Dowling Family P'ship v. Midland Farms, LLC

• Decision Date: 17 June 2015
• Docket Number: No. 27114.,27114.
• Parties: DOWLING FAMILY PARTNERSHIP, a South Dakota General Partnership and Dowling Brothers Partnership, a South Dakota General Partnership, Plaintiffs and Appellees, v. MIDLAND FARMS, LLC, an Iowa Limited Liability Company; Defendant and Appellant. and Lanny DeMott, Defendant.
• Court: South Dakota Supreme Court

865 N.W.2d 854

DOWLING FAMILY PARTNERSHIP, a South Dakota General Partnership and Dowling Brothers Partnership, a South Dakota General Partnership, Plaintiffs and Appellees

v. MIDLAND FARMS, LLC, an Iowa Limited Liability Company; Defendant and Appellant.andLanny DeMott, Defendant.

No. 27114.

Supreme Court of South Dakota.

Argued Feb. 17, 2015.

Decided June 17, 2015.

Gregory A. Eiesland of Johnson Eiesland Law Offices, PC, Rapid City, South Dakota, Thomas P. Maher, Thomas M. Maher of Maher Law Office, LLP, Pierre, South Dakota, Attorneys for plaintiffs and appellees.

William G. Taylor, James E. Moore of Woods, Fuller, Shultz & Smith PC, Sioux Falls, South Dakota, Attorneys for defendant and appellant.

Opinion

SEVERSON, Justice.

[¶ 1.] Midland Farms, LLC, appeals the circuit court's denial of its request for restitution from Dowling Family Partnership and Dowling Brothers Partnership (collectively, “the Partnerships”). Midland asserts that the Partnerships were unjustly enriched by receiving the proceeds from a winter wheat crop planted at the partial expense of a third party. The Partnerships assert that Midland breached a lease agreement with the Partnerships and should not be granted equitable relief. We affirm.

Facts and Procedural History

[¶ 2.] The Partnerships were formed by brothers Scott Dowling (“Dowling”) and Tracy Dowling for the purposes of farming and raising livestock. Dowling was the managing partner of the Partnerships at all relevant times. Midland is a limited liability company formed in 2008. It owns approximately 33,000 acres of farmland in Haakon and Stanley Counties, South Dakota. Scott DeMott is a farmer and insurance agent who resides in Little Rock, Arkansas. DeMott was a managing member of Midland at all relevant times.

[¶ 3.] The parties entered into a cash farm lease on May 18, 2009, for approximately 10,276 acres. The lease terminated after the 2009 crop harvest but required Midland, “prior to renting the leased premises for the 2010 crop year, [to] give Tenant a first opportunity to rent the leased premises.” In 2010, the parties executed two leases: one crop-share farm lease for approximately 13,384 acres and one cash farm lease for approximately 15,725 acres. Similar to the 2009 lease, the 2010 cash farm lease contained a provision that required Midland to “give Tenant a first opportunity to rent the leased premises” before “renting the leased premises for the 2011 crop year [.]” On January 19, 2011, Midland and the Partnerships executed a cash farm lease for approximately 29,012 acres at $55 per acre. That lease contained the following provision:

TERM. The term of the cash farm lease for the leased premises shall commence on the –––– day of October, 2010, and shall terminate after the 2012 crop harvest, unless otherwise extended, terminated, or provided for herein, except as provided in 8e.

Landlord will give tenant option to rent leased premises for the 2013, 2014 and 2015 crop year. Terms and conditions to be agreed to by Landlord and Tenant.

[¶ 4.] In April 2012, DeMott called Dowling and said, “You have the first right of refusal to rent. Do you want to rent it in the future?” After Dowling indicated he wished to continue leasing the property at the same price, DeMott said, “We gave you your first right of refusal for the lease. We're going to market this because we think we have other—because we have other options to look at.” In an email dated July 23, 2012, DeMott further stated:

Also per paragraph 3 Midland Farms has given you the option to lease our farm for 2013, 2014 and 2015 crop years per phone conversation with me at the end of April 2012. You indicated you would rent the farm with the same expiring cash rent of $55 per acre. Midland Farms is not accepting this offer. We have other qualified interested parties willing to lease our farm, if you have any serious interest in renting all or part of Midland Farms, contact us by August 1, 2012.

DeMott and Dowling met in person on July 25, 2012, to discuss terms and conditions of a potential lease for 2013, 2014, and 2015. DeMott told Dowling that Midland required a lease price of $70 per acre and an irrevocable letter of credit for the full amount “ASAP” to secure the rent payment for the 2013 crop year. Dowling's banker approved the new lease for the 2013, 2014, and 2015 crop years at the agreed upon price of $70 per acre and testified that the bank would have approved a formal irrevocable letter of credit if the bank had been provided with the final written lease documents.

[¶ 5.] Dowling called DeMott on August 1, 2012, and accepted the offer. Thereafter, Dowling entered into a contract to purchase a new sprayer for $324,000 and began harrowing the Midland property in August at a cost of $46,000. Five days after Dowling agreed to DeMott's terms, on August 6, DeMott emailed Dowling and asked, “What name do I use for you on our farm lease?”¹ However, only two days later, DeMott called Dowling and told him that Midland had sold the farm to a third party, Clement Farms. The following day, on August 9, Dowling answered DeMott's August 6 inquiry and provided the tenant name for the lease. No new written lease agreement was formally drafted for the 2013, 2014, or 2015 crop years. Instead, on August 13, 2012, DeMott emailed Dowling to inform him that Midland was seeking a legal determination in circuit court that the parties had not extended the prior lease and warning him to cease farming operations on Midland property.

[¶ 6.] Midland served a notice to quit and vacate the property on the Partnerships on August 20, 2012. The Partnerships filed a complaint for a declaratory judgment and other relief on September 7, 2012. The circuit court consolidated these two actions on October 30, 2012. In the meantime, Midland entered into a lease agreement with Clement on September 21, 2012, and a purchase agreement on September 27, 2012. Clement took possession of the land in late September 2012 and planted winter wheat on approximately 12,269 acres at a cost of $1,048,356.08. Both the lease and purchase agreements acknowledged the Partnerships' claim to the leased premises and included contingencies for an adverse ruling in the pending litigation. Midland and Clement agreed that in the event that the circuit court decided the Partnerships were entitled to possession of any portion of the land leased to Clement, their lease would terminate, Midland would reimburse Clement for its expense in planting the winter wheat, and Midland would pay Clement up to an extra $100,000 for its indirect expenses.

[¶ 7.] The circuit court entered findings of fact and conclusions of law on March 12, 2013. The court found that an enforceable contract existed between the Partnerships and Midland and that the Partnerships exercised their right to lease the property for the 2013, 2014, and 2015 crop years. According to an agreement struck between the parties while the litigation was still pending, the Partnerships paid the rent for the 2013 crop year on March 18, 2013, and were immediately restored to possession of the leased property. Both Clement and the Partnerships obtained crop insurance for the winter wheat planted by Clement, and over two-thirds of those acres did not go to harvest. Clement did not receive any insurance proceeds, but the Partnerships received two payments in the amounts of $1,519,390 and $39,429.² Clement joined the litigation, seeking reimbursement for the expenses it incurred in planting the winter wheat, but Midland later settled with Clement and agreed to reimburse Clement a total of $1,187,500.

[¶ 8.] The Partnerships and Midland went to trial a second time. The Partnerships sought damages for being denied possession of the property from August 2012 to March 2013, and Midland sought restitution from the Partnerships for the amount it paid to Clement as reimbursement for Clement's planting expenses. The circuit court found that the Partnerships did not suffer damage, that the Partnerships were not unjustly enriched, and that Midland had unclean hands. Midland appeals, raising the following issues:

1. Whether the circuit court erred in denying Midland's motion for summary judgment and concluding Midland breached its lease with the Partnerships.

2. Whether the Partnerships were unjustly enriched.

3. Whether the doctrine of unclean hands prevents Midland from seeking restitution for unjust enrichment.

Standard of Review

[¶ 9.] “In reviewing a grant or a denial of summary judgment under SDCL 15–6–56(c), we must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law.” Peters v. Great W. Bank, Inc., 2015 S.D. 4, ¶ 5, 859 N.W.2d 618, 621 (quoting Saathoff v. Kuhlman, 2009 S.D. 17, ¶ 11, 763 N.W.2d 800, 804). We view the evidence “most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party.” Id. (quoting Saathoff, 2009 S.D. 17, ¶ 11, 763 N.W.2d at 804).

[¶ 10.] “Unjust enrichment is an equitable concept.” Hofeldt v. Mehling, 2003 S.D. 25, ¶ 9, 658 N.W.2d 783, 786. The doctrine of unclean hands—or equitable disqualification—is likewise an equitable concept. See Restatement (Third) of Restitution & Unjust Enrichment § 63 (2011). “We review equitable actions for abuse of discretion.” Gartner v. Temple, 2014 S.D. 74, ¶ 7, 855 N.W.2d 846, 850 (quoting Englehart v. Larson, 1997 S.D. 84, ¶ 12, 566 N.W.2d 152, 155). “An abuse of discretion is a fundamental error of judgment, a choice outside the range of permissible choices, a decision, which, on full consideration, is arbitrary or unreasonable.” State v. Martin, 2015 S.D. 2, ¶ 7, 859 N.W.2d 600, 603 (quoting Gartner, 2014 S.D. 74, ¶ 7, 855 N.W.2d at 850). Under an abuse of discretion standard of review, the circuit court's “factual determinations are subject to a clearly erroneous standard [,]” Gartner, 2014 S.D. 74, ¶ 8, 855 N.W.2d at 850 (quoting State v....