Sarah Hodnett v. Timothy Hodnett , 269 So. 3d 317 ( 2018 )

IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI
NO. 2016-CA-00885-COA
SARAH HODNETT, INDIVIDUALLY AND AS APPELLANTS
TRUSTEE OF THE HODNETT LAND TRUST,
AND BANK OF ANGUILLA, A MISSISSIPPI
BANKING CORPORATION
v.
TIM HODNETT APPELLEE
DATE OF JUDGMENT: 04/12/2016
TRIAL JUDGE: HON. HOLLIS MCGEHEE
COURT FROM WHICH APPEALED: SHARKEY COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANTS: OLIVER E. DIAZ JR.
DAVID NEIL MCCARTY
BENJAMIN MCRAE WATSON
JOHN C. HENEGAN
ATTORNEY FOR APPELLEE: PHILIP MANSOUR JR.
NATURE OF THE CASE: CIVIL - WILLS, TRUSTS, AND ESTATES
DISPOSITION: AFFIRMED: 04/17/2018
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
BEFORE LEE, C.J., FAIR AND GREENLEE, JJ.
FAIR, J., FOR THE COURT:
¶1. Tim Hodnett sued his sister, Sarah Hodnett, to set aside a deed to the family farm from
their mother to a revocable trust. The trust named Sarah as the sole beneficiary upon her
mother’s death. The chancery court found that Sarah, who had acted as her parents’ attorney
for many years and had prepared all of the various instruments involved in these transactions,
had been in a confidential relationship with her mother when the deed was executed, raising
the presumption that it was the product of undue influence. Sarah failed to rebut that
presumption by clear and convincing evidence, and thus the chancellor set aside the deed.
¶2. On appeal, Sarah contends that Tim lacked standing to challenge the deed, that the
statute of limitations had run at the time this suit was filed, and that the chancery court
employed an incorrect legal standard in reaching its finding of a confidential relationship.
The Bank of Anguilla also appeals, challenging the trial court’s conclusion that Tim’s claim
had priority over some of the Bank’s security interests in the deeded property, which were
acquired by the Bank after a lis pendens was filed. We affirm the chancery court’s judgment
in its entirety.
STANDARD OF REVIEW
¶3. A chancellor’s factual findings will not be reversed unless they are manifestly wrong
or clearly erroneous. Paw Paw Island Land Co. v. Issaquena & Warren Ctys. Land Co., 51
So. 3d 916, 923 (¶26) (Miss. 2010). However, a chancellor’s legal conclusions are reviewed
de novo. Id.
DISCUSSION
1. Standing
¶4. Sarah contends that Tim lacks an interest in the deeded property and therefore does
not have standing to pursue any claims relating to its disposition.
¶5. “In Mississippi, parties have standing to sue when they assert a colorable interest in
the subject matter of the litigation or experience an adverse effect from the conduct of the
defendant, or as otherwise provided by law.” In re City of Biloxi, 113 So. 3d 565, 570 (¶13)
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(Miss. 2013) (citation and internal quotation marks omitted). “A party’s claim must be
grounded in some legal right recognized by law, whether by statute or by common law and
that party must be able to show that it has a present, existent actionable title or interest.” Id.
(citation and internal quotation marks omitted).
¶6. It is undisputed that Tim is one of his mother’s heirs at law. See Miss. Code Ann.
§ 91-1-3 (Rev. 2013). If the conveyance of the property from his mother to the trust is set
aside, Tim presumptively stands to inherit a child’s share of the property. Id. He clearly has
standing to challenge the transfer on the basis of undue influence.
2. Statute of Limitations
¶7. Tim filed suit shortly after his mother’s death, but Sarah and the Bank point out that
this was more than three years after the deed transferring the property to the Trust was
executed. Both assert that the three-year “catch all” statute of limitations bars this suit,
though they offer little argument as to why.
¶8. It is apparent to us that the applicable statute of limitations is actually ten years under
Mississippi Code Annotated sections 15-1-7 (Rev. 2012) and 15-1-9 (Rev. 2012), for actions
to recover land. See In re Estate of Reid, 825 So. 2d 1, 6 (¶¶16-19) (Miss. 2002); see also
Miss. Code Ann. § 15-1-49 (Rev. 2012). Sarah cites O’Neal Steel Inc. v. Millette, 797 So.
2d 869, 872-75 (¶¶10-20) (Miss. 2001), for the proposition that a possessory interest in the
land is required for the ten-year statute of limitations to apply. That is an accurate statement
of the law, but Millette involved a judgment creditor seeking to set aside an allegedly
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fraudulent conveyance, and the creditor sought “neither title nor possession of the property.”
See id. at 874 (¶15). Here, Tim is an heir at law who seeks a child’s share of the real
property deeded away by his mother, allegedly as a result of undue influence. On this point,
Estate of Reid is illustrative: Reid’s potential heir at law brought an undue influence suit to
set aside her transfers of real property to Reid’s adopted son, including a deed that had been
executed and recorded before her death. The Mississippi Supreme Court held that the ten-
year statute of limitations applied. See Estate of Reid, 825 So. 2d at 6 (¶¶16-19).
¶9. The statute of limitations does not bar this suit.
3. Laches
¶10. Sarah also contends that Tim’s claim should be barred by laches, but laches is
precluded by our prior decision on the statute of limitations issue. “A delay short of the
statutory period of limitations does not bar recovery.” Greenlee v. Mitchell, 607 So. 2d 97,
111 (Miss. 1992). “The doctrine of laches is simply inapplicable where a claim has not yet
been barred by the applicable statute of limitations.” Id.
4. Venue
¶11. Next, we address Sarah’s contention that the only proper venue for this suit was in
Humphreys County, where the farm is located. She points to Mississippi Code Annotated
section 11-5-1 (Rev. 2014), which provides in relevant part that “[s]uits to confirm title to
real estate, and suits to cancel clouds or remove doubts therefrom, shall be brought in the
county where the land, or some part thereof, is situated.”
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¶12. Sarah concedes, however, the venue issue was never pursued to a ruling in the
chancery court. This operates as a waiver of the issue except in those rare cases where venue
is also jurisdictional. “It is an appellant’s duty to secure a ruling on a motion before the
failure to grant it can be contested on appeal.” Ford v. Magnolia Franchise Holdings Inc.,
112 So. 3d 467, 471 (¶14) (Miss. Ct. App. 2013).
¶13. Aware of the potential waiver, Sarah contends that the particular defect she alleges
is jurisdictional and therefore can be raised for the first time on appeal. She cites Donald v.
Amoco Production Company, 735 So. 2d 161, 181-82 (¶¶73-78) (Miss. 1999), which
involved the local action doctrine. But Donald was founded on section 11-11-3 of the
Mississippi Code, which at that time expressly limited circuit courts’ jurisdiction over
“actions of trespass on land, ejectment and actions for the statutory penalty for cutting and
boxing trees” to the county in which the affected land was situated. Donald, 735 So. 2d at
181 (¶73) (quoting Miss. Code Ann. § 11-11-3 (Supp. 1998)). The court noted that in
Mississippi the local action doctrine was limited to that statute and those causes of action.
See id. at (¶74) (quoting City of Jackson v. Wallace, 189 Miss. 252, 263, 196 So. 223, 226
(1940) (McGowen, J., dissenting)). “The only local actions with us are ejectment and
trespass on land.” Id. The United States Court of Appeals for the Fifth Circuit has also
noted that “Mississippi has rejected the common law local action doctrine” and that the
statute “alone determines whether a court can exercise jurisdiction over a ‘local’ cause of
action.” Trust Co. Bank v. U.S. Gypsum Co., 950 F.2d 1144, 1149-50 (5th Cir. 1992).
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¶14. Sarah also cites Belk v. State Department of Public Welfare, 473 So. 2d 447, 449
(Miss. 1985), where the supreme court stated in dicta that unspecified “actions dealing with
property” were an exception to the general rule that challenges to venue can be waived. But
this statement appears to just refer to our limited, statutory implementation of the local action
doctrine previously discussed.
¶15. In Ravesies v. Martin, 190 Miss. 92, 99-101, 199 So. 282, 284-85 (1940), the
Mississippi Supreme Court directly addressed the question of whether venue was
jurisdictional in suits to confirm title. It held that “[t]he jurisdiction of the chancery court to
cancel a claim as a cloud upon the title of the real owner of any real estate is conferred by
Section 404 of the Code of 1930, and this statute does not prescribe that jurisdiction of the
subject matter shall be dependent upon the land being situated in the county where the suit
is filed.” Section 404 of the Code of 1930 is currently codified as Mississippi Code
Annotated section 11-17-31 (Rev. 2004) and appears to be unchanged since the Ravesies
decision in 1940. Sarah dismisses Ravesies as an “ancient case,” but it appears to be
controlling precedent nonetheless.
¶16. We conclude that venue was not jurisdictional in this case, and Sarah waived any
objection to the suit being heard in Sharkey County.
5. Presumption of Undue Influence
¶17. Finally, Sarah challenges the chancery court’s finding that there was a presumption
of undue influence in various transfers related to the property because of a confidential
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relationship between Sarah and her mother and father. See generally Madden v. Rhodes, 626
So. 2d 608, 618-19 (Miss. 1993). Sarah does not challenge the chancellor’s finding that she
failed to rebut that presumption.
¶18. Sarah’s argument on appeal is based on the Mississippi Rules of Professional
Conduct, specifically Rule 1.8(c), which states that “[a] lawyer shall not prepare an
instrument giving the lawyer or a person related to the lawyer as parent, child, sibling, or
spouse any substantial gift from a client, including a testamentary gift, except where the
client is related to the donee.” She points out that the chancellor, when announcing his
decision from the bench, was very critical of Sarah’s drafting the instruments that ultimately
transferred her parents’ property to her and appeared to assume her actions were a violation
of the Rules of Professional Conduct.
¶19. First of all, it is not clear that Sarah complied with Rule 1.8(c). On its face, the rule
does not prohibit an attorney from preparing an instrument effecting a gift from a client to
the attorney when the attorney and client are related, but the comment to the rule notes the
caveat that such gifts are permissible only “if the transaction meets general standards of
fairness.” The Supreme Court of South Dakota, considering a similar case, held that “Rule
1.8(c) cannot be used to excuse substantial gifts which are facially disproportionate to gifts
made to other relatives in the same class.” In re Discipline of Mattson, 651 N.W.2d 278, 288
(¶50) (S.D. 2002) (citing Restatement (Third) of the Law Governing Lawyers § 127(1)
(1998)). The Supreme Court of Wisconsin similarly held that the gift must be “reasonable
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and natural under the circumstances or no more than would be received by law.” State v.
Horan, 123 N.W.2d 488, 492 (Wis. 1963). The California Supreme Court has opined that
“[t]here is nothing improper in an attorney’s drawing wills for his family or for relatives,
provided the gift to him is reasonable under the circumstances.” Magee v. State Bar of Cal.,
374 P.2d 807, 845 (Cal. 1962).
¶20. We also note that Rule 1.8(c) is part of the Mississippi Rules of Professional Conduct,
not substantive law. It is well established in Mississippi that an attorney-client relationship
is a per se confidential one. See Hitt v. Terry, 92 Miss. 671, 710-11, 46 So. 829, 840 (1908)
(“[T]he law presumes deeds or wills made by the client to the attorney . . . to be prima facie
void, and therefore requires such beneficiary under the will to show the absence of undue
influence . . . .”); Meek v. Perry, 36 Miss. 190, 245 (1858) (“[T]he law, upon grounds of
great public policy, utility, or necessity, presumes the existence of undue influence from the
known confidential relations of . . . client and attorney . . . .” (emphasis and internal quotation
marks omitted)); see also Lowrey v. Will of Smith, 543 So. 2d 1155, 1160-62 (Miss. 1989);
Estate of McRae v. Watkins, 522 So. 2d 731, 737-38 (Miss. 1988). As the supreme court
stated in Estate of McRae:
[T]he law declares that when there is a fiduciary or confidential relation, and
there is a gift or conveyance of dubious consideration from the subservient to
the dominant party, it is presumed void. This is not because it is certain the
transaction was unfair; to the contrary, it is because the Court cannot be
certain it was fair. As stated in Meek v. Perry, 36 Miss. at 246, “if the court
does not watch these transactions with a jealousy almost invincible, in a great
majority of cases, it will lend its assistance to fraud.” Further, this is a “policy
of the law, founded on the safety and convenience of mankind . . . preventing
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acts of bounty.” And, the Court will not permit such a transaction to stand,
“. . . though the transaction may be not only free from fraud, but the most
moral in its nature.” Id. at 247. “The rule of law in these cases is not a rule of
inference, from testimony, but a rule of protection, as expedient for the general
good.” Id. at 244.
Id. at 737 (emphasis omitted in part).
¶21. The challenged transfers are inter vivos, and for inter vivos gifts where there is a
confidential relationship between the donor and the donee, a presumption of undue influence
arises even without a showing that the recipient played an active part in the preparation or
execution of the instrument. See In re Will of Moses, 227 So. 2d 829, 835 (Miss. 1969).
¶22. We are aware of no Mississippi authority making an exception to this general rule for
an attorney who is a relative of the grantor, but we recognize that there are solid reasons for
such an exception to exist, and other states have allowed attorneys to prepare wills and deeds
for family members to the attorney’s benefit without an automatic presumption of undue
influence. See, e.g., Krischbaum v. Dillon, 567 N.E.2d 1291, 1296-97 (Ohio 1991). But if
we were to adopt such an exception, it would be subject to the same limitations as the ethical
rule. It is true that the purpose of the Rules of Professional Conduct is generally to provide
for “lawyer’s self-assessment” and “structure for regulating conduct through disciplinary
agencies.” See Turner v. Turner, 73 So. 3d 576, 580 (¶17) (Miss. Ct. App. 2011). But based
on our survey of the law, it is clear that courts recognize a great overlap between ethical rules
and the substantive law when evaluating gifts to an attorney-draftsman. While Horan was
an attorney discipline case, the Wisconsin Supreme Court noted that the same standard
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applied to undue influence: “if the attorney acted as draftsman of the will and there are any
circumstances either because of preferential treatment in relationship to others or if the
bequest is more than a token or modest bequest from a personal friend or the attorney
suggested the bequest to himself or to a member of his family, or any other somewhat
persuasive circumstances, the inference [of undue influence] arises . . . .” Horan, 123
N.W.2d at 492. Even if we were to accept that the chancellor erred in not recognizing a
general exception to a per se presumption of undue influence when attorneys draft
instruments for relatives, it is apparent to us that any error as to the legal standard would have
been harmless given the particular facts of this case.
¶23. The nature of Sarah’s relationship with her parents clearly supports the chancellor’s
finding of a confidential relationship, even if there was no per se rule based on her status as
their attorney. While there was little evidence of incapacity or physical dependency of her
parents, a confidential relationship can be founded on trust just as it can upon physical
weakness or dependence. See, e.g., Norris v. Norris, 498 So. 2d 809, 812 (Miss. 1986). The
proof showed that Sarah did not just prepare the deeds, wills, and trust documents that
resulted in her inheriting their entire estate; she had a longstanding attorney-client
relationship with both of her parents and was also the attorney-in-fact for both. Sarah
executed the deed from her father to her mother on his behalf using the power of attorney,
at a time when he was dying of cancer. She also admitted she had not advised her parents
to seek advice from outside counsel, at any point, and there is no evidence her parents ever
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received such outside counsel. The chancellor further found that Sarah had concealed the
terms of the trust—if not its existence—from her brother, whom she had previously
represented as an attorney. The ultimate result of this series of transactions was that Sarah
received her parents’ entire estate, to the exclusion of her brother.
¶24. Attorneys should be held to a higher standard than laymen, to protect both the general
good and integrity and reputation of the legal profession. See Estate of McRae, 522 So. 2d
at 737; Lowry, 543 So. 2d at 1161-62. We find no error in the chancellor’s findings
regarding the presumption of undue influence.
6. Priority of Liens
¶25. Finally, the Bank contends that the chancellor erred in finding that the Bank’s liens
acquired after the filing of the lis pendens in this suit did not have priority over Tim’s claim.
The Bank points to the former Mississippi Code Annotated section 91-9-115 (2013), since
repealed, which was in effect at the relevant time and provided:
With respect to a third person dealing with a trustee or assisting a trustee in the
conduct of a transaction, the existence of trust powers and their proper exercise
by the trustee may be assumed without inquiry. The third person is not bound
to inquire whether the trustee has power to act or is properly exercising the
power; and a third person, without actual knowledge that the trustee is
exceeding his powers or improperly exercising them, is fully protected in
dealing with the trustee as if the trustee possessed and properly exercised the
powers he purports to exercise. A third person is not bound to assure the
proper application of trust assets paid or delivered to the trustee.
¶26. We find no merit to this contention. The statute spoke to a third party’s reliance on
the “existence of trust power[s] and their proper exercise by the trustee”; it “abolish[ed] the
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common law broad duty of inquiry of third parties dealing with a trustee.” Franklin Credit
Mgmt. Corp. v. Hanney, 262 P.3d 406, 410-11 (Utah Ct. App. 2011) (considering Utah’s
identical analogue to the Mississippi statute). The judgment below set aside the deed to the
trust; the issue was not the exercise of trust powers by the trustee but whether the trust
actually owned the property in the first place. The statute simply has no application to this
judgment.
¶27. AFFIRMED.
LEE, C.J., IRVING AND GRIFFIS, P.JJ., BARNES, CARLTON, WILSON,
GREENLEE, WESTBROOKS AND TINDELL, JJ., CONCUR.
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