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Neumann v. Anderson

Court of Appeals of Minnesota

April 30, 2018

Jack C. Neumann, et al., Respondents,
v.
Roxann Anderson, Respondent, Kimberly S. Pronschinske, et al., Appellants.

          Winona County District Court File No. 85-CV-15-1892

          Daniel J. Heuel, O'Brien & Wolf, L.L.P., Rochester, Minnesota (for respondents Jack C. Neumann and Sandy M. Neumann)

          Roxann Anderson, Altura, Minnesota (pro se respondent)

          Joseph J. Cassioppi, Jacob P. Harris, Fredrikson & Byron, P.A., Minneapolis, Minnesota; and Michael A. Murphy, Hammell & Murphy, P.L.L.P., Caledonia, Minnesota (for appellants Kimberly S. Pronschinske and Kim M. Pronschinske)

          Considered and decided by Hooten, Presiding Judge; Johnson, Judge; and Kirk, Judge.

         SYLLABUS

         1. In a partition action, a referees' report is entitled to the same force and effect as a jury's verdict or a district court's finding and may be set aside by the district court only in extreme cases.

         2. Although a partition action is governed by statute, a district court may exercise its general equitable powers by ordering a remedy that accounts for the particular circumstances of the case.

          OPINION

          JOHNSON, JUDGE.

         Three siblings own undivided one-third interests in two parcels of rural property. One sibling commenced this action for a partition. Two court-appointed referees issued a report recommending that both parcels be awarded to one sibling, who has leased both parcels for 14 years, and that she make payments to the other two siblings for the value of their respective one-third interests. The district court rejected the referees' report and determined that the two parcels would be physically divided so that each sibling would own an equal amount of property. We conclude that the district court erred by rejecting the referees' report, which is consistent with the information provided to the referees and is consistent with Minnesota law. Therefore, we reverse and remand for confirmation and implementation of the referees' report.

         FACTS

         This partition action concerns two parcels of rural property in Winona County with a combined area of 260 acres. One parcel, known as the Home Farm, consists of 160 acres, of which 62 acres are tillable farmland, 22 acres are open pasture, 68 acres are woods and ponds, and 8 acres are a road and buildings. The other parcel, known as the Bethany Farm, consists of 100 acres, of which 97 acres are tillable farmland. The two parcels are not contiguous.

         Both parcels were owned by Henry Neumann and Alice Neumann until 1995, when they conveyed the property to a revocable trust. Henry and Alice operated a dairy farm using both parcels. They had three adult children: Jack C. Neumann (hereinafter Neumann), Roxann Anderson, and Kimberly Pronschinske.

         In 2004, Pronschinske and her husband purchased Henry and Alice's herd of dairy cattle and began leasing both parcels. Since then, the Pronschinskes have lived in a mobile home on the Home Farm with their children and have operated an organic dairy farm. The Pronschinskes keep their herd of dairy cattle on the Home Farm and grow organic feed on the Bethany Farm. The Pronschinskes have obtained organic certification for their dairy operation.

         Henry died in 2008. The following year, the Pronschinskes and Alice (acting as trustee) entered into a written lease agreement for both parcels. The agreement provided that the value of any capital improvements made by the Pronschinskes would "be applied to the purchase price of the farm in the future" or, if the property were "sold to someone else, " the Pronschinskes would "be allowed to remove" the capital improvements "or be compensated for them." The same language was included in written lease agreements that were executed in 2010 and 2011. The 2011 agreement, which was signed by a bank that had been appointed trustee, provided further that if the Pronschinskes and the trust entered into a purchase agreement, the Pronschinskes' rent payments would "be applied to the purchase price."

         Alice died in 2012. Upon her death, Henry and Alice's three children became the beneficiaries of the trust. The trustee attempted to negotiate an agreement with the three beneficiaries concerning the manner of distribution of the trust's real property. Neumann and the trustee filed petitions for instruction. The district court determined that the trust agreement required the trustee to distribute the property to the three children in equal shares. This court affirmed. See In re H & A Neumann Revocable Trust, No. A13-1150, 2014 WL 1407951 (Minn.App. Apr. 14, 2014). Thereafter, the trustee conveyed the two parcels of real property to the three children, as co-tenants with equal undivided interests.

         In July 2015, Neumann and his wife commenced this partition action against Anderson, Pronschinske, and Pronschinske's husband. In their complaint, the Neumanns requested "a partition of the Property according to the respective rights and interest of the parties, as provided by statute." In the alternative, the Neumanns requested a sale of the property. The Neumanns also sought to require the Pronschinskes to make payments to the Neumanns and Anderson to ensure that both co-tenants received one-third of the fair rental value of the property. In their answer to the Neumanns' complaint, the Pronschinskes requested a "partition of the Property according to the respective rights and interests of the parties, as provided by statute." The Pronschinskes also requested reimbursement for their capital improvements to the property and for their rent payments.

         In September 2015, the parties stipulated to the appointment of two referees. The stipulation provided that the two referees "shall act as disinterested referees and shall submit a report to the parties in a reasonable period of time setting forth their recommendation." The district court promptly approved the stipulation and issued an order adopting its terms.

         In August 2016, the referees issued a six-page report. The report states that the referees "have personally met with the Plaintiffs, Defendants, and their respective attorneys" and "have personally viewed the property and inspected all of the buildings as well as the improvements completed by" the Pronschinskes. The remainder of the report consists of 18 paragraphs of "findings" and four paragraphs of "conclusions."

         The referees found that the parties agreed to use an appraisal that had been performed in 2012, which valued the Bethany Farm at $610, 000 and the Home Farm at $672, 000, for a total value of $1, 282, 000. The referees found that the Pronschinskes wish to remain on the property and that "partition cannot be had without great prejudice to" them because their home is located on the property, because they have made substantial capital improvements to the farm, and because they have taken steps to obtain organic certification for their dairy operation. The referees also found that Neumann and Anderson "have both expressed orally and in writing their belief the property should be sold" and that, in light of their desires to no longer own the property, "partition can be had with appropriate compensation or owelty."

         The referees concluded that the district court should enter an order awarding the Pronschinskes both parcels, with credit for $119, 000 of capital improvements, thereby reducing the total value of the parties' combined interests to $1, 163, 000. The referees concluded that the district court should order the Pronschinskes to pay $387, 667 (which is one-third of $1, 163, 000) to both Neumann and Anderson for their respective interests in the property.

         In December 2016, the Neumanns filed a motion to set aside the referees' report. The Neumanns did not submit any evidence to the district court. In January 2017, the Pronschinskes moved to adopt the referees' report. The Pronschinskes submitted as evidence the prior farm lease agreements, a letter from Anderson and Neumann requesting the immediate public sale of the land with no further appraisal, a letter from a tax professional assessing the value of the Pronschinskes' improvements, and two affidavits. In one affidavit, Pronschinske stated, among other things, that she and her husband had spent $236, 079 on capital improvements to the Home Farm. In the other affidavit, the Pronschinskes' farm-business advisor stated that both parcels are critical to the Pronschinskes' dairy operation because it would be prohibitively expensive for them to purchase organic-certified feed if they were not able to grow organic feed on the Bethany Farm.

         Without resolving the pending motions, the district court issued an interim order referring the matter back to referees for clarification of their finding that a partition would cause "great prejudice" to the Pronschinskes. In a supplemental report, the referees clarified various aspects of their initial report.

         In August 2017, the district court granted the Neumanns' motion to set aside the referees' report and denied the Pronschinskes' motion to confirm the referees' report. The district court stated that the recommendations of the "referees do not bind the Court but are advisory." The district court also stated that, although there is evidence that the Pronschinskes would be prejudiced by a partition in kind, there was no evidence of great prejudice to all owners, and no evidence that a division in kind would reduce the value of the property. The district court "recognize[d] that the Pronschinskes may experience a business loss if the property is divided" but stated that the Pronschinskes' "hardship is not such that would require this Court to favor one co-tenant over the other." The district court concluded that Neumann, Anderson, and Pronschinske "are entitled to judgment awarding them each 1/3 of the property." Specifically, the district court stated that each of the three children is "entitled to own . . . 86.666 acres" of the property. The district court further concluded, "If the parties have an agreement with regard to the specific shares to be allotted, such agreement shall be submitted to this Court within 30 days from the date of this Order" but that, "if there is no such agreement, the parties shall notify the court within 30 days, at which time this matter shall be referred back to the referees for that determination."

         Pronschinske and her husband appeal.

         ISSUE

         Did the district court err by granting the Neumanns' motion to set aside the referees' report, by denying the Pronschinskes' motion to confirm the referees' report, and by determining that the two parcels should be partitioned in kind so that each of the three co-tenants owns an equal number of acres of the property?

         ANALYSIS

         The Pronschinskes argue that the district court erred by setting aside and not confirming the referees' report. Specifically, they argue that the district court erred by not giving deference to the referees' findings and by reasoning that the referees' recommendation is not supported by law. They also argue that, in light of the circumstances of this case, the district court erred in its ...


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