#27695, #27706-a-SLZ
2016 S.D. 72
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
(#27695)
FARMPRO SERVICES, INC., Plaintiff,
v.
DAVID FINNEMAN, CONNIE
FINNEMAN, CHAD FINNEMAN,
ARMSTRONG FARMS, VERN
ARMSTRONG, and HOPE ARMSTRONG, Defendants,
and
MICHAEL ARNOLDY and
ANN ARNOLDY, Defendants and Appellees,
and
ROCK CREEK FARMS GENERAL
PARTNERSHIP, and
WARRENN ANDERSON, Defendants and Appellants.
APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA
****
THE HONORABLE CRAIG A. PFEIFLE
Judge
****
ARGUED ON AUGUST 30, 2016
OPINION FILED 10/19/16
---------------------------------------------------------------------------------------------------------------------
(#27706)
FARMPRO SERVICES, INC., Plaintiff,
v.
ARMSTRONG FARMS, VERN ARMSTRONG,
HOPE ARMSTRONG, WARRENN
ANDERSON, and ROCK CREEK FARMS
GENERAL PARTNERSHIP, Defendants,
and
DAVID FINNEMAN, CONNIE
FINNEMAN, and CHAD FINNEMAN, Defendants and Appellants,
and
MICHAEL ARNOLDY and ANN ARNOLDY, Defendants and Appellees.
****
(#27695)
BRIAN L. UTZMAN of
Smoot & Utzman, PC
Rapid City, South Dakota
and
STEVEN W. SANFORD of
Cadwell, Sanford, Deibert & Garry, LLP
Sioux Falls, South Dakota Attorneys for appellants Rock
Creek Farms General
Partnership and Warrenn
Anderson.
(#27706)
JAMES P. HURLEY of
Bangs, McCullen, Butler,
Foye & Simmons, LLP
Rapid City, South Dakota Attorneys for appellants
Finnemans.
ELIZABETH S. HERTZ
VINCE M. ROCHE of
Davenport, Evans, Hurwitz & Smith, LLP
Sioux Falls, South Dakota
and
ROBERT R. SCHAUB of
Sundall, Schaub & Fox
Chamberlain, South Dakota Attorneys for appellees
Arnoldys.
#27695, #27706
ZINTER, Justice
[¶1.] The issue in this appeal concerns a redemptioner’s entitlement to the
return of money spent in unsuccessful attempts to redeem in a mortgage
foreclosure. A landowners’ successor in interest, a landowners’ strawman, and
judgment lien creditors engaged in competing attempts to redeem in two mortgage
foreclosures. Although the successor in interest successfully redeemed from a
judgment lien creditor in the first foreclosure, a senior mortgagee started a second
foreclosure; a second judgment lien creditor redeemed in the second foreclosure; and
the second foreclosure court ruled that the landowners and successor in interest
waived the statutory right to an owner’s final right of redemption. The landowners
and successor in interest unsuccessfully appealed the second foreclosure court’s
waiver ruling, and they lost the land to the second judgment lien creditor. The
parties then returned to the first foreclosure court where the successor in interest
made an equitable claim for the recovery of redemption money paid and still in the
custody of the sheriff. The landowners sought the same relief, plus reimbursement
for other claimed redemption payments. The circuit court ruled that the
landowners and successor in interest had no equitable claim to the money on
deposit with the sheriff even though the successor in interest redeemed in the first
foreclosure on the mistaken belief that it would be able to exercise the owner’s final
right of redemption in the second foreclosure. The court entered summary
judgment awarding the money on deposit to the judgment lien creditor from whom
the redemption had been made, and the court denied the landowners’ and successor
in interest’s motions for summary judgment on their equitable claims. Landowners
-1-
#27695, #27706
(Appeal No. 27706) and their successor in interest (Appeal No. 27695) appeal. We
affirm.
Facts and Procedural History
[¶2.] David and Connie Finneman were the owners of approximately 16,700
acres of farmland in Pennington and Meade Counties. Finnemans owned 7,500
acres in fee, and they had purchased 9,200 acres on a contract for deed from L & L
Partnership (L & L). Finnemans mortgaged all of the land (except 200 acres
acquired by the contract for deed) to FarmPro Services, Inc. (FarmPro) and Rabo
Agrifinance, Inc. (Rabo). The Rabo mortgage was senior to the FarmPro mortgage.
[¶3.] Finnemans defaulted, and in 2000, FarmPro initiated foreclosure
proceedings. In 2006, FarmPro purchased the property at the foreclosure sale for
$1,439,130.31 and assigned the certificate of sale to Dr. Lee Ahrlin. Michael
Arnoldy—who held judgments against Finnemans—redeemed from Ahrlin for
$1,765,232.50.
[¶4.] Finnemans transferred their interest in the property to Rock Creek
Farms (RCF), a partnership formed by Finnemans and Warrenn Anderson. On
May 10, 2007, Anderson paid $822,000 to extend the landowners’ final right of
redemption for one year. On May 6, 2008, Finnemans confessed judgment to two
creditors; and Daniel Mahoney, another associate of Finnemans, purchased those
judgments. Using money provided by RCF, Mahoney redeemed from Michael by
depositing $1,219,734.29 1 (hereinafter referred to as “Mahoney payment”) with the
1. It appears that this sum is less than Michael Arnoldy’s redemption payment
because Anderson’s payment to extend the redemption period was a partial
(continued . . .)
-2-
#27695, #27706
sheriff. Michael, however, refused to accept the payment so he could challenge the
validity of the judgments Mahoney had used to redeem. Nevertheless, Mahoney
was issued a certificate of redemption.
[¶5.] On July 3, 2008, Michael’s sister, Ann Arnoldy—who also held
judgments against Finnemans—redeemed from Mahoney for $1,244,570.43.
Mahoney accepted the payment and Ann was issued a certificate of redemption. On
September 12, 2008, RCF exercised the landowners’ final right of redemption and
redeemed from Ann for $1,280,000. RCF thus held the final certificate of
redemption in the FarmPro foreclosure.
[¶6.] However, in July 2009, Rabo commenced a separate foreclosure action.
The property was sold at another sheriff’s sale, and Ann redeemed again. The Rabo
foreclosure court initially entered a judgment awarding RCF the landowners’ final
right of redemption. However, the Rabo court later vacated its judgment and ruled
that RCF and Finnemans had waived the owner’s right of redemption in a loan
restructuring agreement. RCF and Finnemans appealed, but the appeal failed on
procedural grounds and the circuit court’s waiver decision became final. See Rabo
Agrifinance, Inc. v. Rock Creek Farms, 2012 S.D. 20, ¶ 9, 813 N.W.2d 122, 126.
Consequently, Ann obtained the sheriff’s deed in the Rabo foreclosure.
[¶7.] During the course of the Rabo foreclosure, L & L also foreclosed on its
contracts for deed. Based on RCF’s and Finnemans’ unsuccessful appeal of the
Rabo foreclosure court’s waiver decision, the L & L foreclosure court ruled that Ann
_________________________________
(. . . continued)
redemption that reduced the total amount required to redeem. See SDCL 21-
52-13, -21. The parties have not briefed the matter.
-3-
#27695, #27706
held both equitable ownership of the contract for deed property and the right to cure
the default under the contracts. The L & L court’s decision was affirmed on appeal,
and Ann became the record title owner of all the property at issue. See L & L P’ship
v. Rock Creek Farms, 2014 S.D. 9, ¶¶ 24-25, 843 N.W.2d 697, 705.
[¶8.] The issues in this appeal arose in March 2012 when RCF returned to
the FarmPro foreclosure court. RCF moved that court to award it the Mahoney
payment, which was still in the custody of the sheriff. RCF argued that because it
had not expected to lose the owner’s final right of redemption in the Rabo
foreclosure, it had mistakenly redeemed in the FarmPro foreclosure. RCF further
argued that because it lost title to the land in the Rabo foreclosure, it was entitled
to recover the redemption money it paid in the FarmPro foreclosure.
[¶9.] The FarmPro court ruled that it retained equitable jurisdiction to
determine whether RCF and Finnemans “made a bona fide mistake in their attempt
to redeem and whether Arnoldys [could] retain both redemption payments and title
to the property.” See Way v. Hill, 41 S.D. 437, 171 N.W. 206, 207 (1919) (supporting
the FarmPro court’s assertion of equitable jurisdiction). Arnoldys and RCF then
filed cross motions for summary judgment claiming entitlement to the Mahoney
payment. Finnemans also filed a motion for summary judgment, stating that their
motion was “independent of, in addition to, and in support of” RCF’s motion.
Finnemans later filed an affidavit requesting that Arnoldys pay Finnemans
$4,363,469 for what they called “partial redemption payments” made by Finnemans,
RCF, and their receiver. Those payments were made for a variety of things
including the Mahoney redemption, real-estate taxes, rent, debt owed to other
-4-
#27695, #27706
creditors, and Rabo loan payments. Finnemans’ affidavit also asked for title to 200
acres of property that was part of the L & L foreclosure.
[¶10.] The circuit court sent a letter to the parties to clarify whether the issue
to be decided under the motions for summary judgment was entitlement to the
Mahoney payment. Although Arnoldys agreed, the record is not clear whether RCF
agreed, and Finnemans responded with a letter reasserting all the requests they
made in their affidavit.
[¶11.] The circuit court limited its decision to the relief requested in the
summary judgment motions; i.e., who was entitled to the Mahoney payment. The
court found that RCF had no claim to the money because RCF was reimbursed for
Mahoney’s redemption when Ann Arnoldy redeemed from Mahoney. The court also
found that RCF’s decision to redeem in the FarmPro foreclosure was not the kind of
“invalidating mistake” that permitted equitable relief. The court ruled that RCF
took a calculated risk that the interest it obtained through redemption in the
FarmPro foreclosure could later be lost in the foreclosure of a senior mortgage. The
court ultimately ruled that Michael was entitled to the Mahoney payment:
RCF’s calculated risk and decision to redeem in the FarmPro
proceeding provides no basis for claiming a right to the
[Mahoney payment]. As the person from whom Mahoney sought
to redeem from, Michael Arnoldy had a right to accept the
payment when it [was] deposited in 2008, and he retains that
right today.
The court entered summary judgment awarding Michael the money from the
Mahoney payment, it denied RCF’s and the Finnemans’ motions, and these appeals
followed.
-5-
#27695, #27706
[¶12.] Because the Appellants’ claims on appeal are much broader than the
limited claim decided by the circuit court, we must first determine the appropriate
issues to be decided. The circuit court’s decision and judgment only resolved
entitlement to the Mahoney payment ($1,219,734.29) that was tendered to Michael
and was still on deposit with the sheriff. On appeal, however, RCF disavows a
direct claim to that payment. Instead, it argues that the circuit court erred in
failing to award RCF the redemption payment it made to Ann ($1,280,000) and the
payment Anderson made to Michael ($822,000) to extend the redemption period.
RCF only contends that it should recover the Mahoney payment as a “down
payment” on these other two requests. Finnemans support RCF’s arguments and
make claims to their additional asserted “redemption payments” totaling
$4,363,469. We decline to consider RCF’s and Finnemans’ claims to anything other
than the Mahoney payment. We do so because the circuit court made no decision
and entered no judgment respecting the other claims. 2 Therefore, we limit our
review to the question whether Michael was entitled to summary judgment on the
Mahoney payment. We also consider RCF’s related claim that the circuit court
erred in refusing to compel Arnoldys to respond to certain interrogatories.
2. We also note that even if the other claims were properly postured for
resolution by the circuit court—a proposition that is questionable at best—
Appellants were not entitled to summary judgment on those claims.
Appellants themselves contend that there are disputed issues of material fact
to be resolved regarding equitable entitlement on the other claims.
-6-
#27695, #27706
Decision
The Mahoney Payment
[¶13.] Because Mahoney, a judgment lien creditor, redeemed from Michael, a
prior redemptioner, Michael had the statutory right to the Mahoney redemption
payment. See SDCL 21-52-19, -14 (providing that holders of junior liens may
redeem from a prior redemptioner by paying the prior redemptioner the purchase
price at the sale plus sums paid to protect the interest acquired together with
interest). RCF, however, claims that it is inequitable to allow Michael Arnoldy to
retain the redemption money that RCF paid to redeem in the FarmPro foreclosure
and allow Ann Arnoldy to retain the land obtained in the Rabo foreclosure. 3
[¶14.] RCF relies on case law that, it claims, requires the return of
redemption money as restitution 4 when redemption fails. However, RCF’s
redemption did not fail. RCF successfully redeemed from Ann and obtained the
final certificate of redemption in the FarmPro foreclosure. RCF did subsequently
3. At oral argument, RCF explained that Arnoldys had taken the position below
that they were acting in concert for purposes of the redemption money.
4. RCF contends that the circuit court failed to distinguish restitution and
unjust enrichment. RFC cites the third definition of restitution in Black’s
Law Dictionary, which defines restitution as the “restoration of some specific
thing to its rightful owner or status.” Restitution, Black’s Law Dictionary
1507 (10th ed. 2014). This is an abbreviated definition. The primary
definition indicates restitution is: “A body of substantive law in which
liability is based not on tort or contract but on the defendant’s unjust
enrichment.” Id. “According to the leading English authorities, ‘the law of
restitution is the law relating to all claims, quasi-contractual or otherwise,
that are founded upon the principle of unjust enrichment.’” Bryan A. Garner,
Dictionary of Modern Legal Usage 765 (2d ed. 1995) (quoting Robert Goff &
Gareth Jones, The Law of Restitution 3 (3d ed. 1986)). RCF has not identified
a distinction that is material to the disposition of this case.
-7-
#27695, #27706
lose that interest in the Rabo foreclosure, but that was a separate, subsequent
foreclosure action involving a senior mortgagee. The cases cited by RCF involved
single foreclosures in which the courts determined that it may be unjust for an
ultimate titleholder to retain title and a redemption payment from those who are
found to have no right to redeem. See Abrams v. Porter, 920 P.2d 386, 391 (Idaho
1996) (returning redemption money after concluding the corporation that assigned
redemptioners their redemption rights was dissolved at the time of assignment); E.
Jersey Sav. & Loan Ass’n v. Shatto, 544 A.2d 899, 902-03 (N.J. Super. Ct. Ch. Div.
1987) (returning redemption money to mortgagors after they tried to redeem in a
“sham” effort to delay foreclosure); Davis Mfg. & Supply Co. v. Coonskin Props.,
Inc., 687 P.2d 484, 486 (Colo. App. 1984) (returning redemption money after setting
aside order determining the amount to redeem); see also Way, 171 N.W. at 207
(estopping judgment creditor from interposing the statutory period of redemption on
redemptioner after judgment creditor accepted partial redemption payment). We
conclude that these authorities do not govern redemptioner risks of loss from
subsequent, independent foreclosures by senior creditors.
[¶15.] RCF, however, argues that in determining the right to equitable relief,
the circuit court should not have considered risk: what the circuit court described as
RCF’s “calculated risk” in redeeming. RCF contends that risk is irrelevant under
its theory of restitution. We disagree. The circuit court asserted jurisdiction to
determine the “legal rights of both creditor and redemptioner under settled rules of
equity jurisprudence applicable in cases of excusable mistake in attempts in good
faith to exercise legal rights.” See Way, 171 N.W. at 207 (emphasis added). But “a
-8-
#27695, #27706
person who without mistake, coercion, or request has unconditionally conferred a
benefit upon another is not entitled to restitution.” Dowling Family P’ship v.
Midland Farms, 2015 S.D. 50, ¶ 24, 865 N.W.2d 854, 864 (emphasis added). And
“[a]n invalidating mistake does not occur where the claimant bears the risk of loss.”
Id. ¶ 25. Accordingly, the circuit court properly considered RCF’s risk of loss in
deciding to redeem.
[¶16.] RCF and Finnemans also argue that the circuit court erred in
concluding that RCF took a calculated risk in deciding to redeem. They contend
that there was no risk of losing their FarmPro redemption interest in a subsequent
foreclosure because at the time RCF redeemed, SDCL 21-52-7 gave RCF the owner’s
final right of redemption in any subsequent foreclosure actions. Further, they note
SDCL 44-1-8 provides that agreements waiving the right of redemption are void.
Thus, RCF and Finnemans contend that losing the owner’s final right of redemption
was an invalidating mistake; they could not be “stripped” of that right, and RCF
would not have redeemed if it knew that the Rabo foreclosure court would rule that
Finnemans waived the owner’s final right of redemption.
[¶17.] Although RCF and Finnemans allege that they were wrongfully
“stripped” of the owner’s right of redemption, they must be deemed to have assumed
the risk of such a decision, and the Rabo court waiver decision is not subject to
collateral attack in this proceeding. 5 Finnemans participated in the prior loan
5. RCF and Finnemans contend that the FarmPro “court erred in determining
that Rock Creek Farms waived its rights to redemption.” However, the
FarmPro court—the circuit court here—did not make that determination.
RCF litigated and lost the waiver issue in the Rabo foreclosure. See Rabo
(continued . . .)
-9-
#27695, #27706
restructuring, and there was law in existence at the time of the FarmPro
redemptions that indicated a waiver of an owner’s right of redemption could be
enforced in some circumstances like this. 6 Moreover, RCF knew that it was taking
a calculated risk by investing money in the FarmPro foreclosure. In a February 19,
2008 letter to counsel for the Finnemans, an attorney representing RCF investor
Anderson described the RCF investments as “a calculated risk” and “gambling with
[Anderson’s] money.” Under these circumstances, both Finnemans and RCF must
be deemed to have assumed the risk that Finnemans’ waiver of the owner’s final
right of redemption might be enforced.
[¶18.] Because the waiver issue was at the very least an open question, RCF
bore the risk of losing its interest in a subsequent foreclosure. The 2006 FarmPro
_________________________________
(. . . continued)
Agrifinance, Inc., 2012 S.D. 20, ¶ 9, 813 N.W.2d at 126. Here, the circuit
court simply took notice of the Rabo court’s decision, and neither RCF nor
Finnemans cite authority allowing them to collaterally attack that final
decision in this appeal.
6. Prior to the time RCF redeemed, this Court decided a case indicating the
possibility that a mortgagor could waive the right to redeem in a subsequent
transaction. Myers v. Eich, 2006 S.D. 69, ¶ 32, 720 N.W.2d 76, 86 (stating
equitable mortgagee has burden of establishing that mortgagor knowingly
waived right of redemption for fair and adequate consideration). There were
also other authorities that specifically cast doubt upon RCF’s and Finnemans’
claim of an absolute, unwaivable owner’s right of redemption. See, e.g.,
O’Connor v. Schwan, 251 N.W. 180, 181 (Minn. 1933) (“It firmly is
established that a mortgagor may not, at the time of, nor as a part of, the
mortgage transaction, bargain away his equity of redemption. . . . However,
it is settled equally well that a mortgagor may bargain away, sell, or convey
to the mortgagee his equity of redemption subsequent to the time that he
executed the mortgage . . . .”); see also 59A C.J.S. Mortgages § 1385 (“A
mortgagor may waive a statutory right of redemption by subsequent
agreement, provided that the agreement is equitable and supported by
adequate consideration.”).
-10-
#27695, #27706
notice of sheriff’s sale put RCF on notice that the land was sold (and therefore
redeemed) subject to Rabo’s superior $4,200,000 mortgage that could also be
foreclosed. Foreclosure by a senior mortgagee “is a matter which the redemptioner
should have considered before it parted with the money.” Copper Belle Mining Co.
of W. Va. v. Gleeson, 134 P. 285, 287 (Ariz. 1913). That is because the redemptioner
takes the land subject to senior mortgages. See Co-operative Lumber Co. of Hecla v.
Treeby, 56 S.D. 313, 228 N.W. 390, 392 (1929); L & L P’ship, 2014 S.D. 9, ¶ 17,
843 N.W.2d at 703-04; Kruse v. State, 73 S.D. 49, 55, 38 N.W.2d 925, 928 (1949); see
also SDCL 21-48A-2. Therefore, as the Arizona Supreme Court noted in a similar
redemption case, even though “the matter turned out very differently from what
was expected, the miscalculation is not such a mistake, either of fact or of law,
within the meaning of the equitable doctrine as entitles the disappointed party to
any relief.” Copper Belle Mining, 134 P. at 287.
[¶19.] Ultimately, RCF must be deemed to have assumed the risk that the
interest it obtained in the FarmPro foreclosure—an interest in heavily encumbered
land—could be lost in a subsequent foreclosure; a foreclosure that was on the horizon
at the time it redeemed. It did not need to know the exact circumstances under
which the risk of loss would materialize; only that loss was possible. See
Restatement (Third) of Restitution and Unjust Enrichment § 5 cmt. c (Am. Law
Inst. 2011) (“Faulty prediction will not support a claim in restitution, and
invalidating mistake is to be distinguished from the error in judgment that is
visible in hindsight.”). The circuit court did not err in denying RCF and Finnemans
equitable relief and awarding Michael summary judgment on his statutory claim to
-11-
#27695, #27706
the Mahoney payment. RCF’s redemption (through Mahoney) was not an
invalidating mistake: RCF took a calculated risk when it redeemed in the FarmPro
foreclosure.
[¶20.] RCF and Finnemans, however, also argue that summary judgement
was improperly granted because there were outstanding disputes of fact on their
equitable claims. They contend that there are disputes of fact whether RCF
redeemed in good faith and whether Arnoldys were unjustly enriched. But because
RCF failed to establish entitlement to restitution by making the threshold showing
of an invalidating mistake, these other unresolved issues of fact were not material.
See supra ¶ 19; see also Dowling Family P’ship, 2015 S.D. 50, ¶ 19, 865 N.W.2d
at 862 (indicating that a claimant must establish all the elements necessary to
support a claim of unjust enrichment).
[¶21.] Finnemans separately argue that factual disputes exist whether there
should be restitution for additional money spent ($4,363,469 less the Mahoney
payment) on real estate taxes, debt payments, and rent paid during foreclosure.
They also argue that there are factual disputes whether RCF made redemption
payments without fraud or deceit; whether Finnemans had standing to move for
summary judgment; and whether Arnoldys violated the L & L judgment of
foreclosure as to redemption of the 200 contract for deed acres. But for the reasons
just expressed, these claims (other than redemption of the contract for deed acres)
are based on the theory of unjust enrichment, and the facts relating to these
elements of unjust enrichment are not material because Finnemans failed to satisfy
the threshold requirement of showing an invalidating mistake. Further, the claims
-12-
#27695, #27706
to money other than the Mahoney payment were not decided by the circuit court;
Finnemans only raised these claims by affidavit and letter, and the court declined
to consider them. Finally, Finnemans have cited no authority supporting an
argument that they are entitled to obtain, in the FarmPro foreclosure, title to the
200 acres that were the subject of the L & L contract for deed foreclosure. Thus,
Finnemans have not identified any disputes of material fact that precluded
summary judgment on Michael’s entitlement to the Mahoney payment.
Discovery Requests
[¶22.] RCF argues that the circuit court erred in not compelling Arnoldys to
respond to certain interrogatories. RCF claims that its “discovery was necessary to
address the doctrine of unclean hands and the proposition that one seeking equity
must do equity.” But Michael sought no equitable relief. Michael merely requested
enforcement of his statutory right to the redemption payment. Therefore, any facts
developed in additional discovery concerning Arnoldys’ unclean hands would have
been irrelevant to the question actually decided. The circuit court did not abuse its
discretion in declining to compel Arnoldys’ response to interrogatories that were
immaterial to the summary judgment question that was decided. See Anderson v.
Keller, 2007 S.D. 89, ¶ 5, 739 N.W.2d 35, 37 (articulating the abuse of discretion
standard for discovery matters).
Conclusion
[¶23.] We conclude that RCF’s decision to furnish money for Mahoney to
redeem in the FarmPro foreclosure was not an invalidating mistake that permitted
equitable relief. Further, Michael had the statutory right to the Mahoney payment.
-13-
#27695, #27706
We affirm the circuit court’s judgment granting summary judgment in favor of
Michael. RCF’s and Finnemans’ other arguments are not appropriate for appellate
review.
[¶24.] GILBERTSON, Chief Justice, and SEVERSON, WILBUR, and KERN,
Justices, concur.
-14-