Smith v. Smith

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
CENTRAL DIVISION
WILLARD E. SMITH 3:22-CV-03011-RAL
Plaintiff,
OPINION AND ORDER DENYING
vs. MOTION TO DISMISS
KATHLEEN J. SMITH,
Defendant.
Plaintiff Willard E. Smith sued his sister Defendant Kathleen J. Smith in state court for
breach of implied trust, claiming that land in Lyman and Stanley counties South Dakota was
purchased in Defendant's name as Plaintiffs trustee or agent with Plaintiffs funds. Doe. l-I.
Defendant removed the case to this Court because there is complete diversity of citizenship and
more than $75,000, exclusive ofinterest and costs, at issue. 28 U.S.C. § 1332; Doc. I. Defendant
then moved to dismiss, arguing that Plaintifffailed to state a claim upon which reliefcan be granted
based on the running ofthe applicable limitations period. Doc. 4. Because this Court must accept
as true the well-pleaded facts of the complaint and the cause of action, at least arguably, did not
accrue until around the time Defendant was ostensibly terminated from her position as trustee of
an implied trust, this Court denies the Defendant's motion to dismiss.
Case 3:22-cv-03011-RAL Document 17 Filed 09/07/22 Page 1 of 7 PageID #: <pageID>

I. Facts Alleged in Complaint^
In 1972, Plaintiff and his brother purchased land in Stanley County, South Dakota, on a
Contract for Deed. Doc. 1-1 at 2; Doc, 5 at 3. In 1995, Plaintiff "invested his own funds" and
worked with a lienholder to avoid foreclosure and purchased the property, making Defendant the
purchaser on the contract. Doc. 1-1 at 3, 8; see also Doc. 5 at 3 (stating that Defendant purchased
the land to avoid foreclosure). Meanwhile, the family farmland located in Lymah County, South
Dakota, was foreclosed on in 1995, and the Plaintiff allegedly worked with the foreclosing party
and provided consideration to purchase the land in 1997, listing Defendant as the purchaser on the
contract.^ Doe. 1-1 at 3-4,19; see also Doc.5 at 2-3(stating that the land was purchased in 1997).
Over the next few years. Plaintiff farmed both the Stanley County and Lyman County ground and
purchased equipment to do so, which he also put in Defendant's name. Doc. 1-1 at 4, 36; Doc. 5
at 3. Defendant, according to Plaintiffs complaint, merely owned the real property and machinery
"as Trustee" or as Plaintiffs agent. Doc. 1-1 at 4, 6.
During that time. Plaintiff allegedly made all payments on the equipment, installment
payments on the land, and paid for all farming related expenses. Id In 2005, Plaintiff stopped
farming and directed Defendant to sell the Stanley County property and all machinery and
equipment and to lease the Lyman County land. Doe. 1-1 at 4; Doc. 5 at 3. Except for $45,000,
which was paid to Plaintiff, the proceeds ofthe Stanley County sale and most ofthe proceeds from
the Lyman County lease were applied to the balance owed xmder the two Contract for Deeds. Doc.
1-1 at 4; Doe. 5 at 3. Defendant received compensation for her duties, whether as the Trustee,
'This Opinion and Order makes no findings offact, but takes as true, at.this point,the well-pleaded
facts in the Complaint.
^ No doubt there is much more to this story, but on a motion to dismiss for failure to state a claim,
this Court accepts Plaintiffs version ofthe facts.
Case 3:22-cv-03011-RAL Document 17 Filed 09/07/22 Page 2 of 7 PageID #: <pageID>

Doc. 1-1 at 4, or as the Plaintiffs agent,id at 6,from the remaining proceeds ofthe Lyman County
lease, id Plaintiff requested accountings relating to the management of the Lyman County
property and Defendant did not provide them. Id at 4, 6. Plaintiff, as a result, sent a letter on
January 21, 2022, purporting to terminate Defendant from her position as trustee. Id
Based on the lack of accounting. Plaintiff filed this suit in May 2022 in the Sixth Judicial
Circuit Court of South Dakota requesting that an accounting be made and the Lyman County land
be transferred to him. Id at 2, 7. Defendant then removed the case to the United States District
Court for the District of South Dakota, Doc. 1, and filed a Motion to Dismiss, Doc. 4, and a
supporting brief. Doc. 5, arguing that Plaintiffs suit was time barred under the applicable statute
of limitations. Plaintiff opposed Defendant's motion. Doc. 10. Defendant replied. Doc. 14. For
the reasons stated below. Defendant's motion to dismiss is denied.
II. Standard of Review
Federal Rule of Civil Procedure 12(b)(6) addresses dismissal for failure to state a claim.
On a Rule 12(b)(6) motion, courts must accept a plaintiffs factual allegations as true and make all
inferences in the plaintiffs favor but need not accept a plaintiffs legal conclusions. Retro
Television Network. Inc. v. Luken Commc'ns. LLC. 696 F.3d 766, 768-69 (8th Cir. 2012). To
survive a motion to dismiss for failure to state a claim, a complaint must contain "a short and plain
statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). "A
court may dismiss a claim under Rule 12(b)(6) as barred by the statute of limitations if the
complaint itself establishes that the claim is time-barred." Humphrev v. Eureka Gardens Pub.
Facility Bd.. 891 F.3d 1079, 1081 (8th Cir. 2018)(citations omitted). Although detailed factual
allegations are unnecessary, the plaintiff must plead enough facts to "state a claim to relief that is
Case 3:22-cv-03011-RAL Document 17 Filed 09/07/22 Page 3 of 7 PageID #: <pageID>

plausible on its face." Asheroft v. Iqbal. 556 U.S. 662,678(2009)(quoting Bell Atlantic Corp. v.
Twomblv. 550 U.S. 544, 570(2007)).
A claim is plausible on its face "when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged," id
at 678,"even if it strikes a savvy judge that actual proof of those facts is improbable, and 'that a
recovery is very remote and unlikely,'" Twomblv. 550 U.S. at 556 (quoting Seheuer v. Rhodes.
416 U.S. 232,236(1974)). Still,"eonclusory statements" and "naked assertion[s] devoid offurther
factual enhancement" do not satisfy the plaiisibility standard. Iqbal. 556 U.S. at 678 (alteration in
original)(citation and internal marks omitted).
III. Analysis
Under South Dakota law, which governs here, an implied trust is presumed when "a
transfer of real property is made to one person and the consideration therefor is paid by or for
another." SDCL § 55-1-10. An implied trust can arise in several scenarios, including those
described by statute, SDCL §§ 55-1-7 to -10, or when an agent purchases real estate for his
principal, but takes title in her own name,even ifthe agent used their ovra funds to pay the purchase
price. Morris v. Reigel. 101 N.W. 1086,1087(S.D. 1904): see also Bailev v. Colombo. 188 N.W.
203, 205 (S.D. 1922)("Where an agent employed to purchase for his principal purchases for
himself... the agent will be held to have taken the property as trustee for the principal. Such a
trust comes within the exception provided for in the statute of'frauds ... as it arises out of the
construction and operation of law, and may be established by parol.").
Plaintiff claims that he put forward all the consideration to purchase and farm both the
Lyman County and Stanley County land while listing Defendant as the owner. Doe. 1-1 at 4.
Additionally, Plaintiff alleges that he and Defendant orally agreed she would purchase the land for
Case 3:22-cv-03011-RAL Document 17 Filed 09/07/22 Page 4 of 7 PageID #: <pageID>

him as his agent using his funds. Doc. 1-i at 6. Taking this as true, a presumption of an implied
trust likely arises under either SDCL section 55-1-10 or Morris v. Reigel. See Rehfeld v. Flemmer.
269 N.W.2d 804, 807 (S.D. 1978)(stating that the trustee's agreement to act as a trustee for a
constructive trust can "be inferred from the grantee's silence or from acts of acquiescence at the
time of the imposition of the condition and the conveyance."). The following questions are at
issue: When did Plaintiffs cause of action accrue? And has the statute of limitations run since
then? This Court caimot answer either question with certainty on a motion to dismiss.
An action for a constructive or implied trust under South Dakota law is subject to a six-
year statute oflimitations. City of Centerville v. Turner Cntv., 126 N.W.605,606-07(S.D. 1910);
see also Hoffman v..Johnson. 374 N.W.2d 117,121 (S.D. 1985)(stating that where plaintiffs seeks
"to impress a trust" the applicable limitations period is six years); Johnson v. Graff. 23 N.W.2d
166, 167-68 (S.D. 1946)(applying a six-year statute of limitations to an implied trust). But see
Spencer v. Estate of Spencer. 759 N.W.2d 539, 543 n.2 (S.D. 2008)(noting that all plaintiffs
causes of action, which included implied trust, had a statute of limitations no longer than twenty
years citing to SDCL §§ 15-3-2, 21-51-1,43-28-22, and 15-3-15 as the applicable statutes, but not
mentioning SDCL § 15-2-13).
As it relates to implied trusts,"the statute of limitations begins to run from the time the act
was done by which the party became charged as constructive trustee." Mever v. Kneip. 457
N.W.2d 463,467(S.D. 1990). "A cause of action accrues when the right to sue arises." Spencer,
759 N.W.2d at 544. In other words,"a claim accrues . . . when a person has some notice of his
cause of action, an awareness either that he has suffered an injury or that another person has
committed a legal wrong which ultimately may result in harm to him." Id. (cleaned up and
citations omitted); see also Wissink v. Van De Stroet. 598 N.W.2d 213, 216 (S.D. 1999)(stating
Case 3:22-cv-03011-RAL Document 17 Filed 09/07/22 Page 5 of 7 PageID #: <pageID>

that a claim accrues when plaintiff has notice ofthe cause of action); Haberer v. First Rank of S.D..
419 N.W.2d 62,68 (S.D. 1988)fsamel: see also Rosebud Sioux Tribe v. Strain. 432 N.W.2d 259,
264 (S.D. 1988) ("if a trust relationship exists between the parties, which imposes a duty to
disclose, mere silence, by one under that duty, constitutes fraudulent concealment and thus tolls
the applicable statute of limitations.").
From Plaintiffs allegations. Defendant acted as a faithful trustee until perhaps as late as
January 2022. Defendant argues that the latest the cause of action could have accrued is 2005
because Plaintiff failed to object when Defendant sold the Stanley County land and began leasing
the Lyman County land. Doc. 5 at 6; Doc. 14 at 3. However, Plaintiff claims that he directed
Defendant to do this and even helped Defendant with these arrangements. Doc. 1-1 at 4,6. Thus,
far from being on notice of the need to assert his rights. Defendant's sale and lease ofthe land, at
least arguably, showed Plaintiff that Defendant was still acting faithfully as his trustee and agent.
Instead, again assuming Plaintiffs allegations to be true and taking inferences therefrom.
Defendant's acquiescence to selling and leasing the properties at Plaintiffs direction suggested
that she had agreed to act in a fiduciary capacity.
According to the Complaint, Plaintiff, at least arguably, was unaware of any breach before
Defendant failed to provide accounting and wrongfully retained the proceeds of the property.
Taking the facts from the well-pleaded allegations of the Complaint, this Court caimot conclude
as a matter oflaw on a motion to dismiss that the six-year limitations period on a breach ofimplied
trust claim has run. If discovery demonstrates that the cause of action accrued more than six years
prior to the commencement of this suit, then this Court can revisit these issues on a motion for
summary judgement.
Case 3:22-cv-03011-RAL Document 17 Filed 09/07/22 Page 6 of 7 PageID #: <pageID>

IV. Conclusion
For the reasons stated above, it is hereby
ORDERED that the Defendant's Motion to Dismiss, Doc. 4, is denied.
DATED this 7** day of September, 2022.
BY THE COURT:
ROBERTO A. LAN(
CHIEF JUDGE
Case 3:22-cv-03011-RAL Document 17 Filed 09/07/22 Page 7 of 7 PageID #: <pageID>