Arnoldy v. Mahoney

• Decision Date: 01 December 2010
• Docket Number: Nos. 25574, 25575.,s. 25574, 25575.
• Citation: 2010 S.D. 89,791 N.W.2d 645
• Parties: Michael ARNOLDY and Ann Arnoldy, Plaintiffs and Appellees, v. Daniel R. MAHONEY, Defendant and Appellant, and David Finneman, Connie Finneman, Chad Finneman, Rock Creek Farms General Partnership, Kenco, Inc. d/b/a Warne Chemical and Equipment, Co., Doug Kroeplin Ag Services, Inc. and Don Holloway, in his representative capacity as Pennington County Sheriff, Defendants. Michael Arnoldy and Ann Arnoldy, Plaintiffs and Appellees, v. David Finneman, Connie Finneman, Chad Finneman, Rock Creek Farms General Partnership, Defendants and Appellants, and Kenco, Inc. d/b/a Warne Chemical and Equipment, Co., Doug Kroeplin AG Services, Inc., Daniel R. Mahoney and Don Holloway, in his representative capacity as Pennington County Sheriff, Defendants.
• Court: South Dakota Supreme Court

791 N.W.2d 645

2010 S.D. 89

Michael ARNOLDY and Ann Arnoldy, Plaintiffs and Appellees,

v.Daniel R. MAHONEY, Defendant and Appellant,andDavid Finneman, Connie Finneman, Chad Finneman, Rock Creek Farms General Partnership, Kenco, Inc. d/b/a Warne Chemical and Equipment, Co., Doug Kroeplin Ag Services, Inc. and Don Holloway, in his representative capacity as Pennington County Sheriff, Defendants.

Michael Arnoldy and Ann Arnoldy, Plaintiffs and Appellees,

v.David Finneman, Connie Finneman, Chad Finneman, Rock Creek Farms General Partnership, Defendants and Appellants,andKenco, Inc. d/b/a Warne Chemical and Equipment, Co., Doug Kroeplin AG Services, Inc., Daniel R. Mahoney and Don Holloway, in his representative capacity as Pennington County Sheriff, Defendants.

Nos. 25574, 25575.

Supreme Court of South Dakota.

Argued Oct. 6, 2010.

Decided Dec. 1, 2010.

Robert R. Schaub of Sundall, Schaub & Fox, P.C., Chamberlain, SD, Attorneys for appellees (#25574, #25575).

Stan H. Anker of Anker Law Group, P.C., Rapid City, SD, Attorneys for appellant (#25574).

Brian Utzman of Smoot & Utzman, P.C., Rapid City, SD, Attorneys for appellant Rock Creek Farms (#25575).

James P. Hurley of Bangs, McCullen, Butler, Foye & Simmons, L.L.P., Rapid City, SD, Attorneys for appellants Finnemans & Rock Creek Farms (#25575).

GILBERTSON, Chief Justice.

[¶ 1.] Michael and Ann Arnoldy each purchased assignments of judgments against David and Connie Finneman. They used the judgments to redeem land owned by the Finnemans that had been foreclosed. Daniel Mahoney also purchased judgments that he used to redeem the land from Michael. Arnoldys filed this separate declaratory judgment action challenging the validity of the judgments Mahoney used to redeem from them. The trial court granted summary judgment in favor of Arnoldys. Mahoney and Finnemans each appealed. For purposes of this opinion, the appeals are consolidated. We affirm in part and reverse and remand in part for further proceedings.

FACTS

[¶ 2.] In 2000, FarmPro Services, Inc. commenced foreclosure on agricultural land the Finnemans owned.¹ A final judgment was issued in 2003 in favor of FarmPro for $1,080,681.02 plus interest. Executions on the judgment were made in Meade and Pennington counties in February 2006. FarmPro purchased the land at a sheriff's sale on May 10, 2006, for $1,439,130.30 and assigned its certificate of sale to Dr. Lee Ahrlin. In April 2007, Michael Arnoldy purchased an assignment of a judgment against Finnemans in favor of Daimler-Chrysler and another judgment against Finnemans in favor of Farmers Union Oil, Inc. He used these judgments to redeem the foreclosed land from Ahrlin in May 2007. Michael paid Ahrlin $1,765,232.50 plus $2,000 as a contingency.

[¶ 3.] Meanwhile, Finnemans formed a general partnership, Rock Creek Farms, with investor and farmer Warrenn Anderson. A mutual acquaintance, Daniel Mahoney, introduced Finnemans and Anderson. Using a quitclaim deed, Finnemans transferred their interests in the property foreclosed by FarmPro to Rock Creek Farms. On May 10, 2007, Anderson paid the Sheriff $822,000 to extend the owners' redemption period for one year. During the extension period, Michael held a Certificate of Redemption, which was the prevailing interest in the land.

[¶ 4.] On May 6, 2008, David Finneman confessed judgment to Kenco, Inc. d/b/a Warne Chemical and Equipment, Co. (Kenco) for $622,558.84. Mahoney purchased the judgment for $10,000 on May 7, 2008. Finneman also confessed judgment to Doug Kroeplin Ag Services, Inc. (Kroeplin) for $254,731.59, which Mahoney purchased for $5,000 on May 7, 2008. The complaints and assignments for both judgments were prepared by attorney Jim Jeffries, whose fees were paid by Rock Creek Farms. On May 7, 2008, Mahoney deposited $1,219,734.29 with the Sheriff plus a $2,000 contingency to redeem from Michael using the Kenco and Kroeplin judgments.

[¶ 5.] After Mahoney redeemed, Ann Arnoldy, Michael's sister, redeemed fromMahoney in July 2008. She used two judgments she had purchased against Finnemans in favor of U.S. Bank Corporation Equipment Finance, Inc. and Pioneer Garage, Inc. Finnemans assert that the owners' final redemption was made on September 12, 2008, by Rock Creek Farms for $1,280,000.00. The foreclosure proceedings have not concluded at the time of this opinion.

[¶ 6.] On October 1, 2008, Michael and Ann filed a declaratory judgment action to have the Kenco and Kroeplin judgments declared void under SDCL 21-26-3, the confession of judgment statute. Arnoldys later amended the complaint, alleging that Finneman confessed the judgments in an attempt to delay or defraud Arnoldys, as creditors of Finneman, in violation of SDCL 54-8-1. The complaint also alleged Mahoney participated in "hindering" Arnoldys' attempt to redeem.²

[¶ 7.] While conducting discovery, Arnoldys requested documents that Defendants claim are privileged under either the attorney-client privilege or workproduct doctrine. When Defendants did not produce the requested discovery, Arnoldys made various motions to the court, including allegations that the discovery sought was covered by the crime-fraud exception to the attorney-client privilege. Defendants filed a motion for a protective order under SDCL 15-6-26(c). The trial court instructed counsel for Mahoney and Finnemans to turn over their client files related to the FarmPro and current litigation for in camera review. Defendants complied and also submitted a privilege log designating which privilege they believed applied to each document. The trial court indicated it would be complying with the in camera review procedure this Court outlined in Dakota, Minnesota & Eastern Railroad Corp. v. Acuity, 2009 S.D. 69, ¶ 49, 771 N.W.2d 623, 637.

[¶ 8.] All parties filed motions for summary judgment in the declaratory judgment action. The trial court relied on documents from defense counsel's client files to make findings ³ and grant summary judgment in Arnoldys' favor. The trial court did not make a ruling as to whatdocuments in the files were privileged. Instead, the trial court placed parts of the files under seal. Defendants were not given notice that the trial court was going to use documents from their files to grant summary judgment against them and were not given an opportunity to make a record with the trial court regarding their client files. Moreover, as a consequence of the trial court's procedure, counsel for the parties were forced to brief and argue this case before this Court without knowing what documents from the client files were used by the trial court to find fraud.

[¶ 9.] The sealed records contain correspondence Mahoney's counsel had with his client regarding his deposition and other matters related to litigation and redemption. Records also showed various attorneys' bills. A letter from Mahoney to Anderson, Finneman, and their respective counsel indicated that Mahoney wished to be paid his finder's fee. There was also other correspondence among counsel regarding strategy in the litigation and redemption proceedings.

[¶ 10.] The trial court's findings from the November 20, 2009 hearing granting summary judgment were not reduced to writing, but a copy of the transcript was attached to the signed order granting summary judgment on January 22, 2010. ⁴Specifically, the trial court determined that the debts that were the basis of the Kenco and Kroeplin judgments exceeded the six-year statute of limitations and defendants "revived" the debts by paying the creditors fifty dollars. The trial court found that Rock Creek Farms retained Jim Jeffries to address the Kenco and Kroeplin debts, and that "Jeffries had very little, if any, contact whatsoever with [Kroeplin and Kenco]." The trial court found that Mahoney was a strawman for Finnemans, Anderson, and Rock Creek Farms, although the Defendants have failed to recognize his claimed "finder's fee" by giving him the appropriate tax form.⁵ There was also a finding that Mahoney had been coached to modify statements he made in his deposition. As a result of its findings, the trial court held that the Kenco and Kroeplin judgments did not meet the requirements of SDCL 21-26-3 concerning confessions of judgments. Further, the trial court held that Defendants committed fraud and deceit, and therefore the Kenco and Kroeplin judgments Mahoney used to redeem the land from foreclosure were void.

[¶ 11.] Mahoney and Finnemans appealed in separate actions. Of the issues they raised, we address the following as dispositive:

1. Whether Arnoldys have standing to challenge the validity of Finneman's confessed judgments.

2. Whether the trial court erred when it used privileged documents submitted for in camera review to rule on the motions for summary judgment.

3. Whether the trial court erred in granting summary judgment based on fraud and deceit.

4. Whether the trial court erred in holding as a matter of law that the Kenco and Kroeplin judgments were void for failure to satisfy the requirements of SDCL 21-26-3.

STANDARD OF REVIEW

[¶ 12.] Whether a party has standing to maintain an action is a question of law reviewable by this Court de novo. Lewis & Clark Rural Water Sys., Inc. v. Seeba, 2006 S.D. 7, ¶ 38, 709 N.W.2d 824, 836; Fritzmeier v. Krause Gentle Corp., 2003 S.D. 112, ¶ 10, 669 N.W.2d 699, 702 (citing Winter Bros. Underground Inc. v. City of Beresford, 2002 S.D. 117, ¶ 13, 652 N.W.2d 99, 102).

[¶ 13.] Normally, this Court reviews a trial court's discovery orders under an abuse of discretion standard. Acuity, 2009 S.D. 69, ¶ 47, 771 N.W.2d at 636 (citing Maynard v. Heeren, 1997 S.D. 60, ¶ 5, 563 N.W.2d 830, 833). "When we are asked to determine whether the circuit court's order violated a statutory privilege, however, it raises a question of statutory interpretation requiring de novo review." Id.

[¶ 14.] When a trial court grants summary judgment, this Court will affirm only if all legal questions have been decided correctly and there are no genuine...