Brockley v. Ellis

2023 S.D. 52

• Court: South Dakota Supreme Court
• Decided: September 27, 2023
• Docket: 29915
• Status: Published

Opinion

#29915-a-SPM 2023 S.D. 52

IN THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA

****

MARK BROCKLEY and ANNESSE BROCKLEY, husband and wife, Plaintiffs and Appellants,

v.

MERRILL ELLIS, RONALD GUTMAN, CLARENCE GRIFFIN and GG&E, LLC, A.K.A. G SQUARED, LLC, a South Dakota Limited Liability company, Defendants and Appellees.

APPEAL FROM THE CIRCUIT COURT OF THE FOURTH JUDICIAL CIRCUIT LAWRENCE COUNTY, SOUTH DAKOTA

THE HONORABLE ERIC J. STRAWN Judge

JON W. DILL of Claggett & Dill, Prof. LLC Spearfish, South Dakota Attorneys for plaintiffs and appellants.

CESAR A. JUAREZ of Lynn, Jackson, Shultz & Lebrun, P.C. Sioux Falls, South Dakota ****

ARGUED OCTOBER 4, 2022 OPINION FILED 09/27/23 ****

AARON T. GALLOWAY HAVEN L. STUCK of Lynn, Jackson, Shultz & Lebrun, P.C. Rapid City, South Dakota Attorneys for appellees Hickocks Hotel and Suites, LLC and Kimberly L. Griffin.

RICHARD A. PLUIMER Spearfish, South Dakota Attorney for appellee Mike Trucano personally and as Trustee for the Michael J. Trucano Living Trust. #29915

MYREN, Justice

[¶1.] The circuit court entered two orders in which it denied requests from

Mark and Annesse Brockley (the Brockleys) to hold Michael Trucano (Trucano), the

Michael J. Trucano Living Trust (Trucano Trust), and Hickoks Hotel & Suites, LLC

(Hickoks) in contempt. The Brockleys filed a timely appeal. We affirm.

Factual and Procedural History

[¶2.] In 2004, the Brockleys agreed to sell specified real estate to Allan

Rosenfeld and John McGill for two million dollars under a contract for deed. The

contract for deed required Rosenfeld and McGill to make monthly payments to the

Brockleys for 20 years and contained an acceleration clause that made the entire

amount due 30 days after a notice of default. Later, McGill quitclaimed his interest

in the contract for deed and property to Rosenfeld. In 2007, Rosenfeld assigned his

interest in the contract for deed to GG & E, LLC, a South Dakota limited liability

company. GG & E had three members: Merrill Ellis, Ronald Gutman, and Clarence

Griffin (Clarence). The Brockleys consented to the assignment in a formal

document in which Ellis, Gutman, and Clarence each agreed to be obligated

personally for any amounts due under the contract for deed. In 2010, GG & E

changed its name to G Squared, LLC.

[¶3.] In 2011, Michael Trucano and Clarence created a South Dakota

limited liability company named N.M.D. Venture, LLC (N.M.D.) to acquire a hotel

and casino in Deadwood, South Dakota. Trucano and Clarence were N.M.D.’s only

members, each holding 50% ownership. The operating agreement for N.M.D.

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stated, “[t]his Agreement shall be construed under the laws of the State of South

Dakota.”

[¶4.] In June 2014, G Squared stopped making payments on the contract for

deed. The Brockleys sued G Squared, Ellis, Gutman, and Clarence, seeking the

amount remaining due on the contract.

[¶5.] On March 30, 2015, Clarence assigned his membership interest in

N.M.D. to himself and his wife, Kimberly Griffin, as tenants by the entirety.

Trucano, the other N.M.D. member, also consented to that assignment. Clarence

and Kimberly were domiciled in Florida and executed their portion of the

assignment in Florida. Trucano executed his portion of the assignment in Nevada.

[¶6.] On April 15, 2015, the circuit court granted partial summary judgment

in favor of the Brockleys against Ellis, Gutman, Clarence, and G Squared.

[¶7.] On June 6, 2015, Trucano assigned his membership interest in N.M.D.

to the Trucano Trust. Michael and Cynthia Trucano served as trustees of that

trust.

[¶8.] In December 2016, the circuit court issued a charging order directing

N.M.D. to pay any distributions owed to Clarence to the Brockleys. The circuit

court entered a corrected charging order on February 3, 2017, which contained an

adjusted principal amount owed. Specifically, the corrected charging order directed

that:

1. The interest of Defendant Clarence Griffin in N.M.D. Venture, LLC is hereby subjected to a Charging Order in favor of and for the benefit of the Plaintiffs;

2. Distributions owed or payable to said Defendant by N.M.D. Venture, LLC must be paid directly to Plaintiffs[.]

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[¶9.] On February 4, 2019, N.M.D. changed its name to Hickoks Hotel &

Suites, LLC. In December 2019, Hickoks agreed to sell its hotel and casino. In July

2020, Hickoks and the Trucano Trust entered into a redemption agreement. The

redemption agreement provided that Hickoks would, at sale closing, redeem the

entire membership interest held by the Trucano Trust in exchange for half the net

proceeds from the sale of the hotel and casino. The agreement further provided that

the Trucano Trust would assign its entire membership interest to Hickoks upon

payment, and Trucano would resign from any office held in Hickoks. Clarence died

on December 14, 2020.

[¶10.] The sale closing of the hotel and casino was set for December 29, 2020.

Dakota Title conducted the closing. Kimberly’s attorneys urged Trucano, as

operational manager of Hickoks, to establish a new bank account in Florida in the

name of Hickoks to receive the proceeds from the sale. Trucano declined to do so

and directed the closing agent to deposit the proceeds into Hickoks’ existing account

at First Interstate Bank in Deadwood. Once the closing agent received the proceeds

from the sale, half of the proceeds were transferred to the Trucano Trust to

effectuate the redemption of that membership interest. Simultaneously, the

Trucano Trust assigned its membership interest to Hickoks, and Trucano resigned

his office as manager of Hickoks. After the redemption and after Trucano had left

the Dakota Title office, Haven Stuck, an attorney for Kimberly and Hickoks,

directed Dakota Title to wire the remaining proceeds from the sale to Hickoks’

account at First Home Bank in Florida. Dakota Title complied. Ultimately,

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Hickoks distributed these funds to Kimberly as the sole remaining member of

Hickoks.

[¶11.] In April 2021, the Brockleys filed a motion for an order to show cause,

claiming that Kimberly, the Estate of Clarence Griffin, Hickoks, Trucano, and the

Trucano Trust should be held in contempt for violating the charging order. The

circuit court issued the order to show cause and conducted four hearings between

October and December.

[¶12.] During the third hearing, the circuit court ruled from the bench that

the Brockleys had not established that Trucano or the Trucano Trust were in

contempt. On December 13, 2021, the circuit court entered an order effectuating

the ruling and incorporating its oral findings of fact and conclusions of law. After

the fourth hearing, the circuit court again gave a bench ruling in which it

determined that the Brockleys had failed to establish that Hickoks was in contempt.

On January 21, 2022, the circuit court entered written findings of fact, conclusions

of law, and an order effectuating that bench ruling. The Brockleys appeal.

Decision

1. Whether the circuit court erred when it determined Hickoks, Michael Trucano, and the Trucano Trust did not disobey the charging order.

[¶13.] “The civil contempt power is designed ‘to force a party “to comply with

orders and decrees issued by a court in a civil action[.]”’” Hiller v. Hiller, 2018 S.D.

74, ¶ 20, 919 N.W.2d 548, 554 (alteration in original) (quoting Sazama v. State ex.

rel. Muilenberg, 2007 S.D. 17, ¶ 23, 729 N.W.2d 335, 344). “We review a trial

court’s findings [of fact] as to contempt under a clearly erroneous standard.”

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Metzger v. Metzger, 2021 S.D. 23, ¶ 13, 958 N.W.2d 715, 719 (quoting Taylor v.

Taylor, 2019 S.D. 27, ¶ 15, 928 N.W.2d 458, 465). “We will declare a finding of fact

clearly erroneous only if we are definitely and firmly convinced that a mistake has

been made.” Lien v. Lien, 2004 S.D. 8, ¶ 14, 674 N.W.2d 816, 822 (quoting Hofeldt

v. Mehling, 2003 S.D. 25, ¶ 9, 658 N.W.2d 783, 786). “However, we review a court’s

conclusions of law de novo.” Farmer v. Farmer, 2020 S.D. 46, ¶ 19, 948 N.W.2d 29,

35 (citing Harksen v. Peska, 2001 S.D. 75, ¶ 9, 630 N.W.2d 98, 101).

[¶14.] “The required elements for a finding of civil contempt are (1) the

existence of an order; (2) knowledge of the order; (3) ability to comply with the

order; and (4) willful or contumacious disobedience of the order.” Keller v. Keller,

2003 S.D. 36, ¶ 9, 660 N.W.2d 619, 622 (quoting Harksen, 2001 S.D. 75, ¶ 12, 630

N.W.2d at 101). The parties agree that the first three elements were established.

The Brockleys contend the circuit court clearly erred by not finding willful or

contumacious disobedience of the order.

Michael Trucano and the Trucano Trust

[¶15.] The charging order did not preclude distributions to Trucano or the

Trucano Trust. The Brockleys do not contend that the redemption of the

membership interest held by the Trucano Trust violated the charging order.

Instead, they argue Trucano, as an agent for Hickoks, should be held in contempt

because they contend Hickoks distributed funds owed to Clarence in violation of the

charging order and that Trucano actively participated in a scheme to avoid the

application of the charging order in a manner that was willful and contumacious.

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[¶16.] A distribution is “a transfer of money, property, or other benefit from a

limited liability company to a member in the member’s capacity as a member or to a

transferee of the member’s distributional interest.” SDCL 47-34A-101(5). The

record establishes that after the court entered its charging order, Hickoks made no

distribution of any interest owed to Clarence while either Trucano or the Trucano

Trust was an owner, member, or manager of the LLC. Hickoks’ sale of its hotel and

casino did not, by itself, constitute a distribution. And even if Hickoks’ redemption

of Trucano’s membership interest could be characterized as a distribution, it did not

violate the charging order as it did not involve any distributional interest owed to

Clarence. Additionally, the record shows that while still a member of Hickoks,

Trucano exercised due diligence to ensure that there was no distribution of the sale

proceeds in violation of the charging order. The Brockleys claim Trucano knew that

a distribution subject to the charging order would be transferred from Hickoks’

account directly to Kimberly. Still, they presented no facts to show that Trucano

permitted the proceeds to be distributed out of the account while he was still an

owner, member, or manager of Hickoks. The circuit court was not clearly erroneous

in finding that neither Trucano nor the Trucano Trust willfully or contumaciously

violated the charging order.

Hickoks

[¶17.] After the redemption of the Trucano membership, Kimberly was the

only remaining member because Clarence had passed away before the sale. As part

of the closing, the remaining proceeds from the sale of the hotel and casino were

deposited into Hickoks’ account in Florida. Although it is not entirely clear from the

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record how it occurred, it is undisputed that Hickoks ultimately distributed those

proceeds to Kimberly. Whether this distribution violated the charging order

depends on whether it constituted a distribution of an amount owed to Clarence.

The circuit court determined that, upon his death, Clarence’s membership interest

passed as a matter of law to Kimberly as the surviving tenant by the entirety.

Consequently, the circuit court concluded that Hickoks’ subsequent distribution to

Kimberly did not violate the charging order.

[¶18.] The Brockleys contend the circuit court was wrong for two reasons.

First, they argue that the assignment could not avoid the charging order because,

under South Dakota law, property interests may not be held by tenants by the

entirety. The Brockleys contend the assignment created a tenancy in common

because the four unities of title were not present at the time of the assignment.

Second, they argue that the assignment was void because it did not validly convey

Clarence’s distributional interest in Hickoks under South Dakota law.

a. The effect of the 2015 assignment of Clarence’s ownership interest in N.M.D. [¶19.] “[S]tatutory interpretation and application are questions of law that

we review de novo.” Coester v. Waubay Twp., 2018 S.D. 24, ¶ 7, 909 N.W.2d 709,

711 (quoting Krsnak v. S.D. D.E.N.R., 2012 S.D. 89, ¶ 8, 824 N.W.2d 429, 433). “We

discern legislative intent primarily using the language of the statute, giving the

Legislature’s words plain meaning and effect within the context they are used.” Id.

(citing Perdue, Inc. v. Rounds, 2010 S.D. 38, ¶ 9, 782 N.W.2d 375, 378).

[¶20.] A tenancy by the entirety is a form of joint ownership with the right of

survivorship that can only exist between married persons; the tenancy cannot be

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severed unilaterally. United States v. Craft, 535 U.S. 274, 280–281, 122 S. Ct. 1414,

1422, 152 L. Ed. 2d 437 (2002). The law of South Dakota has never recognized

tenancies by the entirety. Schimke v. Karlstad, 87 S.D. 349, 356, 208 N.W.2d 710,

714 (1973). However, tenancies by the entirety are recognized under the laws of

Florida. See Clampitt v. Wick, 320 So. 3d 826, 831 (Fla. Dist. Ct. App. 2021).

Although South Dakota law does not allow for the creation of a tenancy by the

entirety interest, certain statutes acknowledge the existence of such interests and

attempt to reconcile that with South Dakota law. See SDCL 48-7A-202; SDCL 54-

8A-1.

[¶21.] Clarence’s assignment of his membership interest to himself and his

wife also included a document in which Trucano consented to the assignment and

an amendment to N.M.D.’s operating agreement. In particular, the assignment

amended Section 5.08 of the operating agreement to read: “Upon the death of

Clarence A. Griffin, his interest shall, by operation of law, transfer to his fellow

tenant by the entirety, Kimberly L. Griffin . . . .”∗

[¶22.] To willfully or contumaciously disobey the charging order, Hickocks

would have to have known, at the time of the distribution to Kimberly, that

Clarence’s assignment did not validly create a tenancy with the right of

survivorship. We need not resolve complicated issues about whether this transfer

was governed by the laws of Florida or South Dakota because the ultimate

consequence, in this case, is the same. We need only determine whether the circuit

∗ It also contains a similar provision providing that Kimberly’s interest passed upon her death to Clarence. -8- #29915

court clearly erred when it found that Hickoks did not engage in willful or

contumacious disobedience of the charging order.

[¶23.] The language utilized in Clarence’s assignment manifests an intention

to create a right of survivorship in either tenant. Under Florida law, Clarence’s

assignment created, at the very least, a right of survivorship in both Clarence and

Kimberly. “The right of survivorship based on the express language in the

conveying instrument has long been recognized in Florida.” Simon v. Koplin, 159

So. 3d 281, 282 (Fla. Dist. Ct. App. 2015) (citing FLA. STAT. § 689.15 and noting that

Florida statutory law “abolishes the right of survivorship in real and personal

property held by joint tenants except in cases of estates by the entireties or in

tenancies in common where the instrument creating the estate shall expressly

provide for the right of survivorship”). It appears that under Florida law, the

relevant unities of title need not be present when the express language in the

instrument provides for a right of survivorship. Id. (citing Crabtree v. Garcia, 43

So. 2d 466, 467 (Fla. 1949)).

[¶24.] Under South Dakota law, the assignment could not create a tenancy by

the entirety. Instead, the assignment would have created an ownership interest

consistent with South Dakota law—a joint tenancy with the right of survivorship.

As SDCL 43-2-13 provides:

Any deed, transfer, or assignment of real or personal property from husband to wife or from wife to husband which conveys an interest in the grantor’s lands or personal property and by its terms evinces an intent on the part of the grantor to create a joint tenancy between grantor and grantee shall be held and construed to create such joint tenancy, and any husband and wife who are grantor and grantee in any such deed, transfer, or

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assignment heretofore given shall hold the property described in such deed, transfer, or assignment as joint tenants. (Emphasis added.)

[¶25.] Accordingly, whether Clarence’s assignment is interpreted under

Florida or South Dakota law, Kimberly became the sole owner of the N.M.D.

ownership interest upon Clarence’s death. Hickoks’ subsequent distribution to

Kimberly did not violate the charging order. Consequently, it was not clear error

for the circuit court to find that Hickoks did not willfully or contumaciously violate

the charging order.

b. Whether Clarence Griffin’s assignment of his interest in Hickoks included his distributional interest.

[¶26.] The Brockleys argue that because Clarence’s assignment to himself

and Kimberly used the term “membership interest” instead of “distributional

interest,” his “attempt to transfer his interest is void as a matter of law because it

fails to comply with both the Charging Order and South Dakota law.” The

Brockleys conclude that Clarence retained complete ownership of the membership

and distributional interests.

[¶27.] Hickoks’ operating agreement defines a membership interest to include

distributions: “[t]he interest of a Member in the Company shall be referred to as a

‘Membership Interest,’ which shall mean the percentage of profits, losses, and

distributions a Member is entitled to receive under this Agreement.” (Emphasis

added.) “When the meaning of contractual language is plain and unambiguous,

construction is not necessary.” Ziegler Furniture and Funeral Home, Inc. v.

Cicmanec, 2006 S.D. 6, ¶ 14, 709 N.W.2d 350, 354 (quoting Pesicka v. Pesicka, 2000

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S.D. 137, ¶ 6, 618 N.W.2d 725, 726). Under the clear terms of the operating

agreement, a “membership interest” included the distributional interest.

[¶28.] Regarding their claim that Clarence’s assignment of his interest failed

to comply with South Dakota law, the Brockleys contend the transfer was invalid

because it was not completed correctly under the regulations and statutes regarding

gaming. The Brockleys rely on ARSD 20:18:06:08, which provides: “No person may

sell, lease, purchase, convey, or acquire an interest in a retail licensee or operator

licensee without the prior approval of the commission.” ARSD 20:18:06:08. The

Brockleys further note that Hickoks’ operating agreement specifies that any

transfer is subject to approval from the South Dakota Gaming Commission. They

contend Clarence’s assignment to himself and his wife was null and void because

the Gaming Commission did not approve it. The Brockleys are not members of the

Gaming Commission or the Hickoks corporation, and they have failed to explain

how they would have standing to enforce the Gaming Commission’s regulations or

the corporation’s operating agreement. See SDCL 15-6-17(a).

[¶29.] Finally, each of the Brockleys’ arguments ignores the fact that

Clarence assigned his membership interest (which included his distributional

interest) in March 2015, well before the entry of the first charging order in

December 2016.

Conclusion

[¶30.] Civil contempt is meant to force a party to comply with an order. The

only provisions in the charging order imposing an obligation on Hickoks (or Trucano

as its manager) were those directing that any distributional interest owed or

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payable to Clarence be paid to the Brockleys. Following the entry of the charging

order, however, Hickoks never disbursed any distributional interest owed to

Clarence. We affirm the circuit court because it was not clearly erroneous when it

found that neither Trucano, the Trucano Trust, nor Hickoks willfully or

contumaciously violated the charging order.

[¶31.] JENSEN, Chief Justice, and KERN, SALTER, and DEVANEY,

Justices, concur.

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