Argued October 6, 2015.
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
APPEAL FROM THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT BENNETT COUNTY, SOUTH DAKOTA. THE HONORABLE KATHLEEN F. TRANDAHL, Judge.
MICHAEL A. HENDERSON, SCOTT R. SWIER of Swier Law Firm, Prof. LLC, Avon, South Dakota, Attorneys for plaintiff and appellant.
CLINT L. SARGENT, RALEIGH E. HANSMAN of Meierhenry Sargent LLP, Sioux Falls, South Dakota, Attorneys for defendant and appellee.
KERN, Justice. GILBERTSON, Chief Justice, and ZINTER and SEVERSON, Justices, and SOMMERS, Circuit Court Judge, concur. SOMMERS, Circuit Court Judge, sitting for WILBUR, Justice, disqualified.
[¶1] James Anthony O'Neill (Tony) requested the circuit court equitably divide the assets of corporations he owns jointly with his brother, Richard Dean O'Neill (Rick). Rick counterclaimed, seeking the enforcement of agreements dividing the corporate land and equipment. Tony appeals the circuit court's imposition of punitive damages against him, the court's denial of his request for disqualification, the court's decision to hold him in contempt, and several of the court's factual findings. We reverse the circuit court's award of punitive damages and affirm the other issues presented.
Facts and Procedural History
[¶2] Tony and Rick are co-owners of farming and ranching operations in Bennett County, South Dakota. Although Tony and Rick have farmed and ranched together since 1988, the brothers formally created two corporations in 1996: O'Neill Farms, Inc., and O'Neill Cattle Company, Inc. (the Corporations). Tony is the president, treasurer, and a director of O'Neill Cattle Company; Rick is the vice president, secretary, and a director. Rick is the president, treasurer, and a director of O'Neill Farms; Tony is the vice president, secretary, and a director. Each brother is a 50% shareholder in each corporation. The corporations have been in operation since 1996 but have not written by-laws, held formal meetings, or kept corporate records of any kind. Furthermore, there were no written agreements in place to control the distribution of corporate assets in the event of dissolution.
[¶3] The corporations held assets including land and equipment. The real estate held by the Corporations is largely organized in three sets: the Danielski property, the Byrnes place, and the Jacquot place. The Danielski property consists of three quarter sections of land, each equipped with an irrigation pivot. The parties, operating as a partnership, purchased the Danielski property in 1991. The Byrnes place consists of two quarter sections of land. Each quarter section is equipped with an irrigation pivot. Tony purchased this property in 1995. The property also included a house where Rick and his wife, Kari, resided. Rick remodeled the home over the span of 2007 to 2011. The property, which is also referred to as the Headquarters, includes worker housing, storage buildings, barns, tree groves, corrals, 200,000 bushels of grain storage, and livestock feeding facilities. After the Corporations were formed in 1996, Tony and Rick transferred the five quarter sections of land contained in the Danielski property and the Byrnes place to O'Neill Farms. The parties' cattle were transferred to O'Neill Cattle Company. In 1999, O'Neill Cattle Company purchased the Jacquot place, which consisted of seven quarter sections of land and an additional 37 acres. Only two of the seven quarter sections were initially equipped with irrigation pivots, but the parties subsequently installed irrigation pivots on two additional quarter sections. The five quarter sections of land constituting the Danielski and Byrnes properties are more productive than the land included in the Jacquot place.
[¶4] Although Tony and Rick contemplated dissolution as early as 2008, Tony did not approach Rick about dissolving their businesses until 2011. The brothers had not previously agreed in writing on how to divide the corporate property, but they generally determined that they would divide the land first, then equipment, leases of their father's land, cattle, tools, and then remaining assets and debt. The parties
met on multiple occasions in the spring and summer of 2011 to discuss the division of assets. Rick's notes from these meetings, which the circuit court found credible, indicate the parties met in July 2011 and preliminarily divided the corporate real property into two groups. The parties determined that Tony would draft a proposed agreement and that Rick would get first choice between the resulting options. The parties met again on August 16, 2011, at Rick's home. Nobody else was present at this meeting.
[¶5] The brothers never reached a complete agreement on the division of corporate assets, and Tony initiated a lawsuit in February 2012 asking the circuit court to divide the assets of O'Neill Cattle Company and O'Neill Farms. Rick counterclaimed, seeking a preliminary injunction, the enforcement of asset-separation agreements, and a corporate accounting. Specifically, Rick produced a copy of a land-separation agreement (LSA) appearing to bear the signatures of both parties. According to the terms of the LSA, the parties purportedly agreed on August 16, 2011, to divide the Corporations' real property. Tony would receive the Byrnes place with all of its facilities--including Rick and Kari's newly remodeled home and three of the five irrigated, high-production quarter sections. Rick would receive the Jacquot place, including two irrigated, high-production quarter sections, four irrigated, poor-production quarter sections, and three nonirrigated quarter sections of pasture land. Tony asserted his signature was forged on the LSA, and he produced an alternate version at trial. The parties met again in December 2011 and signed an equipment-separation agreement (ESA) witnessed by their father, Dean O'Neill. Although Tony asserts his signature on the LSA was forged, Kari testified that she saw a copy of the signed agreement in August 2011. Dean also testified that he saw a signed copy of the agreement in September 2011. According to Dean, Tony told him that he had drafted the LSA and that Rick made his choice. The circuit court found both Kari and Dean were credible witnesses and concluded that Tony perjured himself by denying that he signed the LSA. Believing it was required to report the commission of a felony, the court reported Tony's perjury to the Sheriffs and State's Attorneys in Bennet and Tripp Counties on November 4, 2013--the same day the court finalized its findings of fact and conclusions of law. On December 3, 2013, Special Agent Jeff Goble contacted the court to discuss the investigation.
[¶6] The court enforced the LSA and the ESA and divided the remaining assets in an order dated December 23, 2013. Although the court dismissed Rick's shareholder derivative actions, the court also ordered Tony to pay $450,000 in punitive damages to the two corporations. Among other things, the court's order required the parties to formally transfer ownership of the corporate real property, according to the terms of the LSA, within one week from the date of the order. Despite requiring the immediate execution of these transfers, the court nevertheless purported to retain jurisdiction. In a letter dated
March 18, 2014, the court indicated that the parties agreed that the court should retain jurisdiction while the tax consequences of the prospective transfers were being determined. The court also indicated that it learned after the trial that both Tony and Rick had taken loans from the corporations.
[¶7] Tony refused to comply with the court's order, and Rick asked the circuit court to hold Tony in contempt. The court held a contempt hearing on March 13, 2014, and held Tony in contempt for not removing his cattle from land awarded to Rick in the property division. The court assessed a fee against Tony of $500 per day dating back to December 31, 2013. At the hearing, the circuit court repeated its belief that Tony had committed perjury. The court also scheduled a second contempt hearing for March 27, 2014. After the March 13 contempt hearing, Tony asked the circuit court to disqualify itself from further proceedings based on the court's statements regarding Tony's truthfulness. The court denied Tony's motion. Tony then filed a notice of appeal on March 21, 2014, prior to the second contempt hearing. Despite the notice of appeal, the circuit court continued to hold hearings in the matter. Tony later filed a second notice of appeal regarding the circuit court's activity subsequent to Tony's first notice of appeal.
[¶8] Tony appeals, raising five issues:
1. Whether the circuit court erred by finding the land-separation agreement was credible and entitled to enforcement.
2. Whether the circuit court erred by finding that the $149,514.93 crop-insurance payment was not a corporate asset of O'Neill Cattle Company.
3. Whether the circuit court erred by awarding punitive damages to the corporations.
4. Whether the circuit court had jurisdiction to hold the contempt hearings.
5. Whether the circuit court erred by denying Tony's request for disqualification.
Standard of Review
[¶9] We review a circuit court's findings of fact for clear error. Gartner v. Temple, 2014 S.D. 74,
¶ 8, 855 N.W.2d 846, 850. " The question is not whether this Court would have made the same findings that the trial court did, but whether on the entire evidence we are left with a definite and firm conviction that a mistake has been committed." Id. (quoting Estate of Olson, 2008 S.D. 97,
¶ 9, 757 N.W.2d 219, 222). We review a circuit court's conclusions of law de novo. Id.
[¶10] " The credibility of the witnesses, the weight to be accorded their testimony, and the weight of the evidence must be determined by the circuit court and we give due regard to the circuit court's opportunity to observe the witnesses and the evidence." McCollam v. Cahill, 2009 S.D. 34,
¶ 6, 766 N.W.2d 171, 174 (quoting In re Estate of Pringle, 2008 S.D. 38,
¶ 18, 751 N.W.2d 277, 284).
Analysis and Decision
[¶11]1. Whether the circuit court erred by finding the land-separation agreement was credible and entitled to enforcement.
[¶12] Tony asserts the circuit court's finding that Tony signed the LSA is clearly erroneous. According to Tony, the agreement Rick produced at trial was a forgery and " contained a nonsensical division of land[.]" Tony's expert witness,
Ms. Tweedy, a forensic document examiner, testified that she believed Tony's signature had been falsified because it was misaligned with the rest of the document. The circuit court entirely disregarded Ms. Tweedy's testimony because, in the court's view, her conclusion was inconsistent with the other evidence presented. Because Tony views his expert's testimony as " compelling," he concludes that the circuit court erred by enforcing the land-separation agreement. We do not agree.
[¶13] The circuit court made a number of other findings and credibility determinations that support its decision. The court found that Tony and Rick agreed at their July 2011 meeting that Tony would prepare a proposed division of the corporate real estate. The court found that Tony presented Rick with the proposal at a meeting on August 16, 2011, that Rick made his choice, and that Tony then completed the document in his handwriting. Although Tony claimed he presented Rick with a different proposal than that expressed in the LSA, the circuit court found Tony's testimony not credible. In contrast, the court did find credible both Kari's testimony that she saw the signed LSA in mid-August 2011 and Dean's testimony that he saw the signed agreement in Rick's home in September 2011. Even more compelling, the court found credible Dean's testimony that he spoke with Tony about the LSA at the December 2011 meeting when he witnessed Tony and Rick sign the ESA. According to the court's findings of fact, Tony told Dean " that he's a livestock and cattle buyer and that he only needed the three quarters and the big feedlot to run cattle." Tony also told Dean that he proposed the division of real estate memorialized in the LSA.
[¶14] The behavior of the parties also supports the circuit court's finding. After their meeting, Rick hired an attorney to draft the deeds required by the LSA. Before these deeds were completed--and at Tony's urging--Rick and Kari moved out of their newly remodeled home located on the Byrnes Place and into a mobile home located on the Jacquot Place. Because the main residence on the Jacquot Place was virtually uninhabitable, Rick and Kari purchased a new modular home for the property using personal funds and $80,000 borrowed from Dean. Later, in Januaryore February 2012, Tony informed Rick and Kari that he disputed signing the LSA. The circuit court found that Rick's and Kari's actions were consistent with their testimony in that they moved out of their home on the Byrnes Place and purchased a new home for the Jacquot Place in reliance on the LSA.
[¶15] Rick also produced expert testimony to support the authenticity of the LSA. Mr. Meinke, a computer forensics expert, examined Tony's computer. He found a file on Tony's computer, saved in a folder titled " Tony's documents," almost identical to the LSA. The circuit court found that the date and time stamp on the file are consistent with Rick's testimony. Mr. Meinke also located a file identical to the land-separation agreement Tony claims he provided to Rick on August 15, 2011. However, Mr. Meinke determined Tony's version had been created on October 28, 2011, 73 days after the August 2011 meeting between Tony and Rick.
[¶16] Another of Tony's expert witnesses, Mr. Rinehart, testified that the procedure to alter the date and time stamps on a file requires a 14-step procedure. The circuit court found that " [t]here is no credible evidence that Rick used Tony's computer at any time" or that " either Tony or Rick has the technical skills necessary to conjure up the fourteen steps necessary to change the date stamps on a document." Mr. Meinke also offered an alternative explanation for the misalignment of Tony's signature. According to
Mr. Meinke, the copy of the LSA that Ms. Tweedy examined was the scanned image of a copy of a copy of an original document produced on a low-end printer. According to Mr. Meinke, it is more probable that the misalignment ...