ARF, LLC, a Minnesota limited liability company, Respondent,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2018).

STATE OF MINNESOTA
IN COURT OF APPEALS
A19-0718

ARF, LLC, a Minnesota limited liability company,
Respondent,

vs.

SAMS Enterprises, LLC, et al.,
Appellants,

Creekside Office Warehouse Condominium Association,
Defendant.

Filed January 21, 2020
Reversed
Reilly, Judge

Hennepin County District Court
File No. 27-CV-16-16675

Aaron A. Dean, Kelly C. Engebretson, Moss & Barnett, Minneapolis, Minnesota (for
respondent)

Kay Nord Hunt, Lommen Abdo, P.A., Minneapolis, Minnesota; and

Mark E. Greene, Bernick Lifson, P.A., Minneapolis, Minnesota (for appellants)

Considered and decided by Reilly, Presiding Judge; Bratvold, Judge; and Klaphake,
Judge.

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

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U N P U B L I S H E D O P I N I O N
REILLY, Judge
In this appeal following a court trial, appellant s challenge the district court’s
decision granting relief to respondent on its misrepresentation claim. Because the district
court erred as a matter of law by sua sponte granting a new trial, we reverse.
FACTS
This dispute arises from the sale of two business condominium units in a building
with a leaky roof. Appellant Mark Senn (Senn) is the sole owner and shareholder of
appellant SAMS Enterprises, LLC (SAMS). SAMS is a limited liability company and the
seller of the condominium units . Respondent ARF, LLC (ARF) is a limited liability
company that purchased the two business condominium units.
In 2006, SAMS purchased the commercial building and redeveloped it into 12
business condominium units known as the Creekside Office Warehouse Condo minium
Building. SAMS also created the Creekside Office Warehouse Condominium Association
(the Association), a nonprofit corporation formed to own, administer, and maintain the
building. The individual condominium owners are members of the Association. The
Association is subject to a declaration of condominiums, which defines the building as a
single structure and provides that the Association is responsible for the maintenance, repair,
and replacement of the building’s common elements, including its roof.
In March 2015, shortly after ARF closed on the purchase of the two units, it
discovered roof leaks . ARF’s owners learned that other Association members also
experienced leaking from the roof and that the building had experienced problems with a

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leaky roof in the past. In September 2016, the Association unanimously resolved to replace
the roof above eight of the twelve units in the Association, including the units owned by
ARF. The cost of the new roof was assessed to the condominium owners that benefited
from the new roof proportionate to their square footage. ARF was assessed $49,000 for its
share of the replacement cost.
In November 2016, ARF initiated a civil lawsuit against SAMS, the Associ ation,1
and Senn, asserting numerous causes of action, including intentional misrepresentation. At
trial, the district court was informed that ARF decided not to pursue every count in the
complaint and that “the focus on the trial will be on the misrepresentation claims” against
Senn and SAMS. The district court conducted a two -day court trial in October 2017 and
issued findings of fact, conclusions of law, and order in early March 2018. The district
court determined that Senn was liable for intentional misrepresentation for failing to
“disclose to [ARF] the num erous problems with the roof .” The district court further
determined that Senn’s intentional misrepresentation regarding the condition of the roof
was also a breach of an express warranty. 2 The district court did not find SAMS liable
under any of ARF’s theories. Acting sua sponte, the district court determined that ARF

1 The only claim asserted against the Association was for an equitable accounting. ARF
did not present any testimony on this claim at trial and the district court’s order did not
address it. We therefore consider it waived. See Antonson v. Ekvall, 186 N.W.2d 187, 189
(Minn. 1971) (declining to consider claim that was not presented or litigated at trial).
2 ARF’s complaint asserted a cause of action against SAMS for breach of an expre ss
warranty. The complaint did not assert this same cause of action against Senn. While t he
district court determined that Senn was liable under an express-liability theory claim, it did
not make a specific finding that SAMS was liable.

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was entitled to a new trial under Minnesota Rule of Civil Procedure 59.01, “limited to
presenting evidence regarding the proper measure of damages” for the misrepresentation.3
The parties filed posttrial motions. Senn and SAMS moved for amended findings
of fact and conclusions of law , and objected to the district court’s decision to sua sponte
grant a new trial on damages. The district court denied the motion. ARF moved for leave
to amend its pleading s to add a claim for punitive damages. The district court granted
ARF’s motion to amend and permitted the parties to engage in limited discovery related to
ARF’s punitive-damages claim.
The district court conducted a two-day court trial on damages in November 2018.
The district court issued an order determining that ARF was entitled to judgment against
appellants in the amount of $194,034.01. The judgment included $45,000 in compensatory
damages, $7,800 in expert costs, and $14 1,234.01 in punitive damages. This appeal
follows.
D E C I S I O N
I. The district court erred as a matter of law by g ranting a new trial on
damages.
Appellants challenge the district court’s sua sponte grant of a new trial on damages.
“We review a district court’s decision to grant or deny a new trial for an abuse of
discretion.” Christie v. Estate of Christie , 911 N.W.2d 833, 838 (Minn. 2018). An
appellate court will not disturb a district court’s decision to grant a new trial absent a clear

3 Neither party had filed a motion for a new trial at the time of the district court’s
March 2018 order.

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abuse of discretion. Halla Nursery, Inc. v. Baumann-Furrie & Co., 454 N.W.2d 905, 910
(Minn. 1990). Questions of law are reviewed de novo. Vadnais v. Am. Family Mut. Ins.
Co., 243 N.W.2d 45, 48 (Minn. 1976).
The trial in this case centered on A RF’s claims for intentional and negligent
misrepresentation.4 A misrepresentation claim requires the plaintiff to demonstrate that it
was damaged and its damages were caused by the defendant’s wrongful conduct. See
Valspar Refinish, Inc. v. Gaylord’s, Inc., 764 N.W.2d 359, 369 (Minn. 2009) (articulating
elements of negligent misrepresentation); Hoyt Props., Inc. v. Prod. Res. Grp., LLC , 736
N.W.2d 313, 318 (Minn. 2007) (discussing intentional misrepresentation). Minnesota
adopts “the out -of-pocket-loss rule as the proper measure of damages for
misrepresentation.” Lobe Enters. v. Dotsen , 360 N.W.2d 371, 373 (Minn. App. 1985)
(quotation omitted). Under this rule, loss is determined by calculating “the difference in
value of what was given and what was received.” Id. at 37 3 (quotation omitted). T he
purpose of the out-of-pocket-loss rule is “to avoid speculative damages and assure that the
award is measured by the natural and proximate loss sustained by the defrauded party.”
Hughes v. Sinclair Mktg., I nc., 389 N.W.2d 194, 199 (Minn. 1986). Generally, “repair
costs alone are not sufficient to show damages for [intentional] misrepresentation in a real-
estate transaction.” Bryan v. Kissoon , 767 N.W.2d 491, 496 (Minn. App. 2009), review
denied (Minn. Sept. 16, 2009).

4 ARF asserted claims for intentional misrepresentation and for negligent misrepresentation
against both Senn and SAMS . The district court’s March 2018 order did not appear to
specifically address ARF’s negligent misrepresentation claim s. Our analysis applies with
equal force to all of ARF’s misrepresentation claims.

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At the first trial, ARF offered evidence of repair costs as well as a capitalization rate
analysis, but did not offer evidence of out -of-pocket damages. ARF’s co-owner testified,
“I’m solely seeking my out of pocket costs for the roof assessm ent that I was assessed,
interest on that, which I’ve been paying to the Association. I want to recover my engineers
report cost and I want to recover my legal fees, that’s it.” On rebuttal, the co-owner testified
regarding an alternate theory of damages based on a capitalization rate analysis. He
testified that he performed “a valuation of what the price difference would be based upon
. . . the additional debt of the roof, the monthly cost of the roof on an amortization
schedule.” The co-owner testified that he calculated his capitalization rate damages to be
$48,553.00, based upon lost income on the two units. However, he acknowledged on cross-
examination that his capitalization rate analysis was not a measure of the diminution in
value on the market value of the property.
After trial, the district court requested simultaneous proposed findings of fact and
conclusions of law from the parties. Regarding damages, ARF proposed a finding that it
was damaged because it “had to pay a $49,000 assessment ” for its proportionate share of
the roof repair. ARF’s proposed findings also referenced its co-owner’s testimony that he
“performed a valuation of what the price difference would be for the ARF Units based on
the additional debt of the roof, and calculated t hat the loss of income on the ARF Units
[under a capitalization rate analysis is] $48,553.”
Appellants also submitted proposed findings of fact and conclusions of law. On the
issue of damages, appellants requested a finding that ARF failed to provide “relevant
factual support for [its] capitalization rate analysis.” Appellants requested a finding that

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ARF failed to offer “any evidence regarding the fair market value of the property in the
condition it was purchased,” and failed to p erform “any market analysis” related to the
building. Appellants assert that, “[c]ritically, and by ARF’s own admission, the testimony
about capitalization rate does not show the fair market value of the property at the time
ARF purchased it.”
The district court issued its order ruling in ARF’s favor on liability. The district
court noted that ARF’s proposed measure of damages was “ improper and cannot be
awarded” under Minnesota law. The district court determined that “[t]he proper measure
of damages, if any, would be the amount paid by ARF for its units less the actual fair market
value of those units in the condition they were in when ARF purchased them.” See Lobe
Enters., 360 N.W.2d at 373 (adopting the out-of-pocket-loss rule as the proper measure of
damages in misrepresentation cases). But despite ARF’s failure to establish a required
element of its claim , the district court sua sponte granted ARF a new trial to “present[]
evidence regarding the proper measure of damages.”
The district court’s new -trial order was erroneous as a matter of law. Minnesota
Rule of Civil Procedure 59.01 establishes the causes for which a district court may grant a
new trial and limits the grounds for a new trial to those specifically enumerated causes.
Clifford v. Geritom Med., Inc., 681 N.W.2d 680, 686 (Minn. 2004). On its own initiative,
a district court may order a new trial “for any reason for which it might have granted a new
trial on motion of a party.” Minn. R. Civ. P. 59.05. The district court “ha[s] no power to
grant a new trial for a cause not enumerated by the rules,” and any court order purporting
to do so is “ineffective and void.” Ginsberg v. Williams , 135 N.W.2d 213, 221 (Minn.

8
1965) (noting that district court’ s power to grant a new trial is limited to those reasons
articulated in rule 59.01 and a new trial cannot be granted for a reason not enumerated in
the rules).
Here, ARF failed to prove a necessary element of its misrepresentation claim and it
is not entitled to a second trial to remedy that failure. A plaintiff in a civil action bears the
burden of proving damages caused by the defendant by a fai r preponderance of the
evidence. Canada By & Through Landy v. McCarthy, 567 N.W.2d 496, 507 (Minn. 1997).
We recognize that a property owner “is competent to express an opinion on the market
value of his or her property, and ordinarily any weakness in the foundation for that opinion
goes to its weight, not its admissibility.” Vreeman v. Davis, 348 N.W.2d 756, 757 (Minn.
1984) (citation omitted). But here, ARF did not present any evidence of its out-of-pocket-
loss damages in the court trial by its owner or otherwise. See Lobe Enters., 360 N.W.2d at
373 (adopting the out -of-pocket-loss rule as the proper measure of damages in a
misrepresentation claim). During rebuttal cross -examination, ARF’s co-owner admitted
that he did not know the fair market value of the unit he purchased, and had not conducted
an analysis to determine the fair market value of the units. Appellants’ counsel clarified,
“You did not come here today prepared to testify about the fair market value of the
Creekside units ARF owns?” The co-owner replied, “I did not.” The record does not
contain any other testimony or documentary evidence regarding the fair market value of
the building units.
Absent evidence of fair -market-value damages, ARF failed to establish a required
element of its intentional-misrepresentation claim. Dismissal of a misrepresentation claim

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is appropriate where the buyer fails to meet its burden of proving loss arising as a result of
the seller’s purported misrepresentation. See Lobe Enters., 360 N.W.2d at 372 -73
(affirming dismissal of fraud claim brought by plaintiff-purchaser where plaintiff failed to
introduce any evidence of damages arising from installation of new roof on apartment
building); see also Driscoll v. Standard Hardware, Inc., 785 N.W.2d 805, 812 (Minn. App.
2010) (affirming summary judgment in defendant’s favor on plaintiff’s fraud claim where
plaintiff “presented no evidence” of damages), review denied (Minn. Sept. 29, 2010).
ARF argues that the plain language of rule 59.01(g) permits the district court to
order a new trial on damages when it needs additional evidence or to “fill in gaps,” where
necessary. We do not agree. The rules permit the district court on its own initiative to
order a new trial, provided it specifies in the order the grounds for the new trial. Minn. R.
Civ. P. 59.05. The district court did not comply with this requirement. And as the Ginsberg
court recognized, the district court has no power to grant a new trial for a cause not
specified in the rules. 135 N.W.2d at 221. Because the district court erred as a matter of
law by sua sponte granting a new trial on damages, we reverse.
II. Appellants are entitled to relief on their remaining arguments.
Appellants assert additional arguments on appeal, which we address briefly in turn.
Appellants argue that the district court erred by granting ARF’s posttrial motion to amend
its complaint to add a claim for punitive damages. We agree. Generally, “outside a
defamation context, punitive damages are permitted only when actual or compensatory
damages are also present.” Kohler v. Fletcher, 442 N.W.2d 169, 173 (Minn. App. 1989),
review denied (Minn. Aug. 25, 1989). Because ARF failed to present evidence of actual

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or compensatory damages in the first trial, as discussed above, the district court erred by
granting ARF leave to assert a punitive-damages claim.
Appellants also contend that the district court erred by determining that Senn
breached an express warranty to ARF. Again, we agree. ARF did not assert this cause of
action against Senn in its complaint, and it was not litigated by consent. There is no basis
to grant relief on this claim. See Rios v. Jennie-O Turkey Store, Inc., 793 N.W.2d 309, 317
(Minn. App. 2011) (stating that a party is bound by its pleadings) , review denied (Minn.
Mar. 29, 2011). Accordingly, the district court erred by concluding that Senn breached an
express warranty to ARF.
Reversed.