disaster, a labor dispute, or other circumstance beyond the dealer’s control.

But Interstate’s attempt to fail to renew the dealership agreement is not based on circumstances beyond River Valley’s control. River Valley cannot maintain in stock International trucks equipped with Detroit Diesel engines because International decided to no longer offer Detroit Diesel engines as an option in its trucks, which is a circumstance beyond River Valley’s control. But River Valley could comply with paragraph 2.2.1 by no longer representing International. If River Valley did not represent International, it would not be required by paragraph 2.2.1 to maintain a stock of International trucks equipped with Detroit Diesel engines. Continuing to represent International is a circumstance within River Valley’s control.

River Valley also argues that construing good cause to include conduct over which the dealer had no control is inconsistent with Minn.Stat. § 325E.0681, subd. 2 (2002), which requires that, when a nonre-newal is based on the general good-cause definition or failure to meet requirements for reasonable market penetration, an equipment manufacturer must provide an equipment dealer at least 90 days’ prior written notice of nonrenewal of the dealership agreement to give the dealer an opportunity to cure a claimed deficiency. River Valley argues that construing good cause to include conduct over which a dealer has no control renders the notice-and-opportunity-to-cure provision meaningless. But Interstate gave River Valley the opportunity to cure the breach of the dealer agreement by establishing a relationship with another OEM that sells Detroit Diesel engines as part of its product offering. The fact that. River Valley was unsuccessful in establishing such a relationship is not equivalent to being denied the opportunity to do so.

River Valley urges this court to follow Arneson Distrib. Co. v. Miller Brewing Co., 117 F.Supp.2d 905, 910 (D.Minn.2000), and construe good cause as excluding third-party conduct. Miller Brewing involved construction of the Minnesota Beer Brewers and Wholesalers Act, which prohibits a brewer from terminating or not renewing an agreement with a wholesaler unless the brewer satisfies notice-and-opportunity-to-cure requirements, acts in good faith, and has good cause for termination or nonrenewal. Id. at 908. See Minn.Stat. § 325B.04 (2002) (stating conditions for terminating agreements). The examples of good cause set forth in the Beer Brewers and Wholesalers Act are similar to those in HUEMDA. Compare Minn.Stat. § 325B.04 (2002) with Minn. Stat. § 325E.0681, subd. 1.

Miller had purchased several beer brands from two brewing companies. 117 F.Supp.2d at 907. The plaintiffs had been distributors for some or all of the acquired brands under distribution agreements with the two brewing companies. Id. Miller wanted the plaintiffs to sign new distributor agreements, which the plaintiffs found objectionable, or their distributor rights would be terminated. Id. The Miller Brewing court determined that there was not good cause for termination, in part because the notice-and-opportunity-to-cure requirements of the Beer Brewers and Wholesalers Act would be rendered meaningless if the purported good cause for terminating or canceling a wholesaler agreement was outside the control of the wholesaler. Id. at 910. If the cause for termination was outside the wholesaler’s control, the wholesaler could not cure the cause even if given notice and an opportunity to do so. Id.

But, the Miller Brewing facts do not indicate that there was any claim that the wholesalers had breached the distributor agreements or that there was anything that the wholesalers could do, other than sign the objectionable agreements, to avoid nonrenewal. Id. at 907-910. That is not the case here. Therefore, we decline to follow Miller Brewing.

We conclude that good cause for nonrenewal of a dealership agreement under Minn.Stat. § 325E.0681, subd. 1, may be based on conduct by a third party that causes a dealer to fail to comply with the dealership agreement.

River Valley argues that the district court made no finding that it failed to comply- with the dealership agreement. But the district court stated:

River Valley is an International truck dealership, selling vehicles that now come only with engines manufactured by Interstate’s competitors. Since April 2002 River Valley has undertaken its obligation to participate in driving Detroit Diesel out of business. Neither Interstate nor [Detroit Diesel] should be compelled to continue to sell parts at a discount or authorize warranty work to a business whose corporate objective is the economic elimination of Interstate and/or [Detroit Diesel] from the business world.

We infer from this statement a finding that continuing to represent International after it decided to no longer offer Detroit Diesel engines as an option in its trucks and complying with International’s directive to promote the sale of Cummins and Caterpillar engines to customers, including existing Detroit Diesel customers, breached paragraph 2.2.1 of the dealership agreement between River Valley and Interstate.

The evidence regarding River Valley’s breach of the dealership agreement and Interstate’s decision to not renew its dealership agreement with River Valley is undisputed. As the district court concluded, the sale of Detroit Diesel engines is essential to Interstate’s continued existence. Therefore, as a matter of law, it is reasonable for Interstate to require its dealers who represent an OEM to promote the sale of and maintain in stock OEM products equipped with Detroit Diesel engines. Although Interstate did not enforce paragraph 2.2.1 by imposing quotas or requiring specific sales promotions, the provision contemplates at a minimum that it will be an option for a dealer to equip an OEM’s products with Detroit Diesel engines. International’s discontinuance of the Detroit Diesel engine as an option for new International trucks made it impossible for River Valley to represent International and comply with paragraph 2.2.1.

Good cause for nonrenewal also requires that the requirement of the dealership agreement be consistently imposed on other similarly situated dealers. Minn. Stat. § 325E.0681, subd. 1. Interstate is not renewing its dealership agreement with River Valley because River Valley’s representation of International prevents compliance with paragraph 2.2.1. River Valley argues that other International dealers continue to serve as Detroit Diesel dealers and cites Detroit Diesel dealer listings showing 53 International dealers across the United States who continue to operate as Detroit Diesel dealers. But paragraph 2.2.1 is part of a dealership agreement between River Valley and Interstate, and the defendant in this case is Interstate, not Detroit Diesel. The Detroit Diesel dealer listings that River Valley cites do not indicate that any of the 53 International dealers has a dealership agreement with Interstate. Under the HUEMDA, “ ‘equipment manufacturer’ means a person, partnership, corporation, association, or other form of business enterprise engaged in the manufacturing, assembly, or wholesale distribution of heavy and utility equipment.” Minn.Stat. § 325E.068, subd. 3 (2002) (emphasis added). Therefore, as a wholesale distributor, Interstate meets the definition of “equipment manufacturer,” and the requirements of Minn.Stat. § 325E.0681, subd. 1, apply to Interstate and its dealers. The evidence that River Valley cites does not create a fact issue as to whether Interstate consistently imposed the requirements of the dealership agreement on its similarly situated dealers.

We conclude that, as a matter of law, good cause existed for Interstate to not renew its dealership agreement with River Valley.

DECISION

The district court properly granted summary judgment for Interstate.

Affirmed.