Estate of Davis, Matter of, 18442

• Decision Date: 16 November 1994
• Docket Number: No. 18442,18442
• Parties: In the Matter of the ESTATE OF Ethlyn M. DAVIS, Deceased.
• Court: South Dakota Supreme Court

Page 125

524 N.W.2d 125

In the Matter of the ESTATE OF Ethlyn M. DAVIS, Deceased.

No. 18442.

Supreme Court of South Dakota.

Argued March 22, 1994.

Decided Nov. 16, 1994.

Mark Barnett, Atty. Gen., Jan L. Holmgren, Sp. Asst. Atty. Gen., Pierre, for appellant State.

F.M. Smith and Michael Billion of Woods, Fuller, Shultz & Smith, Sioux Falls, for appellee Estate of Davis.

KONENKAMP, Justice (on assignment as a Circuit Court Judge prior to appointment as a Supreme Court Justice).

The South Dakota Department of Revenue (Department) appeals the trial court's decision to redetermine inheritance tax and grant a refund to the Estate.

Ethlyn M. Davis died on November 4, 1986 before the final outcome of her lawsuit against the brokerage firm of Merrill Lynch, Pierce, Fenner & Smith (Merrill Lynch). The suit, brought in the United States District Court, sought compensatory damages of $122,674 and punitive damages of $6,000,000 for alleged wrongful acts, including account churning. The Estate's Inheritance Tax Report claimed a deduction for attorney's fees for the Merrill Lynch lawsuit, but failed to list the lawsuit itself as an asset. The Department brought this oversight to the Estate attorney's attention, and he and the Department's attorney executed a written stipulation providing, among other things, that "the proceeds, if any, of the cause of action against Merrill Lynch are subject to the South Dakota Inheritance Tax less allowable deductions under SDCL 10-40-26." The circuit court entered an order adopting the stipulation on February 28, 1990.

The Merrill Lynch lawsuit settled for $2,000,000 on October 17, 1990. The attorneys who handled the lawsuit later appeared on behalf of the Estate and moved on December 4, 1991 to set aside the stipulation alleging a legal mistake in the method of valuing the lawsuit and the Estate attorney's lack of authority to enter the stipulation. The Estate paid the tax due of $147,293.75 in January, 1991, then filed an amended inheritance tax report valuing the lawsuit at $10,000 on the date of death and requested a refund. The Department refused.

At the hearing to set aside the stipulation and order, both the Estate attorney and the Department's attorney testified that they believed at the time they made their stipulation that for inheritance tax purposes a cause of action is valued based on its proceeds. The trial court determined that the stipulation and order of February 28, 1990 should be vacated on a mutual mistake of law. Finding mistake dispositive, the court made no finding on the Estate's claim that its attorney lacked authority to enter the stipulation. After hearing expert testimony, the court then valued the Merrill Lynch lawsuit at $62,285 on the date of death. In its judgment of June 16, 1993, the trial court ordered a refund after allowing the Estate a deduction for attorney's fees and costs incurred in seeking to set aside the stipulation and order.

IS THE DEPARTMENT'S APPEAL TIMELY?

The trial court entered an order and judgment on March 30, 1993, granting the Estate's application for redetermination of inheritance tax due and requiring the Department to refund excess taxes paid based the lawsuit's newly determined date of death value. On April 27, 1993, the Estate filed a second claim for redetermination and refund for the amount of attorney's fees incurred in the prosecution of its claim for an inheritance tax redetermination. The court entered a judgment on that matter on June 16, 1993, allowing for a reduction in value for attorneys fees and costs. The Department filed its notice of appeal on August 12, 1993.

The Estate contends that the Department's appeal of both orders is untimely under SDCL 10-41-37, which allows the State thirty days to appeal a circuit court's determination of inheritance tax due. We disagree. First, the March 30, 1993, order was not final pursuant to SDCL 15-26A-3, because the Estate itself effectively reopened the matter when it sought a further inheritance tax redetermination, which was not resolved until the June 16th order. Second, this is a refund action pursuant to SDCL 10-41-83. In re Estate of Wartenhorst, 87 S.D. 538, 211 N.W.2d 705 (1973). For refund actions the proper time for appeal is prescribed by SDCL 15-26A-6. Since the appeal was noticed within sixty days of the June 16th order, the Department's appeal is timely and we have jurisdiction to hear both the question of whether the stipulation and order should have been set aside and the allowance of the attorney fees deduction.

DID THE TRIAL COURT HAVE JURISDICTION TO SET ASIDE THE STIPULATION AND ORDER OF FEBRUARY 28, 1990?

The trial court believed that it had jurisdiction to vacate its earlier order approving the stipulation for four reasons: (1) Inherent power of the court; (2) the stipulation and order were void as they contravened South Dakota law; (3) SDCL 15-6-60(b)(6) allows a court to relieve a party from a final order for "[a]ny other reason justifying relief from the operation of the judgment;" (4) SDCL 10-41-83 empowers the court to grant a refund of taxes erroneously paid. We will examine each of these reasons.

The circuit court first invoked the inherent power of the court citing Purinton v. Purinton, 41 S.D. 125, 131, 169 N.W. 236, 238 (1918):

The power of a court to open up a judgment for a sufficient reason does not rest upon statute, though statutes may limit the power; but such power is one inherent in a court and, except as limited by statute, is within the sole control of the courts.

But in commenting on inherent power this Court has also stated

The remedy [to set aside a judgment] by motion is available only in case of irregular and void judgments (irregular and void by reason of the want of jurisdiction or want of adherence to some essential legal procedure), and cannot be resorted to as a means of enabling the court to review, revise, or correct errors of law into which it may have fallen.

Janssen v. Tusha, 68 S.D. 639, 642, 5 N.W.2d 684, 685 (1942) (quoting Jennings v. Des Moines Mutual Hail & Cyclone Ins. Ass'n, 33 S.D. 385, 146 N.W. 564, 565 (1914)). As recently as 1985 we relied on Purinton to hold that a trial court was obliged to set aside its own judgment in the case of a mother who conditionally terminated her parental rights finding that such arrangement was the antithesis of full consent required by statute. Matter of J.M.J., 368 N.W.2d 602 (S.D.1985). The lack of full consent was an essential legal procedure invalidating the judgment and empowering the court to set it aside. On the other hand, no essential legal process was broached here. Furthermore, we have long held that a court's inherent power cannot override a controlling statute and as discussed below, SDCL 15-6-60(b) controls. Purinton, supra.

The trial court determined that the attorney for the State and the Estate's attorney stipulated based on a mutual mistake of law. The court did not rely on SDCL 15-6-60(b)(1) which allows for relief on mistake, because the one year limitation period had obviously expired. The judge reasoned, nonetheless, that because the stipulation violated the statute, the order it was based on was a nullity. SDCL 15-6-60(b)(4) permits a court to set aside a judgment if it is void, but this section is inapplicable here. We have previously held that

[a] judgment is not void merely because it is erroneous. It is void only if the court that rendered it lacked jurisdiction of the subject matter, or of the parties, or if it acted in a manner inconsistent with due process of law.

Crowley v. Trezona, 408 N.W.2d 332 (S.D.1987) (citing 11 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2862, at 198-200 (1973)). "The appropriate inquiry for the trial court under SDCL 15-6-60(b)(4) is limited to jurisdictional and due process issues only and the court is not empowered to relitigate the correctness of the decision." Crowley, 408 N.W.2d at 333.

The Estate and the Department undertook to resolve an uncertainty: the value of a cause of action on the date of decedent's death. They did so by agreeing to value the suit at whatever its proceeds would be and thus avoided the difficulty of trying to quantify the worth of pending litigation. We agree that the value of a cause of action as of the date of death, not its future proceeds, is what should be assessed for inheritance tax purposes. SDCL 10-40-2; In re Jahn's Estate, 65 S.D. 124, 271 N.W. 903 (1937). So the attorneys' understanding of the law was inaccurate, but this does not mean that an Estate and the State of South Dakota cannot stipulate to some other arrangement to avoid the time and expense of attempting to precisely value a pending cause of action. By statute the Department is given specific authority to stipulate to value for inheritance tax purposes. SDCL 10-41-32. As a general rule

Since the parties assume the risk of mistake as to matters intended to be resolved by the compromise, a compromise and settlement is not defective merely because the parties were ignorant or mistaken as to the full extent of their rights.

15A Am.Jur. Compromise and Settlement Sec. 33 (1976); See C. Wright & Miller Sec. 2858, n. 10 (1973) (consent decrees based on errors of law ordinarily not set aside). See also Smith v. Widman Trucking & Excavating, 627 F.2d 792 (7th Cir.1980) where the court stated: "The rule [60(b) ] is not intended to enable litigants to avoid the consequences of a decision to settle or compromise which in retrospect appears unfortunate." Id. at 795.

The trial court next relied on SDCL 15-6-60(b)(6) which allows redress from a final order if any other reason exists which justifies relief from the operation of the order. This catch-all provision allows a court to vacate an order for any reason justifying relief from the judgment; however, the catch-all cannot be used when one of the other specific grounds applies. Gifford v. Bowling, 200 N.W.2d 379, 382 (S.D.1972). Mistake is...