Bienash v. Moller

#23781-a-MILLER, Retired Justice

2006 SD 78

IN THE SUPREME COURT

OF THE

STATE OF SOUTH DAKOTA

* * * *

MAXINE BIENASH, Plaintiff and Appellee,

v.

RANDY MOLLER AND KATHY MOLLER, Defendants and Appellants.

* * * *

APPEAL FROM THE CIRCUIT COURT OF
THE FIRST JUDICIAL CIRCUIT
TURNER COUNTY, SOUTH DAKOTA

* * * *

HONORABLE LEE D. ANDERSON
Judge

* * * *
JEFF COLE of
Zimmer, Duncan & Cole
Parker, South Dakota Attorneys for plaintiff
and appellee.

SANDER J. MOREHEAD
KRISTINE L. KREITER O’CONNELL of
Woods, Fuller, Shultz and Smith
Sioux Falls, South Dakota Attorneys for defendants
and appellants.

* * * *

ARGUED APRIL 25, 2006

OPINION FILED 8/16/06
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MILLER, Retired Justice

[¶1.] Kenneth Duebendorfer signed a power of attorney naming Randy and

Kathy Moller (Mollers) as his attorneys-in-fact. Mollers engaged in acts of self-

dealing using the power of attorney. Maxine Bienash filed a complaint and the

circuit court granted summary judgment on two counts, breach of fiduciary duty

and fraud. Mollers appeal. We affirm.

Facts and Procedural History

[¶2.] Duebendorfer was born on February 1, 1913, and died on April 27,

2003, at the age of ninety. He was a bachelor who lived modestly, but had

substantial wealth. Duebendorfer had one sister, Irene Rohrabaugh, who died on

February 23, 2001. In 1998 Duebendorfer executed a power of attorney naming a

friend, Marcella Hinds, as his attorney-in-fact. Hinds took care of Duebendorfer on

a daily basis, providing hygiene, meals and transportation. Hinds also assisted

Duebendorfer in his financial affairs by paying his bills. 1

[¶3.] On March 14, 2001, Hinds took Duebendorfer to the State Bank of

Alcester to meet with bank official Lois Anderson to set up a number of bank

accounts and certificates of deposits (CD’s). 2 That day Duebendorfer opened five

different CD’s with payable on death (POD) beneficiaries for a total of

approximately $170,000. One such account was in the name of Kenneth T.

1. Hinds never asked for money, nor was she ever paid by Duebendorfer for
assisting him.

2. None of these accounts benefited Hinds or any member of her family.

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Duebendorfer, POD, Mrs. William Bienash 3 $40,000. Duebendorfer also opened

two other accounts for a total of approximately $178,000. Those two accounts were

in Duebendorfer’s name only with no POD beneficiaries.

[¶4.] After Rohrabaugh’s death, her great niece Kathy Moller and her

husband Randy began to have more frequent contact with Duebendorfer, with

Randy attempting to see him once a week. Mollers also began to help care for

Duebendorfer, assisting with his hygiene, meals, and household needs. At the same

time, Duebendorfer was upset with Hinds over a gun her grandson had borrowed

from him, as well as, the care and frequency of visits he was receiving from Hinds.

There was also some concern because it was being suggested to Duebendorfer by

Randy that Hinds was mishandling or mismanaging his money. 4

[¶5.] In March of 2002, Randy contacted Attorney Michael McGill to arrange

an appointment for Duebendorfer so that he could execute a new power of attorney

and will. Ultimately, on March 30, 2002, Duebendorfer signed a new power of

attorney naming Mollers as his true and lawful attorneys-in-fact. The powers

granted to Mollers under the power of attorney were broad, but general in nature

and authorized them to do all things that Duebendorfer would personally have the

right to do. Additionally, the power of attorney allowed Mollers to make gifts on

Duebendorfer’s behalf in the amount of the annual exclusion limit pursuant to the

3. Bienash is an elderly first cousin of Duebendorfer.

4. Mollers concede that there is no evidence in the record that Hinds ever had or
was stealing, taking, or mishandling any of Duebendorfer’s money or
property.

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Internal Revenue Code. The document did not contain any language giving them

the power to self-deal. Additionally, the new will Duebendorfer executed on April

10, 2002, made Mollers the chief beneficiaries of Duebendorfer’s estate. 5

[¶6.] On January 14, 2003, Randy went alone to the State Bank of Alcester

and attempted to change the POD beneficiaries on Duebendorfer’s accounts.

Specifically, Randy wanted to list himself and Kathy as POD beneficiaries on all of

the accounts. Bank official Anderson questioned this transaction, wondering if

Randy had the authority to make those changes under the power of attorney. She

then called McGill who informed her that the power of attorney did not give Randy

the authority to self-deal. It was decided that it would be best for Duebendorfer to

go to the bank and make the changes himself, or at the least, have Duebendorfer

send a written statement authorizing the changes.

[¶7.] Mollers never brought Duebendorfer to the bank to make the changes.

Instead, they prepared a document on their home computer which they claimed

Duebendorfer signed, authorizing the transfers. Randy was the only person who

allegedly saw Duebendorfer sign this document. Importantly, the signature on the

document, “Keneth [sic] Deubendorfer” [sic], misspells both his first and last names.

On January 15, 2003, Randy changed the POD beneficiary on the CD that

designated Bienash as POD beneficiary from $40,000 POD Bienash to $20,000 POD

Bienash, $20,000 POD Randy and Kathy Moller. Randy made this same type of

change on all the other accounts at the Alcester bank. In addition, Randy changed

5. This will was found to be the product of undue influence by Mollers and they
have appealed. See Estate of Duebendorfer, 2006 SD 79, 721 NW2d 438.

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the two accounts that did not have POD beneficiaries to add Randy and Kathy

Moller as POD beneficiaries. All of these changes resulted in approximately

$266,000 in POD benefits to Mollers upon Duebendorfer’s death on April 27, 2003. 6

[¶8.] Bienash filed a complaint against Mollers alleging breach of fiduciary

duty, fraud, conversion and deceit as it related to the power of attorney and the

changes Randy had made to benefit Mollers using that power. Bienash moved for

summary judgment on two counts, breach of fiduciary duty and fraud. The circuit

court granted summary judgment on those two counts. Mollers appeal raising the

following issue:

Whether the circuit court erred in finding a breach of fiduciary duty as
a matter of law and granting summary judgment.

Standard of Review

[¶9.] Our review of a trial court’s decision on summary judgment is well

settled:

Summary judgment is authorized if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to
any material fact, and that the moving party is entitled to
judgment as a matter of law. We will affirm only when there
are no genuine issues of material fact and the legal questions
have been correctly decided. All reasonable inferences drawn
from the facts must be viewed in favor of the non-moving party.
The burden is on the moving party to clearly show an absence of

6. Randy also made POD beneficiary changes on two accounts Duebendorfer
had at the Wells Fargo Bank in Beresford. Originally, each account had
approximately $64,500 with no POD beneficiary. After the changes made by
Randy these two accounts had POD beneficiaries, Randy and Kathy Moller,
and resulted in a payment of approximately $129,000 to Mollers. Overall,
upon Duebendorfer’s death, Mollers were paid a total of approximately
$395,000 as a result of all the POD beneficiary changes Randy made using
the power of attorney.

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any genuine issue of material fact and an entitlement to
judgment as a matter of law. Summary judgment will be
affirmed if there exists any basis which would support the trial
court’s ruling.

Schwaiger v. Avera Queen of Peace, 2006 SD 44, ¶7, 714 NW2d 874, 877 (citations

omitted) (emphasis in original).

Analysis and Decision

[¶10.] Whether the circuit court erred in finding a breach of fiduciary
duty as a matter of law and granting summary judgment.

[¶11.] Under our settled law:

A fiduciary relationship is founded on a “peculiar confidence”
and trust placed by one individual in the integrity and
faithfulness of another. When such relationship exists, the
fiduciary has “duty to act primarily for the benefit” of the other.
“Generally, in a fiduciary relationship, the property, interest or
authority of the other is placed in the charge of the fiduciary.”
South Dakota law reflects “the traditional view that fiduciary
duties are not inherent in normal arm’s-length business
relationships, and arise only when one undertakes to act
primarily for another’s benefit. The law will imply such duties
only where one party to a relationship is unable to fully protect
its interests and the unprotected party has placed its trust and
confidence in the other.” We recognize no “invariable rule” for
ascertaining a fiduciary relationship, “but it is manifest in all
the decisions that there must be not only confidence of the one in
the other, but there must exist a certain inequality, dependence,
weakness of age, of mental strength, business intelligence,
knowledge of the facts involved, or other conditions giving to one
advantage over the other.”

Ward v. Lange, 1996 SD 113, ¶12, 553 NW2d 246, 250 (citing High Plains Genetics

Research, Inc. v. JK Mill-Iron Ranch, 535 NW2d 839, 842 (SD 1995)) (additional

citations omitted).

[¶12.] “The existence of a fiduciary duty and the scope of that duty are

questions of law for the court.” Id. “Most often, deciding whether a fiduciary

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relationship was breached is properly left to the trier of fact.” Id. ¶14 (citing

American State Bank v. Adkins, 458 NW2d 807, 811 (SD 1990)). However, in this

case the trial court held “[a]s a matter of law, under the facts of this case viewed

most favorably to the non-moving party, Mollers breached their fiduciary duty owed

to the plaintiffs and committed fraud under SDCL 55-2-3 and 55-2-7 when they

changed the POD designation to benefit themselves in the sum of $20,000.” 7

7. Because the trial court found, as a matter of law, Mollers breached their
fiduciary duty, summary judgment was granted on the fraud count pursuant
to SDCL 55-2-3 and 55-2-7.

SDCL 55-2-3 provides:

Neither a trustee nor any of his agents may take part in any transaction
concerning the trust in which he or anyone for whom he acts as agent has an
interest, present or contingent, adverse to that of his beneficiary, except as
follows:

(1) When the beneficiary does have the capacity to contract and, with a
full knowledge of the motives of the trustee and of all other facts
concerning the transaction which might affect his own decision and
without the use of any influence on the part of the trustee, permits the
trustee to do so;

(2) When the beneficiary does not have the capacity to contract but the
circuit court, upon the like information of the facts, grants the like
permission;

(3) When some of the beneficiaries have the capacity to contract and
some do not have it and the former grant permission for themselves
and the circuit court for the latter in the manner above prescribed; or

(4) When the instrument creating the trust expressly grants
permission to the trustee to buy, sell or lease property for the trust
from or to the trust.

SDCL 55-2-7 provides:

(continued . . .)
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Mollers argue that the circuit erred in finding a breach of fiduciary duty as a matter

of law.

[¶13.] This Court has held that “a power of attorney must be strictly

construed and strictly pursued.” In re Guardianship of Blare, 1999 SD 3, ¶14, 589

NW2d 211, 214 (citing 3 AmJur2d Agency § 31 (1986); Scott v. Goldman, 82 Wash

App 1, 917 P2d 131, 133 (1996)) (stating powers of attorney are strictly construed).

“[O]nly those powers specified in the document are granted to the attorney-in-fact.”

Id. (emphasis added); see also In re Estate of Crabtree, 550 NW2d 168, 170 (Iowa

1996) (citations omitted) (stating “a power of attorney must be strictly construed

and the instrument will be held to grant only those powers which are specified”).

[¶14.] Additionally, we have held “a fiduciary must act with utmost good

faith and avoid any act of self-dealing[.]” Estate of Stevenson, 2000 SD 24, ¶9, 605

NW2d 818, 821 (citing American State Bank, 458 NW2d at 811). In order for self-

dealing to be authorized, the instrument creating the fiduciary duty must provide

“clear and unmistakable language” authorizing self-dealing acts. See id. ¶15. Thus,

if the power to self-deal is not specifically articulated in the power of attorney, that

power does not exist.

[¶15.] The power of attorney granted to Mollers by Duebendorfer was broad,

but general in nature. While it did provide Mollers with gifting authority, that

authority was limited to the annual IRS limit. The power of attorney did not

________________________
(. . . continued)
Every violation of the provisions of §§ 55-2-1 to 55-2-6, inclusive, is a fraud
against the beneficiary of the trust.

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specifically authorize Mollers to engage in acts of self-dealing and it cannot now be

construed to allow such acts. See Blare, 1999 SD 3, ¶14, 589 NW2d at 214.

Therefore, based on the language of the power of attorney, it is apparent, as a

matter of law, Mollers breached their fiduciary duty to Duebendorfer when they

engaged in the acts of self-dealing articulated above. These acts directly benefited

Mollers in the amount of approximately $266,000 upon Duebendorfer’s death,

$20,000 of which would have gone to Bienash.

[¶16.] Mollers, however, argue that there would have been issues of material

fact if the circuit court had not improperly excluded the document they claim

Duebendorfer signed authorizing the POD changes. Mollers argue that the

question before this Court is whether Mollers may introduce extrinsic evidence

outside the terms of a strictly construed power of attorney to raise a factual issue;

i.e. did they have authority to self-deal based on the document allegedly signed by

Duebendorfer?

[¶17.] While this Court has held that “only those powers specified in the

power of attorney are granted to the attorney-in-fact,” id., the issue presented by

Mollers is one of first impression for this Court. Therefore, we look to other

jurisdictions.

[¶18.] In Crosby v. Luehrs, 669 NW2d 635 (Neb 2003), the Nebraska Supreme

court dealt with a scenario where Luehrs, as attorney-in-fact, used a general power

of attorney to change POD beneficiary designations. These changes ultimately

benefited Luehrs, as his amount of inheritance was increased due to these changes.

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[¶19.] In examining whether Luehrs had the authority to make the POD

changes, the Nebraska court held “[n]o gift may be made by an attorney in fact to

himself or herself unless the power to make such a gift is expressly granted in the

instrument and there is shown a clear intent on the part of the principal to make

such a gift.” Id. at 644. The court further held that “[a] fiduciary will not be

allowed to feather his or her own nest unless the power of attorney specifically

allows such conduct.” Id. “In short, where a fiduciary argues that a power of

attorney allowed for self-dealing, that power must be specifically authorized in the

instrument.” Id. (citing Praefke v. American Enterprise Life Ins., 655 NW2d 456,

459 (WisCtApp 2002)). Based on these principles, the court concluded that Luehrs

had engaged in impermissible self-dealing.

[¶20.] In Kunewa v. Joshua, 924 P2d 559 (HawCtApp 1996), the Hawaii

Intermediate Court of Appeals was faced with a situation where Joshua used his

general power of attorney, that did not expressly authorize him to make a gift to

himself, to convey virtually all of his mother’s property to himself. Joshua

attempted to submit three affidavits that explained that his mother had intended

that he use the power of attorney to make gifts to himself.

[¶21.] The Hawaii court held “[w]here a power of attorney does not expressly

authorize the attorney-in-fact to make gifts to himself or herself, extrinsic evidence

of the principal’s intent to allow such gifts is not admissible.” Id. at 565. The court

explained the policy reasons underlying the rule prohibiting extrinsic evidence as

follows:

When one considers the manifold opportunities and temptations
for self-dealing that are opened up for persons holding general

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powers of attorney—of which outright transfers for less than
value to the attorney-in-fact [himself or] herself are the most
obvious—the justification for such a flat rule is apparent. And
its justification is made even more apparent when one considers
the ease with which such a rule can be accommodated by
principals and their draftsmen.

Id. (citing Estate of Casey v. Comm’r of Internal Revenue, 948 F2d 895, 898 (4thCir

1991)). The court went on to uphold the circuit court’s determination, that as a

matter of law, Joshua did not have the authority to make a gift of his mother’s

property to himself under the power of attorney.

[¶22.] In Praefke, 655 NW2d 456, the Wisconsin Court of Appeals was faced

with a scenario where an attorney-in-fact used a durable power of attorney to

designate herself as sole beneficiary of annuity contracts. The court held that “[a]

fiduciary will not be allowed to feather his or her own nest unless the power of

attorney specifically allows such conduct. In short, where the fiduciary argues that

the power of attorney allowed for self-dealing, that power must be specifically

authorized in the instrument.” Id. at 459. Because the power of attorney in

question in Praefke did not include the power to self-deal, the Wisconsin court was

asked whether extrinsic evidence of the principal’s oral authorization to allow such

self-dealing in the form of a self-serving affidavit was admissible.

[¶23.] The court, relying on Kunewa’s “compelling reasons for the rule

prohibiting extrinsic evidence,” id. at 460 (citing Kunewa, 924 P2d at 565), held “an

attorney-in-fact may not make gratuitous transfers of a principal’s assets unless the

power of attorney from which his or her authority is derived expressly and

unambiguously grants the authority to do so. As a corollary to this bright-line rule,

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extrinsic evidence of the principals’ intent to allow such gifts is not admissible.” Id.

at 461. 8

[¶24.] After examining these cases, we conclude that the appropriate rational

for this Court is to adopt a bight-line rule that no oral extrinsic evidence will be

admitted to raise a factual issue. We leave for another day the issue of whether

extrinsic evidence in the form of a writing should be admitted to raise a factual

issue because the subsequent writing in this case is inadequate, as a matter of law.

[¶25.] The “written document” Mollers claim for their authority is vague; the

document does not authorize self-dealing and does not approve of the specific

changes Randy made at the bank. Rather, the document, in its entirety, says:

I, Kenneth Duebendorfer, wish to notify the State Bank of
Alcester that I am fully aware of the changes to be made on the
CD’s that I have at the State Bank of Alcester by my Power of
Attorney Randall R. Moller.
We have discussed the changes and I authorize Randy
Moller to make them on my behalf.

This document does not give Randy authority to make himself and Kathy POD

beneficiaries on Duebendorfer’s accounts. It does not even give him authority to

make changes to the POD beneficiaries. Nothing in this writing indicates that

Duebendorfer was permitting Mollers to engage in self-dealing. The way the

document is written there is no way to know what “specific” changes Duebendorfer

wanted made.

8. The court in this case also took note of Fender v. Fender, 329 SE2d 430, 431
(SC 1985) (rejecting purported oral authorization to make gifts in order to
avoid fraud and abuse) and Estate of Swanson v. United States, 46 FedCl 388,
392 (2000) (applying California law to conclude that a power of attorney may
(continued . . .)

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[¶26.] Mollers admit that they prepared this document on their home

computer, they could have easily put in the specific POD changes Duebendorfer

allegedly wanted made to his accounts. Additionally, Randy was the only person to

witness Duebendorfer allegedly sign the document, misspelling both his own first

and last names. Therefore, Mollers argument that the “written document signed in

the grantor’s own hand” approving the changes dispels any concern of fraud and

deception is not persuasive.

[¶27.] Based on the foregoing authority, we hold that an attorney-in-fact may

not self-deal unless the power of attorney from which his or her authority is derived

expressly provides in clear and unmistakable language authorization for self-

dealing acts. Furthermore, no oral extrinsic evidence will be admitted to raise a

factual issue. Finally, the offered written extrinsic evidence here, as a matter of

law, is inadequate to raise a factual issue. Therefore, we find no error in the trial

court’s refusal to admit the writing and granting of summary judgment.

[¶28.] Affirmed.

[¶29.] GILBERTSON, Chief Justice, and KONENKAMP, ZINTER, and

MEIERHENRY, Justices, concur.

[¶30.] MILLER, Retired Justice, sitting for SABERS, Justice, disqualified.

________________________
(. . . continued)
only be altered or expanded by another writing), aff’d 10 FedAppx 833, 836
(FedCir 2001); Praefke, 655 NW2d at 461.

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