Rushmore State Bank v. Kurylas, Inc., No. 15764

CourtSupreme Court of South Dakota
Writing for the CourtGILBERTSON; WUEST; SABERS; GILBERTSON, Circuit Judge, sitting for HENDERSON; SABERS
Citation6 UCCRep.Serv.2d 863,424 N.W.2d 649
Decision Date11 May 1988
Docket NumberNo. 15764
Parties6 UCC Rep.Serv.2d 863 RUSHMORE STATE BANK, Plaintiff and Appellee, v. KURYLAS, INC., Defendant and Appellant, Internal Revenue Service, Defendant and Appellee, Ceasar's Inc., Neil D. Lewis and George A. Twitero, Defendants.

Page 649

424 N.W.2d 649
6 UCC Rep.Serv.2d 863
RUSHMORE STATE BANK, Plaintiff and Appellee,
v.
KURYLAS, INC., Defendant and Appellant,
Internal Revenue Service, Defendant and Appellee,
Ceasar's Inc., Neil D. Lewis and George A. Twitero, Defendants.
No. 15764.
Supreme Court of South Dakota.
Argued Jan. 13, 1988.
Decided May 11, 1988.

Randall R. Hodge and Wayne Gilbert of Banks, Johnson, Monserud, Johnson Colbath & Huffman, Rapid City, for plaintiff and appellee.

Joseph M. Butler, James P. Hurley, Terry L. Hofer and Patrick Duffy (on the brief) of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, for defendant and appellant.

Michael G. Lichtenberg of U.S. Dept. of Justice, Washington, D.C., for defendant and appellee.

Stephen J. Helmers and Haven Stuck of, Lynn, Jackson, Shultz & LeBrun, Rapid City, for defendants.

GILBERTSON, Circuit Judge.

PRELIMINARY STATEMENT

This is an appeal by Kurylas, Inc. (Kurylas) concerning litigation arising from its various unsuccessful attempts to sell a motel complex. Upon review of Kurylas' claims of error purportedly committed by the trial court, we find that court to be correct and therefore affirm.

ISSUES

In its brief, Kurylas raises eight issues in which it states the trial court committed error in ruling against it. We combine these into three issues as follows:

1. Under South Dakota's Uniform Commercial Code, is a liquor license "property" to which a valid security interest can attach?

2. Did Kurylas convert the Bank's collateral?

3. Is the United States entitled to priority of escrow funds by virtue of 26 U.S.C. § 6321?

FACTS

Prior to 1983, Kurylas owned a motel, restaurant and lounge complex in Rapid City, South Dakota. In June of 1983 it transferred an ownership interest to Darrell Kiser (Kiser) by an exchange agreement and contract for deed. Thereafter, the property was transferred to Motel Company, Inc. and subsequently to Ceasar's,

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Inc. (Ceasar's). After a default by Ceasar's, it ultimately was returned to Kurylas.

The many facts of this case are essential to a proper analysis of the issues involved in this appeal. For sake of clarity, these facts are set out in the following chronological order:

June 11, 1983 Kurylas transfers an interest in realty, fixtures, inventory, equipment and liquor licenses to Kiser by exchange agreement and contract for deed. Kurylas reserves a security interest in the personal property.

June 23, 1983 Motel Company is incorporated.

July 1, 1983 Kiser transfers his interest in realty, fixtures, inventory, equipment and licenses by assignment of the exchange agreement and contract for deed to Motel Company. Kurylas expressly consents to this transfer of the exchange agreement and contract for deed.

August 1, 1983 Rapid City Common Council approves transfer of the on-sale and off-sale liquor licenses from Kurylas to Motel Company.

February 4, 1984 Kiser and Motel Company execute an exchange agreement and contract for deed transferring their interest in the realty, fixtures, inventory, equipment and licenses to Neil D. Lewis (Lewis) and others as trustees for Ceasar's, a corporation to be formed. Kurylas refuses to consent to this transfer, but Lewis, d/b/a Ceasar's, obtains possession of the motel premises notwithstanding.

February 9, 1984 Kurylas, Kiser and Motel Company execute a consent to transfer of the property to Ceasar's.

February 21, 1984 Ceasar's is incorporated.

March 5, 1984 Rapid City Common Council approves transfer of liquor licenses from Motel Company to Ceasar's.

November 13, 1984 Kurylas files a financing statement identifying Kiser as debtor.

December 11, 1984 Ceasar's executes a security agreement in favor of Rushmore State Bank (Bank) in all inventory, accounts, equipment and general intangibles.

December 13, 1984 Bank files a financing statement identifying Ceasar's as its debtor.

January 13, 1985 Ceasar's purchases Motel Company stock.

April 11, 1985 Ceasar's, Lewis and Motel Company provide Kurylas a deed in lieu of foreclosure for the motel and its personal property. They further execute a consent to foreclosure by Kurylas. Kurylas leases motel back to Lewis and Ceasar's.

April 15, 1985 Kurylas files a financing statement identifying Lewis as debtor.

June 4, 1985 Kiser provides Kurylas a deed in lieu of foreclosure for the real and personal property constituting the motel.

June 18, 1985 Escrow account established by Bank whereby Lewis is to make rent payments for motel; payments are to be released to Kurylas December 1, 1985, and thereafter or upon default, whichever occurs first.

July 1, 1985 Ceasar's makes its first rental payment into escrow account.

July 21, 1985 Ceasar's makes its second rental payment into escrow account.

August 19, 1985 IRS attaches escrow account for failure of Ceasar's to pay various taxes.

September 9, 1985 Ceasar's makes its third rental payment into escrow account.

October 7, 1985 Ceasar's makes its fourth rental payment into escrow account.

October 15, 1985 Kurylas claims that Lewis and Ceasar's are in default for nonpayment of rent under the lease.

November 1, 1985 Ceasar's defaults on a $20,000 note dated January 21, 1985, in favor of Bank.

November 4, 1985 Ceasar's defaults on $50,000 and $25,000 notes dated September 5, 1985, in favor of Bank.

November 6, 1985 Kurylas takes possession of the motel and related personal property from Lewis and Ceasar's.

Page 652

November 18, 1985 Rapid City Common Council approves transfer of liquor licenses from Ceasar's to Kurylas.

December 4, 1985 Bank commences this action to settle various claims over motel assets and debts as between itself and Kurylas. Ceasar's and Lewis are also named as defendants for collection of notes and a guarantee. In addition, the court was asked to determine priority as to ownership of the escrow account between the IRS and Kurylas.

ISSUE I

UNDER SOUTH DAKOTA'S UNIFORM COMMERCIAL CODE, IS A LIQUOR

LICENSE "PROPERTY" TO WHICH A VALID SECURITY

INTEREST CAN ATTACH?

The trial court held that the liquor licenses, presently in the name of Kurylas, were subject to a valid security interest previously given to Bank by the former license holder, Ceasar's, Inc. Kurylas challenges this holding on the grounds that under South Dakota law, a liquor license is not "property," and thus does not fall within the scope of our state's UCC (Uniform Commercial Code). "Property interests are not created by the Constitution, 'they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law....' " Cleveland Bd. of Education v. Loudermill, 470 U.S. 532, 538, 105 S.Ct. 1487, 1491, 84 L.Ed.2d 494, 501 (1985).

Many other jurisdictions have faced this issue with various results and rationales. While these decisions are of some value in the context of analysis of the UCC, it is apparent that a proper review of the issue greatly depends on South Dakota's unique liquor statues and our state's definition of "personal property." "The Twenty-first Amendment grants the States virtually complete control over ... how to structure the liquor distribution system." Cal. Retail Liquor Dealers Assn. v. Midcal Alum., 445 U.S. 97, 110, 100 S.Ct. 937, 946, 63 L.Ed.2d 233, 246 (1980).

Under our state's version of the UCC, parties may create a security interest in personal property which includes general intangibles. See SDCL 57A-9-102(1)(a). If a liquor license is found to be personal property rather than a privilege, it must be a general intangible as it clearly does not fit any other categories of personal property described in the code. Under SDCL 57A-9-106, general intangibles are defined as "any personal property (including things in action) other than goods, accounts, chattel paper, documents, instruments, and money." The UCC, however, fails to define what constitutes "personal property." Where such definitions are not contained within the confines of the UCC, other statutory definitions control. SDCL 57A-1-103. First Federal v. Union Bank & Trust, 291 N.W.2d 282, 285 (S.D.1980). 1

South Dakota has a general definition of personal property found in SDCL 2-14-2(17): personal property includes "money, goods, chattels, things in action, and evidences of debt." This definition does not include licenses. 2 Therefore, were this definition held to be exclusive, it would settle the issue in favor of Kurylas. 3 However, as a general rule, this court has held that property interests should be liberally, rather than strictly, construed. Carlson v. Hudson, 277 N.W.2d 715, 719 (S.D.1979). This court has recognized various other property interests which clearly fall outside

Page 653

of this statutory definition. 4 Thus, in order to determine whether a liquor license is a property right or a mere privilege, we must compare our liquor statutes and the UCC.

Statutes are to be construed to give effect to each statute and so as to have them exist in harmony. State v. Woods, 361 N.W.2d 620, 622 (S.D.1985); Matter of Exploration Permit Renewal, 323 N.W.2d 858, 860 (S.D.1982). It is a fundamental rule of statutory construction that the intention of the law is to be primarily ascertained from the language expressed in the statute. Petition of Famous Brands, Inc. 347 N.W.2d 882, 884 (S.D.1984). In addition, we are statutorily mandated to interpret uniform laws such as the UCC "to effectuate its general purpose to make uniform the law of those states which enact it." SDCL 2-14-13. See also SDCL 57A-1-102.

It is the generally held rule in other jurisdictions that as between the state and a licensee, there exists no property right in the license but merely a privilege to conduct that state regulated business. Gibson v. Alaska Alcoholic Beverage Control Bd., 377 F.Supp. 151 (D.Alaska 1974); Roehm v. Orange County, 32 Cal.2d 280, 196 P.2d 550 (1948); Weller v. Hopper, 85 Idaho 386, 379 P.2d 792 (1963); State v. Saugen, 283 Minn. 402, 169 N.W.2d 37 (1969); Harding v. Bd....

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29 practice notes
  • Fin-Ag v. Pipestone Livestock Auction, No. 23982.
    • United States
    • Supreme Court of South Dakota
    • June 18, 2008
    ...debtor takes it subject to the creditor's security interest and can be held liable for conversion. Rushmore State Bank v. Kurylas, Inc., 424 N.W.2d 649, 659 (S.D.1988) (citing UCC 9-306, cmt. 3). A cause of action for conversion exists against an auction agency based on the debtor's lack of......
  • State v. $1,010.00 in American Currency, No. 23878.
    • United States
    • Supreme Court of South Dakota
    • September 6, 2006
    ...22, ¶ 6, 712 N.W.2d 1, 2 (quoting In re Estate of Jetter, 1997 SD 125, ¶ 11, 570 N.W.2d 26, 29) (quoting Rushmore State Bank v. Kurylas, 424 N.W.2d 649, 653 (S.D.1988)) (internal citations [¶ 9.] Generally, we review questions concerning constitutional rights under the de novo standard of r......
  • Hanig v. City of Winner, No. 23208.
    • United States
    • Supreme Court of South Dakota
    • January 19, 2005
    ...in a previous case concerning the legal rights and responsibilities of alcohol beverage licensees. Rushmore State Bank v. Kurylas, Inc., 424 N.W.2d 649, 653 [¶ 31.] In the matter of liquor licenses, the Legislature recognized that the issuance of licenses by municipalities could involve a c......
  • In re Cloverleaf Farmer's Co-op., Bankruptcy No. 89-40531-PKE.
    • United States
    • United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of South Dakota
    • May 24, 1990
    ...(E.D.Mo.1967), aff'd, Zuke v. 114 BR 1019 St. John's Community Bank, 387 F.2d 118 (8th Cir.1968); Rushmore State Bank v. Kurylas, Inc., 424 N.W.2d 649, 652 (S.D. 1988). However, an interest in rent and a security interest subject to any federal statute are excluded from Article 9 in South D......
  • Request a trial to view additional results
29 cases
  • Fin-Ag v. Pipestone Livestock Auction, No. 23982.
    • United States
    • Supreme Court of South Dakota
    • June 18, 2008
    ...debtor takes it subject to the creditor's security interest and can be held liable for conversion. Rushmore State Bank v. Kurylas, Inc., 424 N.W.2d 649, 659 (S.D.1988) (citing UCC 9-306, cmt. 3). A cause of action for conversion exists against an auction agency based on the debtor's lack of......
  • State v. $1,010.00 in American Currency, No. 23878.
    • United States
    • Supreme Court of South Dakota
    • September 6, 2006
    ...22, ¶ 6, 712 N.W.2d 1, 2 (quoting In re Estate of Jetter, 1997 SD 125, ¶ 11, 570 N.W.2d 26, 29) (quoting Rushmore State Bank v. Kurylas, 424 N.W.2d 649, 653 (S.D.1988)) (internal citations [¶ 9.] Generally, we review questions concerning constitutional rights under the de novo standard of r......
  • Hanig v. City of Winner, No. 23208.
    • United States
    • Supreme Court of South Dakota
    • January 19, 2005
    ...in a previous case concerning the legal rights and responsibilities of alcohol beverage licensees. Rushmore State Bank v. Kurylas, Inc., 424 N.W.2d 649, 653 [¶ 31.] In the matter of liquor licenses, the Legislature recognized that the issuance of licenses by municipalities could involve a c......
  • In re Cloverleaf Farmer's Co-op., Bankruptcy No. 89-40531-PKE.
    • United States
    • United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of South Dakota
    • May 24, 1990
    ...(E.D.Mo.1967), aff'd, Zuke v. 114 BR 1019 St. John's Community Bank, 387 F.2d 118 (8th Cir.1968); Rushmore State Bank v. Kurylas, Inc., 424 N.W.2d 649, 652 (S.D. 1988). However, an interest in rent and a security interest subject to any federal statute are excluded from Article 9 in South D......
  • Request a trial to view additional results

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