                          This opinion will be unpublished and
                          may not be cited except as provided by
                          Minn. Stat. § 480A.08, subd. 3 (2014).

                               STATE OF MINNESOTA
                               IN COURT OF APPEALS
                                     A14-1131

                                   Melrose Gates, LLC,
                                       Appellant,

                                             vs.

                                     Chor Moua, et al.,
                                       Respondents.

                                   Filed April 13, 2015
                                 Reversed and remanded
                                     Stauber, Judge

                              Hennepin County District Court
                                File No. 27-CV-13-20229

Steven L. Theesfeld, Yost & Baill, L.L.P., Minneapolis, Minnesota (for appellant)

Mark K. Hellie, Regional Legal Staff Attorney, Eden Prairie, Minnesota (for
respondents)

       Considered and decided by Stauber, Presiding Judge; Schellhas, Judge; and

Hooten, Judge.

                         UNPUBLISHED OPINION

STAUBER, Judge

       On appeal from summary judgment dismissing appellant-landlord’s insurer’s

subrogation action against respondent-tenants to recover damages from a fire, appellant-

landlord argues that the district court misapplied the case-by-case analysis set forth in

RAM Mut. Ins. Co. v. Rohde, 820 N.W.2d 1 (2012). Because the parties’ lease agreement
clearly reflects that it was reasonably anticipated by the parties that respondent-tenants

would be liable for a property loss caused by respondent-tenants and paid for by

appellant-landlord’s insurer, we reverse and remand.

                                          FACTS

         The facts of this case are undisputed. In September 2008, respondents Chor Moua

and Maisse Xiong entered into a lease agreement with appellant Melrose Gates, LLC to

rent and occupy an apartment located in Brooklyn Center. The apartment was located in

a building having approximately 36 residential units, which was part of an apartment

complex consisting of seven buildings. The parties’ lease agreement expired in April

2009, but the agreement was extended under its original terms on a month-to-month

basis.

         In June 2012, respondents’ apartment and another unit in the same building were

damaged by a fire. For the purposes of this appeal, the parties agree that respondents

caused the fire by negligently disposing of cigarettes on their deck. Appellant’s

insurance policy of approximately $19 million covered all seven buildings in the complex

and appellant’s insurer paid approximately $470,000 to repair the damage.

         Respondents had a renter’s insurance policy with a limit of $300,000 for personal

liability. Appellant’s insurer commenced this subrogation action against respondents in

November 2013. After cross-motions for summary judgment, the district court granted

respondents’ motion and dismissed appellant’s subrogation action with prejudice. The

district court concluded that under the standard set forth in Rohde, 820 N.W.2d at 14-16,

appellant “may not maintain a subrogation action against [respondents] because the


                                              2
parties did not reasonably expect that [respondents] would be liable for their losses.”

This appeal followed.

                                       DECISION

       A district court must grant summary judgment “if the pleadings, depositions,

answers to interrogatories, and admissions on file, together with the affidavits, . . . show

that there is no genuine issue as to any material fact and that either party is entitled to a

judgment as a matter of law.” Minn. R. Civ. P. 56.03. An appellate court reviews a

“district court’s legal decisions on summary judgment under a de novo standard, and

view[s] the evidence in the light most favorable to the party against whom judgment was

granted.” Rohde, 820 N.W.2d at 6 (quotations and citation omitted).

       “Subrogation ‘is the substitution of another person in place of the creditor to

whose rights he or she succeeds in relation to the debt, and gives to the substitute all the

rights, priorities, remedies, liens, and securities of the person for whom he or she is

substituted.’” Id. at 5 (quoting 16 Lee R. Russ & Thomas F. Segalla, Couch on

Insurance § 222:5 (3d ed. 1995)). Subrogation in the insurance context “involves the

substitution of an insurer (subrogee) to the rights of the insured (subrogor).” Medica, Inc.

v. Atl. Mut. Ins. Co., 566 N.W.2d 74, 76 (Minn. 1997). “Upon payment of a loss, the

insurer is subrogated in a corresponding amount to the insured’s right of action against

any third party whose wrongful conduct caused the loss.” Rohde, 820 N.W.2d at 5-6.

But, subrogation “arises only with respect to rights of the insured against third persons to

whom the insurer owes no duty.” Id. at 6 (quotations omitted). Thus, the general rule




                                               3
has been “that no right of subrogation can arise in favor of an insurer against its own

insured.” Id. (quotations omitted).

       Until recently, this general rule has been applied in Minnesota to prohibit a

landlord’s insurer from maintaining a subrogation action against the landlord’s tenants

because the tenant was a co-insured under the landlord’s policy. United Fire & Casualty

Co. v. Bruggeman, 505 N.W.2d 87, 89-90 (Minn. App. 1993), review denied (Minn. Oct.

19, 1993), overruled by Rohde, 820 N.W.2d at 13. In Bruggeman, a landlord’s insurer

brought a subrogation action against tenants occupying the landlord’s property, alleging

negligence in causing fire damage to the building. Bruggeman, 505 N.W.2d at 88. This

court determined that because both the tenant and the landlord had an insurable interest in

the building structure (i.e., the possessory interest of the tenant and the ownership interest

of the landlord), the tenant was essentially a co-insured on the landlord’s fire insurance

policy with respect to the building structure. Id. at 89-90. This court then concluded that

because the tenants were effectively co-insureds under the landlord’s policy, and because

an insurer cannot subrogate against its own insured, the insurer could not recover

amounts paid to the landlord under its policy against the co-insured tenants. Id. In so

concluding, this court reasoned:

              If . . . each tenant is responsible for all damages arising from
              its negligence in causing a fire and if each tenant was
              therefore responsible for its own fire insurance, the same
              property would be insured many times over. While this may
              provide insurance companies a welcome windfall, it would be
              contrary to economic logic and common sense.

Id. at 89.



                                              4
       In 2012, the supreme court in Rohde overruled the rule set forth in Bruggeman,

and adopted a “case-by-case approach” to ascertain whether an insurer may maintain a

subrogation action against the negligent tenant of its insured. Rohde, 820 N.W.2d at 13-

14. Under this approach, an insurer is able to maintain a subrogation action against a

negligent tenant when:

              Based on the lease as a whole, along with any other relevant
              and admissible evidence, the district court determines that it
              was reasonably anticipated by the landlord and the tenant that
              the tenant would be liable, in the event of a tenant-caused
              property loss paid by the landlord’s insurer, to a subrogation
              claim by the insurer.

Id. at 16 (quotations omitted).

       Here, after applying the standard set forth in Rohde, the district court declined to

allow appellant to maintain a subrogation action against respondents based on several

factors. First, the district court determined that the lease “as a whole” did not show that

the parties “intended or reasonably expected” that respondents would be liable because

the lease (1) did not “allocate the risk of loss such as that caused by fire; it merely

provides that [appellant] may decide to terminate the Lease in the event of catastrophic

damage that destroys the apartment” and (2) the lease did not require either party to

purchase insurance, it merely recommended it. Second, the district court referenced the

$19 million dollar insurance policy purchased by appellant, and the renter’s insurance

policy with a $300,000 coverage limit purchased by respondents, and concluded that the

“types of insurance purchased by the parties do not support the conclusion that the parties

reasonably expected that [respondents] would be held responsible for [the] losses.”



                                               5
Third, the district court concluded that the “principles of equity do not permit” the

subrogation action to proceed because the apartment complex was large and it was

“unlikely that [respondents] had an insurable interest in the property outside their unit or

would have been permitted to purchase an insurance policy intended to cover fire damage

to the complex.” Finally, the district court concluded that appellant’s insurer could not

have reasonably expected to recover from respondents because, at the time the parties

signed the lease in 2008, Bruggeman, which barred subrogation actions, was the law.

         Appellant argues that the district court erred by concluding that it was not allowed

to maintain its subrogation action. In making this argument, appellant argues that our

standard of review is de novo. Conversely, respondents argued in their brief that the

applicable standard of review is an abuse of discretion.1

         We acknowledge that our supreme court has held that “[g]ranting equitable relief

is within the sound discretion of the [district] court [and] [o]nly a clear abuse of that

discretion will result in reversal.” Nadeau v. Cty. of Ramsey, 277 N.W.2d 520, 524

(Minn. 1979); see also Citizens State Bank v. Raven Trading Partner, Inc., 786 N.W.2d

274, 277 n.2 (Minn. 2010) (reviewing grant of summary judgment involving equitable

subrogation for abuse of discretion). But in SCI Minn. Funeral Servs., Inc. v. Washburn–

McReavy Funeral Corp., the supreme court held that a de novo standard applies when

reviewing summary judgment on equitable issues and that Citizens is not necessarily

controlling on the standard of review. 795 N.W.2d 855, 860-61 (Minn. 2011). And in

discussing the applicable standard of review, the supreme court in Rohde quoted SCI

1
    Respondents conceded at oral argument that our standard of review is de novo.

                                               6
Minn. Funeral Servs. in noting that “[w]hile subrogation is an equitable remedy, a

standard of review more deferential than de novo, which may be applicable on appeal

from summary judgment ‘where after balancing the equities, the district court determines

not to award equitable relief,’ is not applicable here where the district court determined as

a matter of law that [the landlord] could not maintain a subrogation action.” Rohde, 820

N.W.2d at 6 n.3 (quoting SCI Minn. Funeral Servs., 795 N.W.2d at 860-61). Moreover,

the material facts here are not in dispute. See Leamington Co. v. Nonprofits’ Ins. Ass’n,

615 N.W.2d 349, 353 (Minn. 2000) (stating that a de novo standard of review is

applicable when the material facts are not in dispute). Therefore, we review de novo

whether the district court erred by concluding that appellant may not maintain a

subrogation action against respondents.

       Appellant argues that the district court misapplied the case-by-case analysis set

forth in Rohde because the parties’ lease contains a provision that “generally hold[s]

[respondents] responsible for damage and provides notice that [appellant] will not be

responsible for damage caused by the negligence of its tenants-residents.” Appellant

argues that because this provision “provided notice,” and therefore established a

“reasonable expectation, to all parties that [respondents] will be responsible for any

damage caused by their negligence,” the district court erred by dismissing the

subrogation action.

       We agree. Our supreme court in Rohde stated that the “case-by-case analysis

begins with the written documents executed by the parties,” and that “[o]ften a court will

be able to determine the expectations of the parties from the language of the lease itself.”


                                             7
820 N.W.2d at 14-15. The court reasoned that “[i]n determining the expectations of the

parties as articulated in the lease, courts should look for evidence indicating which party

agreed to bear the risk of loss for a particular type of damage.” Id. at 15. The court

further explained that if a lease requires a tenant to procure insurance covering a

particular type of loss, that requirement constitutes evidence that the parties reasonably

expected that the tenant would be liable for that particular loss, which would allow

another insurer who pays the loss to bring a subrogation action against the tenant. Id.

But the supreme court specifically noted that a determination that there is no express

agreement with respect to a particular loss does not preclude a determination of the

reasonable expectation of the parties based on other “provisions in the lease and on other

relevant evidence.” Id. at 15 n.11.

       Here, the lease unambiguously provides that “RESIDENT SHALL

REIMBURSE MANAGEMENT FOR: . . . Any loss, property damage, or cost of repair

or service (including plumbing problems) caused by negligence or improper use by

RESIDENT, his/her agents, family, or guests.” Although this language does not identify

a particular type of loss that need be covered by insurance, such particularity is not

required by Rohde in order to maintain a subrogation action where the reasonable

expectation of the parties is clear by any and all provisions in the lease. See id. The

above quoted language from the parties’ lease is unambiguous and puts the tenant on

notice that appellant would seek reimbursement for any damage resulting from the

tenant’s negligence. Moreover, another section of the lease provides that

“MANGEMENT is not responsible for any damage or injury that is done to RESIDENT


                                              8
or his/her property, guests or their property that was not caused by MANGEMENT.”

And the lease “recommends that RESIDENT obtain Renter’s Insurance to protect against

injuries or property damage.” This language further reflects an intention that each party

be responsible for damage caused by their actions.

       Respondents argue, and the district court concluded, that the section of the lease

allowing appellant to cancel the lease in the event the apartment is destroyed

demonstrates that the parties did not reasonably anticipate that respondents could be

liable to a subrogation claim. We disagree. The section referenced by respondents states

that “[i]f the Apartment is destroyed or damaged so it is unfit to live in due to any cause,

MANAGEMENT may choose not to rebuild or restore the Apartment and/or may

terminate this Lease immediately with no further responsibility to RESIDENT.” But this

language simply allows appellant to terminate the lease if the apartment is destroyed.

And we see nothing in this language that conflicts with the provisions of the lease stating

that respondents are responsible for damage done to the apartment as a result of their

negligence. Because the plain language of the lease unambiguously states that

respondents would be responsible for any damage to the apartment that resulted from

their negligence, the parties reasonably anticipated that respondents would be liable to a

subrogation claim.

       Finally, because the parties’ reasonable expectations can be determined from the

plain language of the lease, we note that the same result is required after consideration of




                                              9
other relevant evidence.2 See Rohde, 820 N.W.2d at 15 (stating that “in addition to the

actual language of a lease or insurance policy, courts engaged in a case-by-case analysis

may also examine any other admissible evidence shedding light on the expectations of

the parties” (quotations omitted)). The undisputed evidence reflects that respondents

obtained a renter’s insurance policy with a $300,000 policy limit for “personal liability,”

a limit higher than would ordinarily be necessary to insure a tenant’s personal property.

A “personal liability” policy also indicates an intent to insure any damage to the building

due to respondents’ negligence. And although respondents’ $300,000 policy limit is

insignificant compared to appellant’s policy coverage, the district court’s reliance on this

disparity is misplaced. Appellant’s insurance policy covered the entire apartment

complex of seven buildings. In contrast, respondents require far less coverage. The

$300,000 policy reflects such coverage and further supports the conclusion that the

parties reasonably anticipated that respondents would be liable to a subrogation claim by

appellant’s insurer in the event of a property loss caused by respondents that was paid by

the appellant’s insurer. Therefore, we conclude that the district court erred by granting

summary judgment in favor of respondents and dismissing appellant’s subrogation claim,

and we reverse and remand for proceedings consistent with this opinion.

       Reversed and remanded.




2
  In our consideration of all relevant evidence, we note that the same result would be
reached under either a de novo standard of review or a standard of review more
deferential.

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