Court Opinion

ID: 3364168
Source: CourtListenerOpinion
Date Created: 2016-07-05 18:06:27.73197+00
Date Added: 2024-06-11T14:49:56.738811
License: Public Domain

This opinion will be unpublished and
                           may not be cited except as provided by
                           Minn. Stat. § 480A.08, subd. 3 (2014).

                                 STATE OF MINNESOTA
                                 IN COURT OF APPEALS
                                       A15-1513

                         In re the Estate of Mae Anderson, Deceased

                                      Filed July 5, 2016
                                  Affirmed; motion denied
                                     Klaphake, Judge *

                                Stevens County District Court
                                   File No. 75-PR-10-343

Amy J. Doll, Fluegel, Anderson, McLaughlin & Brutlag, Chartered, Morris, Minnesota
(for appellant Eugene Anderson)

Casey J. Swansson, Jon C. Saunders, Griffin R. Leitch, Anderson Larson Saunders &
Klaassen, P.L.L.P, Willmar, Minnesota (for respondents Lloyd Anderson and Ronald
Anderson)

         Considered and decided by Worke, Presiding Judge; Reilly, Judge; and Klaphake,

Judge.

                          UNPUBLISHED OPINION

KLAPHAKE, Judge

         In this dispute regarding the valuation and sale of the estate’s property, appellant

argues that the district court clearly erred by finding that appellant breached his fiduciary

duty as the estate’s personal representative and abused its discretion by removing appellant

*
 Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to
Minn. Const. art. VI, § 10.
as personal representative. Because the record supports the district court’s determination

that appellant breached his fiduciary duty by selling the property below market value due

to a conflict of interest, we affirm the district court’s decision to void the sale and observe

no abuse of discretion in its decision to remove appellant as personal representative. We

also deny appellant’s motion to correct the record as unnecessary.

                                      DECISION

                                              I.

       “A personal representative is a fiduciary who shall observe the standards of care in

dealing with the estate assets that would be observed by a prudent person dealing with the

property of another . . . .”     Minn. Stat. § 524.3-703(a) (2014).        But if a personal

representative has “special skills or expertise, the personal representative is under a duty

to use those skills.” Id. A personal representative has a duty “to settle and distribute the

estate” in accordance with the will “and as expeditiously and efficiently as is consistent

with the best interests of the estate.” Id. Whether a fiduciary duty has been breached is a

question of fact. See Commercial Assocs., Inc. v. Work Connection, Inc., 712 N.W.2d 772,

778 (Minn. App. 2006) (explaining that “the district court is the trier of fact in determining

the equitable remedy for a breach of fiduciary duty”).

       “[A]ppellate courts evaluate the district court’s findings concerning wills and trusts

under a clearly erroneous standard and review conclusions of law de novo.” In re Trust

Created Under Agreement with Lane, 660 N.W.2d 421, 425-26 (Minn. App. 2003). When

reviewing the district court’s factual findings, we view the record in the light most

favorable to the judgment. In re Estate of King, 668 N.W.2d 6, 9 (Minn. App. 2003). “A

                                              2
finding is clearly erroneous if the reviewing court is left with a definite and firm conviction

that a mistake has been made.” In re Estate of Neuman, 819 N.W.2d 211, 215 (Minn. App.

2012).

         Following decedent Mae Anderson’s (Mae) death in 2010, appellant Eugene

Anderson, one of Mae’s sons, was appointed as personal representative of Mae’s estate.

Mae bequeathed her estate in a will to her four children “share and share alike.” Mae’s

will contained a provision regarding her 400 acres of farmland:

                       My grandson, Mark Anderson, has for many years been
               renting my farmland. I direct that:
                             a.     He be allowed to continue farming the
               land during the administration of my estate on the same terms
               and conditions under which he was renting the land at the time
               of my death.
                             b.     In the event the estate elects to offer for
               sale the land which Mark Anderson has been renting, that he
               be given an opportunity to purchase the land and a right of first
               refusal under which he may match the terms of an offer the
               estate otherwise intends to accept from another buyer.
                             c.     In the event my estate does not sell the
               land Mark Anderson has been renting, I hereby express my
               desire that he be given a fair opportunity to purchase at such
               future time as all or part of the real estate shall be sold to
               someone outside of my heirs, as set forth in this Will, or their
               issue.

To help pay Mae’s estate tax, appellant obtained a five-year mortgage on the property. To

ensure funds for payments, appellant executed a five-year rent agreement with Mark

Anderson, his son, allowing Mark Anderson to continue farming the land at $75 per acre,

the below-market rate he had paid before Mae’s death.

         Eventually, the other heirs asked that the estate be closed. Appellant sold the

property as a whole by advertisement to Mark Huebner, a neighboring farmer. Mark

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Anderson then exercised his right of first refusal, and appellant executed a purchase

agreement with Mark Anderson for $1.6 million. Respondents Ronald Anderson and

Lloyd Anderson, appellant’s brothers, challenged the sale process and price.

       Following a trial, the district court determined that appellant breached his fiduciary

duty to the estate “by failing to observe the standards of care in dealing with the estate that

would be observed by a prudent person dealing with the property of another” and “by

failing to settle and distribute the estate as expeditiously and efficiently as is consistent

with the best interests of the estate.” These conclusions were based, in part, on the district

court’s findings that appellant (1) should have sold the property in smaller parcels at an

open auction rather than as a whole by advertisement; (2) accepted a price below the fair

market value of the property; and (3) entered purchase agreements with Huebner and Mark

Anderson despite having conflicts of interest with each. Appellant challenges each of these

findings in turn.

       As an initial matter, respondents argue that appellant’s history of farming and

purchasing farmland at auction gave appellant “special skills or expertise” that raised his

standard of care beyond that which “would be observed by a prudent person dealing with

the property of another.” See Minn. Stat. § 524.3-703(a). We disagree. Although appellant

had purchased farm property in the past, he had never sold it and relied on his attorney’s

advice regarding how to sell the property and how to draft the advertisement. In addition,

appellant’s farming skills did not create expertise in selling the estate’s property, and

appellant had no prior experience as a personal representative or with the management of

an estate. Because appellant did not have special skills relevant to the challenged sale of

                                              4
the estate’s property, we agree with the district court that he was required to “observe the

standards of care in dealing with the estate assets that would be observed by a prudent

person dealing with the property of another.” See id.

A.     Sale Process

       A personal representative may “sell, mortgage, or lease any real or personal property

of the estate or any interest therein” as long as the personal representative acts “reasonably

for the benefit of the interested persons.” Minn. Stat. § 524.3-715(23) (2014). In doing

so, the personal representative does not need “the consent of any devisee or heir unless the

property has been specifically devised to a devisee or heir by decedent’s will.” Id. But a

personal representative must “settle and distribute the estate of the decedent in accordance

with the terms of any probated and effective will and applicable law, and as expeditiously

and efficiently as is consistent with the best interests of the estate.” Minn. Stat. § 524.3-

703(a). Whether a sale of estate property is “commercially reasonable” is a question of

fact. King, 668 N.W.2d at 10 n.1.

       As the district court found, Mae’s will neither required that the property be sold nor

forbade the distribution of the land to Mae’s beneficiaries. After receiving pressure from

respondents to close the estate, appellant advertised the property in the local paper for one

month, requesting sealed bids on the property as a whole. The advertisement produced

only one low bid, Huebner’s, which appellant accepted. The district court adopted

language in respondents’ Strong Realty appraisal that selling land in smaller parcels rather

than in one large parcel usually increases the sales price by attracting more potential buyers.

The district court also credited auctioneer Allen Henslin’s testimony that prices increase

                                              5
when land is sold in smaller parcels and in open outcry auctions with live bidding. The

district court therefore found that appellant should have sold the property in smaller parcels

at an open outcry auction to increase the purchase price.

       But the district court mischaracterized the evidence at trial because neither the

Strong Realty appraisal nor Henslin stated that the estate’s property would have obtained

a higher purchase price in smaller parcels at an open outcry auction. The credited evidence

merely speculates that a different sales method could have obtained a higher price. Such

speculation does not establish commercial unreasonableness. See Ford Motor Credit Co.

v. Hertzberg, 511 N.W.2d 25, 27 (Minn. App. 1994) (“Allegations that a better price could

theoretically have been obtained at a different time or through a different method of sale

alone are insufficient to raise a factual issue as to commercial reasonableness.”), review

denied (Minn. Mar. 31, 1994).

       There is also no evidence that anyone suggested a live auction of smaller parcels or

that anyone objected to appellant’s chosen sales method before it resulted in only one low

bid. In fact, both appellant and his former attorney testified that respondents agreed to a

sale by advertisement. Appellant consulted with his then-attorney, who believed that

dividing the property would not have increased the price because farmers like to get the

most land they can in one area. Appellant relied on his attorney’s advice regarding the

sales method and the language of the advertisement. Because a “prudent person dealing

with the property of another” would rely on his attorney’s advice and on the consent of the

other interested parties to the sale process, the record does not support the district court’s

finding that appellant’s chosen method of sale was commercially unreasonable. See Minn.

                                              6
Stat. § 524.3-703(a); see also Minn. Stat. § 336.9-627(b)(1) (2014) (stating that a sale is

commercially reasonable under the Uniform Commercial Code if it is made “in the usual

manner on any recognized market”). But although the process itself was commercially

reasonable, it did not result in a reasonable price.

B.     Sale Price

       Shortly after Mae’s death, appellant retained licensed residential appraiser Michael

Schultz, who appraised the property at $1,693,000 as of Mae’s death on August 13, 2010.

This figure included the home and all of the outbuildings on the property, even though

several buildings were later determined to belong to appellant, not Mae’s estate. Because

farmland prices rose following Mae’s death, respondents retained Strong Realty, which

appraised the property at $3.04 million in February 2013. This appraisal again included all

of the outbuildings. The district court adopted the Strong Realty appraisal value of $3.04

million and subtracted the value of appellant’s improvements to the property to reach a fair

market value of at least $2,940,519 in September and October 2013. 1 As a result of this

valuation, the district court found that the bid price of $1.6 million was below fair market

value and that appellant breached his fiduciary duty by accepting this price. “Assigning a

specific value to an asset is a finding of fact.” Hertz v. Hertz, 304 Minn. 144, 145, 229
N.W.2d 42, 44 (1975).

       Appellant argues that the district court clearly erred by relying on the Strong Realty

appraisal because the appraisal did not take into account Mark Anderson’s right of first

1
  Neither party challenges the value of the improvements that the district court subtracted
from the Strong Realty appraisal figure.

                                               7
refusal. The Strong Realty appraiser testified that he did not think that the right of first

refusal affected the appraised value, but that the appraisal was “possibl[y]” not accurate if

rights of first refusal were shown to negatively impact property values. In contrast, Henslin

testified that rights of first refusal negatively affect purchase price “anywhere between

$1,500 to $2,000 an acre.” And Schultz agreed that rights of first refusal negatively impact

property values, stating that he would not have done the original appraisal if he had been

aware of the right of first refusal because he would have been unable to find comparable

sales. Caselaw also suggests that a right of first refusal can impose a burden on market

value. See Winter v. Skoglund, 404 N.W.2d 786, 791 (Minn. 1987) (discussing a right of

first refusal of corporate shares).

       Due to the lack of specific evidence regarding the property’s fair market value in

2013 with Mark Anderson’s right of first refusal, appellant argues that the district court

should have adopted the $1.6 million bid as the fair market value—the value the market

was willing to bear in an arm’s length transaction. See Equitable Life Assurance Soc’y of

the United States v. Cty. of Ramsey, 530 N.W.2d 544, 555 (Minn. 1995) (defining market

value as “the price for which property would sell upon the market at private sale” (quotation

omitted)). But at the time of the bid, no one believed that the fair market value of the

property was $1.6 million. Even appellant thought that the bid was too low because

farmland prices had increased since the original appraisal and remained high in 2013. The

record does not support appellant’s assertion that the fair market value in 2013 was $1.6

million.

                                             8
       Even if the district court’s finding of $2,940,519 as the fair market value in

September and October 2013 is clearly erroneous because it did not take into account the

right of first refusal, the exact value of the property is not critical to our analysis. The issue

here is not whether the district court’s valuation was clearly erroneous but whether the $1.6

million bid represented a reasonable estimate of the property’s fair market value in 2013,

and it did not. See Hertz, 304 Minn. at 145, 229 N.W.2d at 44 (explaining that the value

need not be exact but only “within a reasonable range of figures”). The district court did

not need to determine an exact fair market value to find that the sole bid was low and that

appellant breached his fiduciary duty by accepting the low bid. See id. Everyone involved

agreed that farmland prices were high in 2013 and that the $1.6 million bid was below fair

market value. “[A] prudent person dealing with the property of another” would have

concluded that accepting this low bid would not be “consistent with the best interests of

the estate.” See Minn. Stat. § 524.3-703(a). Because appellant failed to observe the

required standard of care by selling the estate’s property for below its fair market value,

we affirm the district court’s determination that appellant breached his fiduciary duty as

personal representative.

C.     Conflict of Interest

       The district court also concluded that appellant’s purchase agreements with Huebner

and Mark Anderson were “affected by a substantial conflict of interest” and declared the

conveyance to Mark Anderson void. A transaction “which is affected by a substantial

conflict of interest on the part of the personal representative[] is voidable by any person

interested in the estate except one who has consented after fair disclosure, unless the will

                                                9
or a contract entered into by the decedent expressly authorized the transaction.” Minn.

Stat. § 524.3-713(1) (2014).     A personal representative has a conflict of interest if his

personal interests directly conflict with the decedent’s interests. In re Estate of Munson,

238 Minn. 366, 370, 57 N.W.2d 26, 29 (1953). For example, the personal representative

in Munson was removed because he was “personally and financially interested as an heir”

to the estate and because he failed to carry out the terms of the will. Id.

Huebner

       The district court found that appellant had a conflict of interest because he “had a

business relationship” with Huebner. Specifically, the district court found that “Huebner

farmed a neighboring parcel of land and did custom farming for both [appellant] and Mark

Anderson.” But the record does not support this finding because, although his direct

testimony was ambiguous, appellant clarified on cross-examination that Huebner had only

performed custom farming for him, not for Mark Anderson. There is also no evidence that

appellant “had a business relationship” with Huebner because the record does not reveal

the timing and extent of Huebner’s custom farming for appellant.

       More importantly, no evidence in the record suggests that the relationship between

appellant and Huebner affected Huebner’s bid or appellant’s acceptance of that bid.

Appellant testified that he neither solicited nor discouraged any bidding and that he

accepted Huebner’s bid because he believed that he had followed the correct procedure and

that “the public had spoken on what they thought they were willing to pay.” Appellant did

not appear concerned about maintaining his relationship with Huebner because he initially

                                             10
asked Huebner to raise his bid and testified that he could get someone else to perform

custom farming if needed.

       Respondents suggest that the proximity of Huebner’s farm to appellant’s farm itself

creates a conflict of interest. We disagree. Where a sale does not benefit the personal

representative to the detriment of the estate, a personal representative can accept a bid from

a neighboring farmer without raising a conflict-of-interest issue. See Minn. Stat. § 524.3-

713 (2014) (stating the standard for voiding a sale).

       The record does not support a finding of any conflict of interest regarding

appellant’s relationship with Huebner, let alone a substantial one. See id.; State v. Williams,

451 N.W.2d 886, 890 (Minn. App. 1990) (defining “substantial” as a “considerable size or

amount” (quotation marks omitted)). Appellant’s neighborly relationship with Huebner

does not create a direct conflict between appellant’s interests and the interests set forth in

Mae’s will. See Munson, 238 Minn. at 370, 57 N.W.2d at 29. Instead, the conflict of

interest here relates to appellant’s relationship with Mark Anderson.

Mark Anderson

       The district court also found that appellant had a conflict of interest because he acted

for the benefit of his son and for his personal benefit as a farmer and building owner.

       The father-son relationship between appellant and Mark Anderson did not alone

create a conflict of interest. See Cain v. McGeenty, 41 Minn. 194, 194, 42 N.W. 933, 933

(1889) (stating that a father-son relationship can be considered but is not enough to “infer

fraud”). Because Mae’s will named appellant as personal representative and gave Mark

Anderson a right of first refusal, an eventual sale of the property to Mark Anderson alone

                                              11
does not suggest a substantial conflict of interest. See Minn. Stat. § 524.3-713(1) (stating

that even a transaction affected by a substantial conflict of interest is not voidable when

the will expressly authorizes the transaction).

       The district court determined that appellant had a conflict of interest due to the

nature of appellant’s and Mark Anderson’s farming operations. The district court found

that appellant and Mark Anderson “were actively involved in farming,” “shared

machinery,” and helped each other in their farming and cattle operations. In addition,

“[appellant] admitted that the more acreage he and his son owned, the more efficiently their

businesses could be conducted, resulting in greater profitability for both.” The district

court also discredited appellant’s testimony that he had not discussed the right of first

refusal with Mark Anderson before accepting Huebner’s offer because appellant and Mark

Anderson “had the same residence address, farmed together, raised beef cattle together,

and shared equipment, and . . . Mark [Anderson] rented some of his father’s land.” The

record supports the district court’s findings regarding the nature of appellant’s and Mark

Anderson’s farming operations.

       The district court also determined that appellant had a conflict of interest due to the

presence of his buildings on the estate property. The district court found that appellant

would have had to remove his buildings “at substantial expense” if he had sold the property

to anyone other than himself or Mark Anderson. “By accepting the Huebner auction bid

and then his son Mark’s offer under his right of first refusal, [appellant] was able to retain

these structures on the land, to his own benefit and without the expense of moving them.”

Appellant is correct that the record contains no discussion of the expense involved in

                                             12
removing the buildings. Nevertheless, the district court could infer that appellant would

have to remove the buildings if he sold the property to a third party or at least that appellant

benefited by selling the land to Mark Anderson and not having to address the issue.

       We conclude that the record supports the district court’s finding of a substantial

conflict of interest. In his role as personal representative, appellant was required to act as

“a prudent person dealing with the property of another” and in “the best interests of the

estate.” See Minn. Stat. § 524.3-703(a). This standard of care required appellant to get the

best possible price for the property. But as a father, co-farmer, and owner of buildings that

would otherwise have to be removed from the property, appellant had a competing interest

to sell the property to Mark Anderson at a lower price. Appellant’s personal interests were

in direct conflict with the estate’s interests and appellant therefore had a substantial conflict

of interest. See Minn. Stat. § 524.3-713; Munson, 238 Minn. at 370, 57 N.W.2d at 29.

       Appellant argues that, even if he had a substantial conflict of interest, the sale to

Mark Anderson cannot be voided because the will expressly authorized Mark Anderson to

exercise his right of first refusal. See Minn. Stat. § 524.3-713(1). But as respondents point

out, the will did not expressly authorize a sale of the property to Mark Anderson at below

fair market value. The right of first refusal only gave Mark Anderson the right to “match

the terms of an offer the estate otherwise intends to accept from another buyer.” The

district court interpreted this provision to include an intention to accept the fair market

value of the property from another buyer. This interpretation is supported by appellant’s

fiduciary duty to act in the best interests of the estate. See Minn. Stat. § 524.3-703(a).

Absent unusual circumstances, disposing of the property for below its fair market value

                                               13
would likely not be in the best interests of the estate or the interested persons. See id.;

Minn. Stat. § 524.3-715(23). We also note that appellant does not challenge the district

court’s interpretation of the right of first refusal on appeal.

       In sum, the record supports the district court’s determination that appellant breached

his fiduciary duty to the estate by selling the property at below fair market value due to a

substantial conflict of interest. We therefore affirm the district court’s decision to void the

sale to Mark Anderson. See Minn. Stat. § 524.3-713.

                                               II.

       Appellant also challenges the district court’s decision to remove appellant as the

estate’s personal representative. “The district court has discretion to determine suitability

of a personal representative, and that determination will not be reversed absent an abuse of

discretion.” In re Estate of Martignacco, 689 N.W.2d 262, 269 (Minn. App. 2004), review

denied (Minn. Jan. 26, 2005). We will not reverse the district court’s decision to remove

a personal representative “unless the district court clearly abused its discretion by

disregarding the facts.” Id.

              Cause for removal exists when removal is in the best interests
              of the estate, or if it is shown that a personal representative or
              the person seeking the personal representative’s appointment
              intentionally misrepresented material facts in the proceedings
              leading to the appointment, or that the personal representative
              has disregarded an order of the court, has become incapable of
              discharging the duties of the office, or has mismanaged the
              estate or failed to perform any duty pertaining to the office.

Minn. Stat. § 524.3-611(b) (2014).

                                               14
       The district court found good cause to remove appellant as personal representative

“based on mismanagement” of Mae’s estate. See id. The district court’s decision was

based on its findings that appellant mismanaged the sale, sold the property for below fair

market value, and was affected by a substantial conflict of interest. In addition, the district

court relied on its other conclusion that appellant “breached his fiduciary duty as personal

representative by failing to settle and distribute the estate as expeditiously and efficiently

as is consistent with the best interests of the estate.” See Minn. Stat. § 524.3-703(a).

Appellant does not challenge this alternative conclusion regarding his breach of fiduciary

duty on appeal and does not assert that he efficiently administered the estate.

       Instead, appellant argues that he was improperly removed as personal representative

because the district court relied on his deposition transcript, which was not admitted into

evidence. The district court was provided a copy of appellant’s deposition to follow along

while appellant was cross-examined at trial regarding statements he made in his deposition.

But the deposition transcript was not introduced into evidence. In its order, the district

court cited language from appellant’s deposition transcript regarding the nature of his and

Mark Anderson’s farming operations and the importance of proximity when purchasing

farmland.

       Appellant filed a motion in this court to remove his deposition transcript from the

record. We deny appellant’s motion as unnecessary because, even though appellant did

not use the direct quotes in his trial testimony, appellant testified to essentially the same

facts and the record supports the district court’s conclusion that appellant mismanaged

Mae’s estate. See Clark v. Clark, 642 N.W.2d 459, 467 (Minn. App. 2002) (denying a

                                              15
motion to strike information in the record as unnecessary to the resolution of the appeal);

see also Minn. R. Civ. App. P. 110.01 (defining the record on appeal).

       The record shows that appellant did very little to administer the estate in 2011 and

2012, despite requests from respondents that he close out the estate. During this time, Mark

Anderson continued to rent the property at a below-market rate. Appellant eventually

undertook a sale by advertisement and then accepted the sole low bid at a time when farm

prices were high. He accepted the bid knowing that Mark Anderson would exercise his

right of first refusal and that appellant would benefit as a farmer and as a building owner.

Because appellant sold the property for below fair market value, was affected by a

substantial conflict of interest, and failed to expeditiously settle and distribute the estate,

allowing Mark Anderson to continue renting the property at below market value, the record

supports the district court’s conclusion that appellant mismanaged Mae’s estate. The

district court therefore did not abuse its discretion by removing appellant as personal

representative. See Minn. Stat. § 524.3-611(b).

       Affirmed; motion denied.

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