Estate of O'Keefe, Matter of

Decision Date12 August 1998
Docket Number20361,Nos. 20350,s. 20350
Citation583 N.W.2d 138,1998 SD 92
PartiesIn The Matter of The ESTATE OF Walter O'KEEFE, Deceased.
CourtSouth Dakota Supreme Court

Richard D. Casey of Strange, Farrell, Johnson & Casey, Sioux Falls, for appellants Gail and Loren Lange.

Dennis Duncan and Jeff Cole of Zimmer, Duncan & Cole, Parker, for appellee Bernetta Woelz.

AMUNDSON, Justice.

¶1 Gail and Loren Lange (Langes) appeal the circuit court's decision holding that they were not entitled to any portion of the punitive damages received by an estate, and that Langes' share of the estate was to be offset by the costs and attorney fees incurred in Langes' litigation with the estate. We affirm in part and reverse in part.

FACTS

¶2 Walter O'Keefe, the decedent in this case, died testate on November 12, 1992, at the age of 101 years old. O'Keefe was survived by two nephews, Gail and Loren Lange, and a niece, Bernetta Woelz, who each were entitled to inherit an equal share of O'Keefe's estate (Estate). Gary Ward was eventually appointed by the trial court to be the agent of Estate.

¶3 Ward filed a complaint on behalf of Estate to recover assets of Estate from Langes. The complaint alleged breach of fiduciary duty, conversion, fraud and deceit, and requested compensatory and punitive damages. In the course of that litigation, Langes were found as a matter of law to have been acting as fiduciaries in taking care of O'Keefe's property and finances, that they breached their fiduciary duty, and were guilty of conversion, fraud and deceit. A jury returned a verdict on the issue of damages in favor of Estate and against Langes in the amount of $75,000 in compensatory damages and $25,000 in punitive damages. Langes appealed and that judgment was affirmed by this Court in Ward v. Lange, 1996 SD 113, 553 N.W.2d 246.

¶4 Woelz, a sister of Langes, sought to prevent them from sharing in any of the judgment proceeds and interest from the foregoing litigation--one-third of which Langes would each otherwise inherit. Specifically, she filed a petition with the circuit court to disqualify Langes from taking any proceeds of Estate, or alternatively, for the court to assess the costs of administration to Langes. Woelz also sought to have Langes pay all of the attorney and agent fees, tax and costs incurred by Estate in obtaining the judgment against Langes.

¶5 The circuit court held a hearing on Woelz' petition on October 31, 1997. On November 21, 1997, the trial court entered findings of fact, conclusions of law, and an order assessing the costs of administration against Langes, and also prohibiting Langes from receiving any portion of Estate's punitive damage award against Langes.

¶6 Langes appeal, raising the following issues for review:

1. Whether the circuit court's decision that Langes are not entitled to any portion of Estate that includes a portion of the punitive damages awarded, plus interest, is clearly erroneous or an error of law.

2. Whether the circuit court's ruling that Langes must pay all attorney and agent fees, taxes, and costs that were incurred by Estate in obtaining a judgment against Langes is clearly erroneous or an error of law.

3. Whether the circuit court erred in ruling that Woelz is to receive the entire amount of the punitive damage portion of the judgment, plus interest thereon.

By notice of review, Woelz presents the following issue:

1. Whether the trial court's decision that Langes should not be totally disqualified from taking any portion of the assets of Estate is clearly erroneous or an error of law.

STANDARD OF REVIEW

¶7 This Court reviews a trial court's findings of fact under the 'clearly erroneous' standard and overturns a trial court's conclusions of law only when the trial court erred as a matter of law. Century 21 Associated Realty v. Hoffman, 503 N.W.2d 861, 864 (S.D.1993) (citations omitted). "The question is not whether this Court would have made the same finding that the trial court did, but whether on the entire evidence we are left with a definite and firm conviction that a mistake has been committed." Id. (citations omitted). Questions of law are reviewed de novo. City of Colton v. Schwebach, 1997 SD 4, p 8, 557 N.W.2d 769, 771. "This Court interprets statutes under a de novo standard of review without deference to the decision of the trial court." In re Estate of Jetter, 1997 SD 125, p 10, 570 N.W.2d 26, 28.

DECISION

¶8 1. Whether the circuit court erred in disqualifying Langes from receiving any portion of the punitive damage proceeds.

¶9 The circuit court disqualified Langes from receiving any portion of the punitive damage award that they paid to Estate in satisfaction of the judgment against them for breach of fiduciary duty, conversion fraud and deceit. The court's findings of fact noted "[t]hat it would be inequitable and against the public policy of the State of South Dakota for Gail Lange and Loren Lange to take any of the assets of the Estate which represents the punitive damage portion of the Judgment against the Langes in favor of the Estate." Langes contend this was error and that the court was without authority to make such an order. We do not agree.

¶10 The Uniform Probate Code (UPC) under Title 29A of our code now governs probate proceedings. 1 Langes assert that the legislature, in enacting the UPC, intended to foreclose the equitable power of courts. However, SDCL 29A-1-103 provides that "[u]nless displaced by the particular provisions of this code, the principles of law and equity supplement its provisions." 2 See also SDCL 16-6-8 (providing that "[t]he circuit court possesses chancery as well as common-law jurisdiction."). Our cases have also long recognized the circuit courts' "unlimited equity jurisdiction in probate matters." Miller v. Thode, 372 N.W.2d 459, 462 (S.D.1985) (citing Spitzer v. Spitzer, 84 S.D. 147, 154, 168 N.W.2d 718, 722 (1969)). If the legislature had intended to foreclose the court's well-established equitable power to deal with fraud and other wrongdoing as Langes argue, it was within the legislature's province to do so. "A familiar principle of statutory construction, however, is that a statute should not be construed to impair pre-existing law in the absence of an explicit legislative statement to the contrary." In re Estate of Cotton, 104 Ohio App.3d 368, 662 N.E.2d 63, 64 (1995) (citing Isbrandtsen Co. v. Johnson, 343 U.S. 779, 783, 72 S.Ct. 1011, 1014, 96 L.Ed. 1294, 1299 (1952)) (other citations omitted). There is no such pronouncement in the UPC that would deprive the circuit court of the power to fashion an equitable remedy in cases of established wrongdoing, such as the case at hand. See In re Will of Katz, 78 Misc.2d 790, 358 N.Y.S.2d 616 (N.Y.Sur.1974) (holding the court had "the equitable power to defeat the proponent's fraud by staying her hand and enjoining her from claiming under [the will].").

¶11 In Spitzer, this Court noted that fraud is one of the "exceptional circumstances" that would call for the circuit court to provide equitable relief in probate matters. 84 S.D. at 153, 168 N.W.2d at 721-22. One of the established principles of equity is "that an individual should not be allowed to profit through his or her own wrongdoing." Noble v. McNerney, 165 Mich.App. 586, 419 N.W.2d 424, 434 (1988) (holding that a probate court is empowered to effect an equitable remedy) (citation omitted). In this case, Langes were found to have breached a fiduciary duty, converted property, defrauded the estate, and as a result, were ordered to pay punitive damages. The circuit court's order that prohibited them from sharing in any part of the punitive damage award was an equitable remedy that carried out the expectation of the jury that awarded the punitive damages. As we have said before, the purpose of punitive damages is to punish the wrongdoer and deter others from similar wrongdoing. Gross v. Kouf, 349 N.W.2d 652, 654 (S.D.1984). That objective would not be fully accomplished if Langes were allowed to receive back two-thirds of the punitive damage judgment against them by inheritance from an estate that was defrauded at their hands.

¶12 Langes rest much of their argument on their assertion that the legislature expressed a desire to give effect to the testator's intent, and that this intent would be thwarted if they were not allowed to inherit any part of the punitive damage award. This argument assumes that the testator intended to pass his property on to Langes in spite of their wrongdoing. However, O'Keefe was not aware of the fraud that was foisted upon him by Langes, nor of the conversion or breach of fiduciary duty at the time he made out his will. Furthermore, it seems specious for the perpetrators of fraud against a decedent to argue that the decedent's rights under the probate code will be violated unless the perpetrators receive their share under a will created by a decedent who was not aware of the wrongdoing that had been committed against him.

¶13 Langes try to assert that the exceptions to the general inheritance scheme are strictly construed by examining the employment of "slayer statutes" 3 and the disqualification from inheritance that they may provide. Langes contend that "[t]hese statutes are penal in nature ..." and "they are strictly construed." On the contrary, in South Dakota the "disqualification of [a] willful slayer shall not be considered penal in nature, but shall be construed broadly in order to effect the policy of this state that no person shall be allowed to profit by his own wrong." In re Estate of Gibbs, 490 N.W.2d 504, 510 (S.D.1992) (quoting former SDCL 29-9-19) (alteration omitted). Langes cite In re Emerson's Estate, 191 Iowa 900, 183 N.W. 327 (1921), for the proposition that in the absence of a statute expressly prohibiting a particular slayer from inheriting or taking a devise or legacy from his victim, an exclusion could not be created or enlarged by...

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