Lead Opinion
PROCEDURAL HISTORY/FACTUAL BACKGROUND
[¶ 1.] In 1994 the South Dakota Supreme Court held that a lease-purchase agreement between the City of Custer (City) and Homes, Inc., which included the Custer City Attorney, Gerald Baldwin (Baldwin), as one of the principles, was null and void as viola-tive of public policy under SDCL 6-1-1. Speckels v. Baldwin,
[¶ 2.] The basis for Baldwin and Him-rich’s claim for legal negligence lies in three separate areas. These are as follows:
(1) The failure of Carpenter to preserve on appeal the statute of limitations defense found at SDCL 6-1-4.
(2) The failure of Carpenter to assert a cross-claim in the prior litigation against City.
(3) The failure of Carpenter to assert as an affirmative defense in the prior litigation the curative legislation of SDCL 9-27-35.
[¶ 3.] The first point arose when Carpenter filed an answer for Himrich and Baldwin and asserted the affirmative defense of the statute of limitations. The trial court held that SDCL 6-1-1 did not apply and there was no reason to apply SDCL 6-1-4, the section dealing with the statute of limitation. The trial court also ruled that if SDCL 6-1-1 did apply, SDCL 6-1-4 would also apply. When Speckels did not prevail in the prior litigation, he appealed. Carpenter wrote Himrich and Baldwin and suggested that a notice of review be filed on the statute of limitations matter. Baldwin responded and told Carpenter to proceed, but Carpenter did not file a notice of review on that point. This was noted in Speckels,
[¶ 4.] The next point deals with the claim of the failure to assert a cross-claim against City in its initial answer. Baldwin and Him-rich attempted to file a cross-claim against City after the remand of the original proceeding. They concede that the failure to file the cross-claim in the initial lawsuit effectively precludes them from doing so now. However, they claim that Carpenter’s failure to assert the original cross-claim is legal negligence.
[¶ 5.] The final point deals with the curative legislаtion found at SDCL 9-27-35. Baldwin and Himrieh claim SDCL 9-27-35 is
[¶ 6.] Carpenter moved for summary judgment and it was granted. This appeal followed.
ISSUE
[¶ 7.] There is a single issue on appeal.
[¶ 8.] I. Did the trial court err in granting summary judgment to Carpenter, considering that SDCL 6-l^t, 9-27-35, and 15-2-8(4) and cross-claims against City were not asserted as affirmative defenses in the underlying cause of action or raised on the prior appeal?
[¶ 9.] We hold that summary judgment was proper.
ANALYSIS
[¶ 10.] The standard of review for summary judgment is well established.
In reviewing a grant ... of summаry judgment under SDCL 15 — 6—56(e), we must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. The nonmoving party, however, must present specific facts showing that a genuine, materiаl issue for trial exists. Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied. If there exists any basis which supports the ruling of the trial court, affirmance of summary judgment is proper.
Mack v. Kranz Farms, Inc.,
[¶ 11.] In order to demonstrate a valid legal malpractice claim, Himrich and Baldwin must prove:
(1) the existence of an attorney-client relationship giving risе to a duty;
(2) that the attorney, either by an act or failure to act, violated or breached that duty;
(3) that the attorney’s breach of duty proximiately caused injury to the client; and
(4) that the client sustained actual injury, loss or damage.
Haberer v. Rice,
I. Contract in Violation of Public Policy
[¶ 12.] The contract between City and Homes, Iric. clearly violates South Dakota public policy. SDCL 6-1-1 plainly indicates that a contract between a municipality and one of its officers is in direct conflict with the'fundamental rule against self-dealing. “Public policy requires that local government officials cannot be permitted to place themselves in a position in which personal interest may conflict with public duty.” Speckels,
[¶ 14.] The allegation that City and its residents were not harmed but rather profited because of the illegal contract is completely irrelevant. Norbeck and Nicholson Co. v. State,
II. SDCL 9-27-35 Not a Valid Defense
[¶ 15.] Public policy dictates that Himrich and Baldwin would not have been successful under SDCL 9-27-35. See, Minneapolis, St. Paul P., R. & D. Electric Traction Co. v. City of Minneapolis,
[¶ 16.] In addition, the curative abilities of SDCL 9-27-35 extend only to procedural omissions and defects. The statute states, in pertinent part:
All instruments of conveyance of real property made by any municipal corporation prior to January 1, 1992 are notwithstanding any omission, irregularities, defects in the proceedings and resolutions had and taken by said municipal corporation to sell and convey the same; hereby validated, legalized, and cured....
SDCL 9-27-35 (emphasis added). Curative or validating statutes cannot be applied to illegal contracts. The legislature cannot seek to cure or validate that which it cannot originally authorize. Otter Tail Power Co. v. City of Colman,
III. Statute of Limitations Defenses Not Applicable
[¶ 17.] Himrich and Baldwin allege that SDCL 6-1-4 would have offered protection from possible liability had it been asserted. However, the statute of limitations defense under SDCL 6-1-4 is limited and will not apply “where any fraud or deceit was used in securing or performing such con
[¶ 18.] SDCL 15-2-8(4) is offered as another possible statute of limitations defense. However, no evidence was prеsented to indicate that this statute would have applied in the underlying action. Further, it is disputable whether the application of SDCL 15-2-8(4) would have yielded a different result had it been pled. Himrich and Baldwin have not met their burden of proving this point. When challenging a summary judgment, the nonmoving party “must substantiate his allegations with ‘sufficient probative evidence [that] would permit a finding in [his] favor on more than mere speculation, сonjecture, or fantasy.’ ” Moody v. St. Charles County,
TV. Failure to Assert Cross-Claims Not Material to Outcome of Case
[¶ 19.] Himrich and Baldwin assert that Carpenter should have filed cross-claims regarding title and ownership of the nursing home property, separate and distinct from those filed by City. Further, they argue that the equitable doctrine of unjust enrichment would have offered protection had it been asserted in the original answer. This Court refuses to find that such cross-claims would have been beneficial to Himrich and Baldwin’s case in any manner. Speckels,
[¶ 20.] A cross-claim demanding that title to the nursing home property be retained by Baldwin and Himrich would not have been successful. Under SDCL 6-1-1, the lease-purchase contract was prohibited as improper and illegal and was thus null and void from the beginning. Speckels,
[¶ 21.] The doctrine of unjust enrichment safeguards against the enrichment of one party at the expense of another party. A.G. Edwards & Sons v. Northwest Realty Co.,
[¶ 22.] In this cаse, Himrich and Baldwin are not entitled to seek the equitable defense of unjust enrichment. The maxim that “he who comes into equity must come with clean hands,” is most often utilized “where granting affirmative equitable relief would run contrary to public policy or lend the court’s aid to fraudulent, illegal or unconscionable conduct.” Myers v. Smith,
[¶ 23.] The trial court did not err in granting Carpenter’s motion for summary judgment.
[¶ 24.] Affirmed.
Dissenting Opinion
(dissenting in part).
[¶ 29.] I would reverse thе trial court’s granting of a summary judgment regarding the alleged negligence of defendants to preserve on appeal the statute of limitations defensé found at SDCL 6-1-4.
[¶ 30.] The null and void agreement provided in SDCL 6-1-1 is subject to a statute of limitations.
[¶ 31.] Under SDCL 6-1-1, it is unlawful for a city officer to have a personal interest in a contract wherein the city purchases real estate. If such a contract is entered into it shall be null аnd void from the beginning.
[¶ 32.] SDCL 6-1-4 provides:
Any civil action to recover the amounts paid by a county, municipality, township or school district under any of the conditions of 6-1-1 to 6-1-3, inclusive, must notwithstanding any other law or statute of limitation, be commenced within six months from the date of publication of the minutes recording the approval of the voucher and payment thereof or within six months from the filing of any audit report covering the expenditure therefor, whichever of the two events occurs the later; but, this limitаtion for commencement of civil actions shall not apply where any fraud or deceit was used in securing or performing such contract.
[¶ 33.] In Speckels v. Baldwin,
[¶ 34.] Failure to file notice of review was negligence.
[¶ 35.] A defense to the underlying ease was not preserved when the defendants failed to file a notice of review on appeal, pursuant to SDCL 15-26A-22. SDCL 6-1-4 provided a defense to dismiss the underlying ease had it been preserved. On July 13,1992 Carpenter wrote to Baldwin and Himrich stating' that it was his initial opinion that a notice of review on the statute of limitations issue should be filed pursuant to SDCL 15-26A-22. In said letter Carpenter also asked for the authorization to file said notice of review. By letter dated July 14, 1992 Baldwin authorized-Carpenter to file the notice of review on the question of the statute of limitations. Defendants failed to do so. This was negligence as a mаtter of law. Whether this negligence proximately caused damage to plaintiffs is the issue.
[¶ 36.] It is true that plaintiffs, in order to win the malpractice lawsuit, must prove the following: (1) the existence of a duty arising from attorney-client relationship; (2) breach of duty by attorney; (3) breach of duty proximately causing damage; and (4) client sustained damage. Haberer v. Rice,
[¶ 37.] The actions of plaintiffs in underlying lawsuit do not constitute fraud or deceit as a matter of law.
[¶ 38.] The majority feels that the statute of limitations defense is not applicable because the actions of plaintiffs have been ruled deceitful in the underlying lawsuit. They feel this as a matter of law. I do not agree. SDCL 6-1-4 does provide that the six month statute of limitations -will not apply where any fraud or decеit was used in securing or performing such contract. However, there has been no finding or determination that plaintiffs committed any fraud or deceit. This Court in Speckels determined that:
This [transaction] constituted a conflict of interest, and Baldwin knew it. The City of Custer knew it. However, both attempted to side-step the conflict by appointing and retaining Baldwin, yet skipping the administering of his oath of office as required by SDCL 9-14-6. We scrutinize these facts with great care and condemn those actions which indicate corruption or favoritism in a public office_ In light of these proceedings, the City of Custer’s deliberate failure to administer the oath of office to Baldwin gives credence to such an indication.
Speckels,
[¶ 39.] Further in Speckels this Court stated
It is a violation of the fiduciary duty of a local government officer to use his position in any way for private gain. We will not permit a conflict of interest to be disregarded merely because Baldwin bypassed his oath of office.
These dealings cannot be condoned by this Court. Here, the citizens of Custer, through its city officials, gave land to a non-profit corporation to construct a nursing home. SDCL 47-26-30 does not permit a non-profit organization to dispose of its assets to a corporation organized for profit. By maneuvering within the confines of municipal government, the land all became the property of an entity existing for profit, a corрoration co-owned by city attorney Gerald Baldwin and city planning commissioner Edward Himrich.
Even if the contract, under a public policy argument advanced by Baldwin and Him-rieh, were advantageous to the City, such a thesis is of no consequence. The wrong lies in the creation of a situation tending to weaken public confidence in the integrity of the public service, and to undermine the sense of security of individual rights, which the citizen and property owner must feel assured will always exist in the exercise of public authority. Rather, this Court has taken the position that the conflict of interest, reflected by this scenario, is inherently bad for the people of this state, (citations omitted).
Speckels,
[¶ 40.] The majority feels that the actions of plaintiffs in the underlying lawsuit, as a matter of law, constitute fraud or deceit. In making this determination we must examine our statutes and cases thereunder. Liability for deceit is found at SDCL Chapter 20-10. SDCL 20-10-1 provides: “One who willfully deceives another, with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.” The acts constituting deceit are found at SDCL 20-10-2:
A deceit within the meaning of 20-10-1 is either: (1) The suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (2) The assertion, asa fact, of that which is not true, by one whо has no reasonable ground for believing it to be true; (3) The suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or (4) A promise made without any intention of performing.
[¶ 41.] An action for deceit requires proof that the misrepresentations were material to the formation of the contraсt and that the party relied on the misrepresentations to his detriment. Ducheneaux v. Miller,
[¶ 42.] I find no evidence of misrepresentation or concealment by plaintiffs in securing or performing the contract, thus no fraud or deceit. The parties involved knew exactly what was happening and mutually agreed to the same, as this Court has found. We have both parties to the contract, knowing it violates SDCL 6-1-1, securing and performing the contract! Their actions may have been reprehensible, a conflict of interest, a violation of public policy, resulting in a null and void contract, under SDCL 6-1-1, but their actions were not fraudulent or deceitful. Simply put, how could there be fraud or deceit in a collusion?
[¶ 43.] Further, statute of limitations questions are normally for the jury. Keegan v. First Bank of Sioux Falls,
[¶ 44.] I would reverse the granting of the summary judgment on this basis and remand this ease back to the trial court for further proceedings.
[¶ 45.] AMUNDSON, J., joins this writing and I am authorized to so state.