Joseph Goche v. WMG, L.C.

IN THE COURT OF APPEALS OF IOWA
No. 18-0793
Filed March 6, 2019
JOSEPH GOCHE,
Plaintiff-Appellee,
vs.
WMG, L.C.,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Kossuth County, David A. Lester,
Judge.
A limited liability company appeals the grant of summary judgment to one
of its members on a breach-of-warranty-deed claim. REVERSED AND
REMANDED.
Thomas W. Lipps of Peterson & Lipps, Algona, for appellant.
Wesley T. Graham of Graham, Ervanian & Cacciatore, LLP, Des Moines,
and Philip J. Kaplan of Anthony Ostlund Baer & Louwagie P.A., Minneapolis,
Minnesota, for appellee.
Considered by Tabor, P.J., and Mullins and Bower, JJ.
2
TABOR, Presiding Judge.
This case involves four siblings and the distribution of Kossuth County
farmland by WMG, L.C., their limited liability company.1 A company resolution
informed members the distributions were subject to existing liens for real estate
taxes and special assessments. Member Joseph Goche sued WMG because the
warranty deed on his parcel mistakenly characterized the land as unencumbered.
Acknowledging the inaccuracy, WMG sought reformation of the deed. The district
court refused to reform the deed and granted Joseph’s motion for summary
judgment, concluding the resolution language merged into the terms of the deed.
On appeal, WMG contends Joseph’s membership in the company and the
company’s clear intent to distribute the land subject to existing liens calls for
reformation of the deed. Finding WMG’s contention legally sound, we reverse the
grant of summary judgment and remand for further proceedings.
I. Facts and Prior Proceedings
William and Mary Goche formed WMG in 1997. Twenty years later, WMG’s
members were their four children: Joseph Goche, Michael Goche, Jeanne Goche-
Horihan, and Renee Afshar.2 Until spring 2017, WMG owned five tracts of
farmland near Bancroft and Titonka.
In February 2017, WMG announced a special meeting. The meeting notice
contained several proposed resolutions, including removal of Joseph as a
manager of the company and a pro rata distribution of the company’s real property
1
In other litigation between the siblings, the district court appointed Larry Eide as receiver
to control WMG and its assets. Counsel for the receiver represents WMG in this appeal.
2
For ease of reference, we will use the siblings’ first names.
3
to the four members. The latter resolution proposed, “Members and Managers
acknowledge, consent, and agree that the Parcels shall be distributed to the
Members via warranty deed and subject to existing liens for real estate taxes and
special assessments . . . .”3
At the special meeting, three of the four members voted to remove Joseph
as a manager. Also during the meeting, three of four members voted to distribute
the farmland by warranty deed to the members, effective March 2, 2017. Joseph
cast the dissenting vote in both instances.
Michael, as manager of WMG, executed the warranty deeds on
February 25, 2017. His legal counsel recorded the deeds on March 2. The
warranty deed conveying property to Joseph included the following assurance:
The grantor’s promise that the real estate was “free and clear of all liens
and encumbrances” was inaccurate. The parties do not dispute the property was
actually encumbered by unpaid property taxes in the amount of $1689 and unpaid
drainage assessments of $31,572.59. In his affidavit, Joseph swore he paid those
amounts to remove the encumbrances.
In April 2017, Joseph filed suit, alleging WMG owed him damages based
on the inaccurate information in the warranty deed. WMG answered and counter-
3
Under the proposal, Joseph was to receive two tracts known as “Presthouse Farm” and
the “German Township Parcel.”
4
claimed, seeking relief by reformation of the warranty deed. Joseph sought
summary judgment on his breach-of-deed claim. The district court granted partial
summary judgment to Joseph and awarded him $32,216.59 in damages. WMG
now appeals.4
II. Scope and Standards of Review
The parties disagree on the standard of review. WMG contends our review
is de novo because the district court denied its request for reformation, an
equitable remedy. See Orr v. Mortvedt, 735 N.W.2d 610, 613 (Iowa 2007) (noting
case was “filed and tried in equity”). Joseph insists review is for correction of errors
at law because WMG is appealing from the grant of summary judgment.
We agree with Joseph on the standard of review. He sought damages for
breach of warranty deed in his petition, and the district court decided that claim by
summary judgment. Although reformation is an equitable concept, we review a
court’s grant of summary judgment for correction of legal error. See Keokuk
Junction Ry. Co. v. IES Indus., Inc., 618 N.W.2d 352, 355 (Iowa 2000); Nationwide
Agribusiness Ins. Co. v. PGI Int’l, 882 N.W.2d 512, 515 (Iowa Ct. App. 2016).
In summary judgment appeals, “our task is to review the record made before
the district court to determine whether a genuine issue of material fact is in
dispute.” Walls v. Jacob North Printing Co., 618 N.W.2d 282, 284 (Iowa 2000).
Summary judgment is proper if no genuine issue of material fact exists and the
4
Our supreme court denied Joseph’s motion to dismiss WMG’s appeal, finding the partial
summary judgment on the breach-of-deed claim was a final, appealable ruling. Joseph’s
petition contained a separate claim for indemnity unrelated to the breach-of-deed claim.
WMG does not appeal the district court’s grant of summary judgment on the indemnity
claim because that ruling was interlocutory.
5
moving party is entitled to judgment as a matter of law. Iowa R. Civ. P. 1.981(3).
We view the summary-judgment record in the light most favorable to the
nonmoving party—here, WMG—and will grant that party all reasonable inferences
we can draw from the record. See Estate of Gray ex rel. Gray v. Baldi, 880 N.W.2d
451, 455 (Iowa 2016). The moving party—here, Joseph—bears the burden of
proving the facts are undisputed. See Phillips v. Covenant Clinic, 625 N.W.2d 714,
717 (Iowa 2001).
III. Analysis
The warranty deed executed by WMG mistakenly stated the real estate
distributed to Joseph was “free and clear” of all encumbrances. WMG recognizes
the misinformation but writes it off as a “scrivener’s error”5 and contends the district
court wrongly refused to reform the deed. WMG contends the deed’s assurance
was a mutual mistake of fact and did not reflect the true agreement of the parties.
Instead, according to WMG, the intent of the parties appeared in the company’s
resolution providing the parcels were to be distributed to the members via warranty
deed and “subject to existing liens for real estate and special assessments.”
Reformation is an equitable remedy available to a party who can prove an
instrument does not reflect the true agreement of the parties. See Timmer v. New
York Life Ins. Co., 270 N.W. 421, 422 (Iowa 1936). As the party seeking
5
“A scrivener is (or, better, was) a transcriber of documents. In the literal sense, then, a
‘scrivener’s error’ is a mistake of transcription, which is to say a mismatch between original
(e.g., spoken word, manuscript) and copy.” Ryan D. Doerfler, The Scrivener’s Error, 110
Nw. U. L. Rev. 811, 816 (2016). Reformation may be available as a remedy where, by
reason of a mistake by a scrivener or drafter, “the written agreement does not accurately
reflect the intent of the parties.” 66 Am. Jur. 2d Reformation of Instruments § 19 (citing
RAL Mgmt, Inc. v. Valley View Ass’ns, 926 A.2d 704, 706 (Conn. App. Ct. 2007) (finding
inadequate support for plaintiff’s assertion the 30% per month interest rate provided for on
the face of the note was a scrivener’s error and should have been 30% per annum)).
6
reformation, WMG had the burden to establish its contention by clear, satisfactory,
and convincing proof. See Kufer v. Carson, 230 N.W.2d 500, 503 (Iowa 1975).
“Reformation may sometimes be appropriate to correct a mistake in a deed.”
Kendall v. Lowther, 356 N.W.2d 181, 187 (Iowa 1984). The party seeking
reformation must show “the deed does not reflect the true intent of the parties,
either because of fraud or duress, mutual mistake of fact, mistake of law, or
mistake of one party and fraud or inequitable conduct on the part of the other.” Id.“Ultimately equity will grant relief if an instrument as written fails to express the true
agreement between the parties without regard to the cause of the failure to express
the agreement as actually made, whether it is due to fraud, mistake in the use of
language, or anything else which prevented the instrument from expressing the
true intention of the parties.” Kufer, 230 N.W.2d at 504.
In rejecting WMG’s request for reformation, the district court reasoned
While the court questions the merit of WMG’s contention that
the corporate resolution authorizing the terms of the land distribution
approved by a three-to-one vote, with Joseph voting against the
resolution, constitutes a binding and enforceable agreement
between WMG and its members, assuming arguendo that is true,
WMG has failed to come forward with any evidence to meet its
burden of showing a merger of that agreement into the terms of the
deed was not intended. Lovlie v. Plumb, 250 N.W.2d 56, 62 (Iowa
1977).
The district court further found the resolution language providing the distributions
were “subject to existing liens for real estate taxes and special assessments”—
which undergirds WMG’s reformation argument—“merged into the warranty deed
later executed by Michael and provided to Joseph to complete the transfer.”
Under the doctrine of merger, the terms for the conveyance of real estate,
absent a showing to the contrary, are “deemed to have merged in a subsequent
7
deed.” Lovlie, 250 N.W.2d at 62 (concluding, in appeal involving reverter clause
in quitclaim deed, that record disclosed no exception to merger rule). In matters
of conflict between them, “the deed speaks and the contract is silent” with notable
exceptions. Huxford v. Trustees, 185 N.W. 72, 74 (Iowa 1921). Proper relief for
those exceptions, including a mutual mistake of a material fact in a written
instrument, is “reformation of the instrument to reflect the true intent of the
contracting parties.” See Wilden Clinic, Inc. v. City of Des Moines, 229 N.W.2d
286, 289 (Iowa 1975). Significantly, in Lovlie, the party resisting merger of the
contract into the deed did not plead mutual mistake or seek reformation as WMG
does. 250 N.W.2d at 62. To make this showing to the contrary, WMG offered
relevant passages from the company’s articles of organization, meeting minutes,
and affidavits from siblings Michael and Jeanne.6
On appeal, WMG contends the district court ignored this “showing to the
contrary,” which could overcome the presumption of merger. See Phelan v.
Peeters, 152 N.W.2d 601, 602 (Iowa 1967) (reiterating “broad rule is that a contract
to convey land presumptively becomes merged in the subsequent deed executed
in performance thereof” while recognizing merger rule “has many qualifications”).
As a qualification, WMG points to Iowa Code chapter 489, which governs the
siblings’ limited liability company. Further, WMG characterizes its operating
agreement as the contract underlying the property distribution to the members.
See Iowa Code § 489.102(15).
6
In her affidavit, Jeanne states it was the intent of WMG to distribute the land to the
members subject to real estate taxes as special assessments.
8
Per that operating agreement, WMG provided all members, including
Joseph, notice of the proposed property distribution by company resolution.
Joseph and his lawyer participated in the February 2015 meeting and knew the
resolution’s terms. Until that meeting, Joseph served as a manager for WMG,
bearing responsibility for “the business, operations and affairs” of the company,
presumably including payment of taxes and special assessments. WMG urges a
reasonable fact finder could infer from the structure of the family’s corporation and
circumstances of the transfer that the true intent of the parties was not reflected in
the language of the deed. Countering WMG’s argument, Joseph contends the
resolution was not a contract between him and WMG because he “voted against
it” and did not consent to the distribution of the land to any of its members.
In assessing whether Joseph was entitled to judgment as a matter of law,
we struggle to shoehorn this fact pattern into the usual merger scenario where “a
deed is accepted, in compliance with the terms of a contract for the sale of real
estate,” and the contract merges into the deed. See Dickerson v. Morse, 212 N.W.
933, 934 (Iowa 1927). Here, the parties did not negotiate or enter a land-sale
contract, rather the conveyance came after a majority vote of the limited liability
company. Assuming the merger doctrine applies in the absence of a traditional
contract of sale, we find WMG met its burden to show the existence of a fact
question as to the intent of the parties and whether the language in the deed should
be reformed based on a mutual mistake. Specifically, WMG proffered exhibits
indicating Joseph—as a member of WMG—was bound by the majority vote on the
distribution resolution regardless of his dissenting position. A factfinder could
discern from the discussion at the special meeting and the language of the
9
resolution that the farmland conveyances were subject to existing liens. The
record shows Joseph accepted the real estate and voluntarily paid the property
taxes and drainage assessments before filing suit.
Joseph’s situation is akin to the scenario in Roberts Equipment Division,
Inc. v. Silver Lake Farms, Corp., No. 12-0490, 2012 WL 5356126 (Iowa Ct. App.
Oct. 31, 2012). There, a panel of our court upheld the district court’s reformation
of a deed because plaintiff Roberts “understood at the auction the boundary was
the crop line and not the quarter-section line, bid on the property, and bought it
knowing where the boundary was.” 2012 WL 5356126, at *4. By analogy, WMG
asserts Joseph understood from the special meeting that the distributions were
subject to existing liens and accepted the warranty deed knowing any information
to the contrary was inaccurate.
WMG is entitled to show Joseph acquiesced in the distribution of the
property subject to the liens, and the omission of those encumbrances from the
warranty deed as drafted by WMG’s counsel did not reflect the intent of the
members of the limited liability company. As WMG argued in the district court:
“Not only does the resolution itself support reformation, all persons attending the
February 25, 2017, meeting would be potential witness[es] supporting reformation
of the deed to conform to the February 25, 2017, resolution.” It was not the role of
the district court on summary judgment to resolve disputes of fact and determine
whether WMG proved its case for reformation but rather to identify whether a
genuine issue of material fact exists. See Nationwide Agribusiness Ins. Co. v. PGI
Intern., 882 N.W.2d at 522.
10
The record reveals a genuine issue of material fact regarding the intent of
the members when distributing the property of the family’s limited liability company.
The district court erred when it granted Joseph’s motion for summary judgment.7
We reverse the district court’s ruling and remand for further proceedings consistent
with this opinion. See id. at 523 (reversing summary judgment on reformation
issue because appellant identified genuine issue of fact regarding the agreement
and intent of the parties).
REVERSED AND REMANDED.
7
WMG did not file a cross motion for summary judgment. Accordingly, we are not faced
with the question whether it is entitled to a reformation as matter of law.