Bailey v. Duling

• Decision Date: 19 March 2013
• Docket Number: No. 26177.,26177.
• Citation: Bailey v. Duling, 2013 S.D. 15, 827 N.W.2d 351 (S.D. 2013)
• Parties: Richard BAILEY, Trustee of the Curley and Rose Haisch Charitable Remainder Trust Dated December 7, 2002, for the Trust and its Charitable Beneficiaries and Richard Bailey and Victor Schmitz, Co–Personal Representatives of the Estate of Rose Haisch, Deceased, and of Hollis Haisch, a/k/a Curley Haisch, Deceased, Plaintiffs and Appellees, v. Raymond J. DULING a/k/a Joe Duling, Lynne A. Duling, Prairie Winds Realty, Mulehead Ranch, and Duling Financial Services, Defendants and Appellants.
• Court: South Dakota Supreme Court

827 N.W.2d 351

2013 S.D. 15

Richard BAILEY, Trustee of the Curley and Rose Haisch Charitable Remainder Trust Dated December 7, 2002, for the Trust and its Charitable Beneficiaries and Richard Bailey and Victor Schmitz, Co–Personal Representatives of the Estate of Rose Haisch, Deceased, and of Hollis Haisch, a/k/a Curley Haisch, Deceased, Plaintiffs and Appellees,

v.Raymond J. DULING a/k/a Joe Duling, Lynne A. Duling, Prairie Winds Realty, Mulehead Ranch, and Duling Financial Services, Defendants and Appellants.

No. 26177.

Supreme Court of South Dakota.

Argued Aug. 28, 2012.

Decided Feb. 6, 2013.

Rehearing Denied March 19, 2013.

Murray Ogborn, Thomas Neville of Ogborn Mihm, LLP, Denver, Colorado, Attorneys for plaintiffs and appelleesRichard Bailey and Victor Schmitz Co–Personal Representatives of the Estate of Rose Haisch, deceased, and of Hollis Haisch, a/k/a Curley Haisch, deceased.

John C. Quaintance of Sioux Falls, South Dakota, Attorney for plaintiff and appelleeRichard Bailey, Trustee of the Curley and Rose Haisch Charitable Remainder Trust dated December 7, 2002, for the Trust and its Charitable Beneficiaries.

Mark V. Meierhenry, William E. Blewett of Meierhenry & Sargent, LLP, Sioux Falls, South Dakota, Attorneys for defendants and appellants.

KONENKAMP, Justice.

[¶ 1.]Plaintiffs brought suit against defendants for negligence, misrepresentation, and breach of fiduciary duties.A jury awarded plaintiffs $1,568,200, including punitive damages.Defendants appeal.

Background

[¶ 2.]Lying along the Missouri river near Bonesteel, South Dakota, the Mulehead Ranch was reputed, at one time, to be one of the largest ranches in South Dakota.Hollis “Curley” Haisch grew up on the Mulehead.In the 1950s, he and his wife, Rose, bought the ranch from Curley's father.In Curley and Rose's care, the ranch flourished, allowing them to build a substantial estate.Although they had no children to whom they could pass on their wealth, they were generous to their extended family members and the surrounding communities.Their wills, executed in the 1990s, reflected a desire to leave a substantial charitable legacy.

[¶ 3.]In 1993, Raymond Joseph(Joe) Duling became the Haisches' financial advisor.At the time, Joe Duling owned and operated Duling Financial Services in Gregory.A realtor and broker, he also owned Prairie Winds Realty with his wife, Lynne.Joe Duling's family and the Haisches were friends.They often attended gatherings together.Joe spoke on Curley's behalf at various charitable functions.In a codicil to his will, Curley gave an option to purchase the Mulehead to Joe's father, Edward Duling(and Edward's heirs).According to Joe, Curley wanted to control who could and would own the ranch.In fact, Curley hired Attorney Rick Johnson to draft another codicil to his will declaring that neither Jack Gunvordahl nor any of his heirs could purchase it.Curley held a grudge against Jack from the time when Curley was on the Whetstone Township Board of Supervisors, and the township was sued over road maintenance.SeeWilloughby v. Grim,1998 S.D. 68, 581 N.W.2d 165.

[¶ 4.]In the 1990s, Rose's health began to decline.She was diagnosed with uterine cancer and suffered from diabetes and macular degeneration.Curley also started to slow down; he was no longer active on the ranch.Their niece, Margaret Bailey, and her husband, Rich, became their caretakers.Tom Fernau managed the ranch as Curley's hired hand.By 2000, Curley and Rose decided to move into an assisted living facility, the Haisch Haus, in Bonesteel.Joe Duling remained their financial advisor, counseling them on their wills and gifts.Joe also carried out Curley's decisions to lend money to friends and relatives.

[¶ 5.]When Curley was 90 years old, he decided to sell the ranch.In May 2002, he signed a listing agreement with Joe Duling, offering the property for sale at $4.8 million.At that time, the ranch comprised some 4,320 acres of pasture land, 35 acres of farmland, 350 acres of irrigated land, and 20 acres of producing gravel pit.Shortly after the listing, Curley decided to retain a life estate in the gravel pit, and reduced the listing price to $4 million.

[¶ 6.]Joe Duling received the first offer to purchase the property on July 24, 2002 for $3 million, including the gravel pit.Joe presented the offer to Curley, Rich Bailey, and Tom Fernau.Curley declined the offer and countered with $4 million.It was rejected.In September 2002, Joe was in Curley's room at the Haisch Haus, with Rich and Tom.Joe verbally offered Curley $1 million for the Ranch, plus $600,000 for the chattels, with an option to purchase the gravel pit for $1 million after Curley's death.He told Curley that his offer represented all he and Lynne could afford.According to Joe, Curley decided to accept Joe's offer because Curley wanted Joe and his family to have the ranch.The offer was not reduced to writing.Additional third-party offers were received over the next several months.

[¶ 7.]In September 2002, Kelly Bailey, who worked for Curley as a teenager, offered $2.5 million for the ranch and chattels, excluding the gravel pit.Joe presented the offer to Curley, Rich, and Tom.Curley rejected it.According to Joe, Curley would not accept the offer because Curley believed Jack Gunvordahl was behind Kelly's financing.Curley rejected another offer in October 2002 for $2.5 million, including the gravel pit.

[¶ 8.]At some point after listing the ranch for sale, Joe, in his capacity as financial advisor, suggested to Curley that he and Rose form a Charitable Remainder Trust (CRT or Trust), into which the ranch and chattels could be gifted.¹Joe explained that he had learned about CRTs during a South Dakota Community Foundation (SDCF) seminar and believed it would be beneficial for the Haisches.Curley agreed.

[¶ 9.]Joe hired Curley's attorney, Rick Johnson, to draft the CRT for Curley and Rose.The CRT would be called The Curley and Rose Haisch Charitable Remainder Trust dated December 7, 2002.Attorney Johnson asked two CPAs to review the draft, one being Tim Dean.Dean told Rick that there were potential defects.On November 18, 2002, Joe contacted the SDCF and spoke with Stephanie Judson, the associate director.Joe asked her if the SDCF would look at the draft.Judson agreed, and Joe sent it to her.Judson later testified that she called Joe the same day and told him she found problems with the Trust.Joe did not recall the discussion.Nonetheless, Judson sent the Trust draft to Tom Adam, counsel for the SDCF, highlighting the concerns she had.At some point thereafter, Adam, Judson, and Johnson conferred by telephone about the Trust.On December 9, 2002, Adam sent Judson a letter outlining the defects in the Trust.

[¶ 10.]On December 7, 2002, in Attorney Johnson's office, with Johnson, another firm attorney, and Joe present, Curley and Rose executed the Trust, unchanged from its original draft.The Ranch was then transferred to the Trust, and Rich Bailey was named the Trustee.On December 15, 2002, Rich, as the Trustee, signed a listing agreement with Joe, making Joe the listing agent for the Trust.Then, on December 31, 2002, the Trustee signed a contract for sale and an option agreement, selling the ranch and granting an option to purchase the gravel pit to Joe and Lynne Duling.The agreement contained a provision declaring that Joe “fully explained to the Trustee and the Haischs [sic] the potential conflict of interest”he had in purchasing the property.And it was agreed that “any conflict” arising “by virtue of Duling's status as a sales broker on this property” was “waived” and “both the Trustee and the Haischs [sic] believe[d] that this sale price [was] the best offer that they[could] reasonably expect to receive in the reasonably near future for [the] property.”Before executing the contract for sale and option agreement, Joe and Lynne had already taken over control and management of the Mulehead.Closing was on March 3, 2003.

[¶ 11.]On April 11, 2003, Joe became the Trust's financial advisor.Also in the spring, Vic Schmitz became the Trust's CPA, and filed a tax return for 2002.At some point thereafter, he noticed defects in the Trust and informed the Trustee.No changes were made.In 2005, Schmitz involved the SDCF and attorney Pat Goetzinger.Together, with the assistance of another CPA (Michael Miranda), they identified multiple defects, namely the lack of a non-charitable beneficiary, distributions for a fixed amount rather than a percentage, and Curley's retention of a life estate in the gravel pit.

[¶ 12.]In 2006, the Trustee retained Attorney Jack Gunvordahl of Burke to bring suit against Joe and Lynne, Prairie Winds Realty, Duling Financial Services, and the Mulehead Ranch (defendants) on behalf of the Trust and on behalf of Rose and Curley (plaintiffs).²The complaint alleged negligence, negligent misrepresentation, breach of fiduciary duties, fraud and deceit, civil conspiracy, and unjust enrichment.Defendants moved for summary judgment, relying on the waiver clause in the contract for sale.At first, the circuit court granted summary judgment in part, but after plaintiffs' first motion for reconsideration and petitions for intermediate appeals were denied, the court granted plaintiffs' second motion for reconsideration in January 2011.

[¶ 13.]Before trial, plaintiffs learned that defendants had advertised to auction the Mulehead and its gravel pit.Joe and Lynne had not yet exercised their right under the option agreement to purchase the gravel pit.Plaintiffs' counsel sent defendants a cease and desist letter on January 21, 2011.Defendants did not respond.Attorneys Murray Ogborn and Darla J. Gabbitas prepared and signed a Request for Temporary Restraining Order and contacted Circuit Judge John Brown, to schedule a meeting the next day.In the communication, Judge Brown became aware the meeting was for a temporary...