Opinion
No. 3-140 / 02-0884.
Filed April 30, 2003.
Appeal from the Iowa District Court for Jefferson County, DAN F. MORRISON, Judge.
Plaintiff appeals the district court's finding that certain claims were barred by the statute of limitations, there was no undue influence in the sale of a family farm and execution of a promissory note, and the promissory note was not intended as a loan of funds. AFFIRMED.
Dennis Mitchell and Timothy Krumm of Meardon, Sueppel Downer, P.L.C., Iowa City, for appellant.
Lynn Smith of Dutton, Braun, Staack, Hellman, P.L.C., Waterloo, for appellees.
Heard by SACKETT, C.J., and HUITINK and VOGEL, JJ.
Emerson H. McDowell appeals the district court's dismissal of certain claims as barred by the statute of limitations, finding no undue influence in the sale of a family farm and execution of a promissory note, and its determination that the promissory note did not represent a loan of funds. We affirm.
Background Facts . Emerson H. McDowell (Jiggs) and his wife, Evelyn Jean McDowell (Jeannie) were farmers who owned two farms, one located in Jefferson County and the other in Van Buren County. They have four children. Their youngest son, Michael McDowell (Mike), helped the couple farm during his childhood and continued to do so after graduating from high school. Mike was not paid a salary for his labor but believed he would one day own the family farms. In October 1991, Jeannie was killed in an automobile accident which left Jiggs grief-stricken.
On November 7, 1991, Jiggs entered into two real estate contracts for the sale of the Van Buren County farm and Jefferson County farms with Mike and his wife, Tracy. Mike and Tracy assumed the outstanding debt on the Van Buren County farm, which at the time was more than the farm was worth. On the same day, Jiggs issued a bill of sale to Mike and Tracy for farm equipment. Jiggs consulted with an attorney to prepare the contracts and bill of sale.
Prior to trial, Jiggs dismissed his claim involving the Van Buren County farm.
Jiggs then moved to Texas where he and Jeannie had previously spent their winters. In 1992, unbeknownst to any of his children, Jiggs remarried. On December 31, 1992, Mike executed a promissory note in Jiggs's favor for $90,000 Jiggs had transferred to Mike. Mike used the $90,000 to pay debt he had accumulated from operating the Van Buren and Jefferson County farms. Though Mike and Tracy had not paid on the note, it was hand-marked "paid in full EH McDowell" on June 1, 1994.
In 1992 and 1993, Jiggs made annual gifts of $20,000 to Mike and Tracy. In May 1994, while still living in Texas, Jiggs wired $57,063.45 to his joint account with Mike in Iowa. Mike then used $50,000 of the transfer to pay First National Bank on his line-of-credit stemming from the farm operations.
In late 1998, Jiggs's two daughters, Marla Faga and Roberta Adam, began learning of Jiggs's finances and inquiring into the nature of his financial relationship with Mike and Tracy. Those inquiries lead to the current litigation with Jiggs claiming undue influence, misrepresentation, breach of fiduciary relationship and fraud as to the sale of the Jefferson County farm, bill of sale for farm equipment, the $90,000 promissory note, transfers of $40,000 in 1992 and 1993, and a fraudulent transfer of $50,000 to an account jointly held by Mike and Jiggs.
Jiggs has a fourth child, Roger McDowell. Roger was not a part of this litigation nor did he testify at trial.
The district court found all claims to be barred by the applicable statute of limitations except the real estate contract for the sale of the Jefferson County farm and the $90,000 promissory note, which both have a ten-year statute of limitations. Iowa Code § 614.1(5) (1999). The district court also found no undue influence in the sale of the Jefferson County farm or the promissory note and the note did not represent a loan of funds.
Jiggs appeals.
Scope of Review . The parties disagree on the appropriate scope of review. Jiggs contends the scope of review is de novo for all claims. Mike and Tracy agree the claim of undue influence is subject to our de novo review. However, Mike and Tracy argue the scope of review for the $90,000 promissory note and the dismissal of claims barred by the statute of limitations is for errors at law.
"Generally, we will hear a case on appeal in the same manner in which it was tried in the district court." Johnson v. Kaster, 637 N.W.2d 174, 177 (Iowa 2001) (citing Davis-Eisenhart Mktg. Co. v. Baysden, 539 N.W.2d 140, 142 (Iowa 1995)). The appropriate standard of review for the challenge to the district court's dismissal of claims barred by the statute of limitations is at law. Clark v. Miller, 503 N.W.2d 422, 423 (Iowa 1993); Iowa R.App.P. 6.4. The district court's findings are binding if supported by substantial evidence. Clark, 503 N.W.2d at 423 (citing Meyers v. Delaney, 529 N.W.2d 288, 289-90 (Iowa 1995)). The remaining claims of undue influence and $90,000 promissory note will be reviewed in equity, and therefore our review is de novo. Iowa R.App.P. 6.4; Johnson, 637 N.W.2d at 177. We give weight to the district court's findings of fact, but are not bound by these findings. Perkins v. Madison County Livestock Fair Ass'n, 613 N.W.2d 264, 267 (Iowa 2000). We defer to the district court's assessment of witness credibility. Id.
Statute of Limitations . Jiggs contends the November 7, 1991, bill of sale on farm equipment, the 1992 and 1993 annual gifts, and the $50,000 wire transfer to his joint account with Mike were fraudulent transactions. There is a five-year statute of limitations on actions based on fraud, Iowa Code § 614.1(4), and the cause of action will not be deemed accrued until the fraud complained of is discovered by the injured party. Van Wechel v. Van Wechel, 178 Iowa 491, 159 N.W. 1039, 1041 (1916).
The November 1991 bill of sale for the farm equipment was prepared by Jiggs's attorney. Jiggs argues the fraudulent acts were not discovered until 1998 when his two daughters, Marla and Roberta, found out about the transfers. We disagree. For the purpose of the discovery rule, the important date is when the "injured party," here Jiggs assuming he was competent, discovered the alleged fraud. Howard Smith, a neighboring farmer and friend to Jiggs, testified Jiggs told him prior to Jeannie's death he wanted Mike to eventually have the farms. After Jeannie's death, Jiggs informed Howard of the transfer of farms and equipment to Mike and Tracy. Howard reminded Jiggs that he had three other children to consider but Jiggs stated that he wanted Mike to have the property. Attorney John Morrissey, who prepared the real estate contracts and the bill of sale, further testified that Jiggs was fully aware of the transactions and Jiggs was competent during their discussions.
The record establishes Jiggs knew what he was doing when he entered into the real estate contracts and sale of farm equipment on November 7, 1991, and therefore the statute of limitations for a claim based on fraud would run from that date, not from the later date when his daughters became aware of the transactions. Similarly, there is no indication in the record that Jiggs was unaware of the implications of the 1992 and 1993 gifts he made using his annual exclusions. Nor is there evidence Jiggs lacked knowledge of the May 1994, $57,063.45 wire transfer he made from his Texas account to his Iowa joint account with Mike as he called Mike and Tracy several times requesting them to place money into his account to cover checks he had written. We agree with the district court's dismissal of the claims regarding the bill of sale for farm equipment, gifts of $40,000 in 1992 and 1993, and transfer of $57,063.45 to a joint account as based on fraud and are barred by the statute of limitations.
Confidential Relationship and Undue Influence . Jiggs next argues the real estate contract for the sale of the Jefferson County farm and the promissory note were the result of undue influence stemming from the confidential relationship he had with Mike. Jiggs asserts their close business relationship and Jiggs's personal dependence on Mike resulted in Mike and Tracy exerting undue influence over him, which greatly benefited them.
A party challenging an inter vivos transfer premised on a confidential relationship has the burden of proving their cause of action by clear, satisfactory and convincing evidence. In re Estate of Todd, 585 N.W.2d 273, 277 (Iowa 1998). Once the challenging party meets the above burden, the burden then shifts to the party who benefited from the transfer to show he did not unduly influence the other party. Id. The benefiting party must do so by clear, satisfactory, and convincing evidence. Id.
A confidential relationship "is any relation existing between parties to a transaction wherein one of the parties is duty bound to act with the utmost good faith for the benefit of the other party." In re Estate of Herm, 284 N.W.2d 191, 199 (Iowa 1979) (quoting Dibel v. Meredith, 10 N.W.2d 28, 30 (Iowa 1943)). If a confidential relationship exists, a transaction by the benefiting party at the expense of the other will be deemed presumptively fraudulent and voidable. Id. (citations omitted).
Jiggs and Mike farmed together for many years. Over those years, Jiggs contends they built a trusting business relationship in which Mike became a dominant business partner. In later years, Jiggs relied on Mike for many of the farming decisions, evidenced by Jiggs and Jeannie leaving Mike in charge during the winter months while they were in Texas. After Jeannie was killed, Jiggs was distraught and went to live with Mike and Tracy for a short time. Jiggs argues this created an environment of a confidential relationship with Mike which lead to the subsequent transactions at issue here.
Mike and Tracy counter by first asserting that a blood relationship and a business relationship by themselves are not sufficient to establish a confidential relationship. See In re Estate of Clark, 357 N.W.2d 34, 37 (Iowa Ct.App. 1984) ("A confidential relationship does not arise solely from blood relationship such as between parent and child."). We agree that the mere blood ties and farming relationship do not rise to the level of proof required to find a confidential relationship absent other factors. While Mike and Tracy acknowledge that Jiggs was distraught after Jeannie's death, it was only logical he would come to live with them for a period of time as he did not have a good relationship at that time with any of his other children. In addition, Jiggs offered testimony of Dr. Richard Nieman that Jiggs would not have been competent to enter into business transactions following Jeannie's death and would have been susceptible to undue influence from close family members during the weeks following the accident. Mike offered contradictory expert testimony. The parties' experts did not evaluate Jiggs in 1991. Instead, their testimony was based on medical documentation from 1992 that Jiggs suffered from post-concussive syndrome with superimposed major depression. The district court found this testimony unhelpful. We agree. Jiggs was clearly upset over the tragic loss of his wife. However, there is substantial evidence, apart from the medical records, Jiggs was fully aware of the transactions with Mike and Tracy and not unduly subject to their influence despite his loss. Following his brief stay with Mike and Tracy during which time the real estate contracts were entered into, Jiggs moved to Texas.
The evidence then supports that he lived independent of Mike and Tracy, to the extent that he remarried, built a home, and settled two personal injury cases on his own. Moreover, before Jeannie died it was well known that she and Jiggs desired Mike to take over the farms after they retired. At the time of Jeannie's death, the couple was actively seeking life insurance to cover any farm debt so that the financial burden would not pass to Mike, should Jiggs die. This clear and long-standing intent for Jiggs to convey the farms to Mike, cast further doubt on later claims of confidential relationship and undue influence.
While the evidence shows Jiggs had a close personal and business relationship with Mike and Tracy, the evidence does not rise to the level of establishing a confidential relationship, such that the burden of proof would shift to Mike and Tracy to prove they did not exercise undue influence over Jiggs in the disputed transactions.
Jiggs also asserts he did not have independent counsel for the transactions with Mike and Tracy. John Morrissey represented Jiggs in the personal injury action arising out of the accident. Jiggs also retained Morrissey to prepare the documents for the transactions with Mike and Tracy. Because Tracy worked in the law office with Morrissey, Jiggs claimed Morrissey was really working for Mike and Tracy. However, it is undisputed that Mike and Tracy were not involved in the numerous discussions between Morrissey and Jiggs about the transactions, nor were they consulted in any way. There is no indication in the record that Morrissey was doing anything but looking out for the best interests of Jiggs.
For all the above reasons, we agree with the district court's determination that the real estate contract for the Jefferson County farm and the transfer of $90,000 did not involve the exertion of undue influence by Mike and Tracy.
Promissory Note . Jiggs finally claims the $90,000 secured by a promissory note was intended as a loan not as a repayment for his contributions to the farm. The promissory note was executed December 31, 1992. Mike testified he used the $90,000 to pay on his line-of-credit debt from farm operations. The note stated it was payable on demand with a seven percent per annum interest rate, however Jiggs never demanded payment until just prior to the filing of this action. On June 1, 1994, the note was hand-marked as "paid in full EH McDowell" when it is undisputed neither Mike nor Tracy had made any payment on the note. Jiggs disputed making the notation but the district court found his testimony to lack credibility. While the attorney who drafted the promissory note testified that he believed Jiggs expected to be repaid for the funds, there was also evidence in the record that Mike and Jiggs did not use promissory notes for their intended purposes but rather as a means to avoid the tax consequences of making gifts. Even Jiggs did not testify that he expected to be repaid the funds. We therefore agree with the district court finding that the $90,000 promissory note did not secure a loan of funds.
In summary, we affirm the district court's dismissal of certain claims having exceeded the statute of limitation, affirm the finding that the transfers and gifts were not the product of a confidential relationship or undue influence, and of finding the promissory note did not represent a loan of funds.
The appendix filed in this case was unnecessarily voluminous. We prompt appellant to comply with Iowa Rule of Appellate Procedure 6.15, by including only relevant portions of the record in the appendix, thereby reducing both printing expense and the burden on the appellate courts in referencing points on appeal. See State v. Oppelt, 329 N.W.2d 17, 21 (Iowa 1983).