Farmer v. Farmer

#28721-a-PJD
2020 S.D. 46IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
JAMES W. FARMER, Plaintiff and Appellant,
v.
LORI A. FARMER, N/K/A
LORI A. LIEBERMAN, Defendant and Appellee.
****
APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA
****
THE HONORABLE HEIDI LINNGREN
Judge
****
JAY C. SHULTZ
Rapid City, South Dakota Attorney for plaintiff
and appellant.
PATRICIA A. MEYERS
Rapid City, South Dakota Attorney for defendant
and appellee.
****
CONSIDERED ON BRIEFS
JANUARY 13, 2020
OPINION FILED 08/12/20
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DEVANEY, Justice
[¶1.] In 2016, Lori Farmer filed a motion in circuit court for an order to
show cause why James Farmer should not be held in contempt for his failure to
follow the terms and conditions of the parties’ property settlement agreement,
which was incorporated within their 2014 judgment and decree of divorce. The
court held an initial evidentiary hearing on the motion on October 27, 2016 and
held numerous hearings thereafter related to continued disputes between the
parties. The court held a final evidentiary hearing in January 2018, and in August
2018, issued a judgment and order holding James in contempt and finding that he
owes Lori $331,184.81. To satisfy this debt and purge himself of contempt, the
court ordered that James convey to Lori his membership interests in certain entities
and his ownership interest in certain properties. The court also ordered that James
pay Lori’s attorney fees. James appeals, and we affirm.
Factual and Procedural Background
[¶2.] James and Lori married in 1984 and divorced in January 2014.
During their marriage, the couple had purchased a significant amount of
undeveloped land in the Black Hills and formed multiple legal entities to develop
and sell the land. The companies included: Red Canyon Rim Company (RCRC), The
Rim, LLC (The Rim), Lakota Lake Camp, LLC (Lakota Lake), and Iron Mountain
Trading Company, LLC (IMTC). In his individual capacity, James formed a land
management company—Red Canyon Company (RCC)—to provide marketing and
property management services to the above companies. James and Lori also built a
cabin on 60 acres of land (cabin property) and used Lori’s Equity Institutional
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simplified employee pension plan to acquire an additional 40-acre parcel (Equity 40-
acre parcel).
[¶3.] At the time of the divorce, James and Lori had not yet sold all the land
owned by their companies, but they desired to continue their plan to sell the
properties and share equally in the proceeds of future sales. The parties executed a
“stipulation for property settlement agreement” (Agreement) in January 2014
governing the division, management, and sale of their remaining properties. The
Agreement also defined how the parties’ debts were to be paid or divided. The
circuit court incorporated the Agreement into the judgment and decree of divorce.
[¶4.] In July 2016, Lori filed a motion to enforce the judgment and decree of
divorce and requested an order to show cause why James should not be held in
contempt. Lori asserted, among other things, that James violated the terms of the
Agreement as follows: (1) by not first paying their joint debt with the proceeds of
land sales prior to paying other expenses or making any distributions; (2) by
diluting Lori’s membership interest in Lakota Lake through a “cash call” and not
equally dividing the distributions from Lakota Lake land sale proceeds; (3) by
exceeding the agreed cap on expense limits; and (4) by overpaying his management
fees. Lori further alleged that James refused to give her access to the companies’
financial records. She requested that the court order an accounting and require
James to turn over monthly bookkeeping to an accounting firm.
[¶5.] The circuit court held an evidentiary hearing on the contempt motion
on October 27, 2016 and after considering the parties’ post-hearing briefs, the court
entered findings of fact and conclusions of law on May 1, 2017. The court’s findings
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identified the properties remaining at the time of the hearing, which included the
cabin property, the Equity 40-acre parcel, 10 acres owned by RCRC, 2 tracts owned
by Lakota Lake, and 1 parcel owned by IMTC. The court also noted several debts
related to the land and cabin for which the parties were personally liable. The court
then identified the specific terms of the parties’ Agreement that James had violated,
found that he had the ability to comply with its terms, and found that his violations
were willful and contumacious.
[¶6.] In its May 2017 ruling, the court ordered James to give Lori equal
access to the cabin and pay Lori $60,678 as her equal distribution of the proceeds
from the sale of a Lakota Lake tract within 90 days of the entry of the court’s order.
The court further ordered James to refrain from selling or disposing of property in
violation of the Agreement and to provide information to an accounting firm for the
purpose of determining the amount of increased expense caused by James’s
management of the companies.
[¶7.] Over the next several months, the parties returned to court frequently
and usually in response to Lori’s request to require James to comply with the terms
of the Agreement and the court’s orders. For example, the parties returned to court
when James attempted to sell the cabin and tracts owned by Lakota Lake, The Rim,
and IMTC by auction without first obtaining, as required by the Agreement, Lori’s
consent as to sale price, details, and timing of the sale. While the court allowed
James to attempt to sell the Lakota Lake tracts and the IMTC parcel at auction, it
ordered the parties to mediate their remaining disputes.
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[¶8.] After mediation failed and the auction did not occur, the court held
multiple additional hearings on motions filed by Lori related to James’s continuing
actions in violation of the court’s orders. As a result of these hearings, the parties
agreed to the entry of a restraining order freezing the cabin account as well as the
accounts for Lakota Lake, RCRC, and IMTC and prohibiting the “transfers or
transactions . . . without the written consent of the other party[.]” James also
agreed that the cabin could be listed for sale and that he would produce or release
account information related to the intercompany transfers, including information
related to his management company, RCC. Finally, the parties agreed to a further
evidentiary hearing to resolve the pending contempt order and the division of the
remaining land assets. The court entered a written order on October 11, nunc pro
tunc September 15, 2017, reflective of its oral rulings during the August 3,
September 5, and September 15 hearings.
[¶9.] On October 10, 2017, James’s counsel obtained permission to
withdraw, asserting that James had failed to abide by the attorney fee agreement
and that “the attorney client relationship has deteriorated to the point where
[counsel] can no longer effectively represent [James].” James ultimately hired new
counsel, and the parties scheduled a two-day evidentiary hearing in November 2017
on the contempt issue and division of property. Prior to the evidentiary hearing,
Lori submitted proposed findings of fact and conclusions of law, and James
submitted a written response in which he proposed a specific division of the
remaining real estate, including the real estate owned by the various legal entities.
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[¶10.] The evidentiary hearing was rescheduled and held in January 2018.
There is no transcript in the record from this three-day hearing. However, it is
apparent from the exhibits in the record that Lori presented expert testimony on
the valuation of the remaining land assets and property. The record also contains
an exhibit offered by James at the hearing relating a proposed division of the
remaining land assets. 1 This exhibit contains a series of emails in October and
November 2017 between James and First Western Bank in which James explained
to his banker that he and Lori had been in court for over a year “in an attempt to
settle all remaining issues” and that their focus was “on splitting [their] properties
such that [they] each have 100% ownership for half of the remaining land assets.”
James also indicated that if the parties could not come to their own agreement, the
court would “make the split” of the land assets for the parties.
[¶11.] Following the January 2018 hearing, Lori submitted proposed findings
of fact and conclusions of law, including a division of “the real property that
remains.” James also submitted proposed findings and conclusions, but he did not
include a specific division of property or object to Lori’s proposed property division.
1. The exhibit admitted at this hearing differs from James’s proposed division
related in his pretrial submissions. In that proposal, James indicated that he
would “accept” cash for one-half of his interest in the cabin property and
accept two 10-acre lots at The Rim, and two tracts owned by Lakota Lake,
whereas his hearing exhibit proposed that Lori would receive the cabin
property and the Equity 40-acre parcel, and James would receive two 10-acre
lots held by The Rim, the two tracts remaining in Lakota Lake, and one lot in
the Canyon Rim Ranch development. James further proposed that he would
pay Lori $60,000 “to bridge the difference between [his and Lori’s] property
allocation values.”
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[¶12.] On April 19, 2018, the circuit court issued findings of fact and
conclusions of law to which James objected, arguing for the first time (and contrary
to his pretrial request that the court divide the property) that the court was without
authority to divide assets owned by other legal entities. In response, Lori filed a
motion for the appointment of a receiver to take possession of the membership
interests owned by James in Lakota Lake and IMTC and “take the actions
necessary to liquidate and distribute [James’s] membership interest in those
entities in satisfaction of the Judgment owed to [Lori].” James objected to the
appointment of a receiver.
[¶13.] Lori also filed a proposed judgment dividing the remaining land assets
consistent with the court’s findings and conclusions. James objected, arguing that
Lori’s proposed judgment violated the prohibition against modifying a division of
property in a divorce decree. He also argued that the court did not have jurisdiction
or authority to order him to execute and deliver documents that directly or
indirectly transferred title to real property owned by LLCs that are not a party to
the divorce action. James further asserted (for the first time) that the LLCs are
indispensable parties who must be joined in these proceedings in order to transfer
such property. In his view, Lori’s only remedy in this case would be a money
judgment with the right to execute upon the judgment “just like any other judgment
creditor.”
[¶14.] On July 18, 2018, the court issued amended findings and conclusions.
These amendments included additional conclusions that appear to address some of
James’s objections. The court noted that the parties had created the other legal
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entities for the purpose of transferring property and minimizing tax liability. The
court also noted that the parties did not designate specific ownership of any
particular property in the Agreement; rather they agreed “to sell these properties
and divide the proceeds equitably.” The court explained that its division of property
was a way for James to purge himself of contempt in accord with the “spirit of the
equitable division of property” as contemplated in the Agreement.
[¶15.] In regard to the remaining real estate owned by the parties or held by
the various legal entities, the circuit court adopted the expert testimony offered by
Lori to arrive at a total value of $1,123,150. After deducting the $253,000 mortgage
on the cabin property, the court arrived at a net total value of the properties of
$870,150 with an equal division of $435,075 in value for each party. However, the
court reduced James’s equal share of the remaining marital assets by $331,184.81,
the amount he owed Lori because of his contemptuous acts. The court also granted
Lori’s request for reimbursement of attorney fees and costs, finding that James’s
conduct substantially increased the amount of time the parties had to appear in
court.
[¶16.] The court entered a separate judgment and order on August 8, 2018
holding James in contempt for violating not only the judgment and decree of
divorce, but also the court’s multiple orders and directives issued during the
contempt proceedings. The court awarded Lori a judgment against James for
“$331,184.81 as a result of his willful and contumacious disobedience of the Orders”
and ordered James to satisfy this obligation “by transferring” to Lori “certain
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ownership interests in entities owned by [James] and additional real estate
interests” as delineated in the order.
[¶17.] After the court issued its judgment and order, James requested an
order setting conditions of bond on appeal and a stay pending appeal. The court
denied the conditions of bond proposed by James, and instead required that he post
a supersedeas bond representing the interest on the judgment in the amount of
$101,501.20. The court further ordered James’s counsel to deposit the documents
transferring the properties, as ordered in the court’s judgment, with the Pennington
County Clerk of Court pending appeal if the bond was posted by September 10,
2018; however, if the bond was not posted by that date, James’s counsel was ordered
to deliver the transfer documents to Lori’s counsel. 2
[¶18.] On September 7, 2018, James filed an objection to the circuit court’s
bond order. On the same day, he also filed a notice of appeal from the circuit court’s
August 8, 2018 judgment and order holding him in contempt. In this appeal, James
presents multiple issues for our review, which we restate as follows:
1. Whether the circuit court erred in holding James in
contempt.
2. Whether the circuit court’s judgment and order of contempt
improperly modified the parties’ property settlement
agreement.
3. Whether the circuit court erred in awarding Lori attorney
fees and costs.
4. Whether the circuit court erred in setting the conditions of
bond pending appeal.
2. Although the record reflects that the court held two hearings on James’s
motion, the appeal record does not contain transcripts of those proceedings.
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Standard of Review
[¶19.] A circuit court’s findings of fact will not be set aside unless clearly
erroneous. Keller v. Keller, 2003 S.D. 36, ¶ 8, 660 N.W.2d 619, 622 (per curiam).
When considering a court’s order of contempt, “[t]he appropriate remedy or
punishment for contempt of court lies within the sound discretion of the trial court”
and is therefore reviewed for an abuse of discretion. Id. However, we review a
court’s conclusions of law de novo. Harsken v. Peska, 2001 S.D. 75, ¶ 9, 630 N.W.2d
98, 101.
Analysis and Decision
1. Whether the circuit court erred in holding James in
contempt.
[¶20.] The court entered a judgment and order of contempt on August 8,
2018, based on James’s violation of the following: the January 27, 2014 judgment
and decree of divorce; the May 1, 2017 findings of fact and conclusions of law; the
June 1, 2017 order requiring both parties to cooperate with the accounting ordered
by the court; and the October 11, 2017 order restraining further expenditures.
James does not challenge any particular finding of fact entered in support of the
August 2018 contempt order or the court’s determination that he owes Lori
$331,184.81 as a result of his contemptuous actions. 3 Nor does James dispute his
3. James did not order a transcript of the 2018 evidentiary hearing. It is well
settled that “[w]here the record contains no transcript, the record on appeal is
confined to those pleadings and papers transmitted from the circuit court[,]”
and “our presumption is that the circuit court acted properly.” Graff v.
Children’s Care Hosp. and Sch., 2020 S.D. 26, ¶ 16, 943 N.W.2d 484, 489
(quoting Baltodano v. N. Cent. Health Servs., Inc., 508 N.W.2d 892, 894–95
(S.D. 1993)).
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knowledge of the court’s orders, his ability to comply, or his willful and
contumacious disobedience. Rather, on appeal, James advances the narrow issue
that the court’s contempt finding is invalid to the extent that it relies on the court’s
May 2017 findings of fact and conclusions of law.
[¶21.] “The required elements for a finding of civil contempt are (1) the
existence of an order; (2) knowledge of the order; (3) ability to comply with the
order; and (4) willful or contumacious disobedience of the order.” Keller, 2003 S.D.
36, ¶ 9, 660 N.W.2d at 622 (quoting Harsken, 2001 S.D. 75, ¶ 12, 630 N.W.2d at
101). We have often stated that “[t]o form the basis for a subsequent finding of
contempt, an order must state the details of compliance in such clear, specific and
unambiguous terms that the person to whom it is directed will know exactly what
duties or obligations are imposed upon [the person].” Taylor v. Taylor, 2019 S.D.
27, ¶ 39, 928 N.W.2d 458, 471 (quoting Keller, 2003 S.D. 36, ¶ 10, 660 N.W.2d at
622).
[¶22.] Here, after a hearing on Lori’s July 2016 motion for an order to show
cause, the circuit court entered detailed findings of fact and conclusions of law
regarding James’s violations of several provisions in the Agreement. For example,
James distributed $114,202 to himself and made a distribution of approximately
$2,000 to his management company, RCC, from the sale proceeds of a Lakota Lake
property, rather than first satisfying existing debts. He also exceeded the annual
expense caps for managing the properties and paid for his management fees with
sources other than the proceeds from land sales. To remedy these violations, the
court set forth several directives in its conclusions of law. The court directed James
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to pay Lori her equal distribution of $60,678 from the proceeds of a Lakota Lake
property sale “within 90 days of the date of the entry of this Order.” (Emphasis
added.) The court further required James to provide information to the various
companies’ accounting firm, to “make all financial information accessible to Lori
upon request and immediately after the request is made,” and to allow Lori equal
access to the parties’ cabin. Finally, the court directed that “[n]either party has a
right to encumber, sell or dispose of [the assets owned by Lakota Lake and RCRC]
except as set forth in the Stipulation and Agreement in this action.”
[¶23.] James does not dispute that the circuit court’s May 2017 directives
were clear, specific, and unambiguous or that he was aware of them. His formulaic
argument that that the court’s findings of fact and conclusions of law cannot serve
as an “order” for the purpose of contempt is unconvincing. Even though the court
did not file a separate document captioned as an “Order” or include the term
“Order” in the caption of its May 2017 findings and conclusions, SDCL 15-6-58
provides that an order becomes “effective when reduced to writing, signed by a court
or judge, attested by the clerk and filed in the clerk’s office.” There is no question
that the circuit court’s May 2017 findings of fact and conclusions of law were
reduced to writing, signed by the judge, attested by the clerk, and filed, and it is
apparent that the court expected James to comply with these mandates.
[¶24.] More importantly, James’s argument challenging the basis for the
court’s finding that he ignored orders of the court disregards the breadth of the
court’s ultimate ruling. The court not only found James in violation of the May
2017 directives, but also found that he violated the parties’ initial Agreement
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incorporated in their divorce decree and the court’s additional detailed orders
entered between May 2017 and August 2018. 4 Because the record reflects that
James was fully aware of these multiple orders, we affirm the circuit court’s
decision to hold him in contempt.
2. Whether the circuit court’s judgment and order of contempt
improperly modified the parties’ property settlement agreement.
[¶25.] James advances multiple arguments in support of his claim that the
circuit court improperly modified the parties’ Agreement in its judgment and order
following the contempt proceedings. He contends that the court improperly
readjudicated the parties’ property rights under the Agreement to punish him for
his contemptuous acts. He further claims that the circuit court had no legal basis to
order him to convey title to real property owned by the various limited liability
companies in which he held an ownership interest. While James agrees that the
parties’ interests in the legal entities are marital assets, he maintains that the
assets owned by these various legal entities are not, and therefore, Lori’s only
remedy in this case is a money judgment against James that she could then execute
upon James’s distributional interests in the limited liability companies.
[¶26.] Notably, James does not challenge the circuit court’s determination
that he violated the parties’ Agreement or that he owes Lori $331,184.81. Nor does
4. Throughout the contempt proceedings, James continued his pattern of
refusing to give Lori access to financial information and continued to deny
her access to the cabin. James also unilaterally withdrew $17,500 from the
cabin bank account and transferred $4,200 to other company accounts, which
left insufficient funds to pay the mortgage and monthly expenses for the
cabin. In addition, he encumbered Lakota Lake’s assets in violation of the
court’s directives.
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James dispute that the objective of the parties’ Agreement was to allow James to
sell the remaining properties so that the sale proceeds could be divided equally. In
fact, both parties proposed a division of the remaining land assets in their pretrial
submissions and presented evidence at a three-day hearing for the specific purpose
of valuing these assets so the court (at their request) could distribute them in accord
with their Agreement. Nevertheless, James now disputes that he ever agreed to
divide the remaining unsold assets and insists that the court impermissibly
modified the parties’ Agreement.
[¶27.] “The long-standing law of this State is ‘that the division of property
pursuant to a divorce decree is not subject to modification.’” Hiller v. Hiller, 2015
S.D. 58, ¶ 12, 866 N.W.2d 536, 541 (quoting Sjomeling v. Sjomeling, 472 N.W.2d
487, 489 (S.D. 1991)). This is because “[a] property division in a divorce action is
designed to settle with finality the property rights of the parties as of the entry of
judgment, and each party is entitled to their respective property as of that date.”
Sjomeling, 472 N.W.2d at 490. However, “[t]he division of marital property is an
equitable action by the court.” Id. (citing SDCL 25-4-44). Therefore, “as a general
rule, courts retain jurisdiction to make such further orders as are appropriate to
compel compliance with its judgment.” Id.; accord Hiller, 2015 S.D. 58, ¶ 12, 866
N.W.2d at 541 (noting that a court may “enter an order enforcing or clarifying the
divorce decree”). Because of the different manner in which the court addressed each
of the various properties in its contempt order, we analyze each property interest
separately.
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The Cabin Property
[¶28.] The Agreement recognized that at the time of the divorce, James and
Lori “jointly own” the cabin property and that a mortgage exists on the property. As
part of the property settlement, the parties agreed to sell the cabin property, apply
the proceeds to satisfy the mortgage and any expenses of the sale, and then divide
the remaining proceeds equally. The Agreement further provided that in the
interim, James “agrees to continue to manage the cabin including marketing,
leasing and taking care of all maintenance issues to maximize the rental of the
cabin” and that he would receive $500 a month for his management services to be
paid from the proceeds of the cabin rental income.
[¶29.] At the time of Lori’s 2016 motion for an order to show cause, the
parties had not sold the cabin property. The record further reveals that James
repeatedly denied Lori access to the cabin and refused to provide her financial
information relating to his management of the cabin. While the circuit court
attempted, in multiple hearings and orders, to facilitate the terms of the parties’
Agreement with respect to the management and sale of the cabin property, the
corrosive relationship between the parties made that task impossible. The court
therefore entered an order in October 2017 that Lori assume management of the
cabin and that James provide Lori access to all intellectual property and marketing
materials. The court further directed that the cabin be listed for sale. However,
because it had not been sold by the January 2018 evidentiary hearing, the court
valued the equity in the cabin property and divided that value equally between the
parties. The court further ordered that James convey his right, title, and interest in
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the cabin property to Lori and made Lori solely responsible for the mortgage on the
property.
[¶30.] James first contends the circuit court impermissibly modified the
Agreement when the court stripped him of his management duties with respect to
the cabin. On the contrary, nothing in the Agreement guaranteed James an
irrevocable right to manage the property until it sold, particularly if he was not
abiding by the directives in the Agreement or the court’s subsequent orders with
respect to the management and sale of the cabin. More importantly, a right to
manage property is not equivalent to a vested right to hold title to property and is
certainly something over which a court retains the equitable power to modify in a
contempt proceeding where the marital asset at issue is being mismanaged.
[¶31.] James next contends that the court impermissibly modified the
Agreement by awarding sole ownership of the cabin property to Lori. We disagree.
First, the Agreement did not vest title to the cabin property in either party. Second,
rather than valuing the cabin property and awarding it to either party, the
Agreement contemplated that this property would be sold and the parties would
share the proceeds equally. Because the court awarded James half the value of the
cabin property and credited his equal share against his monetary obligation to Lori
arising from his contemptuous conduct, the court’s treatment of this marital
property was in accord with the parties’ Agreement. See, e.g., Hisgen v. Hisgen,
1996 S.D. 122, ¶¶ 9–10, 554 N.W.2d 494, 498 (upholding the circuit court’s
modification of the method by which wife would receive one-half of husband’s gross
annuity payments under the divorce decree).
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Equity 40-acre Parcel
[¶32.] The Agreement identified that Lori owns the Equity Institutional
pension plan and that it holds one 40-acre parcel. Following the January 2018
evidentiary hearing, the court valued this property, divided the value equally, and
ordered James to execute a release and assignment relinquishing his ownership
interest in the property. Similar to the cabin property, the Agreement did not value
this 40-acre parcel or vest title to the parcel in either party. Instead the parties
agreed to sell the land and divide the proceeds equally. Therefore, the court did not
impermissibly modify the Agreement when it valued the unsold parcel, applied
James’s one-half share of the value of this property toward his monetary obligation
to Lori stemming from the court’s contempt finding, and awarded the parcel to Lori.
Red Canyon Rim Company (RCRC)
[¶33.] The Agreement describes that “Red Canyon Rim Company was created
to transfer ownership of the jointly owned land which is now owned by the Rim,
LLC . . . to minimize the tax consequences from the sale of the property.” At the
time of the divorce, this jointly owned land consisted of 230 acres, but by the time of
the January 2018 evidentiary hearing, only one 10-acre lot remained. James owns
80% of the outstanding capital stock of RCRC and is its president and CEO. The
Agreement provides that James “will retain ownership of his interest in the Red
Canyon Rim Company” but “the parties will share equally the assets and liabilities
of Red Canyon Rim Company.”
[¶34.] While the remaining 10-acre lot is an asset of RCRC, the company
carries a liability in the form of a note in favor of James and Lori, initially issued for
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$3,250,000 and secured by a guaranty and mortgage. In the Agreement, James and
Lori agreed to accept “a reduced payment less than the original amount of
$3,250,000” as reflective of “the market sale conditions[.]” A balance sheet for
RCRC, admitted as an exhibit at the January 2018 hearing, listed the December 31,
2016 value of this note at $160,000. After the January 2018 hearing, the court
valued the 10-acre lot to which this note would be attached at $116,000.
[¶35.] Contrary to any suggestion otherwise by James, the circuit court’s
judgment and contempt order did not divest James of his 80% ownership of the
outstanding capital stock of RCRC; nor did the court’s order direct that property
owned by RCRC be transferred to Lori. Instead, the court directed James to assign
to Lori his entire interest in the note RCRC owed to the parties jointly, and James
has not specifically alleged that this constituted an impermissible modification of
the Agreement. Moreover, the court’s contempt order credited James for his equal
share of the value of the RCRC property secured by this note, thus ensuring that
James realized the value of his equal interest in this asset consistent with the
Agreement.
IMTC
[¶36.] The Agreement identified that James and Lori “own 77% of the
membership interest” of IMTC. It further identified that IMTC’s primary asset is a
one-acre parcel of land “which is currently offered for sale[.]” The Agreement
provided that the parties “will continue as equal owners of the 77% until the land is
sold at which time the proceeds will be divided equally.” At the time of the January
2018 evidentiary hearing, the one-acre parcel had not sold, so the court valued the
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parties’ 77% interest in the property at $57,070 and credited James for one-half of
that value. Rather than transferring title to this property held by IMTC to Lori, the
court ordered James to transfer his ownership interest in IMTC to Lori “free and
clear of all liens, claims and encumbrances.” The court further ordered James to
resign as managing member of IMTC.
[¶37.] James argues that the court exceeded its authority in entering these
orders, but we disagree. The parties’ joint ownership interest in IMTC as related in
the Agreement referred to an end date. James and Lori were to continue as joint
owners of the 77% interest “until the land is sold[.]” (Emphasis added.) Notably,
there is no language in the Agreement relating how the parties’ membership
interests in IMTC were to be divided after a sale of the company’s primary asset.
But as the record demonstrates, it became clear that James’s noncompliance with
various provisions in the Agreement warranted a remedy that could only be
accomplished by modifying the method of dividing the marital assets, including this
one.
[¶38.] Under SDCL 25-4-42, “[t]he court may require a spouse to give
reasonable security for providing maintenance, or making any payments required
under the provisions of this chapter, and may enforce the same by the appointment
of a receiver, or by any other remedy applicable to the case.” (Emphasis added.)
Here, the Agreement did not value the parties’ joint interests in IMTC, or any of the
other marital property at issue; nor did it provide an alternative method of dividing
the parties’ joint interests in the event the aforementioned sales did not occur or if
discord between the parties made such sales unlikely. Therefore, the court retained
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the authority to enforce the parties’ stated intention to equally divide their property
given the circumstances that later arose.
[¶39.] In many respects, the equitable power exercised by the court to remedy
James’s contempt and ensure Lori receives that to which she is entitled under the
Agreement is comparable to the circuit court’s acceleration of the debt owed in the
Sjomeling case. See 472 N.W.2d at 490. In Sjomeling, the husband was ordered to
pay the wife a property settlement adjustment in installments pursuant to the
divorce decree. The husband failed to pay the first installment, and the wife filed a
motion for an order to show cause. After a hearing, the court ordered the husband
to make the past-due property settlement payment within sixty days. When the
husband failed to do so, the court accelerated the debt. On appeal, the husband
argued that in doing so, the court impermissibly modified the property settlement.
We disagreed, concluding that the court “in no manner modified the division of the
marital property; it merely modified the method of distribution of the property
settlement adjustment.” Id. (emphasis added). Relying on SDCL 25-4-42, we noted
that the court’s decision to accelerate the debt was “a remedy applicable to the
case.” Id. We further recognized that “[h]ad the debt not been accelerated, [the
wife] may have had to repeatedly petition the court to order [the husband] to comply
with the parties’ agreement.” Id.
[¶40.] So too here, the court did not impermissibly modify the Agreement
when it became clear that James’s noncompliance with various provisions in the
Agreement warranted a modification of the method of distribution of the marital
property. The court, at the parties’ request, accelerated the equal division of
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marital property that would have otherwise occurred if the property had sold. With
respect to the IMTC property, the court assigned a value to the company’s primary
asset as if it had sold, determined each party’s equal share of 77% of this value as
contemplated by the Agreement, and credited James’s equal share toward the sum
the court determined he owed Lori for his contemptuous acts. In order for Lori to
realize her one-half value of the parties’ membership interest in this asset, the court
ordered James to resign as managing member and transfer his half of the
membership interest to Lori. This remedy places the parties in the same financial
position as if the company’s asset had been sold and the proceeds divided as
contemplated under the Agreement.
Lakota Lake
[¶41.] The Agreement relates that the parties “are the majority owners of
[Lakota Lake] with approximately 80% membership interest between them.”
James’s management company, RCC, held an 11.65% interest in Lakota Lake, and
the remaining interests were held by other members. The parties agreed that RCC
(James) could be paid $5,000 per month for his management of Lakota Lake until
December 21, 2015, from future land sales. The Agreement indicates that Lakota
Lake “consists of residential real estate lots to be sold as the following tracts: Big
Granite, Granite Perch, and Hole in Rock.” The Agreement notes that another
tract—Shelter Rock—recently sold and that the net proceeds would be used to offset
operating costs including fees to James’s management company, RCC. Further, the
net proceeds from the sale of all remaining tracts were to first be used to satisfy
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certain contractual debts, then for other operational costs, and finally issued as
disbursements in accord with the membership interests on record.
[¶42.] During the course of the contempt proceedings, the court found that
although the parties sold the “Shelter Rock” tract for $86,000, James did not
account for $25,000 held in escrow after the sale and did not distribute to Lori her
equal share. The court further determined that James failed to provide Lori access
to Lakota Lake’s financial information, causing her to incur attorney fees in making
an official demand.
[¶43.] In regard to the sale of the “Hole in Rock” tract, the court found that
James did not first satisfy the debt obligations as required by the Agreement but
instead distributed sale proceeds to himself and his management company. The
court also found that contrary to the provisions in the Agreement, James exceeded
the annual expense limits for maintaining the Lakota Lake tracts. In addition,
James did not pay his management fees from future land sales as required in the
Agreement. Finally, the court found that James, as the managing member of
Lakota Lake, “violated the nature and spirit of the” Agreement and “essentially
depleted all available funds needed to pay on-going expenses for Lakota Lake,
requiring Lakota Lake to borrow money.”
[¶44.] At the time of the court’s August 2018 judgment, “Big Granite” and
“Granite Perch” had not yet sold, and Lori’s share of the parties’ 80% interest in
Lakota Lake had been diminished because James instituted a cash call in February
2014 immediately after the parties’ divorce. Because James was the only member
who made a cash contribution, the cash call diluted all other members’ interests,
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including Lori’s. Nevertheless, the court found that regardless of James’s and Lori’s
respective membership interests in Lakota Lake, the Agreement required that they
share equally in any distributions made to each other or to RCC.
[¶45.] In its August 2018 judgment and contempt order, the circuit court
accordingly valued the two remaining Lakota Lake tracts and divided that value
equally between the parties. The court then ordered James to take certain actions
related to the Big Granite tract in his capacity as managing member of Lakota Lake
and officer of RCC so that Lori would ultimately obtain ownership of this property.
In particular, the court’s order required James to “take all action and execute all
documents . . . necessary to approve a distribution to the members of Lakota [Lake]”
as follows:
Lakota shall . . . convey title to the Big Granite Property to
[James] individually free and clear of any rights, encumbrances
or restrictions, and [James] shall, in his capacity as operating
manager of RCC, managing member of Lakota [ ]make
distributions of cash or property to the other members of Lakota
as may be necessary to comply with the distribution obligations
of Lakota as set forth in Lakota’s operating agreement or as
otherwise required by law. [James] shall execute and deliver a
warranty deed transferring the ownership of Big Granite
Property to [Lori] . . . free and clear of any rights, encumbrances
or restrictions.
[¶46.] On appeal, James does not assert that he was without authority under
Lakota Lake’s operating agreement to take the specific actions ordered by the court.
Rather, he argues that the court erred in conveying title to the real property
because the legal entities holding title to those assets are indispensable parties who
were not joined in this action, and thus, the court had no authority to require a non-
party legal entity to transfer Big Granite (albeit indirectly) to Lori. In his view,
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Lori’s only remedy under SDCL 47-34A-504 as a judgment creditor of James’s
distributional interests in various LLCs is to “seek to execute upon [James’s]
ownership interest in the various liability companies that own parcels of real
property.” We reject James’s argument for a number of reasons.
[¶47.] First, James himself proposed a division of property wherein the court
would award him the two remaining Lakota Lake tracts. Notably, he did not argue
that the other minority members of Lakota Lake are indispensable parties to all
actions involving the transfer of the company’s assets until after the court issued its
findings and conclusions and Lori proposed a judgment in accord with the court’s
ruling. Moreover, James has not identified how any of these members’ interests
would be harmed by the transfers ordered by the court. Second, it is clear under
Lakota Lake’s operating agreement that James, as the managing member, has the
exclusive authority to dispose of company assets and thus convey Big Granite to
whomever he chooses so long as he makes other necessary distributions to the rest
of the Lakota Lake members. The court’s order here was consistent with these
provisions in the operating agreement.
[¶48.] Finally, contrary to James’s characterization of the transactions at
issue, the circuit court did not order James to facilitate a transfer of Big Granite
from Lakota Lake to Lori. 5 Rather, the court ordered James “in his capacity as an
officer of RCC, the managing member of Lakota [Lake,]” to facilitate the transfer of
5. Given the dilution of Lori’s interest in Lakota Lake to a mere 5.7% after the
cash call orchestrated by James shortly after the divorce, it was likely
impossible to accomplish a direct transfer to Lori of the entire property in
this manner.
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the property to himself, and after doing so, James would become the owner of Big
Granite. Because James would own Big Granite in his individual capacity after this
distribution, he could then transfer the property to Lori as ordered by the court, and
Lori would not have to satisfy her judgment against James through a lien on his
distributional interest in the limited liability company as contemplated by SDCL
47-34A-504.
[¶49.] We also disagree with James’s further argument that in transferring
the Lakota Lake property, the court erroneously modified the parties’ property
settlement. While the court certainly modified the method of distribution of this
marital property, the court did not modify the equal division of the property
required by the Agreement. Importantly, the record reflects that modifying the
method of distribution was necessary in this case to prevent James from further
dissipating the value of Lori’s interest in the Lakota Lake property in a manner
that benefited only James. 6 Therefore, we conclude that the court’s actions were
taken in accord with its equitable power to remedy James’s contempt, while at the
same time enforcing the underlying objectives of the parties’ property settlement as
set forth in the Agreement and incorporated in their divorce decree.
[¶50.] In affirming the circuit court’s orders relating to all the property
interests at issue, we specifically reject James’s assertion that the circuit court’s
6. For example, the court found that James made distributions to himself and
his management company instead of paying down debts as required under
the Agreement. James also “essentially depleted all available funds needed
to pay on-going expenses for Lakota Lake[.]” He also encumbered Lakota
Lake by securing a note for $60,000, and then took approximately $15,000 of
that note for his personal use.
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actions here are similar to those found impermissible in Hiller, 2015 S.D. 58, 866
N.W.2d 536 and Hanisch v. Hanisch, 273 N.W.2d 188 (S.D. 1979). In Hiller, the
husband (Hiller) was awarded title to specific property in the divorce decree. 2015
S.D. 58, ¶ 4, 866 N.W.2d at 538. He was also ordered to make a cash equalization
payment to the wife and use his “best efforts” to remove his wife from the liabilities,
but he was not able to accomplish this because he could not secure refinancing on
the property. Hiller’s ex-wife then filed a motion requesting that the court order
Hiller to sell the property, which the court granted in order to relieve Hiller’s ex-
wife of her marital debt obligations and enable Hiller to pay the cash equalization
sum.
[¶51.] On appeal, we reversed the circuit court’s order because the divorce
decree vested title to the property in Hiller and the forced sale materially changed
the equitable division of marital property. Id. ¶¶ 14, 26, 866 N.W.2d at 541–42,
544. Further, we noted that unlike in Sjomeling, Hiller’s ex-wife did not file a
motion for an order to show cause or present evidence that Hiller failed in any
respect to comply with the terms of the divorce decree. Id. ¶¶ 14, 17, 866 N.W.2d at
541–42. In the Court’s view, the circuit court erroneously treated Hiller as if he was
in contempt and exceeded its power to enforce the provision in the parties’ property
division. Id. ¶¶ 17–18; 866 N.W.2d at 542–43.
[¶52.] Here, however, the court was presented with a contempt motion, and
after finding James in contempt, the court entered orders to compel his compliance
with the Agreement and with the court’s directives issued in the course of the
contempt proceedings. The court’s order here is more closely aligned with what
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occurred in Sjomeling and unlike the order at issue in Hiller because it did not
divest James of property that had been awarded to him under the parties’
Agreement. Instead, the court accomplished the equal division of property that
would have otherwise occurred upon anticipated sales, albeit in a different manner.
[¶53.] Hanisch is also distinguishable. See 273 N.W.2d 188. While Hanisch
did involve a finding of contempt, the issue before the court was the husband’s
failure to pay child support and whether the court’s contempt order went beyond a
modification of the method of distribution of a property division. To punish the
husband for his contemptuous acts unrelated to the property division, the court
divested him of his interest in the marital home. On appeal, we noted that “[i]t is
undisputed in the present case that the [husband’s] title and interest in the house
are property rights, and it is also undisputed that said rights were determined in
the decree[.]” Id. at 190. We thus held that the circuit court erred when it
readjudicated the husband’s property rights “to punish [him] for contempt.” Id. at
191.
[¶54.] We often state that property divisions are designed to give finality to
the parties. See, e.g., Sjomeling, 472 N.W.2d at 490. But this is true only if the
property division finally settled the parties’ property rights. Here, although the
Agreement provides that parties will equally share proceeds from the sale of the
various properties, the parties employed terms that were contingent on future
events (i.e., the sale of marital assets) and these events did not materialize as
anticipated. Moreover, the open-ended property settlement agreement became
further problematic because James repeatedly violated the terms of the Agreement
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in a manner that depleted the assets available to Lori. He also repeatedly violated
the court’s specific orders issued to compel his compliance and give finality to the
parties’ Agreement. Finally, despite his claims now to the contrary, both James and
Lori requested that the court value and divide the remaining assets in order to
resolve the contempt motion, and the court held a three-day hearing to facilitate
their request. Therefore, James can hardly complain now about the court imposing
this very remedy.
3. Whether the circuit court erred in awarding Lori attorney fees and
costs.
[¶55.] James contends the circuit court erred in awarding Lori attorney fees
and costs because the award was based on fees incurred in obtaining an improper
modification of the Agreement and on his violation of a non-existent order. James
has not advanced any other challenge to the court’s findings with respect to this fee
award. Because the circuit court did not err in finding James in contempt or in
modifying the method by which the parties would receive their equal share of the
marital assets under the Agreement, we affirm the court’s award.
4. Whether the circuit court erred in setting the conditions of bond
pending appeal.
[¶56.] James argues that the circuit court failed to properly apply SDCL 15-
26A-27 and SDCL 15-26A-29 when setting the conditions of his appeal bond. The
circuit court entered its order setting conditions of bond and staying execution on
September 6, 2018. While James filed an objection in circuit court to this bond
order on September 7, 2018, he did not include a challenge to the bond conditions in
his appeal to this Court, filed the same day, from the circuit court’s August 2018
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contempt order and judgment. Moreover, the circuit court thereafter held
proceedings related to the appeal bond7 and entered its final order on this issue in
March 2019. James filed a separate appeal challenging the bond order, which we
dismissed because he failed to serve and file an appellant’s brief. James cannot now
revive that dismissed appeal here.
[¶57.] James, however, claims that under SDCL 15-26A-7, the court’s
September 2018 bond order “is subject to review on appeal from the circuit court’s
final judgment entered August 8, 2018.” We disagree. Under SDCL 15-26A-7, “[o]n
appeal from a judgment the Supreme Court may review any order, ruling, or
determination of the trial court . . . whether any such order, ruling, or
determination is made before or after judgment involving the merits and necessarily
affecting the judgment and appearing upon the record.” (Emphasis added.) A
reversal or modification of the circuit court’s September 2018 order setting
conditions of bond on appeal would not affect the merits of the court’s contempt
judgment. See Lang v. Burns, 77 S.D. 626, 631, 97 N.W.2d 863, 866 (1959) (denying
review of a decision on motion to add parties because the decision did not
necessarily affect the judgment on appeal). Therefore, we decline to address the
7. Although James did not challenge the bond order in his notice filed for this
appeal, he filed a motion for special relief from this Court under SDCL 15-
26A-39 requesting that this Court enter an order approving his proposed
bond conditions and staying enforcement of the circuit court’s judgment. On
October 19, 2018, we issued an order denying James’s request for special
relief, but granted a motion filed by Lori for a limited remand to have James’s
attorney held in contempt for failing to provide the signed instruments of
conveyance to Lori’s counsel as required by the existing bond order. The
circuit court held further hearings and entered separate orders holding
James’s attorney in contempt and denying James’s motion to reconsider the
circuit court’s bond conditions.
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circuit court’s bond order in the present appeal of the court’s judgment and order of
contempt.
Appellate Attorney Fees
[¶58.] Lori requests an award of $29,172.62 in appellate attorney fees. Under
SDCL 15-26A-87.3, appellate attorney fees may be awarded “only where such fees
are permissible at the trial level.” Charlson v. Charlson, 2017 S.D. 11, ¶ 36, 892
N.W.2d 903, 913 (quoting Lord v. Hy-Vee Food Stores, 2006 S.D. 70, ¶ 35, 720
N.W.2d 443, 445). Attorney fees are permitted in divorce cases under SDCL 15-17-
38, and given our review of the record, we award Lori the $29,172.62 she requests
here.
[¶59.] Affirmed.
[¶60.] GILBERTSON, Chief Justice, and KERN, JENSEN, and SALTER,
Justices, concur.
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