City of Aberdeen v. Rich

Decision Date05 March 2003
Docket Number No. 22328., No. 22321
Citation658 N.W.2d 775,2003 SD 26
PartiesCITY OF ABERDEEN, Plaintiff and Appellee, v. Timothy RICH, Thomas Tobin, Sea Corporation, a South Dakota Corporation, Defendants and Appellants, and Roger Huff, Huff Development Corporation, a South Dakota Corporation, Defendants.
CourtSouth Dakota Supreme Court

Robin Jacobson Houwman of Danforth, Meierhenry & Meierhenry Sioux Falls, South Dakota, Attorneys for plaintiff and appellee.

Richard L. Russman of Rice, Ewinger & Russman Aberdeen, South Dakota, Attorneys for defendants and appellants Rich, Tobin and SEA Corporation.

Bruce Cutler of Thurow, Cutler & Batteen Aberdeen, South Dakota Development, Attorneys for defendants Huff and Huff.

ENG, Circuit Judge.

[¶ 1.] This case stems from two land transactions between the City of Aberdeen (City) and: former mayor Timothy Rich; former city attorney Thomas Tobin; Roger Huff and Huff Development, Inc.; and, SEA, Inc. City brought a declaratory judgment action against Rich, Tobin, Huff, Huff Development and SEA to determine whether the two land transactions should be declared null and void due to violations of SDCL 6-1-1. In a previous appeal, this Court affirmed the trial court's finding that the statute of limitations had run with regard to the first transaction. However, this Court reversed a trial court ruling with respect to amendment of the complaint on the second transaction and remanded the case for further proceedings to determine the liability of the defendants to City and to subsequent purchasers. The trial court awarded City $60,728.23 in damages. This Court affirms in part and reverses in part the trial court's award.

FACTS AND PROCEDURE

[¶ 2.] This case stems from two land transactions between City and Rich, Tobin, Huff and Huff Development and SEA. During all times relevant to this action, Rich was mayor of Aberdeen and Tobin was the Aberdeen City Attorney.

[¶ 3.] City brought a declaratory judgment action against Rich, Tobin, Huff, Huff Development and SEA to determine whether the two land transactions should be declared null and void pursuant to SDCL 6-1-1 which provides in pertinent part that:

It shall be unlawful for any officer of a... municipality ... who has been elected or appointed, to be interested, either by himself or agent, in any contract entered into by said ... municipality... in the purchase of any real or personal property belonging to the ... municipality.... Such contract shall be null and void from the beginning.

[¶ 4.] The trial court found that any action based upon the first land transaction was time barred when there was no evidence of fraud or deceit. This Court affirmed that finding in a previous appeal. This Court also upheld the trial court's finding that the defendants' involvement in the second land transaction violated SDCL 6-1-1 and that the actions of the city attorney and mayor were fraudulent and deceitful. City of Aberdeen v. Rich, 2001 SD 55, 625 N.W.2d 582.

[¶ 5.] This appeal concerns the issue of liability under the second land transaction. That transaction involved a trade and sale of land between SEA and City that took place on May 30, 1995. On that date, Rich, in his capacity as mayor, quitclaimed some city land to SEA and SEA quitclaimed its property to City in addition to making a cash payment of $817.1 On that same date, SEA sold seven lots in the newly purchased/traded land to a third party for $77,000.

[¶ 6.] In the previous appeal, this Court remanded the case to the trial court for a determination of defendants' liability to City and to subsequent purchasers. This Court also instructed the trial court to give due consideration to its rulings in Carlson v. City of Faith, 75 S.D. 432, 67 N.W.2d 149 (1954); Speckels v. Baldwin, 512 N.W.2d 171 (S.D.1994); and, Himrich v. Carpenter, 1997 SD 116, 569 N.W.2d 568. On remand, the parties entered into a stipulation of facts and submitted briefs to the trial court. The trial court heard oral argument and made its decision from the bench, entering a judgment for City in the amount of $60,728.23. The judgment consisted of: the entire profit Rich, Tobin and SEA received on the sale of the property;2 half of the audit fee;3 and half of the abstract fee.4 However, the parties agreed to set-off the damages award by the amount expended by the defendants in making the property suitable for residential housing.5 The trial court did not award attorney fees and did not award pre- or post-judgment interest.

[¶ 7.] Rich, Tobin and SEA, Inc. bring this appeal and City has filed a notice of review. The following issues are raised by Rich, Tobin, SEA and City and are to be determined by this Court:

Whether the trial court erred by awarding City monetary damages as a result of a contract that was rendered null and void as a matter of law.
Whether the trial court erred by awarding City audit and abstract fees in the form of disbursements.
Whether the trial court erred in refusing to award City interest and attorney's fees.
STANDARD OF REVIEW

[¶ 8.] When evidence is presented without the appearance of live witnesses, but by way of deposition and stipulated facts, we are free to determine the facts as if presented here for the first time unaided by any deference to the trial court. Muhlenkort v. Union County Land Trust, 530 N.W.2d 658, 660 (S.D.1995); Zacher v. Homestake Min. Co. of Cal., 514 N.W.2d 394, 395 (S.D.1994); State v. Abourezk, 359 N.W.2d 137, 142 (S.D.1984); State Automobile Casualty Under. v. Ruotsalainen, 81 S.D. 472, 479, 136 N.W.2d 884, 888 (1965).

[¶ 9.] We review a trial court's conclusions of law under a de novo standard. Muhlenkort, 530 N.W.2d at 660; State v. Harris, 494 N.W.2d 619, 622 (S.D.1993)(citing Rusch v. Kauker, 479 N.W.2d 496, 499 (S.D.1991)). Under this standard of review, "`conclusions of law "are given no deference by this court on appeal.'"" Muhlenkort, 530 N.W.2d at 660; Accord Harding Cty. v. S.D. Land Users Ass'n, 486 N.W.2d 263, 264 (S.D. 1992); Rusch, 479 N.W.2d at 499; Beville v. Univ. of S.D./Bd. of Regents, 420 N.W.2d 9, 11 (S.D.1988).

ANALYSIS AND DECISION
Gross Profits

[¶ 10.] City requested a damage award of $77,000. This is the amount of money SEA sold property for on the same day the trade/sale was approved by City. The trial court found that "the wrong lay at the creation" of the void transaction. As a result, the court ordered the defendants to relinquish the $77,000 gross profit. This award is consistent with this Court's holdings in Carlson, supra; Speckels, supra; and Himrich, supra.

[¶ 11.] Conflict of interest statutes have their origins in the general principal that "no man can faithfully serve two masters, whose interests are or may be in conflict." San Diego v. S.D. & L.A.R.R.Co., 44 Cal. 106, 1872 WL 1247 (1872). The general rule is strict enforcement of conflict of interest statutes so as to provide a strong disincentive for officers who might be tempted to take personal advantage of their public offices. Thomson v. Call, 38 Cal.3d 633, 214 Cal.Rptr. 139, 699 P.2d 316 (1985).

[¶ 12.] In Carlson, supra, the defendants, while city councilmen, received money from the city for goods and merchandise sold to the city individually or through corporations in which they were interested. This Court held that even though the councilmen were not acting fraudulently, they were bound to refund to the city the money paid to them on the sales in view of the statute making such transactions unlawful, null and void. Carlson, 75 S.D. at 434-36, 67 N.W.2d at 150-51. Similarly, in this case, SEA must refund to City money paid to it on the sale in light of the fact that the transaction was unlawful, null and void. In fact, such a conclusion is even more appropriate here because the trial court found actual fraud in this case. See City of Aberdeen, 2001 SD 55 at ¶ 23, 625 N.W.2d at 587.

[¶ 13.] In Speckels, supra, the Custer City Attorney entered into a lease-purchase agreement with the city where a for-profit corporation in which the attorney was a principal leased land from the city for twenty years. That same day, the attorney's corporation sublet the property to another corporation. This Court held that $700,000 in lease payments were unlawfully appropriated by the attorney and a fellow investor and that those payments had to be repaid to the city because the rent received by the investors deprived the city of that amount of money. Speckels, 512 N.W.2d at 175-176. Similarly, in this case, the defendants have deprived the city of $77,000. This money should be returned to City in accordance with this Court's holding in Speckels.

[¶ 14.] Finally, in Himrich, supra, the Custer City Attorney and fellow investor from Speckels, supra, argued that they were entitled to recover under the equitable defense of unjust enrichment. This Court recognized that, "`he who comes into equity must come with clean hands[.]'" Himrich, 1997 SD 116 at ¶ 22, 569 N.W.2d at 573 (quoting Myers v. Smith, 208 N.W.2d 919, 921 (Iowa 1973)). Since the attorney and his fellow investor engaged in a purposeful violation of their fiduciary duties as public officers when they entered into a contract with the city for personal gain, this Court refused to condone that conduct and found no entitlement to equitable relief. See Himrich, 1997 SD 116 at ¶¶ 19-22, 569 N.W.2d at 573-574. This Court continues to adhere to the principles set forth in Himrich and, therefore, denies equitable relief and affirms the trial court's award of the $77,000 in gross profits.

[¶ 15.] Strict enforcement of conflict of interest laws has been the principle adhered to by courts throughout this country. In Thomson, supra, the taxpayer plaintiffs challenged the validity of a transaction in which the defendant purchased a parcel of land from a husband and wife and then conveyed that parcel to the City of Albany while the husband was a member of the Albany City Council....

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