Leonhardt v. Leonhardt , 2012 S.D. LEXIS 121 ( 2012 )

#26208-rev & rem-GAS
2012 S.D. 71IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
TERRY LEONHARDT and CINDY
LEONHARDT, Plaintiffs and Appellants,
v.
DELBERT LEONHARDT, Defendant and Appellee,
and
MATTHEW OSWALD, Intervenor and Appellee.
****
APPEAL FROM THE CIRCUIT COURT OF
THE FIFTH JUDICIAL CIRCUIT
BROWN COUNTY, SOUTH DAKOTA
****
THE HONORABLE JACK R. VON WALD
Judge
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RICHARD L. RUSSMAN
CHRISTOPHER C. WHITE of
Richardson, Wyly, Wise,
Sauck & Hieb, LLP
Aberdeen, South Dakota Attorneys for plaintiffs
and appellants.
TIMOTHY J. VANDER HEIDE of
Barker Wilson Law Firm, LLP
Belle Fourche, South Dakota Attorneys for defendant
and appellee.
JULIE DVORAK of
Siegel, Barnett & Schutz, LLP
Aberdeen, South Dakota Attorneys for intervenor
and appellee.
****
CONSIDERED ON BRIEFS
ON AUGUST 27, 2012
OPINION FILED 10/17/12
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SEVERSON, Justice
[¶1.] Terry and Cindy Leonhardt allege that they entered into an oral lease
with Terry’s father, Delbert Leonhardt, which was to extend for the lives of Delbert
and his wife, Ellen Leonhardt. They claimed the oral lease contained a right of first
refusal that Terry could exercise after the death of both Delbert and Ellen. Delbert
later entered into a written lease with his grandson, Matthew Oswald. This written
lease encompassed some of the farmland Terry and Cindy allege was part of their
oral lease with Delbert. Terry and his wife, Cindy, initiated a declaratory judgment
action against Delbert, seeking a declaration that the oral lease and right of first
refusal were valid. Terry and Cindy also sought specific performance of the oral
lease and right of first refusal. Matthew intervened in the lawsuit. Delbert then
filed for summary judgment on the ground that the oral lease and right of first
refusal were invalid under SDCL 43-32-2, limiting leases for agricultural land to no
more than twenty years. Matthew joined the motion. The circuit court granted the
motion for summary judgment on the ground that the lease was invalid under the
statue of frauds. Terry and Cindy appeal. We reverse and remand for further
proceedings.
BACKGROUND
[¶2.] Delbert and Ellen Leonhardt owned approximately one thousand acres
of farmland in South Dakota. In 1988, Terry Leonhardt, who is Delbert and Ellen’s
son, agreed to assist his parents in farming the land. Terry and his wife, Cindy,
allege that they entered into a crop sharing arrangement with Delbert in 1989,
under the terms of which Terry was responsible for half of the expenses associated
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with the farming operation. In return, Terry received one-third of the profit from
the crop each year. 1 Terry and Cindy maintain that this arrangement continued
until 1992.
[¶3.] In 1992, Terry and Cindy allege that they reached a new arrangement
with Delbert. Under this new arrangement, Terry was responsible for all of the
expenses associated with the farming operation. In exchange, Terry received two-
thirds of the profit from the crop each year. Terry and Cindy also contend that
Delbert agreed to grant them a right of first refusal in 1996 or 1997. 2 As
consideration for the right of first refusal, they allege that Terry took out a life
insurance policy on Delbert.
[¶4.] In 2001, Terry and Cindy contend that the parties entered into an oral
lease, which superseded the previous crop sharing arrangement. Under this new
agreement, Terry and Cindy maintain that they leased Delbert’s land “on a cash
rent basis.”
[¶5.] Delbert and Ellen divorced in 2010. As part of the divorce, Delbert was
awarded approximately half of the farmland. Later that year, Delbert entered into
a written lease with his grandson, Matthew. This written lease was to
1. Terry and Cindy repeatedly assert that, under the 1988 arrangement, Terry
was to pay the expenses associated with the farming operation and, in return,
Terry was to receive one-third of the profit earned from the crop each year.
Thus, it is unclear how Cindy was a party to this arrangement.
2. It is unclear from the record what the specific terms of the right of first
refusal were, or how Terry and Cindy were to exercise this oral agreement
after Delbert and Ellen died.
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extend for three years and encompassed farmland that Terry and Cindy assert was
part of their oral lease with Delbert.
[¶6.] Terry and Cindy brought a declaratory judgment action against
Delbert, seeking a judgment that the oral lease and right of first refusal were valid.
Terry and Cindy also sought specific performance of the oral lease and right of first
refusal. Matthew intervened as a defendant in the declaratory judgment action.
[¶7.] Delbert moved for summary judgment. He argued that the oral lease
was invalid under SDCL 43-32-2, which provides in relevant part: “No lease or
grant of agricultural land for a longer period than twenty years, in which shall be
reserved any rent or service of any kind, shall be valid.” Matthew joined Delbert’s
motion for summary judgment.
[¶8.] During the hearing on Delbert and Matthew’s motion for summary
judgment, the circuit court inquired as to the applicability of the statute of frauds.
Terry and Cindy noted that Delbert and Matthew had not raised the statute of
frauds as an issue in their summary judgment motion. Nonetheless, Terry and
Cindy argued that the doctrines of promissory estoppel and partial performance
precluded Delbert and Matthew from invoking the statute of frauds. The circuit
court rejected this argument and granted summary judgment in favor of Delbert
and Matthew on the ground that the oral lease was invalid under the statute of
frauds. Terry and Cindy appeal.
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DISCUSSION
[¶9.] In their brief accompanying the motion for summary judgment,
Delbert and Matthew argued that summary judgment was warranted because
Terry and Cindy’s lease was void ab initio under SDCL 43-32-2. However, Delbert
and Matthew did not argue that Terry and Cindy’s lease was void under the statute
of frauds. Nor did Delbert and Matthew advance this argument before the circuit
court during the summary judgment hearing. The circuit court, nonetheless,
inquired as to the applicability of the statute of frauds during the summary
judgment hearing. Terry and Cindy argued that promissory estoppel and partial
performance precluded the application of the statute of frauds. Specifically, Terry
and Cindy argued that they had expended “millions of dollars worth of money and
time [to both Delbert and the farm] based upon the oral agreement to lease [the
land] for [Delbert’s] lifetime and for the right of first refusal.” The circuit court
rejected Terry and Cindy’s argument and ultimately relied upon the statute of
frauds in granting summary judgment in favor of Delbert and Matthew.
[¶10.] Terry and Cindy argue that the circuit court erred in failing to provide
them with notice that it would consider granting summary judgment on a legal
theory different from the legal theory advanced by Delbert and Matthew in their
summary judgment pleadings and brief. Had the circuit court provided them with
adequate notice and an opportunity to present relevant evidence, Terry and Cindy
allege that they “could have provided the trial court with details” regarding the
money and time they expended in reliance on the oral lease and right of first
refusal.
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[¶11.] In response, Delbert and Matthew note that the statute of frauds was
raised as an affirmative defense in both Delbert and Matthew’s answers to the
amended complaint. In his motion for summary judgment, Delbert asserted, “The
pleadings establish that there are no genuine issues as to any material facts
relating to Plaintiffs’ Amended Complaint and that this Defendant is entitled to
summary judgment in his favor as a matter of law.” Delbert and Matthew argue
that this provided Terry and Cindy with adequate notice that the statute of frauds
would be at issue during the summary judgment hearing.
[¶12.] SDCL 15-6-56(c) provides that summary judgment “shall be rendered
forthwith if the pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of
law.” “In determining whether summary judgment is appropriate, [a] court is not
confined to the particular propositions of law advanced by the parties on a motion
for summary judgment.” Jaste v. Gailfus, 679 N.W.2d 257, 261 (citing 10A Charles
A. Wright et al., Federal Practice and Procedure § 2725 (3d ed. 1998)). However,
“[t]here is a greater possibility for error when the party opposing the summary
judgment motion may be able to show that a genuine issue exists but has not done
so because the facts relating to the particular legal principles were not in issue.” Id.
(citation omitted). In light of this risk, it is generally recognized that “[a] court
should notify the parties when it intends to rely on a legal doctrine or precedents
other than those briefed and argued by the litigants.” Id. (citation omitted); see
Heisler v. Metro. Council, 339 F.3d 622, 631 (8th Cir. 2003) (“It is fundamentally
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unfair to the nonmoving party to require her to address issues not addressed by the
moving party in anticipation that the district court might rely on some unidentified
issue to grant the motion.”). Providing the parties with adequate notice of the
issues ensures that the parties have a meaningful opportunity to develop the record
and present all relevant evidence to the court. 3
[¶13.] In Delbert’s amended answer to Terry and Cindy’s amended complaint,
Delbert raised the statute of frauds as an affirmative defense. But he also raised
several other affirmative defenses, including: (1) estoppel (2) failure of
consideration; (3) waiver; (4) statute of limitations; (5) laches; (6) illegality; and (7)
res judicata. Neither Delbert nor Matthew raised the issue of the statute of frauds
in any of their summary judgment pleadings. Delbert and Matthew’s motion
requesting that the court grant summary judgment based on the pleadings, without
specifically mentioning or arguing the statute of frauds, was insufficient to put
Terry and Cindy on notice that the statute of frauds was an issue that the circuit
3. This Court has recognized the importance of providing a non-moving party
with notice and an opportunity to present evidence and arguments in
opposition to a motion for summary judgment in other contexts. For
example, we have held that “[w]here the court elects to treat a motion to
dismiss as a motion for summary judgment, it must notify the parties of its
intent and give them an opportunity to present matters pertinent to
summary judgment.” Herr v. Dakotah, Inc., 2000 S.D. 90, ¶ 18, 613 N.W.2d
549, 553 (citation omitted); see SDCL 15-6-12(b). In addition, “[s]ua sponte
orders of summary judgment will be upheld only when the party against
whom judgment will be entered was given sufficient notice and an adequate
opportunity to demonstrate why summary judgment should not be granted.”
Brown v. Hanson, 2007 S.D. 134, ¶ 19, 743 N.W.2d 677, 682 (quoting Myers v.
Tursso Co., Inc., 496 F. Supp. 2d 986, 993 (N.D. Iowa 2007)) (internal
quotation marks omitted).
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court would consider during the summary judgment hearing. See Heisler, 339 F.3d
at 631 (“We have repeatedly held that in the Eighth Circuit, a district court
commits reversible error when it grants summary judgment on an issue not raised
or discussed by the parties.”).
[¶14.] In general, even if the parties did not receive adequate notice of the
issue the court relied upon in granting summary judgment, the court’s ruling may
be affirmed if “the facts before the . . . court were fully developed so that the moving
party suffered no procedural prejudice.” Bridgeway Corp. v. Citibank, 201 F.3d 134,
139 (2d Cir. 2000) (internal quotation marks omitted). In other words, “[t]he failure
of the court to provide notice can be excused if the error was harmless under the
circumstances.” Jaste, 679 N.W.2d at 261 (citation omitted). “Absent some
indication that the moving party might otherwise bring forward evidence that
would affect the court’s summary judgment determination, failure to provide an
opportunity to respond is not reversible error.” Coach Leatherware Co., Inc. v. Ann
Taylor, Inc., 933 F.2d 162, 167 (2d Cir. 1991); see Weiss v. Reebok Int’l, Ltd., Inc., 91
F. App’x 683, 689 (Fed. Cir. 2004) (“Summary judgment may be granted on legal
grounds other than those advanced by the parties if the record is sufficiently
developed.”).
[¶15.] In this case, Terry and Cindy allege that if they had received notice
that the statute of frauds was at issue, they would have had a meaningful
opportunity to produce the following evidence to the circuit court:
(1) Terry and Cindy made extensive permanent improvements to
the leased land and structures upon the leased land; (2) Terry
and Cindy purchased approximately $1.5 million dollars worth
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of machinery and equipment so that they could continue to
properly operate the leased land under the agreement and the
right of first refusal; (3) Terry skipped college to stay home and
help Delbert operate the farm; (4) Terry and Cindy spent
thousands of dollars on fertilization zones on the leased land to
ensure the success of future crop; and (5) Terry and Cindy took
out a life insurance policy on Delbert and Ellen and paid
approximately $3,000.00 in yearly premium payments in order
to have the requisite funds available to exercise their right of
first refusal when the last of Delbert and Ellen passed way.
[¶16.] Terry and Cindy have demonstrated that they may possess evidence
they did not have a meaningful opportunity to present to the circuit court. 4 This
evidence could be relevant to Terry and Cindy’s defenses of promissory estoppel and
partial performance. Because Terry and Cindy did not receive adequate notice and
a meaningful opportunity to bring forward the above referenced evidence, we
believe they suffered procedural prejudice.
CONCLUSION
[¶17.] Terry and Cindy have shown that they were prejudiced by the circuit
court’s failure to provide them with notice that it would consider the statute of
frauds during the summary judgment hearing. We reverse and remand for further
proceedings.
[¶18.] GILBERTSON, Chief Justice, and KONENKAMP, ZINTER, and
WILBUR, Justices, concur.
4. We do not hold that the above-referenced evidence is sufficient to preclude
the application of the statute of frauds in this case. We merely conclude that
the evidence may be relevant to Terry and Cindy’s claims of promissory
estoppel and partial performance.
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