#28024-aff in part & rev in part-DG
2017 S.D. 80
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
VARNER BEALS, Plaintiff and Appellant,
v.
AUTOTRAC, INC., Defendant and Appellee.
****
APPEAL FROM THE CIRCUIT COURT OF
THE SIXTH JUDICIAL CIRCUIT
GREGORY COUNTY, SOUTH DAKOTA
****
THE HONORABLE JOHN L. BROWN
Judge
****
BRAD A. SCHREIBER
Pierre, South Dakota Attorney for plaintiff and
appellant.
PAMELA R. REITER
RONALD A. PARSONS JR. of
Johnson, Janklow, Abdallah,
Reiter & Parsons LLP
Sioux Falls, South Dakota Attorneys for defendant and
appellee.
****
CONSIDERED ON BRIEFS
ON AUGUST 28, 2017
OPINION FILED 11/21/17
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GILBERTSON, Chief Justice
[¶1.] Varner Z. Beals appeals the circuit court’s grant of summary judgment
in favor of AutoTrac Inc. on Beals’s claims of deceit, fraud, and undue influence.
Beals argues there are genuine disputes of material fact that preclude summary
judgment. We affirm in part, reverse in part, and remand.
Facts and Procedural History
[¶2.] AutoTrac Inc. is a manufacturing company located in Fairfax, South
Dakota. John Parsons founded AutoTrac as a sole proprietorship focused on
automotive and farm-equipment repair. After Parsons’s cousin Dennis Howard
became involved in the company, AutoTrac’s focus shifted to manufacturing. In
2008, AutoTrac was incorporated as a subchapter S corporation. Howard serves as
AutoTrac’s president and chief executive officer. Currently, the company has four
full-time employees.
[¶3.] After incorporation, AutoTrac devised a plan to diversify and expand
its operations. AutoTrac’s banker advised that such a plan required $500,000 in
capital investments. On February 3, 2012, AutoTrac’s board of directors passed a
resolution authorizing the creation and sale of 200 shares of Class A stock at $2,500
per share. Parsons and Howard began looking for potential investors.
[¶4.] At the time of briefing, Varner Beals was an 83-year-old resident of
Fairfax. Beals began consulting with a physician in 2008 for memory loss and was
eventually diagnosed with a type of dementia. Even so, Beals lived alone and
managed his own financial affairs. Beals also owned and operated a successful bee
business, collecting and selling honey and related products, which he sold in 2014.
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Parsons had previously transported Beals’s product to customers in Iowa.
Sometime after the February 3 meeting of AutoTrac’s board of directors, Parsons
and Beals met to discuss the possibility of Beals investing in AutoTrac. At some
point following the meeting, Beals began paying money to AutoTrac. By January
2013, Beals had paid $100,000 to AutoTrac.
[¶5.] On February 8, 2013, Beals signed an agreement with AutoTrac,
promising to purchase 200 shares of Class A stock for $500,000. The agreement
acknowledged Beals’s previous $100,000 contribution and required two additional
payments of $200,000 each. The first $200,000 payment was due by March 30,
2013. Under the agreement, AutoTrac was required to use Beals’s money only “for
the construction of an expansion to the existing facility and the acquisition of
capital equipment to do more/bigger work available from existing AutoTrac, Inc.
customers.” The agreement specifically prohibited AutoTrac from using Beals’s
money to pay existing debts. Finally, the agreement provided:
Until all financial commitments by Mr. Beals . . . have been
satisfied, AutoTrac, Inc. will consider Mr. Beals’ investment(s)
as intended for the purchase of a lesser class of AutoTrac, Inc.
stock (i.e., NOT Class A stock) with proportionally lesser rights
and privileges. The precise definition of said lesser rights and
privileges to be determined by the Board Of Directors and
assigned, in part, by Mr. Beals’ total investment sum.
[¶6.] On February 10, 2013, AutoTrac’s board of directors passed another
resolution that recognized the signed agreement with Beals. Because Beals agreed
to pay the $500,000 in installments, the resolution modified the February 3, 2012
resolution, prohibiting the issuance of any stock “until all of the terms of the
Working Agreement have been satisfied.” AutoTrac’s board also authorized hiring
an attorney to assist “in drafting the language for the SD Secretary of State filing,
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and amendments to all the necessary formal documents, in order that there be no
delay in executing corporate responsibilities for the issuance of stock through the
Working Agreement with Varner Z. Beals.”
[¶7.] During the February 10, 2013 meeting, AutoTrac’s board also
instructed Parsons and Howard to develop a plan “for facility expansion and capital
equipment purchase, working to a budget of $500,000.” The board required the
plan to “include all planned expenses, and an expense timeline scheduled to match
receipt of contributions from Varner Z. Beals based on the dates in the Working
Agreement.” One of Parsons and Howard’s first objectives was to expand
AutoTrac’s facilities. In furtherance of this objective, Parsons and Beals visited an
existing facility in Howard, South Dakota, that was owned by the State. AutoTrac
made an offer to purchase the property, but the State rejected the offer.
[¶8.] In the meantime, two of Beals’s sons, Jim and Rob, learned of their
father’s relationship with AutoTrac. While Jim was visiting South Dakota, he
visited AutoTrac and informed Parsons that AutoTrac would not receive any
additional money from Beals. In addition to the initial $100,000, Beals had paid
another $100,000 toward the $200,000 due by the March 30, 2013 deadline. On
January 11, 2014, AutoTrac’s board of directors met to address Beals’s failure to
meet the March 30, 2013 payment deadline. The board decided that in light of
receiving only $200,000 from Beals instead of $500,000, it would “scale down the
plan for facility expansion and capital equipment purchase not-to-exceed a total of
$180,000, making no further commitments to contractors and/or vendors, until such
time as Varner Z. Beals continued contribution intentions are known.”
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[¶9.] On February 9, 2015, Jim Beals, acting under power of attorney, filed a
complaint on Beals’s behalf against AutoTrac, alleging numerous claims relating to
the agreement entered into by Beals and AutoTrac. While Beals claims he does not
remember signing the agreement, he acknowledges that his signature is on it. The
complaint primarily alleged that Beals had been deceived into giving money to
AutoTrac. On February 14, AutoTrac’s board of directors met to address the
lawsuit. The board viewed Beals’s lawsuit as a definitive signal of his intention to
repudiate the agreement. Pursuant to the agreement with Beals, the board passed
a resolution that required AutoTrac to immediately amend its articles of
incorporation to create Class B shares of stock and to issue 80 such shares to Beals.
[¶10.] On July 22, 2016, AutoTrac filed a motion for summary judgment.
After a hearing on September 14, the circuit court granted the motion on
September 28. Beals appeals, raising the following issues:
1. Whether the circuit court erred by granting summary
judgment on Beals’s claim of deceit.
2. Whether the circuit court erred by granting summary
judgment on Beals’s claim of fraud.
3. Whether the circuit court erred by granting summary
judgment on Beals’s claim of undue influence. 1
Standard of Review
[¶11.] Summary judgment is appropriate “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if
1. Beals states the issues as claims of deceit, rescission, and fraud. However,
rescission is a remedy—not a cause of action—available in contract cases
involving duress, fraud, or undue influence (among other occurrences).
SDCL 53-11-2. The issues stated here reflect the substance of Beals’s
arguments.
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any, show that there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” SDCL 15-6-56(c). “We view the
evidence ‘most favorably to the nonmoving party and resolve reasonable doubts
against the moving party. If there exists any basis which supports the ruling of the
[circuit] court, affirmance of a summary judgment is proper.’” Gades v. Meyer
Modernizing Co., 2015 S.D. 42, ¶ 7, 865 N.W.2d 155, 158 (citation omitted) (quoting
Peters v. Great W. Bank, Inc., 2015 S.D. 4, ¶ 5, 859 N.W.2d 618, 621).
Analysis and Decision
[¶12.] Beals argues the circuit court erred in entering summary judgment on
his tort claim of deceit and his contract claims of fraud and undue influence. Beals
contends Parsons deceived him by exaggerating the financial status and viability of
AutoTrac. He also asserts that AutoTrac owed $100,000 and that Parsons and
Howard’s failure to disclose that fact was fraudulent. 2 Finally, Beals asserts that
he suffers from dementia, that Parsons was aware of his affliction, and that Parsons
nevertheless persisted in soliciting money for AutoTrac. Because Beals has the
burden of proof as to each element of his stated causes of action, the failure to
establish a genuine dispute of material fact as to a single required element means
summary judgment was appropriate as to that claim.
2. AutoTrac points out that Beals did not plead in his complaint that Parsons
exaggerated AutoTrac’s financial condition or that Howard failed to disclose
an alleged debt. In Beals’s complaint, the basis for his deceit and fraud
claims was his allegation that at the time he signed the agreement with
AutoTrac, Class B stock did not exist. Because we are unpersuaded by the
argument Beals raises on appeal anyway, we do not address this issue.
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[¶13.] 1. Whether the circuit court erred by granting
summary judgment on Beals’s claim of deceit.
[¶14.] Beals argues Parsons deceived him by exaggerating the financial
status and viability of AutoTrac. The tort of deceit is established in SDCL
chapter 20-10. “One who willfully deceives another, with intent to induce him to
alter his position to his injury or risk, is liable for any damage which he thereby
suffers.” SDCL 20-10-1.
A deceit within the meaning of § 20-10-1 is either:
(1) The suggestion, as a fact, of that which is not true, by one
who does not believe it to be true;
(2) The assertion, as a fact, of that which is not true, by one
who has no reasonable ground for believing it to be true;
(3) The suppression of a fact by one who is bound to disclose
it, or who gives information of other facts which are likely
to mislead for want of communication of that fact; or
(4) A promise made without any intention of performing.
SDCL 20-10-2. In his initial brief to this Court, Beals generally cites to SDCL 20-
10-2 but does not specify which subdivision he thinks supports his argument. In his
reply brief, however, he specifically points to SDCL 20-10-2(1).
[¶15.] Summary judgment on Beals’s deceit claim was appropriate under
SDCL 20-10-2(1). The word suggestion means: “An indirect presentation of an
idea.” Black’s Law Dictionary (10th ed. 2014). In order to qualify as deceit, this
idea must be held out as “[s]omething that actually exists[,]” Fact, Black’s Law
Dictionary (10th ed. 2014), even though the idea is false and the person making the
suggestion believes the idea to be false. In other words, SDCL 20-10-2(1)
contemplates the indirect presentation of a false idea as true by one who believes
the idea to be false. When pleading a claim of deceit under SDCL 20-10-2(1), then,
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the first step must be to specify the idea at issue. “[W]hen challenging a summary
judgment, the nonmoving party must substantiate his allegations with sufficient
probative evidence that would permit a finding in his favor on more than mere
speculation, conjecture, or fantasy.” Peters, 2015 S.D. 4, ¶ 13, 859 N.W.2d at 624
(quoting Estate of Elliott ex rel. Elliott v. A & B Welding Supply Co., 1999 S.D. 57,
¶ 16, 594 N.W.2d 707, 710). Here, Beals’s conclusion that Parsons “exaggerated” is
not supported by specific, factual allegations that would permit a jury to infer the
same without resort to speculation.
[¶16.] Moreover, Beals’s own testimony precludes him from ultimately
prevailing on his deceit claim. Beals testified in his deposition as follows:
[AutoTrac’s Attorney]: Do you think that [Parsons] lied to
you in getting you to make investments in AutoTrac?
[Beals]: No, I don’t think he lied; but he just exaggerated.
[AutoTrac’s Attorney]: Okay.
[Beals]: Made things look like it was going to be a lot better
than what it was. And I think he was sincere about it, but he
was wrong.
[AutoTrac’s Attorney]: So he was being optimistic about the
future—
[Beals]: Yes. Yeah.
[AutoTrac’s Attorney]: —but in your opinion, he just wasn’t—
he just didn’t know what he was talking about? Or do you think
he meant to lie to you?
[Beals]: I think a lot of it was the companies he was dealing
with did a lot of exaggerating, too.
....
[AutoTrac’s Attorney]: Okay. So you thought [Parsons] was
being sincere with you?
[Beals]: Yeah . . . .
....
[Parsons] didn’t lie to me, no.
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[AutoTrac’s Attorney]: Okay. All right. So let’s—
[Beals]: Some of the stuff didn’t work out like he thought, but
no.
[AutoTrac’s Attorney]: And that happens sometimes. Right?
[Beals]: Yeah.
Thus, even if Beals is correct that the unspecified, suggested financial forecast of
AutoTrac was false, Beals’s deposition testimony indicates that Parsons sincerely
believed it was true. Beals “cannot now rely on a better version of the facts than the
one he adhered to during his own deposition testimony.” Guilford v. Nw. Pub. Serv.,
1998 S.D. 71, ¶ 12, 581 N.W.2d 178, 181. Therefore, Beals’s own deposition
testimony necessarily defeats his deceit claim.
[¶17.] Because Beals is the plaintiff and has the burden of proof as to each
element of his deceit claim, each of the foregoing points of analysis is singularly
sufficient to affirm summary judgment on Beals’s deceit claim. Beals’s conclusory
allegation that Parsons exaggerated is not supported by specific, factual assertions.
Even if it were, Beals admitted that Parsons sincerely believed the suggestion at
issue. Therefore, summary judgment was appropriate on Beals’s deceit claim.
[¶18.] 2. Whether the circuit court erred by granting
summary judgment on Beals’s claim of fraud.
[¶19.] Next, Beals argues AutoTrac committed fraud by failing to disclose an
alleged debt of $100,000. 3 An action for fraud is established in SDCL chapter 53-4.
Actual fraud in relation to contracts consists of any of the
following acts committed by a party to the contract, or with his
3. Beals also repeats his argument regarding Parsons’s alleged exaggeration of
AutoTrac’s financial condition, claiming such also amounts to fraud. Because
the text of SDCL 20-10-2(1) is virtually identical to the text of SDCL 53-4-
5(1), Beals’s fraud claim regarding Parsons fails for the same reasons
discussed above.
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connivance, with intent to deceive another party thereto or to
induce him to enter into the contract:
(1) The suggestion as a fact of that which is not true by one
who does not believe it to be true;
(2) The positive assertion, in a manner not warranted by the
information of the person making it, of that which is not
true, though he believe it to be true;
(3) The suppression of that which is true by one having
knowledge or belief of the fact;
(4) A promise made without any intention of performing it; or
(5) Any other act fitted to deceive.
Actual fraud is always a question of fact.
SDCL 53-4-5. 4 Beals does not specify which subdivision applies to his argument,
but his suggestion that AutoTrac should have disclosed an alleged debt implicates
SDCL 53-4-5(3) (suppression of a fact).
[¶20.] Summary judgment was appropriate on Beals’s fraud claim. Similar to
his deceit claim, Beals fails to assert specific facts supporting his conclusory
allegation that AutoTrac failed to disclose a debt. Even if we assume that Beals’s
conclusory allegation is correct, “this Court has never imposed a duty to disclose
information on parties to an arm’s-length business transaction, absent an
employment or fiduciary relationship.” Schwartz v. Morgan, 2009 S.D. 110, ¶ 12,
776 N.W.2d 827, 831 (quoting Taggart v. Ford Motor Credit Co., 462 N.W.2d 493,
499 (S.D. 1990)). Moreover, failing to disclose a fact is not the same as suppressing
a fact. The word suppress means “[t]o put a stop to, put down, or prohibit; to
prevent (something) from being seen, heard, known, or discussed.” Black’s Law
Dictionary (10th ed. 2014). Thus, the word suppression implies an active effort to
4. “Fraud is either actual or constructive.” SDCL 53-4-4. Beals does not argue
AutoTrac’s conduct amounts to constructive fraud, which is defined under
SDCL 53-4-6.
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conceal information rather than simply failing to disclose information another
person might find interesting. Beals does not cite to any relevant portion of the
record indicating that he asked for details of AutoTrac’s existing debts, let alone
that AutoTrac suppressed such information. In the absence of such assertions,
AutoTrac was entitled to summary judgment on this claim.
[¶21.] 3. Whether the circuit court erred by granting
summary judgment on Beals’s claim of undue
influence.
[¶22.] Finally, Beals argues Parsons took advantage of his age and medical
condition in convincing Beals to invest in AutoTrac.
Undue influence consists:
(1) In the use, by one in whom a confidence is reposed by
another, or who holds a real or apparent authority over
him, of such confidence or authority for the purpose of
obtaining an unfair advantage over him; or
(2) In taking an unfair advantage of another’s weakness of
mind; or
(3) In taking a grossly oppressive and unfair advantage of
another’s necessities or distress.
SDCL 53-4-7. In particular, Beals contends SDCL 53-4-7(2) applies.
[¶23.] Summary judgment was not appropriate on Beals’s undue-influence
claim. As noted above, undue influence occurs when one party to a contract takes
“advantage of another’s weakness of mind” in inducing him to enter into the
contract. SDCL 53-4-7(2). AutoTrac asserts that “[n]either Parsons nor Howard
had any idea that [Beals], who was running a successful business, had any health
issues at all.” However, Beals asserts he was suffering the effects of dementia as
early as 2008. Beals’s son, Rob, testified in his deposition that during a phone
conservation with Parsons, he said: “Dad’s not all there, and you need to go through
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me before you go through Dad . . . .” (Emphasis added.) Thus, in his initial brief to
this Court, Beals asserts: “Parsons knew that [Beals] was elderly and unable to take
care of himself when [Parsons] approached [Beals] about the need for money.”
Considered in a light most favorable to Beals, these factual assertions raise a
genuine dispute of material fact as to whether Beals had a “weakness of mind” that
Parsons exploited. The circuit court erred by granting summary judgment on
Beals’s undue-influence claim.
Conclusion
[¶24.] Beals failed to establish a genuine dispute of material fact in regard to
his tort claim of deceit and his contract claim of fraud. However, there is a genuine,
factual dispute regarding whether Parsons took unfair advantage of Beals’s
dementia in convincing him to invest in AutoTrac. Therefore, we affirm the circuit
court’s grant of summary judgment in regard to Beals’s tort claim of deceit and his
contract claim of fraud. We reverse the court’s grant of summary judgment on
Beals’s contract claim of undue influence, and we remand.
[¶25.] ZINTER, SEVERSON, and KERN, Justices, and WILBUR, Retired
Justice, concur.
[¶26.] JENSEN, Justice, not having been a member of the Court at the time
this action was submitted to the Court, did not participate.
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