DFA DAIRY FINANCING v. Lawson Special Trust

• Decision Date: 21 April 2010
• Docket Number: No. 25344.,25344.
• Citation: 781 N.W.2d 664,2010 SD 34
• Parties: DFA DAIRY FINANCING SERVICES, L.P., Plaintiff and Appellant, v. LAWSON SPECIAL TRUST and Minnie C. Lawson, Trustee, Deceased, and Scott Lawson, and any Other Heirs, Devisees, Legatees, Executors, Administrators or Creditors and Nor-Tech Dairy Advisors, Inc. and Midwest Concrete & Redi-Mix, Inc. f/k/a Corsica Redi-Mix, Inc., and Lake Preston Healthcare Center, Inc., A Minnesota Corp. d/b/a Kingsbury Memorial Manor, Brule County, South Dakota and all Persons Unknown Who Have or Claim to Have Any Interest in or Estate in or Lien or Encumbrance Upon the Premises Described in the Complaint, Defendants and Appellees.
• Court: South Dakota Supreme Court

781 N.W.2d 664

2010 SD 34

DFA DAIRY FINANCING SERVICES, L.P., Plaintiff and Appellant, v. LAWSON SPECIAL TRUST and Minnie C. Lawson, Trustee, Deceased, and Scott Lawson, and any Other Heirs, Devisees, Legatees, Executors, Administrators or Creditors and Nor-Tech Dairy Advisors, Inc. and Midwest Concrete & Redi-Mix, Inc. f/k/a Corsica Redi-Mix, Inc., and Lake Preston Healthcare Center, Inc., A Minnesota Corp. d/b/a Kingsbury Memorial Manor, Brule County, South Dakota and all Persons Unknown Who Have or Claim to Have Any Interest in or Estate in or Lien or Encumbrance Upon the Premises Described in the Complaint, Defendants and Appellees.

No. 25344.

Supreme Court of South Dakota.

Considered on Briefs February 16, 2010.

Decided April 21, 2010.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David D. Knoff of Kennedy, Pier & Knoff, LLP, Yankton, South Dakota, Attorneys for plaintiff and appellant.

Carl J. Koch, Mitchell, South Dakota, Attorney for defendants and appellees Lawson Special Trust.

GILBERTSON, Chief Justice.

¶ 1. DFA Dairy Financing Services, L.P. (DFA) sued Lawson Special Trust (LST), Minnie Lawson (Minnie), Trustee, deceased, and Scott Lawson (Scott) and all other heirs and beneficiaries of the LST for foreclosure of a mortgage. DFA entered into the mortgage, which was executed by Minnie as trustee for the LST. The mortgage was secured by real property owned by the LST. Scott, as the LST adverse trustee, moved for summary judgment. The trial court granted his motion. DFA appeals. We affirm.

FACTS

¶ 2. On June 10, 1993, Minnie and Irving Lawson (Irving) created the Lawson Family Living Trust (LFLT). The complicated fifty-six page trust document created several sub-trusts with governing powers and rules specific to each. One of the sub-trusts created by the LFLT was an irrevocable trust called the Lawson Special Trust (LST). The LFLT authorized the transfer of real property in Brule County, South Dakota, to the LST. The LFLT recited an acknowledgement that the transfer of the real property to the LST was in consideration of a commitment by the trustors, Irving and Minnie, to the beneficiaries regarding the ultimate disposition of that real property. Irving and Minnie were designated as the trustors and trustees of the LFLT and the LST. They also retained a life estate in the real property.

¶ 3. Under the terms of the trust document, a surviving trustor had no power of appointment over the real property in the LST. The trustors, and any surviving trustor, retained only a right to the income from the property in the LST. The trust document provided the trustors with the authority to borrow money for any purpose of the trust and to sign notes and grant mortgages. However, those powers were limited specifically by the trust document such that a trustor could not sign notes or grant mortgages against any property in the LST.

¶ 4. The trust document further provided that upon the death of one of the trustors the LST would be administered by the surviving trustor and an "adverse trustee." Irving and Minnie's son, Scott, was designated as the adverse trustee. According to the trust document, the primary purpose of the adverse trustee was to prevent invasion of the assets of the LST. Violation of any of these provisions gave the beneficiaries of the LST the right to bring an action against the LST for damages.

¶ 5. Only Scott as the adverse trustee had the power to invade the corpus of the LST. However, no trustee could invade the corpus of the LST for the payment of any debt. Furthermore, the trustors retained the right to gift the property in the LST to a charity, but not for the satisfaction of any debt. In addition, no trustor or trustee could pay any governmental unit with property in the LST. The trust document provided that the trustors could invade the LFLT for support, maintenance, and health reasons, but not the irrevocable sub-trusts including the LST. Furthermore, the trust document provided that no party had the right to force an invasion of the corpus of the LST for any purpose.

¶ 6. Article twenty-two of the LFLT contained a hold harmless provision:

Any corporation, organization, financial institution, brokerage house, or other entity, which relies, in good faith, upon a representation or action made by any trustee hereunder, or upon the representation made in any certificate of trustee power and authority authorized by Art. XXI, shall be held harmless for any prudent act they do in such reliance.

¶ 7. Irving and Minnie executed a deed dated June 10, 1993, transferring the real property to the LST. That deed was not recorded with the Brule County Office of the Register of Deeds until February 23, 1999, for reasons unknown and not relevant to the issues before this Court. That deed named Scott as one of the co-trustees of the LST along with Irving and Minnie.

¶ 8. Irving was placed in a nursing home sometime after the LFLT trust was created. The cost of Irving's care made it difficult for the family to maintain the farming operation. Irving died in 2001.

¶ 9. On October 8, 2002, Minnie, the surviving trustor, executed a mortgage as trustee for the LST in favor of DFA. Minnie obtained the loan to pay nursing home debts incurred for Irving's care prior to his death and operating expenses for her dairy operation. The mortgage pledged the real property in the LST as security for the payment of a promissory note for $76,429.99. The mortgage was not signed by Scott as the adverse trustee of the LST. Nor did Scott provide any written consent to the mortgage or encumbrance on the real property in the LST for which Minnie secured the loan. DFA executed the mortgage without any title insurance policy or title examination to determine the legal status of the realty.

¶ 10. Minnie passed away without satisfying the mortgage on the real property. On June 15, 2004, DFA filed suit to foreclose on the mortgage due to the default. Scott answered the complaint, alleging the mortgage was granted in violation of the provisions of the LST prohibiting invasion of the corpus without the consent of the adverse trustee. DFA's answers to interrogatories and request for production stated that it relied upon the declaration of trust as establishing Minnie's power to mortgage the real property. It also stated that it examined a copy of the trust document to determine whether Minnie had the power to encumber the real property.

¶ 11. After the parties completed discovery, Scott moved for summary judgment. Scott claimed that there were no disputed material facts and that he was entitled to judgment as a matter of law as he, as the adverse trustee, had not consented to or signed the DFA mortgage. A hearing was scheduled for January 6, 2009.

¶ 12. One week before the hearing, DFA provided Scott with an unsigned copy of an affidavit from one of its former employees, Anthony Herrick. In that affidavit, Herrick attested that after discussions with Minnie and Scott, he assumed Minnie had the authority to mortgage trust realty. He further stated that he was told that the purpose of the loan was to enable the Lawson dairy farm to continue operating. Herrick's affidavit further stated that Scott and Minnie told him the purpose of the trust was to shield their assets from being recaptured or levied upon by the nursing home for the cost of Irving's care.¹ Herrick attested that he believed Minnie's signature validly encumbered the real property in the LST. He further attested that if Minnie lacked such power, DFA would not have entered into the mortgage.

¶ 13. At the hearing on Scott's motion for summary judgment, DFA attempted to submit a signed copy of Herrick's affidavit that was identical to the unsigned copy provided to Scott the week prior to the hearing. Scott objected to the affidavit as not timely served. The trial court permitted DFA to submit the signed copy but reserved its ruling as to whether it would be accepted. The trial court eventually ruled the affidavit was not timely submitted and refused it.

¶ 14. During the hearing, the parties agreed there were no genuine issues of material fact and the issues of law presented were dispositive of the action. The parties further agreed that the validity of the mortgage on the real property was the only issue to be resolved. With that issue resolved, the parties agreed a trial on the foreclosure action would not be required.

¶ 15. The trial court determined that the LFLT forbade the trustees from invading the corpus of the LST and that only the adverse trustee had such authority. It further determined Scott was named the adverse trustee in the LFLT and was also named as a trustee on the 1993 deed that conveyed the real property to the LST. With regard to the claim of unjust enrichment, the trial court determined there was no benefit conferred upon the beneficiaries of the trust, only on Minnie personally as the mortgage enabled her to satisfy Irving's nursing home debt and continue operating the dairy farm. Finally, the trial court determined that any reasonable person inquiring as to the status of the title to the real property and exercising reasonable diligence would have been on notice that Scott had sole authority as the adverse trustee to invade the corpus of the LST. The trial court also rejected DFA's argument that it was entitled to other equitable relief and entered an order granting Scott's motion for summary judgment.

¶ 16. DFA appeals raising the following issues, which we have restated:

1. Did the trial court abuse its discretion when it refused Herrick's affidavit.

2. Did the trial court err when it refused to give effect to the hold harmless provision in article twenty-two of the LFLT.

3. Did the trial court abuse its discretion when it rejected DFA's arguments for equitable relief and granted Scott's motion for summary judgment.

STANDARD OF REVIEW

Summary judgment is authorized "if the pleadings, depositions, answers to

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