Mealy v. Prins

• Decision Date: 09 October 2019
• Docket Number: #28597,#28588
• Citation: 2019 S.D. 57
• Parties: LORETTA B. MEALY, Individually and as Personal Representative of the ESTATE OF TERRENCE L. MEALY, and INVESTMENT ENTERPRISES, INC., Plaintiffs and Appellants, v. BRUCE PRINS and CORRINE PRINS, and PRAIRIE SKY GUEST & GAME RANCH, LLC, Defendants and Appellees.
• Court: South Dakota Supreme Court

2019 S.D. 57

LORETTA B. MEALY, Individually and as Personal Representative of theESTATE OF TERRENCE L. MEALY,and INVESTMENT ENTERPRISES, INC., Plaintiffs and Appellants, v. BRUCE PRINS and CORRINE PRINS,and PRAIRIE SKY GUEST & GAME RANCH, LLC, Defendants and Appellees.

#28588

#28597

SUPREME COURT OF THE STATE OF SOUTH DAKOTA

ARGUED JANUARY 8, 2019

October 9, 2019

#28588, #28597-aff in pt & rev in pt -JMK

APPEAL FROM THE CIRCUIT COURT OF THE FIFTH JUDICIAL CIRCUIT ROBERTS COUNTY, SOUTH DAKOTA

THE HONORABLE JON S. FLEMMER Judge

REED RASMUSSEN

JULIE DVORAK of

Siegel, Barnett and Schutz, LLP

Aberdeen, South Dakota

Attorneys for plaintiffs

and appellants.

LEE SCHOENBECK

JOSEPH ERICKSON of

Schoenbeck Law, P.C.

Watertown, South Dakota

SHAWN M. NICHOLS of

Cadwell, Sanford, Deibert

& Garry, LLP

Sioux Falls, South Dakota

Attorneys for defendants and

appellees.

KERN, Justice

[¶1.] Loretta and Terrence Mealy and their corporation, Investment Enterprises, Inc., loaned Bruce and Corrine Prins nearly $1.2 million to operate Prairie Sky Guest & Game Ranch, LLC (collectively the Prins). Fifty-five promissory notes secured the loans. In 2015, Loretta, the Estate of Terrance Mealy, and Investment Enterprises, Inc. (collectively the Mealys) sued the Prins for breach of contract, unjust enrichment, and conversion. The Prins filed a counterclaim for relief including claims for conversion and unjust enrichment. In August 2015, the Prins moved for partial summary judgment, arguing that a portion of the Mealys' claims were barred by the statute of limitations and that the mortgage was unenforceable. The circuit court granted the Prins summary judgment in part, dismissing forty-eight of the fifty-five promissory notes as time-barred and concluding that the related mortgage did not secure a valid debt and was unenforceable.

[¶2.] The case proceeded to a jury trial. With respect to the seven promissory notes not barred by the statute of limitations, the jury returned a verdict for the Mealys on their breach of contract claim and determined the date on which prejudgment interest should accrue. The jury rejected the Mealys' claim for conversion and instead awarded the Prins $135,000 for a portion of their conversion counterclaim. With respect to the parties competing claims for unjust enrichment, the jury rendered an advisory verdict for the Mealys, awarding them $135,000. The circuit court adopted this recommendation and entered a judgment consistent with the verdicts. The Mealys appeal, alleging several errors for our review. The Prins,by notice of review, challenge the advisory jury's award to the Mealys on their unjust enrichment claim. We affirm in part and reverse in part.

Facts and Procedural History

[¶3.] In the late 1990s, the Prins presented a business plan to Terrance Mealy, an attorney from Iowa, to open a hunting lodge named Prairie Sky Guest and Game Ranch (Prairie Sky) on the Mealys' property in Marshall County. Between 1999 and 2008, the Prins borrowed $1,187,000 from the Mealys, evidenced by fifty-five promissory notes.¹

[¶4.] On September 21, 2000, the parties signed an open-ended mortgage pledging the Prins's property as additional security. The mortgage listed the Mealys' business, Investment Enterprises, as the exclusive mortgagee and enumerated a single debt—a promissory note for $325,000—contained within a recital clause. The mortgage did not list any other notes, but it did include a broad future advances clause. The parties executed thirty of the fifty-five notes after signing the mortgage, none of which involved the sum of $325,000 reflected in the mortgage's recital clause. All six notes listing Investment Enterprises as creditor were executed after the mortgage.

[¶5.] At some point in 2000 or 2001, the Mealys and the Prins began acquiring buffalo together. Neither party completed a detailed summary of yearly ownership percentages until after the lawsuit was filed. However, financialdocuments and correspondence between Bruce Prins and Terrance Mealy in 2004, 2007 through 2008, and 2009 indicate that during those years, the parties believed the Mealys owned 71% to 75 % of the herd while the Prins owned the remaining portion.

[¶6.] In 2008, the Mealys experienced financial difficulty and stopped loaning money to the Prins. Accordingly, the Prins applied for a loan from Dacotah Bank in Sisseton, South Dakota. On September 21, 2009, Dacotah Bank, the Prins, and the Mealys (acting on behalf of Investment Enterprises) signed a subordination agreement that modified the lien priorities, granting Dacotah Bank's loan superiority over Investment Enterprise's mortgage. The agreement contained a recital specifically listing a $325,000 promissory note as the debt secured by the mortgage. It did not mention any of the fifty-five promissory notes.

[¶7.] The Prins failed to make any payments on the promissory notes; however, the Mealys did not immediately attempt to enforce the debt. In early 2011, Terrence died of cancer. Several years later, on June 2, 2014, Bruce Prins met with two bankers (Dan Stein and Jonathan Holthe) acting on behalf of the Mealys to discuss the debt. Both submitted affidavits attesting that during the meeting, Bruce admitted he owed the Mealys money and promised to pay the debt. In February 2015, Patrick, the Mealys' son, and Mark Motz, a Prairie Sky hunting guide, met with Bruce. Patrick and Motz each executed affidavits stating that Bruce orally promised to transfer his buffalo, the personal property in the lodge, and the Prairie Sky name and business to the Mealys as partial payment on thedebt. Patrick indicated that they valued these assets at $130,000. No evidence suggests this transfer occurred.

[¶8.] The Mealys filed a complaint on March 3, 2015, alleging breach of contract and the conversion of buffalo. They also brought an equitable claim for unjust enrichment and requested imposition of a constructive trust, accounting, and injunctive relief.² The Mealys did not attempt to foreclose on the mortgage. The Prins counterclaimed for conversion of personal and business property, misappropriation of a business opportunity, unjust enrichment, and trademark infringement. After litigation began, Bruce Prins created a document estimating his ownership in the buffalo herd from 2000 to 2015. As of 2014, Bruce believed he owned approximately 64% of the herd while the Mealys owned the remaining 36%.

[¶9.] In August 2015, the Prins moved for partial summary judgment, asserting that many of the promissory notes were time-barred. They also attacked the mortgage's validity for failing to secure a debt because it did not list any of the promissory notes. The circuit court granted their motion in part, finding forty-eight of the fifty-five promissory notes time-barred by the statute of limitations. The court also concluded that the mortgage was void and unenforceable. It was undisputed that the remaining seven notes, all of which were demand notes, fell within a longer statutory period and remained timely.

[¶10.] In preparation for trial, the Prins deposed the Mealys' buffalo expert, Tim Fraiser, and then moved to exclude his opinion regarding the ownershippercentages of the herd for failing to qualify as an expert on this topic. The circuit court granted the motion, excluding Fraiser's opinion on that subject because he lacked specialized accounting knowledge.³ The Mealys did not include Fraiser on their witness list.

[¶11.] A jury trial on the remaining legal and equitable claims commenced in November 2017. Fraiser did not take the stand at trial to discuss the ownership of the buffalo herd, and the Mealys did not hire another forensic accountant to review the numbers. Patrick and Loretta both responded to questions elicited by the Prins on cross-examination regarding whether a forensic accountant had evaluated the number of buffalo in the herd. Loretta testified that she did not hire a forensic accountant to assess ownership of the herd. Patrick testified about a "bison consultant" they hired from Texas. The Prins then requested a missing witness instruction because they believed Patrick and Loretta each alluded to opinions of Tim Fraiser, a witness that did not testify at trial. Over the Mealys' objection, the circuit court gave the instruction.

[¶12.] At the conclusion of trial, both parties requested special verdict forms. The Prins's form required the jury to calculate prejudgment interest on the demand notes if they rendered a verdict for the Mealys. The Mealys' form, in contrast, did not address prejudgment interest because they believed the terms of the notes controlled the issue. The circuit court gave the jury the Prins's verdict form.

[¶13.] The jury returned a verdict for the Mealys in the sum of $196,000 on their breach of contract claim for the seven promissory notes not barred by the statute of limitations and determined the date on which prejudgment interest should accrue. The jury rejected the Mealys' conversion claim regarding the buffalo and instead awarded the Prins $135,000 for their converted business property. On the remaining equitable issue, the jury rendered an advisory verdict. It awarded the Mealys $135,000 for unjust enrichment, and the circuit court adopted the recommendation. Following the verdict, the Prins satisfied the judgment in full by paying the principal and interest as calculated from the dates set by the jury on the seven enforceable promissory notes.

[¶14.] The Mealys appeal, raising several issues which we restate as follows:

1. Whether the circuit court erred by granting the Prins's motion for partial summary judgment.

2. Whether the circuit court erred by giving the jury a missing witness instruction.

3. Whether the circuit court erred by using the Prins's proposed special verdict form.

The Prins, by notice of review, contend that the circuit court erred by adopting the advisory jury's verdict awarding the Mealys $135,000 for unjust enrichment because the jury should not have been allowed to consider...