#26208-rev & rem-GAS

2012 S.D. 71

                          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
                               Judge
                               ****
RICHARD L. RUSSMAN
CHRISTOPHER C. WHITE 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 DVORAK of
Siegel, Barnett & Schutz, LLP
Aberdeen, South Dakota                       Attorneys for intervenor
                                             and appellee.

                                  ****
                                             CONSIDERED ON BRIEFS
                                             ON AUGUST 27, 2012

                                             OPINION FILED 10/17/12
#26208

SEVERSON, Justice

[¶1.]          Terry and Cindy Leonhardt allege that they entered into an oral lease

with Terry’s father, Delbert Leonhardt, which was to extend for the lives of Delbert

and his wife, Ellen Leonhardt. They claimed the oral lease contained a right of first

refusal that Terry could exercise after the death of both Delbert and Ellen. Delbert

later entered into a written lease with his grandson, Matthew Oswald. This written

lease encompassed some of the farmland Terry and Cindy allege was part of their

oral lease with Delbert. Terry and his wife, Cindy, initiated a declaratory judgment

action against Delbert, seeking a declaration that the oral lease and right of first

refusal were valid. Terry and Cindy also sought specific performance of the oral

lease and right of first refusal. Matthew intervened in the lawsuit. Delbert then

filed for summary judgment on the ground that the oral lease and right of first

refusal were invalid under SDCL 43-32-2, limiting leases for agricultural land to no

more than twenty years. Matthew joined the motion. The circuit court granted the

motion for summary judgment on the ground that the lease was invalid under the

statue of frauds. Terry and Cindy appeal. We reverse and remand for further

proceedings.

                                   BACKGROUND

[¶2.]          Delbert and Ellen Leonhardt owned approximately one thousand acres

of farmland in South Dakota. In 1988, Terry Leonhardt, who is Delbert and Ellen’s

son, agreed to assist his parents in farming the land. Terry and his wife, Cindy,

allege that they entered into a crop sharing arrangement with Delbert in 1989,

under the terms of which Terry was responsible for half of the expenses associated


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with the farming operation. In return, Terry received one-third of the profit from

the crop each year. 1 Terry and Cindy maintain that this arrangement continued

until 1992.

[¶3.]          In 1992, Terry and Cindy allege that they reached a new arrangement

with Delbert. Under this new arrangement, Terry was responsible for all of the

expenses associated with the farming operation. In exchange, Terry received two-

thirds of the profit from the crop each year. Terry and Cindy also contend that

Delbert agreed to grant them a right of first refusal in 1996 or 1997. 2 As

consideration for the right of first refusal, they allege that Terry took out a life

insurance policy on Delbert.

[¶4.]          In 2001, Terry and Cindy contend that the parties entered into an oral

lease, which superseded the previous crop sharing arrangement. Under this new

agreement, Terry and Cindy maintain that they leased Delbert’s land “on a cash

rent basis.”

[¶5.]          Delbert and Ellen divorced in 2010. As part of the divorce, Delbert was

awarded approximately half of the farmland. Later that year, Delbert entered into

a written lease with his grandson, Matthew. This written lease was to




1.      Terry and Cindy repeatedly assert that, under the 1988 arrangement, Terry
        was to pay the expenses associated with the farming operation and, in return,
        Terry was to receive one-third of the profit earned from the crop each year.
        Thus, it is unclear how Cindy was a party to this arrangement.

2.      It is unclear from the record what the specific terms of the right of first
        refusal were, or how Terry and Cindy were to exercise this oral agreement
        after Delbert and Ellen died.

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extend for three years and encompassed farmland that Terry and Cindy assert was

part of their oral lease with Delbert.

[¶6.]        Terry and Cindy brought a declaratory judgment action against

Delbert, seeking a judgment that the oral lease and right of first refusal were valid.

Terry and Cindy also sought specific performance of the oral lease and right of first

refusal. Matthew intervened as a defendant in the declaratory judgment action.

[¶7.]        Delbert moved for summary judgment. He argued that the oral lease

was invalid under SDCL 43-32-2, which provides in relevant part: “No lease or

grant of agricultural land for a longer period than twenty years, in which shall be

reserved any rent or service of any kind, shall be valid.” Matthew joined Delbert’s

motion for summary judgment.

[¶8.]        During the hearing on Delbert and Matthew’s motion for summary

judgment, the circuit court inquired as to the applicability of the statute of frauds.

Terry and Cindy noted that Delbert and Matthew had not raised the statute of

frauds as an issue in their summary judgment motion. Nonetheless, Terry and

Cindy argued that the doctrines of promissory estoppel and partial performance

precluded Delbert and Matthew from invoking the statute of frauds. The circuit

court rejected this argument and granted summary judgment in favor of Delbert

and Matthew on the ground that the oral lease was invalid under the statute of

frauds. Terry and Cindy appeal.




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                                     DISCUSSION

[¶9.]        In their brief accompanying the motion for summary judgment,

Delbert and Matthew argued that summary judgment was warranted because

Terry and Cindy’s lease was void ab initio under SDCL 43-32-2. However, Delbert

and Matthew did not argue that Terry and Cindy’s lease was void under the statute

of frauds. Nor did Delbert and Matthew advance this argument before the circuit

court during the summary judgment hearing. The circuit court, nonetheless,

inquired as to the applicability of the statute of frauds during the summary

judgment hearing. Terry and Cindy argued that promissory estoppel and partial

performance precluded the application of the statute of frauds. Specifically, Terry

and Cindy argued that they had expended “millions of dollars worth of money and

time [to both Delbert and the farm] based upon the oral agreement to lease [the

land] for [Delbert’s] lifetime and for the right of first refusal.” The circuit court

rejected Terry and Cindy’s argument and ultimately relied upon the statute of

frauds in granting summary judgment in favor of Delbert and Matthew.

[¶10.]       Terry and Cindy argue that the circuit court erred in failing to provide

them with notice that it would consider granting summary judgment on a legal

theory different from the legal theory advanced by Delbert and Matthew in their

summary judgment pleadings and brief. Had the circuit court provided them with

adequate notice and an opportunity to present relevant evidence, Terry and Cindy

allege that they “could have provided the trial court with details” regarding the

money and time they expended in reliance on the oral lease and right of first

refusal.

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[¶11.]       In response, Delbert and Matthew note that the statute of frauds was

raised as an affirmative defense in both Delbert and Matthew’s answers to the

amended complaint. In his motion for summary judgment, Delbert asserted, “The

pleadings establish that there are no genuine issues as to any material facts

relating to Plaintiffs’ Amended Complaint and that this Defendant is entitled to

summary judgment in his favor as a matter of law.” Delbert and Matthew argue

that this provided Terry and Cindy with adequate notice that the statute of frauds

would be at issue during the summary judgment hearing.

[¶12.]       SDCL 15-6-56(c) provides that summary judgment “shall be rendered

forthwith if the pleadings, depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to a judgment as a matter of

law.” “In determining whether summary judgment is appropriate, [a] court is not

confined to the particular propositions of law advanced by the parties on a motion

for summary judgment.” Jaste v. Gailfus, 679 N.W.2d 257, 261 (citing 10A Charles

A. Wright et al., Federal Practice and Procedure § 2725 (3d ed. 1998)). However,

“[t]here is a greater possibility for error when the party opposing the summary

judgment motion may be able to show that a genuine issue exists but has not done

so because the facts relating to the particular legal principles were not in issue.” Id.

(citation omitted). In light of this risk, it is generally recognized that “[a] court

should notify the parties when it intends to rely on a legal doctrine or precedents

other than those briefed and argued by the litigants.” Id. (citation omitted); see

Heisler v. Metro. Council, 339 F.3d 622, 631 (8th Cir. 2003) (“It is fundamentally

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unfair to the nonmoving party to require her to address issues not addressed by the

moving party in anticipation that the district court might rely on some unidentified

issue to grant the motion.”). Providing the parties with adequate notice of the

issues ensures that the parties have a meaningful opportunity to develop the record

and present all relevant evidence to the court. 3

[¶13.]         In Delbert’s amended answer to Terry and Cindy’s amended complaint,

Delbert raised the statute of frauds as an affirmative defense. But he also raised

several other affirmative defenses, including: (1) estoppel (2) failure of

consideration; (3) waiver; (4) statute of limitations; (5) laches; (6) illegality; and (7)

res judicata. Neither Delbert nor Matthew raised the issue of the statute of frauds

in any of their summary judgment pleadings. Delbert and Matthew’s motion

requesting that the court grant summary judgment based on the pleadings, without

specifically mentioning or arguing the statute of frauds, was insufficient to put

Terry and Cindy on notice that the statute of frauds was an issue that the circuit



3.       This Court has recognized the importance of providing a non-moving party
         with notice and an opportunity to present evidence and arguments in
         opposition to a motion for summary judgment in other contexts. For
         example, we have held that “[w]here the court elects to treat a motion to
         dismiss as a motion for summary judgment, it must notify the parties of its
         intent and give them an opportunity to present matters pertinent to
         summary judgment.” Herr v. Dakotah, Inc., 2000 S.D. 90, ¶ 18, 613 N.W.2d
         549, 553 (citation omitted); see SDCL 15-6-12(b). In addition, “[s]ua sponte
         orders of summary judgment will be upheld only when the party against
         whom judgment will be entered was given sufficient notice and an adequate
         opportunity to demonstrate why summary judgment should not be granted.”
         Brown v. Hanson, 2007 S.D. 134, ¶ 19, 743 N.W.2d 677, 682 (quoting Myers v.
         Tursso Co., Inc., 496 F. Supp. 2d 986, 993 (N.D. Iowa 2007)) (internal
         quotation marks omitted).


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court would consider during the summary judgment hearing. See Heisler, 339 F.3d

at 631 (“We have repeatedly held that in the Eighth Circuit, a district court

commits reversible error when it grants summary judgment on an issue not raised

or discussed by the parties.”).

[¶14.]          In general, even if the parties did not receive adequate notice of the

issue the court relied upon in granting summary judgment, the court’s ruling may

be affirmed if “the facts before the . . . court were fully developed so that the moving

party suffered no procedural prejudice.” Bridgeway Corp. v. Citibank, 201 F.3d 134,

139 (2d Cir. 2000) (internal quotation marks omitted). In other words, “[t]he failure

of the court to provide notice can be excused if the error was harmless under the

circumstances.” Jaste, 679 N.W.2d at 261 (citation omitted). “Absent some

indication that the moving party might otherwise bring forward evidence that

would affect the court’s summary judgment determination, failure to provide an

opportunity to respond is not reversible error.” Coach Leatherware Co., Inc. v. Ann

Taylor, Inc., 933 F.2d 162, 167 (2d Cir. 1991); see Weiss v. Reebok Int’l, Ltd., Inc., 91

F. App’x 683, 689 (Fed. Cir. 2004) (“Summary judgment may be granted on legal

grounds other than those advanced by the parties if the record is sufficiently

developed.”).

[¶15.]          In this case, Terry and Cindy allege that if they had received notice

that the statute of frauds was at issue, they would have had a meaningful

opportunity to produce the following evidence to the circuit court:

                (1) Terry and Cindy made extensive permanent improvements to
                the leased land and structures upon the leased land; (2) Terry
                and Cindy purchased approximately $1.5 million dollars worth

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               of machinery and equipment so that they could continue to
               properly operate the leased land under the agreement and the
               right of first refusal; (3) Terry skipped college to stay home and
               help Delbert operate the farm; (4) Terry and Cindy spent
               thousands of dollars on fertilization zones on the leased land to
               ensure the success of future crop; and (5) Terry and Cindy took
               out a life insurance policy on Delbert and Ellen and paid
               approximately $3,000.00 in yearly premium payments in order
               to have the requisite funds available to exercise their right of
               first refusal when the last of Delbert and Ellen passed way.

[¶16.]         Terry and Cindy have demonstrated that they may possess evidence

they did not have a meaningful opportunity to present to the circuit court. 4 This

evidence could be relevant to Terry and Cindy’s defenses of promissory estoppel and

partial performance. Because Terry and Cindy did not receive adequate notice and

a meaningful opportunity to bring forward the above referenced evidence, we

believe they suffered procedural prejudice.

                                    CONCLUSION

[¶17.]         Terry and Cindy 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. We reverse and remand for further

proceedings.

[¶18.]         GILBERTSON, Chief Justice, and KONENKAMP, ZINTER, and

WILBUR, Justices, concur.




4.       We do not hold that the above-referenced evidence is sufficient to preclude
         the application of the statute of frauds in this case. We merely conclude that
         the evidence may be relevant to Terry and Cindy’s claims of promissory
         estoppel and partial performance.

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