author: KEAN, Retired Circuit Judge. ZINTER, Justice MEIERHENRY, Justice

text:
    2007 SD 98
    GLIMCHER SUPERMALL VENTURE, LLC, a Delaware corporation, Plaintiff and Appellant, v. COLEMAN COMPANY and Dwight Sobczak, Sr., Defendants and Appellees, Dwight Sobczak, Jr., Dan Sobczak, and Duane Sobczak, Defendants.
    No. 24163.
    Supreme Court of South Dakota.
    Argued Jan. 9, 2007.
    Decided Sept. 19, 2007.
    Rehearing Denied Nov. 2, 2007.

      Haven L. Stuck and Jane Wipf Pfeifle of Lynn, Jackson, Shultz & Lebrun, Rapid City, South Dakota, Attorneys for plaintiff and appellant.
    Ted L. McBride and Larry M. Von Wald of Beardsley, Jensen & Von Wald, LLC, Rapid City, South Dakota, Attorneys for defendants and appellees.
   KEAN, Retired Circuit Judge.

[¶ 1.] Glimeher SuperMall Venture, LLC (Glimeher) brought this action in Pennington County, South Dakota under the Uniform Fraudulent Transfer Act (UFTA), claiming that the transfer of substantially all of the assets of Black Hills Gold Factory Outlet Store, Inc. (BHG) to Coleman Company (Coleman) and Dwight Sobczak (Sobczak) was a prohibited fraudulent transfer.

FACTS AND PROCEDURE

[¶2.] In 1994 Washington SuperMall Interests, L.P. (Washington SuperMall) began the process of developing a shopping mall in Auburn, Washington, a suburb of Seattle. Washington SuperMall contacted Coleman about the prospect of Coleman opening a retail store in the mall which would sell Black Hills Gold jewelry. Coleman is a closely-held South Dakota corporation which manufactures and distributes Black Hills Gold jewelry throughout the United States and also internationally. Its corporate offices are located in Rapid City, South Dakota. Defendants Dwight Sobczak, Sr., Dwight Sobczak, Jr., Dan Sobczak, and Duane Sobczak are family members, shareholders, officers and employees of Coleman.

[¶ 3.] Coleman was concerned about the liability exposure of such a venture in a new mall. Instead, BHG was formed as a new and distinct Washington corporation to operate the gift store within the mall. BHG would then sell Black Hills Gold jewelry manufactured and sold to it by Coleman. Coleman had significant control over BHG as the two corporations had nearly identical shareholders, directors and officers, along with the ownership interests. Coleman managed and supervised BHG’s financial affairs through a common retail store manager and was paid a management fee. The corporate offices of both businesses were located at the same address in Rapid City.

[¶ 4.] In July 1994 BHG entered into a lease agreement with Washington Super-Mail to begin July 15, 1995 and expiring August 31, 2002. Sobczak signed the lease as president of BHG. Because BHG was a newly formed corporation, Washington Su-perMall sought and received from Coleman a one year rent guarantee. Sobczak signed the guarantee on behalf of Coleman as its president. Sometime later, Glimeher purchased all of Washington Super-Mall’s interests in the mall and became the owner of BHG’s lease.

[¶ 5.] BHG operated the retail gift store until January 2001 when it closed the store and vacated the mall. At the time BHG vacated the premises, it had nineteen months remaining on the lease. BHG paid rent for January 2001, but failed to pay for the remaining months. In December 2000 BHG paid off $34,000 in shareholder loans to BHG. When BHG closed its store, all creditors, except for Glimeher and Coleman, were paid. In January 2001 BHG transferred $45,000 from its bank in Washington to Coleman’s account in Rapid City and also transferred approximately $225,800 in inventory to Coleman. Later the store equipment was sold and the proceeds also paid to Coleman. The equipment, inventory and cash of BHG were not subject to any security interests. Coleman claims the transfers were made in return for cancellation of an account in excess of $600,000 owed by BHG to Coleman for unpaid inventory. These transfers reduced the assets of BHG to almost nothing. BHG was administratively dissolved by the State of Washington on April 23, 2001.

[¶ 6.] Glimcher sued BHG in Washington state court for the balance due under the lease. BHG and Glimcher reached a stipulation that judgment be entered against BHG in the amount of $90,000, plus 12 percent interest. The judgment was filed December 17, 2003 in the Superi- or Court of King County, Washington.

[¶ 7.] Glimcher entered its Washington judgment against BHG as a foreign judgment in Pennington County, South Dakota on March 3, 2004. After the judgment remained unsatisfied, Glimcher initiated this action under the UFTA in January 2005. After a trial to the court on January 10, 2006, the trial court issued a memorandum opinion dated April 25, 2006, followed by findings of fact and conclusions of law incorporating the memorandum opinion. The trial court concluded that there was neither actual fraud nor constructive fraud to hinder, delay or defraud creditors. It further concluded that reasonable equivalent value was given by Coleman in exchange for the transfer of inventory and cash. Therefore, it found that the transfer was not fraudulent under the UFTA. Glimcher appeals. Finding error, we reverse.

STANDARD OF REVIEW

[¶ 8.] “In reviewing a judge’s findings in a court trial, we give no deference to conclusions of law; thus we review them under the de novo standard.” Prairie Lakes Health Care Sys., Inc. v. Wookey, 1998 SD 99, ¶ 5, 583 N.W.2d 405, 410 (citing S.B. Partnership v. Gogue, 1997 SD 41, ¶ 8, 562 N.W.2d 754, 756 (citing Central Monitoring Serv., Inc. v. Zakinski, 1996 SD 116, ¶ 17, 553 N.W.2d 513, 517)). “Conversely, we examine findings of fact under the more deferential clearly erroneous standard.” Prairie Lakes Health Care Sys., 1998 SD 99 at ¶ 5, 583 N.W.2d at 410 (citing Gogue, 1997 SD 41, ¶ 8, 562 N.W.2d at 756 (citing Shedd v. Lamb, 1996 SD 117, ¶ 17, 553 N.W.2d 241, 244)). This Court will not overturn fact findings “ ‘unless we are definitely and firmly convinced a mistake has been made.’ ” Prairie Lakes Health Care Sys., 1998 SD 99 at ¶ 5, 583 N.W.2d at 410 (quoting Cordell v. Codington Cty., 526 N.W.2d 115, 116 (S.D.1994)).

ANALYSIS AND DECISION

ISSUE ONE

The Uniform Fraudulent Transfer Act

[¶ 9.] The parties agree that this matter should be decided under Washington law. Butler Machinery Co. v. Morris Const. Co., 2004 SD 81, ¶¶ 6-7, 682 N.W.2d 773, 776-77. Both Washington and South Dakota adopted the UFTA in 1987. WashRevCodeAnn (RCWA) ch 19.40; SDCL ch 54-8A. The purpose of the UFTA is to protect a debtor’s estate from being depleted to the prejudice of the debtor’s unsecured creditors. UFTA § 3, cmt (2). “The Act invalidates ‘otherwise sanctioned transactions made with a fraudulent intent.’ ” Prairie Lakes Health Care Sys., 1998 SD 99 at ¶ 6, 583 N.W.2d at 410. Because RCWA 19.40.903 provides that “[t]his chapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among states enacting it[,]” case law from other jurisdictions can provide guidance in interpreting the UFTA. Sedwick v. Gwinn, 73 Wash.App. 879, 873 P.2d 528, 532 n8 (WashCtApp 1994).

A. Actual Fraudulent Intent

[¶ 10.] The UFTA analyzes transfers as actually fraudulent or constructively fraudulent. RCWA 19.40.041(a)(1) provides:

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(1)With actual intent to hinder, delay, or defraud any creditor of the debtor[.]

[¶ 11.] RCWA 19.40.041(b) lists objective factors which may be considered in deciding whether a transfer was made with actual intent to hinder, delay or defraud a creditor:

(b) In determining actual intent under subsection (a)(1) of this section, consideration may be given, among other factors, to whether:
(1) The transfer or obligation was to an insider;
(2) The debtor retained possession or control of the property transferred after the transfer;
(3) The transfer or obligation was disclosed or concealed;
(4) Before the transfer was made or obligation was incurred, the debt- or had been sued or threatened with suit;
(5) The transfer was of substantially all the debtor’s assets;
(6) The debtor absconded;
(7) The debtor removed or concealed assets;
(8) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
(9) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
(10) The transfer occurred shortly before or shortly after a substantial debt was incurred; and,
(11) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

[¶ 12.] These factors have been referred to as “badges of fraud.” See UFTA § 4, cmt (5). “Proof of the existence of any one or more of the factors enumerated in subsection (b) may be relevant evidence as to the debtor’s actual intent but does not create a presumption that the debtor has made a fraudulent transfer or incurred a fraudulent obligation.” Id. The debtor’s state of mind becomes the point of inquiry when considering whether a transfer was actually fraudulent. Prairie Lakes Health Care Sys., 1998 SD 99 at ¶ 7, 583 N.W.2d at 411. The debtor in this case was BHG, not Coleman. Glimcher and Coleman were creditors with claims. While the ownership interests and corporate officers and directors are the same for both Coleman and BHG, BHG, as a Washington corporation, was a separate entity, a distinction not fully appreciated by the trial court. The trial court focused on the actions of Coleman and determined that “Coleman acted without fraud or the intention to defraud anyone, and went beyond that which would have been otherwise expected of them.” However, this transfer must be evaluated from the perspective of the debt- or, BHG. The trial court’s error was compounded when it only considered some of the badges of fraud while overlooking others. Further problems arose in the conclusions reached when those badges of fraud were actually considered. This requires a review of RCWA 19.40.041(b).

a.Transfer to an insider. RCWA 19.40.041(b)(1).

[¶ 13.] The trial court found that the transfer of BHG’s assets to Coleman was to an insider as the shareholders, officers and directors of both corporations are nearly identical.

The fact that a transfer has been made to a relative or to an affiliated corporation has not been regarded as a badge of fraud sufficient to warrant avoidance when unaccompanied by any other evidence of fraud. The courts have uniformly recognized, however, that a transfer to a closely related person warrants close scrutiny of the other circumstances, including the nature and extent of the consideration exchanged.

UFTA § 4, cmt (5). Close scrutiny of the facts indicates that when BHG transferred these assets, it was the Coleman owners acting as BHG owners who made the decision.

b.The transfer was disclosed or concealed. RCWA 19.40.041(b)(3).

[¶ 14.] None of the transfers were disclosed. Even though Glimcher may have noticed that BHG locked its doors at the mall, there was no indication that Glimcher had any knowledge that BHG’s assets were being moved from Washington to South Dakota. The same can be said of the proceeds from the sale of store equipment and the payoff of the stockholder loans in December 2000. Actually, Glimcher could certainly have concluded otherwise when BHG sent the January 2001 lease payment after Glimcher sent a letter concerning the remaining lease obligation.

c.Before the transfer was made, the debtor had been sued or threatened with suit. RCWA 19.40.041(b)(4).

[¶ 15.] When BHG did not pay the January 2001 rent and occupancy charges, Glimcher’s legal counsel sent a letter on January 15, 2001, reminding BHG of its lease obligations. In part the letter stated: “Failure to remit payment within ten (10) days ... shall result in the initiation of all remedies available for collection of this debt including but not limited to a suit for eviction and money judgment.” The trial court stated that, “there were no suits pending.” This badge of fraud does not require actual litigation, only the threat of litigation. The letter was the threat of litigation. That was an error by the trial court.

d.The transfer was of substantially all of the debtor’s assets. RCWA 19.40.041(b)(5).

[¶ 16.] The trial court wrote: “The transaction resulted in there being no assets whatsoever in the hands of BHG.” The court further wrote: “Coleman removed all the inventory and equipment; zeroed out the books.” Yet, having found this badge of fraud to exist, the court did not find it significant. Rather it focused upon what Coleman had done for BHG during the term of the lease. The trial court’s theme was that, since Coleman had furnished inventory and other services to BHG, Glimcher was benefited through Coleman’s efforts. This decision ended with the conclusion that: “Coleman reclaimed its inventory[.]” Yet, when questioned by the court, Sobczak testified:

Q: Were there any occasions when any — let me rephrase that. You would sell Coleman’s Black Hills Gold to the Outlet (BHG)?
A: Yes, sir.

The inventory was not Coleman’s. It was owned by BHG under an open account with Coleman and Coleman had no security interest in BHG’s assets.

e.The debtor absconded. RCWA 19.40.041(b)(6).

[¶ 17.] BHG did not inform Glimcher that it was abandoning the lease and its obligations and leaving the mall. Coleman claims that mall employees found the doors closed and saw inventory being moved. While BHG’s actions were not under the cover of darkness, knowledge of the closing and where the inventory was going were kept from Glimcher which is absconding.

f.The debtor removed or concealed assets. RCWA 19.40.041(b)(7).

[¶ 18.] The trial court found no evidence concerning this badge of fraud. Yet, it is obvious that BHG, the debtor, removed assets from Washington and sent them to South Dakota and concealed the removal from Glimcher.

g.The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred. RCWA 19.40.041(b)(8).

[¶ 19.] The role of “reasonably equivalent value” in actual fraudulent intent as compared to constructive intent is not the same although the meaning of the phrase is the same. In the context of actual fraud, the absence of reasonably equivalent value is only one of the badges of fraud that courts consider in determining whether a transfer was made with fraudulent intent. Its existence is not an absolute defense when other badges exist. Thus, several badges of fraud could overcome a finding that reasonably equivalent value was given when actual fraud is considered. See, e.g., In re Spatz, 222 B.R. 157, 169 (N.D.Ill.1998)(finding that under UFTA, reasonably equivalent value relates to only one of several badges of fraud); In re Model Imperial, Inc., 250 B.R. 776, 794 (Bankr.S.D.Fla.2000)(the absence of reasonably equivalent value is only one of the badges of fraud that courts consider in determining whether a transfer was made with fraudulent intent under federal statute on which UFTA § 4(a) is modeled). However, absence of reasonably equivalent value is the essential component of constructive fraud. Unless it is proven, constructive fraud cannot be found.

[¶ 20.] We conclude that for the reasons discussed infra as this topic is reviewed when RCWA 19.40.041(a)(2) is considered, BHG did not receive a reasonably equivalent value from Coleman for the transfer. For regardless of which context the phrase is considered in, its underlying purpose is consistently the same.

[T]he proper focus is on the net effect of the transfers on the debtor’s estate, the funds available to the unsecured creditors. As long as the unsecured creditors are no worse off because the debtor, and consequently the estate, has received an amount reasonably equivalent to what it paid, no fraudulent transfer has occurred.

In re Jeffrey Bigelow Design Group, Inc., 956 F.2d 479, 484 (4thCir.1992). In the context of actual fraud, Glimcher was worse off because BHG’s funds to pay Glimcher were totally depleted.

h. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligations were incurred. RCWA 19.40.041(b)(9).

[¶ 21.] The trial court came to the conclusion that BHG was insolvent when the transfers were made to Coleman. “The transaction resulted in there being no assets whatsoever in the hands of BHG.” All that was left were BHG’s obligations. Thus, BHG was insolvent as its debts were greater than its assets. RCWA 19.40.021(a).

[¶ 22.] Under Washington law, proof of actual intent to defraud must be “clear and satisfactory proof.” Clearwater v. Skyline Construction Co., 67 Wash.App. 305, 835 P.2d 257, 266 (1992). Direct proof to establish an actual fraudulent intent is not required, as a debtor’s subjective intent is often difficult to discern. Rather the court “should consider all relevant particulars encompassing a questioned transaction and weigh the factors negating as well as suggesting fraud.” Prairie Lakes Health Care Sys., 1998 SD 99 at ¶ 7, 583 N.W.2d at 411. “[Although the presence of one specific ‘badge’ will not be sufficient to establish fraudulent intent, the confluence of several can constitute conclusive evidence of an actual intent to defraud.” In re Model Imperial, Inc. 250 B.R. at 791 (quoting In re XYZ Options, Inc., 154 F.3d 1262, 1271 n. 17 (11thCir1998)). There are numerous other badges of fraud in the case which are sufficient to show that actual fraud occurred especially when the role of the insider is reviewed. We conclude that error was committed and the facts of this case clearly and satisfactorily demonstrate an actual intent to defraud, hinder or delay Glimcher.

B. Constructive Fraud

[¶ 23.] Glimcher also alleged that the transfer was constructively fraudulent under RCWA 19.40.041(a)(2) which provides:

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debt- or:
(i) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(ii) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.

See also UFTA § 4(a)(2).

[¶ 24.] Also, RCWA 19.40.051(a) provides:

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.

See also UFTA § 5(a). In contrast to the evidentiary burden for actual fraud, constructive fraud under the UFTA need only be shown by “substantial evidence.” Sedwick, 873 P.2d at 531 (citing Clearwater, 835 P.2d at 257).

[¶ 25.] The issue is whether BHG received a “reasonably equivalent value” for the transfer of the inventory to Coleman. Coleman alleges that the reasonable equivalent value was the forgiveness of BHG’s unsecured debt to Coleman for inventory in excess of $600,000. The trial court was distracted by the prior history between Coleman, BHG and Glimcher regarding the underlying lease agreement, guaranty under the lease and operation of the mall. However, that is not relevant to the issues in this case. BHG stipulated to the entry of judgment against it in Washington state court for the balance remaining under the lease. While Coleman’s arguments regarding promissory estoppel and equitable estoppel may have been relevant as a defense in that action, BHG chose not to defend against that judgment. The trial court believed that Coleman proceeded in “extreme good faith” in continuing to supply inventory to BHG despite the losses it suffered. However, “[t]he transferee’s good faith is irrelevant to a determination of the adequacy of the consideration under this Aet[.]” UFTA, § 4, cmt (2). “The focus in ‘constructive fraud’ shifts from a subjective intent to an objective result.” Badger State Bank v. Taylor, 276 Wis.2d 312, 688 N.W.2d 439, 447 (2004). “Proof of ‘constructive fraud’ simply entails proof of the requirements of the statute.” Id. “The circuit court erred as a matter of law by focusing on the transferee’s point of view. The transferee’s subjective state of mind does not play a role in resolving the present case under [UFTA § 5(a)].” Id. at 449.

[¶ 26.] RCWA 19.40.031(a) provides:

(a) Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise made otherwise than in the ordinary course of the promisor’s business to furnish support to the debtor or another person.

“ Value’ is to be determined in light of the purpose of the Act to protect a debtor’s estate from being depleted to the prejudice of the debtor’s unsecured creditors. Consideration having no utility from a creditor’s viewpoint does not satisfy the statutory definition.” UFTA, § 3, cmt (2). See also Clearwater, 835 P.2d at 267. While satisfaction of an antecedent debt can satisfy the requirement of reasonably equivalent value, this Court concludes that it did not under the unique facts of this case. From the perspective of Glimcher, an unsecured creditor, the cancellation of BHG’s unsecured debt owed to Coleman, an insider, when BHG was insolvent both before and after the transfer, was of no benefit to either BHG or other creditors. Clearwater, 835 P.2d at 267. The transfer of BHG’s inventory to an insider left it without any assets and resulted in it going out of business entirely.

[¶27.] This Court finds that the trial court erred as a matter of law in focusing on the transferee’s, Coleman’s, point of view. Further, this Court holds that Coleman’s satisfaction of BHG’s debt was not reasonable equivalent value under the UFTA.

ISSUE TWO

The Estoppel Issue

A. Promissory Estoppel

[¶ 28.] Coleman claims that both promissory estoppel and equitable estoppel apply which prevents Glimcher from seeking relief under the UFTA. Coleman argues that, since it had a limited obligation to pay rent under the guarantee, any judgment Glimcher has against BHG for rent cannot be enforced against it by the UFTA as this would violate the guarantee. Coleman cites RCWA 19.40.902 which allowd estoppel as a defense in UFTA proceedings. At the hearing, Sobczak testified that, if he knew that Coleman could be sued, he never would have formed BHG or had Coleman execute the guarantee. We believe the trial court erred in applying estoppel to this proceeding.

[¶ 29.] Washington recognizes both promissory estoppel and equitable estoppel. In Klinke v. Famous Recipe Fried Chicken, 94 Wash.2d 255, 616 P.2d 644, 646 n2 (Wash 1980), promissory estop-pel was defined as: “ ‘(1) A promise which (2) the promisor should reasonably expect to cause the promisee to change his position and (3) which does cause the promisee to change his position (4) justifiably relying upon the promise, in such a manner that (5) injustice can be avoided only [by] enforcement of the promise.’ ” (quoting Corbit v. J.I. Case Co., 70 Wash.2d 522, 424 P.2d 290, 300 (1967)). The function of promissory estoppel is to enforce a promise made without consideration. King v. Riveland, 125 Wash.2d 500, 886 P.2d 160, 164 (1994); Elliott Bay Seafoods, Inc. v. Port of Seattle, 124 Wash.App. 5, 98 P.3d 491, 494 (2004). If there is consideration given with the promise, the agreement is the contract which is enforced. In Greaves v. Medical Imaging Systems, Inc., 124 Wash.2d 389, 879 P.2d 276, 281 (1994), the Washington Supreme Court held: The purpose of promissory estoppel is “ ‘to make a promise binding, under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange. If the promisee’s performance was requested at the time the promisor made his promise and that performance was bargained for, the doctrine is inapplicable.’ ” (emphasis added)(quoting Klinke, 616 P.2d at 648 n. 4). This case involves bargained for promises and performances which were the consideration. Glimcher’s predecessor wanted Coleman to open a store in the new mall. Coleman was reluctant to do so because the mall had no record of performance. When Coleman formed BHG, the mall owner was also reluctant to sign a lease with a new corporation. After negotiations the parties agreed that Glimcher would sign the lease with BHG, if Coleman would guarantee the lease for one year. The parties agreed and a contract was formed. Because there is a contract, promissory estoppel cannot apply. Coleman wants to extend the guarantee to cover other matters not part of the agreement and not promised. There is no language in the guarantee which can be construed as an exoneration of any future claims, Sobczak’s trial testimony notwithstanding. Glimcher honored the contract. It is not suing Coleman for rent. It is seeking to avoid a fraudulent transfer of BHG’s assets.

B. Equitable Estoppel

[II30.] Equitable estoppel in Washington requires: “(1) an admission, statement, or act inconsistent with a claim afterward asserted; (2) action by another in reasonable reliance on that act, statement, or admission; and (3) injury to the party who relied” upon the act, statement or admission. Berschauer/Phillips Const. Co. v. Seattle School Dist. No. 1, 124 Wash.2d 816, 881 P.2d 986, 994 (1994). We also conclude that the concept of equitable estoppel has no application to this case.

[¶ 31.] Coleman claims that it was supplying inventory to BHG and that Glimcher was thereby being enriched “through its subsidy” of BHG. Coleman goes on to argue that Glimcher was a poor manager of the mall which caused the loss of several anchor stores and these losses had an impact upon BHG’s sales. Coleman also urges that Glimcher is estopped from making any claim for rent because of events surrounding the guarantee. Somehow, Coleman believes that these facts require the application of equitable estoppel. We disagree.

[¶ 32.] Coleman’s position ignores the separate corporate identity of Glimcher, BHG and itself. It blurs the separate obligations one corporation had with another. Coleman improperly argues potential defenses BHG had for its own benefit. For example, Coleman claims Glimcher was a poor manager of the mall. If correct, this serves to benefit BHG which was the party to the lease, not Coleman. BHG could have raised this in defense of the breach of lease litigation in Washington, but did not. Instead BHG stipulated to a judgment.

[¶ 33.] Coleman’s claim for injury against Glimcher also ignores the separate corporate identities of Coleman and BHG. Coleman supplied inventory to BHG and BHG became indebted to Coleman. Glimcher was not involved with Coleman’s decisions on the quantity of inventory to supply or the amount of debt to incur with BHG on open account. Coleman could have secured its debt and chose not to do so. Based upon these facts, it is difficult to conclude that Glimcher caused any injury to Coleman.

[¶ 34.] We reverse the trial court and remand this case for proceedings consistent with RCWA 19.40.071.

[¶ 35.] KONENKAMP, Justice, concurs.

[¶ 36.] ZINTER, Justice, concurs in result.

[¶ 37.] GILBERTSON, Chief Justice, and MEIERHENRY, Justice, dissent.

[¶ 38.] KEAN, Retired Circuit Judge, for SABERS, Justice, disqualified.

ZINTER, Justice

(concurring in result).

[¶ 39.] I respectfully disagree with those parts of the Court’s opinion concluding that reasonable equivalent value was not given for the transfer of BHG’s assets. See supra Part A (actual fraud) and Part B (constructive fraud). I do so because those Parts analyze the reasonable equivalent value question from the perspective of Glimcher, the creditor challenging the transfer. See supra ¶¶ 20, 26. In my view, the reasonable equivalent value question should not be viewed from the perspective of the unsecured creditor challenging the transfer. Rather, the question must be viewed from the perspective of the debtor, the debtor’s estate, and all unsecured creditors. And, when viewed from that perspective, reasonable equivalent value was given because both BHG and the unsecured creditors benefited from this transfer. Therefore, constructive fraud cannot be established. Nevertheless, I concur in result because, when the remaining “badges of fraud” are considered, actual fraud was established.

Reasonable Equivalent Value— Constructive Fraud

[¶40.] In concluding that constructive fraud was established, the Court reasons that the transfer, from the perspective of Glimcher, conveyed no benefit to BHG or other creditors. Supra ¶ 26 (emphasis added). This view, prefacing the analysis from the perspective of the challenging unsecured creditor, overlooks the statutory definitions of reasonable equivalent value and cases interpreting the UFTA. It also impermissibly interjects the concept of preferences into § 4(a)(1) and (2) of the UFTA.

[¶ 41.] The Washington version of the UFTA on constructive fraud requires that the reasonable equivalent value question be analyzed solely from the perspective of the debtor. RCWA 19.40.041(a)(2) (UFTA § 4(a)(2)) provides:

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: ...
(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation....

Id. (emphasis added). The UFTA comment to the Washington definition of value, RCWA 19.40.031(a) (UFTA § 3(a)), further clarifies the proper perspective. That comment makes no reference to the challenging creditor’s point of view. Rather, it confirms that reasonable equivalent value is to be determined from the perspective of all unsecured creditors and the debtor’s estate. The comment explains:

“Value” is to be determined in light of the purpose of the Act to protect a debtor’s estate from being depleted to the prejudice of the debtor’s unsecured creditors. Consideration having no utility from a creditor’s viewpoint does not satisfy the statutory definition.

UFTA § 3 cmt 2 (emphasis added).

[¶ 42.] Courts interpreting the UFTA also recognize that the proper focus is on the net effect of the transfers on the debt- or’s estate and the funds available to pay all of the unsecured creditors.

[T]he proper focus is on the net effect of the transfers on the debtor’s estate, the funds available to the unsecured creditors. As long as the unsecured creditors are no worse off because the debtor, and consequently the estate, has received an amount reasonably equivalent to what it paid, no fraudulent transfer has occurred.

In re Jeffrey Bigelow Design Group, Inc., 956 F.2d 479, 484 (4thCir.1992). Today the Court also acknowledges the proper focus in restating the purpose of UFTA: “The purpose of the UFTA is to protect a debtor’s estate from being depleted to the prejudice of the debtor’s unsecured creditors.” Supra ¶ 9 (emphasis added). Therefore, our analysis should focus only on whether BHG (the debtor), its estate, and the unsecured creditors as a group received reasonably equivalent value in exchange for the transfer to Coleman.

[¶ 43.] When viewed from this perspective, reasonable equivalent value was given because there is no dispute that “an antecedent debt [was] ... satisfied” for value exceeding that debt. RCWA 19.40.031(a) (UFTA § 3(a)). See also ¶ 25, supra. BHG transferred approximately $300,000 in assets for the forgiveness of approximately $600,000 in unsecured debt. See supra ¶¶ 5, 25. Consequently, this transfer reduced the debtor’s estate’s total unsecured debt by approximately $300,000 more than the value of the assets transferred. Considering this $300,000 net improvement in the estate’s unsecured debt, BHG and all remaining unsecured creditors received value even if Glimcher did not personally benefit.

[¶ 44.] The Court’s focus on Glimcher’s perspective is also misplaced because it interjects the concept of preferences into the analysis. Concededly, the transfer to Coleman was preferential when viewed from the perspective of Glimcher, apparently the only unsecured creditor who received nothing from all of the transfers. However, viewing the question from the perspective of an unsecured creditor who receives less than the others improperly interjects the concept of preferences into the constructive fraud provisions of RCWA 19.40.041(a)(2), (UFTA § 4(a)(2)).

[¶ 45.] This case deals with fraudulent transfers, not preferences, and preferential transfers are not inherently fraudulent. In construing the UFTA generally, we have recognized this rule stating: “[D]ebt-ors may generally prefer one creditor over another in applying assets to discharge their obligations[.]” Prairie Lakes Health Care Sys., Inc., 1998 SD 99, ¶ 14, 583 N.W.2d at 413. Other courts, in discussing both constructive and actual fraud, also recognize that some creditors may be preferred over others. See Liquidation of MedCare HMO, Inc., 294 Ill.App.3d 42, 52, 228 Ill.Dec. 502, 689 N.E.2d 374, 381 (1997) (concluding that when analyzing fraud under similar provisions of the UFTA, “the mere prefex-ence of one or more creditors over others does not constitute a fraudulent transfer.”); Garton v. Garton, 533 N.W.2d 828, 832 (IA 1995) (construing the common-law “badges of fraud” that underlie the UFTA, noting that, “a debtor may prefer one creditor over another.”); In re Stein, 208 B.R. 209, 215 (D.Or.1997) (discussing constructive fraud and stating: “A debtor may prefer one creditor over another....”).

[¶46.] Therefore, even if this were a preferential transfer when viewed from Glimcher’s perspective, that does not establish a lack of reasonable equivalent value and a fraudulent transfer. When viewed from the proper perspective of the debtor, its estate, and the unsecured creditors generally, reasonably equivalent value was given. And because reasonable equivalent value was given, Glimcher cannot establish constructive fraud in this proceeding. As the Court notes, the “absence of reasonably equivalent value is the essential component of constructive fraud. Unless it is proven, constructive fraud cannot be found.” Supra ¶ 19; RCWA 19.40.041(a)(2).

Reasonable Equivalent Value— Actual Fraud

[¶47.] For the foregoing reasons, the Court also errs in concluding that Glimcher established the lack of reasonably equivalent value “badge of fraud” under RCWA 19.40.041(b)(8). That provision, like the constructive fraud provision, requires an examination of the reasonably equivalent value question from the perspective of the debtor. It provides:

The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.

Id. The Court, however, again views the question solely from the perspective of Glimcher, concluding that this badge of fraud was established because “Glimcher was worse off because BHG’s funds to pay Glimcher were totally depleted.” Supra ¶ 20 (emphasis added).

[¶ 48.] Nevertheless, for the other reasons expressed by the Court, the remaining “badges” established fraud. In my view, this conclusion is especially compelled because, as the Court notes, this transfer was accomplished between insiders: the joint owners of BHG and Coleman. See supra ¶ 13 (quoting UFTA § 4 cmt 5). See also ¶¶ 13-18, 22. “Transactions involving corporations and their executives or corporations under the common control of the same officers and directors are to be regarded with skepticism by the courts and closely scrutinized.” Snyder Elec. Co. v. Fleming, 305 N.W.2d 863, 867 (Minn.1981). “The relationship between the parties is a significant consideration.” New Horizon Enterprises, Inc. v. Contemporary Closet Design, Inc., 570 N.W.2d 12, 16 (Minn.App.1997).

[¶ 49.] Considering this relationship and the other badges of fraud discussed by the Court, I agree that the circuit court erred as a matter of law and actual fraud was established.

MEIERHENRY, Justice

(dissenting).

[¶ 50.] I would affirm the trial court as neither clearly erroneous in its findings of fact nor erroneous in its application of the law. First in reviewing questions of fact, we use the clearly erroneous standard. Prairie Lakes Health Care Sys. Inc. v. Wookey, 1998 SD 99, ¶ 5, 583 N.W.2d 405, 410. Under this deferential standard of review, we will not overturn the trial court’s factual findings “unless we are definitely and firmly convinced a mistake has been made.” Id. (additional citations omitted). The trial court found no fraudulent transfer under the UFTA based on the unique circumstances surrounding BHG and Coleman’s relationship and course of dealing over the five years BHG operated in Washington. The majority opinion gives no deference to the trial court’s factual determinations and appears to retry every element of actual and constructive fraud de novo.

[¶ 51.] The majority opinion determines that the trial court erred when it concluded that Glimcher failed to establish there had been actual intent to hinder, delay or defraud creditors. Specifically, the majority opinion alleges that the trial court erred when it considered the objective factors in RCWA 19.40.041(b) because it focused on the actions of Coleman instead of BHG and because it overlooked certain factors. However, this conclusion fails to give deference to the trial court’s ability to judge the credibility of the witnesses and weigh the evidence. Prairie Lakes Health Care Sys. Inc., 1998 SD 99, ¶ 11, 583 N.W.2d at 412 (stating that “[t]he circuit court is in the best position to assess the witnesses’ credibility and the weight to be given their testimony, and we give great deference to the circuit court’s opportunity to observe the witnesses and testimony first hand.”). In addition, the majority opinion fails to acknowledge the specific facts of this ease, which the trial court concluded took BHG out of the realm of the UFTA.

1. Actual Fraud

[¶ 52.] RCWA 19.40.041(b) provides a non-exclusive list of factors to consider when determining whether the debtor had the intent to hinder, delay or defraud creditors. The statute provides: “In determining actual intent under subsection (a)(1) of this section, consideration may be given, among other factors.... ” RCWA 19.40.041(b). The language of the statute allows courts flexibility when analyzing actual intent. Pursuant to the language of RCWA 19.40.041(b), courts “should evaluate all the relevant circumstances involving a challenged transfer or obligation. Thus the court may appropriately take into account all indicia negativing as well as those suggesting fraud.” UFTA § 4, cmt(6).

[¶ 53.] In this case, the trial court’s decision specifically rested on the unique circumstances surrounding the relationship between BHG and Coleman. BHG had been operating at a loss for the majority of the past five years. To its detriment, Coleman continued to supply it with inventory to keep the mall store in business. During this time, BHG paid its creditors, including Glimcher, despite the fact that it continued to operate at a loss. Based on these facts, the trial court noted:

The case at hand presents a very unique set of circumstances, none of which parallel any of the cases reviewed by this Court. Perhaps the extraordinary point in this case is that every effort was made by Coleman on behalf of BHG to pay all obligations at the time of the closing of BHG. They went to great efforts to wind down a business in a manner which would not deny the creditors of BHG receipt of monies then owed to them.

[¶ 54.] The trial court also acknowledged that at first glance, the facts portrayed Coleman as an insider who was “trying to take advantage of its relationship with BHG to remove all assets of value for its own benefit, leaving BHG’s creditors to fight over the scraps.” However, Sobczak’s testimony at trial indicated that in the course of negotiating a lease with the mall, Supermall, the lessor at the time, understood and agreed that BHG would be created as a Washington corporation for the express purpose of isolating liability against Coleman in the event the mall store was not profitable. Therefore, Coleman was not some secret entity waiting in the wings to prevent BHG from being liable to any of its creditors. Coleman was the party that the mall dealt with during the initial contract negotiations and was the party that kept BHG in business despite the fact that it operated at a loss for four of the five years. The trial court found that these facts negated a finding that BHG had actual intent to hinder, delay or defraud Glimcher. The trial court stated:

Coleman at no time took advantage of any of the other creditors by the actions which it took in supporting the ongoing operation of BHG.... It struggled to maintain a business despite its losses and to honor its contracts and agreements with all obligors of BHG.... Coleman proceeded in extreme good faith in taking the actions which it did.

[¶ 55.] Based on the circumstances surrounding the formation of BHG, the course of dealing over the past five years between BHG and Coleman and the fact that BHG had satisfied all of its outstanding debts at the time it closed its mall store, except for those still owed to Coleman, the trial court concluded that Coleman or its agents had no intent to hinder, delay or defraud any of its creditors. This was a question of fact involving an inquiry into the intention of the parties. See Ed Peters Jewelry Co., Inc. v. C & J Jewelry Co., Inc., 124 F.3d 252, 261-62 (1stCir.1997) (stating that “it is a question of fact whether a transfer was made with actual intent to defraud.”). The trial court, as the finder of fact, was in the best position to judge the credibility of the parties. Prairie Lakes Health Sys. Inc., 1998 SD 99, ¶ 11, 583 N.W.2d at 412. Based on our deferential standard of review, this finding was not clearly erroneous.

2. Reasonably Equivalent Value

[¶ 56.] The trial court also concluded that BHG received reasonably equivalent value for the transfer of inventory to Coleman. The majority opinion claims that the trial court was distracted by the history between BHG and Coleman. In addition, the majority opinion finds that the trial court erred as a matter of law by focusing on the transfer of BHG’s assets from Coleman’s point of view.

[¶ 57.] “Whether the transfer is for ‘reasonably equivalent value’ in every case is largely a question of fact, as to which considerable latitude must be allowed to the trier of facts.” Prairie Lakes Health Care Sys., Inc., 1998 SD 99, ¶ 11, 583 N.W.2d at 412 (citing Leibowitz v. Parkway Bank & Trust Co., 210 B.R. 298 (N.D.Ill.1997)). When we review the transfer, we must ultimately examine “what [the] debtors received in exchange for what they surrendered.” Id. (additional citations omitted). Accordingly, the facts indicate that BHG did receive reasonably equivalent value for the transfer of assets to Coleman.

[¶ 58.] At the time BHG closed its doors, it had $290,000 worth of inventory and owed Coleman over $700,000 for supplying it with inventory. BHG also had a lease with Glimcher until July of 2002, which was current up until the time it closed its doors at the mall. The trial court concluded that BHG received value in not only the value of the inventory that was credited to the benefit of the debt against BHG, but also the value of maintenance of BHG for the previous years at which BHG operated at a loss to the detriment of Coleman. Consequently, based on these facts, the trial court’s finding that BHG received reasonably equivalent value was not clearly erroneous.

[¶ 59.] Because I believe that the trial court should be affirmed as to the UFTA, I would not address the promissory or equitable estoppel issues.

[¶ 60.] GILBERTSON, Chief Justice joins this dissent.

      . All of the individual defendants, except Dwight Sobczak, Sr. (Sobczak), were dismissed prior to the court trial. Coleman Company and Dwight Sobczak will be referred to collectively unless noted.

      . " 'Debtor' means a person who is liable on a claim.” RCWA 19.40.011(6).

      . " 'Creditor' means a person who has a claim.” RCWA 19.40.011(4).

      . “ 'Claim' means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured.” RCWA 19.04.011(3).

      . The definition of an "insider” when the debtor is a corporation includes directors, officers and persons in control of the debtor. RCWA 19.04.011(7)(ii).

      . We note that the remaining holding in Prairie Lakes Health Care Sys. has no application to this appeal as that appeal involved SDCL 54-8A-5, UFTA § 5, while this appeal revolves around UFTA § 4 and its Washington counterpart.

      . The trial court stated in its memorandum opinion:
      Under the circumstances and recognizing that fraud is an equitable issue, equity certainly supports the premise that Coleman proceeded in extreme good faith in taking the actions which it did. Those actions were to the benefit of all of the creditors of BHG, including Glimcher, were clearly in good faith, and they were justified in taking the action they did, despite the original expectation of not being held accountable beyond the first year of operation of BHG.

      . RCWA 19.40.071 provides:
      (a) In an action for relief against a transfer or obligation under this chapter, a creditor, subject to the limitations in RCW 19.40.081, may obtain:
      (1) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim;
      (2) An attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with the procedure prescribed by chapter 6.25 RCW;
      (3)Subject to applicable principles of equity and in accordance with applicable rules of civil procedure:
      (i) An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property;
      (ii) Appointment of a receiver to lake charge of the asset transferred or of other property of the transferee; or
      (iii) Any other relief the circumstances may require.
      (b) If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds.

      . Bigelow ultimately held that those transfers were not fraudulent because they did not result “in the depletion of the bankruptcy estate ... [t]he transfers by the debtor served simply as repayment for money received.” Id. at 485.

      . It also improperly interjects the concept of preferences into the actual fraud provisions of RCWA 19.40.041(a)(1), (UFTA § 4(a)(1)).

      . This Court did note that some preferences may be voided under SDCL 54-8A-5(b) (UFTA § 5(b)), which provides:
      A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.

        Id.

      Washington has the same provision codified at RCWA 19.40.051(b). However, this preference provision has not been raised or argued on appeal.


source: Caselaw Access Project

author: WIGGINS, Justice.

license: Public Domain

text:
    STATE of Iowa, Appellant v. Christopher Jerome TARBOX, Appellee.
    No. 05-1281.
    Supreme Court of Iowa.
    Oct. 5, 2007.

      Thomas J. Miller, Attorney General, Cristen Douglass, Assistant Attorney General, J. Patrick White, County Attorney, and Meredith Rieh-Chappell, Assistant County Attorney, for appellant.
    Steven E. Ballard and Patrick J. Ford of Leff Law Firm, L.L.P., Iowa City, for appellee.
   WIGGINS, Justice.

In his petition for further review Christopher Jerome Tarbox asks this court to reverse the court of appeals decision finding the district court erred when it dismissed the trial information charging him with leaving the scene of an accident in violation of Iowa Code section 321.261 (2003). Tarbox claims because he was involved in a single-vehicle accident, and he was the only person who suffered a personal injury, his conduct did not violate section 321.261. Accepting the facts alleged by the State in the trial information and minutes as true, we agree with Tarbox that his conduct of leaving the scene of the single-vehicle accident did not violate section 321.261. Accordingly, we vacate the decision of the court of appeals and affirm the decision of the district court.

I. Prior Proceedings.

The State charged Tarbox with leaving the scene of a personal injury accident in violation of Iowa Code section 321.261. Tarbox filed a motion to dismiss the trial information claiming first, the trial information did not establish he was the driver of the vehicle at the time of the accident, and second, the driver of the vehicle had no duty to perform the duties required by section 321.261. The State filed a notice of additional testimony addressing Tarbox’s first claim. The State also filed a resistance responding to both issues raised by Tarbox.

The district court granted Tarbox’s motion to dismiss finding none of the driver’s statutory duties required by section 321.261 apply when there is a single-vehicle accident resulting in an injury to the driver. The State appealed the decision of the district court claiming it erred in dismissing the trial information. We transferred the case to our court of appeals. The court of appeals reversed and remanded the case to the district court for trial. Tarbox then petitioned our court for further review, which we granted.

II. Issue.

In this appeal we must decide whether the district court erred when it dismissed the trial information.

III. Standard of Review.

This court reviews a district court’s order to dismiss a trial information for correction of errors at law. State v. Petersen, 678 N.W.2d 611, 613 (Iowa 2004). In reviewing the dismissal of the trial information, we accept the facts alleged by the State in the information and attached minutes as true. State v. Gonzalez, 718 N.W.2d 304, 307 (Iowa 2006). We will reverse the district court’s dismissal if the facts alleged by the State “charge a crime as a matter of law.” Id. Additionally, we review questions of statutory interpretation for correction of errors at law. Id.

IV. Facts.

According to the trial information we accept the following facts as true. On December 17, 2004, three witnesses observed a beige Mitsubishi Galant traveling north on Governor Street, a one-way street in Iowa City. As the vehicle approached the intersection of Governor Street and Iowa Avenue, the driver lost control and hit a cement wall. The vehicle came to a complete stop. The cement wall was not located on private property, and other than damage to the Galant, no other property damage occurred.

After the Galant stopped, the three witnesses saw the only occupant of the vehicle, a white male approximately six feet tall with brown hair, exit the Galant from the driver’s side. The male fled the area and left the vehicle where it had come to rest at the scene. The witnesses observed the male had injuries to his face. The witnesses then contacted the Iowa City police.

Iowa City police officers Bill Welch and Terry Tack arrived on the scene, finding the Galant damaged from its collision with the cement wall. The officers found the vehicle’s airbags deployed. The officers completed an accident report and noted the vehicle’s path of travel based on their conversations with the witnesses. During their investigation the officers found a cellular phone close to the intersection. The officers took the cellular phone as evidence. They determined the phone belonged to Tarbox. After running the license plates of the Galant, they established Marie Rolling Tarbox owned the vehicle.

Later that evening Iowa City police officers Zach Diersen and Marcus Mittvalsky went to Tarbox’s residence and spoke with him. The officers found Tarbox matched the physical description of the driver of the Galant provided by the eyewitnesses. Tarbox had fresh injuries on his face. Based on Mittvalsky’s experience and training as a former firefighter, he believed these injuries were consistent with those caused by airbag deployment.

V.Analysis.

The State charged Tarbox with violating section 321.261. Section 321.261(1) provides:

[t]he driver of any vehicle involved in an accident resulting in injury to ... any person shall immediately stop the vehicle at the scene of the accident or as close as possible and if able, shall then return to and remain at the scene of the accident in accordance with section 321.263.

Iowa Code § 321.261(1). Accordingly, “[t]he first duty of the driver of a vehicle involved in an automobile accident under 321.261 is to stop.... ” State v. Sebben, 185 N.W.2d 771, 774 (Iowa 1971). Second, the driver “has the additional duties specified in [section] 321.268, each of which are separate and distinct under the statute.” Id. Section 321.263(1) states:

The driver of a vehicle involved in an accident resulting in injury to or death of a person or damage to a vehicle which is driven or attended by a person shall give the driver’s name, address, and the registration number of the vehicle the driver is driving and shall upon request and if available exhibit the driver’s driver’s license to the person struck, the driver or occupant of, or the person attending the vehicle involved in the accident and shall render to a person injured in the accident reasonable assistance, including the transporting or arranging for the transporting of the person for medical treatment if it is apparent that medical treatment is necessary or if transportation for medical treatment is requested by the injured person.

Iowa Code § 321.263(1). Our resolution of the issue on appeal depends on our construction of these statutes.

The goal of statutory construction is to determine legislative intent. Auen v. Alcoholic Beverages Div., 679 N.W.2d 586, 590 (Iowa 2004). Legislative intent is determined from the words chosen by the legislature, not what it should or might have said. State v. Dohlman, 725 N.W.2d 428, 431 (Iowa 2006). Absent a statutory definition or an established meaning in the law, we give words used by the legislature their ordinary and common meaning by considering, among other things, the context in which they are used. Id. Under the guise of construction, we may not extend, enlarge, or otherwise change the meaning of a statute. Auen, 679 N.W.2d at 590. Finally, this court strictly construes criminal statutes with doubts resolved in the accused’s favor. Gonzalez, 718 N.W.2d at 308.

Tarbox concedes for purposes of this appeal that section 321.261 applies to single-vehicle accidents when a person is injured. We have previously held section 321.261 first creates a duty requiring the driver to stop the vehicle at the scene of the accident or as close as possible. Sebben, 185 N.W.2d at 774.

The facts alleged in the trial information state, after Tarbox crashed the vehicle into a cement wall on Governor Street, the vehicle “came to a complete stop.” Further, the State does not argue Tarbox failed to meet the statutory duty to stop, rather it argues Tarbox did not remain at the scene to provide identifying information. Consequently, Tarbox did not violate the first duty of section 321.261 requiring a driver to stop at the accident scene.

After stopping the vehicle, the driver must remain at the scene to comply with the additional, separate, and distinct duties required under section 321.263. Id. To comply with the duties under section 321.263(1), the driver has a duty to provide identifying information to the person struck, the driver of the other vehicle involved in the accident, an occupant of the vehicle involved in the accident, or a person attending the vehicle involved in the accident. Iowa Code § 321.263(1). Tar-box’s vehicle did not strike any person. The accident did not involve a driver of another vehicle or an occupant of any vehicle.

The State argues in its brief, “a driver has a duty to remain at the scene to provide identifying information to law enforcement or eyewitnesses who can then summon aid.” To determine whether the State’s argument is correct, we must look to the statutory scheme employed by the legislature in chapter 321. See State v. McSorley, 549 N.W.2d 807, 809 (Iowa 1996) (holding statutes “must be construed in light of their common purpose and intent so as to produce a harmonious body of legislation”). Two sections in chapter 321 incorporate the duties of section 321.263.

The first reference to section 321.263 is in section 321.261(1). Section 321.261 requires the driver to stop and provide identifying information to the persons listed in section 321.263(1) when the accident involves personal injury or death. Iowa Code § 321.261. The second reference to section 321.263 is in section 321.262. Under section 321.262 the driver must stop and provide identifying information to the persons listed in section 321.263(1) if the driver is involved in an accident “resulting only in damage to a vehicle which is driven or attended by any person.” Id. § 321.262. Neither section 321.261(1) nor section 321.262 gives any indication police officers or eyewitnesses are persons attending the vehicle under section 321.263(1).

The reason the State argues police officers and eyewitnesses should be considered persons attending the vehicle is so they can summon aid. However, another section in chapter 321 leads us to conclude otherwise. Section 321.266 requires a person involved in an accident causing personal injury to another, to contact the authorities immediately. Id. § 321.266. Presumably, when a person contacts the authorities an inquiry would be made as to the nature of the accident and whether any injuries were sustained. At that point the dispatcher would send the necessary authorities and medical personnel to the scene to render aid. Interpreting section 321.263(1) to require that a person involved in an accident must remain at the scene to provide identifying information to a police officer or eyewitness so that person could then summon aid would be repetitive of the duty under section 321.266, which requires the person involved in the accident to contact the authorities. Thus, the State’s interpretation of section 321.263(1) would render section 321.266 superfluous. See Miller v. Westfield Ins. Co., 606 N.W.2d 301, 305 (Iowa 2000) (stating a fundamental rule of statutory construction is that a statute will not be construed to make any part of it superfluous unless no other construction is reasonably possible).

We believe the legislature meant the word “attending” as used in section 321.263(1) to mean “to be present with.” Webster’s Third International Dictionary 140 (unabr. ed. 2002). This meaning requires the driver involved in an accident with another vehicle to give the identifying information to a person present with the other vehicle when the driver or occupant of the vehicle is unavailable. This definition is consistent with the duty of a driver under another Iowa Code section, section 321.264.

Under section 321.264 when a driver collides with an unattended vehicle, the driver is required to stop and locate either the owner or operator of the vehicle or leave a written note in a conspicuous place on the struck vehicle. Iowa Code § 321.264. The dichotomy the legislature sets out between attended vehicles in section 321.263 and unattended vehicles in section 321.264 confirms that “attending” refers to someone who is present with the vehicle rather than one who comes upon the vehicle after the fact.

Consequently, the officers and eyewitnesses were not attending the vehicle within the meaning of section 321.263(1). Therefore, Tarbox could not have provided identifying information as required by the statute, and his failure to remain at the scene was not a violation of section 321.263(1). See Sebben, 185 N.W.2d at 775 (stating “since defendant is not required under section 321.263 to give information to anyone other than those designated by the statute then where, as here, no other vehicle is involved and the person struck is instantly killed defendant could not be subjected to criminal responsibility because of the legal impossibility of complying with the statute requirements to inform”). Thus, as a matter of law Tarbox could not have violated section 321.261.

The State argues if we do not construe section 321.261 to require drivers like Tar-box to stay at the scene until the police arrive, the statutory purpose of section 321.261 would be frustrated. The State claims allowing a person to flee from the scene of an accident allows that person to evade possible criminal and civil liability for driving recklessly, driving while intoxicated, driving with a suspended or revoked license, or using another’s vehicle without permission. This argument does not prompt us to interpret the statute differently.

First, in construing a statute “[w]e do not speculate as to the probable legislative intent apart from the words used in the statute.” State v. Adams, 554 N.W.2d 686, 689 (Iowa 1996). Second, we may not extend, enlarge, or otherwise change the meaning of a statute under the pretext of construction. Auen, 679 N.W.2d at 590. Third, penal statutes are not elastic and we must construe them strictly against the State. Gonzalez, 718 N.W.2d at 308.

Finally, the construction we have given section 321.261 does not allow a person, such as Tarbox, to flee from the scene of an accident allowing that person to evade possible criminal and civil liability for driving recklessly, driving while intoxicated, driving with a suspended or revoked license, or using another’s vehicle without permission under the laws of Iowa. The Code of Iowa requires a person involved in an accident causing personal injury to any person to contact the authorities immediately. Iowa Code § 321.266. The State had the option of charging Tarbox with a violation of section 321.266, but chose not to do so.

Accordingly, the district court did not err when it granted Tarbox’s motion to dismiss.

VI. Disposition,

Accepting the facts alleged by the State in the trial information and minutes as true,- we find as a matter of law Tarbox did not violate Iowa Code section 321.261. Therefore, the district court was correct when it granted Tarbox’s motion to dismiss. Consequently, we vacate the decision of the court of appeals and affirm the order of the district court granting Tar-box’s motion to dismiss.

DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.


author: APPEL, Justice.

text:
    Stephen GRAY and Shelly Gray, Husband and Wife, Appellants v. James R. OSBORN, III, Appellee, Tamra Randall, Intervenor-Appellee. Tamra Randall, Appellee v. Stephen Gray and Shelly Gray, Appellants, Joan K. Peck and Marjorie A. Thirkettle, Intervenors-Appellees.
    No. 05-1850.
    Supreme Court of Iowa.
    Oct. 5, 2007.

      Gregory J. Epping of Terpstra, Epping & Willett, Cedar Rapids, for appellants.
    Mark E. Mossman of Mossman & Moss-man, L.L.P., Vinton, for appellees Osborn and Randall.
    Vernon P. Squires of Bradley & Riley, P.C., Cedar Rapids, for intervenors-appel-lees Peck and Thirkettle.
   APPEL, Justice.

In this case, we consider whether landowners have an easement across the property of an adjoining landowner or whether they committed trespass when they attempted to exercise rights pursuant to the claimed easement. The district court found that an express easement existed and dismissed claims for trespass and in-junctive relief. The court of appeals reversed, and we granted further review. For the reasons expressed below, the decision of the court of appeals is vacated and the decision of the district court is affirmed.

I. Factual Background and Proceedings.

The facts in this case are generally undisputed. Tamra Randall owned undeveloped property in rural Benton County. In September 1996, Randall recorded the consent and dedication agreement and plat for what is now known as Maple Ridge Estates I. The plat called for the subdivision of the land into five lots. The plaintiffs, Stephen and Shelly Gray, currently own Lot 5.

The plat for Maple Ridge Estates I states that an ingress-egress easement runs across the northern border of Lot 5. The easement is indicated by a dotted line running parallel to the northern border of the property with the phrase “50' ingress egress easement” placed in the middle of the area between the northern border of Lot 5 and the dotted line. The easement abuts a public roadway, 59th Street Trail, on its western end. The eastern end of the easement connects with property that is not described on the plat. In the words familiar to those experienced in real estate transactions, the dominant estate was not specifically identified or described with particularity on the plat.

The consent and dedication agreement, however, did not explicitly refer to an ingress-egress easement across Lot 5. The only restriction concerning building in the subdivision is a setback restriction, requiring all buildings to be at least fifty feet from any public roadway and no closer than twenty feet from any side lot line.

These documents also did not mention the existence of a private gravel road which lay north of the easement and connected 59th Street Trail to lands to the east. At the time of the September 1996 filings, Randall was enmeshed in a dispute with her northern neighbors, Kenneth and Marcia Rick, regarding the ownership of the gravel road. The Ricks claimed ownership to the northern two-thirds of the gravel road, and litigation commenced regarding the precise boundary between the two properties. Prior to the dispute, Randall had been using the road to access property she owned to the east of Maple Ridge Estates I.

Randall decided that in light of the boundary dispute, she needed to designate a fifty-foot easement, on what was indisputably her property, across the northern boundary of Lot 5. Thus, in the event she was unsuccessful in her litigation with the Ricks, Randall would continue to have secure access to her eastern property through the easement. If unsuccessful, she intended to relocate the road across the fifty-foot easement reserved in the plat for Maple Ridge Estates I.

In January 1998, Randall prevailed in her litigation with the Ricks. As a result of her success, Randall could still access her eastern property by way of the gravel road. She took no action at that time, therefore, to relocate the gravel road onto the easement.

In early 2000, Randall filed a plat for Maple Ridge Estates II. At the time she recorded this plat, she was still the owner of Lot 5 in Maple Ridge Estates I. Maple Ridge Estates II subdivides property located to the east of Maple Ridge Estates I. The plat for Maple Ridge Estates II shows the same fifty-foot, ingress-egress easement along the northern border of Lot 5 of Maple Ridge Estates I. The Maple Ridge Estates II plat does not alter the location, dimension, or purpose of the easement.

As with the Maple Ridge Estates I plat, Randall also filed covenants related to Maple Ridge Estates II. The restrictive covenants convey a fifty-foot easement to the owners of Lots 8 and 4 “over and upon the road shown on the plat for Maple Ridge Estates II....”

After these documents related to Maple Ridge Estates I and Maple Ridge Estates II were recorded, a series of land transactions occurred. Ultimately, Stephen and Shelly Gray, the plaintiffs in this case, became owners of Lot 5 in Maple Ridge Estates I. The Grays’ deed specifically noted that their purchase was subject to all covenants, restrictions, and easements of record. In adjoining Maple Ridge Estates II, Joan K. Peck and Marjorie A. Thirket-tle became owners of Lot 3 and James R. Osborn III became owner of Lot 4.

Prior to the purchase of their interest in Maple Ridge Estates I, Lot 5, the Grays obtained an abstract of title and a title opinion. The Grays were further provided with a copy of the plat for Maple Ridge Estates I by their realtor. The Grays saw the wording related to the easement on the plat, but professed to have difficulty reading it because of the copy’s poor, fuzzy quality. The Grays claim to have been told by someone that the easement was for utility purposes only.

After purchasing the property, the Grays decided to construct a fence for their horses. Worried about possible restrictions, Stephen Gray questioned Randall as to the fence’s proper location. At trial, Randall testified that she told Gray not to construct any type of permanent fence within the fifty-foot easement. Gray disputed this testimony, claiming that there was no mention of the easement. In any event, the Grays’ fence essentially follows the southern line of the fifty-foot easement.

After Osborn constructed his home on Maple Ridge Estates II, Lot 4, Peck and Thirkettle became concerned about the proximity of their home on Lot 3, to the driveway used by Osborn to reach his residence. Osborn, Peck, and Thirkettle were utilizing the gravel road, which lay north of the easement, to access their property. The end of the road, however, veered south and crossed onto the Peck/Thirkettle lot in order to connect to Osborn’s lot. After considerable discussion, Osborn agreed to change his manner of access by constructing a driveway “spur” on the Grays’ land, which he believed was subject to the ingress-egress easement.

No one contacted the Grays before construction began on Osborn’s new access. From here, the dispute escalated. The Grays built a temporary and later a permanent fence blocking access to the new driveway. Osborn reacted by destroying the fence with a skid loader.

Shortly after the destruction of the Grays’ fence, they filed an action in district court for temporary and permanent injunction, claiming trespass and seeking damages for the destruction of the fence, cleanup costs, and the cost to rebuild the fence. Osborn filed a counterclaim for declaratory relief, seeking a judicial declaration of the existence and validity of a fifty-foot, ingress-egress easement over Lot 5. Peek and Thirkettle intervened, claiming an interest in the easement as adjoining landowners. Randall also intervened as a portion of the claimed easement lays on her property directly north of the Grays.

In June 2004, the district court denied the application for a temporary injunction, but ordered Osborn not to expand the spur and ordered that no one exercise additional use of the easement. At trial, the Grays claimed Osborn violated the order by using the easement as a parking lot during his Halloween party and sought monetary damages for this violation. Osborn, in turn, alleged that the Grays constructed a shed on the easement in violation of the court’s order.

The matter came to trial on May 9, 2005. On October 10, 2005, the district court found in favor of Osborn and the other parties aligned with him. According to the district court, the recorded documents demonstrated the existence of an express fifty-foot easement over the northern boundary of the Grays’ lot. The district court further found that the easement was for the benefit of Lots 3 and 4 owned by Peck, Thirkettle, and Osborn in Maple Ridge Estates II. The Grays filed a timely notice of appeal.

We transferred the case to the court of appeals. The court of appeals found that the two filed plats were insufficient to create an easement because they were made at different times and because the language of the second plat cannot be used to create an easement over the Grays’ land. The court of appeals reversed the district court order and remanded the case for consideration of the Grays’ claims for trespass and injunctive relief. We granted further review.

II. Standard of Review.

The parties do not agree on the appropriate standard of review. The Grays contend our review is de novo as the determination of easement rights is equitable. Osborn and aligned parties assert our review is for errors of law. We agree. The original action was filed by the Grays as a “petition at law,” while Osborn counterclaimed for declaratory judgment. Whether a declaratory judgment action is considered legal or equitable in nature is “determined by the pleadings, the relief sought and the nature of each case.” Bjork v. Dairyland Ins., 174 N.W.2d 379, 382 (Iowa 1970). Further, the parties made evidentiary objections during trial, some of which were sustained, which suggests a trial at law. Because we generally hear a case in the same manner in which it was tried to the district court, our review is for errors of law. Johnson v. Kaster, 637 N.W.2d 174, 177 (Iowa 2001). “The trial court’s findings carry the force of a special verdict and are binding on us if supported by substantial evidence. If the findings are ambiguous they will be construed to uphold, not defeat, the judgment.” Id.

III. Discussion.

In their review, the court of appeals addressed the issue of whether two successive plats could be read together to create an express easement. Whether two successively filed documents may be read together to create an easement appears to be a matter of first impression. We believe, however, that there is an antecedent legal question that is wholly dispositive. For the reasons discussed below, we hold that the plat for Maple Ridge Estates I alone creates an express easement across the Grays’ property in favor of Osborn and the aligned parties.

An easement is a restriction on another person’s property rights. Indep. Sch. Dist. of Ionia v. De Wilde, 243 Iowa 685, 692, 53 N.W.2d 256, 261 (1952). Express grant or reservation is one of the ways an easement may be created. Nichols v. City of Evansdale, 687 N.W.2d 562, 568 (Iowa 2004). Because an easement is an interest in real property, any express easement falls within the statute of frauds and must be in writing. See Iowa Code § 622.32 (2007).

An easement created via a plat map is valid under Iowa law. Maddox v. Katzman, 332 N.W.2d 347, 351 (Iowa Ct.App.1982). Today, no magic words or terms of art are necessary to create an easement. In determining the existence of an easement, the intention of the parties is of paramount importance. Restatement (Third) of Property: Intent to Create a Servitude § 2.2 cmt. d (2000).

The recorded plat for Maple Ridge Estates I clearly denotes an intention to create an easement along the northern border of Lot 5. Not only is the easement’s location and dimension specifically delineated, the precise term “EASEMENT” is used. Moreover, the easement’s purpose — ingress and egress — is explicitly noted. See Iowa Code § 354.6(2) (“Easements necessary for the orderly development of the land within the plat shall be shown and the purpose of the easement shall be clearly stated.”). The Grays’ reliance on Maddox’s requirement of a detailed description of the easement’s purpose, therefore, is without merit as ingress egress is sufficiently comprehensive.

Nevertheless, plaintiffs argue that the easement must fail because the plat does not specifically state which property is to be the easement’s dominant estate. Where there is a technical deficiency in a land transaction, however, we have held the ambiguity may be resolved by resorting to the intention of the parties as gleaned from the instrument itself and the surrounding circumstances, including subsequent conduct by the parties. Goss v. Johnson, 243 N.W.2d 590, 595 (Iowa 1976) (citing Flynn v. Michigan-Wisconsin Pipeline Co., 161 N.W.2d 56, 64-65 (Iowa 1968)).

The instrument and the surrounding circumstances clearly show that the property abutting the east end of the easement is the dominant estate. First, the plat states that the easement’s purpose is for ingress and egress and the easement itself connects the eastern property to a public roadway — 59th Street Trail. Thus, on its face, the easement explicitly is designed to provide access to the public highway. This articulated purpose is irreconcilable with the Grays’ claim that Lot 5 serves as both the servient and dominant estate. Lot 5 already has direct access to 59th Street Trail, so it would glean no benefit from the easement. Moreover, as easements are extinguished when the dominant and servient estates merge, it would be both illogical and impossible to create an easement for the benefit of the same land which the easement burdens. The plat’s obvious import, therefore, is that the property to the east of Lot 5, unconnected to the roadway, is the dominant estate.

Second, Randall testified at trial that her purpose in creating an easement on Maple Ridge Estate I plat was to benefit the eastern half of her property. This testimony is consistent with her contemporaneous boundary dispute with the Ricks. Had Randall not prevailed, she would not have had access to her property east of Lot 5.

Third, the plat for Maple Ridge Estates II explicitly points to Lots 3 and 4 as the dominant estates. It may be true, as the Grays claim, that “construing together deeds and mortgages made at different times, by different parties, with different objects, having nothing in common except that they refer to some one or more of adjoining lots with which they are concerned” is ordinarily not sufficient to create an easement. 28A C.J.S. Easements § 57 at 235-38 (2007). In this case, however, both plats were filed by a common owner, Randall, prior to her sale of Lot 5, only a few years apart, and for arguably the same purpose. If nothing else, the second plat evidences Randall’s intent, as subsequent conduct by the parties, to create an easement over Lot 5 for the benefit of her eastern property.

Finally, it is clear that the Grays are chargeable with actual notice of the easement. Stephen Gray testified that at the time of his purchase of Lot 5 he was provided a copy of the plat for Maple Ridge Estates I. He stated that although an easement was clearly visible on the plat, he could not read the words “ingress” and “egress” because their copy was difficult to read. The Grays mistakenly believed that the easement was for utility purposes only. This court held long ago, however, that

[o]ne who purchases land with knowledge of facts as would put a prudent person upon inquiry, which, if prosecuted with ordinary diligence, would lead to actual notice of rights claimed adversely by another, is chargeable with the actual notice he would have received.

Johnson v. Chicago B. & Q. R.R., 202 Iowa 1282, 1288-89, 211 N.W. 842, 846 (1927). At the very least, the plat for Maple Ridge Estates I clearly put the Grays on inquiry notice. Additionally, although Stephen Gray denied Randall’s testimony that she specifically informed him of the easement during their telephone conversation, the fact that the Grays ultimately placed their fence on the southern border of the easement is strongly suggestive of actual knowledge.

Because we hold that the Maple Ridge Estates I plat established an express easement, we need not address the question of whether an express easement is created by two separate documents under the facts and circumstances presented in this case.

IV. Conclusion.

By specifically providing the location, dimension, and purpose of the easement, the plat for Maple Ridge Estates I created an express easement over the plaintiffs’ lot. Any ambiguity, moreover, as to the easement’s dominant estate is resolved by resort to the intention of the parties. Both the instrument itself and the surrounding circumstances support a finding of a valid easement.

DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.


author: /s/ Helen M. Meyer Associate Justice.

text:
    In re Petition for DISCIPLINARY ACTION AGAINST Vang Pao LEE, a Minnesota Attorney, Registration No. 308614.
    No. A07-1902.
    Supreme Court of Minnesota.
    Oct. 17, 2007.
   ORDER

Based upon the application of the Director of the Office of Lawyers Professional Responsibility, pursuant to Rule 12(c)(1), Rules on Lawyers Professional Responsibility, and upon evidence that respondent Vang Pao Lee cannot be found in the state or served personally with the petition for disciplinary action,

IT IS HEREBY ORDERED that respondent Vang Pao Lee is suspended from the practice of law in Minnesota. Within one year from the date of this order, respondent may move for vacation of the order for suspension and for leave to answer the disciplinary petition. Respondent is advised that if he fails to appear in this matter within one year from the date this order is filed, the allegations in the petition for disciplinary action shall be deemed admitted.

BY THE COURT:

/s/ Helen M. Meyer Associate Justice.


author: /s/ Helen M. Meyer Associate Justice

text:
    In re Petition for DISCIPLINARY ACTION AGAINST Timothy Michael BLOCK, a Minnesota Attorney, Registration No. 317950.
    No. A07-1867.
    Supreme Court of Minnesota.
    Oct. 17, 2007.
   ORDER

The Director of the Office of Lawyers Professional Responsibility has filed a petition alleging that respondent Timothy Michael Block committed professional misconduct warranting public discipline, namely, altering client documents and producing them to opposing counsel without disclosing the alterations, in violation of Minn. R. Prof. Conduct 3.4(b) and (c) and 8.4(c) and (d).

Respondent admits his conduct violated the Rules of Professional Conduct, waives his rights under Rule 14, Rules on Lawyers Professional Responsibility (RLPR), and has entered into a stipulation with the Director in which they jointly recommend that the appropriate discipline is a 60-day suspension and that the reinstatement hearing provided for in Rule 18, RLPR, be waived.

The court has independently reviewed the file and approves the jointly recommended disposition.

Based on all the files, records, and proceedings herein,

IT IS HEREBY ORDERED that respondent Timothy Michael Block is suspended from the practice of law for 60 days, effective upon the date of entry of this order. Respondent shall comply with Rule 26, RLPR (requiring notice of suspension to clients, opposing counsel, and tribunals). Within one year from the date of entry of this order, respondent shall successfully complete the professional responsibility portion of the state bar examination. The reinstatement hearing provided for in Rule 18, RLPR, is waived. Respondent shall be reinstated, conditioned on successful completion of the professional responsibility portion of the bar examination, following the expiration of the suspension, provided that at least 15 days before the expiration of the suspension period respondent files with the Clerk of Appellate Courts and the Director’s Office an affidavit establishing that respondent is current with continuing legal education requirements and has fully complied with Rules 24 (requiring payment of costs) and 26, RLPR. Respondent shall pay $900 in costs pursuant to Rule 24(a), RLPR.

BY THE COURT:

/s/ Helen M. Meyer Associate Justice

PAGE, J., took no part in the consideration or decision of this case.


text:
    In re Petition for DISCIPLINARY ACTION AGAINST Laurence B. HUGHES, a Minnesota Attorney, Registration No. 47910.
    No. A07-1854.
    Supreme Court of Minnesota.
    Oct. 17, 2007.
   ORDER

The Director of the Office of Lawyers Professional Responsibility has filed a petition for disciplinary action alleging that respondent Laurence B. Hughes committed professional misconduct warranting public discipline, namely, backdating of a trust document and falsely notarizing the acknowledgment on the trust agreement, in violation of Minn. R. Prof. Conduct 4.1 and 8.4(c).

Respondent admits his conduct violated the Rules of Professional Conduct, waives his rights under Rule 14, Rules on Lawyers Professional Responsibility (RLPR), and has entered into a stipulation with the Director in which they jointly recommend that the appropriate discipline is a 30-day suspension, effective 14 days from the date of entry of this order, with reinstatement by affidavit.

The court has independently reviewed the file and approves the jointly recommended disposition.

Based upon all the files, records, and proceedings herein,

IT IS HEREBY ORDERED that respondent Laurence B. Hughes is suspended from the practice of law for 30 days, effective 14 days from the date of this order. Respondent shall comply with Rule 26, RLPR (requiring notice of suspension to clients, opposing counsel, and tribunals). Respondent shall successfully complete the professional responsibility portion of the state bar examination within one year of the date of entry of this order. The reinstatement hearing provided for in Rule 18, RLPR, is waived. Respondent shall be reinstated to the practice of law, conditional upon successful completion of the professional responsibility examination, following the expiration of the suspension, provided that at least 15 days before the expiration of the suspension respondent files an affidavit with the clerk of appellate courts and the Director’s Office attesting that respondent is current with continuing legal education requirements, has fully complied with Rules 24 (requiring payment of costs) and 26, RLPR. Respondent shall pay $900 in costs pursuant to Rule 24(a), RLPR.

BY THE COURT:

/s/ Helen M. Meyer Associate Justice


author: LANSING, Judge.

text:
    STATE of Minnesota, Respondent v. Michael S. KNOLL, Appellant.
    No. A06-1245.
    Court of Appeals of Minnesota.
    Oct. 16, 2007.

      Lori Swanson, Attorney General, John B. Galus, Assistant Attorney General, St. Paul, MN; and Brian J. Melton, Clay County Attorney, Moorhead, MN, for respondent.
    John Stuart, State Public Defender, Jessica Godes, Assistant Public Defender, Minneapolis, MN, for appellant.
    Considered and decided by KLAPHAKE, Presiding Judge; LANSING, Judge; and PETERSON, Judge.
   OPINION

LANSING, Judge.

In this appeal from conviction of motor-vehicle theft and fifth-degree possession of a controlled substance, Michael Knoll argues that the Clay County District Court improperly denied his evidence-suppression motion and failed to obtain a sufficient waiver of his rights before the case was submitted to the court under the procedure provided in State v. Lothenbach, 296 N.W.2d 854 (Minn.1980). Because Knoll did not waive the rights described in Minn. R.Crim. P. 26.01, subd. 3 (2005), Knoll’s waiver was incomplete, and we reverse and remand.

FACTS

Michael Knoll was arrested in September 2005 and charged with motor-vehicle theft, second-degree driving while impaired, fourth-degree controlled-substance possession, and fifth-degree controlled-substance possession. Knoll moved to suppress all of the evidence collected following his arrest, arguing that he was illegally seized when a Clay County sheriffs deputy detained him while the deputy ran a warrant check without probable cause. The district court agreed that Knoll was unlawfully seized but held that the evidence was admissible under the inevitable-discovery exception to the exclusionary rule.

In light of the suppression ruling, the parties agreed to submit the case to the court under the procedure provided in State v. Lothenbach, 296 N.W.2d 854 (Minn.1980), and to dismiss the fourth-degree controlled-substance charge. On questioning by the court, Knoll waived his right to a jury trial. But nothing in the record indicates that Knoll waived his rights to testify at trial, to confront the witnesses against him, and to subpoena favorable witnesses. The state acknowledges that Knoll’s waiver did not conform to the procedures in Minn. R.Crim. P. 26.01, subd. 3, but asserts that it was nonetheless adequate because the waiver was made personally on the record in open court after being advised of the right to trial and having an opportunity to consult with counsel.

Following submission of the case, the court found Knoll not guilty of second-degree driving while impaired and guilty of motor-vehicle theft and fifth-degree controlled-substance possession. Knoll now appeals.

ISSUE

Does agreement to submit a case for trial under the procedure provided in State v. Lothenbach, 296 N.W.2d 854 (Minn.1980), require that the defendant expressly waive the rights to testify at trial, to have the prosecution witnesses testify in open court in the defendant’s presence, to question these prosecution witnesses, and to require any favorable witnesses to testify for the defense in court?

ANALYSIS

The state and federal constitutions provide a criminal defendant with the right to a jury trial, to testify at trial, to confront the -witnesses against him, and to subpoena favorable witnesses. U.S. Const. amend. VI.; Minn. Const. art. I, § 6. When a defendant waives a jury trial or agrees to a trial on stipulated facts, the Minnesota Rules of Criminal Procedure require that the defendant make an express waiver of specified trial rights. Minn. R.Crim. P. 26.01, subds. 1, 3 (2005). If the district court does not strictly comply with this requirement, the subsequent conviction must be reversed. State v. Halseth, 653 N.W.2d 782, 786-87 (Minn.App.2002) (granting new trial when defendant failed to provide express waiver before trial on stipulated facts); State v. Sandmoen, 390 N.W.2d 419, 423-24 (Minn.App.1986) (noting that waiver requirements in Minn. R.Crim. P. 26.01, subd. 1, should be strictly construed).

Knoll agreed to a trial conducted under the procedure established in State v. Lothenbach, 296 N.W.2d 854 (Minn.1980). He expressly waived his right to a jury trial, but he did not waive his rights to testify, to confront the witnesses against him, and to subpoena favorable witnesses. The state argues that, because a Lothenbach trial is not a stipulated-facts trial, Minn. R.Crim. P. 26.01, subd. 3, does not apply and Knoll was not required to provide an express waiver of those rights.

The state is correct that a Lothenbach trial is not identical to a standard stipulated-facts trial. In Lothenbach, the supreme court held that Minnesota does not permit conditional guilty pleas, but the court sanctioned a procedure whereby a defendant pleads not guilty, waives his right to a jury trial, and stipulates to the facts in the prosecutor’s case. 296 N.W.2d at 857-58. This procedure allows a defendant to appeal a pretrial issue when the material facts are not disputed. State v. Verschelde, 595 N.W.2d 192, 194-95 (Minn.1999). In a Lothenbach trial, unlike a standard stipulated-facts trial, the appeal is limited to pretrial issues. State v. Mahr, 701 N.W.2d 286, 291 (Minn.App.2005), review denied (Minn. Oct. 26, 2005). Thus, the defendant in a Lothenbach trial cannot challenge the sufficiency of the evidence. State v. Riley, 667 N.W.2d 153, 157-58 (Minn.App.2003), review denied (Minn. Oct. 21, 2003).

Although not the standard form, Lothenbach trials are a type of stipulated-facts trial. Consistent with the standard form, Lothenbach requires that the defendant waive his trial rights and agree not to challenge the evidence. Because this central structure characterizes both, we conclude that the “stipulated facts” language in Minn. R.Crim. P. 26.01, subd. 3 (2005), refers to both Lothenbach trials and stipulated-facts trials. This conclusion is consistent with the comments to rule 26, subdivision 3, which specifically refer to the Lothenbach decision. Minn. R.Crim. P. 26.01 cmt. (2005). The defendant’s trial rights are no less important in a Lothenbach trial than in a stipulated-facts trial. Significantly, the Lothenbach procedure is more comparable to a guilty-plea procedure than the standard stipulated-facts trial. This similarity weighs in favor of a more rigorous waiver requirement. Therefore, we conclude that under Minn. R.Crim. P. 26.01, subd. 3, a defendant who agrees to a Lothenbach trial must expressly waive the rights to testify at trial, to have the prosecution witnesses testify in open court in the defendant’s presence, to question these prosecution witnesses, and to require any favorable witnesses to testify for the defense in court.

Knoll agreed to a Lothenbach trial, but he did not expressly waive his rights to testify at trial, to confront the witnesses against him, and to subpoena favorable witnesses. Because strict compliance is required, Knoll’s conviction must be reversed.

A 2007 amendment to the rules of criminal procedure specifically incorporates the full-waiver requirement. The procedure for Lothenbach trials is now directly addressed in Minn. R.Crim. P. 26.01, subd. 4 (2007). The rule makes clear that the defendant in a Lothenbach trial “shall waive the right to a jury trial under Rule 26.01, subdivision l(2)(a), and shall also waive the rights specified in Rule 26.01, subdivision 3.” Thus, in future cases, the rule leaves no question that a defendant agreeing to a Lothenbach trial must provide an express waiver of the rights to a jury trial, to testify at trial, to have the prosecution witnesses testify in open court in the defendant’s presence, to question these prosecution witnesses, and to require any favorable witnesses to testify for the defense in court.

Because Knoll’s conviction must be reversed based on his failure to waive those rights, the pretrial issues are not properly before this court. On remand, the defendant may proceed to a jury trial or provide an express waiver of his rights.

DECISION

A defendant who agrees to a Lothenbach trial must expressly waive the rights to testify at trial, to have the prosecution witnesses testify in open court in the defendant’s presence, to question these prosecution witnesses, and to require any favorable witnesses to testify for the defense in court. Knoll did not waive those rights. Because strict compliance is required, Knoll’s convictions are reversed and the case is remanded.

Reversed and remanded.