Opinion
No. 5-235 / 04-1306
Filed June 15, 2005
Appeal from the Iowa District Court for Allamakee County, John Bauercamper, Judge.
Defendants appeal the district court decision setting aside several inter vivos gifts based on undue influence. AFFIRMED.
Andrew Nelson of Meyer, Lorentzen Nelson, Decorah, for appellants.
James Burns of Miller, Pearson, Gloe, Burns, Beatty Cowie, P.C., Decorah, for appellee.
Heard by Sackett, C.J., and Huitink and Vaitheswaran, JJ.
I. Background Facts Proceedings
Lorraine Fink died on June 14, 2002. Her husband, Harris, died in October 1988. After Harris died, Lorraine's remaining assets included land referred to as the ball diamond, a home, and various deposits in a local bank. Following Harris's death, Lorraine was assisted in the management of her financial affairs by her son, Jerome.
According to the terms of her will, Lorraine's estate was to be divided equally among Jerome and her two other children, Sharon and Dana. However, by the time Lorraine died, Jerome had acquired the bulk of her assets through a series of lifetime transfers. These transfers included a $15,000 gift in 1989 and purchase of the ball diamond for $15,000 in 1989. After Sharon and Dana objected to the ball diamond transaction, Lorraine, Jerome, and Jerome's wife Carol transferred the ball diamond to the Lorraine V. Fink Irrevocable Trust. Lorraine also transferred $55,000 in cash to this trust. Jerome was appointed trustee. Under the terms of the trust Lorraine received the trust income during her life and the balance of the trust remaining on her death was payable to Jerome.
At the same time the trust was established, Lorraine gave Jerome a promissory note bearing interest at the rate of eight percent payable on her death. In 1992 Lorraine deeded her home to Jerome for one dollar, reserving a life estate for herself and granting the entire remainder interest to Jerome.
With the exception of the sale of the ball diamond, Sharon and Dana denied any knowledge of the foregoing transactions. According to their version of events, they believed the ball diamond was transferred back to Lorraine based on their objections to the transaction.
On February 2, 2003, Dana sued Jerome and Carol individually and Jerome as executor of Lorraine's estate to set aside Lorraine's lifetime transfers of property to Jerome because they were the result of Jerome and Carol's undue influence. Dana alleged that after Harris died, Lorraine entrusted the management of virtually all of her financial affairs to Jerome, thereby placing Jerome in a confidential relationship with Lorraine. Dana also alleged Lorraine was vulnerable to Jerome and Carol's undue influence because Lorraine was financially inexperienced, suffered from depression, and drank excessively.
Jerome and Carol denied Dana's allegations of undue influence. They also affirmatively alleged that Dana's action to set aside the challenged transactions were time barred by the controlling statute of limitations on such claims.
The trial court concluded that Jerome's relationship with Lorraine was confidential and that he failed in his burden to rebut the resulting presumption of undue influence. The court noted:
The testamentary plan of equal treatment displayed in her will is clearly at odds with the reality of the division of her assets that had already occurred, and show her lack of understanding of what she had already done with her estate.
The court also found the statute of limitations was not applicable because Dana did not discover the financial transactions between Lorraine and Jerome until after Lorraine's death. The court concluded the transfer should be set aside. Jerome appeals.
II. Standard of Review
This action was tried in equity and our review is de novo. Iowa R. App. P. 6.4. In equity cases, especially when considering the credibility of witnesses, we give weight to the fact findings of the district court, but are not bound by them. Iowa R. App. P. 6.14(6)( g).
III. Statute of Limitations
Jerome contends Dana's claims are barred by the statute of limitations. Under Iowa Code section 614.1(4) (2003), an action based on fraud must be brought within five years. Jerome points out that all of the transactions in question here were made more than five years before Dana filed his petition to set aside the inter vivos transfers.
The district court determined Dana's claims were not barred by the statute of limitations citing the discovery rule. "In civil cases, under the discovery rule, the statute of limitations begins to run when the injured party has actual or imputed knowledge of the facts that would support a cause of action." Rieff v. Evans, 630 N.W.2d 278, 291 (Iowa 2001) (quoting State v. Wilson, 573 N.W.2d 248, 253 (Iowa 1998)). A cause of action does not accrue until a plaintiff knows, or in the exercise of reasonable care should have known, both the fact of the injury and its cause. Id.
Jerome admits that Dana did not know of the disputed transactions here. He claims, however, that if Dana had exercised reasonable diligence he would have discovered the transfers. As to the transfer of the baseball diamond, Dana and Sharon testified that Lorraine told them she would get the property back. We do not find a lack of reasonable diligence in Dana's failure to discover that the property had been transferred to the Lorraine V. Fink Trust instead of to Lorraine. As to the other transfers, Dana had no reason to suspect they had taken place and there was not a lack of reasonable diligence in his failure to discover them.
IV. Undue Influence
Jerome does not seriously dispute that he had a confidential relationship with Lorraine. See In re Estate of Todd, 585 N.W.2d 273, 276 n. 3 (Iowa 1998) (noting that a confidential relationship exists when one of the parties is duty bound to act with the utmost good faith for the benefit of the other party). The evidence shows Lorraine relied upon Jerome for information and advice, and she entrusted her finances to him.
Where parties have a confidential relationship, and one gains an advantage in a transaction with the other, a presumption of undue influence arises which the party who has gained the advantage may rebut. Id. at 277. Not all transfers between persons in a confidential relationship are prohibited. Jackson v. Schrader, 676 N.W.2d 599, 604 (Iowa 2003). Our supreme court recently stated:
[W]e hold that the rule for rebutting the presumption of undue influence arising from a confidential relationship only requires that the grantee of a transaction prove by clear, satisfactory, and convincing evidence that the grantee acted in good faith throughout the transaction and the grantor acted freely, intelligently, and voluntarily.
Id. at 605.
Jerome claims the district court should have found that he rebutted the presumption of undue influence arising from the inter vivos transfer of assets by Lorraine. Jerome testified Lorraine wanted him to have $15,000, the promissory note, and her house. He also claimed that she knew that he would get the trust assets at the time of her death. He asserts the transfers were voluntarily made by Lorraine and should not be set aside.
We agree with the district court's conclusion that Jerome failed to present clear, satisfactory, and convincing evidence that Lorraine was acting freely, intelligently, and voluntarily. Several witnesses testified Lorraine did not understand financial transactions. Lorraine's sister-in-law testified "I don't think she realized she had any money, or she didn't know where it was." Fred Wiemerslage, owner of the East Side Tap, where Lorraine was a frequent patron, testified Lorraine got confused easily. Gerald Imhoff, vice-president of the New Albin Savings Bank, testified Lorraine's level of sophistication in banking matters was very low, and he did not think Lorraine was capable of making financial transactions on her own. There was also evidence that Lorraine's consumption of alcohol impaired her abilities. We note the district court had the ability to observe the parties, and the court could very well have determined that Jerome's testimony about the transfers was not credible.
We conclude the transfers set forth above were the result of undue influence and should be set aside.
V. Advancements
In its decision, the district court stated, "the life-time transfers to Jerome may well be considered advancements, subject to `recapture' under the terms of Lorraine's will. . . ." On appeal, Jerome argues that the inter vivos transfers should be considered advancements.
As Dana notes, this statements appears to be in the manner of dicta, because the court had already determined the transfers should be set aside. We also note that the doctrine of advancements only applies where a person dies intestate. See Iowa Code § 633.224. We conclude the transfers were not advancements.
We affirm the decision of the district court, with the understanding that the provision concerning advancements is dicta.