In re Guardianship of Jordan

• Decision Date: 07 September 2000
• Docket Number: No. 98-0410.,98-0410.
• Citation: 616 N.W.2d 553
• Parties: In the Matter of the GUARDIANSHIP AND CONSERVATORSHIP OF Bessie R. JORDAN. Gail Griffith Lovell, Administrator of the Estate of Bessie R. Jordan, Deceased, Appellant, v. George Remer and Garden Farms, Inc., Appellee.
• Court: Iowa Supreme Court

616 N.W.2d 553

In the Matter of the GUARDIANSHIP AND CONSERVATORSHIP OF Bessie R. JORDAN.

Gail Griffith Lovell, Administrator of the Estate of Bessie R. Jordan, Deceased, Appellant, v. George Remer and Garden Farms, Inc., Appellee.

No. 98-0410.

Supreme Court of Iowa.

September 7, 2000.

David Swinton of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, P.C., Des Moines, for appellant.

Dee Ann Wunschel of Wunschel Law Firm, P.C., Carroll, and George Remer, Battle Creek, for appellees.

Considered en banc.

CARTER, Justice.

Gail Griffith Lovell, the administrator of the estate of Bessie R. Jordan, appeals from an adverse ruling in her action to overturn the sale of Bessie's interest in a 423-acre farm while Bessie was incompetent and under conservatorship. The defendants in the action are the conservator, George Remer (Remer) and Garden Farms, Inc. (GFI), a corporation controlled by Remer. Remer and GFI cross-appeal, challenging money judgments that the district court imposed against them for other transactions involving the ward's affairs.

After reviewing the record and considering the arguments presented, we reverse the portion of the district court's decree upholding the land sale, affirm certain other portions thereof, and remand the case for further orders that are required to perfect, as nearly as practicable, the restoration of the status quo.

Bessie Jordan was a retired school teacher who resided in rural Ida County. Her primary asset was an interest in a 423-acre family farm of which she held a 58.33% interest in fee simple and a 10.42% interest as a life tenant. Bessie's sister, Lucille, owned a 31.25% interest in the farm. Bessie and Lucille operated the farm as a partnership referred to by the parties as the Jordan farm partnership. Remer, who was Lucille's son, acted as their farm manager. By 1985 Bessie was no longer mentally competent to handle her own affairs, and Remer was appointed to act as her guardian and conservator. Upon Lucille's death in February 1987, Bessie's fee simple interest was increased to 68.75% as a result of a joint tenancy interest with Lucille in a portion of the farm. When her 10.42% life estate interest is considered, this gave her a total beneficial interest in the property of 79.17%.

Prior to March 1, 1987, the Jordan farm partnership had leased the land on various crop share and cash arrangements. In February 1987, Lucille's death caused a dissolution of the partnership. At about that time, Remer, a licensed attorney, formed the GFI Corporation. Although his wife, Carol, was shown as the sole shareholder of this corporation, the district court found that it was at all times under Remer's control. Our review of the record convinces us that this conclusion was correct. On March 26, 1987, Remer, acting as farm manager for Bessie, leased her interest and the other fractional interests in the farm to GFI. The lease called for a flat annual rental of $26,000 per year of which Bessie's share was $20,584.

In October 1987 Remer, as conservator, arranged for Bessie to lease two new grain bins with an option to buy.¹ He obtained court approval for this transaction by stating in his application that

the [ward's] estate herein must continue to be involved in the Government programs and presently there is on hand in the estate herein corn under seal and loan to the CCC for which the estate is collecting rental. This additional storage which is necessary is required so the estate can meet its obligations under additional sealing of corn and beans....

In August 1988 Remer sought court approval for the sale of Bessie's 68.75% fee simple interest in the 423-acre farm to GFI. His application revealed that the proposed purchaser was a corporation owned by his wife Carol. The reasons given for proposing this sale of Bessie's property were as follows:

The sale is in the best interest of the estate herein as such proceeds are needed for the care of the ward and the proceeds receivable by the estate will be in excess of the rentals received annually, thus assuring the ward cash flow to meet ongoing needs.

....

Presently, the ward's annual income is insufficient to meet the needs of the ward's expenses. This farm sale would increase the annual amount received by the ward to a level sufficient to pay the care expenses of the ward and eliminate the necessity of the ward to participate in payment of the ongoing farm expenses and debts.

Prior to submitting the matter for court approval, Remer obtained two appraisals from qualified farm appraisers. One appraisal valued Bessie's interest at $525 per acre and the other at $575 per acre. Remer's application to the probate court proposed to sell Bessie's interest in the farm for $575 per acre adjusted to recognize her fractional interest. The court granted Remer's application to sell Bessie's interest in the farm on September 8, 1988. The total purchase price was to be $150,313 payable in installment terms discussed later in this opinion. Because the original contract proposal understated Bessie's fractional interest in the farm, a revised contract was prepared and approved by the court calling for a purchase price of $167,217. The two orders approving the sale of Bessie's farm interest to GFI were entered without notice to Bessie or anyone acting in her behalf other than the conservator applicant.²

Bessie died on October 9, 1992. Remer's wife, Carol, was appointed administrator of her estate and Remer as the attorney for the estate. In May 1994 the current administrator, Gail Lovell, and others filed a petition for Carol's removal as personal representative. Carol then resigned as administrator, and Remer resigned as attorney for the estate. Lovell was then appointed as administrator. In June 1996 she filed an action to set aside the sale of the farm to GFI on the basis that it was the result of Remer's self-dealing and had not been in Bessie's best interest. In addition, the administrator lodged other complaints concerning the administration of the ward's assets.

After hearing evidence, the district court declined to set aside the sale. The court found that based on the evidence presented the price paid by GFI was fair. It further concluded that, because Bessie, who was in a nursing home, needed an assured source of cash assets to meet the recurring and mounting costs of her care, the sale was in her best interest.

On the other complaints, the court found that Remer had not breached a fiduciary duty in failing to liquidate a walnut grove on the farm prior to its sale to GFI but concluded that he had (1) improperly imposed the grain bin expense on Bessie; (2) improperly obtained farm management fees for services that did not benefit Bessie; (3) improperly transferred $6000 of Bessie's money to Lucille's estate in the absence of evidence that this sum was owed Lucille; (4) improperly charged Bessie for accounting services necessary to resurrect Remer's poor bookkeeping practices; (5) failed to pay Bessie her $2704 share of the December 1, 1988 rental income attributable to her 10.42% life estate interest; (6) improperly charged Bessie's 10.42% life tenancy interest for improvements made after the sale of her fee simple interest to GFI; and (7) improperly charged Bessie for penalties exacted when Remer, as her conservator, had failed to pay her real estate taxes on time. For these transactions, the court entered judgment against Remer and GFI for $64,550 and judgment against Remer individually for $23,181.³ Although the administrator had sought to recover punitive damages from Remer, the court's original decree did not speak to that issue. The administrator filed a motion under Iowa Rule of Civil Procedure 179(b) pointing this out. In ruling on that motion, the court amended the decree to include a judgment against Remer for $20,000 in punitive damages. Other details of the transactions under review will be discussed in our consideration of the legal issues presented.

I. Scope of Review.

Whether the proceeding was legal or equitable is determinative of this court's standard for reviewing this matter. In re Estate of Wulf, 526 N.W.2d 154, 155 (Iowa 1994). Iowa Code section 633.33 provides:

Actions to set aside or contest wills, for the involuntary appointment of guardians and conservators, and for the establishment of contested claims shall be triable in probate as law actions, and all other matters triable in probate shall be tried by the probate court as a proceeding in equity.

It does not appear that the issues in this case fall into any of the categories listed as triable in probate as law actions. The district court tried this case as a proceeding in equity. Therefore, this court's review is de novo. Iowa R.App. P. 4.

II. The Land Sale Transaction.

We first consider the claim of Bessie's administrator that, because conservator Remer's self-dealing with the property of his ward was not in the ward's best interests, the sale of the farm to GFI should be set aside.

A. Self-dealing not prohibited. We begin our analysis by recognizing that under Iowa law self-dealing by fiduciaries is permissible if approved by the court after a finding that there is an adequate reason for the transaction. Iowa Code § 633.155 (1987). The granting of court approval requires notice and opportunity to be heard on the part of all interested persons. Id. When an order authorizing fiduciary self-dealing is entered in the absence of notice to persons entitled thereto, those persons entitled to notice may seek review of the order at any time prior to the approval of the fiduciary's final report. Iowa Code § 633.37.

B. Notice requirements. Two notice requirements are directly involved in the administrator's challenge to Remer's sale of the farm to GFI. The first is the requirement placed on a conservator making an application to sell property of the ward. In this situation, section 633.652 incorporates the procedures for the sale of property by a...