Himrich v. Carpenter

KEAN, Circuit Judge.

PROCEDURAL HISTORY/FACTUAL BACKGROUND

[¶ 1.] In 1994 the South Dakota Supreme Court held that a lease-purchase agreement between the City of Custer (City) and Homes, Inc., which included the Custer City Attorney, Gerald Baldwin (Baldwin), as one of the principles, was null and void as viola-tive of public policy under SDCL 6-1-1. Speckels v. Baldwin, 512 N.W.2d 171 (S.D.1994). Subsequent to that decision, Baldwin and E.A. Himrich (Himrieh) instituted a legal negligence lawsuit against Edward C. Carpenter (Carpenter) 'and his legal partnership. Carpenter had represented Baldwin and Himrich at the trial court level and in the South Dakota Supreme Court in their unsuccessful attempt to defend the lawsuit brought by Jerome Speckels. The decision required Himrich and Baldwin to repay City the monthly rental payment which City had been making to them since September 1986, the date the revenue bonds were retired. For further details of that transaction see Speckels, 512 N.W.2d at 173-74.

[¶ 2.] The basis for Baldwin and Him-rich’s claim for legal negligence lies in three separate areas. These are as follows:

(1) The failure of Carpenter to preserve on appeal the statute of limitations defense found at SDCL 6-1-4.

(2) The failure of Carpenter to assert a cross-claim in the prior litigation against City.

(3) The failure of Carpenter to assert as an affirmative defense in the prior litigation the curative legislation of SDCL 9-27-35.

[¶ 3.] The first point arose when Carpenter filed an answer for Himrich and Baldwin and asserted the affirmative defense of the statute of limitations. The trial court held that SDCL 6-1-1 did not apply and there was no reason to apply SDCL 6-1-4, the section dealing with the statute of limitation. The trial court also ruled that if SDCL 6-1-1 did apply, SDCL 6-1-4 would also apply. When Speckels did not prevail in the prior litigation, he appealed. Carpenter wrote Himrich and Baldwin and suggested that a notice of review be filed on the statute of limitations matter. Baldwin responded and told Carpenter to proceed, but Carpenter did not file a notice of review on that point. This was noted in Speckels, 512 N.W.2d at 176: “City and Home failed to file a notice of review pursuant to SDCL 15-26A-22, thus precluding it from being raised on appeal.”

[¶ 4.] The next point deals with the claim of the failure to assert a cross-claim against City in its initial answer. Baldwin and Him-rich attempted to file a cross-claim against City after the remand of the original proceeding. They concede that the failure to file the cross-claim in the initial lawsuit effectively precludes them from doing so now. However, they claim that Carpenter’s failure to assert the original cross-claim is legal negligence.

[¶ 5.] The final point deals with the curative legislation found at SDCL 9-27-35. Baldwin and Himrieh claim SDCL 9-27-35 is clear and constitutional and validates the lease purchase agreement as a conveyance of the nursing home because it was made prior to January 1, 1992, the date set forth in this statute. They also claim that SDCL 9-27-35 makes a void act a valid one and operates to cure any irregularities or defects in the conveyance of the real estate such as the real estate at issue in this case.

[¶ 6.] Carpenter moved for summary judgment and it was granted. This appeal followed.

ISSUE

[¶ 7.] There is a single issue on appeal.

[¶ 8.] I. Did the trial court err in granting summary judgment to Carpenter, considering that SDCL 6-l^t, 9-27-35, and 15-2-8(4) and cross-claims against City were not asserted as affirmative defenses in the underlying cause of action or raised on the prior appeal?

[¶ 9.] We hold that summary judgment was proper.

ANALYSIS

[¶ 10.] The standard of review for summary judgment is well established.

In reviewing a grant ... of summary judgment under SDCL 15 — 6—56(e), we must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. The nonmoving party, however, must present specific facts showing that a genuine, material issue for trial exists. Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied. If there exists any basis which supports the ruling of the trial court, affirmance of summary judgment is proper.

Mack v. Kranz Farms, Inc., 548 N.W.2d 812, 813-14 (S.D.1996).

[¶ 11.] In order to demonstrate a valid legal malpractice claim, Himrich and Baldwin must prove:

(1) the existence of an attorney-client relationship giving rise to a duty;

(2) that the attorney, either by an act or failure to act, violated or breached that duty;

(3) that the attorney’s breach of duty proximiately caused injury to the client; and

(4) that the client sustained actual injury, loss or damage.

Haberer v. Rice, 511 N.W.2d 279, 284 (S.D.1994). In seeking to overturn a summary judgment against them, Himrich and Baldwin must produce evidence that but for the negligence of their attorney, their cause of action or defense against a claim in the underlying action would have been successful. Id. See Weiss v. Van Norman, 1997 SD 40, 562 N.W.2d 113. This evidence must be set forth by affidavit or other evidence of specific facts, and cannot rely on mere allegation. Weiszhaar Farms v. Live Stock State Bank, 467 N.W.2d 752, 754 (S.D.1991); Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 2137, 119 L.Ed.2d 351, 365 (1992). In this case, Himrich and Baldwin failed to prove that but for Carpenter’s failure to raise the defenses of statute of limitations and SDCL 9-27-35, and to make certain cross-claims, the South Dakota Supreme Court would have ruled in their favor.

I. Contract in Violation of Public Policy

[¶ 12.] The contract between City and Homes, Iric. clearly violates South Dakota public policy. SDCL 6-1-1 plainly indicates that a contract between a municipality and one of its officers is in direct conflict with the'fundamental rule against self-dealing. “Public policy requires that local government officials cannot be permitted to place themselves in a position in which personal interest may conflict with public duty.” Speckels, 512 N.W.2d at 175-76 (citing Sciuto v. City of Lawrence, 389 Mass. 939, 452 N.E.2d 1148 (1983); Josephson v. Planning Board, 151 Conn. 489, 199 A.2d 690 (1964)). That an attorney was involved as a municipal officer, further extends this duty.

[¶ 13.] “The relationship between attorney and client is highly fiduciary. It consists of a very delicate, exacting and confidential character. It requires the' highest degree of fidelity and good faith. It is a purely personal relationship, involving the highest personal trust and confidence.” Rosebud Sioux Tribe v. Strain, 432 N.W.2d 259, 264 (S.D.1988) (citing 7 AmJur2d Attorneys at Law §' 119). By virtue of his fiduciary duties to his client, an attorney is forbidden from using his official position for private gain. Speckels, 512 N.W.2d at 176. Baldwin and Himrich blatantly ignored their fiduciary duties to City; they should have made a choice between public service and private gain. By choosing both, they acted for self-profit, rather than for the benefit of their client.

[¶ 14.] The allegation that City and its residents were not harmed but rather profited because of the illegal contract is completely irrelevant. Norbeck and Nicholson Co. v. State, 32 S.D. 189, 142 N.W. 847 (1913). In addition to the pecuniary interests of the public, civic honesty and morality are protected under the doctrine of public policy. Ritter v. Mutual Life Ins. Co., 169 U.S. 139, 158-59, 18 S.Ct. 300, 306, 42 L.Ed. 693, 699 (1898); Bartron v. Codington County, 68 S.D. 309, 2 N.W.2d 337, 348 (1942). Equity and natural justice invalidate contracts which, by their nature, tend to “weaken public confidence in the integrity of the public service.” Carlson v. City of Faith, 75 S.D. 432, 434, 67 N.W.2d 149, 151 (1954); Dodaro v. Commonwealth, State Ethics Comm’n, 527 Pa. 539, 594 A.2d 652, 653-54 (1991); Katz v. Brandon, 156 Conn. 521, 245 A.2d 579, 587 (1968).

II. SDCL 9-27-35 Not a Valid Defense

[¶ 15.] Public policy dictates that Himrich and Baldwin would not have been successful under SDCL 9-27-35. See, Minneapolis, St. Paul P., R. & D. Electric Traction Co. v. City of Minneapolis, 124 Minn. 351, 145 N.W. 609, 611 (1914). A validation statute is defined as, “[a] statute, purpose of which is to cure past errors and omissions and thus make valid what was invalid.... ” Black’s Law Dictionary 1550 (6th ed 1990). SDCL 9-27-35 purports to cure and validate conveyances of real property by municipalities made prior to 1992. However, under SDCL 6-1-1, the contract was null and void from the date of its making. In applying statutes comparable to SDCL 6-1-1, courts have held, “[Contracts such as here involved are wholly void for all purposes as to everybody whose rights would be affected by them if valid, and such contracts require ‘no disaffirmance to avoid’ them; they ‘cannot be validated by ratification’; and they are not ‘susceptible of validation.’ ” Arthur v. Trindel, 168 Neb. 429, 96 N.W.2d 208, 214 (1959); Kellogg v. Howes, 81 Cal. 170, 22 P. 509 (1889); 17A AmJur2d Contracts § 7 (1991).

[¶ 16.] In addition, the curative abilities of SDCL 9-27-35 extend only to procedural omissions and defects. The statute states, in pertinent part:

All instruments of conveyance of real property made by any municipal corporation prior to January 1, 1992 are notwithstanding any omission, irregularities, defects in the proceedings and resolutions had and taken by said municipal corporation to sell and convey the same; hereby validated, legalized, and cured....

SDCL 9-27-35 (emphasis added). Curative or validating statutes cannot be applied to illegal contracts. The legislature cannot seek to cure or validate that which it cannot originally authorize. Otter Tail Power Co. v. City of Colman, 80 S.D. 218, 121 N.W.2d 483, 485-86 (1963); Cook v. Hannah, 230 Iowa 249, 297 N.W. 262, 267 (1941); Chemical Bank & Trust Co. v. Oakland County, 264 Mich. 673, 251 N.W. 395, 398 (1933). Therefore, Himrich and Baldwin would not have been successful even if SDCL 9-27-35 had been properly raised as an affirmative defense.

III. Statute of Limitations Defenses Not Applicable

[¶ 17.] Himrich and Baldwin allege that SDCL 6-1-4 would have offered protection from possible liability had it been asserted. However, the statute of limitations defense under SDCL 6-1-4 is limited and will not apply “where any fraud or deceit was used in securing or performing such contract.” SDCL 6-1-4. Himrich and Baldwin’s unlawful actions have clearly been ruled deceitful and improper. Baldwin’s conduct in assuming the duties of Custer City Attorney while purposefully neglecting being sworn in as such, is manifest evidence of deceitful intent. “These dealings cannot be condoned by this court.” Speckels, 512 N.W.2d at 176. It is evident that Himrich and Baldwin were fully aware of the direct conflict present in the contract between Homes, Inc., and City, yet persisted in carrying out these illegal acts. “We scrutinize these facts with great care and condemn those actions which indicate corruption or favoritism in public office.” Id. at 175. The application of SDCL 6-1-4 is thus precluded by the underlying deceit, fraud and illegal acts perpetrated by Himrich and Baldwin.

[¶ 18.] SDCL 15-2-8(4) is offered as another possible statute of limitations defense. However, no evidence was presented to indicate that this statute would have applied in the underlying action. Further, it is disputable whether the application of SDCL 15-2-8(4) would have yielded a different result had it been pled. Himrich and Baldwin have not met their burden of proving this point. When challenging a summary judgment, the nonmoving party “must substantiate his allegations with ‘sufficient probative evidence [that] would permit a finding in [his] favor on more than mere speculation, conjecture, or fantasy.’ ” Moody v. St. Charles County, 28 F.3d 1410, 1412 (8th Cir. 1994) (citing Gregory v. Rogers, 974 F.2d 1006, 1010 (8th Cir.1992)). Therefore, Himrich and Baldwin’s reliance on SDCL 15-2-8(4) is not effective to protect them from liability.

TV. Failure to Assert Cross-Claims Not Material to Outcome of Case

[¶ 19.] Himrich and Baldwin assert that Carpenter should have filed cross-claims regarding title and ownership of the nursing home property, separate and distinct from those filed by City. Further, they argue that the equitable doctrine of unjust enrichment would have offered protection had it been asserted in the original answer. This Court refuses to find that such cross-claims would have been beneficial to Himrich and Baldwin’s case in any manner. Speckels, 512 N.W.2d at 176.

[¶ 20.] A cross-claim demanding that title to the nursing home property be retained by Baldwin and Himrich would not have been successful. Under SDCL 6-1-1, the lease-purchase contract was prohibited as improper and illegal and was thus null and void from the beginning. Speckels, 512 N.W.2d at 175. Nevertheless, the avoidance of this contract does not transfer legal title in the property back to Baldwin and Himrich because the transfer of title from Custer Manor to Homes, Inc., was in violation of South Dakota law. As noted by this Court in Speckels, “SDCL 47-26-30 does not permit a nonprofit organization to dispose of its assets to a corporation organized for profit.” Id. at 176.

[¶ 21.] The doctrine of unjust enrichment safeguards against the enrichment of one party at the expense of another party. A.G. Edwards & Sons v. Northwest Realty Co., 340 N.W.2d 187, 189 (S.D.1983). To prevent unjust enrichment, courts have assumed the duty placing the obligation where in equity it belongs. Sheehan v. Morris Irrigation, Inc., 460 N.W.2d 413 (S.D.1990); Dean v. Michigan Dept. of Natural Resources, 399 Mich. 84, 247 N.W.2d 876 (1976). “When parties seek equity in the court, they must do equity, which includes entering the court with clean hands. A [party] who does not come into equity with clean hands is not entitled to any relief herein, but should be left in the position in which the court finds him.” Shedd v. Lamb, 553 N.W.2d 241, 245 (S.D.1996) (quoting Kane v. Schnitzler, 376 N.W.2d 337, 339 (S.D.1985)).

[¶ 22.] In this case, Himrich and Baldwin are not entitled to seek the equitable defense of unjust enrichment. The maxim that “he who comes into equity must come with clean hands,” is most often utilized “where granting affirmative equitable relief would run contrary to public policy or lend the court’s aid to fraudulent, illegal or unconscionable conduct.” Myers v. Smith, 208 N.W.2d 919, 921 (Iowa 1973). Himrich and Baldwin engaged in a purposeful violation of their fiduciary duties as public officers when they entered into a contract with City for personal gain. We refuse to condone such conduct and deny equitable relief for those who choose to engage in it. Therefore, this cross-claim would have failed in the underlying action.

[¶ 23.] The trial court did not err in granting Carpenter’s motion for summary judgment.

[¶ 24.] Affirmed.

[¶ 25.] SABERS and GILBERTSON, JJ., concur. [¶ 26.] AMUNDSON, J., and MARTIN, Circuit Judge, concur in part and dissent in part. [¶ 27.] KEAN, Circuit Judge, for MILLER, C.J., disqualified. [¶ 28.] MARTIN, Circuit Judge, for KO-NENKAMP, J., disqualified.