In re Estate of Woodroffe

• Decision Date: 07 December 2007
• Docket Number: No. 05-0135.,05-0135.
• Citation: 742 N.W.2d 94
• Parties: In the Matter of the ESTATE OF Glenn W. WOODROFFE, Deceased. Randolph W. Woodroffe and Janice M. Woodroffe, Appellants, v. The Estate of Glenn W. Woodroffe, Elda H. Woodroffe, Jeanne A. Woodroffe, Reginald Woodroffe, Kerwin Woodroffe, and Anita L. Erickson, Appellees. The Estate of Glenn W. Woodroffe and Randolph Woodroffe, a/k/a Randy Woodroffe, Appellants, v. Kerwin Woodroffe, Anita Erickson, and The Unborn or Adopted Children of Glenn W. Woodroffe, Appellees.
• Court: Iowa Supreme Court

742 N.W.2d 94

In the Matter of the ESTATE OF Glenn W. WOODROFFE, Deceased.

Randolph W. Woodroffe and Janice M. Woodroffe, Appellants, v. The Estate of Glenn W. Woodroffe, Elda H. Woodroffe, Jeanne A. Woodroffe, Reginald Woodroffe, Kerwin Woodroffe, and Anita L. Erickson, Appellees.

The Estate of Glenn W. Woodroffe and Randolph Woodroffe, a/k/a Randy Woodroffe, Appellants, v. Kerwin Woodroffe, Anita Erickson, and The Unborn or Adopted Children of Glenn W. Woodroffe, Appellees.

No. 05-0135.

Supreme Court of Iowa.

December 7, 2007.

Robert S. Hatala of Crawford, Sullivan, Read & Roemerman, P.C., Cedar Rapids, for appellants.

William H. Napier of Napier, Wolf & Napier, Fort Madison, for appellee Elda H. Woodroffe.

John H. Smith of Smith, Kultala & Boddicker, LLP, Keokuk, for appellee Kerwin Woodroffe.

M. Carl McMurray, Keokuk, for appellee Estate of Glenn W. Woodroffe.

HECHT, Justice.

This case presents a saga covering three generations of the Woodroffe family. The family created a profitable sawmill business due in large part to the industry and hard work of Glenn Woodroffe. After about thirty years in the business, Glenn attempted during his lifetime to ensure the continuation of the family enterprise beyond his lifetime. By the time of his death in 2002, however, Glenn had failed to establish business and testamentary arrangements necessary to avoid family conflicts over the future ownership of the mill and related assets. Those conflicts survived Glenn and fostered this litigation.

I. Background Facts and Proceedings.

We find the following facts from the record. Glenn started the family business with a portable sawmill. He incorporated the company, Glenn Woodroffe Sawmill, Inc. (GWSM), in 1957.¹ Although he started the company with a portable mill, Glenn eventually had the opportunity to locate the business on real estate located in rural Lee County. In 1959, Charles Woodroffe, Glenn's father, conveyed that real estate to Glenn, for life, with the remainder interest in equal shares to Glenn's children living at the time of Glenn's death.

Glenn and his wife, Elda, raised five children: Randolph, Jeanne, Reginald, Kerwin, and Anita. Randolph, the eldest child, was active in the family business from an early age. After achieving a college degree in industrial engineering, he returned to work full-time at the mill in 1974. In addition to his long hours of work in the day-to-day operations of the mill, Randolph drove the truck that delivered to customers loads of pallets manufactured by GWSM.

The other Woodroffe family members were involved to a lesser degree in the day-to-day operations of the company. Elda was at times identified in GWSM records as the company's corporate secretary, but she was unable at trial to recall the duration of her service as an officer. Her role in the company's operations was clearly insubstantial compared to Glenn's and Randolph's. Although Jeanne, Reginald, Kerwin, and Anita performed tasks around the mill during their youth, the record does not provide much detail as to their involvement in the operation.

Although Glenn worked incredibly long hours at the mill and devoted great energy to the business, he was less than fastidious about compliance with corporate formalities. Although corporate tax returns consistently identified Glenn as the sole owner of the company, no stock certificates were ever issued by the company. No records of an initial organizational meeting or subsequent annual corporate meetings were maintained. No assets were transferred to GWSM to capitalize the company when it was organized. Little, if any, effort was made to segregate the company's assets from the Woodroffe family's assets. Although almost all of the income-producing machinery, equipment, and building improvements were purchased with funds from GWSM's bank account, tax deductions for the depreciation of those assets were taken on the personal tax returns of Glenn and Elda, and Randolph and his wife, Janice.² Although GWSM paid rent to those individuals for the use of such assets, no corporate records evidence the company ever transferred ownership of the assets to the family members.³

Organized under Iowa Code chapter 491 (1954), the corporate existence of GWSM was to terminate after twenty years unless renewed. In 1976, the Secretary of State notified Glenn and his attorneys that the corporation's existence would expire on January 14, 1977, if a certificate of renewal and renewed articles of incorporation were not filed. Although Glenn delivered the notice of impending expiration to his attorney who prepared a draft of the necessary renewal documents, there is no evidence that the documents were ever signed by Glenn and forwarded to the Secretary of State. Consequently, the corporate existence of GWSM expired on January 14, 1977. No annual corporate reports were filed by GWSM after 1976.

Although the de jure existence of GWSM expired in January of 1977, the sawmill business's operations continued as before. Corporate income tax returns were filed under the name and tax identification number of GWSM; machinery and equipment were purchased and building improvements were constructed with funds from the GWSM bank account; and workers' compensation and unemployment claims lodged against GWSM were defended as though the corporation still existed.

By the late 1980s, Glenn had begun thinking about how ownership of the business could be transferred, upon his death, to Randolph. He realized he only held a life estate, and that Randolph's siblings owned a four-fifths remainder interest, in the Lee County real estate upon which the machinery, equipment, and extensive building improvements used by the business, and a home built for Randolph and his wife, Janice, were situated.⁴ Because Glenn and Randolph believed it was economically infeasible to move the mill improvements and the home to another location, Randolph sought to acquire his siblings' remainder interests. In furtherance of this objective, an appraisal of the real estate was undertaken in 1988.

The appraiser was specifically instructed to value the real estate assuming the existence of no mill or residential improvements. The resulting valuation of $42,500 was used by Randolph as the basis for his offers to purchase the remainder interests of his siblings. Although Reginald and Jeanne each conveyed their remainder interests to Randolph for $10,000, Kerwin and Anita did not. Unable to amicably complete the consolidation of the ownership of all of the remainder interests in Randolph, Glenn and Randolph filed a partition action in July of 1991 naming Kerwin and Anita as respondents. In their petition, Glenn and Randolph alleged they had made substantial improvements to the property in good faith; and they requested the court to order the sale of the property, and to award to them the value of the improvements from the sale proceeds.

On August 5, 1992, a consent decree was entered by the district court. It noted the parties had reached an agreement to (1) sell the Lee County real estate at public auction, (2) allocate to Glenn and Randolph from the sale proceeds "the enhanced value due to improvements made to the land by [them] in good faith," and (3) deposit the balance of the net proceeds in trust for the benefit of Glenn and the remaindermen. To ascertain the "enhanced value" occasioned by the improvements, the parties agreed and the court decreed that two appraisals of the property be undertaken by a specified appraiser: one including the value of the improvements made by Glenn and Randolph; and another disregarding the value of those improvements.

The appraisals contemplated in the August 5 order were not undertaken, however, and the public auction was not held. The petitioners filed an application on August 28, 1992, alleging the appraiser identified in the August 5 order believed he was unqualified to conduct the appraisals, and asserting there was "an affordable and alternate procedure" that was likely "to produce greater partition proceeds."

On October 22, 1992, a new order was entered by the court confirming yet another agreement to resolve the parties' controversy. This order contemplated that the property would be divided by the parties into five parcels. One of these parcels identified as "Tract A" was "to include the sawmill, the house in which Randolph Woodroffe resides, and all other physical improvements to the land in question." The other four parcels, denominated "tracts 1, 2, 3, and 4," and consisting of essentially unimproved land, were to be sold at a private auction at which only the parties could bid. The average price per acre obtained at the auction for tracts 1, 2, 3, and 4 would be the price that Randolph would pay for Tract A. Glenn's life estate was "not to be affected" by the partition agreement and sale.

The auction was never held, and Glenn and Randolph continued to operate GWSM just as they had before. Kerwin, who had no interest in operating the sawmill, farmed rent-free the unimproved portions of the Lee County real estate. Glenn generally disapproved of Kerwin's farming practices, and the relationship between Glenn and Kerwin was strained at best.

GWSM owned a wooded tract of real estate in Des Moines County. On September 25, 2000, purporting to act as the president of GWSM, Glenn executed a warranty deed conveying this property to Randolph and Janice. In 2001, a bank requested documentary evidence of the corporate existence of GWSM. Glenn's counsel contacted the Secretary of State and discovered the company's corporate charter had expired in 1977. Having learned that the name "Glenn Woodroffe Sawmill, Inc." was still available, Randolph caused new articles of incorporation for a corporation with that name to be filed in July of 2001. The new articles designated Randolph as the incorporator, registered agent, and sole director of GWSM.⁵

During his last illness, Glenn contacted his attorney...