Schaefer v. Dale L. Putnam, Putnam Law Office, & SMP, L.L.C.
| Decision Date | 18 December 2013 |
| Docket Number | No. 12–0064.,12–0064. |
| Citation | 841 N.W.2d 68 |
| Parties | Larry D. SCHAEFER and Elaine M. Schaefer, Appellants, v. Dale L. PUTNAM, Putnam Law Office, and SMP, L.L.C., Appellees. |
| Court | Iowa Supreme Court |
OPINION TEXT STARTS HERE
Peter C. Riley of Tom Riley Law Firm, P.L.C., Cedar Rapids, for appellants.
Dale L. Putnam of Putnam Law Office, Decorah, for appellees.
In this appeal, we are asked to interpret Iowa Code section 654A.6(1) (2009) when a farm creditor, after being sued regarding the validity of its mortgages, brought a counterclaim to foreclose the mortgages without first obtaining a mediation release. Larry and Elaine Schaefer filed suit against their sons, their former attorney, Dale Putnam, a limited liability company, SMP, L.L.C. (SMP), and others. SMP, without first seeking mediation, counterclaimed to foreclose on a mortgage granted by the Schaefers on their agricultural property. The district court foreclosed the mortgage. After the district court denied the Schaefers' motion to quash or stay the sheriff's sale, they appealed, arguing that the district court lacked subject matter jurisdiction to foreclose on the agricultural property without SMP first obtaining the mediation release required by Iowa Code section 654A.6(1). The court of appeals agreed and reversed the district court. We granted further review. For the reasons set forth below, we conclude SMP was not required to obtain the mediation release prior to filing a counterclaim to foreclose its mortgage. We therefore reverse the court of appeals on this issue and affirm the decision of the district court.
In 1998, Land O' Lakes obtained a judgment against Larry Schaefer for $127,125 plus interest. After the judgment, Larry Schaefer transferred by quitclaim deed, for no consideration, real property located in Oklahoma to his wife Elaine. After Land O' Lakes commenced a fraudulent-transfer action against Larry and Elaine Schaefer2 in Oklahoma, it obtained a judgment for $161,749.19. The Oklahoma judgment amount represented the original judgment against Larry plus accrued interest and costs.
On January 12, 2001, G.R.D. Investments L.L.C. (G.R.D.) filed its “Articles of Organization” with the Iowa Secretary of State, naming the Schaefers as the managers of G.R.D. The Schaefers entered into an employment agreement with G.R.D., which entitled Larry and Elaine each to health insurance and a salary. G.R.D.'s operating agreement named Raymond and Dean Schaefer, the Schaefers' sons,3 as the initial members of G.R.D. The purpose of G.R.D., according to the operating agreement, was to purchase, sell, and rent real estate. G.R.D. was formed with the assistance of the Schaefers' attorney, Dale Putnam.4
In January 2001, the Schaefers transferred by quitclaim deed all of their nonexempt real property to G.R.D. The property consisted of approximately 160 acres of farmland and other real estate on which houses and buildings were situated. The Schaefers retained forty acres of real estate in Cerro Gordo County, which they claimed as their forty-acre homestead. After the transfer of the real property, Liberty Bank, F.S.B.5 loaned money to G.R.D., and G.R.D. executed and delivered to Liberty Bank mortgages on the real property transferred previously by the Schaefers to G.R.D.
In July 2001, Land O' Lakes filed a complaint in the United States District Court for the Northern District of Iowa seeking to enforce its judgment against the 160 acres of farmland, despite the Schaefers' purported transfer of the farmland to G.R.D. Afterwards, Land O' Lakes and the Schaefers discussed settlement. In May 2003, the parties reached a settlement agreement under which the Schaefers agreed to pay Land O' Lakes $85,000.
On April 2, the Schaefers executed a promissory note for $85,000 payable to G.R.D. A mortgage on the Schaefers' previously retained forty-acre homestead, executed the same day, secured the note. On May 1, G.R.D. borrowed $275,000 from Liberty Bank and executed a promissory note. G.R.D. then loaned the Schaefers $85,000. On May 12, the Schaefers tendered to Land O' Lakes the settlement funds.
In October 2003, the Schaefers filed for Chapter 7 bankruptcy. On March 30, 2004, the bankruptcy trustee filed a complaint seeking to avoid as fraudulent the January 2001 transfers by the Schaefers to G.R.D. The bankruptcy court afterward voided the 2001 transfers under the Bankruptcy Code.6See11 U.S.C. § 548 (2000). As a result of the bankruptcy ruling, the trustee had the authority to take control of the real property, liquidate it, and distribute sale proceeds to the Schaefers' creditors.
To prevent the trustee from selling the real property, the Schaefers had to pay their creditors, the trustee's fees, and the trustee's attorney fees. The Schaefers borrowed the necessary money from SMP. In late 2005, the Schaefers executed four promissory notes payable to SMP and granted SMP a mortgage on certain real property. Also, on June 8, 2006, G.R.D. assigned to SMP the mortgage on the forty-acre homestead dated April 2, 2003, which secured the $85,000 promissory note with the same date. The Schaefers defaulted on the notes.
On September 23, 2008, the Schaefers filed their petition at law for declaratory relief against Putnam, SMP, G.R.D., Raymond and Dean, and Liberty Bank.7 The Schaefers alleged Putnam negligently advised them with respect to their bankruptcy and the formation of G.R.D. The Schaefers also alleged Putnam and SMP breached their fiduciary duties to the Schaefers. According to the petition, these breaches of fiduciary duties rendered the mortgages delivered to SMP unenforceable.
Both Putnam and SMP filed answers and counterclaims. Putnam counterclaimed for unpaid attorney fees. SMP counterclaimed seeking to foreclose all its mortgages, including the $85,000 mortgage on the forty-acre homestead. With respect to the mortgage on the forty-acre homestead, SMP's counterclaim contended that “[d]ue to the Plaintiff's filing their Petition, and the claim of SMP constituting a compulsory counterclaim, there is no requirement for mediation or a Notice to Cure.” In their answer to SMP's counterclaim, among their other responses, the Schaefers “den[ied] the allegations ... with respect to the requirement for mediation.”
The district court bifurcated the proceedings and commenced a jury trial on February 8, 2011. The jury reached a verdict on March 4 in which it rejected the Schaefers' claims against Putnam. The jury returned a verdict in favor of Putnam on his counterclaim for unpaid attorney fees. Accordingly, the court dismissed the claims against Putnam and entered judgment for him in the amount of $12,200. The court later denied all of the Schaefers' posttrial motions.
On June 6, the district court issued its findings of fact and conclusions of law regarding SMP's counterclaims to foreclose its mortgages. Based on its findings and conclusions, the court entered judgment in rem in favor of SMP for $149,596.80 plus $86,079.25 in attorney fees and foreclosed the mortgage on the forty-acre homestead.8
On September 7, on behalf of Putnam, a “Notice of Sheriff's Levy and Sale” was issued notifying the Schaefers of the sheriff's intent to sell the Schaefers' right to appeal the district court's June 6 order. The sale was scheduled for November 17. Also on September 7, on behalf of SMP, a “Notice of Sheriff's Levy and Sale” was issued informing the Schaefers the sheriff planned to liquidate the foreclosed real property, including the forty-acre homestead. The sale was scheduled for December 8, and the notice indicated the sale was not subject to a right of redemption.
On November 3, the Schaefers filed a motion to quash, seeking to prevent the sale of their appeal rights. The Schaefers argued the right to appeal was not subject to levy under Iowa Code section 626.21. Putnam resisted, arguing the right to appeal is like any other asset, and as such, is subject to execution. On November 15, the district court found that Putnam, as a judgment creditor of the Schaefers, may levy on appeal rights relating to the claims brought by the Schaefers. Putnam could not, however, levy on the appeal rights of the claims brought against the Schaefers. The court ordered the sheriff's sale cancelled. Following receipt of another levy and sale notice, this one reflecting the district court's order narrowing Putnam's right to levy on the appeal rights, the Schaefers sought again to quash the sale. Again, SMP resisted. The district court denied the second motion to quash.
On November 30, the Schaefers filed another motion to quash, this time seeking to prevent the sale of the forty-acre homestead. The Schaefers argued for the first time that under Iowa Code chapter 654A the district court lacked subject matter jurisdiction to foreclose the forty-acre homestead. According to the Schaefers, the forty-acre homestead was agricultural property under Iowa Code chapter 654A, and SMP did not obtain a mediation release prior to asserting its counterclaim seeking foreclosure. The mediation release, the Schaefers argued, was a jurisdictional prerequisite to the district court's subject matter jurisdiction over the foreclosure proceeding. The Schaefers asserted the sale of the forty-acre homestead should therefore be quashed or stayed. In addition to contesting jurisdiction, the Schaefers asserted the sale should be subject to a right of redemption. SMP resisted.
On December 7, the district court denied the Schaefers' motion to quash the Sheriff's sale of the forty-acre homestead. Nevertheless, noting that SMP agreed that the forty-acre homestead was agricultural property, the court found the sale should be subject to a one-year right of redemption.
On January 6, 2012, the Schaefers appealed the district court's ruling denying their motion to quash the sale of the forty-acre homestead. On March 8, the Schaefers appealed the court's ruling denying their ...
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