IN COURT OF APPEALS
Filed January 2, 2007
Hennepin County District Court
File No. 27-CV-04-000813
Robert A. Gust, Gust Law Firm,
William R. Skolnick, 2100 Rand Tower, 527 Marquette Avenue South, Minneapolis, MN 55402 (for appellants)
David M. Lawson,
Considered and decided by Klaphake, Presiding Judge; Worke, Judge; and Ross, Judge.
S Y L L A B U S
When the district court issues a ruling on a demand for change of venue as a matter of right under Minn. Stat. § 542.10 (2004), the appropriate course of action to challenge that decision is to immediately file a petition for mandamus with this court rather than challenging that decision in an appeal to this court after the trial has concluded.
O P I N I O N
On appeal from the district court’s ruling that respondent was entitled to all right, title, and interest in a corporation, including real property, appellants argue that (1) the district court lacked subject-matter jurisdiction to address property located in another county and lacked the authority to deny appellants’ request for a change of venue; (2) respondent’s inequitable conduct should have precluded the district court from granting respondent relief; (3) respondent lacked standing to challenge transfer of title to the property; (4) the statute of frauds should have precluded the district court from ruling that title was in respondent’s name; (5) the requirements for a constructive trust were not satisfied; (6) a constructive trust cannot be used to transfer title to real property; (7) because respondent’s evidence regarding title to the property was internally inconsistent, it cannot support the district court’s ruling; (8) respondent waived any claim to the property; and (9) the record either does not support the district court’s ruling or shows that a new trial is required. We affirm in part and reverse in part.
In 1977, respondent Elizabeth
Peterson and her then-husband, James Peterson, created Custom Coach & Van
(later renamed Custom Coach RV & Marine, Inc.). In 1989, Custom Coach purchased property
In 2001, respondent and James Peterson separated, and Obelyn Peterson’s health began to deteriorate. At that time, HRI’s assets and land were transferred to appellant Patricia Peterson (respondent and James Peterson’s daughter) for $1. Appellant Peterson and respondent met to discuss possibly setting up a trust to hold certain assets, including HRI’s assets and land, for the benefit of respondent and James Peterson. While an unsigned, handwritten note in appellant Peterson’s handwriting was introduced into evidence regarding the discussion at the meeting, no actual trust documents were created to show whether an agreement was reached regarding a trust.
Respondent continued to be employed by HRI until October 2002, when appellant Peterson terminated respondent’s employment for alleged misconduct. Prior to the finalization of their divorce, James Peterson signed a Release of All Claims to the HRI assets and land contingent upon receipt of title and interest in a campground owed by respondent and James Peterson. No similar release of claims was ever signed by respondent.
In 2004, respondent filed a lawsuit
I. Is appellants’ challenge to the district court’s venue decision properly before this court?
II. Does respondent’s inequitable conduct preclude the district court from granting her relief?
III. Did respondent lack standing to challenge the transfer of HRI’s assets and land from Obelyn Peterson to appellant Peterson?
IV. Is respondent’s claim to HRI barred by the statute of frauds?
V. Were the requirements for a constructive trust met?
VI. Can a constructive trust be used to transfer title to real property?
VII. Does the evidence support the district court’s ruling that HRI’s land and stock had been held for the benefit of respondent?
VIII. Did respondent waive her claim to the property?
IX. Are appellants entitled to a new trial?
that the district court erred in denying their demand for change of venue as a
matter of right, which was based on the fact that, among other reasons, the
real estate was located in
court’s decision was based on statutory interpretation, a question of law, which
would be reviewed de novo if this court were to review it.
“It has been the long accepted practice in this state
to seek review of a venue order by petitioning this court for a writ of
mandamus.” Ebenezer Soc’y v.
Appellants next argue that because
respondent was engaged in a campaign to defraud creditors, she had unclean
hands and the district court should not have invoked its equitable powers. It is within the district court’s
discretion to grant equitable relief and “[o]nly a clear abuse of that
discretion will result in reversal[.]” Nadeau
the doctrine of unclean
hands: “he who seeks equity must do equity, and he who comes into equity
must come with clean hands.” Hruska v.
[The defendant’s] adverse equity must grow out of the very controversy before the court or out of such transactions as the record shows were part of its history, or where it is so connected with the cause in litigation as to be presented in the pleadings and proofs, with full opportunity afforded to the plaintiffs to explain or refute the charges.
In denying appellants’ motion for amended findings and/or a new trial, the district court concluded that “Johnson is differentiated from the present matter because in Johnson, both parties to the contract in question were guilty of fraud as to each other.” The district court found that “[n]o such fraud exists between the parties in the present matter, thus the [c]ourt is not persuaded by [appellants’] argument.” However, respondent testified that when she and James Peterson created HRI, the business assets and land were placed in the name of Obelyn Peterson, and later transferred solely to appellant Peterson, for the purpose of defrauding judgment creditors. In its findings, the district court essentially acknowledged that respondent came to court with unclean hands because HRI’s assets and land were not placed in the name of respondent or James Peterson “until the personal judgment against [them] became unenforceable as a matter of law”; however, the fraud did not exist between respondent and appellant Peterson. Even if the district court was correct in noting that the transactions involved here do not precisely reflect Johnson, they are not so different under Lindell that the unclean-hands doctrine does not apply. Further, regardless of the degree of distinction between the transactions, respondent had, under Lindell, an opportunity to adequately litigate appellants’ allegations that her conduct constituted fraud. Because respondent’s adverse equity grew out of a transaction that was part of the history of this case—Obelyn Peterson’s transfer of her interest in HRI to appellant Peterson—the unclean-hands doctrine does apply in this case. Therefore, the district court abused its discretion in finding that the unclean-hands doctrine does not apply in this case and invoking its equitable powers.
Respondent argues that appellant Peterson
also had unclean hands because she received HRI’s assets and land for the
purchase price of $1, when the corporation had approximately $460,000 in
equity. However, “[i]nadequacy of
consideration, standing alone, is not sufficient to establish unconscionable
conduct unless it is so great as to shock the conscience[.]” Johnson,
Appellants next argue that
respondent lacks standing to challenge the transferring of HRI from Obelyn
Peterson to appellant Peterson. We review de
novo the legal issue of standing. Nash v. Wollan, 656 N.W.2d 585, 588 (Minn. App. 2003) (citing Frost-Benco
Elec. Ass’n v.
In the absence of fraud or mistake,
a deed is presumed to be the final agreement of the parties. B-E
Constr., Inc. v. Hustad Dev. Corp., 415 N.W.2d 330, 331 (Minn. App. 1987), review denied (Minn. Jan. 20,
1988). A party challenging a deed must
present clear and convincing evidence to overcome the presumption that a deed
is an absolute conveyance. See Beasy
v. Misko, 297
Appellants next argue that
respondent’s claimed right to HRI’s property is barred by the statute of
frauds. Under the statute of frauds, a conveyance of real property or an
agreement to convey real property is invalid unless it is reduced to writing.
Appellants argue that the district court erred in granting respondent a constructive trust because a constructive trust is not a remedy for a defective trust or an unenforceable oral trust. Whether a constructive trust should be imposed is a question of fact for the district court that this court reviews for clear error. Freundschuh v. Freundschuh, 559 N.W.2d 706, 711 (Minn. App. 1997), review denied (Minn. Apr. 24, 1997).
constructive trust is a remedial device by which the holder of legal title is
held to be a trustee for the benefit of another who in good conscience is
entitled to the beneficial interest.” Wilcox v.
The evidence shows that appellant Peterson was the sole legal owner of HRI’s assets and land. With the exception of respondent’s testimony, there is no evidence that appellant Peterson had a fiduciary relationship with respondent, and, therefore, she did not abuse any such relationship. The necessary elements of a constructive trust were not proven in this case. Additionally, there is nothing in the record to clearly and convincingly suggest that it would be “morally wrong for [appellant Peterson] to retain” the HRI assets and land. The district court’s finding that a constructive trust existed is clearly erroneous.
Appellants also argue that a constructive trust cannot be used to compel a conveyance of title. We agree.
The establishment of a constructive trust does not set aside the title to the property but instead proceeds on the theory that, even though legal title rests in the grantee of the deed, equity will declare that such title is held in trust for someone else to whom it rightfully belongs.
In re Estate of Vittorio, 546 N.W.2d 751, 755 (Minn. App. 1996) (quotation
omitted). “[P]arol evidence is
admissible to show establishment of a constructive trust.”
Next, appellants argue that the district court’s conveyance of title conflicts with respondent’s testimony that HRI’s assets and land were to be held in trust for her heirs. The district court ordered that HRI’s assets and land be immediately transferred to respondent because a constructive trust existed. As stated earlier, if a constructive trust existed, title would remain in the name of appellant Peterson to be held in trust for “someone to whom it rightfully belongs.” As per respondent’s testimony, HRI’s assets and land would be held in trust for respondent’s benefit during her lifetime, and then to her heirs. The district court erred in transferring the title to respondent rather than ordering that it be held in trust, and it disregarded respondent’s testimony regarding her alleged intent that the property was to be held in trust for her heirs.
Appellants also argue that respondent orally waived any claim that she may have had to HRI’s assets and land. This argument is based on respondent’s testimony that James Peterson would not have signed a release of claims to HRI’s assets and land if he did not have any in the first place. Therefore, because James Peterson had an interest in HRI, so did respondent and she did not sign a release of her claims. Appellants argue that based on the agreement respondent and James Peterson reached during their divorce regarding ownership of the campground, respondent and James Peterson agreed to sign away any claims that they may have had in HRI. Respondent was supposed to sign a release and never did so; however, her oral agreement to release the claims was ignored by the court. There is no evidence, besides appellant Peterson’s testimony, to support the fact that respondent was supposed to sign a release to any claims she may have had to HRI’s assets and land. Further, the fact that James Peterson signed a release to any claims he may have had to HRI’s assets and land is not proof that he actually had any valid claims.
Finally, appellant Peterson argues that she is entitled to a new trial. This argument is based on the fact that she had to proceed to trial unrepresented. After appellant Peterson’s attorney of record withdrew, the district court informed her that trial would not be postponed for lack of counsel. Appellant Peterson proceeded pro se. Appellant Peterson’s lack of counsel at trial is not a sufficient ground to grant her a new trial.
D E C I S I O N
Because appellants did not file a petition for mandamus following the district court’s ruling on the demand for change of venue, we decline to address the district court’s venue ruling. The district court abused its discretion in finding that the unclean-hands doctrine did not apply in this case and should not have invoked its equitable powers. Further, the inadequacy of consideration for the transfer of HRI’s assets and land to appellant Peterson from her grandmother for $1 was not a “shock to the conscience.” Respondent also did not have standing to challenge the transaction between Obelyn Peterson and appellant Peterson because she failed to present clear and convincing evidence that she had an ownership interest in HRI’s assets and land. While respondent claims that HRI’s assets and land were to be held in trust for her benefit, there is no evidence of a conveyance between respondent and appellant Peterson, and any conveyance would have been subject to the writing requirement under the statute of frauds. The district court clearly erred in finding that a constructive trust existed, and in finding that because of the constructive trust, title to HRI’s assets and land should be transferred to respondent. Finally, there is no evidence to support appellant Peterson’s claim that respondent orally waived her claims to HRI’s assets and land, and appellant Peterson’s lack of counsel at the time of trial is not a sufficient ground to grant her a new trial. The district court’s order that appellant Peterson convey all right, title, and interest in HRI’s assets and land to respondent is reversed.
Affirmed in part and reversed in part.
 To the extent that certain
appellate opinions could be read to permit review of a district court’s venue
decision on appeal from a final judgment or in another non-mandamus manner, we
note that the parties cite, and research reveals, no case in which the
propriety of challenging a district court’s venue decision in a non-mandamus
manner was addressed, meaning such cases are distinguishable. See
Skelly Oil Co. v. Comm’r of Taxation, 269