K-PORK, INC. and DAYLE KUHLEMEIER, Plaintiffs-Appellants, vs. MICHAEL L. KUHLEMEIER and JANET KUHLEMEIER, Defendants-Appellees.
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IN THE COURT OF APPEALS OF IOWA
No. 9-110 / 08-0963
Filed May 29, 2009
K-PORK, INC. and DAYLE KUHLEMEIER,
Plaintiffs-Appellants,
vs.
MICHAEL L. KUHLEMEIER and JANET KUHLEMEIER,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Cerro Gordo County, Chris Foy,
Judge.
K-Pork, Inc. and Dayle Kuhlemeier appeal from the declaratory judgment
ruling of the district court. AFFIRMED.
James M. Stanton of Stanton & Sorensen, Clear Lake, for appellants.
Janet Kuhlemeier, Rockwell, pro se.
Scott D. Brown of Brown, Kinsey, Funkhouser, and Lander, Mason City,
for appellees.
Heard by Sackett, C.J., Vogel, J., and Nelson, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2009).
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NELSON, S.J.
K-Pork, Inc. and its majority shareholder, Dayle Kuhlemeier, 1 appeal from
the district court’s ruling in this declaratory judgment action finding the property at
issue is owned by Michael Kuhlemeier. Dayle contends the district court erred in
refusing to set aside the 2005 warranty deed with which Dayle and Janet
Kuhlemeier transferred the hog confinement and building site to Michael
Kuhlemeier. In the alternative, Dayle contends the confinement facility must be
re-transferred under the terms of the parties’ escrow agreement. We affirm.
I. Background Facts and Proceedings.
Dayle and Janet Kuhlemeier were, at all times material to this action,
husband and wife engaged in various farming activities. 2 Michael is one of their
five offspring. Dayle and Janet raised cash crops on roughly 1000 acres and had
livestock. Some of their farming activities were carried on in Dayle’s and Janet’s
individual names.
Other activities were conducted through K-Pork, an Iowa
corporation organized on January 20, 2000, of which Dayle and Janet are the
only shareholders and officers.
Still other farming activities were conducted
through Kuhlemeier Farms, Inc. As the trial court found, “[n]o clear rules define
which person or what entity will receive the revenues from a particular farming
activity or bear responsibility for payment of the expenses associated with that
activity.”
Dayle and Janet, as well as some of their children and children’s spouses,
have worked the family farming operation together for many years.
1
Their
For convenience, we will refer to the appellants, K-Pork and Dayle Kuhelmeier,
collectively as “Dayle.”
2
At the time of trial, however, a dissolution action was pending.
3
daughter, Diane Logan, assisted with the care and feeding of livestock. Michael
and another son, Robert, both worked in the farming operation for about two
decades.
In 1995 and 1996, the Kuhlemeiers constructed the hog confinement and
building site at issue here—consisting of five confinement buildings and an office
building—on about seven acres of land located near Dayle and Janet’s marital
residence (“confinement facility”). Dayle and Janet owned the site on which the
facility was constructed, but Michael and Robert were involved in the design,
construction, and eventual operation of the facility. Each of the five confinement
buildings holds about 1000 hogs. Dayle, Janet, Michael, and Robert first used
the confinement facility to custom feed hogs under a contract with Land O’Lakes,
Inc. That relationship ended, and the Kuhlemeiers entered into a contract with
Triple Edge Pork. From September 2002 to the time of trial, the confinement
facility was used to custom feed hogs under contracts K-Pork had with Squealers
Pork, Inc.3 Although K-Pork does not own and has never owned the confinement
facility, it is named as the grower and the party entitled to compensation in each
of the contracts with Squealers Pork.
The day-to-day care of the hogs was
provided primarily by Dennis Love; Diane Logan; Diane’s husband, Brian Logan;
Robert; and Michael.
Michael and Robert did not receive regular compensation for their efforts
with the family grain or hog confinement operations, but both expected they
would at some point receive a portion of the farm assets. At the end of 2003,
Robert apparently gave up on the idea that he would receive a fair share of the
3
Squealers Pork owns the hogs, and K-Pork provides husbandry services.
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family farm operation and ended his participation. In March 2004 an attorney for
Robert sent a letter to Dayle and Janet’s attorney claiming Dayle and Janet owed
Robert in excess of $500,000 for machinery, equipment, and two of the five hog
buildings. No legal action has followed.
Michael and Diane continued to contribute their labor to the family farming
operations, including the confinement facility.
Michael began to speak more
often with his parents about receiving a tangible return on his contributions to the
family operations. Michael also began to spend more time hauling feed and
market-weight hogs. Eventually, he formed M & K Trucking, Inc., so he could
segregate the revenues from the trucking operations and insure that revenue
would be available to cover the expenses of the trucking business and
compensate him for his efforts. He continued, however, to be engaged in the
operation of the confinement facility, supervising and training all employees who
were engaged in the day-to-day operations of the hog confinement.
On March 4, 2005, Dayle and Janet signed a warranty deed conveying the
confinement facility to Michael. No cash or other consideration accompanied the
transfer. When title to the confinement facility was transferred to Michael, he
began to pay the real estate taxes due on the confinement facility.
In September 2005 Michael and his wife, Kelly, delivered an “Escrow for
Deed” to Dayle and Janet’s attorney, along with a warranty deed conveying the
confinement facility back to Dayle and Janet. The “Escrow for Deed” instructed
the attorney to
deliver the attached deed to the grantees, or the surviving grantee
in the event of death of one grantee, as named therein when any of
the following events occur:
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(A) Upon the death of Michael L. Kuhlemeier;
(B) When Michael L. Kuhlemeier abandons or ceases to
actively operate the hog facility located upon the premises;
(C) When Michael L. Kuhlemeier attempts to sell, transfer or
convey the premises to persons or entities other than the grantees
herein, or
(D) At such time as the hog facility remains inactive for a
period of more than nine (9) months. The facility shall be deemed
inactive when it is not used for purposes for which it was designed,
constructed and intended for the production of hogs.
On March 20, 2007, K-Pork commenced this action seeking temporary
and permanent injunctive relief to restrain Michael from obstructing, interfering
with, or otherwise meddling in its ordinary business affairs.
A temporary
injunction was granted ex parte, but was later vacated having been entered
without notice to Michael. The petition was amended to add Dayle as a plaintiff
and inserted a request for declaratory judgment regarding Dayle and Michael’s
relative rights of ownership of the confinement facility. A second amendment
asserted alternative grounds for declaratory judgment.
added Janet as a defendant.
A third amendment
Michael and Janet answered, and Michael
asserted a counterclaim asking for declaratory judgment regarding his ownership
of and possessory rights to the confinement facility.
After trial, the district court denied Dayle’s requested relief, concluded
Michael was entitled to sole possession and control of the confinement facility,
and established a time table for the discontinuation of K-Pork’s operations at the
confinement facility.
Dayle appeals. First, Dayle argues that the 2005 warranty deed should be
set aside because it was conditional in nature and should be presumed to be
fraudulent because Dayle transferred the confinement facility to Michael to keep
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it out of Robert’s hands.
In the alternative, Dayle argues that Michael has
ceased to “actively operate” the hog facility and therefore transfer of the facility is
required under the terms of the escrow agreement.
II. Scope and Standard of Review.
Our review of actions for declaratory judgment depends upon how the
action was tried to the district court. Passehl Estate v. Passehl, 712 N.W.2d 408,
414 (Iowa 2006). Whether a declaratory judgment action is considered legal or
equitable in nature is determined by the pleadings, the relief sought, and the
nature of the case. Gray v. Osborn, 739 N.W.2d 855, 860 (Iowa 2007). Because
this case was tried in equity, our review is de novo. See Iowa R. App. P. 6.4;
Allamakee County v. Collins Trust, 599 N.W.2d 448, 451 (Iowa 1999). We give
weight to the district court’s factual findings, especially when considering the
credibility of witnesses, but are not bound by them. Iowa R. App. P. 6.14(6)(g).
III. Discusssion.
A. 2005 Warranty Deed.
Dayle seeks to set aside the 2005 transfer by warranty deed of the
confinement facility to Michael.
Dayle contends the transfer was without
consideration and was fraudulent with respect to Robert Kuhlemeier. The district
court rejected both grounds, as do we.
[A] deed is presumed to be that which it purports to be and the
burden is on the one asserting otherwise. When a deed sufficient
to vest title is executed and delivered, the law raises the
presumption of an intent to pass the title in accordance with its
terms and the burden rests on the one who avers a different
intention.
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Frederick v. Shorman, 259 Iowa 1050, 1056, 147 N.W.2d 478, 482 (1966).
Dayle contends the 2005 warranty deed was not intended as an unconditional
transfer. As was the situation in Frederick, Dayle is attempting to “change or
overcome the presumption arising from the terms of the deed” he caused to be
executed and delivered. Id. at 1057, 147 N.W.2d at 483. His burden in this
attempt is heavy one.
When one attacks a deed such as this in an attempt to show
it does not properly express the real intent of the grantor, either by
an action for reformation on the grounds of mistake, fraud, duress
or the like, or to prove a resulting trust, the burden thus assumed is
always a heavy one requiring the stated quantum of proof. This is
particularly so when the deed is carefully drawn and solemnly
executed and acknowledged before a notary. The presumptions of
validity and regularity attaching to such a document require clear
and convincing evidence to preponderate against them.
Id. at 1058, 147 N.W.2d at 483 (emphasis added).
Dayle has not met his
burden.
The district court found it clear that Dayle and Janet intended to transfer
the confinement facility to Michael and did so without requiring consideration.
Our de novo review leads us to the same conclusion. The warranty deed was
prepared by Dayle and Janet’s attorney who had handled their legal matters over
the years.
The deed specifically recites that no consideration was given or
required; was signed by both Dayle and Janet; was notarized by their attorney;
and on April 29, 2005, was duly recorded in the auditor’s books. Michael testified
that the transfer was in recognition of his past contributions to the family farming
operation, but Dayle asserted the purpose of the transfer was to shelter the
facility from a potential claim by Robert.
The district court specifically found
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Michael’s testimony was more credible. We give weight to that credibility finding
and expressly approve of the reasoning enunciated by the court.
Dayle argues that the lack of consideration gives rise to a presumption of
fraud. However, Dayle relies upon case law wherein a creditor may seek to set
aside transfers without due consideration that are not applicable here. The lack
of consideration here is not legally significant. See id. at 1057, 147 N.W.2d at
483 (“Consideration is not necessary to support a gift; after delivery—which in
the instant case was by the execution and recording of the deed—the gift is
irrevocable except, of course, upon mutual agreement of the parties.”).
Dayle also argues that his intent was to defraud Robert and, therefore, the
transfer to Michael should be set aside as a fraudulent transfer. We conclude
Dayle has no legal basis for asserting his own fraudulent intent as a means to set
aside the transfer.
In Opperman v. M. & I. Dehy, Inc., 644 N.W.2d 1, 6 (Iowa 2002), our
supreme court enunciated the clean hands maxim as a bar to setting aside a
transfer even though it was without consideration.
[W]henever a party who seeks to set the judicial machinery in
motion and obtain some equitable remedy has violated conscience
or good faith, or another equitable principle in prior conduct with
reference to the subject in issue, the doors of equity will be shut,
notwithstanding the defendant’s conduct has been such that in the
absence of circumstances supporting the application of the maxim,
equity might have awarded relief.
In Opperman, 644 N.W.2d at 6, Elizabeth Opperman asked the court to rescind
and set aside a mortgage given to a corporation (M. & I., owned by Elizabeth’s
son) on property owned by another corporation (Delray, owned by Elizabeth’s
husband). Opperman, 644 N.W.2d at 3-4. The supreme court refused to set
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aside the mortgage, even though it found the transfer was without consideration.
Id. at 6.
Elizabeth is seeking affirmative relief to rescind and cancel
the mortgage. She is claiming the Manning property under [her
husband] Ivan. The clean hands maxim would bar Ivan from any
affirmative relief to cancel the mortgage because it was given to
hinder his creditor. The same maxim likewise bars Elizabeth who
claims the Manning property under Ivan.
Id.
Moreover, our supreme court concluded that M. & I., the “alter ego” of
Elizabeth’s son, John, was also barred any relief “having been a party to the
scheme to hinder” Ivan’s creditor. Id. at 7.
The district court did not err in rejecting Dayle’s attempt to set aside the
2005 warranty deed on the ground his intention was fraudulent as to Robert. We
leave these parties “in the position in which they have placed themselves.” Id.
B. Escrow Agreement.
Dayle asserts, in the alternative, that under subsection B of the escrow
agreement, Michael has ceased to “actively operate the hog facility located upon
the premises” and thus the deed in escrow must be delivered. We agree with the
district court that this assertion is without merit.
Michael continues to be as engaged and involved in the operation of the
hog facility as he has been since the escrow agreement was delivered to Dayle
and Janet’s attorney. We agree with the trial court’s findings and conclusions in
this regard and deem further discussion unnecessary.
IV. Conclusion.
The district court did not err in finding the 2005 warranty deed transferred
title of the confinement facility to Michael and that he is thus entitled to
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possession and control. Transfer of title under the terms of escrow agreement is
not warranted. We affirm.
AFFIRMED.
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