RKL Landholdings, LLC v. Seneca Specialty Insurance Company, 1563 University Ave, LLC

This opinion will be unpublished and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
A14-0781

RKL Landholdings, LLC,
Appellant,

vs.

Seneca Specialty Insurance Company,
Respondent,

1563 University Ave, LLC,
Appellant.

Filed May 4, 2015
Affirmed
Chutich, Judge

Ramsey County District Court
File No. 62-CV-10-2352

Daniel L. M. Kennedy, Kennedy Law Group, Minneapolis, Minnesota (for appellants)

Paul C. Peterson, William L. Davidson, João C. Medeiros, Lind, Jensen, Sullivan &
Peterson, P.A., Minneapolis, Minnesota; and

Christopher P. Leise (pro hac vice), White and Williams LLP, Cherry Hill, New Jersey (for
respondent)

Considered and decided by Chutich, Presiding Judge; Rodenberg, Judge; and

Smith, Judge.
 UNPUBLISHED OPINION

CHUTICH, Judge

Appellants RKL Landholdings, LLC and 1563 University Ave, LLC request a new

trial, arguing that the district court improperly instructed the jury, erred in admitting an

exhibit, and erred in denying their motion for judgment as a matter of law. Because the

jury instructions were proper, the district court did not err in admitting an exhibit, and the

district court properly denied judgment as a matter of law, we affirm.

FACTS

In July 2009, an 8,100 square-foot office building located at 1563 University

Avenue West (the property) was set on fire and damaged. The police concluded that the

fire was arson. The property’s owner, RKL Landholdings, LLC, sought insurance

proceeds from its insurer, respondent Seneca Specialty Insurance Company (Seneca).

Seneca refused coverage, and RKL filed a declaratory action against Seneca. RKL also

sued 1563 University Ave, LLC (1563 University), the entity that purchased the property

under a contract for deed and subsequently defaulted after the fire.1 Seneca

counterclaimed, alleging, among other things, that RKL and 1563 University were

responsible for the fire.

During a seven-day trial, the following relevant facts emerged. In 2002 or 2003,

Emad Abed, the sole owner of RKL, bought the property for $345,000. In January 2008,

the property sustained an estimated $554,254 in water damage, and Abed received

1
After summary judgment, RKL settled with 1563 University in exchange for 1563
University signing over all claims to any amount recovered under the Seneca insurance
policy. The record does not reflect when this settlement occurred.

2
$152,824 from an insurance claim settlement with the property’s then-current insurer.

Abed did not use the proceeds to repair the property. Immediately following the water

damage, the property’s remaining tenant left.

Following the water damage, in June 2008, the City of Saint Paul declared the

property vacant and sent Abed a notice revoking the property’s certificate of occupancy.

The city also sent Abed two additional notices in November and December 2008,

requiring the property to be registered as a vacant building. Abed testified that he did not

remember receiving the notices and assumed that he did not receive them because he

moved condominium units in June 2008. Abed’s new condominium unit, however, was

located in the same building as his previous unit, which he had sold to a friend.2

In February 2009, Abed sold the property to 1563 University for $2,000,000 on a

contract for deed. The contract provided for a $5,000 down payment, with the remaining

$1,995,000 payable in three months. Faisal Dahdal, the sole owner of 1563 University,

had not attempted to secure any financing before signing the contract for deed, and when

he applied for loans afterwards, he was denied. Four years before Dahdal signed the

contract for deed, he had filed for bankruptcy, and in 2008, his gross reported income was

$7,550. Dahdal testified, however, that in 2007 he inherited assets in his home country of

Jordan worth $1,500,000.

Before Dahdal purchased the property, he also did not have anyone inspect it,

appraise it, or run a title report. He was also unaware of the property’s preexisting water

2
The woman who purchased the condominium from Abed is the same woman who
provided Abed’s alibi for the weekend that the property caught fire.

3
damage until May 2009—four months after he signed the contract for deed—but testified

that his assessment of the property’s value would not have changed had he known of the

water damage.

At trial, Seneca asserted a defense of misrepresentation, alleging that Dahdal and

Abed had engaged in multiple forms of misrepresentation throughout the insurance

application process that rendered Seneca’s policy void. Specifically, Seneca argued that

Dahdal and RKL’s contract for deed was a sham meant to secure higher coverage from

Seneca that far exceeded the property’s actual value. In furtherance of this defense,

Seneca introduced the only insurance application that Seneca had on file for the property.

The entity name on the insurance application was “1563 West University Ave, LLC,” but

Dahdal’s entity that purchased the property was named “1563 University Ave, LLC.”

The discrepancy in applicant names arose from a previous potential buyer for the

property, A.S. One year before Abed sold the property to Dahdal, Abed had negotiated

to sell the property to A.S., who wanted to purchase the property using the entity name

1563 West University Ave, LLC. In the midst of negotiations, Abed introduced A.S. to

an insurance agent with the Glover Insurance Agency, Blaine Williams. Williams filled

out an insurance application for the property at the meeting. The application stated that

the property was 100% occupied and had not suffered any losses in the past five years.

Williams testified that Abed provided the majority of the information for the application.3

3
Williams admitted that he did not specifically remember which questions A.S. answered
and which questions Abed answered, but he testified that A.S. supplied very little
information.

4
 The insurance application was then forwarded to Burns & Wilcox, a surplus lines

insurance broker, who in turn forwarded it to Seneca. On October 7, 2008, Seneca issued

a commercial property quote for the property stating that coverage was contingent upon

Seneca receiving financials from A.S. within 10 days. A.S. ultimately did not buy the

property or provide Seneca with the requisite financials.

On February 4, 2009, Seneca received a request to bind coverage on the property.

In response, Seneca issued a commercial property binder to confirm coverage, listing the

insured as “1563 West University Ave LLC.” The second page of the binder stated that

approval was subject to Seneca’s receipt of acceptable financials within 10 days and an

inspection of the property. After prompting from the Glover Insurance Agency, Dahdal

eventually produced the requisite financials; however, the financials that Dahdal

produced were not from 1563 University—they were from another company affiliated

with Dahdal’s family’s business.

On March 2, 2009, Seneca issued the property’s finalized policy and sent an

inspector out to examine the property. Abed and Dahdal were present during the

inspection. The inspector’s report said that no losses were learned of or reported and that

two full-time employees occupied the property. Upon learning that the actual occupancy

was far less than the 100% stated on the property’s insurance application, Seneca e-

mailed Burns & Wilcox requesting an explanation for the discrepancy. Burns & Wilcox

contacted Bernard Glover, the owner of Glover Insurance Agency, who in turn contacted

5
Abed.4 Each time Glover asked Abed about the occupancy, Abed told him that

contractors would be working on the property. Glover also warned Abed that Seneca

would cancel the policy if the financials and occupancy issues remained unresolved.

Seneca’s senior underwriter testified that no information was ever provided before the

fire to explain the occupancy discrepancy.

In May 2009, the contract for deed’s $1,995,000 balloon payment became due.

Dahdal could not make the payment, and Abed agreed to two successive two-month

extensions. On July 8, 2009, during the second of Dahdal’s two extension periods, the

property was set on fire. The fire investigator determined that the fire originated on the

second floor, had multiple points of origin, and was accelerated with an ignitable liquid.

At the time of the fire, RKL had also insured the property with Evanston Insurance

Company for $1,000,000.5 Abed testified that he never submitted a claim under the

Evanston policy, but in an affidavit he also stated that Evanston denied coverage. At

trial, Abed was asked why the property’s second policy with Seneca—obtained only a

year after the first policy with Evanston—was worth twice as much. Abed said that

$2,000,000 was appropriate because it reflected the sale price.

Before trial, the parties moved for summary judgment. Seneca argued, in part,

that the contract for deed was not a genuine business transaction, and thus the insurance

policy that 1563 University procured was invalid. The district court denied the motion,

concluding that “[t]he contract for deed as between RKL and 1563 [University was]

4
Bernard Glover handled the property’s insurance policy after Williams left.
5
RKL secured this insurance policy one year before the fire.

6
valid.” The district court further reasoned that whether an insurance contract existed

between Seneca and 1563 University was an issue of fact for a jury.

In June 2013, a seven-day jury trial occurred. Before the jury adjourned to

deliberate, RKL and Seneca exchanged drafts of proposed jury instructions and special-

verdict forms. From these drafts, the district court composed final instructions and a

special-verdict form. After ten hours of deliberation, the jury returned the following

answers to the special verdict form:

1. Was the contract for deed a genuine business
transaction?
No.
2. Did 1563 University Ave, LLC make a material
misrepresentation to Seneca Specialty Insurance
Company in the application process?
Yes.
3. Did RKL Landholdings, LLC make a material
misrepresentation to Seneca Specialty Insurance
Company in the application process?
Yes.
4. Did 1563 University Ave LLC set the fire or arrange to
have it set?
No.
5. Did RKL Landholdings, LLC set the fire or arrange to
have it set?
No.
6. Was 1563 University Ave. vacant for a period of 60
consecutive days prior to the fire?
Yes.

Based on the jury’s findings, the district court entered judgment in favor of Seneca. The

district court concluded that RKL and 1563 University could not recover under the

property’s Seneca policy because the contract for deed was not a genuine business

transaction and they made material misrepresentations in the application process.

7
 RKL moved for judgment as a matter of law and for a new trial, which the district

court denied. RKL appealed.

DECISION

I. Jury Instructions

District courts are given broad discretion to determine whether to use special

verdicts and to decide what form the special verdicts should take. Poppler v. Wright

Hennepin Coop Elec. Ass’n, 845 N.W.2d 168, 171 (Minn. 2014). District courts also

have considerable latitude in selecting the appropriate language for jury instructions, and

this court reviews the instructions in their entirety. State v. Gatson, 801 N.W.2d 134, 147

(Minn. 2011). This court will not reverse jury instructions that state the applicable law

fairly and correctly. Daly v. McFarland, 812 N.W.2d 113, 122 (Minn. 2012). A new

trial is only required if the jury instructions were erroneous and the resulting error was

prejudicial or if the effect cannot be determined. Morlock v. St. Paul Guardian Ins. Co.,

650 N.W.2d 154, 159 (Minn. 2002). The district court’s refusal to give a requested jury

instruction is reviewed for an abuse of discretion. Daly, 812 N.W.2d at 122.

“A party who objects to an instruction or the failure to give an instruction must do

so on the record, stating distinctly the matter objected to and the grounds of the

objection.” Minn. R. Civ. P. 51.03(a). An objection is timely if (1) the party was

informed of the instruction before the jury receives them and the party properly objects

before final jury arguments, or (2) if a party that was not informed of the instruction

properly objects upon learning of it. Minn. R. Civ. P. 51.01(b).

8
 If a party fails to properly object to a jury instruction, this court may nonetheless

review the instruction for plain error. Minn. R. Civ. P. 51.04(b); Frazier v. Burlington N.

Santa Fe Corp., 811 N.W.2d 618, 626 (Minn. 2012). The plain-error test requires

(1) error, (2) that is plain, and (3) that affects a party’s substantial rights. Frazier, 811

N.W.2d at 626. Error is plain if it “‘contravenes case law, a rule, or a standard of

conduct.’” Poppler v. Wright Hennepin Coop. Elec. Ass’n, 834 N.W.2d 527, 552 (Minn.

App. 2013) [hereinafter Poppler II] (quoting State v. Ramey, 721 N.W.2d 294, 302

(Minn. 2006)), aff’d, 845 N.W.2d 168 (Minn. 2014).

Furthermore, reversal is not mandated if a party satisfies the plain-error test;

rather, reversal is only warranted if necessary “‘to ensure fairness and the integrity of the

judicial proceedings.’” Frazier, 811 N.W.2d at 626-27 (quoting State v. Griller, 583

N.W.2d 736, 740 (Minn. 1998)). The plain-error test “‘is a stringently limited standard

of review, especially in the civil context, and must result in a miscarriage of justice in

order to compel reversal.’” Poppler II, 834 N.W.2d at 551 (quoting Lopez v. Tyson

Foods, Inc., 690 F.3d 869, 876 (8th Cir. 2012)).

Genuine Business Transaction

RKL and 1563 University argue that the special-verdict form should not have

asked the jury to decide whether the contract for deed was a “genuine business

transaction” because the district court already determined that the contract was valid as

between RKL and 1563 University. RKL and 1563 University further argue that use of

the phrase was error because it was not defined and implied elements of fraud. After

carefully reviewing the record, we find no error here.

9
 When the district court drafted the jury instructions, it solicited input from the

parties. During the exchange of draft instructions, RKL and 1563 University made one

comment on the question that included the “genuine business transaction” phrase, and

this comment did not object to the use of the phrase or request a definition; rather, it

stated that the question was unnecessary because the district court already determined

that the contract for deed was valid between RKL and 1563 University. Moreover, RKL

and 1563 University repeated this question in its own draft jury instructions. Thus, RKL

and 1563 University failed to properly object to the jury instruction, and we review for

plain error. See Minn. R. Civ. P. 51.03(a), .04(b).

The first question on the special-verdict form asked, “Was the contract for deed a

genuine business transaction?” Although the district court’s August 2012 order

concluded that the contract for deed was a valid contract as between RKL and 1563

University, the validity of the contract did not necessarily answer whether RKL and 1563

University entered into the contract as a way to secure higher coverage from Seneca.

Consequently, the inclusion of this question was not error.

RKL and 1563 University contend that even if the question was appropriate, the

phrase should have been defined for the jury. “Genuine business transaction” is not a

legal term of art that requires specific instruction. The phrase contains common words

that a layperson can understand. Cf. Strobel v. Chicago, Rock Island & Pac. R.R. Co.,

255 Minn. 201, 207, 96 N.W.2d 195, 200 (1959) (concluding that the district court’s

failure to define commonly understood words was not a fundamental error requiring

10
reversal). Because a layperson can understand the import of the phrase, its inclusion was

not error.

RKL and 1563 University further argue that the district court should have

instructed the jury on the elements of fraud because asking the jury to decide if the

transaction was “genuine” implied that RKL and 1563 University engaged in fraud. But

even if RKL and 1563 University could show plain error, which they cannot, reversal is

only warranted “to ensure fairness and the integrity of the judicial proceeding.” Frazier,

811 N.W.2d at 626-27 (quotation omitted). And here, as the district court succinctly

stated in its order, “It was obvious to the court that the jurors found the testimony of the

plaintiff[’s] main witnesses regarding the two million dollar contract for deed’s

authenticity to be incredulous.”

Because neither the fairness nor the integrity of this judicial proceeding was

jeopardized here, we conclude that RKL and 1563 University cannot show plain error in

the district court’s use of the phrase “genuine business transaction.”

Separate Misrepresentations

RKL and 1563 University also contend that the special-verdict form should have

instructed the jury to make separate findings on the five acts of misrepresentation that

Seneca alleged in its defense. Without this separation, RKL and 1563 University argue

that the jurors could have disagreed as to which of the five acts amounted to

misrepresentation. Because RKL and 1563 University objected to the lack of this

instruction at trial, we review the district court’s decision for an abuse of discretion. See

State v. Koppi, 798 N.W.2d 358, 361 (Minn. 2011).

11
 Here, the jury was required to answer two questions regarding misrepresentation:

(1) Did 1563 University Ave, LLC make a material misrepresentation to Seneca

Specialty Insurance Company in the application process? and (2) Did RKL Landholdings,

LLC make a material misrepresentation to Seneca Specialty Insurance Company in the

application process? The jury answered affirmatively to both questions. The two

questions on the special verdict form were specific and aimed at the heart of the case:

whether RKL and 1563 University misrepresented information to Seneca to obtain

insurance for the property.

RKL and 1563 University argue that the jury should have been required to agree

on what act equated to misrepresentation. They cite State v. Stempf, 627 N.W.2d 352,

354 (Minn. App. 2001), to assert that the jury instructions, which allowed the jurors to

disagree about which acts were misrepresentation, violated their right to a unanimous

verdict.

Stempf is a criminal case that involved heightened due-process concerns. It has

never been applied in a civil context, and it is not persuasive here. Criminal cases, unlike

civil cases, require each element to be proven beyond a reasonable doubt. Moreover,

civil verdicts need not be unanimous if the jury has deliberated for six hours. Minn. Stat.

§ 546.17 (2014); see Minn. Const. art. I, § 4. Furthermore, it was not necessary for the

jury to specifically identify which act amounted to misrepresentation, so long as the jury

found that RKL and 1563 University committed one act of misrepresentation. We

therefore conclude that the district court properly exercised its discretion here. See Daly,

812 N.W.2d at 122.

12
 Agency Instruction

Before deliberations, RKL and 1563 University moved the district court to direct

the jury as a matter of law that the Glover Insurance Agency, Bernard Glover, and Blaine

Williams were all Seneca’s agents and that Seneca was responsible for their acts and

misrepresentations.6 Seneca also moved the district court to instruct the jury as a matter

of law that Glover was not Seneca’s agent. The district court denied both motions,

reasoning that whether an agency relationship existed was a question of fact for the jury

to decide. Accordingly, the district court instructed the jury on the definitions of

“insurance agent” and “insurance broker” and set forth several factors to aid the jury in

distinguishing between an agent and a broker. Because RKL and 1563 University

proposed an agency instruction and objected to its absence, we review for an abuse of

discretion. See Koppi, 798 N.W.2d at 361.

RKL and 1563 University argue that Minnesota Statutes section 65A.14 (2014)

required the district court to direct the jury as a matter of law that the Glover Insurance

Agency, Bernard Glover, and Blaine Williams were all Seneca’s agents because without

this direction, the jury could have erroneously attributed acts of misrepresentation to

them. We disagree and conclude that RKL and 1563 University’s argument fails legally

and factually.

Seneca, as an unadmitted insurance carrier in Minnesota, is governed by the

Minnesota Surplus Lines Insurance Act. See Minn. Stat. § 60A.195-.2095 (2014).

6
These acts of misrepresentation include the inaccurate occupancy percentage reported
on the insurance application and the false financial statements that Dahdal submitted to
Seneca.

13
Because the Glover Insurance Agency had no license to conduct business with a surplus

lines carrier, it was impossible for Williams or Glover to solicit or procure a policy from

Seneca or to act as its agent or broker. See Minn. Stat. § 60A.198, subd. 1. No new trial

is therefore warranted.

In addition, even if the Glover Insurance Agency, Bernard Glover, and Williams

were agents of Seneca, the record does not show that they committed acts of

misrepresentation. Rather, the record supports the jury’s findings that Abed and Dahdal

were the sources of false information: Williams testified that Abed told him the property

was 100% occupied and that no prior losses had occurred, and during cross examination,

Dahdal admitted that he gave Seneca false financials to bind the policy. Accordingly,

the district court acted within its discretion in instructing the jury as it did.

Waiver and Estoppel Instruction

RKL and 1563 University contend that the district court should have instructed the

jury that Seneca waived several of its defenses for material misrepresentation. They

argue that Seneca waived these defenses by retaining the policy’s insurance payments

and continuing to insure the property—despite having occupancy-related issues since

March 2009. They further argue that this waiver estops Seneca from invalidating the

policy because 1563 University was unaware of Seneca’s concerns and therefore had no

opportunity to secure alternative insurance. We disagree.

Because RKL and 1563 University requested the waiver instruction, we review the

district court’s decision for an abuse of discretion. Koppi, 798 N.W.2d at 361. Here, the

district court instructed the jury to “consider this discussion of waiver only as delay or

14
inactivity as it may or may not affect your decision regarding whether a representation

was material.” The district court declined to instruct the jury that Seneca waived any of

RKL or 1563 University’s material misrepresentations and instead, it concluded that

“undisputed evidence” showed Seneca had not waived any material misrepresentations.

The record supports the district court’s decision not to give the waiver instruction

because Seneca had refunded the property’s policy premiums and continued to inquire

about the occupancy status of the property. Indeed, six days before the fire, Seneca sent

an e-mail to Burns & Wilcox asking about the occupancy status of the property and

stating that it would cancel the policy and rewrite it as vacant if the occupancy remained

low. Glover also warned Abed several times that Seneca requested an update on the

occupancy status of the property.

Because the district court acted within its broad discretion here, we see no

reversible error. Given that Seneca did not waive any of its material misrepresentation

defenses, RKL and 1563 University were also not entitled to an estoppel instruction.

II. Insurance Application Exhibit

RKL and 1563 University contend that the district court’s decision to admit the

insurance application exhibit was erroneous because it lacked relevance and was overly

prejudicial. We disagree.

The admission of evidence rests within the broad discretion of the district court.

Kroning v. State Farm Auto. Ins. Co., 567 N.W.2d 42, 45 (Minn. 1997) (quoting Uselman

v. Uselman, 464 N.W.2d 130, 138 (Minn. 1990)). This court will only reverse a district

court’s ruling on an evidentiary issue if the district court abused its discretion and

15
prejudice resulted. Melius v. Melius, 765 N.W.2d 411, 417 (Minn. App. 2009). “An

evidentiary error is prejudicial if it might reasonably be said to have changed the result of

the trial.” Ray v. Miller Meester Adver., Inc., 664 N.W.2d 355, 362 (Minn. App. 2003),

aff’d, 684 N.W.2d 404 (Minn. 2004).

Relevant evidence is evidence that has “any tendency to make the existence of any

fact that is of consequence to the determination of the action more probable or less

probable than it would be without the evidence.” Minn. R. Evid. 401. The district court

may exclude relevant evidence “if its probative value is substantially outweighed by the

danger of unfair prejudice.” Minn. R. Evid. 403. “Unfair prejudice under rule 403 is not

merely damaging evidence, even severely damaging evidence; rather, unfair prejudice is

evidence that persuades by illegitimate means, giving one party an unfair advantage.”

State v. Schulz, 691 N.W.2d 474, 478 (Minn. 2005).

Here, the insurance application was the only application that the Glover Insurance

Agency had on file for the property. Williams also testified that when he filled it out,

Abed provided the information. Because Abed was a named party in the suit, whether he

provided information that amounted to misrepresentation was relevant.

RKL and 1563 University argue that the insurance application’s relevance was

outweighed by the danger of unfair prejudice. They further contend that the jury’s

request for the insurance application’s signature page during deliberations showed that

the jury was confused about who created it.

Under rule 403, unfair prejudice is more than damaging evidence; it is evidence

that persuades by illegitimate means. Id. At most, the insurance application was

16
damaging to RKL and 1563 University. But it did not illegitimately persuade the jury

that Dahdal was somehow involved in its creation because several witnesses testified that

Dahdal was not present at the time it was created. Moreover, Dahdal’s attorney

repeatedly emphasized throughout trial that A.S.’s name—not Dahdal’s name—was

listed on the insurance application.

Because the insurance application was relevant and its relevance was not

outweighed by unfair prejudice, we conclude that the district court properly exercised its

discretion here.

III. Vacancy

Finally, RKL and 1563 University argue that the district court should have

directed judgment as a matter of law in their favor regarding whether the property was

vacant under the Seneca policy. They contend that the jury could not possibly have

found that the building was vacant because the “uncontradicted evidence” shows that

Dahdal’s cousin performed renovations on the property in June 2009. We disagree.

We review de novo a district court’s denial of a motion for judgment as a matter of

law. Langeslag v. KYMN Inc., 664 N.W.2d 860, 864 (Minn. 2003). We will affirm the

denial “if, in the record, there is any competent evidence reasonably tending to sustain the

verdict.” Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn. 1998) (quotation

omitted). This court will not set aside a verdict “[u]nless the evidence is practically

conclusive” against it. Id.

Here, the City of St. Paul revoked the property’s certificate of occupancy on June

12, 2008, and the city’s regular inspections showed no further activity on the property.

17
RKL and 1563 University argue the property was not vacant because Dahdal testified that

his cousin performed renovation work in June 2009. Dahdal’s cousin, however, did not

pull any permits for the work and returned to his home in California several weeks after

starting. Dahdal did testify that his cousin planned to return and finish working on the

property, but the jury clearly disbelieved this testimony. And we defer to the jury’s

credibility determination. See Pechovnik v. Pechovnik, 765 N.W.2d 94, 99 (Minn. App.

2009) (concluding that credibility determinations rest exclusively with the factfinder and

we defer to those determinations even when they are implicit).

Because competent evidence in the record reasonably sustains the final verdict

here, the district court did not err in refusing to grant RKL and 1563 University judgment

as a matter of law on the issue of vacancy.

Affirmed.

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