Rhinehart v. Iowa Dist. Court for Carroll Cnty. (In re Teresa Kasparbauer Revocable Living Trust)

949 N.W.2d 660 (Table)

In the MATTER OF the TERESA KASPARBAUER REVOCABLE LIVING TRUST,

R. Scott Rhinehart, Plaintiff-Appellant,

v.Iowa District Court for Carroll County, Defendant.

Amanda Kerber, Melissa Kerber, and Jeremy Kerber, Plaintiffs-Appellees,

v.Iowa District Court for Carroll County, Defendant.

No. 19-1813

Court of Appeals of Iowa.

Filed August 5, 2020

R. Scott Rhinehart, Sioux City, self-represented appellant.

Aaron W. Ahrendsen of Eich Werden Steger & Ahrendsen, P.C., Carroll, and James R. Van Dyke of Law Office of James R. VanDyke, Carroll, for appellees.

Considered by Bower, C.J., and Doyle and Schumacher, JJ.

BOWER, Chief Judge.

The district court sanctioned R. Scott Rhinehart $5000 for violations of Iowa Rule of Civil Procedure 1.413 while Rhinehart was acting as attorney for the Teresa Kasparbauer Revocable Living Trust. Rhinehart appealed. The supreme court treated the appeal as a writ of certiorari, which is the proper means to review a district court's order imposing sanctions,¹ and granted the writ. The supreme court then transferred the case to this court.

I. Background Facts.

A. Case No. CVCV039182–the "Kerber case." In prior litigation, Amanda, Melissa, and Jeremy Kerber—the children of Shirley Kerber, a deceased child of Teresa Kasparbauer—(hereinafter referred to as the "grandchildren") alleged a breach of fiduciary duty and confidential relationship against Teresa Kasparbauer's conservators; lack of testamentary capacity and undue influence; tortious interference with inheritance; and lack of notice of trust. See Kerber v. Eischeid , No. 15-1249, 2016 WL 1696929, at *5 (Iowa Ct. App. Apr. 27, 2016). The district court found Marie Eischeid and Marguerite Nielsen, two of Teresa's daughters, engaged in self-dealing when they used their positions as guardians and conservators to amend Teresa's inter vivos trust. Id. at *6. The court also found Teresa had been unduly influenced by Marie and Marguerite and that the notice given to the grandchildren was ineffective. Id. The district court awarded the grandchildren the share that Shirley would have received—a one-seventh interest in the Teresa E. Kasparbauer Trust (hereinafter the "Trust") and ordered a constructive trust upon Trust assets. Id. The remaining beneficiaries of the Trust were Teresa's six surviving daughters (hereinafter referred to as the "children").²

In the appeal from the prior action, the children, represented by Rhinehart, argued any claim to an interest in the trust was barred by the one-year statute of limitations set forth in Iowa Code sections 633A.3108 and 633A.3109 (2013), there was not sufficient evidence to support the conclusion that Marie and Marguerite breached their fiduciary duties as Teresa's conservators by amending the beneficiaries of her trust, proper notice of the opening of Teresa's estate and the amended trust had been given, and the district court's award of a one-seventh interest in the trust was improper because the Trust itself was an indispensable party to the litigation. Id. at *1. This court affirmed, finding no fault in the district court's ruling that the asserted statute of limitations was not applicable, there was substantial evidence to support the finding of breach of fiduciary duty, and declining to address the notice issue because it would not affect the ordered relief. See id. at *7–9. With respect to the indispensable-party claim, the court found the matter was not properly preserved:

While it is true the children raised the issue early on in this case as an affirmative defense to the grandchildren's petition at law, the district court never actually ruled on the issue following trial. The children argue they should be excused from the normal requirement that they file a motion requesting a ruling on the issue because they "could not afford another disastrous ‘procedural’ ruling based upon this little known ‘quirk’ in Iowa law." We are not convinced. If the children wished to preserve the issue for our review, then they were obligated to file a motion requesting that the district court rule on it first. They did not do so.

Id. at *10.

The children filed an application for further review, which the supreme court denied on July 14, 2016.

B. Case No. TRPR018570–the Trust. On February 1, 2017, the grandchildren filed a petition to invoke court jurisdiction over the Trust, asking the court to order an accounting, remove Mary and Marguerite as trustees, and distribute the Trust assets.³ The children, again represented by Rhinehart, filed a pre-answer motion to dismiss, asserting (1) the action was time-barred under Iowa Code sections 633A.3108 and 633A.3109, (2) the pleadings filed failed to specifically state who the parties are, on which side the parties should be placed, and the names of each of the parties and their various interests, and (3) the grandchildren were barred by collateral estoppel and res judicata from suing Marie and Marguerite or from seeking monetary damages from them or any other beneficiary of the Trust. The motion to dismiss was overruled.

On May 30, 2017, the children filed a pre-answer motion for summary judgment asserting (1) notice was appropriately given to the grandchildren on the opening of the estate and that no claims were made on the estate after the second publication of the estate administration, and that as such their claims were time-barred, (2) the grandchildren failed to name the Trust as a defendant in the previous matter and failed to name parties to the litigation in this matter; and (3) the claims were barred by collateral estoppel and/or res judicata and estoppel by acquiescence.

The district court overruled the motion on July 4. The court determined the failure to identify the parties in the caption was not a ground to grant summary judgment; the children failed to identify any issue previously decided that would bar the grandchildren's claims on the grounds of issue preclusion; and the previous action established the one-seventh interest in the Trust, whereas the TRPR action dealt with the administration of the Trust and, thus, was not barred by claim preclusion. With regard to estoppel by acquiescence, the court noted "issues of fact and issues regarding the inferences to be drawn from undisputed facts" remained for trial. The court found section 633A.3108 inapplicable to these claims as that limitation relates to the validity of the Trust whereas this action relates to the administration of the Trust. It also found section 633A.3109 inapplicable because the grandchildren were beneficiaries rather than creditors.

The children filed an application for interlocutory appeal of the July 4 order and also filed their answer to the petition.

After an answer was filed, the grandchildren filed a motion for partial summary judgment. The children filed a motion to stay pending a ruling on the application for interlocutory appeal, which was denied.

On October 8, 2017, the district court ruled: "Since all the trust beneficiaries were parties in [the previous Kerber case], the fact that neither the Trust or any trustee was named as a party in [Kerber ] does not mean the interest of [the grandchildren] in the Trust remains a factual issue to be relitigated in these proceedings." The court went on to find that the grandchildren, as beneficiaries, were interested parties with standing to invoke the court's exclusive jurisdiction when sitting in probate with respect to the internal affairs of the Trust. The court further found that the breach-of-fiduciary-duty finding in Kerber established as a matter of law that neither Marie nor Marguerite were fit to serve in a fiduciary capacity and removed them as trustees. Teresa Smith was appointed trustee. The court also ordered no additional funds were to be expended from the Trust without court approval pending further order of the court.⁴

The children appealed the October 8 ruling. The supreme court granted interlocutory appeal of the July 4 ruling and consolidated it with the appeal of the October 8 ruling. The consolidated appeal was transferred to this court.⁵

While the consolidated appeal was pending, the children filed a motion in district court to allow attorney fees to prosecute the ongoing litigation and the appeal. The court denied the motion, which it confirmed on a motion to reconsider on February 6, 2018, writing:

This court based its January 18, 201[8] Order on its view that the Trustee should not be able to use Trust funds to assist defendant beneficiaries to continue to litigate their contention that [grandchildren] have no interest in the Trust, when the court of appeals in [Kerber ] has already determined that issue against those beneficiaries in [Kerber ] and the Trust funds are subject to a constructive trust. The court's only interest in what issues were being raised on appeal was whether it had missed something that would justify considering additional factors. Having reviewed the brief, this court continues to believe that the Trustee of the Kasparbauer Trust has no constitutionally protected interest, separate from the interests of the beneficiaries that were all defendants in [Kerber ], and, therefore, no right to re-litigate the [grandchildren’]s interest in the Trust or the statute of limitations.

On February 7, the court ordered a trial scheduling conference be held and set the amount for the supersedeas bond to be posted by the children in order to stay proceedings in the district court.

On March 27, the grandchildren served several subpoenas on Rhinehart and his co-counsel, banks with accounts known to belong to the Trust, and accountants who provided services to the Trust.

The children again moved for leave to expend attorney fees from the Trust assets on March 28. The court again overruled the motion on May 10, writing:

[The children] contend that the Trust has the statutory power under Iowa Code section 633A.4402(26) to employ and pay for an attorney. The trustee does have such authority, provided it is

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