In re Estate of Siebrasse

• Decision Date: 30 August 2006
• Docket Number: No. 24082.,No. 23855.,No. 23832.,23832.,23855.,24082.
• Citation: 2006 SD 83,722 N.W.2d 86
• Parties: In the Matter of the ESTATE OF Henry SIEBRASSE, Deceased.
• Court: South Dakota Supreme Court

Page 86

722 N.W.2d 86

2006 SD 83

In the Matter of the ESTATE OF Henry SIEBRASSE, Deceased.

No. 23832.

No. 23855.

No. 24082.

Supreme Court of South Dakota.

Considered on Briefs May 23, 2006.

Decided August 30, 2006.

Kennith L. Gosch and Melissa E. Neville of Bantz, Gosch & Cremer, Aberdeen, South Dakota, Attorneys for appellant Delbert Siebrasse.

Sara L. Larson, Jeffrey G. Hurd and John H. Raforth of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, South Dakota, Craig E. Smith, Neumayr & Smith, Gettysburg, South Dakota, Attorneys for appellee Estate and Donald Siebrasse.

GILBERTSON, Chief Justice.

[¶ 1.] Delbert Siebrasse appeals contending the circuit court erred on remand in (1) denying his request for attorney's fees, expenses and disbursements; and (2) apportioning the federal estate tax and tax refund. The Estate of Henry Siebrasse (Estate) has filed a notice of review contending the circuit court erred in awarding Delbert a prior interest amount on the basis of res judicata.

BACKGROUND

[¶ 2.] This is the fourth appeal in this ongoing probate dispute. In Estate of Siebrasse, 2004 SD 46, 678 N.W.2d 822 (hereinafter Siebrasse III), this Court addressed the division of a federal estate tax refund obtained as a result of Delbert's efforts. The Internal Revenue Service (IRS) had refunded $75,525 in estate tax and $18,055.18 in interest as a result of Delbert's claimed over-valuation of real estate devised to him. Id. ¶ 6. In reversing the circuit court, this Court held that the refund amount was required to be "apportioned among all of the devisees of the Estate." Id. ¶ 21. In addition, we affirmed the denial of attorney's fees to Delbert because the circuit court's decision to give the entire refund to Delbert did not benefit the estate and, therefore, no award was justified on those facts. Id. ¶ 27. However, the circuit court was instructed to reconsider the issue of attorney's fees on remand in light of the holding that the refund must be apportioned among the beneficiaries, as the estate may benefit from such a result. Id. ¶ 29. Further, this Court held that the interest amount represented by the refund was available for equitable apportionment. Id. ¶ 23. The circuit court had equitably apportioned the entire interest amount to Delbert and that decision was affirmed. Id. ¶ 24.

[¶ 3.] Following our decision, Delbert remitted the $75,525 to the estate for apportionment. No action was taken by Estate and Delbert filed a motion for apportionment in circuit court. In the time between this Court's decision in Siebrasse III, and the motion for apportionment, the IRS was re-examining the refund previously obtained by Delbert.¹ The circuit court found that the IRS denied Delbert's claim following the reexamination. This was indicated by a revised schedule J. That document shows that the IRS increased the value of the real estate by $147,888 to reflect the denial of the refund claim based on the over-valuation. The revised schedule also reflects increased deductions for administrative expenses in the amount of $157,401 consisting of the estate's increased legal expenses.²

[¶ 4.] Delbert's real estate valuation was found to be $317,200 on remand. Utilizing that amount, the circuit court recalculated the apportionment of federal estate tax liability. However, the circuit court concluded that its prior allocation of the interest refund to Delbert was res judicata based on this Court's holding in Siebrasse III. In addition, because his claim was now considered rejected by the IRS, the circuit court found Delbert provided no benefit to the estate by pursuing the matter and denied an award of attorney's fees or expenses.

[¶ 5.] Delbert appeals raising the following issues:

Whether the estate tax refund was of substantial benefit to the estate such that Delbert is entitled to attorney's fees, expenses and disbursements.

Whether the circuit court incorrectly apportioned the federal estate tax and tax refund.

[¶ 6.] By notice of review, Estate raises the following issue:

Whether the circuit court erred in determining the prior award of interest to Delbert was res judicata.

ANALYSIS

ISSUE ONE

[¶ 7.] Whether the estate tax refund was of substantial benefit to the estate such that Delbert is entitled to attorney's fees, expenses and disbursements.

[¶ 8.] SDCL 29A-3-720 provides that a court may award "necessary expenses and disbursements, including reasonable attorney's fees, to any person who prosecuted or defended an action that resulted in a substantial benefit to the estate." This Court had previously utilized a two-prong test for entitlement to attorney's fees: "(1) the services rendered must be beneficial to the estate; and (2) the services must be necessary because of the negligence, fraud or failure to defend an interest of the estate by the personal representative of the estate." Siebrasse III, 2004 SD 46, ¶ 26, 678 N.W.2d at 829 (citing In re Hafferman, 442 N.W.2d 238 (S.D.1989)). This was the test utilized by both the circuit court in addressing this issue and the parties briefing this matter. However, as recently explained in Wagner v. Brownlee, 2006 SD 38, ¶ 15, 713 N.W.2d 592, 597, SDCL 29A-3-720 abrogated this two prong test in favor of a single prong test to determine an award of attorney's fees: "that the services result in a substantial benefit to the estate."

[¶ 9.] This matter was initially remanded for reconsideration of attorney's fees in light of a tax refund obtained by Delbert. Subsequently, the circuit court found the IRS had denied Delbert's refund claim, a claim that was of primary importance in deciding Siebrasse III. The circuit court found that as a result of this denial Delbert ultimately provided no benefit to the estate. In addition, because of this denial the circuit court found the personal representative did not act negligently as the IRS ultimately agreed with the personal representative's rejection of Delbert's appraisal.

[¶ 10.] The circuit court's discussion of this second prong concerning whether the personal representative acted negligently in analyzing the request for attorney's fees was not an application of the correct legal standard. Wagner, 2006 SD 38, ¶ 15, 713 N.W.2d at 597. Nevertheless, any analysis of the second prong was superfluous. The circuit court had already determined that Delbert's action provided no benefit to the estate. This is supported by the fact that his claim for a reduced real estate valuation was denied by the IRS. Consequently, Delbert was not entitled to an award of attorney's fees, expenses and disbursements pursuant to SDCL 29A-3-720.

[¶ 11.] The circuit court's decision is affirmed.

ISSUE TWO

[¶ 12.] Whether the circuit court correctly apportioned the federal estate tax and tax refund.

[¶ 13.] "South Dakota adopted the Uniform Probate Code, including SDCL 29A-3-916(b), which continues to provide for equitable apportionment of federal estate taxes so that each specific share, interest or legacy bears its proportionate part of the federal estate taxes." Siebrasse III, 2004 SD 46, ¶ 19, 678 N.W.2d at 827. That statute provides in relevant part:

The apportionment is to be made in the proportion that the value of the interest of each person interested in the estate bears to the total value of the interests of all persons interested in the estate. The values used in determining the tax are to be used for that purpose. If the decedent's will directs a method of apportionment of tax different from the method described in this code, the method described in the will controls.

SDCL 29A-3-916(b). In Siebrasse III, we reversed the circuit court's decision to grant the entire refund to Delbert so that amount could be divided in proportion to the federal estate tax liability as then reflected. 2004 SD 46, ¶ 24, 678 N.W.2d at 828. This holding was based on the specific language of SDCL 29A-3-916(b). Id. We are mindful that circumstances have changed in this case since that decision as reflected by the circuit court's findings of fact. The circuit court's decision to apportion the federal estate tax as reflected on the revised schedule was proper. This revised apportionment is consistent with both our rationale in Siebrasse III and SDCL 29A-3-916(b) as applied to the facts now presented. The decision of the circuit court is affirmed.

ISSUE THREE

[¶ 14.] Whether the circuit court erred in holding the prior award of interest to Delbert was res judicata.

[¶ 15.] SDCL 29A-3-916(c)(2) allows a court to equitably apportion interest and penalties. After Delbert prosecuted and successfully obtained the tax refund the circuit court determined that equity demanded the entire amount of interest be awarded to him. This Court affirmed that decision in Siebrasse III, and remanded on other issues. 2004 SD 46, ¶ 24, 678 N.W.2d at 828. The circuit court determined the interest amount awarded to Delbert was res judicata based on this previous decision. Estate contends that the circuit court's decision to leave the interest award to Delbert intact as res judicata was erroneous. Because the doctrine of res judicata does not apply in this situation, we reverse the circuit court and remand for a pro rata distribution of those amounts previously represented as an interest award.

[¶ 16.] In analyzing this issue it is important for this Court to clarify the differences between res judicata and the related doctrine of "law of the case." See e.g., Florida Dep't of Transp. v. Juliano, 801 So.2d 101, 105-06 (Fla.2001) (discussing the distinction between these two related, but distinct, doctrines). "Res judicata bars an attempt to relitigate a prior determined cause of action by the parties, or one of the parties in privity, to a party in the earlier suit." Black Hills Jewelry Mfg. Co. v. Felco Jewel Industries, Inc., 336 N.W.2d 153, 157 (S.D.1983). Whereas, "[i]t is a general rule, long recognized in this state, that a question of law decided by the supreme court...