Opinion
No. C7-02-120.
Filed October 22, 2002.
Appeal from the District Court, McCleod County, File No. C2-00-526.
Michael D. Schwartz, Travis D. Stottler, (for respondents)
Richard J. Scheiffer, (for appellants)
Considered and decided by Randall, Presiding Judge, Schumacher, Judge, and Harten, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Mary Purcell and Jonathan Quast appeal arguing there was insufficient evidence for the jury to conclude (a) that Mary Purcell owed a fiduciary duty to Linus and Magdalen Hertzog and that she breached that duty by failing to disclose a material fact regarding the transfer of ownership of various assets owned by the Hertzogs; and (b) that Linus Hertzog did not intend two Belgian horses to be a gift to Jonathan Quast. Mary Purcell and Jonathan Quast also contend that the Hertzogs failed to plead the claim of fraud with sufficient specificity, that the district court erred in denying their pretrial motion to compel discovery, and that the district court erred in imposing a constructive trust. Mary Purcell appeals from a district court judgment against her in the amount of $313,589.27. Mary Purcell also appeals the district court's order to return CDs and American Express mutual funds. Mary Purcell and Jonathan Quast appeal from a judgment ordering the return of two Belgian horses. We affirm.
FACTS
Respondents Linus and Magdalen Hertzog are the parents of three children and the grandparents of 14 grandchildren. Appellant Mary Purcell is the only daughter of the Hertzogs and appellant Jonathan Quast is their grandson. After commencing this action, Linus Hertzog passed away.
The Hertzogs began operating a dairy farm in the 1940's and dealt primarily in cash, putting their savings into certificates of deposit (CDs) and American Express mutual funds (mutual funds). In the 1970's, Mary Purcell was named as joint tenant on the CDs and mutual funds. The Hertzogs each executed a power of attorney (POA) giving Mary Purcell unlimited rights, including the power to transfer property into her name. Mary Purcell was not required to render an accounting. Between November 1999 and June 2000, Mary Purcell transferred the CDs and mutual funds into joint accounts with herself and her children as beneficiaries. Also following the POA, Mary Purcell and Linus Hertzog established a joint checking account.
In August 1998, the Hertzogs executed a purchase agreement agreeing to sell a tractor, loader, and plow to Mary Purcell and Jonathan Quast. Magdalen Hertzog testified at trial that when this purchase agreement was signed she did not know what she was signing.
The Hertzogs made various loans to Mary Purcell totaling $48,890.27. Included in this total was $21,177 that Mary Purcell withdrew from the joint checking account she held with Linus Hertzog. $12,677 was for a shed and $8,500 was for a fence on Mary Purcell's property. Magdalen Hertzog's journal contained various notations that Mary Purcell repaid a total of $14,900. At trial, Mary Purcell contended that all but $18,000 was repaid and that Linus Hertzog forgave the balance. The jury found that appellant did not repay the amount stated, that the balance was not forgiven, and that the remaining balance was $33,990.27. The district court ordered a judgment in this amount against appellant.
Respondent Linus Hertzog owned a safe deposit box and in 1987, Mary Purcell was added to the account allowing her to access the box. Magdalen's journal contained numerous references to the amount of money in the safe deposit box including a November 15, 1993, entry stating that the safe deposit box contained $39,000. Bank records show that Mary Purcell could access the safe deposit box since 1987, and that after November 15, 1993, she was the only person to access the box. Further, appellant Mary Purcell agrees that she was the only one to access the box.
In determining the amount of cash in the safe deposit box, the jury, on the special verdict form, determined that there was not $70,000 in cash in the safe deposit box. The form shows that the jury wrote something in, crossed it out, and wrote, "[t]here was $39,000" in the safe deposit box. At the commencement of the action there was $16,000 remaining in the safe deposit box. The district court found that Mary Purcell took $23,000 from the safe deposit box and ordered a judgment against Mary Purcell in that amount plus prejudgment interest.
In a 14-month span before Linus Hertzog's death, appellant transferred $205,422 from the CDs and mutual fund accounts to herself and her children. The jury found by special verdict that Mary Purcell was not directed to make these transfers and the district court ordered judgment against Mary Purcell in that amount.
The jury further found that Linus Hertzog did not make a gift of two Belgian horses to his grandson, Jonathan Quast, and the district court ordered the return of the horses. On June 26, 2001, Mary Purcell and Jonathan Quast filed a motion to amend the district court's findings of fact and conclusions of law and order for judgment and, in the alternative for a new trial and for a judgment notwithstanding the verdict. On August 24, 2001, the district court denied the motion in its entirety. This appeal follows.
DECISION
We review a decision to grant or deny a new trial under an abuse-of-discretion standard. Halla Nursery, Inc. v. Baumann-Furrie Co., 454 N.W.2d 905, 910 (Minn. 1990). On appeal from a denial of a motion for a new trial, the verdict must stand unless it is manifestly and palpably contrary to the evidence, viewed in a light most favorable to the verdict. ZumBerge v. N. States Power Co., 481 N.W.2d 103, 110 (Minn. App. 1992) (citation omitted), review denied (Minn. Apr. 29, 1992). When the trial court denies a JNOV motion, the denial "must be affirmed, if, in the record, there is any competent evidence reasonably tending to sustain the verdict." Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn. 1998) (quotation omitted). A jury's answer to a special-verdict question "can be set aside only if no reasonable mind could find as did the jury." Domtar, Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724, 734 (Minn. 1997) (citation omitted).
Fiduciary Duty
Mary Purcell argues that there was insufficient evidence for the jury to conclude that she owed the Hertzogs a fiduciary duty under either common or statutory law. We disagree. "The existence of a fiduciary relationship is a question of fact." Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985) (citation omitted). A fiduciary relationship exists when one person puts confidence in another, resulting in the second person having superiority over and influence on the first. Id.
The record supports the conclusion that Mary Purcell had both superiority and influence over the Hertzogs. According to Mary Purcell's trial testimony, the Hertzogs became increasingly more dependent on her as the years progressed. They relied on her to drive Linus Hertzog to the doctor's office, take them to the bank, and to take care of all their financial transactions. Also, Mary Purcell lived across the road from the Hertzogs and was their primary caretaker until approximately two months before the start of the litigation.
The record also supports a determination that Linus and Magdalen trusted Mary Purcell. Mary Purcell testified that her "father trusted her." Magdalen Hertzog testified that when she signed the power of attorney, she trusted her daughter. Thus the existence of a familial relationship coupled with the Hertzogs giving complete control of their financial affairs to Mary Purcell and the confidence and trust they placed in Mary Purcell supports the jury's finding that a fiduciary duty existed. See Toombs, 361 N.W.2d at 809 (finding a fiduciary relationship existed where complete control of financial affairs was assumed and there was a familial relation between the parties).
We reject Purcell's argument that the POA did not create a statutory fiduciary relationship. The Hertzogs each executed a power of attorney on July 18, 1996, which authorized Purcell to independently transfer the Hertzogs' property to herself. No accounting of her actions was necessary under the POA. Minn. Stat. § 523.21 provides that an attorney in fact "shall have the interests of the principal utmost in mind." Although Purcell was given the power to transfer assets to herself, she had a duty pursuant to Minn. Stat. § 523.21 to act in the Hertzogs' best interest when handling their financial affairs.
Breach of fiduciary duty
Mary Purcell argues that there was insufficient evidence for the jury to conclude that she breached her fiduciary duty when the tractor, loader, and plow (farm equipment) and a 20-acre parcel of land were sold to her and her son, Jonathan Quast.
The record contains sufficient evidence for the jury to reasonably conclude that under the power of attorney, appellant had a fiduciary duty to act in respondents' best interest when handling their finances and that Mary Purcell breached that duty when she failed to disclose to the Hertzogs that they were signing documents that would forever divest them of their ownership interests in the farm equipment and the land. Magdalen Hertzog testified that Mary Purcell often had her sign documents without knowing what the contents were. Magdalen also testified that she was unaware she was selling the land when she signed the quitclaim deed "selling" the 20-acre parcel of land to Mary Purcell and Jonathan Quast. Jonathan Quast testified that when Linus Hertzog signed the contract to sell the farm equipment for $16,500, he was sitting in his chair in the TV room, while Mary Purcell was in the kitchen. Mary Purcell had a duty to protect their interests. When she failed to tell the Hertzogs that by signing the purchase agreements to the farm equipment and the land, they would be divested of their ownership interests, she failed to disclose a material fact and breached her fiduciary duty. A fiduciary can "be liable for fraudulent misrepresentation by silence even though there was no evidence of fraudulent statements or of intentional concealment." Murphy v. Country House, Inc., 307 Minn. 344, 350, 240 N.W.2d 507, 512 (Minn. 1976).
The Hertzogs' business practice of tracking the loan amounts and payments received also supports a finding that the land was not a conveyance and the purchase price had not been paid. In 1973, the Hertzogs sold 54 acres to their son Bert Hertzog. The parties entered into a purchase agreement outlining the cost of the land and the terms of repayment. They kept a list of the dates of the payments made, the amount paid, the parties' signature on each repayment date, and the balance remaining after the payment. The record is devoid of any of these documents relating to the alleged 20-acre land sale to Mary Purcell. A factfinder could properly assume that if Mary Purcell had indeed purchased the land, made payments, and had the balance forgiven, there would be some concrete evidence of the transactions.
The failure to discuss the terms of repayment and the disparity between the purchase price and the worth of the farm equipment support the finding that Linus Hertzog did not intend to sell the farm equipment to Jonathan Quast. Jonathan Quast testified that when he "purchased" the tractor, he did not talk to anyone about how the purchase price was to be repaid and assumed that his mother would take of it. The disparity between the $16,500 purchase price of the farm equipment and its worth, approximately $50,000 — $60,000, supports a conclusion that Linus did not intend to convey the farm equipment. See Aretz v. Kloos, 89 Minn. 482, 438, 95 N.W. 216, 218 (Minn. 1903) (stating that for an inference of fraud against a conveyance there must be an inadequacy of consideration and be "so clearly below the market value as to strike the understanding at once with a conviction that such a conveyance never could have been made in good faith").
Additionally, the tractor was a working tractor used for everything from cutting hay to bailing hay, to moving snow, to plowing, and to disking. It was the primary tractor, kept on the Hertzogs' property, and was also used on Bert Hertzog's farm. Reasonable minds could conclude that respondent did not sell the tractor to appellant Jonathan Quast.
Safe Deposit Box
Mary Purcell argues that there is insufficient evidence for reasonable minds to conclude that there was $39,000 in the safe deposit box and that she was not authorized to withdraw money from the box. Mary Purcell also asserts that she had a right to withdraw the money from the safe deposit box because (a) the safe deposit box was a joint account between her and her father and (b) the ownership of the funds had not been established.
Although Magdalen's journal contains various notations of the amount in the safe deposit box, the record supports the jury's determination that there was $39,000 in the safe deposit box and that Mary Purcell withdrew the money from the safe deposit box without authorization. Magdalen testified that she and her husband would sometimes go to the bank, count the money, and then she would write the amount in her journal. Mary Purcell testified that she remembers one conversation that her parents had stating that there was $30,000 in the safe deposit box. A November 15, 1993, journal entry shows that there was $39,000 in the safe deposit box. The safe deposit admission record shows that Mary Purcell could access the safe deposit box since 1987, and that she was the only person to access it after September 1993. Purcell concedes that she accessed the box on several occasions. A jury could conclude that there was at least $39,000 in the safe deposit box when Mary Purcell began accessing the safe deposit box without the Hertzogs present. At the commencement of the action in district court there was $16,000 in the safe deposit. The district court correctly ordered a judgment in the amount of $23,000.
We reject Purcell's argument that she was the rightful owner of the safe deposit box because the Hertzogs failed to prove that that the money that she withdrew from the safe deposit box was not her money. The record shows that the money that was deposited in the safe deposit box came solely from the respondents. There is no evidence to support a theory that appellant deposited any money into that account or was given permission to withdraw funds. We find sufficient evidence in the record for the jury to conclude there was $39,000 in the safe deposit box, that the money in the safe deposit box belonged to the Hertzogs, and that Mary Purcell was not authorized to withdraw money from the box.
Certificate of deposits and mutual funds
Mary Purcell argues that there was insufficient evidence for reasonable minds to conclude that she fraudulently transferred the CDs and the mutual funds into her own name. We find that there was. Fraud will be presumed when there is a transaction between people in a fiduciary relationship without adequate consideration. Village of Burnsville v. Westwood Co., 290 Minn. 159, 166, 189 N.W.2d 392, 397 (Minn. 1971).
There was no evidence submitted to the jury, aside from Mary Purcell's testimony, that she was directed by Linus Hertzog to transfer the CDs and mutual funds into her name. Prior to Mary Purcell transferring the CDs and the mutual funds into her name, the certificates and mutual funds were either owned by the Hertzogs or jointly with one of their children, including Mary Purcell. The CDs and the mutual funds were purchased with the Hertzogs' money. Mary Purcell was on the accounts for the purpose of helping the Hertzogs with their finances and the financial transactions as they became older. Magdalen testified that she did not give Mary Purcell permission to take the CDs or the mutual funds.
Further, the Hertzogs' 1991 will directing that the residue of their estate be divided between their sons demonstrates that they wanted the CDs and mutual funds to remain their property. Linus Hertzog became concerned when he stopped receiving the interest checks from the CDs. As a result, he terminated the POA he had given Purcell. His concern and the termination of the POA support a conclusion that Purcell was not authorized to transfer the CDs and mutual funds into her name. The record contains sufficient evidence for the jury to conclude that the Hertzogs did not authorize Purcell to transfer their CDs and mutual funds into her name.
Gift
Purcell argues there was insufficient evidence for reasonable minds to conclude that Linus Hertzog did not intend the horses to be a gift to Jonathan Quast. To prove a valid gift, a party must show: (1) intent to make the gift; (2) delivery; and (3) absolute disposition of the property given. Oehler v. Falstrom, 273 Minn. 453, 456-57, 142 N.W.2d 581, 585 (Minn. 1966). The donee bears the burden to prove by clear and convincing evidence that a gift was made. Id. Donative intent is made by the surrounding circumstances Olson v. Olson, 562 N.W.2d 797, 800 (Minn. 1997).
We conclude, given the circumstances, there was sufficient evidence for the jury to find that Linus Hertzog did not intend to make a gift of the two Belgian horses to Jonathan Quast. Linus Hertzog and his son Bert raised Belgian horses together for a number of years and Bert used one of the horses for stud purposes. Importantly, Linus Hertzog's 1991 and 2001 wills left the horses to Bert. Finally, Magdalen Hertzog testified that she wanted the horses returned from Mary Purcell's pasture and that the horses were never intended to be a gift.
Specificity
Mary Purcell next argues that there was insufficient evidence for the jury to conclude that she engaged in fraud because the "missing material fact is undisclosed" and that the Hertzogs did not plead the claim of fraud with sufficient specificity. Allegations of fraud must be pleaded with particularity. Boubelik v. Liberty State Bank, 553 N.W.2d 393, 400 (Minn. 1996). The requirements for a plea of fraud are satisfied when the ultimate facts are alleged. In re Estate of Williams, 254 Minn. 272, 283, 95 N.W.2d 91, 100 (Minn. 1959).
We reject appellant's argument that the Hertzogs failed to state their claim of fraud with sufficient particularity. Respondent's July 27, 2000 complaint states:
The above-referenced Quit Claim Deed, Purchase Agreement and Form 4797 tax statement, and the transactions concerning the cash, certificates of deposit, real estate and personal property identified therein, were obtained by the Defendants through the use of fraud and/or undue influence.
[Respondent's] response to [appellant's] interrogatories states as follows:
INTERROGATORY NO. 14:
Describe each and every fact upon which your claim of fraud is based as described in paragraph 18 of your complaint.
ANSWER: We object to the question on the basis that it is overly broad, unnecessarily burdensome, and not reasonably calculated to lead to discovery of admissible evidence. Without waiving this objection, Mary Purcell assumed certain fiduciary duties when she assumed the power of attorney for Linus and Magdalen Hertzog. Inclusive in these fiduciary duties was the duty to keep Linus and Magdalen Hertzog informed as to the status of their personal financial affairs. Mary Purcell failed to disclose and/or materially misrepresented to Linus and Magdalen Hertzog the status of the ownership of their assets, as more fully described above.
Mary Purcell knew of the testamentary intentions of Linus and Magdalen Hertzog as set forth in their 1996 will, and Mary Purcell deliberately took action to subvert those testamentary intentions by transferring or attempting to transfer ownership to herself and/or her children.
See also the sworn statements of Magdalen Hertzog.
Appellant focuses on the words "more fully described above" as a failure to describe a material fact and argues that the claim was not stated with particularity as required by Minn.R.Civ.P. 9.02. The Hertzogs' answer, stating that "Mary Purcell failed to disclose and/or materially misrepresented to Linus and Magdalen Hertzog the status of the ownership of their assets" and "by transferring or attempting to transfer ownership to herself and/or her children," gave Mary Purcell and Jonathan Quast sufficient information for them to conclude that the Hertzogs were alleging fraud in the inducement when she had them sign various documents without disclosing the fact that respondents would be losing ownership interests in the subject assets.
During a hearing on Mary Purcell and Jonathan Quast's motion to compel additional answers, the Hertzogs' attorney clarified the claim when he stated:
I learned today for the first time that he thinks our complaint isn't adequately stated in terms of the specificity of the fraud claims. I think it's pretty clear, she took the money out of their accounts. She took a tractor that wasn't hers. She took land by telling them it was part of an estate plan as opposed to telling them it was an irrevocable quitclaim deed that it meant it's hers presently and forever * * *.
We find that the Hertzogs alleged their claim of fraud with sufficient specificity.
Discovery
Minn.R.Civ.P. 37.01 permits a party to bring a motion to compel compliance with discovery requests. The trial court has considerable discretion in granting or denying discovery requests. Erickson v. MacArthur, 414 N.W.2d 406, 407 (Minn. 1987). A matter vested in the trial court's discretion is reviewed under the "abuse-of-discretion" standard. Id. Under this standard, a matter will not be disturbed on appeal unless the trial court abused its discretion, exercised its discretion in an arbitrary or capricious manner, or based its ruling on an erroneous view of the law. Welfare of R.L.K., 269 N.W.2d 367, 371 (Minn. 1978).
Mary Purcell argues the trial court erred in admitting evidence that was not disclosed before trial. She asserts that the check register and bank deposits were not disclosed upon request and that she was prejudiced by the Hertzogs' failure to provide the documents because it
prevented Appellants from preparing for trial, created surprise at trial even though Appellants sought to avoid it by their motion to compel discovery, and resulted in substantial prejudice in that Appellants were unable to use the deposit tickets and check registers to show repayment of the loans.
We disagree.
First, the check register was admitted into evidence, and thus allowed Mary Purcell the opportunity to use the register to support her contention that the loans for improving her house, shed, and fence were repaid. Second, the check register was cumulative evidence. Generally, a party who had ample opportunity to obtain the requested information, is not entitled to discovery that is unreasonably cumulative. Brody v. SMK Enterprise, 523 N.W.2d 492, 494 (Minn. 1994). Mary Purcell testified that she repaid the house loan in various payments. She also testified that money she spent from the joint checking account for her personal use was repaid by depositing her own funds in the account. Her former husband, Timothy Purcell, testified that he paid Linus Hertzog $8,000 in cash one afternoon when they were alone together.
We reject Purcell's argument that she was surprised by the introduction of this evidence at trial. All documents relating to the loan were made available for inspection and copying at the Hertzogs' attorney's office. There is no indication that her attorney went to the office or that the records were unavailable. Additionally there is no evidence to support the contention that deposit tickets were available. The record contained no deposit tickets. Mary Purcell could have subpoenaed the bank for these tickets, if they were available, to prove a defense. We find the district court did not abuse its discretion in denying her motion to compel discovery.
Constructive Trust
Appellant Mary Purcell next contends that the ownership status of the CDs and the mutual funds "should be determined based upon the account status as it existed prior to the unauthorized changes" and that the district court erred in establishing a constructive trust. Appellant Mary Purcell argues that Minn. Stat. § 524.6-204 requires that the ownership of jointly held funds be determined before the unauthorized changes.
The district court found clear and convincing evidence demonstrated that Linus Hertzog did not intend to provide for the right of survivorship and, thus, the property was subject to the provisions of Minn. Stat. § 524.6-204. The court concluded that because the funds failed to contain the statutory language of intent to establish survivorship rights, the funds were then the property of the estate.
Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties as against the estate of the decedent unless there is clear and convincing evidence of a different intention, or there is a different disposition made by a valid will as herein provided, specifically referring to such account. If there are two or more surviving parties, their respective ownerships during lifetime shall be in proportion to their previous ownership interests under section 524.6-203 augmented by an equal share for each survivor of any interest the decedent may have owned in the account immediately before death; and the right of survivorship continues between the surviving parties. The interest so determined is also the interest disposable by will. Minn. Stat. 524.6-204(a) (2000). Minn. Stat. § 528.05 was renamed Minn. Stat. § 524.06.
The record supports the district court's findings that the funds were governed by Minn. Stat. § 524.6-204. Whether a constructive trust should be imposed is a question of fact for the district court that this court reviews only to determine whether the district court's finding was clearly erroneous. Freundschuh v. Freundschuh, 559 N.W.2d 706, 711 (Minn.App. 1997), review denied (Minn. Apr. 27, 1997); Minn.R.Civ.P. 52.01. To impose a constructive trust, there must be clear and convincing evidence that such a trust is necessary to prevent an unjust enrichment. In re Estate of Eriksen, 337 N.W.2d 671, 674 (Minn. 1983). In this case, the constructive trust created by the court prevents Mary Purcell from profiting by wrongfully transferring the accounts into her name. See Wright v. Wright, 311 N.W.2d 484, 485 (Minn. 1981) (holding that if legal title to property is obtained through a breach of fiduciary relationship, a constructive trust arises in favor of the person equitably entitled to the property).
Mary Purcell admits that she "was unable to meet her substantial burden of proof showing that her father directed her to make these transfers." Purcell's argument that the ownership status of the funds should be determined before the unauthorized transfers would defeat Linus Hertzog's 2000 will, which left his entire estate to his wife and the residue to his sons should Magdalen not survive him. The 2000 will intentionally omitted Mary Purcell from inheriting from the estate.
Purcell argues that Linus Hertzog did not indicate in his 2000 will an intention that her rights under the joint accounts were severed. However, what she fails to mention is that there were no joint accounts for Linus to evidence an intent to sever as they had already been transferred into Mary Purcell's name. We find the district court correctly imposed a constructive trust.