#26953-a-JKK
2014 S.D. 86

                          IN THE SUPREME COURT
                                  OF THE
                         STATE OF SOUTH DAKOTA
                                 ****
TERRY LEONHARDT and
CINDY LEONHARDT,                          Plaintiffs and Appellants,

      v.

DELBERT LEONHARDT,                        Defendant and Appellee,

      and

MATTHEW OSWALD,                           Intervenor and Appellee.

                                 ****
                   APPEAL FROM THE CIRCUIT COURT OF
                      THE FIFTH JUDICIAL CIRCUIT
                     BROWN COUNTY, SOUTH DAKOTA
                                 ****
                   THE HONORABLE JACK R. VON WALD
                            Retired Judge
                                 ****

ZACHARY W. PETERSON
RICHARD L. RUSSMAN of
Richardson, Wyly, Wise, Sauck
 & Hieb, LLP
Aberdeen, South Dakota                    Attorneys for plaintiffs
                                          and appellants.

TIMOTHY J. VANDER HEIDE of
Barker Wilson Law Firm, LLP
Belle Fourche, South Dakota               Attorneys for defendant
                                          and appellee.

JULIE M. DVORAK of
Siegel, Barnett & Schutz, LLP
Aberdeen, South Dakota                    Attorneys for intervenor
                                          and appellee.

                                 ****
                                          CONSIDERED ON BRIEFS
                                          ON AUGUST 25, 2014
                                          OPINION FILED 12/10/14
#26953

KONENKAMP, Justice

[¶1.]         In this dispute between family members over agricultural land, the

circuit court concluded that neither an oral agreement for a lifetime lease nor a

right of first refusal existed.

                                    Background

[¶2.]         In 2010, Terry and Cindy Leonhardt (the Leonhardts) brought suit

against Terry’s father, Delbert Leonhardt, for specific performance of an oral lease

and right of first refusal. The Leonhardts alleged that they had entered into an oral

lease with Delbert in 1988, whereby they would have the right to lease Delbert’s

farmland, approximately one thousand acres, during the lifetime of Delbert and his

then-wife Ellen. The Leonhardts further claimed that Delbert orally promised them

a right of first refusal to purchase the farmland after he and Ellen died. Delbert

breached these agreements in 2010, the Leonhardts claimed, when he gave Terry

notice of his intent to terminate the Leonhardts’ lease.

[¶3.]         Terry’s nephew and Delbert’s grandson, Matthew Oswald, intervened

in the suit because he claimed to have a written lease agreement with Delbert on

the same property. Matthew also brought a counterclaim against the Leonhardts

for intentional interference with a contractual relationship. Delbert moved for

summary judgment and Matthew joined, asserting that the alleged oral lease and

right of first refusal were invalid under SDCL 43-32-2, which limits lease

agreements concerning agricultural land to no more than 20 years.

[¶4.]         At the summary judgment hearing, the circuit court brought up the

issue of the statute of frauds. See SDCL 53-8-2 (a lease agreement for a period


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longer than one year is not enforceable unless in writing). In response, the

Leonhardts insisted that neither Delbert nor Matthew had raised the statute of

frauds as a defense. They also argued that promissory estoppel and part

performance precluded the application of the statute of frauds. The circuit court

disagreed and granted Delbert and Matthew summary judgment, concluding that

the lease was invalid under the statute of frauds.

[¶5.]        On appeal, the Leonhardts argued that the circuit court erred when it

failed to give them notice of its intent to rely on a different legal theory than that

advanced by Delbert and Matthew in support of the motion for summary judgment.

Leonhardt v. Leonhardt, 2012 S.D. 71, 822 N.W.2d 714. Had they been given

adequate notice of the statute of frauds issue, the Leonhardts contended, they could

have presented evidence relevant to their defenses of promissory estoppel and part

performance. We agreed and reversed the circuit court’s summary judgment order,

ruling that the Leonhardts “have shown that they were prejudiced by the circuit

court’s failure to provide them with notice that it would consider the statute of

frauds during the summary judgment hearing.” Id. ¶ 17.

[¶6.]        On remand, the circuit court held a bench trial. Testifying were Terry,

Cindy, Delbert, Ellen, Matthew, Thomas Leonhardt (Terry’s brother), Suzi Oswald

(Terry’s sister and Matthew’s mother), and Betsy Oleson (Terry’s sister). Terry

explained the history of the parties’ farming relationship. In the fall of 1988, he

considered attending Western Dakota Vocational Technical Institute in Rapid City,

South Dakota. His father, however, persuaded him to stay and farm on the promise

that Delbert would let Terry lease the farm during Delbert’s and Ellen’s lives, with


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a right to purchase the land upon their deaths. Terry agreed, and he and Delbert

operated the farm for the next several years as a partnership, whereby Terry paid

half of all the bills and received one-third of the profits.

[¶7.]         According to Terry, the terms of the oral lifetime lease agreement

changed twice, once in 1992, and again in 2001. In 1992, after Delbert turned 62

and became semi-retired, the parties agreed that Terry would receive two-thirds of

the profits and be responsible for all the expenses associated with the farming

operation. At some point after this agreement, Terry took out a life insurance policy

on Delbert in consideration for Delbert’s promise that Terry would have the right of

first refusal to purchase the farm upon the deaths of Delbert and Ellen. In 2001,

Terry asked Delbert to agree to accept cash rent in lieu of profit sharing. Delbert

agreed and from that point forward (until Delbert terminated the lease), Terry

leased Delbert’s land on a cash-rent basis.

[¶8.]         When Terry was cross-examined, counsel for Delbert questioned him

on testimony Terry earlier gave during Delbert and Ellen’s divorce trial. Terry

agreed that in his testimony about his interest in this land, he never claimed to

have had a lifetime lease or a right of first refusal. He also agreed that when

Delbert told Terry he wanted to lease 80 acres to Matthew, Terry made no claim

that Delbert could not lease the land to Matthew because of a lifetime lease.

Instead, Terry said he told Delbert that he was obligated under a two-year lease on

the property. Terry confirmed that he also told Delbert and Ellen that he would

quit farming and leave if Delbert decided to lease the land to Matthew. Terry

testified about the history of a strained relationship he had with Delbert and


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Matthew, which began in 2007, near the time when Terry was laid up with a back

injury.

[¶9.]        Terry recited the expenditures he made in consideration of the lifetime

lease and right of first refusal. He said that he improved buildings on the

homestead, but on cross-examination, he explained that when the improvements

were made, they owned the land and home and when they did not own the home,

they lived in it rent free. In 2000 and 2001, Delbert and Ellen gifted the bigger

homestead and 40 acres to the Leonhardts. Terry testified that he purchased and

installed a grain bin and purchased nearly $1,500,000 in equipment, but on cross-

examination, he agreed that the bin was installed on land they owned and that

Terry continued to own the equipment he purchased, which was used for farming

Delbert’s land, his own land, and land he rented from others. Finally, although

Terry put in place fertilization zones on the property he rented from Delbert, he

agreed that any increase in yield he realized from those zones did not benefit

Delbert.

[¶10.]       Ellen also testified. She said that Delbert made an offer to Terry in

the late 1980s to take over the farm. She explained that Delbert and Terry had a

good relationship until Matthew got himself between them. She said that in 2005,

Delbert’s attitude changed; he concerned himself only with Matthew. Matthew

lived rent free with Delbert and Ellen. According to Ellen, Delbert pressured her to

sign over ownership of certain buildings to Matthew, wanted them to move out of

their home and give it to Matthew, and wanted Matthew to get the farm. Ellen had

had enough and obtained a divorce. Thereafter, she entered into a 20-year written


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lease agreement with Terry to allow him to lease her portion of the property. She

said that Terry would have a right of first refusal to purchase her property upon her

death.

[¶11.]       In his testimony, Delbert agreed that he and Terry operated the farm

on a profit-sharing basis from 1989 to 2001, and a cash-rent basis beginning in

2001. But he denied that he orally promised to lease the farmland to the

Leonhardts for life or that he specifically agreed that Terry would have a right of

first refusal. Rather, he said that the lease agreement was something he and Terry

discussed annually. He could not recall Terry ever requesting a lifetime lease.

[¶12.]       In its memorandum decision and findings of fact and conclusions of

law, the circuit court found that based on Terry’s testimony during the divorce

proceedings, Terry did not believe at that time that he had a lifetime lease. The

court further found that “[p]rior to 2011 when this lawsuit was filed, both Delbert

and Ellen behaved as though they retained the right to deal with their land as they

saw fit, without regard to any lifetime lease agreement or right of first refusal in

favor of Terry.” The court found no credible evidence that the Leonhardts possessed

a lifetime lease or right of first refusal. It ruled that “[a]ny improvements which

were made to the homesteads were made to property which Delbert does not own.”

And “[a]ny purchases of machinery and equipment were made for Terry’s own

benefit and for Terry’s own purposes.” The court found that the fences Terry

installed and his fertilization zones were also for his own benefit. Therefore, the

court concluded that the Leonhardts failed to prove by clear and substantial




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evidence that there was a meeting of the minds on the oral lifetime lease agreement

or the right of first refusal.

[¶13.]         Because there was no lifetime lease agreement or right of first refusal,

the court ruled that there was nothing to enforce by specific performance. But even

if a lifetime lease and right of first refusal existed, the court concluded that any

such oral agreements would be barred by the statute of frauds. See SDCL 53-8-2.

Even if the statute of frauds could be avoided by evidence of part performance and

promissory estoppel, the court ruled that the Leonhardts failed to prove by credible

evidence that their alleged partial performance was related to the contract and that

they suffered any detriment in their reliance on a lifetime lease or right of first

refusal. And even if the lifetime lease or right of first refusal existed, it violated the

provisions of SDCL 43-32-2 and would therefore be void. Finally, the court

concluded that any right of first refusal was not severable from the alleged oral

lifetime lease agreement “because the parties’ performances were not separable into

corresponding pairs of part performance and the parts of each pair were not

regarded as agreed equivalents[.]”

[¶14.]         The Leonhardts appeal, and we address their claim that they

established the existence of a material issue of fact on whether the statute of frauds

could be avoided on the basis of part performance or promissory estoppel.*



*        The Leonhardts assert several other issues, which we need not address. On
         their first issue — whether the court abused its discretion in considering
         evidence from the divorce trial — the Leonhardts did not cite any authority in
         support, which waives the issue. See Duffield Constr., Inc. v. Baldwin, 2004
         S.D. 51, ¶ 17, 679 N.W.2d 477, 483. We need not address their claim that the
         right of first refusal is severable from the lease agreement, because no
                                                                     (continued . . .)
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                               Analysis and Decision

[¶15.]       The Leonhardts argue that they established the existence of a material

issue of fact in dispute on avoiding the statute of frauds. This case was tried to the

court, and the court considered the material issues of fact in dispute and entered

findings of fact and conclusions of law. Thus, our review is whether the court

clearly erred when it weighed the material issues of fact and ruled that the

Leonhardts failed to meet their burden of proof that a lifetime lease and right of

first refusal existed. See SDCL 15-6-52(a); Lien v. Lien, 2004 S.D. 8, ¶ 14, 674

N.W.2d 816, 822. We presume the court’s findings of fact are correct and “defer to

those findings unless the evidence clearly preponderates against them.” City of

Deadwood v. Summit, Inc., 2000 S.D. 29, ¶ 9, 607 N.W.2d 22, 25 (quoting Lewis v.

Moorhead, 522 N.W.2d 1, 3 (S.D. 1994). We further defer to the court’s “firsthand

perception of the witnesses and the significance the [court] gave to their testimony.”

Zepeda v. Zepeda, 2001 S.D. 101, ¶ 19, 632 N.W.2d 48, 55. Conclusions of law,

however, are reviewed de novo, with no deference to the court’s ruling. City of

Deadwood, 2000 S.D. 29, ¶ 9, 607 N.W.2d at 25.

[¶16.]       The Leonhardts contend that the court erred because it “ignored

significant factual background in favor of a few snippets from unrelated

proceedings,” and because they proved by “clear and satisfactory” evidence that a


__________________
(. . . continued)
         lifetime lease or right of first refusal was found to exist. Similarly, because
         no lifetime lease or right of first refusal exists, we need not address whether
         the lease agreement is valid for twenty years under SDCL 43-32-2. Finally,
         we do not address the Leonhardts’ claim that the lifetime lease is valid until
         2021, since there was no lifetime lease.

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#26953

lifetime lease and right of first refusal existed along with the terms of those

agreements. To the Leonhardts, the statement in Delbert’s 2005 Will — “It is my

intent that my son, Terry Leonhardt, be given a right of first refusal to purchase

any farm land which shall be held by this trust or distributed by this trust to the

trust beneficiaries” — and the fact Terry purchased a life insurance policy on

Delbert’s life, all prove that Delbert and Ellen gave the Leonhardts a right of first

refusal. And as evidence that the parties agreed to a lifetime lease, the Leonhardts

point to the fact that Terry purchased Delbert’s equipment and made long-term and

substantial improvements to the property.

[¶17.]       From our review of the testimony and evidence, we conclude that the

circuit court’s findings of fact are not clearly erroneous. The court found that the

Leonhardts failed to prove by clear and substantial evidence that there was a

meeting of the minds on the oral lifetime lease agreement and the right of first

refusal. Contrary to the Leonhardts’ insistence, the court did not rely only on

Terry’s testimony from the divorce trial. The court deemed relevant the fact that

before 2011, Delbert and Ellen treated their land as they saw fit, without regard to

an alleged lifetime lease or right of first refusal in favor of the Leonhardts. Indeed,

the record shows that Delbert twice told Terry he considered leasing part of the

farm to others, at one time to Matthew and another time to Terry’s brother,

Thomas. The court further found that any improvements made by Terry benefited

property Delbert did not own, and Terry’s equipment purchases and fertilization

zones were for Terry’s own benefit. The record supports these findings, as Terry

testified that he still owns the equipment he purchased and continues to use it to


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farm. Terry improved the property he owned (the bigger homestead), placed the

grain bin he purchased on property he owned, and, by using fertilization zones, he

worked to increase his crop yield, which had no impact on the amount of rent

Delbert received from Terry.

[¶18.]       Because the court was not clearly erroneous when it concluded that no

credible evidence existed to support the existence of a lifetime lease or right of first

refusal, we need not reach the statute of fraud issues.

[¶19.]       Affirmed.

[¶20.]       GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and

WILBUR, Justices, concur.




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