Opinion
No. A05-1161.
Filed May 23, 2006.
Appeal from the District Court, Renville County, File No. C4-03-883.
Charles T. Wilson, Sara N. Wilson, Ryan R. Dreyer, Gislason Hunter, (for respondent)
John E. Mack, Mack Daby, (for appellants)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
Appellants Orville and Elaine Molenaar challenge the district court's order for partition by sale of a parcel of land in which they are tenants in common with respondent Midwest Bank, M.V. Because the district court did not abuse its discretion in determining that partition by sale was less prejudicial to the rights of the owners than partition in kind, we affirm.
DECISION
Although a partition action under Minn. Stat. §§ 558.01-.32 (2004) is governed by statute, the district court is guided by principles of equity. Anderson v. Anderson, 560 N.W.2d 729, 730 (Minn.App. 1997). The district court is obligated to follow the statutory partition procedure, but within that framework, the district court
may exercise its general equitable powers and resort to the most advantageous plans which the nature of the particular case admits in effecting, without great prejudice to any of the owners, a partition of one or more tracts, whether such partition be accomplished by a division in kind, by sale, or by any practical combination of both methods.
Swogger v. Taylor, 243 Minn. 458, 466-67, 68 N.W.2d 376, 383 (1955). We review the district court's exercise of its equitable powers for an abuse of discretion. Nadeau v. Count of Ramsey, 277 N.W.2d 520, 524 (Minn. 1979). We review findings of fact for clear error. Anderson, 560 N.W.2d at 730.
In general, partition in kind is favored over partition by sale. Swogger, 243 Minn. at 467, 68 N.W.2d at 384. The presumption is that partition in kind will prevail, unless it cannot be done without advancing the interests of one owner at the expense of the other owners. Id. The party requesting partition by sale "has the burden of proving that partition in kind cannot be made without great prejudice to the owners." Id.
Appellants argue that a partition sale will greatly prejudice them, because they and their son, who resides on the land, actively farm this parcel. They urge this court to order partition in kind, with owelty if necessary. There are two problems with this approach. First, any partition by sale necessarily prejudices the current occupant, but prejudice is also shown when the value afforded each tenant is much lower in partition in kind than in partition by sale. Pigeon River Lumber Co. v. McDougall, 169 Minn. 83, 87, 210 N.W. 850, 852 (1926). Here, the testimony of the appraiser supports the district court's finding that partition in kind would result in a "materially decreased value for the property" because of the difficulty in dividing the land.
"Owelty" is "[e]quality as achieved by a compensatory sum of money given after an exchange of land having different values or after an unequal partition of real property." Black's Law Dictionary 1130 (7th ed. 1999).
Second, appellants offered no testimony to show an appropriate division in kind and testified that they had limited means to buy out respondent, suggesting that they may be unable to pay owelty. While owelty may be used when a property cannot be easily divided but a sale is likewise disadvantageous, the supreme court has stated that "`[o]welty should be decreed with caution. It should not be decreed except when necessary to make an equitable and fair division. A sale on partition may offer the preferable method."' Anderson, 560 N.W.2d at 731 (quotation omitted). Based on the record before us, there is evidence that a partition in kind would be prejudicial to both parties, but we have no evidence to provide a method for partitioning in kind, with or without owelty, that would preserve the rights of both parties. We must therefore conclude that respondent has sustained its burden of proving great prejudice to the rights of both parties if partition in kind were made.
Appellants also argue that in considering prejudice, the district court erred by failing to give appropriate weight to the fact that the parcel is classified as homestead property. Appellants' claim of homestead status for the property is based on Minn. Stat. § 273.124, subd. 1(d) (2004), which classifies agricultural property as homestead property, if (1) the occupant is closely related to the owner; (2) the owner is a Minnesota resident; (3) the owner does not receive homestead status on any other agricultural property in Minnesota; and (4) the owner has only one agricultural homestead per family under the statute. Id. This statute, which is included in the chapters devoted to property taxation, gives favorable property tax status to certain owners of agricultural land and does not provide the protection from seizure or sale under legal process of debt under Minn. Stat. § 510.01 (2004). Thus, the parcel's designation as homestead property does not weigh in our decision.
Appellants further argue that because partition is guided by principles of equity, respondent's violation of the corporate farming act, Minn. Stat. § 500.24 (2004), precludes partition because of the equitable clean hands doctrine. The baseline standard for such relief is that "he who seeks equity must do equity, and he who comes into equity must come with clean hands." Gully v. Gully, 599 N.W.2d 814, 825 (Minn. 1999) (quotation omitted). "The doctrine of unclean hands will be invoked only against a party whose conduct has been unconscionable by reason of a bad motive, or where the result induced by his conduct will be unconscionable." Medtronic, Inc. v. Advanced Bionics Corp., 630 N.W.2d 438, 450 (Minn.App. 2001) (quotation omitted). This doctrine generally requires more than "improper purpose" or recklessness; it requires more egregious conduct, such as bad faith or illegal or unconscionable acts. Id.
The legislature passed Minn. Stat. § 500.24 to "encourage and protect the family farm as a basic economic unit." Id. at subd. 1. This statute prohibits any "corporation, limited liability company, pension or investment fund, trust, or limited partnership [from engaging] in farming[,]" and restricts these entities from acquiring any interest in agricultural land, except as a bona fide encumbrance for security. Id. at subd. 3. The statute excludes land acquired by one of these entities "by process of law in the collection of debts, or by any procedure for the enforcement of a lien or claim on the land, whether created by mortgage or otherwise" as long as the land is disposed of within five years. Id. at subd. 2(x). The district court did not rule on the merits of this claim, but respondent's acquisition of land here is arguably within the exception, and respondent has not demonstrated bad faith, illegal, or unconscionable conduct that would warrant application of the clean hands doctrine.
While we understand appellants' frustration with the partition process, we cannot conclude on this record that the district court abused its discretion by ordering a partition by sale.