Production Credit Ass'n of the Midlands v. Wynne

• Decision Date: 21 August 1991
• Docket Number: Nos. 17218,17298,s. 17218
• Citation: 474 N.W.2d 735
• Parties: PRODUCTION CREDIT ASSOCIATION OF THE MIDLANDS, a federally chartered corporation, Plaintiff and Appellee, v. Mary WYNNE and John Holm, d/b/a Wynne and Holm, a South Dakota Professional Corporation, Defendants and Appellants, and First Bank of South Dakota, N.A., a South Dakota Banking Corporation. Defendant and Appellee.
• Court: South Dakota Supreme Court

Page 735

474 N.W.2d 735

PRODUCTION CREDIT ASSOCIATION OF THE MIDLANDS, a federally chartered corporation, Plaintiff and Appellee, v. Mary WYNNE and John Holm, d/b/a Wynne and Holm, a South Dakota Professional Corporation, Defendants and Appellants and First Bank of South Dakota, N.A., a South Dakota Banking Corporation. Defendant and Appellee.

Nos. 17218, 17298.

Supreme Court of South Dakota.

Argued March 19, 1991.

Decided Aug. 21, 1991.

Brent A. Wilbur of May, Adam, Gerdes & Thompson, Pierre, for plaintiff and appellee, Production Credit Ass'n.

Mary T. Wynne and John O. Holm, Sioux Falls, for defendants and appellants.

Haven L. Stuck, Rapid City, for defendant and appellee First Bank of South Dakota.

MILLER, Chief Justice.

This case involves two separate appeals from two separate orders granting partial summary judgment in favor of Production Credit Association of the Midlands (PCA). Although these appeals have not been consolidated, they are combined herein because of the commonality of the parties and because they stem from the same factual setting.

Appeal # 17218 is from the trial court's order granting summary judgment (in reality a partial summary judgment) dated May 15, 1990, which generally held that PCA's perfected security interest in the proceeds of sales of livestock was superior to a certain attorneys' lien filed by appellants Wynne & Holm (a law firm previously located in Rapid City, South Dakota).

Appeal # 17298 is from another partial summary judgment, dated August 6, 1990, granting PCA judgment on Count III of its amended complaint thus adjudging Wynne & Holm liable in negligence for interest lost through its failure to place certain escrow proceeds in an interest-bearing account.

For reasons stated later herein, we reverse and remand.

FACTS

This litigation has a complicated factual scenario. Because of the limited nature of the issues before us, we have attempted to present a simplified recitation herein.

Peter and Hazel Dupris (members of the Cheyenne River Sioux Tribe) were ranchers who had transacted business with PCA for nearly twenty years. PCA provided Dupris an operating line of credit, secured by Dupris' cattle, equipment and personal property.

The ranch was financially successful until the early 1980's when Dupris incurred successive annual operating losses. Dupris allege that because of these losses they liquidated their cattle herd and placed the funds into an escrow account in Eagle Butte, South Dakota. Those funds were subsequently transferred to First Bank of South Dakota. (Apparently because a higher rate of interest could be earned.)

Dupris then filed a lender liability suit ¹ against PCA in federal district court. PCA counterclaimed, alleging that Dupris owed it the sum of $116,014 in "on demand" promissory notes. PCA further alleged that the notes were not paid after demand. As part of its counterclaim, PCA sought to have the proceeds from the sale of the cattle turned over to it.

At the federal trial, the judge entered judgment in favor of PCA on its counterclaim and submitted the issues raised by Dupris to the jury, which found in favor of PCA. ²

Sometime earlier, Dupris consigned cattle to three different sale barns in this state. During the pendency of the federal court action, Dupris retained Wynne and Holm to attempt to collect monies due them from the sale and/or death/loss of their cattle while in the custody of these sale barns. Wynne and Holm were successful in those collection actions.

Although it is unclear from the record, apparently these monies (the proceeds from the sale and/or death/loss of Dupris' cattle recovered by Wynne & Holm) were likewise deposited in the escrow account in First Bank. The escrow account evidently was used to purchase a certificate of deposit. Ultimately, this CD matured and was not placed into an interest-bearing account or instrument.

Later, Wynne & Holm filed two attorneys' liens for their fees in collecting these proceeds. ³ The first is dated in May, 1988, in the amount of $9439 (based upon a $22,170 recovery they had made for Dupris); the other is dated in October, 1988, for $2412 (based on a $9102 recovery).

PCA, after completion of the federal action, brought suit in state court alleging, among other things, that it has a lien on the proceeds of the entire escrow account which is superior to any attorneys' lien of Wynne and Holm. Therefore, PCA asserted that it was entitled to receive all of the proceeds currently deposited with First Bank. It also asserted that Wynne & Holm, as trustees and custodians of the escrow account, were negligent in their failure to place the escrowed funds in some interest-bearing account, and as a result interest thereon was lost.

As noted earlier, the trial court granted two partial summary judgments to PCA and against Wynne & Holm. ⁴

In its first summary judgment (# 17218), the trial court held that PCA's perfected security interest was superior to Wynne & Holm's attorneys' lien of May, 1988. However, it stated that "[t]here are factual issues not yet resolved ..." (although it did not indicate what they were), which prevented entry of summary judgment on the second attorneys' lien. It thus held that PCA was entitled to a priority on all the funds recovered by Wynne & Holm in their first action against the sale barns.

In its second partial summary judgment (# 17298), the trial court determined that Wynne and Holm were trustees of the account and were the only persons who had control over this account. Furthermore, the trial court determined that Wynne and Holm were the only people to receive notice of the maturity of the certificate of deposit and were the only people who could renew it. Thus, the trial court determined that it was their duty as trustee to preserve those funds and place them drawing interest for the benefit of the trust. Therefore, the trial court held Wynne and Holm liable for the lost interest and granted PCA's motion for summary judgment.

STANDARD OF REVIEW

This court reviews summary judgments under the premise that affirmance of such a judgment is proper if there are no genuine issues of material fact and there exists any basis which would support the trial court's ruling. Trammell v. Prairie States Ins. Co., 473 N.W.2d 460 (S.D.1991); Breen v. Dakota Gear & Joint Co., Inc., 433 N.W.2d 221 (S.D.1988). When addressing a motion for summary judgment (1) the evidence must be viewed most favorably to the nonmoving party; (2) the movant has the burden of proof to clearly show there is no genuine issue of material fact and that he is entitled to judgment as a matter of law; (3) summary judgment is not a substitute for trial; (4) a belief that the nonmoving party will not prevail at trial is not an appropriate basis for granting the motion on issues not shown to be sham, frivolous, or unsubstantiated; and (5) summary judgment is an extreme remedy and should be awarded only when the truth is clear and reasonable doubts touching upon the existence of a genuine issue of material fact should be resolved against the movant. American Indian Agr. Credit v. Fort Pierre, 379 N.W.2d 318 (S.D.1985).

ISSUE I

WHETHER PCA'S ACTION FOR CLAIM AND DELIVERY WAS BARRED BY RES JUDICATA.

Wynne and Holm initially assert that the issue of claim and delivery is barred by res judicata, collateral estoppel, and waiver by virtue of the federal action. Further, they assert that PCA's claim to the proceeds held in escrow is inferior to their liens. Finally, they argue that there are indispensable parties ⁵ (Peter Dupris and the estate of Hazel Dupris) not within this action which are necessary to a resolution of this action.

"Res judicata serves as a claim preclusion to prevent litigation of an issue actually litigated or which could have been properly raised and determined in a prior action." Bank of Toronto v. Lengkeek, 436 N.W.2d 271, 275 (S.D.1989); Black Hills Jewelry Mfg. v. Felco Jewel Ind., 336 N.W.2d 153, 157 (S.D.1983); Schell v. Walker, 305 N.W.2d 920 (S.D.1981); Golden v. Oahe Enterprises Inc., 90 S.D. 263, 240 N.W.2d 102 (1976).

In the federal district court litigation, PCA made a motion for "turnover of funds" against Dupris. In the state court proceedings PCA also sought an order for claim and delivery issued pursuant to SDCL ch. 21-15, requiring First Bank to immediately turn over to PCA all sums in excess of the sums claimed by Wynne and Holm pursuant to their attorneys' liens.

Wynne and Holm assert that PCA brought this action for claim and delivery in the United States District Court. They argue that PCA was denied that relief in federal court on the merits but have resurrected this identical claim involving the identical proceeds of the escrow account before the state court.

The federal district court (in its post-trial order) did deny PCA's motion for "turnover of funds." However, that court's order states as follows:

[T]his Court cannot determine whether [Wynne & Holm] have an interest in the escrow account superior to that of [PCA]. Besides out of court settlement, the best way to resolve the present dispute is for [PCA] to seek to execute on the entire escrow fund. First Bank of Rapid City could then bring an interpleaded action or either party could seek to bring a state court case. Though [PCA] is a federal instrumentality who could seek removal of an action to federal court, it would be best for a South Dakota court to adjudicate this novel point of South Dakota law. Therefore, it is

ORDERED that [PCA's] motion for turnover of funds is denied. It is further

ORDERED that plaintiffs' motion for recognition of an attorney's lien is denied. (Emphasis added.)

Here, the federal court denied PCA's claim for "turn-over of funds" because it wanted a state court ruling on the priority issue. PCA then brought this action in state court pursuant to the federal court's suggestion. Not only was the federal court's denial of the motion not a final decision,...