Plains Commerce Bank, Inc. v. Beck
| Decision Date | 15 February 2023 |
| Docket Number | 29512-JMK-MES,29560-JMK-MES |
| Citation | 2023 S.D. 8 |
| Court | South Dakota Supreme Court |
| Parties | PLAINS COMMERCE BANK, INC., a banking corporation, Plaintiff and Appellant, v. MATTHEW A. BECK, a married person; KELLEY R. BECK, a married person; MATTHEW A. BECK, Trustee of the B&B FARM TRUST, u/t/a November, 1, 1999; BROWN COUNTY, a governmental instrumentality of the State of South Dakota; MARSHALL COUNTY, a governmental instrumentality of the State of South Dakota; DEERE & COMPANY, a corporation, Defendants, and JAMIE MOECKLY, Intervenor and Appellee. |
ARGUED OCTOBER 6, 2021
APPEAL FROM THE CIRCUIT COURT OF THE FIFTH JUDICIAL CIRCUIT BROWN COUNTY, SOUTH DAKOTA THE HONORABLE SCOTT P. MYREN (Appeal #29512) THE HONORABLE RICHARD A. SOMMERS (Appeal #29560) Judges
REED RASMUSSEN of Siegel, Barnett and Schutz, LLP Aberdeen, South Dakota ROGER DAMGAARD JORDAN J. FEIST of Woods, Fuller Shultz and Smith, P.C. Sioux Falls, South Dakota Attorneys for plaintiff and appellant Plains Commerce Bank.
JOSHUA G. WURGLER KENNITH L. GOSCH of Bantz, Gosch & Cremer, LLP Aberdeen, South Dakota Attorneys for intervenor and appellee Jamie Moeckly.
[¶1.] Justice Kern delivers the majority opinion of the Court on Issues 1 through 4. Justice Salter delivers the majority opinion of the Court on Issue 5.
[¶2.] KERN, Justice, writing for the Court on Issues 1 through 4.
[¶3.] Gary and Betty Beck created B&B Farms Trust as an irrevocable spendthrift trust in 1999, naming their three children as secondary beneficiaries and themselves as primary beneficiaries. Matthew Beck, their youngest child, served as Trustee. In 2015, Matthew took out a large personal loan with Plains Commerce Bank and granted a mortgage to Plains Commerce on $800,000-worth of Trust real estate as partial collateral. All beneficiaries of the Trust signed a consent to mortgage the Trust real estate prepared by their family attorney at the request of Plains Commerce. Matthew defaulted on the loan, and Plains Commerce commenced a foreclosure action against Matthew in his capacity as Trustee for B&B Farms Trust. Jamie Moeckly intervened in the action on behalf of the Trust and the parties filed cross-motions for summary judgment on whether Plains Commerce can foreclose on the Trust real estate. The circuit court granted Jamie's motion for summary judgment and denied Plains Commerce's. The court concluded that Matthew's mortgage on Trust real estate was void and unenforceable. The circuit court subsequently awarded attorney fees to Jamie Moeckly. Plains Commerce appeals the court's order granting Jamie summary judgment and her motion for attorney fees. We affirm in part and reverse in part.
[¶4.] In 1999, Gary Beck and Betty Beck executed a Trust Agreement creating the B&B Farms Trust. Gary and Betty were the grantors and primary beneficiaries of the Trust. Their children, Brian Beck, Jamie Moeckly, and Matthew Beck, were named as secondary beneficiaries. Matthew was designated as the Trustee. The trust corpus was comprised of the real estate (farmland) owned by Gary and Betty in Brown County South Dakota. This real estate was the only asset transferred to the Trust. In July 2015, the Trust property was appraised at $3,659,000.
[¶5.] At the same time the Trust was created, Matthew purchased 560 acres of farmland from his parents. This land was sold directly from Gary and Betty to Matthew and never became part of the Trust. Matthew obtained personal financing to make this purchase, and Gary and Betty put the proceeds from Matthew's purchase toward paying off a portion of the existing debt on their remaining real estate that was transferred to the Trust. In her deposition, Betty described the purpose of the Trust as a means to protect Gary and Betty's assets and as a form of estate planning.
[¶6.] The B&B Farms Trust is an irrevocable[1] spendthrift[2] trust. During their lives, Gary and Betty were to receive the net income from the Trust as primary beneficiaries. After Gary and Betty pass away, the Trust will become revocable only with the consent of a majority of the secondary beneficiaries: Matthew, Brian, and Jamie. The Trust assets, namely, the Trust real estate, may then be disbursed by being split into thirds to Matthew Brian, and Jamie. The Trust Agreement does not authorize the trustee to self-deal[3] or provide for a means for beneficiaries to approve trustee self-dealing.
[¶7.] The record reflects that in 2010, Matthew, in his personal capacity and as Trustee of B&B Farms Trust, obtained two loans from Legendary Loan Link, Inc. He obtained a $564,000 loan on August 16, 2010, and a $1,225,000 loan on September 16, 2010. Matthew executed mortgages on the 680 acres of property constituting the Trust property and the 560 acres he owned personally to secure these loans. The mortgages contain two signature lines for Matthew, one as Trustee for the Trust and one in his personal capacity. Matthew testified in his deposition that he used the loan funds to pay for machinery inputs, and taxes. He acknowledged that he personally, not the Trust, owned the machinery. There is no indication in the record that Matthew obtained the written consent of any of the Trust beneficiaries prior to encumbering Trust property with the Legendary Loan Link mortgages.
[¶8.] In 2015, Matthew sought financing from Plains Commerce Bank in his individual capacity. According to Plains Commerce, Matthew needed the financing because Legendary Loan Link had refused to provide him additional operating funds. In reviewing Matthew's financial information, Plains Commerce determined that his personal assets were not sufficient to collateralize the loan amount he was requesting (about $2,000,000). Matthew then suggested using Trust land as collateral. As Plains Commerce explained in a brief before the circuit court, it "considered Matthew's request and found a potential issue with using the Trust land as collateral, discussed it with counsel, and suggested Matthew get written consents from the other beneficiaries to obtain a mortgage." Plains Commerce contends that "[o]btaining the consent of the secondary beneficiaries was done out of an abundance of caution on the part of Plains Commerce Bank."
[¶9.] Prior to attempting to get the consents to mortgage, Matthew had attempted to obtain written consents from the beneficiaries to sell him Trust property, a plan that was abandoned. Ultimately, all primary and secondary beneficiaries were presented with and signed consents to mortgage the Trust property prior to execution of the Plains Commerce mortgage. Plains Commerce has distanced itself from these consents, stating that it
[¶10.] In her deposition, Jamie testified that she did not learn of the existence of the Trust until October 2015 when Betty attempted to get Jamie to sign a consent for Matthew to sell Trust property. She claimed that she had attempted to get a copy of the Trust Agreement from Smeins but was unsuccessful in obtaining a copy prior to signing the consent to mortgage in November 2015. Jamie first saw a copy of the Trust Agreement sometime after January 2018. Therefore, at the time she signed the consent to mortgage, she did not know the terms of the Trust.
[¶11.] Jamie and Brian testified in their respective depositions that they understood the $800,000 worth of Trust property used as collateral for the November loan was intended to represent Matthew's one-third of the Trust Estate's value that he would receive as a secondary beneficiary upon disbursement of the Trust. At the time the mortgage against the Trust property was executed, Matthew already had a personal debt of $2,100,000. Betty stated that she did not know of Matthew's $2,100,000 debt until the day of her deposition, but she also testified to having memory issues and it is disputed whether she truly knew the amount of Matthew's debt. In regard to Jamie's knowledge of Matthew's debt, Jamie testified that prior to signing the consent to mortgage, she had an office conference with Smeins, who told her that Matthew had about $500,000 in debt and explained that such debt was the reason he was trying to get a loan from the bank.
[¶12.] On November 25, 2015, Matthew received a $1,855,000 loan from Plains Commerce Bank, using as collateral property he and his wife Kelley owned and $800,000 worth of Trust property. Matthew signed the mortgage in his capacity as Trustee. However, the promissory note for this loan was signed by Matthew and Kelley, not Matthew as Trustee. Thereafter, Matthew and Kelley used the loan proceeds to pay off the Legendary Loan Link debts and satisfy the existing mortgages on the Trust property and Matthew's personal property associated with those debts. As a consequence of Matthew and Kelley paying off the Trust's Legendary Loan Link debts with their personal loan from Plains Commerce, there was no debt remaining on Trust assets and all debt had been transferred to Matthew and Kelley personally. However, their personal loan was partially collateralized with a mortgage on $800,000 worth of Trust property.
[¶13.] In January 2018, Matthew and Kelley defaulted on their loan obligations and Plains Commerce commenced the foreclosure action at the center of this case against Matthew and Kelley personally and Matthew in his capacity as Trustee of the B&B Farms Trust. Matthew and Kelley retained counsel for the action and filed an answer responding to the foreclosure complaint in their personal capacities on February 27, 2018. On March 21, 2018, Matthew, in his capacity as T...
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