Farmpro Servs., Inc. v. Finneman

• Decision Date: 19 October 2016
• Docket Number: 27706.,Nos. 27695,s. 27695
• Parties: FARMPRO SERVICES, INC., Plaintiff, v. David FINNEMAN, Connie Finneman, Chad Finneman, Armstrong Farms, Vern Armstrong, and Hope Armstrong, Defendants, and Michael Arnoldy and Ann Arnoldy, Defendants and Appellees, and Rock Creek Farms General Partnership, and Warrenn Anderson, Defendants and Appellants. Farmpro Services, Inc., Plaintiff, v. Armstrong Farms, Vern Armstrong, Hope Armstrong, Warrenn Anderson, and Rock Creek Farms General Partnership, Defendants, and David Finneman, Connie Finneman, and Chad Finneman, Defendants and Appellants, and Michael Arnoldy and Ann Arnoldy, Defendants and Appellees.
• Court: South Dakota Supreme Court

887 N.W.2d 72

FARMPRO SERVICES, INC., Plaintiff,

v.David FINNEMAN, Connie Finneman, Chad Finneman, Armstrong Farms, Vern Armstrong, and Hope Armstrong, Defendants,andMichael Arnoldy and Ann Arnoldy, Defendants and Appellees,

and

Rock Creek Farms General Partnership, and Warrenn Anderson, Defendants and Appellants.

Farmpro Services, Inc., Plaintiff,

v.Armstrong Farms, Vern Armstrong, Hope Armstrong, Warrenn Anderson, and Rock Creek Farms General Partnership, Defendants,andDavid Finneman, Connie Finneman, and Chad Finneman, Defendants and Appellants,

and

Michael Arnoldy and Ann Arnoldy, Defendants and Appellees.

Nos. 27695

27706.

Supreme Court of South Dakota.

Argued on Aug. 30, 2016.

Decided Oct. 19, 2016.

Brian L. Utzman of Smoot & Utzman, PC, Rapid City, South Dakota and Steven W. Sanford of Cadwell, Sanford, Deibert & Garry, LLP, Sioux Falls, South Dakota, Attorneys for appellants Rock Creek Farms General Partnership and Warrenn Anderson.

James P. Hurley of Bangs, McCullen, Butler, Foye & Simmons, LLP, Rapid

City, South Dakota, Attorneys for appellants Finnemans.

Elizabeth S. Hertz, Vince M. Roche of Davenport, Evans, Hurwitz & Smith, LLP, Sioux Falls, South Dakota and Robert R. Schaub of Sundall, Schaub & Fox Chamberlain, South Dakota, Attorneys for appellees Arnoldys.

ZINTER, Justice.

[¶ 1.] The issue in this appeal concerns a redemptioner's entitlement to the return of money spent in unsuccessful attempts to redeem in a mortgage foreclosure. A landowners' successor in interest, a landowners' strawman, and judgment lien creditors engaged in competing attempts to redeem in two mortgage foreclosures. Although the successor in interest successfully redeemed from a judgment lien creditor in the first foreclosure, a senior mortgagee started a second foreclosure; a second judgment lien creditor redeemed in the second foreclosure; and the second foreclosure court ruled that the landowners and successor in interest waived the statutory right to an owner's final right of redemption. The landowners and successor in interest unsuccessfully appealed the second foreclosure court's waiver ruling, and they lost the land to the second judgment lien creditor. The parties then returned to the first foreclosure court where the successor in interest made an equitable claim for the recovery of redemption money paid and still in the custody of the sheriff. The landowners sought the same relief, plus reimbursement for other claimed redemption payments. The circuit court ruled that the landowners and successor in interest had no equitable claim to the money on deposit with the sheriff even though the successor in interest redeemed in the first foreclosure on the mistaken belief that it would be able to exercise the owner's final right of redemption in the second foreclosure. The court entered summary judgment awarding the money on deposit to the judgment lien creditor from whom the redemption had been made, and the court denied the landowners' and successor in interest's motions for summary judgment on their equitable claims. Landowners (Appeal No. 27706) and their successor in interest (Appeal No. 27695) appeal. We affirm.

Facts and Procedural History

[¶ 2.] David and Connie Finneman were the owners of approximately 16,700 acres of farmland in Pennington and Meade Counties. Finnemans owned 7,500 acres in fee, and they had purchased 9,200 acres on a contract for deed from L & L Partnership (L & L). Finnemans mortgaged all of the land (except 200 acres acquired by the contract for deed) to FarmPro Services, Inc. (FarmPro) and Rabo Agrifinance, Inc. (Rabo). The Rabo mortgage was senior to the FarmPro mortgage.

[¶ 3.] Finnemans defaulted, and in 2000, FarmPro initiated foreclosure proceedings. In 2006, FarmPro purchased the property at the foreclosure sale for $1,439,130.31 and assigned the certificate of sale to Dr. Lee Ahrlin. Michael Arnoldy—who held judgments against Finnemans—redeemed from Ahrlin for $1,765,232.50.

[¶ 4.] Finnemans transferred their interest in the property to Rock Creek Farms (RCF), a partnership formed by Finnemans and Warrenn Anderson. On May 10, 2007, Anderson paid $822,000 to extend the landowners' final right of redemption for one year. On May 6, 2008, Finnemans confessed judgment to two creditors; and Daniel Mahoney, another associate of Finnemans, purchased those judgments. Using money provided by RCF, Mahoney redeemed from Michael by depositing $1,219,734.29¹ (hereinafter referred to as “Mahoney payment”) with the sheriff. Michael, however, refused to accept the payment so he could challenge the validity of the judgments Mahoney had used to redeem. Nevertheless, Mahoney was issued a certificate of redemption.

[¶ 5.] On July 3, 2008, Michael's sister, Ann Arnoldy—who also held judgments against Finnemans—redeemed from Mahoney for $1,244,570.43. Mahoney accepted the payment and Ann was issued a certificate of redemption. On September 12, 2008, RCF exercised the landowners' final right of redemption and redeemed from Ann for $1,280,000. RCF thus held the final certificate of redemption in the FarmPro foreclosure.

[¶ 6.] However, in July 2009, Rabo commenced a separate foreclosure action. The property was sold at another sheriff's sale, and Ann redeemed again. The Rabo foreclosure court initially entered a judgment awarding RCF the landowners' final right of redemption. However, the Rabo court later vacated its judgment and ruled that RCF and Finnemans had waived the owner's right of redemption in a loan restructuring agreement. RCF and Finnemans appealed, but the appeal failed on procedural grounds and the circuit court's waiver decision became final. See Rabo Agrifinance, Inc. v. Rock Creek Farms, 2012 S.D. 20, ¶ 9, 813 N.W.2d 122, 126. Consequently, Ann obtained the sheriff's deed in the Rabo foreclosure.

[¶ 7.] During the course of the Rabo foreclosure, L & L also foreclosed on its contracts for deed. Based on RCF's and Finnemans' unsuccessful appeal of the Rabo foreclosure court's waiver decision, the L & L foreclosure court ruled that Ann held both equitable ownership of the contract for deed property and the right to cure the default under the contracts. The L & L court's decision was affirmed on appeal, and Ann became the record title owner of all the property at issue. See L & L P'ship v. Rock Creek Farms, 2014 S.D. 9, ¶¶ 24–25, 843 N.W.2d 697, 705.

[¶ 8.] The issues in this appeal arose in March 2012 when RCF returned to the FarmPro foreclosure court. RCF moved that court to award it the Mahoney payment, which was still in the custody of the sheriff. RCF argued that because it had not expected to lose the owner's final right of redemption in the Rabo foreclosure, it had mistakenly redeemed in the FarmPro foreclosure. RCF further argued that because it lost title to the land in the Rabo foreclosure, it was entitled to recover the redemption money it paid in the FarmPro foreclosure.

[¶ 9.] The FarmPro court ruled that it retained equitable jurisdiction to determine whether RCF and Finnemans “made a bona fide mistake in their attempt to redeem and whether Arnoldys [could] retain both redemption payments and title to the property.” See Way v. Hill, 41 S.D. 437, 171 N.W. 206, 207 (1919) (supporting the FarmPro court's assertion of equitable jurisdiction). Arnoldys and RCF then filed cross motions for summary judgment claiming entitlement to the Mahoney payment. Finnemans also filed a motion for summary judgment, stating that their motion was “independent of, in addition to, and in support of” RCF's motion. Finnemans later filed an affidavit requesting that Arnoldys pay Finnemans $4,363,469 for what they called “partial redemption payments” made by Finnemans, RCF, and their receiver. Those payments were made for a variety of things including the Mahoney redemption, real-estate taxes, rent, debt owed to other creditors, and Rabo loan payments. Finnemans' affidavit also asked for title to 200 acres of property that was part of the L & L foreclosure.

[¶ 10.] The circuit court sent a letter to the parties to clarify whether the issue to be decided under the motions for summary judgment was entitlement to the Mahoney payment. Although Arnoldys agreed, the record is not clear whether RCF agreed, and Finnemans responded with a letter reasserting all the requests they made in their affidavit.

[¶ 11.] The circuit court limited its decision to the relief requested in the summary judgment motions; i.e., who was entitled to the Mahoney payment. The court found that RCF had no claim to the money because RCF was reimbursed for Mahoney's redemption when Ann Arnoldy redeemed from Mahoney. The court also found that RCF's decision to redeem in the FarmPro foreclosure was not the kind of “invalidating mistake” that permitted equitable relief. The court ruled that RCF took a calculated risk that the interest it obtained through redemption in the FarmPro foreclosure could later be lost in the foreclosure of a senior mortgage. The court ultimately ruled that Michael was entitled to the Mahoney payment:

RCF's calculated risk and decision to redeem in the FarmPro proceeding provides no basis for claiming a right to the [Mahoney payment]. As the person from whom Mahoney sought to redeem from, Michael Arnoldy had a right to accept the payment when it [was] deposited in 2008, and he retains that right today.

The court entered summary judgment awarding Michael the money from the Mahoney payment, it denied RCF's and Finnemans' motions, and these appeals followed.

[¶ 12.] Because the Appellants' claims on appeal are much broader than the limited claim decided by the circuit court, we must first determine the appropriate issues to be decided. The circuit court's decision and judgment only resolved entitlement to the Mahoney payment ($1,219,734.29) that was tendered to Michael and was still on deposit with the sheriff. On appeal, however, RCF disavows a direct claim to that payment. Instead, it argues that the circuit court erred in failing to award RCF the...