The Security National Bank of Sioux City v. Welte

• Court: Court of Appeals of Iowa
• Decided: June 16, 2021
• Docket: 20-0524
• Status: Published

Opinion

IN THE COURT OF APPEALS OF IOWA

No. 20-0524 Filed June 16, 2021

THE SECURITY NATIONAL BANK OF SIOUX CITY, IOWA as the duly appointed Personal Representative of the ESTATE OF ROGER E. RAND, Plaintiff-Appellee,

vs.

FRANK H. WELTE II, DIANE WELTE, WELTE FLATS FARMS, INC., BJM, INC., WESTERN SLOPES FARMS, and VALLEY FLATSFARM, INC., Defendants-Appellants,

and

MATTHEW WELTE, CLAIRE J. WELTE, JR., as Trustee of the VERA T. WELTE TESTAMENTARY TRUSTEE DATED OCTOBER 7, 2008, and filed with the Clerk of the District Court of Woodbury County, Iowa, on April 13, 2009, COMMODITY CREDIT CORPORATION, SHERYL GOODENOW f/k/a SHERYL WELTE and KRUGER SEEDS, INC., Defendants. ________________________________________________________________

Appeal from the Iowa District Court for Woodbury County, Patrick H. Tott,

Judge.

Appellants appeal the district court’s ruling for plaintiffs in a mortgage

foreclosure action. AFFIRMED AND REMANDED.

Robert B. Deck, Sioux City, for appellant.

Daniel L. Hartnett and Marci L. Iseminger of Crary, Huff, Ringgenberg,

Hartnett & Storm, P.C., Sioux City, for appellee.

Considered by Vaitheswaran, P.J., Greer, J., and Danilson, S.J.*

*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2021). 2

DANILSON, Senior Judge.

Appellants appeal the district court’s ruling for plaintiffs in a mortgage

foreclosure action. We conclude the court did not abuse its discretion in denying

Frank Welte’s motion for a continuance. We also conclude the district court

properly applied the dragnet clause and determined the proper amount owed by

the appellants. In respect to the evidentiary issues, the parties agree this is an

action in equity, and although the district court ruled on objections during the bench

trial, the rulings on objections do not merit a new trial. Accordingly, we affirm but

remand for further proceedings as may be necessary related to the foreclosure

action.

I. Background Facts & Proceedings

This case is a mortgage foreclosure action involving three promissory notes,

two mortgages, and multiple parties. Many of the same parties were earlier

involved in a replevin action involving farm-related personal property. See Security

Nat’l Bank v. Welte, No. 17-0907, 2018 WL 6120206, at *1 (Iowa Ct. App. Nov. 21,

2018).

In the earlier case we noted, “[Roger] Rand made various loans to Frank

Welte II and his various business entities for the purpose of financing Frank’s

farming operation.” Id. “Rand died on August 29, 2016, and [The Security National

Bank of Sioux City (SNB)] was appointed personal representative of Rand’s

estate.” Id. Rand also helped finance Frank’s seed and agricultural chemical

business. SNB sought to foreclose the two mortgages, and the district court 3

rendered judgment in favor of SNB against Frank and his business entities.1 We

will recite additional facts as we address each issue.

The appellants raise three issues: (1) the court erred in denying Frank’s

request of a continuance of the trial; (2) the district court erred in applying the

mortgage dragnet clause; and (3) the court erroneously ruled on several

evidentiary issues.

II. Standard of Review

Both parties agree this is an action in equity, notwithstanding the fact that

the court ruled on objections during the bench trial. We determine the case was

tried in equity and our review is de novo. See Iowa R. App. P. 6.907. We give

weight to the factual findings of the district court, especially when considering the

credibility of witnesses, but are not bound by those factual findings. Iowa R. App.

P. 6.904(3)(g).

III. Continuance

SNB filed a petition for foreclosure against defendants on March 24, 2017,

and trial was scheduled for October 17, 2018. On August 6, 2018, SNB filed a

motion to continue the trial. The court granted the motion and continued the trial

until February 13, 2019. Claire Welte filed a motion to continue on December 4,

2018. The court granted this motion, and the trial was rescheduled for June 25,

2019.

1 The defendant, Claire J. Welte Jr. as Trustee of the Vera T. Testamentary Trust, was not included in the judgment as a bankruptcy stay order was in effect for the trust. Also, SNB’s action against the Commodity Credit Corporation was deferred pursuant to the agreement between those two parties. 4

On May 15, 2019, Frank’s attorney filed a motion to withdraw, and Frank

consented to the withdrawal. On June 24, Frank filed a motion for a continuance

for the trial scheduled for the next day, stating he did not yet have new counsel.

The court granted the motion and continued the trial until August 27. The order

stated, “This is a firm trial date and no further continuances will be granted.”

Frank appeared pro se at the trial on August 27. He made an oral motion

for a continuance, claiming he was not able to obtain legal counsel. SNB pointed

out the case had been pending for two and one-half years. The court ruled:

The Court does note that the matter was previously scheduled for trial in June of this year, and as [SNB] accurately indicates, there was a motion to continue on the eve of trial, which the Court granted due to the defendant not having counsel at that time and his desire to seek counsel. It appears that same issue remains today. But [SNB] is correct, the last order indicated that that would be a final continuance for that reason and so the Court’s going to deny the additional request for continuance at this time, and we will proceed towards trial on this petition.

Frank claims the district court abused its discretion by denying his motion

for a continuance. He states he tried to obtain new counsel in a timely manner but

was unsuccessful. He also points out that SNB earlier requested a continuance,

which was granted by the court.

“We review a district court’s denial of a motion for continuance for abuse of

discretion.” Carter v. Carter, 957 N.W.2d 623, 631 (Iowa 2021). “A party

challenging a denial of a motion for continuance carries a heavy burden.” Id. “An

abuse of discretion occurs when the ‘decision is based on a ground or reason that

is clearly untenable or when the court’s discretion is exercised to a clearly

unreasonable degree.’” Anderson v. Anderson Tooling, Inc., 928 N.W.2d 821, 826

(Iowa 2019) (citation omitted). 5

Frank’s attorney withdrew on May 15, and Frank had more than three

months, until August 27, to obtain new counsel. He requested a continuance on

the eve of the trial scheduled for June 25, and the court granted his request, but

two months later he was still not represented by counsel. Also, this was the fourth

trial date, and Frank had consented to his attorney withdrawing from representing

him. Frank had been granted one prior continuance, he had been warned there

would be no further continuances, and his last request was made the day of the

trial.2 We find the district court did not abuse its discretion in denying Frank’s oral

motion for a continuance.

IV. Dragnet Clause

A. First, Frank contends there is insufficient evidence to support the

district court’s conclusion that the disbursements above the principal amount of the

notes should be subject to the same terms of the note.

The district court found:

Mr. Rand never made a disbursement to the Defendants for the face amount of any of the notes in question. On the contrary, Mr. Rand made a series of smaller disbursements to the Defendants over the course of several months surrounding each of the notes. Of particular import, the interest terms for each of the notes were identical. Each provided for an initial interest rate of 8% which increased to 12% either as a default interest rate or after 9 months in regards the first loan. As the initial interest rate for each note began at 8%, it is clear that the parties’ intent would have been that any additional sums loaned would have also been at an initial rate of 8% followed by a default rate of at least 12%. [Plaintiff’s expert] in his report has computed the per diem accrual of interest based on these rates, with the exception of the interest on the first loan which specifically provided for a default rate of 16%. Based on this

2 We observe without further comment that the motion to withdraw only sought to withdraw in representing Frank and neither the motion to withdraw or the order granting the motion permitted counsel to be relieved from representing the other four defendants. 6

evidence, the Court finds that interest rate set forth in the notes of 8% followed by a default rate of 12% should apply to the amounts advanced by Mr. Rand in excess of the amounts stated in the Promissory Note documents.

The district court and SNB’s expert relied upon the interest rates reflected

in all the promissory notes in evidence to conclude the intent of the parties was

that the same interest rate would apply. Although the evidence was not

overwhelming, no evidence controverted this conclusion. Moreover, the pattern of

business transactions between the parties would support the district court’s

conclusion. This conclusion is also supported by the fact the amount of the

principal identified in each promissory note was dispersed in multiple payments,

not in single disbursements. We agree with the district court’s conclusions on this

issue.

B. Frank also contends the dragnet clause should not be construed to

permit the disbursements under the 2013 promissory note and the 2014

promissory note to be secured by the mortgages executed in July 2015. He claims

SNB is attempting to use dragnet clauses in the mortgages to bring prior

promissory notes within the ambit of the mortgages. He asserts that for the terms

of the mortgages to apply to the prior promissory notes, this should have been

expressly stated in the mortgages.

A dragnet clause in a mortgage covers future advancements of loans.

Freese Leasing, Inc. v. Union Tr. & Sav. Bank, 253 N.W.2d 921, 923 (Iowa 1977).

“Dragnet clauses are not favored in equity. Our cases say they should be carefully

scrutinized and strictly construed.” Id. at 925. Dragnet clauses,

“[h]owever, . . . have a proper and legitimate purpose in commerce.” Id. 7

The district court determined:

[E]ach of the loan disbursements made by Mr. Rand to the Defendants were of the “same kind and quality or related to the same transaction or series of transactions the principal obligation secured” the mortgages referenced above do secure the entire amounts owed on these notes, including the amounts advanced to redeem the one property from tax sale.

A dragnet clause may be applied if “the advances are of the same kind and quality

or relate to the same transaction or series of transactions as the principal obligation

secured.” Id. at 927 (quoting Emporia Bank & Tr. Co. v. Mounkes, 519 P.2d 618,

623 (Kan. 1974)).

We agree paragraph 3.b of both mortgages supports incorporating all

preexisting debt as well as future advances. The term “preexisting debt” in the

second mortgage, dated July 17, 2015, would include all the unpaid advances

provided to Frank or BJM, Inc. prior to the execution of the second mortgage.

Moreover, there is no evidence enforcement of the dragnet clause related to past

or future advances would be unconscionable, oppressive, or unfair as to Frank or

his entity, BJM, Inc. See First v. Byrne, 28 N.W.2d 509, 511–12 (Iowa 1947). To

the contrary, it appears the parties continued a practice of executing promissory

notes and mortgages to permit Frank and his associated entities to continue

business.3 Further, the method of doing business was a consideration in

determining the validity of a dragnet clause in Brose v. International Milling Co.,

3Each of the four promissory notes admitted into evidence references it is secured by various mortgages. Both mortgages that are the subject of this action include a dragnet clause for past and future advances. Thus, it appears Rand made every effort to be secured by mortgages for the frequent advancements given to Frank, and so long as Frank was receiving advancements, he and his entity BJM, Inc. executed new mortgages. 8

129 N.W.2d 672, 675 (Iowa 1964). We conclude the dragnet clauses in the two

mortgages are enforceable as to Frank and BJM, Inc.

V. Evidentiary Objections

Frank claims the district court abused its discretion in ruling on SNB’s

objections to his cross-examination of SNB’s expert, Lawrence Delperdang. He

also claims the court abused its discretion by sustaining SNB’s objections to his

questions about SNB’s exhibits. Additionally, he asserts the court improperly

denied his request to admit certain exhibits.

We review a district court’s decision to admit or exclude evidence for an

abuse of discretion. Eisenhauer ex rel. T.D. v. Henry Cty. Health Ctr., 935 N.W.2d

1, 9 (Iowa 2019). “A party may claim error in a ruling to admit or exclude evidence

only if the error affects a substantial right of the party.” Id. (quoting Iowa R.

Evid. 5.103(a)).

A. On cross-examination, Frank questioned Delperdang about whether

some older promissory notes had been paid in full:

Q. Even though they’re paid in full, it wasn’t owed at that time because that’s your bookkeeping system that paid them in full. I’m not agreeing with that is what I’m trying to say. There’s an error in your bookkeeping system. [Counsel for SNB]: I’m going to object that it’s irrelevant. The Court: All right. The objection will be sustained.

Under Iowa Rule of Evidence 5.402, relevant evidence is generally

admissible, while “[i]rrelevant evidence is not admissible.” Id. at 17. Evidence is

considered to be relevant if “[i]t has any tendency to make a fact more or less

probable than it would be without the evidence; and . . . [t]he fact is of

consequence in determining the action.” Id. (quoting Iowa R. Evid. 5.401). 9

SNB was seeking to foreclose on promissory notes signed in 2013, 2014,

and 2015. Frank sought to question Delperdang about earlier promissory notes

from 2010, 2011, and 2012 that had been paid in full. We conclude the district

court did not abuse its discretion by sustaining SNB’s objection to Frank’s question

on the ground of relevance. See Iowa R. Evid. 5.401.

Additionally, Frank claims the court improperly sustained SNB’s objections

to his questions on the grounds the questions called for a legal conclusion. SNB

objected on the ground that a question called for a legal conclusion:

Q. The note is for how much? 848? And it has a payment of 1,016 (sic) and it’s not an overpayment? [Counsel for SNB]: Objection, calls for a legal conclusion. Frank: I think that’s a mathematical conclusion. The Court: The objection will be sustained.

Also, the following question:

Q. We have a payment in the same year of 2.498 million—we have a loan of 2 million. We have a payment of 2.498 million. How can there be interest of 1 million when the note is paid off and there’s money left over? [Counsel for SNB]: Objection, calls for a legal conclusion. The Court: All right. The objection is sustained.

Frank’s questions challenged the conclusions reached by the expert, and

the objections should have been overruled. See Heinz v. Heinz, 653 N.W.2d 334,

342–43 (Iowa 2002) (finding proper cross-examination includes the ability to

challenge the expert’s assumptions and conclusions). However, when we

consider the record as a whole, the erroneous rulings were “minor and did not have

a significant effect on the proceedings.” See Horsfield Materials, Inc. v. City of

Dyersville, 834 N.W.2d 444, 452 (Iowa 2013) (citing Passehl Estate v. Passehl,

712 N.W.2d 408, 414 (Iowa 2006)). Although preventing such cross-examination 10

would ordinarily be significant, here the questions appeared more directed to

answer questions to help Frank understand the expert’s testimony and eliminate

his confusion. Therefore, although the court abused its discretion by ruling Frank’s

question called for a legal conclusion, we determine Frank was not prejudiced by

the court’s ruling. See Bell v. Cmty. Ambulance Serv. Agency, 579 N.W.2d 330,

338 (Iowa 1998) (noting testimony excluded based on a ruling it would have led to

a legal conclusion would not have changed the result of the case).

B. Frank asked Delperdang whether Exhibit 1 was a promissory note

for $1 million. SNB objected, stating “Exhibit 1 clearly indicates that the maximum

principal amount is not to exceed $2 million, not $1 million.” The court sustained

the objection, ruling “Exhibit 1 clearly speaks for itself.” The court further stated, “I

can read and review the documents. They’re admitted and made part of the

evidence.”

Frank also asked Delperdang to read from Exhibit 2, another promissory

note. SNB objected on the ground the exhibit spoke for itself. The court sustained

the objection, noting Exhibit 2 contained the same language was found in Exhibit 1,

which had been read into the record. The court stated, “The exhibit speaks for

itself.” The court stated it was not necessary to read the exhibit into the record

“because it’s already part of the record so he doesn’t have to repeat it. It’s already

in the record.”

The court’s rulings did not prohibit Frank from asking questions about SNB’s

exhibits. In the first ruling, the court determined Exhibit 1 spoke for itself on the

issue of whether the maximum principal amount was $1 million or $2 million. In

the second ruling, the court merely determined it was not necessary for a witness 11

to read from Exhibit 2 when an identical provision in Exhibit 1 had already been

read into the record. We conclude the district court did not abuse its discretion in

its rulings that the exhibits spoke for themselves. See Eisenhauer, 935 N.W.2d at

9 (noting we review a district court’s decision to admit or exclude evidence for an

abuse of discretion).

C. Finally, Frank claims the district court improperly ruled he could not

present four exhibits. Frank attempted to introduce Exhibits 101, 102, and 103,

which were pages from amortization schedules dated July 13, 2016; October 15,

2016; and May 2, 2017. Delperdang stated he did not know the source of the

exhibits. SNB objected on the ground the exhibits had not been received into

evidence. The court ruled the exhibits could not be admitted into evidence.

Frank also sought to introduce Exhibit 104, which was a greater portion of

the original document that was the source of Exhibit 101. Exhibit 104 showed that

it started on page four. Delperdang stated he could not respond to just part of a

document. SNB objected to the exhibit, and the court sustained the objection.

Frank contends the court improperly ruled the exhibits could not be admitted

into evidence unless they were identified by a witness. Generally, a proper

foundation must be established for exhibits before they can be admitted into

evidence. See State v. Smith, 876 N.W.2d 180, 187 (Iowa 2016). Iowa Rule of

Evidence 5.901(a) states, “The requirement of authentication or identification as a

condition precedent to admissibility is satisfied by evidence sufficient to support a

finding that the matter in question is what its proponent claims.” The district court

has discretion in determining whether a party has established a proper foundation.

State v. Musser, 721 N.W.2d 734, 750 (Iowa 2006). 12

Delperdang was not able to identify Exhibits 101, 102, 103, or 104 because

they were parts of documents, not the whole document. He stated, “You can’t

respond to any document that’s just a part of a document.” We conclude the district

court did not abuse its discretion by ruling Frank had failed to establish a proper

foundation for the admission of the exhibits.

VI. Conclusion

We conclude the court did not abuse its discretion in denying Frank’s motion

for a continuance. We also conclude the district court properly applied the dragnet

clause and determined the proper amount owed by the appellants. In respect to

the evidentiary issues, the parties agree this is an action in equity and although the

district court ruled on objections during the bench trial, the rulings on objections do

not merit a new trial. Accordingly, we affirm but remand for any further proceedings

related to the foreclosure action.

AFFIRMED AND REMANDED.