#23832, 23855, 24082-aff in pt, rev in pt & rem-DG
2006 SD 83
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
* * * *
IN THE MATTER OF THE ESTATE
OF HENRY SIEBRASSE,
Deceased,
* * * *
APPEAL FROM THE CIRCUIT COURT
OF THE SIXTH JUDICIAL CIRCUIT
POTTER COUNTY, SOUTH DAKOTA
* * * *
HONORABLE JAMES W. ANDERSON
Judge
* * * *
KENNITH L. GOSCH and
MELISSA E. NEVILLE of
Bantz, Gosch & Cremer Attorneys for appellant
Aberdeen, South Dakota Delbert Siebrasse.
SARA L. LARSON,
JEFFREY G. HURD and
JOHN H. RAFORTH of
Bangs, McCullen, Butler, Foye & Simmons
Rapid City, South Dakota
CRAIG E. SMITH
Neumayr & Smith Attorneys for appellee
Gettysburg, South Dakota Estate and Donald Siebrasse.
* * * *
CONSIDERED ON BRIEFS
ON MAY 23, 2006
OPINION FILED 8/30/06
#23832, 23855, 24082
GILBERTSON, Chief Justice
[¶1.] Delbert Siebrasse appeals contending the circuit court erred on
remand in (1) denying his request for attorney's fees, expenses and disbursements;
and (2) apportioning the federal estate tax and tax refund. The Estate of Henry
Siebrasse (Estate) has filed a notice of review contending the circuit court erred in
awarding Delbert a prior interest amount on the basis of res judicata.
BACKGROUND
[¶2.] This is the fourth appeal in this ongoing probate dispute. In Estate of
Siebrasse, 2004 SD 46, 678 NW2d 822 (hereinafter Siebrasse III), this Court
addressed the division of a federal estate tax refund obtained as a result of Delbert's
efforts. The Internal Revenue Service (IRS) had refunded $75,525 in estate tax and
$18,055.18 in interest as a result of Delbert's claimed over-valuation of real estate
devised to him. Id. ¶ 6. In reversing the circuit court, this Court held that the
refund amount was required to be "apportioned among all of the devisees of the
Estate." Id. ¶ 21. In addition, we affirmed the denial of attorney's fees to Delbert
because the circuit court's decision to give the entire refund to Delbert did not
benefit the estate and, therefore, no award was justified on those facts. Id. ¶ 27.
However, the circuit court was instructed to reconsider the issue of attorney's fees
on remand in light of the holding that the refund must be apportioned among the
beneficiaries, as the estate may benefit from such a result. Id. ¶ 29. Further, this
Court held that the interest amount represented by the refund was available for
equitable apportionment. Id. ¶ 23. The circuit court had equitably apportioned the
entire interest amount to Delbert and that decision was affirmed. Id. ¶ 24.
-1-
#23832, 23855, 24082
[¶3.] Following our decision, Delbert remitted the $75,525 to the estate for
apportionment. No action was taken by Estate and Delbert filed a motion for
apportionment in circuit court. In the time between this Court's decision in
Siebrasse III, and the motion for apportionment, the IRS was re-examining the
refund previously obtained by Delbert. 1 The circuit court found that the IRS
denied Delbert's claim following the reexamination. This was indicated by a revised
schedule J. That document shows that the IRS increased the value of the real
estate by $147,888 to reflect the denial of the refund claim based on the over-
valuation. The revised schedule also reflects increased deductions for
administrative expenses in the amount of $157,401 consisting of the estate's
increased legal expenses. 2
[¶4.] Delbert's real estate valuation was found to be $317,200 on remand.
Utilizing that amount, the circuit court recalculated the apportionment of federal
estate tax liability. However, the circuit court concluded that its prior allocation of
the interest refund to Delbert was res judicata based on this Court's holding in
Siebrasse III. In addition, because his claim was now considered rejected by the
1. In Siebrasse III, this Court recognized that the estate had been contacted by
the IRS and informed the "government intended to reexamine the refund."
2004 SD 46, ¶ 15, 678 NW2d at 826.
2. Delbert has not presented sufficient evidence to establish that the circuit
court's factual finding that the refund claim was denied is clearly erroneous.
We also note that appeal No. 24082 was consolidated with this matter. That
appeal related to the circuit court's decision to supplement the record. Our
review of the record reveals that the disputed exhibit was in fact contained in
the settled record and attached as an exhibit to Delbert's counsel's affidavit.
SR 1221. That exhibit further supports the circuit court's finding that the
IRS denied Delbert's claim. We consider the appeal challenging the decision
to supplement the record moot.
-2-
#23832, 23855, 24082
IRS, the circuit court found Delbert provided no benefit to the estate by pursuing
the matter and denied an award of attorney's fees or expenses.
[¶5.] Delbert appeals raising the following issues:
Whether the estate tax refund was of substantial benefit
to the estate such that Delbert is entitled to attorney's
fees, expenses and disbursements.
Whether the circuit court incorrectly apportioned the
federal estate tax and tax refund.
[¶6.] By notice of review, Estate raises the following issue:
Whether the circuit court erred in determining the prior
award of interest to Delbert was res judicata.
ANALYSIS
ISSUE ONE
[¶7.] Whether the estate tax refund was of substantial benefit to the
estate such that Delbert is entitled to attorney's fees, expenses and
disbursements.
[¶8.] SDCL 29A-3-720 provides that a court may award "necessary expenses
and disbursements, including reasonable attorney's fees, to any person who
prosecuted or defended an action that resulted in a substantial benefit to the
estate." This Court had previously utilized a two-prong test for entitlement to
attorney's fees: "(1) the services rendered must be beneficial to the estate; and (2)
the services must be necessary because of the negligence, fraud or failure to defend
an interest of the estate by the personal representative of the estate." Siebrasse III,
2004 SD 46, ¶ 26, 678 NW2d at 829 (citing In re Hafferman, 442 NW2d 238 (SD
1989)). This was the test utilized by both the circuit court in addressing this issue
and the parties briefing this matter. However, as recently explained in Wagner v.
Brownlee, 2006 SD 38, ¶ 15, 713 NW2d 592, 597, SDCL 29A-3-720 abrogated this
-3-
#23832, 23855, 24082
two prong test in favor of a single prong test to determine an award of attorney's
fees: "that the services result in a substantial benefit to the estate."
[¶9.] This matter was initially remanded for reconsideration of attorney's
fees in light of a tax refund obtained by Delbert. Subsequently, the circuit court
found the IRS had denied Delbert's refund claim, a claim that was of primary
importance in deciding Siebrasse III. The circuit court found that as a result of this
denial Delbert ultimately provided no benefit to the estate. In addition, because of
this denial the circuit court found the personal representative did not act
negligently as the IRS ultimately agreed with the personal representative's
rejection of Delbert's appraisal.
[¶10.] The circuit court's discussion of this second prong concerning whether
the personal representative acted negligently in analyzing the request for attorney's
fees was not an application of the correct legal standard. Wagner, 2006 SD 38, ¶ 15,
713 NW2d at 597. Nevertheless, any analysis of the second prong was superfluous.
The circuit court had already determined that Delbert's action provided no benefit
to the estate. This is supported by the fact that his claim for a reduced real estate
valuation was denied by the IRS. Consequently, Delbert was not entitled to an
award of attorney's fees, expenses and disbursements pursuant to SDCL 29A-3-720.
[¶11.] The circuit court's decision is affirmed.
ISSUE TWO
[¶12.] Whether the circuit court correctly apportioned the federal
estate tax and tax refund.
[¶13.] "South Dakota adopted the Uniform Probate Code, including SDCL
29A-3-916(b), which continues to provide for equitable apportionment of federal
-4-
#23832, 23855, 24082
estate taxes so that each specific share, interest or legacy bears its proportionate
part of the federal estate taxes." Siebrasse III, 2004 SD 46, ¶ 19, 678 NW2d at 827.
That statute provides in relevant part:
The apportionment is to be made in the proportion that
the value of the interest of each person interested in the
estate bears to the total value of the interests of all
persons interested in the estate. The values used in
determining the tax are to be used for that purpose. If the
decedent's will directs a method of apportionment of tax
different from the method described in this code, the
method described in the will controls.
SDCL 29A-3-916(b). In Siebrasse III, we reversed the circuit court's decision to
grant the entire refund to Delbert so that amount could be divided in proportion to
the federal estate tax liability as then reflected. 2004 SD 46, ¶ 24, 678 NW2d at
828. This holding was based on the specific language of SDCL 29A-3-916(b). Id.
We are mindful that circumstances have changed in this case since that decision as
reflected by the circuit court's findings of fact. The circuit court's decision to
apportion the federal estate tax as reflected on the revised schedule was proper.
This revised apportionment is consistent with both our rationale in Siebrasse III
and SDCL 29A-3-916(b) as applied to the facts now presented. The decision of the
circuit court is affirmed.
ISSUE THREE
[¶14.] Whether the circuit court erred in holding the prior award of
interest to Delbert was res judicata.
[¶15.] SDCL 29A-3-916(c)(2) allows a court to equitably apportion interest
and penalties. After Delbert prosecuted and successfully obtained the tax refund
the circuit court determined that equity demanded the entire amount of interest be
awarded to him. This Court affirmed that decision in Siebrasse III, and remanded
-5-
#23832, 23855, 24082
on other issues. 2004 SD 46, ¶ 24, 678 NW2d at 828. The circuit court determined
the interest amount awarded to Delbert was res judicata based on this previous
decision. Estate contends that the circuit court's decision to leave the interest
award to Delbert intact as res judicata was erroneous. Because the doctrine of res
judicata does not apply in this situation, we reverse the circuit court and remand
for a pro rata distribution of those amounts previously represented as an interest
award.
[¶16.] In analyzing this issue it is important for this Court to clarify the
differences between res judicata and the related doctrine of "law of the case." See
e.g., Florida Dep't of Transp. v. Juliano, 801 So2d 101, 105-06 (Fla 2001) (discussing
the distinction between these two related, but distinct, doctrines). "Res judicata
bars an attempt to relitigate a prior determined cause of action by the parties, or
one of the parties in privity, to a party in the earlier suit." Black Hills Jewelry Mfg
Co. v. Felco Jewel Industries, Inc., 336 NW2d 153, 157 (SD 1983). Whereas, "[i]t is
a general rule, long recognized in this state, that a question of law decided by the
supreme court on a former appeal becomes the law of the case, in all its subsequent
stages, and will not ordinarily be considered or reversed on a second appeal when
the facts and the questions of law presented are substantially the same." Jordan v.
O'Brien, 70 SD 393, 396, 18 NW2d 30, 31 (1945). The "law of the case" doctrine "is
the weaker corollary of the doctrines of res judicata, collateral estoppel and stare
decisis and is intended to prove some degree of certainty where those doctrines
could not yet apply." Schaffer v. Honeywell, Inc., 249 NW2d 251, 260 (SD 1976)
(overruled on other grounds); Western States Land & Cattle Co. v. Lexington Ins.
Co., 459 NW2d 429, 435 (SD 1990). As we have observed:
-6-
#23832, 23855, 24082
Although the principles of the law of the case doctrine and
res judicata are similar, their application differs. The law
of the case rule involves the effect of a previous ruling
within one action on a similar issue of law raised
subsequently within the same action. The rules of res
judicata apply to previous rulings in an action on a
similar determination in a subsequent action.
State v. Lowther, 434 NW2d 747, 752 n 7 (SD 1989). "Where successive appeals are
taken in the same case there is no question of res judicata, because the same suit,
and not a new and different one, is involved." Florida Dep't of Transp., 801 So2d at
105. This is the situation in this case and, therefore, we analyze this issue under
the "law of the case" doctrine to determine if the interest award should remain
intact as the "law of the case."
[¶17.] "The 'law of the case' doctrine is intended to afford a measure of
finality to litigated issues. It is a rule of practice and procedure which for policy
reasons provides that once an issue is litigated and decided it should remain settled
for all subsequent stages of the litigation." Western States Land & Cattle Co., 459
NW2d at 435. "The doctrine of the 'law of the case' is not a rigid rule, and will not
be invoked on a second appeal if the prior decision is 'palpably erroneous' and if it 'is
competent for the court to correct it on the second appeal.'" Estate of Jetter, 1999
SD 33, ¶ 21, 590 NW2d 254, 259. "The 'law of the case' does not rigidly bind a court
to its former decisions, but is only addressed to its good sense." Id. In this regard,
"[a] court may reopen a previously resolved question if the evidence on remand is
substantially different or if a manifest injustice would otherwise result." Id. ¶ 27.
See also Fandrich v. Wells County Board of County Commissioners, 618 NW2d 166,
174 (ND 2000); Grievance Administrator v. Lopatin, 612 NW2d 120, 134 (Mich
2000); Beeck v. Aquaslide 'N' Dive Corp., 350 NW2d 149, 154 (Iowa 1984); Sauer v.
-7-
#23832, 23855, 24082
Scott, 238 NW2d 339, 342 (Iowa 1976) (recognizing "law of the case" only applies
when the evidence on the subsequent appeal is substantially the same as that on
the preceding appeal).
[¶18.] The existence of a tax refund and its accompanying interest award was
a lynchpin underlying this Court's decision in Siebrasse III. Given the substantial
change of circumstances in this case as reflected by the circuit court's findings, the
issue as then decided is only marginally related to the current appeal. Logically,
there can be no award of interest on a refund that now does not exist. Any holding
to the contrary would be inconsistent with our analysis under issues one and two
and the circuit court's finding that the tax refund was ultimately denied by the IRS.
We hold that our prior decision is not binding as the "law of the case" in light of the
substantial change of facts since our prior decision in this matter and remand for a
pro rata apportionment of the amounts formerly represented as refund interest.
[¶19.] Affirmed in part, reversed in part and remanded.
[¶20.] KONENKAMP, Justice and ZINTER, Justice, concur.
[¶21.] MEIERHENRY, Justice, concurs in part and dissents in part.
[¶22.] SABERS, Justice, dissents.
MEIERHENRY, Justice (concurring in part and dissent in part).
[¶23.] I would affirm the trial court on all issues. I agree with the dissent's
observation that too much has been written on this case already. Consequently, our
prior affirmance of the equitable distribution of interest to Delbert should not be
relitigated.
SABERS, Justice (dissenting).
-8-
#23832, 23855, 24082
¶24.] I would affirm the circuit court's award of interest to Delbert because
the decision was res judicata as the circuit court determined, or controlled by the
doctrine of the "law of the case." As stated in the majority opinion:
The "law of the case" doctrine is intended to afford a
measure of finality to litigated issues. It is a rule of
practice and procedure which for policy reasons provides
that once an issue is litigated and decided it should
remain settled for all subsequent states of the litigation.
Western States Land & Cattle Co., 459 NW2d at 435.
[¶25.] I would order the apportionment of the refund of $75,525 which
resulted from the over valuation of Delbert's land as affirmed in Siebrasse III. I
would reject the after the fact revaluation based on the "increased deductions" for
legal fees and administrative expenses allegedly incurred by the estate in fighting
the correct valuation, which was sound.
[¶26.] I would reverse the circuit court's denial of attorney's fees,
disbursements and expenses to Delbert because Delbert's efforts clearly benefited
the estate and without his efforts, the estate would have obtained no relief.
[¶27.] Further, I would do this by order as too much has already been written
on this case.
-9-