author: LANSING, Judge.

text:
    FIN AG, INC., Respondent, v. HUFNAGLE, INC., f/k/a P & H Trucking, et al., Defendants, Kent Meschke Poultry Farms, Inc., Appellant.
    No. A04-2176.
    Court of Appeals of Minnesota.
    July 19, 2005.

      Jon R. Brakke, Vogel Law Firm, Fargo, ND, for respondent.
    Britton D. Weimer, Blackwell Igbanugo, P.A, and John G. Berg, Minneapolis, MN, for appellant.
    Considered and decided by LANSING, Presiding Judge; STONEBURNER, Judge; and MINGE, Judge.
   OPINION

LANSING, Judge.

The district court granted summary judgment for a secured creditor on its claim against a commercial buyer of farm products for conversion of its security interest in farm products. In this appeal, the buyer challenges the secured creditor’s capacity to sue under Minn.Stat. § 303.20 (2004), asserts that the buyer takes free of the secured creditor’s interest under the Food Security Act (FSA), and claims that the secured creditor did not properly perfect its interest when it misfiled its financing statements. Because we conclude that the buyer’s challenge to the secured creditor’s capacity to sue has both procedural and evidentiary deficiencies, that the secured creditor satisfied an exception that preserves its security interest under the FSA, and that the secured creditor falls within the good-faith exception for misfiling its UCC financing statement, we affirm the district court’s judgment but remand to the district court for determination of a motion ancillary to this appeal.

FACTS

Larry Buck is a farmer in Itasca County who raises crops, including corn' and beans, for sale. To obtain financing for his farming operation, Buck signed a promissory note and security agreement with Fin Ag, Inc. in April 1999. As collateral, Buck granted Fin Ag a security interest in, among other things, his crops and farm products.

From the fall of • 1999 through 2000, Buck sold his 1999 crops to several buyers, including Kent Meschke Poultry Farms, Inc. Meschke issued checks during this same time period to Mickey Buck, Ryan Buck, Mark Tooker, and Paul Zuk for the purchase of corn. Mickey and Ryan Buck are Buck’s minor children, and Buck concedes that he was selling crops in their names. Tooker and Zuk were employees of Buck. It is the checks that Meschke issued to Tooker, Zuk, and the two Buck children for the corn purchases that are at the center of this litigation.

Buck encountered financial difficulty and was unable to pay the balance of the loan. Fin Ag and Crop Production Services, Inc. (CPS), another financing corporation with a secured interest in Buck’s crops, litigated the priority of their conflicting security interests. The district court granted partial summary judgment in favor of CPS, concluding that its interests had priority over Fin Ag’s.

Fin Ag sued Meschke and other purchasers of Buck’s crops, seeking to enforce its security interest in the crops. Fin Ag moved for summary judgment. Meschke opposed the motion, asserting that, as a South Dakota corporation transacting business in Minnesota, Fin Ag could not maintain an action without a certificate of authority and that, under the FSA, Meschke was entitled to take the corn free of Fin Ag’s interest. The district court granted Fin Ag’s motion and ordered Meschke to pay Fin Ag $45,573.09 in damages. Meschke now appeals.

ISSUES

I. Has the farm-product buyer satisfied procedural and evidentiary requirements to create a disputed issue of material fact under Minn.Stat. § 303.20 (2004) on whether the secured creditor, a foreign corporation, has the capacity to sue in Minnesota courts?
II. Does a buyer who purchases a farm product in the ordinary course of business take free of a secured creditor’s interest under the Food Security Act when it receives notice of the interest from the secretary of state and does not obtain waiver of the interest?
III. If a party files its UCC financing statement in the wrong county in good faith, is its security interest nonetheless enforceable against a party with actual knowledge of the security interest?

ANALYSIS

On appeal from summary judgment, we determine whether there are any genuine issues of material fact and whether the district court erred in its application of the law. Funchess v. Cecil Newman Corp., 632 N.W.2d 666, 672 (Minn.2001). In assessing the evidence, we view it in the light most favorable to the party against whom judgment has been granted. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn.1993). Our review of a summary judgment based on the application of statutory provisions to undisputed facts is de novo. Wiegel v. City of St. Paul, 639 N.W.2d 378, 381 (Minn.2002).

I

A foreign corporation that transacts business in Minnesota may not maintain an action in Minnesota courts unless it has obtained a certificate authorizing the transaction of business. MinmStat. § 303.20 (2004). Fin Ag, incorporated under the laws of South Dakota, is a foreign corporation. Fin Ag concedes that it has not obtained a certificate of authority to do business in Minnesota, but contends that Meschke’s challenge has both procedural and evidentiary defects because Meschke did not assert the lack of capacity as a defense in its pleadings and because Meschke has not shown that the extent of Fin Ag’s activities in Minnesota require it to obtain a certificate of authority. The district court rejected Meschke’s challenge but did not indicate the basis for its rejection.

We first consider whether Meschke procedurally waived its objection by failing to assert it in its answer. Meschke claims that Fin Ag’s failure to obtain a certificate to transact business in compliance with Minn.Stat. § 303.20 deprives Fin Ag of standing and divests the court of subject-matter jurisdiction. We disagree. The certificate-of-authority requirement regulates a foreign corporation’s ability to maintain a cause of action in Minnesota. Minn.Stat. § 303.20. Subject-matter jurisdiction governs a court’s authority to consider an issue and standing implicates a party’s ability to bring a particular cause of action, but the “right to maintain an action” relates to the capacity to sue. Cochrane v. Tudor Oaks Condo. Project, 529 N.W.2d 429, 433-34 (Minn.App.1995), review denied (Minn. May 31, 1995).

Unlike challenges to standing and subject-matter jurisdiction, a challenge to a litigant’s capacity to sue is waivable. See id. (observing that “the right to challenge capacity to sue is waived if not timely asserted”). Failure to challenge in the answer a plaintiffs capacity, without subsequent amendment of the pleading, may result in a waiver of the issue. See Minn. R. Civ. P. 9.01 (restricting capacity-to-sue challenge to negative averment in pleadings), 12.02 (requiring assertion of defenses in responsive pleading); Risvold v. Gustafson, 209 Minn. 357, 361, 296 N.W. 411, 413 (1941) (noting that challenge to foreign corporation’s capacity to sue is waived if not raised in answer); Lehigh Valley Coal Co. v. Gilmore, 93 Minn. 432, 434, 101 N.W. 796, 797 (1904) (requiring that challenge to capacity be raised in pleadings). Meschke’s failure to challenge Fin Ag’s capacity to sue in its answer or to seek amendment provides a sufficient basis for the district court’s rejection of Mesch-ke’s request to dismiss for failure to comply with the requirement to obtain a certificate of authority.

The record also provides an evidentiary basis for rejecting Meschke’s argument that Fin Ag lacked capacity to sue. Meschke failed to present adequate evidence to support its claim that Fin Ag does not fall within an exception for foreign corporations that participate in limited or particular types of transactions in Minnesota. See Minn.Stat. § 303.03 (2004) (listing activities that qualify as exceptions to certificate-of-authority requirement). Fin Ag asserts that its limited activities of making loans and collecting on these loans qualify under Minn.Stat. § 303.03 as an exception to the certificate-of-authority requirement. This exception provides that a “foreign corporation shall not be considered to be transacting business in this state ... solely by reason of carrying on” the activities of issuing loans and collecting them. Minn.Stat. § 303.03(f), (g). Because Meschke failed to present evidence that created a disputed issue of material fact that Fin Ag’s activities in Minnesota exceeded this exception, the record fails to demonstrate an evidentiary as well as a procedural basis that can withstand summary judgment, and we affirm the district court’s ruling on this issue.

II

The UCC, as adopted in Minnesota and other states, permits buyers in the ordinary course of business to take free of a secured interest created by the seller. Minn.Stat. § 336.9-307 (1998); U.C.C. § 9-307 (1972). The version of the UCC in effect at the time of Meschke’s transaction, however, included an exception for farm products, which mandated that a buyer of farm products still took subject to the secured interest. U.C.C. § 9-307; Mark V. Bodine, Clear Title: A Buyer’s Bonus, A Lender’s Loss-Repeal of UCC § 9-307(1) Farm Products Exception by Food Security Act § 1324 7 U.S.C. § 1631, 26 Washburn L.J. 71, 74 (1986) (observing that UCC, prior to its revision, did not permit buyer of farm products to take free of secured interest). The farm-products rule, or farm-products exception, varied from state to state and often resulted in buyers paying twice for the goods: once to the farmer and again to the farmer’s creditor. See Charles W. Wolfe, Comment, Section 1324 of the Food Security Act of 1985: Congress Preempts the “Farm Products Exemption” of Section 9-307(1) of the Uniform Commercial Code, 55 UMKC L.Rev. 454, 456 (1987) (discussing problems with farm-products exceptions and purposes behind FSA).

To provide uniformity in the laws governing secured transactions in farm products, Congress, in 1985, passed the Food Security Act (FSA), which has remained substantially unchanged since its enactment. 7 U.S.C. § 1631 (1999 & Supp. 2005); Bodine, supra, at 79. The FSA was designed to prevent buyers of farm products from paying twice. 7 U.S.C. § 1631(a)(2) (2004) (stating congressional findings justifying passage of statute); AG Servs. of Am., Inc. v. United Grain, Inc., 75 F.Supp.2d 1037, 1042 (D.Neb.1999). The FSA specifies when a farm-product buyer takes free of a seller’s security interest:

Except as provided in subsection (e) and notwithstanding any other provision of Federal, State, or local law, a buyer who in the ordinary course of business buys a farm product from a seller engaged in farming operations shall take free of a security interest created by the seller, even though the security interest is perfected; and the buyer knows of the existence of such interest.

7 U.S.C. § 1631(d).

The FSA expressly preempts the farm-product rule in every state and, subject to certain exceptions, permits a buyer to take free of the secured creditor’s interest regardless of whether the interest was perfected or whether the buyer knew of the interest. See Wolfe, supra, at 463-64 (explaining that clear language of FSA and its legislative history show that it preempts section 307 of UCC Article 9 and state law related to security interests in farm products). The FSA sets forth a series of exceptions to this general rule in subsection (e).

Because of the complexity of the preemption provisions and the resulting interaction between the FSA and the UCC, it is necessary to proceed through several layers of analysis to determine whether summary judgment was proper. The threshold determination is whether the FSA applies. If the FSA applies, we must then determine whether Fin Ag falls within an exception that would continue to protect Fin Ag’s interest by making Meschke’s corn purchases subject to Fin Ag’s security' interest. Finally, if an exception applies, we then consider the validity of the security interest under Minnesota law. See Minn.Stat. § 336A.05 (2004) (stating that “[filling under this chapter [Farm Product Liens and Financing Statements] does not affect the perfection or priority of security interests filed under the Uniform Commercial Code”).

Whether Meschke’s purchase of the corn falls within the scope of the FSA hinges on whether Meschke is a buyer in the ordinary course of business and whether the corn is a farm product. Under the FSA, “a person who, in the ordinary course of business, buys farm products from a person engaged in farming operations who is in the business of selling farm products” is a buyer in the ordinary course of business. 7 U.S.C. § 1631(c)(1). The FSA defines farm product as “an agricultural commodity such as wheat, corn, soybeans, or a species of livestock ... used or produced in farming operations ..that is in the possession of a person engaged in farming operations.” 7 U.S.C. § 1631(c)(5). Thus, the FSA applies to the transactions at issue if someone engaged in farming operations possessed the corn that Meschke purchased.

Because neither the FSA nor Minnesota’s implementation statute define possession, ive examine the term’s meaning under Minnesota property law. When a property owner intentionally gives direct physical control of the property to another party for the purpose of having him do some act for the owner, the owner retains constructive possession of the property. Jacobson v. Aetna Cas. & Sur. Co., 233 Minn. 383, 388, 46 N.W.2d 868, 871 (1951). And “the party to whom bare physical control of the property has been entrusted for the owner’s purpose does not have possession but only custody.” Id.; see also First Nat’l Bank v. Lamoni Livestock Sales Co., 417 N.W.2d 443, 447-48 (Iowa 1987) (concluding that possession in context of defining “farm products” means ownership); Goodrich Silvertown Stores v. Collins, 167 Or. 40, 115 P.2d 332, 335 (1941) (determining that temporary custody of property does not amount to possession, which requires additional right of proprietorship). Therefore, a party must have more than temporary custody to have possession of the property.

Meschke acknowledges that Buck was engaged in farming operations but asserts that a genuine issue of material fact exists on possession because the evidence is disputed on whether Buck possessed the corn that Meschke purchased. A genuine issue of fact may only be established by “substantial evidence.” Murphy v. Country House, Inc., 307 Minn. 344, 351, 240 N.W.2d 507, 512 (1976) (quotation omitted). Evidence meets the “substantial” standard when it “sustains,¡with equal justification, two or more reasonably inconsistent inferences.” E.H. Renner & Sons, Inc. v. Primus, 295 Minn. 240, 243, 203 N.W.2d 832, 835 (1973). No genuine issue of material fact exists, however, “when the nonmoving party presents evidence which merely creates a metaphysical doubt as to a factual issue and which is not sufficiently probative with respect to an essential element of the nonmoving party’s case to permit reasonable persons to draw different conclusions.” DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (Minn.1997).

The evidence is undisputed that Buck grew the corn that was sold to Meschke, that Meschke had repeatedly bought corn from Buck during the same time period that it purchased the corn for which it paid Buck’s children and employees, and that Meschke had previously issued joint checks to Buck and Fin Ag for its purchases from Buck. Meschke presented two affidavits and cancelled checks as evidence to establish that someone other than Buck possessed the corn.

The checks, drawn on Meschke’s account, are payable to Buck’s two children and his two employees. The checks have limited probative value on the issue of possession, and that value is significantly diminished by the fact that the checks were signed over to Buck and deposited in Buck’s bank account. The affidavits also lack significant probative value. Mesch-ke’s affidavit states that “persons delivering the corn” told Meschke or his employees that they owned the grain. Meschke’s belief about who owned the corn, although potentially related, to notice, does not determine possession for purposes of FSA application. Furthermore, any probative value is severely limited in light of Buck’s previous sales relationship with Meschke, the familial and employment relationships of the supposed “sellers,” and the youth of Buck’s children, one of whom was about five years old at the time of sale. This evidence is also diminished by Buck’s admission that he sold crops in the name of his children, indicating that he retained ownership and constructive possession of the corn. At most, the children and employees had temporary custody of the corn for the purposes of delivering it to Mesch-ke; this involvement does not rise to the level of possession. Meschke’s only remaining evidence to demonstrate disputed possession is Buck’s affidavit, in which Buck asserts that he transferred beans to his employees in exchange for their services. But the only produce at issue in this appeal is corn; any transfer of beans does not establish possession of the corn.

Meschke’s evidence is not sufficiently probative of possession to establish the existence of a triable issue on whether someone other than Buck possessed the corn. Therefore the district court properly concluded that the FSA applies. Under the FSA Meschke takes free of Fin Ag’s interest unless Fin Ag falls within one of the listed exceptions.

The listed exceptions under subdivision (e) differentiate between states that have implemented a direct-notice system and those that have created a central filing system. 7 U.S.C. § 1631(e)(1)-(3). Subdivision (e) includes two exceptions for states with centralized filing systems. Minnesota has enacted a centralized filing system implementing legislation consistent with the FSA. Minn.Stat. §§ 336A.01-.16 (2004). Therefore, either the exception in subsection (e)(2) or (e)(3) may apply, and we examine each in turn.

Subsection (e)(2) provides that a buyer takes subject to a secured interest if two conditions are met: the secured party files an effective financing statement (EFS), and the buyer fails to register with the secretary of state before purchasing the farm product. 7 U.S.C. § 1631(e)(2). Although the use of the term “financing statement” invites a connection to the financing statements required under the UCC, an EFS under the FSA is a distinct filing requirement. See Minn.Stai § 336A.0B, subd. 2(c) (“The effective financing statement and lien notice may not be combined with a Uniform Commercial Code financing statement form.”); see also Linda J. Rusch, Farm Financing Under Revised Article 9, 73 Am. Bankr.L.J. 211, 246 (1999) (observing that requirements of FSA and UCC are distinct and that perfection of interest under UCC does not satisfy FSA’s notice requirements).

In Minnesota, a secured creditor must file an EFS with the secretary of state to enforce its interest. See 7 U.S.C. § 1631(c)(2), (4) (requiring creditor in state with centralized filing system to file with secretary of state); see also Minn.Stat. § 336A.04 (requiring creditor to file EFS with secretary of state). The secretary of state then assembles a database that includes the debtor, the farm product, and the contents of any filed EFS. 7 U.S.C. § 1631(c)(2) (1999 & Supp.2005). This information is sent to any registered buyer who has an interest in the farm product. 7 U.S.C. § 1631(c)(2)(E).

The record indicates that Fin Ag filed an EFS with the secretary of state on May 28, 1999. The record also indicates that Meschke properly registered with the secretary of state as a buyer. In its affidavit, Meschke states that the secretary of state provides it with records of the central filing system “as a registered grain buyer.” This evidence is sufficient to establish that Fin Ag cannot rely on the exception in subsection (e)(2).

Under subsection (e)(3), a buyer takes subject to a secured interest if the buyer (1) receives notice from the secretary of state that identifies the seller and specifies that the farm product is subject to a secured interest and (2) does not secure a waiver by the secured party before performing any payment obligation. 7 U.S.C. § 1631(e)(3). Nothing in the record supports a claim that Meschke obtained a waiver of Fin Ag’s interest before issuing payment.

The remaining question is whether Meschke received notice from the secretary of state that Fin Ag had a secured interest in Buck’s corn. Meschke’s affidavit indicates that it received records and updates from the secretary of state pertaining to documents in the centralized filing system. Because Fin Ag properly filed an EFS with the secretary of state, Meschke, as a registered buyer, presumptively received a record of Fin Ag’s interest in Buck’s crops.

Notably, Meschke does not deny having knowledge of Fin Ag’s interest in Buck’s crops or receiving records from the secretary of state. Instead, the record shows that Meschke had repeatedly issued checks to both Fin Ag and Buck as copay-ees, which reflects its awareness that Fin Ag had a secured interest in crops owned by Buck. Consequently, subsection (e)(3) applies to the secured interest, which means that the general rule that the buyer takes free of the secured interest created by the seller does not apply, and Mesch-ke’s purchase of the corn is subject to Fin Ag’s security interest in Buck’s crops.

Because Fin Ag has established that it falls within one of the exceptions, Meschke is not entitled to take free of Fin Ag’s valid security interest. The only remaining issue therefore is whether Fin Ag has a valid security interest that was properly perfected under Minnesota law. See Bodine, supra, at 93-94 (explaining that because UCC rules governing perfection and notice are unchanged, secured party must still perfect its interests under UCC to have enforceable interest).

m

To perfect a security interest, a party must file a UCC financing statement at the required filing location. Minn.Stat. § 336.9-401 (1998 & Supp.1999). We apply the law in effect at the time of the transaction at issue. See Farm Credit Bank v. Ahrenstorff, 479 N.W.2d 102, 104 (Minn.App.1992) (observing that, in absence of clearly manifested intent to apply statute retroactively, court should analyze case under law in effect at time of transaction).

Under Minnesota law as it existed in 1999, the required place of filing depends on the nature of the collateral as well as the identity and residence of the debtor. Minn.Stat. § 336.9-401. When the secured goods are farm products, the statute requires filing in the county of the debtor’s residence if the debtor is an individual or organization residing in Minnesota. Minn.Stat. § 336.9-401(l)(b). Good-faith filing in an incorrect location is effective against any person who had knowledge of the contents of the financing statement. Minn.Stat. § 336.9^01(2).

Under the UCC, a buyer has notice, or actual knowledge, for purposes of the good-faith exception when the buyer has knowledge of the critical information of a properly filed UCC financing statement. D & R Star, Inc. v. World Bowling, Inc., 619 N.W.2d 772, 776 (Minn.App.2000). “This critical information includes a general description of the collateral encumbered, and the names and addresses of the debtor and secured party.” Id.

Fin Ag asserts that Meschke waived the issue of whether Fin Ag filed in an incorrect filing location because it did not raise it in opposition to summary judgment, but Meschke did raise the issue in its oral argument opposing the summary-judgment motion. We consider this discussion sufficient to permit review because the issue was argued by the litigants and considered by the district court.

Fin Ag filed its UCC statements in Hubbard County and Wadena County, and with the secretary of state. Fin Ag, however, did not file in Buck’s county of residence, Itasca County. While Fin Ag undeniably filed in an incorrect county, Meschke has not disputed that Fin Ag acted in good faith, and no evidence suggests a lack of good faith. If Meschke had notice of Fin Ag’s interest in the corn before purchasing it, Fin Ag’s claim was perfected under Minnesota law.

Copies of checks issued to Buck and Fin Ag as copayees indicate that Meschke was aware that Fin Ag had an interest in Buck’s crops, including the corn. In addition, Meschke’s affidavit stating that it was a registered buyer reasonably supports a dispositive inference that Meschke received EFS records from the secretary of state. These records establish Fin Ag’s interest in Buck’s crops. In light of the transactions with Buck, the age of the dependent children, and the absence of evidence that someone other than Buck owned the corn, Meschke cannot reasonably disclaim notice or knowledge of Fin Ag’s interest. Because Fin Ag’s misfiling of the UCC financing statement was in good faith and Meschke’s prior dealings with Buck and its registered-buyer notices establish its knowledge of the contents of Fin Ag’s EFS filing, Fin Ag has demonstrated, as a matter of law, its perfected interest in the corn as against Meschke.

Meschke’s final challenge to the validity of Fin Ag’s security interest relates to whether CPS has priority in its interest over Fin Ag. Although the district court determined that CPS’s interest had priority, an unsigned document in the file assigns CPS’s interest to Fin Ag. Meschke disputes the effectiveness of the unsigned documént. This appeal, however, involves only the validity of Fin Ag’s security interest against Meschke’s claims, which is an inquiry independent of whether Fin Ag’s security interest has priority over another security interest. CPS is not involved in this appeal, and Meschke has provided no basis that would allow it to assert a claim on CPS’s behalf. Furthermore, the district court in the priority dispute between Fin Ag and CPS reserved the issue of CPS’s entitlement to further relief, and this avenue is the proper procedure for resolving any remaining issues on priority. Meschke also raises an issue of whether its entity status is properly designated in the pleadings. This issue was raised during the pendency of the appeal and deferred until the district court could exercise jurisdiction at the conclusion of the appeal. We therefore remand for consideration of this ancillary issue.

DECISION

Meschke failed to establish a genuine issue of material fact on Fin Ag’s capacity to sue and effectively waived the issue by failing to assert it in its answer or by subsequent motion to amend. Fin Ag has also demonstrated, as a matter of law, that Meschke had notice of Fin Ag’s secured interest through its prior dealings with Buck and by notice as a registered buyer from the secretary of state. Meschke does not claim that it obtained a waiver of the interest before purchasing the farm product; thus the Food Security Act does not allow Meschke to take free of Fin Ag’s secured interest. Finally, although Fin Ag misfiled its financing statement in an incorrect county, the statement is nonetheless effective against Meschke because of Meschke’s actual knowledge of the secured interest and because the misfiling was in good faith. We therefore affirm the district court’s grant of summary judgment in favor of the secured creditor but remand to allow the district court an opportunity to address a deferred motion that is ancillary to this appeal.

Affirmed in part, remanded in part.


source: Caselaw Access Project

author: PORITSKY, Judge.

license: Public Domain

text:
    Margaret BLACK and Gary Coopman, as trustee for the next of kin of Angela Marie Black, decedent; and Shia Lynn Black, a minor by and through her grandmother and natural guardian, Margaret Black, Respondents, v. Phillip RIMMER, Appellant. Shelly Otto, as trustee for the next of kin of Zoe Patricia Kloster, decedent, and Jennifer Cemenski, Respondents, v. Phillip Rimmer, Appellant.
    Nos. A04-2185, A04-2316.
    Court of Appeals of Minnesota.
    July 19, 2005.

      Robert D. Boedigheimer, Peter J. Ho-rejsi, Justin Silcox, McCloud & Boedi-gheimer, P.A., Bloomington, MN, for respondents Margaret Black, et al.
    Philip Sieff, Vincent J. Moccio, Patricia Yoedicke, Robins, Kaplan, Miller & Ciresi, L.L.P., Minneapolis, MN, for respondents Shelly Otto, et al.
    Sylvia Ivey Zinn, Brendel and Zinn, Ltd., Lake Elmo, MN, for appellant.
    Considered and decided by KLAPHAKE, Presiding Judge; HALBROOKS, Judge; and PORITSKY, Judge:
   OPINION

PORITSKY, Judge.

In this appeal, appellant argues that the district court abused its discretion by (1) entering default judgments against him, and (2) denying his motion to vacate the default judgments. Because appellant did not submit an answer or file any defensive motions, and because he failed to establish the factors necessary to vacate a judgment, we affirm.

FACTS

On December 2, 2001, a car driven by appellant Phillip Rimmer crossed the center line and collided head-on with a car driven by respondent Jennifer Cemenski. Cemenski was seriously injured in the accident, and her four-year-old daughter, Zoe Kloster, was killed. Angela Black, Cemenski’s friend, was also killed in the accident, and Black’s five-year-old daughter, Shia Black, sustained serious injuries.

On January 14, 2002, respondents Margaret Black and Gary Cooper, as trustee for the next of kin of Angela Black and as guardian of Shia Black (collectively referred to herein as respondents Black), served Rimmer with a summons and complaint, alleging wrongful-death and personal-injury claims resulting from the accident. Rimmer’s insurance carrier denied coverage for the accident.

Respondents Black noticed Rimmer’s deposition. When Rimmer appeared pro se on December 27, 2002, he was served with a summons and complaint by respondents Cemenski and Shelly Otto as trustee for Kloster (collectively referred to herein as respondents Cemenski). The Cemenski complaint asserted wrongful-death and personal-injury claims resulting from the December 2001 accident. During the course of the deposition, Rimmer was questioned by attorneys representing both sets of respondents. Rimmer did not file an answer to either of the complaints, nor did he bring a rule 12 or other defensive motion.

Over a year later, in January 2004, respondents Cemenski served Rimmer with notice of a motion for default judgment, and on March 3, 2004, respondents Black served Rimmer with notice of their motion for default judgment. The next day, Rim-mer’s insurance carrier retained counsel for Rimmer. On March 8, 2004, there was a hearing on respondents’ motions for default judgment. This hearing was Rim-mer’s first appearance before the court. The district court concluded that Rimmer had “defaulted ... by fading to answer, plead or otherwise defend” and granted respondents’ motions for default judgment. After two hearings to determine damages, the district court issued orders granting respondents Cemenski damages totaling approximately $1.5 million and respondents Black damages totaling $3.6 million. The judgments were entered on July 14, 2004.

Rimmer moved to vacate the default judgments. The district court found that Rimmer did not establish the factors necessary to vacate the judgments, and it denied his motion. Rimmer filed two notices of appeal, challenging both the entry of the default judgments and the denial of his motion to vacate the judgments. This court consolidated Rimmer’s appeals.

ISSUES

1. Did the district court abuse its discretion by granting respondents’ motions for default judgments?

2. Did the district court abuse its discretion by denying appellant’s motion to vacate the default judgments?

ANALYSIS

I.

Rimmer first challenges the district court’s decision to grant respondents’ motions for default judgments. The decision to grant or deny a motion for a default judgment lies within the discretion of the district court, and this court will not reverse absent an abuse of that discretion. Coller v. Guardian Angels Roman Catholic Church, 294 N.W.2d 712, 715 (Minn.1980).

Respondents filed motions for default judgments pursuant to Minn. R. Civ. P. 55.01. “When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend within the time allowed therefor by these rules or by statute, and that fact is made to appear by affidavit, judgment by default shall be entered against that party....” Minn. R. Civ. P. 55.01.

Rimmer concedes that he “failed to plead in the form of formal written answers,” but he argues that his cooperation with respondents “rise[s] to the level of ‘or otherwise defend’ as proscribed [sic] in rule 55.01.” He argues that he met the requirements of rule 55.01 when he “appeared for his deposition” and “answered all of the questions put to him,” and when he “personally appeared at each and every matter scheduled before the trial court and had several telephone discussions with [respondents’] attorneys.” He goes on to explain that “he was not aware that formal written answers were required.”

There is no Minnesota caselaw interpreting “otherwise defend” in rule 55.01, but that portion of the rule is substantially similar to rule 55(a) in the Federal Rules of Civil Procedure. See Fed. R.Civ.P. 55(a) (providing for entry of default judgment “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend as provided by these rules” (emphasis added)). Federal courts’ interpretations of federal rules of procedure may provide guidance on interpretation of parallel state rules of procedure. DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn.1997). Under the federal rules, “otherwise defend” has long referred to “attacks on the service, or motions to dismiss, or for better particulars, and the like, which may prevent default without presently pleading to the merits.” Bass v. Hoagland, 172 F.2d 205, 210 (5th Cir.1949). Rimmer made no such attacks or defensive motions. In our opinion, his “cooperation” does not satisfy the requirement of “otherwise defend” as contemplated by Minn. R. Civ. P. 55.01.

But a district court should deny a motion for default judgment “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, 294 N.W.2d at 715. As w.e will note infra, these are the same factors a district court should consider when deciding whether to vacate a judgment under Minn. R. Civ. P. 60.02. Guillaume & Assocs. v. Don-John Co., 371 N.W.2d 15, 18 (Minn.App.1985). Thus, our analysis of the four factors that we make in reviewing the district court’s granting of the default judgments will be the same analysis that we will make in reviewing the court’s denial of Rimmer’s motion to vacate those judgments.

To obtain relief under rule 60.02, all four of the factors must be present. Charson v. Temple Israel, 419 N.W.2d 488, 491 (Minn.1988). But a “strong showing on the other factors may offset relative weakness on one factor.” Imperial Premium Fin., Inc. v. GK Cab Co., 603 N.W.2d 853, 857 (Minn.App.2000).

Reasonable defense on the merits

Rimmer does not argue that he has a defense on the issue of liability. Instead, he argues that he “was not afforded the opportunity to defend against the [Respondents’ damages claims.” He claims, “It is believed that if [Rimmer] had the opportunity to defend against damages, the trial court or a jury would have reached a mote realistic and reasonable value of these claims.”

After the district court entered default judgments, it held hearings on two separate dates to establish damages, at which respondents offered both testimony and extensive documentary evidence to establish their claims. The district court found that as a result of the accident, a woman and a four-year-old child were killed, and a woman and a five-year-old child were seriously and permanently injured. In light of these findings alone, it is not surprising that the respondents suffered extensive damages. The court also made numerous and specific findings concerning respondents’ damages.

Rimmer does not attack the past medical expenses of Jennifer Cemenski or Shia Black, both of whom survived. Such damages lend themselves to precise documentary proof. Instead, Rimmer focuses on such elements as loss of companionship suffered by the families of the two individuals who were killed and the pain and suffering- of the two who survived. Such damages do not lend themselves to precise proof and are thus always subject to the attack that, had the defendant been in court, the damage award would have been smaller. But as respondents Cemenski point out, to conclude that a defendant makes a strong showing of a reasonable defense by claiming he would have argued for a lower award would mean, that no default personal-injury judgment would ever be safe from vacation “since all such judgments inevitably require the finder of fact to exercise discretion.”

In our opinion, the district court’s rulings on the issue of damages suffered by respondents are supported by the record. We conclude that, at best, Rimmer has made only a weak showing that he has a reasonable defense on the merits.

Reasonable excuse for the failure to act

“Neglect of the party itself which leads to entry of a default judgment is inexcusable, and such neglect is a proper ground for refusing to reopen a judgment.” Howard v. Frondell, 387 N.W.2d 205, 208 (Minn.App.1986), review denied (Minn. July 31, 1986). The district court observed that Rimmer was “well aware of the legal proceedings” and that “there can be no conclusion but that Rimmer’s failure to obtain legal counsel was intentional [and] that his failure to represent himself pro se and interpose an Answer was intentional.”

Rimmer attempts to excuse his failure to act on his “lack of understanding,” arguing that the “negligence of pro se defendants with regard to the technical requirements of civil procedure has been excused by the courts in the past.” The summons prescribed by the rules of civil procedure explains to the defendant that he or she is “hereby ... required to serve upon plaintiffs attorney an answer to the complaint ... within 20 days after service of this summons upon you.” Minn. R. Civ. P. Form 1. It is true that the language “serve upon plaintiffs attorney an answer” has a special meaning: the defendant is required get a written response into the hands of plaintiffs attorney. One could argue — as Rimmer does — that a non-lawyer might not understand what he is required to do. But on July 10, 2003, the district court issued an order requiring the parties “to file Informational Statements with the Court Administrator, with a copy to this Court, no later than August 25, 2003.” The order went on to read, “Failure to file the Informational Statements may result in ... sanctions.” In our view, this order makes clear to anyone, legally trained or otherwise, that some type of paper must be filed with the court. Rim-mer did not comply with the order. “Although some accommodations may be made for pro se litigants, this court has repeatedly emphasized that pro se litigants are generally held to the same standard as attorneys and must comply with court rules.” Fitzgerald v. Fitzgerald, 629 N.W.2d 115, 119 (Minn.App.2001).

Rimmer’s position in support of his argument that he had a reasonable excuse for his failure to act is ultimately premised on the fact that he did not have a lawyer. But the district court found that Rimmer “had every opportunity to retain his own legal counsel upon discovering that [his insurer] refused to tender [sic] coverage.” In Rimmer’s deposition, when he was asked if he intended to retain an attorney, he said, “I don’t know, I don’t think I have the money for it. Those are pretty expensive, lawyers are.” But in his affidavit in support of his motion to vacate the default judgment, Rimmer merely says, “I attempted to retain an attorney, but was not able to do so.” He did not tell the court of his efforts to obtain a lawyer, nor did he say that he was not represented because he could not afford an attorney. Thus, the record supports the district court’s conclusion that Rimmer’s failure to obtain legal counsel was intentional.

In light of the record, it is our conclusion that the only way by which we could conclude that Rimmer has a reasonable excuse for his failure to act is by adopting a rule that would allow a pro se defendant to ignore the proper procedures and wait until the plaintiffs have gone to the expense and effort to prove liability and damages, after-which the defendant could respond and claim that he or she had a reasonable excuse for failure to act. We decline to adopt such a rule. We conclude that Rimmer failed to meet his burden on this issue and that the district court correctly found that “Rimmer has no valid excuse for his failure to interpose an Answer to the Complaints.”

Due diligence after notice of entry of the default judgment

The final judgments against Rim-mer were entered on July 14, 2004, and Rimmer filed his motion to vacate on August 20, 2004. Rule 60.02 requires that motions be made “not more than 1 year after the judgment ... was entered.” Minn. R. Civ. P. 60.02. “[T]his court has. held that acting within three months is due diligence,” and we conclude that when Rimmer filed his motion to vacate five weeks after entry of the default judgments, he acted with due diligence. See Imperial Premium, 603 N.W.2d at 858.

No substantial prejudice to the opposing party

The district court concluded that because Rimmer’s failure to obtain legal counsel or act pro se was intentional, the expense and delay that respondents would incur if the judgments were vacated would amount to substantial prejudice.

In general, when the only prejudicial effect of vacating a judgment is additional expense and delay, “substantial prejudice of the kind necessary to keep a judgment from being reopened does not exist.” Peterson v. Skutt Ceramic Prods., Inc., 417 N.W.2d 648, 651 (Minn.App.1987), review denied (Minn. Mar. 18, 1988). But this court noted an exception to the general rule in Hovelson v. U.S. Swim & Fitness, Inc., 450 N.W.2d 137, 142 (Minn.App.1990), review denied (Minn. Mar. 16, 1990). There, in discussing the issue of prejudice, we took note of the fact that the defendant’s delays were purposeful and that the district court “perceived ... that there [was] intentional ignoring of process.” We continued, “[T]he additional expense must be viewed in a different light. To force a claimant to go to the expense of a hearing in court, to gather evidence and expert testimony and the concomitant preparation, all either by inexcusable neglect or by intent, colors the prejudice with a deeper hue.” Id. at 142.

In our opinion, the present case fits the exception noted in Hovelson, where we concluded that the defendant’s conduct “weakened] the element of prejudice.” Id. Thus, we conclude that, at best, Rim-mer has made only a weak showing that respondents will not suffer substantial prejudice if the default judgments are vacated.

Rimmer has made (1) a strong showing he acted with due diligence after entry of the default judgments; (2) at best, weak showings that he has a reasonable defense on the merits and that respondents would not suffer substantial prejudice by vacation of the default judgments; and (3) no showing that he has a reasonable excuse for his failure to act. Caselaw excuses a weak showing on one factor, if the other three factors are strong. See Imperial Premium, 603 N.W.2d at 857. But one strong showing will not make up for weak showings on two factors and no showing on the fourth factor. We conclude that the district court did not abuse its discretion by granting respondents’ motions for default judgments.

II.

Rimmer also challenges the district court’s denial of his motion to vacate the default judgments under Minn. R. Civ. P. 60.02. A district court has discretion to vacate a default judgment under rule 60.02, and we will not reverse its decision absent an abuse of that discretion. Foerster v. Folland, 498 N.W.2d 459, 460 (Minn.1993). Rimmer moved to vacate the default judgments under rule 60.02(a) and (f). Under rule 60.02, a district court may relieve a party from a final judgment, may order a new trial, or may “grant such other relief as may be just” for “[m]istake, inadvertence, surprise, or excusable neglect” or for “[a]ny other reason justifying relief from the operation of the judgment.” Minn. R. Civ. P. 60.02(a), (f).

As we have noted above, under rule 60.02 a party seeking relief from a default judgment must establish four requirements: (1) a reasonable defense on the merits; (2) a reasonable excuse for the failure to act; (3) a showing of due diligence after notice of entry of the default judgment; and (4) a showing of no substantial prejudice to the opposing party resulting from the vacation of the judgment. Coller, 294 N.W.2d at 715; see Imperial Premium, 603 N.W.2d at 857. Courts should liberally apply these factors to further the policy of resolving cases on their merits. Kemmerer v. State Farm Ins. Cos., 513 N.W.2d 838, 841 (Minn.App.1994), review denied (Minn. June 2, 1994). And under rule 60.02(f), a default judgment may be vacated “where there is not sufficient evidence to support an award of damages.” Wiethoff v. Williams, 413 N.W.2d 533, 537 (Minn.App.1987).

As discussed above in connection with our review of Rimmer’s claim that the district court erred in granting respondents’ motions for default judgment, we have concluded that Rimmer failed to sufficiently establish the four factors that would have required the court to deny the motions. Those factors are the same factors that are to be used in determining whether to grant a motion to vacate a judgment under rule 60.02. Guillaume & Assocs., 371 N.W.2d at 18. We conclude that Rimmer is not entitled to relief under that rule. Moreover, we have examined Rimmer’s claim relating to damages raised under rule 60.02(f), and we conclude that his showing is insufficient. Therefore, we conclude that the district court did not abuse its discretion by denying Rimmer’s motion to vacate the default judgments.

DECISION

Because Rimmer failed to plead or otherwise defend against respondents’ personal-injury and wrongful-death claims and because he failed to establish the four factors on which the district court can base denial of a motion for default judgment, the district court did not abuse its discretion by granting respondents’ motions for default judgments. Because Rimmer failed to establish those four factors, which are necessary to vacate a judgment under Minn. R. Civ. P. 60.02, the district court did not abuse its discretion by denying his motion to vacate the default judgments.

Affirmed.

       Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.


author: FORSBERG, Judge.

text:
    Stephen DANFORTH, petitioner, Appellant, v. STATE of Minnesota, Respondent.
    No. A04-1993.
    Court of Appeals of Minnesota.
    July 26, 2005.
    Stephen Danforth, Bayport, MN, pro se appellant. Mike Hatch, Attorney General, St. Paul, MN; and Amy Klobuchar, Hen-nepin County Attorney, Michael K. Walz, Assistant Hennepin County Attorney, Minneapolis, MN, for respondent.
    Considered and decided by RANDALL, Presiding Judge, KALITOWSKI, Judge, and FORSBERG, Judge.
   OPINION

FORSBERG, Judge.

Appellant moved for postconviction relief under Crawford v. Washington, 541 U.S. 36, 124 S.Ct. 1354, 158 L.Ed.2d 177 (2004). The district court denied his motion, and he appeals from that denial.

FACTS

At the trial of appellant Stephen Dan-forth in 1996, the jury was shown a videotaped interview of a child victim who had been ruled unavailable to testify and whom appellant had never had the opportunity to cross-examine. The jury found appellant guilty of first-degree criminal sexual conduct. His conviction became final on July 28, 1999, when the supreme court denied review of this court’s decision affirming appellant’s sentence on remand. State v. Danforth, No. C5-98-2054 (Minn.App. May 4, 1999), review denied (Minn. July 28, 1999).

In 2004, the Supreme Court released Crawford v. Washington, 541 U.S. 36, 124 S.Ct. 1354, 1374, 158 L.Ed.2d 177 (2004) (holding that testimonial hearsay is inadmissible unless declarant is unavailable and defendant had prior opportunity to cross-examine declarant). ' Appellant moved for postconviction relief on the ground that Crawford invalidates his conviction. The district court denied his motion, and he appeals.

ISSUE

Does Crawford v. Washington, 541 U.S. 36, 124 S.Ct. 1354, 158 L.Ed.2d 177 (2004), apply retroactively?

ANALYSIS

This court reviews' the issue of retroactive application de novo. State v. Petschl, 692 N.W.2d 463, 470 (Minn.App.2004) (citing State v. Costello, 646 N.W.2d 204, 207 (Minn.2002)), review denied (Minn. Jan. 20, 2005). The retroactive application of Crawford is a case of first impression in Minnesota.

Retroactivity with regard to cases on collateral review is governed by Teague v. Lane, which sets forth two exceptions to the general principle that defendants whose convictions are final at the time a new rule of law is announced may not avail themselves of the new rule. 489 U.S. 288, 310-12, 109 S.Ct. 1060, 1075-76, 103 L.Ed.2d 334 (1989). The two exceptions are cases that place particular kinds of conduct beyond the proscriptive power of lawmaking authority and cases that set out “watershed” rules of criminal procedure. Id. at 311-12, 109 S.Ct. at 1075-76. Five of the six federal circuit courts that have considered the retroactive application of Crawford in light of Teague have held that Crawford does not apply retroactively: Murillo v. Frank, 402 F.3d 786, 789-90 (7th Cir.2005); Dorchy v. Jones, 398 F.3d 783, 788 (6th Cir.2005); Mungo v. Duncan, 393 F.3d 327, 336 (2d Cir.2004), cert. denied, - U.S. -, 125 S.Ct. 1936, 161 L.Ed.2d 778 (2005); Brown, v. Uphoff, 381 F.3d 1219, 1227 (10th Cir.2004); Evans v. Luebbers, 371 F.3d 438, 444 (8th Cir.2004), cert. denied, - U.S. -, 125 S.Ct. 902, 160 L.Ed.2d 800 (2005). We find the anal-yses in these cases persuasive.

Murillo concluded “that Crawford establishes a new rule” but held that the rule was not “a fundamental rule essential to a fair and accurate trial.” 402 F.3d at 790. Murillo provided two reasons for that holding. First, Crawford gives defendants the right to insist on live testimony even when available hearsay is trustworthy and “is not an indispensable innocence-protecting decision” that would apply retroactively. Id. at 790-91. Second, a violation of the Confrontation Clause, unlike a violation of “a truly vital rule of criminal procedure, such as entitlement to counsel,” is subject to a harmless-error analysis; therefore, “Crawford cannot have established the sort of indispensable doctrine that applies retroactively even to closed cases.” Id. at 791.

Dorchy cited Teague for the proposition that “[ujnder most circumstances ... newly promulgated rules of criminal procedure do not apply retroactively to cases on collateral review” and concluded simply that “Teague thus prohibits [the defendant] from availing himself of the new rule articulated in Crawford.” Dorchy, 398 F.3d at 788.

Mungo noted that, because Crawford will bar both “unreliable” and “highly reliable testimonial out-of-court statements,” it will both “improve ... [and] impair the accuracy of the factfinding process.” Mungo, 393 F.3d at 335-36. “Because Teague’s, test of a watershed rule requires improvement in the accuracy of the trial process overall, we conclude that Crawford is not a watershed rule.” Id. at 336.

Brown concluded that because Crawford “merely sets out new standards for the admission of certain kinds of hearsay” and because “Confrontation Clause violations are subject to harmless error analysis and thus may be excused ... [i]t would ... be difficult to conclude that the rule in Crawford alters rights fundamental to due process.” Brown, 381 F.3d at 1226-27.

Finally, Evans found that Crawford would not apply retroactively because “the Crawford court did not suggest that this doctrine would apply retroactively and the doctrine itself does not appear to fall within either of the two narrow exceptions to Teague v. Lane’s non-retroactivity doctrine.” Evans, 371 F.3d at 444; see also Ferguson v. Roper, 400 F.3d 635, 639 n. 3 (8th Cir.2005) (citing Evans for proposition that Crawford doctrine does not fall within Teague exceptions).

Only the ninth circuit, in Bockting v. Bayer, 399 F.3d 1010 (9th Cir.2005), amended by 408 F.3d 1127 (9th Cir.2005), has held that Crawford applies retroactively. We find this opinion unpersuasive, as did the seventh circuit, which stated:

The three judges in Bockting wrote separately. [One judge] concluded that Crawford applies on collateral review because it did not change the law. [Another judge] concluded that Crawford did change the law, and changed it so dramatically that it established a “watershed rule” that applies retroactively. [A third judge] agreed ... that Crawford changed the law but ... saw [it] as an ordinary development in criminal procedure that like almost all other such changes applies prospectively.

Murillo, 402 F.3d at 789-90; see also Ferguson, 400 F.3d at 639 n. 3 (citing Hiracheta v. Attorney Gen. of Cal., 105 Fed.Appx. 937, 938 (9th Cir.2004), for proposition that Crawford is not retroactive).

Thus, the weight of authority from the six circuits that have addressed the issue clearly supports the view that Crawford does not have a retroactive application.

DECISION

In light of holdings that Crawford does not apply retroactively from the second, sixth, seventh, eighth, and tenth circuits, we conclude that the district court correctly denied appellant’s motion for postconvietion relief.

Affirmed.

       Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

      . See O’Meara v. State, 679 N.W.2d 334, 339 (Minn.2004) (conviction is final when "judgment of conviction has been rendered, the availability of appeal exhausted, and the time for a petition for certiorari elapsed or a petition for certiorari finally denied”).

      . Appellant also moved for resentencing on the ground that Blakely v. Washington, 542 U.S. 296, 124 S.Ct. 2531, 159 L.Ed.2d 403 (2004), applies retroactively. The district court denied the motion. Because appellant's argument was explicitly rejected in State v. Petschl, 692 N.W.2d 463, 472 (Minn.App.2004) (holding that Blakely "is not a watershed rule subject to retroactive application on collateral review”), review denied (Minn. Jan. 20, 2005), we affirm that denial.

      . We note that, in light of Crawford, appellant was granted permission to move for reconsideration of the federal district court’s determination that his Confrontation Clause rights were not violated by admitting at trial the videotaped interview of the child. See Danforth v. Crist, 2004 WL 1630830 (D.Minn. July 14, 2004), reconsideration granted in part by 2005 WL 1041491 *2 (D.Minn. Mar. 18, 2005). At filing time, federal action remains pending.


author: WRIGHT, Judge.

text:
    In the Matter of DETAILING CRITERIA AND STANDARDS FOR MEASURING AN ELECTRIC UTILITY’S GOOD FAITH EFFORTS IN MEETING THE RENEWABLE ENERGY OBJECTIVES UNDER MINN. STAT. 216B.1691.
    No. A04-1742.
    Court of Appeals of Minnesota.
    July 26, 2005.

      Elizabeth Goodpaster, Minnesota Center for Environmental Advocacy, St. Paul, MN, for relators Izaak Walton League of America, Minnesotans for an Energy-Efficient Economy, and Minnesota Center for Environment Advocacy.
    Mike Hatch, Attorney General, Kari Valley Zipko, Assistant Attorney General, St. Paul, MN, for respondent Minnesota Public Utilities Commission.
    Denis R. Vogel, Mary Beth Peranteau, Wheeler, Van Sickle & Anderson, S.C., Madison, WI, for respondent Dairyland Power Cooperative.
    Michael J. Bradley, Moss & Barnett, Minneapolis, MN, for respondents Great River Energy, Interstate Power and Light Company, Minnesota Power, Otter Tail Power, Southern Minnesota Municipal Power Agency, and Northern States Power Company d/b/a Xcel Energy.
    Delmar R. Ehrich, John F. Jeske, Faegre & Benson LLP, Minneapolis, MN, for respondent Minnesota Chamber of Commerce.
    Considered and decided by WRIGHT, Presiding Judge; KALITOWSKI, Judge; and DIETZEN, Judge.
   OPINION

WRIGHT, Judge.

The Minnesota Public Utilities Commission (PUC) issued an order that set certain objectives for the use of renewable energy resources by electric utilities. On certiora-ri review, relators assert that the PUC committed an error of law by misinterpreting the statute that establishes these objectives. In the alternative, relators argue that the PUC made an arbitrary and capricious decision by adopting inconsistent methods for determining the objectives for biomass energy technologies as compared to all eligible energy technologies. We affirm.

FACTS

In 2001, the Minnesota Legislature enacted Minn.Stat. § 216B.1691, which establishes objectives for the use of renewable energy resources by electric utilities. 2001 Minn. Laws ch. 212, art. 8, § 3. Section 216B.1691 provides that each electric utility “shall make a good faith effort” to generate a prescribed amount of electricity for its retail customers from a defined “eligible energy' technology.” Minn.Stat. § 216B.1691, subds. 1, 2(a) (2002). With respect to the utilities’ compliance with these objectives, the PUC lacked enforcement authority but was directed to propose regulatory or legislative action to the Minnesota Legislature. Id., subd. 2(b), (c) (2002).

The Minnesota Legislature made substantial amendments to section 216B.1691 in 2003. 2003 Minn. Laws 1st Spec. Sess. ch. 11, art. 2, § 3. The amendments established a more detailed definition of “eligible energy technology” and required the implementation of these technologies to be measured as a percentage of total retail electric sales. Minn.Stat. § 216B.1691, subds. 1(a)(1), (c), 2(a) (2004). The amendments also expanded the responsibilities of the PUC, requiring it to issue standards and reports on whether the utilities had made a good faith effort to implement eligible energy technologies. Id., subd. 2(c), (d) (2004).

In accordance with the new amendments, on January 30, 2004, the PUC provided notice and solicited comment on the standards for determining the utilities’ compliance with Minn.Stat. § 216B.1691. Among the issues considered was whether generation from eligible energy technologies may be from preexisting capacity or whether it should be from new sources. The PUC also requested comment on how to deal with inconsistent annual increases from the implementation of eligible energy technologies, which it characterized as the problem of “ ‘lumpy’ increments [when] measuring whether the year-by-year objectives are being met.” But the PUC did not directly solicit comment on the broader question of how to determine from year to year the percentage increase in retail electric sales each utility should derive from eligible energy technologies.

With respect to the latter question, most utilities asserted that the statute set a one-percent baseline for total retail electric sales from eligible energy technologies in 2005 and required an increase by one percentage point each year until sales from eligible energy technologies reached 10 percent of total retail sales in 2015. The utilities argued that compliance with the objectives of section 216B.1691 would be achieved as long as total retail electric sales from eligible energy technologies exceeds this annual benchmark.

Relators Izaak Walton League of America, Minnesotans for an Energy-Efficient Economy, and Minnesota Center for Environmental Advocacy (collectively Izaak Walton) countered that the statute did not set a uniform baseline percentage for all utilities. Under its theory, the percentage of sales necessary for compliance with section 216B.1691 would not be capped at 10 percent. Rather, it would vary by utility according to the amount of generation from eligible energy technologies each utility had established the previous year. Thus, once a utility established its annual percentage of retail electric sales from eligible energy technologies, the utility was directed to exceed that percentage by at least one percent the following year. For example, a utility that produced four percent annual retail electric sales from eligible energy technologies in year two would be required to achieve no less than five percent in year three.

The PUC issued its initial order setting standards for determining compliance with section 216B.1691 on June 1, 2004. The PUC’s standards permit preexisting generation to qualify for the percentage of retail electric sales from eligible energy technologies. The PUC also adopted the position advanced by the utilities and held that the statute provides a progressive annual baseline percentage of retail electric sales required. This certiorari appeal followed.

ISSUES

I. Did the PUC err in concluding that, under Minn.Stat.. § 216B.1691, subd. 2(a) (2004), each utility is given an overall objective of generating 10 percent of total electric retail sales from eligible energy technologies by 2015, with a one-percent initial objective in 2005 and an annual one-percent increase?
II. Was the PUC’s adoption, under Minn.Stat. § 216B.1691, subd. 2(b) (2004), of different standards for calculating the percentage of electrical generation from biomass energy technologies as compared to all renewable eligible energy technologies arbitrary and capricious?

ANALYSIS

Appellate review of an agency decision is governed by the Minnesota Administrative Procedures Act, which provides in relevant part:

In a judicial review ... the court may affirm the decision of the agency or remand the case for further proceedings; or it may reverse or modify the decision if the substantial rights of the petitioners may have been prejudiced because the administrative finding, inferences, conclusion, or decisions are:
(d) Affected by ... error of law; or
(f) Arbitrary or capricious.

Minn.Stat. § 14.69 (2004); Minn. Ctr. for Envtl. Advocacy v. Minn. Pollution Control Agency, 644 N.W.2d 457, 463-64 (Minn.2002). The decision of an agency is presumed to be correct, and we ordinarily accord deference to an agency in its field of expertise. Reserve Mining Co. v. Herbst, 256 N.W.2d 808, 824 (Minn.1977).

I.

A.

Izaak Walton principally argues •that the PUC committed an error of law in its interpretation of the objectives for the use of renewable resources set out in Minn.Stat. § 216B.1691, subd. 2(a) (2004). When an agency’s decision is based solely on statutory interpretation, we are presented with a question of law, which we review de novo. In re Denial of Eller Media Co.'s Applications for Outdoor Adver. Device Permits, 664 N.W.2d 1, 7 (Minn.2003) (citing St. Otto’s Home v. Minn. Dep’t of Human Servs., 437 N.W.2d 35, 39-40 (Minn.1989)).

The object of statutory interpretation is to give effect to the intention of the legislature. Educ. Minn.-Chisholm v. Indep. Sch. Dist. No. 695, 662 N.W.2d 139, 143 (Minn.2003). If the meaning of a statute is clear, then it shall be given effect according to its plain language. Molloy v. Meier, 679 N.W.2d 711, 723 (Minn.2004). But if a statute is reasonably susceptible of more than one meaning, we employ other canons of construction to discern the legislature’s intent. Gomon v. Northland Family Physicians, Ltd., 645 N.W.2d 413, 416 (Minn.2002). In doing so, we apply principles of statutory construction in conjunction with a searching examination of the entire text. Educ. Minn.-Chisholm, 662 N.W.2d at 143. We construe the words and phrases in a statute in accordance with the rules of grammar and common and approved usage. Minn.Stat. § 645.08(1) (2004); Sprint Spectrum LP v. Comm’r of Revenue, 676 N.W.2d 656, 662 (Minn.2004). No part of statutory language shall be disregarded as insignificant. Minn.Stat. § 645.16 (2004); Vlahos v. R & I Constr. of Bloomington, Inc., 676 N.W.2d 672, 679 (Minn.2004).

As established by the Minnesota Legislature, the renewable energy objectives for public utilities provide that

[e]ach electric utility shall make a good faith effort to generate or procure sufficient electricity generated by an eligible energy technology to provide its retail customers ... so that:
(1) commencing in 2005, at least one percent of the electric utility’s total retail electric sales is generated by eligible energy technologies;
(2) the amount provided under clause (1) is increased by one percent of the utility’s total retail electric sales each year until 2015; and
(3) ten percent of the electric energy provided to retail customers in Minnesota is generated by eligible energy technologies.

Minn.Stat. § 216B.1691, subd. 2(a). The controversy here requires us to examine how the phrase “at least” informs the obligation in clause (1). Izaak Walton argues that “at least” implies an individual benchmark for each utility based on its preexisting generation. Thus, it asserts that the annual increases under clause (2) are in addition to any preexisting generation and that the utilities annually must add new generation from eligible energy technologies to maintain compliance with section 216B.1691. The utilities assert that “at least” implies a uniform minimum baseline of one percent that increases an additional percent annually in accordance with clause (2). Because the statutory language is susceptible of more than one reasonable interpretation, we resolve this ambiguity by utilizing canons of statutory interpretation.

When considering possible meanings for the phrase “at least,” a plain reading of clauses (1) and (2) does not offer any clear guidance. But a searching examination of the statutory text requires us to construe the language of clauses (1) and (2) in the context of the entire subdivision. Without establishing a specific time-line for compliance, clause (3) provides for 10 percent of total electric sales to retail customers to be generated from eligible energy technologies. When this goal is considered in conjunction with clauses (1) and (2), which provide a discrete 10-year period for implementing these technologies, we conclude that this statutory scheme sets a baseline objective of one percent in 2005 with annual increases of one percent so as to reach the 10-percent objective by 2015.

Asserting that the 10-percent goal in clause (3) is merely an “overall industry objective,” Izaak Walton claims that clause (3) contemplates objectives beyond 10 percent for individual utilities with preexisting generation in renewable energy. Rather than viewing clause (3) as part of the guidelines in subdivision 2, this interpretation treats clause (3) as a statement of general policy. Izaak Walton’s argument disregards the placement of clause (3) among the other guidelines for implementation of renewable energy objectives. Because the interpretation advanced by Izaak Walton would undermine the significance of applying the 10-percent objective to “[e]ach electric utility” and render this aspect of the statute largely superfluous, we decline to adopt it.

B.

We next consider what constitutes “eligible energy technology” under the statute. The utilities argue that, because preexisting generation is not excluded from the statutory definition of “eligible energy technology,” the renewable energy objectives cannot be interpreted to exclude preexisting generation from satisfying the objectives.

Unless otherwise specified in law, “eligible energy technology” means an energy technology that:
(1) generates electricity from the following renewable energy sources: solar; wind; hydroelectric with a capacity of less than 60 megawatts; hydrogen, provided that after January 1, 2010, the hydrogen must be generated from the resources listed in this clause; or biomass, which includes an energy recovery facility used to capture the heat value of mixed municipal solid waste or refuse-derived fuel from mixed municipal solid waste as a primary fuel; and
(2) was not mandated by Laws 1994, chapter 641, or by commission order issued pursuant to that chapter prior to August 1, 2001.

Minn.Stat. § 216B.1691, subd. 1(a) (2004). Nothing in the plain language of this definition suggests that, when determining whether certain sources are eligible energy technologies, the time of implementation is relevant. Rather, the criteria are qualitative — based on the type of energy source and whether that energy source was previously mandated.

When, as here, the statutory language is ambiguous, the inclusion of certain terms in the statute implies that other terms are excluded. Green-Glo Turf Farms, Inc. v. State, 347 N.W.2d 491, 494 (Minn.1984). Furthermore, the historical record of amendments to that language may be employed to resolve ambiguity. Baker v. Ploetz, 616 N.W.2d 263, 269 (Minn.2000).

Before section 216B.1691 was enacted in 2001, the Minnesota Legislature considered versions of the statute that would exclude preexisting generation from counting toward the renewable energy objectives. See S.F. 722, second engrossment (“Fifty percent of the renewable energy generated by wind energy facilities operational on or before December 31, 2000, and by biomass energy facilities operated on or before December 31, 2002, may be counted as renewable energy for purposes of determining compliance....”); S.F. 722, Amend. Before the Telecomms., Energy, and Utils. Comm. (Mar. 22, 2001) (“Renewable energy generated by wind energy facilities operational on or before December 31, 2000, and by biomass energy facilities operated on or before December 31, 2002, may not be counted as renewable energy for purposes of determining compliance ....”) But the version of the statute that was enacted only excludes certain mandated sources of preexisting generation. See Minn.Stat. § 216B.1691, subd. 1(a)(2).

This legislative history supports the proposition that nonmandated sources of preexisting generation are included among eligible energy technologies. We conclude that a utility’s preexisting generation may count toward its good faith effort to satisfy the renewable energy objectives of section 216B.1691, subdivision 2(a). Our conclusion comports with our prior determination that the renewable energy objectives set an overall goal of generating 10 percent of total retail electric sales from eligible energy technologies for each utility. Rather than requiring annual increases through new generation from eligible energy technologies, the annual increase of one percent serves as a benchmark to achieve the overall goal.

II.

Izaak Walton next asserts that, because the PUC adopted different methods for calculating electrical generation from biomass energy technologies as compared to all eligible energy technologies, the decision was arbitrary and capricious. An agency decision is arbitrary and capricious if it reflects an exercise of the agency’s will rather than an exercise of its judgment, In re Excess Surplus Status of Blue Cross & Blue Shield of Minn., 624 N.W.2d 264, 278-83 (Minn.2001), or if the agency relies on factors that the legislature did not intend the agency to consider, fails to consider an important aspect of the issue, provides an explanation that is contrary to the record, or renders a decision so implausible that it could not be ascribed to agency expertise, Trout Unlimited, Inc. v. Minn., Dep’t of Agric., 528 N.W.2d 903, 907 (Minn.App.1995) (citing Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2867, 77 L.Ed.2d 443 (1983)), review denied (Minn. Apr. 27, 1995).

An agency decision is not arbitrary and capricious if the agency, presented with opposing points of view, reaches a reasoned decision that rejects one point of view. CUP Foods, Inc. v. City of Minneapolis, 633 N.W.2d 557, 565 (Minn.App.2001), review denied (Minn. Nov. 13, 2001); In re Petition of Minn. Power for Authority to Change Its Schedule of Rates for Retail Elec. Serv., 545 N.W.2d 49, 51-52 (Minn.App.1996). And although an agency is not bound to follow its past decisions, it must provide a reasonable basis for departure from precedent. In re Petition of N. States Power Gas Util. For Authority to Change its Schedule of Gas Rates, 519 N.W.2d 921, 925 (Minn.App.1994); Peoples Natural Gas Co. v. Minn. Pub. Utils. Comm’n, 342 N.W.2d 348, 352-53 (Minn.App.1983), review denied (Minn. Apr. 24, 1984).

Izaak Walton’s argument is based in part on the PUC’s interpretation of the biomass provisions of section 216B.1691, which provide:

Of the eligible energy technology generation required under [subdivision 2(a)], clauses (1) and (2), not less than 0.5 percent of the energy must be generated by biomass energy technologies ... by 2005. By 2010, one percent of the eligible technology generation required under paragraph (a), clauses (1) and (2), shall be generated by biomass energy technologies.

Minn.Stat. § 216B.1691, subd. 2(b) (2004). The PUC observed that, with respect to the one-half-percent and one-percent requirements, the statute is ambiguous as to whether the percentage is taken from total retail electric sales or from the amount of energy generated by eligible energy technologies. After providing notice and soliciting comments, the PUC concluded that, under the plain language of the statute, the percentages pertain to the “eligible energy technology generation,” not total retail electric sales. Acknowledging dissent by interested parties on the issue, the PUC stated that it would inform the legislature about this potential “drafting anomaly.”

Our examination of the PUC’s reasoning establishes that the PUC’s decision reflects its judgment rather than its will. Subdivision 2(b) provides that “not less than 0.5 percent of the energy” must be generated from biomass energy technologies. The phrase “of the energy” plainly relates back to the opening phrase of the subdivision, which refers to “eligible energy technology generation” under subdivision 2(a). The only reasonable construction of this language is that .the percentages in subdivision 2(b) are applied to the amount of eligible energy technology generation, not total retail electric sales. ’

Because the PUC adopted a plain language construction for subdivision 2(b) but did not do so for the controverted portions of subdivision 2(a), Izaak Walton contends that the decision was arbitrary and capricious. This argument, however, erroneously presumes that the legal issues presented by subdivisions 2(a) and 2(b) are substantially identical and thus call for substantially identical construction. But subdivision 2(a) controls all eligible energy technologies and measures their implementation as- a percentage of total retail electric sales, whereas subdivision 2(b) controls biomass energy technologies as a subset of eligible energy technologies and does not relate its implementation to total retail electric sales. When considering these distinct provisions, the PUC carefully examined the statutory language and rendered its sound judgment. Accordingly, .the PUC s decision was not arbitrary and capricious.

DECISION

The PUC did not commit an error of law by concluding that the renewable energy objectives of Minn.Stat. § 216B.1691, subd. 2(a) (2004), direct each electric utility to make a good faith effort to ensure that 10 percent of total electric sales to retail customers is generated by eligible energy technologies by 2015, with a one-percent initial objective in 2005 and a benchmark increase of one percent annually. The PUC’s adoption of different methods for calculating electrical generation from biomass energy technologies as compared to all eligible energy technologies was not arbitrary and capricious.

Affirmed.

      . Our interpretation is supported in part by the legislative history of Minn.Stat. § 216B.1691 (2004). We may consider legislative hearings and proposed amendments to resolve ambiguity in statutory language. Baker v. Ploetz, 616 N.W.2d 263, 269 (Minn.2000). But statements on the meaning of a particular provision should be treated with caution. Handle With Care, Inc. v. Dep’t of Human Servs., 406 N.W.2d 518, 522 & n. 8 (Minn.1987).
      The guidelines for the amount of generation from eligible energy technologies were not settled until hearings before a conference committee on May 20, 2001. Describing the effect of the guidelines to the committee, Senate Counsel John Fuller explained:
      It used to be a requirement ... to phase in by 2015 ten percent renewable[ ] energy sources for the energy they provide to their retail customers in Minnesota. And now the way this language reads is that it's a goal. It's a goal for each of these entities to reach in the same timeframe the same percentages ....
      House Counsel Michael Bull added:
      The house [members of the conference committee] then agreed with the senate [members of the conference committee] to set some pretty good goals — actually, "objectives'' is the term we used — for renewable energy, still the one percent per year for the ten years.
      Hearing on S.F. No. 722 Before the Conference Comm. (May 20, 2001). Both of these statements support an inference that the legislature intended a minimum benchmark of one percent in 2005, to increase annually by one-percent increments through 2015.


author: ROBERT H. SCHUMACHER, Judge.

text:
    David R. RIPLEY, Respondent, v. Bonnie Jean PIEHL, Trustee, et al., Defendants, Option One Mortgage Corporation, Appellant.
    No. A04-1962.
    Court of Appeals of Minnesota.
    July 26, 2005.

      Ralph L. Moore, Stein Moore, P.A., St.. Paul, MN, for respondent.
    Bradley N. Beisel, Beisel Dunlevy, PA, Minneapolis, MN, for appellant.
    Considered and decided by PETERSON, Presiding Judge; SCHUMACHER, Judge; and WRIGHT, Judge.
   OPINION

ROBERT H. SCHUMACHER, Judge.

In this mortgage-priority dispute, appellant Option One Mortgage Corporation challenges the district court’s judgment that respondent David R. Ripley’s mortgage against the subject property is prior to and superior to its own. Option One argues it should be equitably subrogated to the interests of the creditors and lien-holders it paid off when it acquired a mortgage against the property without performing a title search sufficient to discover the existence of Ripley’s prior recorded interest. In the alternative, Option One argues Ripley’s mortgage should be equitably subordinated to its own. We affirm.

FACTS

In 1995, Gregory M. Hewitt purchased a parcel of real estate in Finland, Minnesota, and financed the purchase by way of a contract for deed. By the fall of 2002, the total value of the property was between $300,000 and $350,000; the encumbrances against the property. — consisting of two federal tax liens and the vendor’s contract-for-deed interest — exceeded $242,000. In order to pay off the encumbrances, Hewitt sought to refinance the property. In November 2002, he applied for a mortgage with Lake Superior Mortgage Company, which submitted the application to Option One. Lake Superior hired” Pioneer Abstract and Title of Duluth, Inc. to perform the title work and conduct the closing. On December 2, Pioneer Abstract conducted a title search and identified the encumbrances. On December 5, Option One conditionally agreed to loan Hewitt $267,750 in exchange for a 30-year mortgage.

At the same time Hewitt applied for the loan from Lake Superior, he owed Ripley, a business associate, more than $250,000. While his mortgage application was pending, Hewitt informed Ripley he planned to partially repay him with the proceeds from the refinancing, which he told Ripley would total approximately $60,000. On December 1, Hewitt and Ripley signed a written agreement, which stated Hewitt agreed to “assign the full amount of [his] equity in [the property], after the IRS and the original note have been paid by the escrow agent, to Ripley.” The agreement provided that although Hewitt had previously promised to pay Ripley $60,000, “under no circumstances shall [the amount paid] be less than $25,000.” When the refinancing had not yet occurred by January 2, 2003, Ripley requested and received from Hewitt a $250,000 mortgage against the property. Ripley recorded the mortgage on January 3. On January 28, Hewitt gave Ripley a quitclaim deed to the property.

The Option One mortgage closed on January 31. In the four weeks between the date that Ripley recorded his mortgage and the date of the Option One closing, Pioneer Abstract did not perform, and Option One and Lake Superior did not request, an updated title search. Neither Hewitt nor Ripley informed Option One during that period that Hewitt had granted Ripley a mortgage against the property. Option One was unaware at the closing that Ripley had acquired and recorded a mortgage against the property.

At the closing, Pioneer Abstract received approximately $270,000 from Option One. The closing statement reflects that the closing agent used those funds to immediately pay off the contract for deed and the tax liens, which together totaled approximately $242,000. Hewitt received approximately $15,000, which he subsequently paid to Ripley. At the closing, both Hewitt’s representative and Ripley’s representative signed or initialed documents representing to Option One, Lake Superior, and Pioneer Abstract that there were no encumbrances against the property other than the IRS liens and the contract for deed. It is undisputed that Option One believed that by loaning Hewitt money against the mortgage note and paying off the encumbrances, it was getting a “first position mortgage.”

The closing occurred on a Friday. The following Monday — February 3 — Ripley recorded the quitclaim deed he had received from Hewitt on January 28. Option One recorded its mortgage on February 7. The same day, Ripley transferred the property to Bonnie Jean Piehl, trustee of the Ripley family trust. Piehl recorded the warranty deed on February 12.

The only payment Hewitt ever made toward either the Ripley mortgage or the Option One mortgage was the approximately $15,000 he received at the January 31 closing and immediately gave to Ripley. By June, the Ripley mortgage was in default in the amount of approximately $255,000, and the Option One mortgage was in default in the amount of approximately $300,000.

On June 23, Ripley brought a mortgage-foreclosure action, against the property and requested a judicial determination that his mortgage was superior to the interest of any other party, including Option One. By answer and counter-claim, Option One alleged that because it had caused the encumbrances on the property to be paid at the January 31 closing, it was equitably subrogated to the interests of the IRS and the contract-for-deed vendor. It asserted that its interest in the property was therefore prior and superior to Ripley’s to the extent of the funds paid at the closing to satisfy the encumbrances, or approximately $242,000. Option One requested a judicial declaration that its mortgage was superior to Ripley’s.

Just before trial, Option One submitted an amended answer and counter-claim, alleging that Ripley had intentionally concealed the fact of his mortgage from Option One prior to the January 31 closing, Ripley knew Option One would not have closed its mortgage had it known of Ripley’s mortgage, and Ripley’s failure to act in good faith should cause his mortgage to be equitably subordinated to Option One’s.

Following trial, the district court concluded Ripley’s mortgage had priority over the Option One mortgage. The court found there was no evidence Ripley or his agents conspired to defraud Option One. Observing that Ripley had recorded his mortgage nearly a month before Option One’s closing and that Option One, a professional lender, had not excused its negligent failure to discover Ripley’s recorded interest, the court determined Option One had failed to show it was entitled to equitable relief. The court denied Option One’s posttrial motion.

ISSUE

Did the district court abuse its discretion in concluding Option One is not entitled to relief pursuant to either equitable subrogation or equitable subordination?

ANALYSIS

Option One argues first that its mortgage should have priority over Ripley’s by operation of the doctrine of equitable subrogation. Generally, the decision of whether to grant equitable relief is within the sound discretion of the district court and will not be reversed on appeal absent clear abuse. Nadeau v. County of Ramsey, 277 N.W.2d 520, 524 (Minn.1979). A party seeking to invoke an equitable doctrine bears the burden of proving the doctrine’s applicability. Heidbreder v. Carton, 645 N.W.2d 355, 371 (Minn.2002).

The Minnesota Recording Act establishes mortgage priority from the date of recording with the county recorder or the registrar of titles. Minn.Stat. § 507.34 (2004); see Home Lumber Co. v. Kopfmann Homes, Inc., 535 N.W.2d 302, 304 (Minn.1995) (discussing mortgage priority). A purchaser who has actual, implied, or constructive notice of inconsistent outstanding rights of others is not a bona fide purchaser entitled to protection under Minnesota’s Recording Act, and a previously recorded mortgage has priority over a subsequently recorded mortgage of which the subsequent purchaser has notice. Minnesota Cent. R. Co. v. MCI Telecommunications Corp., 595 N.W.2d 533, 537 (Minn.App.1999), review denied (Minn. Sept. 14, 1999). A purchaser is charged as a matter of law with constructive notice of any properly recorded instrument. Minn. Stat. § 507.32 (2004). “Constructive notice is a creature of statute and, as a matter of law, imputes notice to all purchasers of any properly recorded instrument even though the purchaser has no actual notice of the record.” Anderson v. Graham Inv. Co., 263 N.W.2d 382, 384 (Minn.1978).

It is undisputed here that Hewitt’s mortgage to Ripley was recorded on January 3, 2003, and that Hewitt’s mortgage to Option One was recorded on February 7. Option One argues, and Ripley does not dispute, that it did not have actual notice of the Ripley mortgage. But actual knowledge is not necessary, because constructive notice of the mortgage was imputed to Option One when Ripley recorded it. Therefore, Ripley’s mortgage is prior and superior to Option One’s unless, as Option One contends, equitable subrogation requires that the priority be reversed.

Minnesota has long recognized the doctrine of equitable subrogation. See, e.g., Emmert v. Thompson, 49 Minn. 386, 52 N.W. 31 (1892). Under the doctrine, a person who has discharged the debt of another may succeed in substitution to the rights and position of the satisfied creditor. First Nat’l Bank of Menahga v. Schunk, 201 Minn. 359, 363, 276 N.W. 290, 292-93 (1937); Wells Fargo Home Mortg., Inc. v. Chojnacki, 668 N.W.2d 1, 5 (Minn.App.2003). “This equitable principle will be applied in the interest of substantial justice ... [when] one party has provided funds used to discharge another’s obligations if (a) the party seeking subrogation has acted under a justifiable or excusable mistake of fact and (b) injury to innocent parties will otherwise result.” Carl H. Peterson Co. v. Zero Estates, 261 N.W.2d 346, 348 (Minn.1977) (footnote omitted).

“Although [equitable] subrogation is a highly favored doctrine, it is not an absolute right, but rather, one that depends on the equities and attending facts and circumstances of each case.” Universal Title Ins. Co. v. U.S., 942 F.2d 1311, 1315 (8th Cir.1991). In general, the equity of the party seeking subrogation must be clear and substantial, and superior to that of other claimants. Id. Subrogation cannot be invoked where it would work an injustice, violate sound public policy, or result in harm to innocent third parties. Id. It is axiomatic that as an equitable doctrine, subrogation “aids the vigilant, and not the negligent.” Sinell v. Town of Sharon, 206 Minn. 437, 439, 289 N.W. 44, 46 (1939) (quotation omitted).

Jurisdictions around the country have adopted three different approaches in determining whether to apply equitable subrogation under circumstances in which a third party holds a lien on the property at the time the second lender pays off the former encumbrance. The first approach reasons that actual knowledge of an existing lien precludes the application of equitable subrogation, but constructive knowledge does not. See, e.g., Osterman v. Baber, 714 N.E.2d 735, 739 (Ind.Ct.App.1999). The second approach bars the application of equitable subrogation when the party seeking subrogation possesses either actual or constructive notice of an existing lien. See, e.g., Harms v. Burt, 30 Kan.App.2d 263, 40 P.3d 329, 332 (2002).

The third approach, adopted by the Restatement, disregards actual or constructive notice and concentrates on whether the junior lienholder will be prejudiced by subrogation. See Restatement (Third) of Property: Mortgages § 7.6 (1997). Under the Restatement, a mortgagee will be sub-rogated when it pays the entire loan of another as long as the mortgagee “was promised repayment and reasonably expected to receive a security interest in the real estate with the priority of the mortgage being discharged, and if subrogation will not materially prejudice the holders of intervening interests in the real estate.” Id.

Minnesota has adopted the second approach (actual or constructive notice of an existing lien bars equitable subrogation) with the added criterion that when a sophisticated party — such as a professional lender — is seeking subrogation, it will be held to a higher standard for the purpose of determining whether it has acted under a justifiable or excusable mistake of fact in failing to duly investigate prior liens. Thus, in Peterson, the court held that because a “bank is a professional lender with knowledge of construction in progress giving rise to inchoate liens for contractors and materialmen ... [i]ts failure to consider potential priority conflicts and to obtain subordination agreements from them ... cannot be deemed justifiable as an excusable mistake.” 261 N.W.2d at 348. See also Universal Title, 942 F.2d at 1317 (noting that “Minnesota courts impose stricter standards on professionals than lay persons in assessing whether mistakes are ‘excusable’ for purposes of the doctrine of legal subrogation”).

We conclude that Peterson is apposite and controlling here. In Peterson, a bank granted a loan against a second mortgage without considering whether existing mechanics’ liens against the first mortgage might have priority. 261 N.W.2d at 347. The bank argued the second mortgage should be subrogated to the first mortgage and therefore granted priority over the mechanics’ liens to the extent that the proceeds of' the second loan were used to clear the balance of the first mortgage and delinquent taxes. Id. at 348. The supreme court rejected this argument, holding that the bank’s failure to determine the existence of such liens was not excusable in light of its special financial expertise:

The bank in this case has not demonstrated such equities in its favor. Unlike the unsophisticated individual wholly unaware of a judgment lien, the bank is a professional lender with knowledge of construction in progress giving rise to inchoate liens for contractors and mate-rialmen. Its failure to consider potential priority conflicts and to obtain subordination agreements from them, as well as its failure to ascertain that its mortgagor was maintaining insurance in force, cannot be deemed justifiable as an excusable mistake.

Id.

In Universal Title, the Eighth Circuit Court of Appeals, applying Minnesota law, held that a title insurer’s failure to perform a title search- — which would have disclosed the existence of prior federal tax liens against the subject property — was not an excusable mistake of fact.warranting application of its subrogation rights as against the government. Id. at 1320. The court wrote:

We believe that the Peterson case indicates that the Minnesota courts impose stricter standards on professionals than lay persons in assessing whether mistakes are “excusable” for purposes of the doctrine of [equitable] subrogation, especially when the professional relationship .arises out of a commercial transaction involving consideration. It is unreasonable to believe that the Minnesota Supreme Court would distinguish a title insurer from a bank; both are professional enterprises experienced in the area of secured transactions involving real property.

Id. at 1317. The court also stated:

Universal is a professional enterprise, which is in the business of insuring marketable title to real property. Although Universal contends that it exercised prudent business practices in investigating the title to the ... property, it fails to explain what precautions it took or why it failed to discover the properly recorded federal tax lien. Its claim that it sought and received assurances from the seller that there were no liens, other than those discharged at closing, is patently insufficient.... Universal’s inability to explain its failure to find the properly recorded federal tax lien is significant, because Universal had the burden of persuasion at trial of demonstrating its entitlement to subro-gation. In light of the Minnesota Supreme Court’s decision in Peterson, we hold that ... Universal’s failure to detect the federal tax lien resulted from negligence, and therefore, it is not enti-tied to be legally subrogated to the rights of the prior senior lienholders.

Id. at 1318 (citation omitted).

Here, Option One failed to conduct — on its own or through its agents — a second title search in the nearly two months between the first search and the January 31 closing. Such a search would have disclosed the existence of Ripley’s mortgage interest in the property. We further observe, similar to the Eighth Circuit’s conclusion in Universal, that in light of Option One’s professional experience in processing loan applications and preparing mortgages for closing, its attempt to justify its ignorance of Ripley’s interest with the assertion that it sought and received assurances from Ripley and Hewitt that there were no liens, other than those discharged at closing, is patently insufficient. Id. Because Option One offers only negligence to explain its failure to conduct the second search, we conclude it is no more entitled to be subrogated to the rights of the prior senior lienholders than was the bank in Peterson or the title insurer in Universal Title.

Option One contends the Minnesota approach frustrates the fundamental purpose of equitable subrogation by giving undue weight to the reasons the party seeking relief failed to acquire knowledge of prior recorded interests instead of focusing éx-clusively — as does the Restatement — on whether subrogation will satisfy the parties’ original expectations without materially prejudicing other lienholders. Option One consequently urges that we adopt the Restatement position. It may well be, as Option One contends, that the Restatement would favor subrogating it to the prior lienholders’ interests because doing so would presumably put both it and Ripley in their expected positions without prejudicing Ripley, who would be, in the words of the Restatement quoted by Option One, “no worse off than before the senior obligation was discharged.” Restatement (Third) of Property: Mortgages § 7.6, cmt. a..

But this court is bound by the supreme court’s holding in Peterson to consider the circumstances of Option One’s failure to perform an updated title search. And Peterson further mandates that we hold the actions of a sophisticated party — such as a professional mortgage company or title company — to a stricter standard for the purpose of equitable subrogation and deny subrogation where the sophisticated party’s negligence is inexcusable under the higher standard. Option One provided no excuse — save for simple oversight — for its failure to have a new title search performed in the nearly two months that elapsed between the title search performed on December 2, 2002, and the mortgage closing of January 31, 2003. This is simply insufficient, under Peterson, to excuse its failure to discover Ripley’s prior interest.

In urging that we adopt the Restatement, Option One acknowledges that this court may not make new law or disregard an established position taken by the supreme court, but contends that because the supreme court has never specifically addressed whether the Restatement position should be adopted, this court may do so without exceeding its authority. But because applying the Restatement approach here would likely lead to a different result than would applying the Peterson approach, adopting the Restatement would, in fact, impermissibly create a new rule of law. See St. Aubin v. Burke, 434 N.W.2d 282, 284 (Minn.App.1989) (refusing to adopt new rule of law, noting under Minnesota Court of Appeals Internal Rules this court will make new law “[o]nly when there are no statutory or judicial precedents to follow”), review denied (Minn. Mar. 29, 1989).

We are sympathetic to Option One’s equitable position insofar as it appears to have unwittingly paid off encumbrances to Ripley’s benefit, thereby reducing its own equity in the property. It also appears that because Ripley knew when he received the mortgage from Hewitt that Hewitt’s interest in the property was significantly encumbered, subrogating Option One to the lienors’ position would in fact put the parties in the position they expected to be in in the first place. But the fact remains that under Peterson, Option One’s negligent failure to discover Ripley’s interest is not excused and subrogation is barred.

Option One also argues the district court abused its discretion by failing to grant it equitable relief by subordinating Ripley’s mortgage to its own. We disagree. Option One’s theory of equitable subordination relies entirely on its assertion that Ripley and Hewitt fraudulently and deceptively concealed Ripley’s interest from Option One in order to induce it to enter into a mortgage agreement with Hewitt. But the district court specifically found that there “is no evidence that Ripley or anyone on Ripley’s behalf conspired with Hewitt or anyone on behalf of Hewitt to induce Option One or Lake Superior [Mortgage Company] or Pioneer Abstract to allow Ripley to obtain a first priority lien for his mortgage.” This finding is supported by the record, and Option One provides no basis for us to disregard it now.

DECISION

In order to warrant equitable relief under the factual circumstances of this case, Option One was required to demonstrate either that its failure to discover Ripley’s properly recorded mortgage in the subject property was an excusable mistake of fact under the standard applicable to professional lenders or that Ripley and Hewitt fraudulently induced Option One to accept a mortgage from Hewitt. Because it has done neither, we hold that the district court properly denied Option One relief under both the doctrine of equitable subro-gation and the doctrine of equitable subordination.

Affirmed.