Hein v. Zoss

• Decision Date: 19 October 2016
• Docket Number: No. 27530.,27530.
• Parties: Rebecca J. HEIN and Goldie N. Burnham, Individually, and Goldie N. Burnham, as Personal Representative of the Estate of Margaret L. Zoss, deceased, Plaintiffs and Appellees, v. Fred M. ZOSS, Defendant and Appellant.
• Court: South Dakota Supreme Court

887 N.W.2d 62

Rebecca J. HEIN and Goldie N. Burnham, Individually, and Goldie N. Burnham, as Personal Representative of the Estate of Margaret L. Zoss, deceased, Plaintiffs and Appellees,

v.Fred M. ZOSS, Defendant and Appellant.

No. 27530.

Supreme Court of South Dakota.

Argued on May 24, 2016.

Decided Oct. 19, 2016.

Paul H. Linde of Schaffer Law Office, Prof, LLC Sioux Falls, South Dakota and Mike C. Fink of Fink Law Office Bridgewater, South Dakota, Attorneys for plaintiffs and appellees.

Ronald A. Parsons, Jr. Pamela R. Reiter of Johnson, Janklow, Abdallah, Reiter & Parsons, LLP Sioux Falls, South Dakota, Attorneys for defendant, and appellant.

SEVERSON, Justice.

[¶ 1.] A jury found Fred Zoss liable to Rebecca Hein and Goldie Burnham for breach of contract. It also found that Zoss breached his fiduciary duties to Margaret Zoss. On appeal, Zoss alleges that the circuit court erroneously excluded evidence. We reverse and remand for a new trial.

Background

[¶ 2.] In 2005, Margaret Zoss executed a power of attorney that appointed Fred Zoss, her son, as her attorney-in-fact. Beginning in 1993, Zoss lived with his mother, and he was her primary caretaker until her death in January 2013. Margaret held a life estate in several properties to which Rebecca Hein and Goldie Burnham, Margaret's daughters, held remainder interests. Prior to Margaret's death, Zoss had been leasing from Margaret the land in which Hein and Burnham held remainder interests. In January 2014, Hein and Burnham initiated this suit. They alleged that Zoss had breached his oral farmland lease by failing to pay rent (on the property in which they received their remainder interests) for the 2013 crop year.¹ Burnham, who was appointed personal representative of Margaret's estate, also brought suit on behalf of Margaret's estate (the Estate).² The Estate alleged that Zoss breached the fiduciary duties that he owed to Margaret by “exercising improper influence and self-dealing; causing Margaret to make substantial gifts (including farmland) to Fred; influencing Margaret into making business opportunities available to Fred; using his power of attorney in fact to lease life estate property from Margaret (rent free); conveying other personal property and financial assets into joint ownership; [and] outright converting Margaret's assets to his own use.”³

[¶ 3.] The Estate moved for summary judgment on its breach of fiduciary duty claim. The circuit court granted part of its motion and determined that “from and after October 25, 2005,” when Margaret executed the power of attorney, a fiduciary duty existed between Margaret and Zoss.

However, the court determined that whether Fred actually breached those duties owed to Margaret was a question of fact for the jury.

[¶ 4.] Prior to trial, Plaintiffs also sought an order in limine to exclude extrinsic evidence of Margaret's intent with regards to the power of attorney. The court granted the motion and prohibited any party from “introduc[ing] extrinsic evidence regarding Margaret L. Zoss' intent to allow Fred Zoss to self-deal or make gifts of Margaret's property to himself.” The order also provided:

Since Margaret Zoss' written power of attorney does not, in clear and unmistakable language, authorize her attorney-in-fact (Fred Zoss) to make gifts to himself, and likewise does not expressly authorize self-dealing by Fred, this [c]ourt prohibits the introduction of any/all extrinsic evidence suggesting that such gifting and self-dealing were authorized by Margaret Zoss. Such excluded evidence would include any (claimed) statements made by Margaret Zoss (deceased) regarding her intent to allow Fred Zoss to self deal or effectuate gifts to himself. Such excluded evidence would also include any claims that Margaret wanted Fred to make gifts to himself or to self-deal.

[¶ 5.] A jury trial was held on May 20–21, 2015. At trial, the jury heard evidence that Zoss leased land in which Margaret held a life estate interest without paying rent. It also heard evidence that Zoss and Margaret shared a joint banking account from which Zoss transferred Margaret's funds to his own account. The jury returned a verdict in favor of Hein and Burnham on the breach of contract claim and awarded them $47,200. It also found in favor of the Estate on the breach of fiduciary duty claim. The jury awarded the Estate $188,415 in damages for breach of fiduciary duties and $87,500 in punitive damages.

[¶ 6.] Zoss moved the circuit court for a new trial, alleging that the court erroneously excluded evidence that would have demonstrated that Margaret never charged her children rent for farming her land and that she set up the joint banking account with Zoss so that he could handle her living expenses. The court denied his motion, and Zoss appeals to this Court.

Standard of Review

[¶ 7.] “The denial of a motion for a new trial is reviewed for an abuse of discretion.” Lenards v. DeBoer, 2015 S.D. 49, ¶ 10, 865 N.W.2d 867, 870. “Evidentiary rulings made by the trial court are presumed correct and are reviewed under an abuse of discretion standard.” In re Estate of Duebendorfer, 2006 S.D. 79, ¶ 16, 721 N.W.2d 438, 443 (quoting Veeder v. Kennedy, 1999 S.D. 23, ¶ 41, 589 N.W.2d 610, 619 ). “An evidentiary ruling will not be overturned unless error is demonstrated and shown to be prejudicial error. Error is prejudicial when, in all probability it produced some effect upon the final result and affected rights of the party assigning it.”Behrens v. Wedmore, 2005 S.D. 79, ¶ 63, 698 N.W.2d 555, 579 (internal quotation marks omitted) (quoting Novak v. McEldowney, 2002 S.D. 162, ¶ 7, 655 N.W.2d 909, 912 ).

Analysis

[¶ 8.] It is undisputed that Zoss was a fiduciary to Margaret. “[I]n South Dakota, as a matter of law, a fiduciary relationship exists whenever a power of attorney is created.” Estate of Duebendorfer, 2006 S.D. 79, ¶ 26, 721 N.W.2d at 445. “A fiduciary is defined as ‘a person who is required to act for the benefit of another person on all matters within the scope of their relationship. ’ ” Dykstra v. Page Holding Co., 2009 S.D. 38, ¶ 27, 766 N.W.2d 491, 497 (quoting Black's Law Dictionary (8th ed.2004)). “A fiduciary must act with utmost good faith and avoid any act of self-dealing that places [his] personal interest in conflict with [his] obligations to the beneficiaries.” In re Estate of Stevenson, 2000 S.D. 24, ¶ 9, 605 N.W.2d 818, 821 (quoting Am. State Bank v. Adkins, 458 N.W.2d 807, 811 (S.D.1990) ). “Thus, if the power to self-deal is not specifically articulated in the power of attorney, that power does not exist.” Bienash v. Moller, 2006 S.D. 78, ¶ 14, 721 N.W.2d 431, 435.

[¶ 9.] Zoss does not contend that the power of attorney contained “clear and unmistakable language” authorizing him to self-deal. See id. ¶ 27, 721 N.W.2d. at 437. Rather, he maintains that the court's order in limine too broadly prohibited him from introducing otherwise admissible evidence. In his first claim of evidentiary error, Zoss argues that the lower court “misinterpreted Bienash and stretched its limited holding beyond recognition to forbid the introduction of any evidence of Margaret Zoss's intent and longstanding practice of allowing and encouraging Fred and her other sons to farm the Zoss family land without paying rent.”

[¶ 10.] We have adopted a “bright-line rule” that an attorney-in-fact cannot present oral extrinsic evidence that a power of attorney gave the attorney-in-fact the power to self-deal when the power of attorney does not explicitly provide such. Bienash, 2006 S.D. 78, ¶ 24, 721 N.W.2d at 437. In Bienash, because the writing offered to show intent of self-dealing was inadequate, we left “for another day the issue of whether extrinsic evidence in the form of a writing should be admitted to raise a factual issue[.]” Id. The policy underlying the rule has been explained as follows:

When one considers the manifold opportunities and temptations for self-dealing that are opened up for persons holding general powers of attorney—of which outright transfers for less than value to the attorney-in-fact [himself or] herself are the most obvious—the justification for such a flat rule is apparent. And its justification is made even more apparent when one considers the ease with which such a rule can be accommodated by principals and their draftsmen.

Bienash, 2006 S.D. 78, ¶ 21, 721 N.W.2d at 436 (alteration in original) (quoting Kunewa v. Joshua, 83 Hawai‘i 65, 924 P.2d 559, 565 (Haw.Ct.App.1996) ).

[¶ 11.] Although Zoss claims that the court misinterpreted Bienash, we cannot say that the court abused its discretion by issuing the order in limine. Zoss concedes that “Fred was not permitted under Bienash to introduce oral extrinsic evidence that Margaret intended Fred to use the power of attorney to make gifts to himself where the instrument does not expressly grant that power.” And Zoss has not argued that the court excluded a relevant subsequent writing. Accordingly, the order appropriately excluded evidence that Margaret intended for Zoss to self-deal.

[¶ 12.] There is also no dispute that Zoss farmed Margaret's land and that by doing so he was engaging in a transaction with himself. SDCL 55–4–13 prohibits conduct such as Zoss's. It provides:

No trustee, unless expressly authorized by the trust instrument, shall directly or indirectly lease, buy or sell any property for the trust from or to itself.... Notwithstanding this provision or any statute to the contrary, a trustee may lease ... property from or to the trust he represents as trustee if specifically authorized to do so in ... the instrument creating the trustee relationship....

See also SDCL 59–3–11 (“An authority expressed in general terms, however broad, does not authorize an agent to do any act which a trustee is forbidden to do by the law on trusts.”). SDCL 55–2–2 additionally prohibits a fiduciary from “us[ing] or deal[ing] with the trust property for his own profit or for any other purpose unconnected with the...