Casper Lodging, LLC v. Akers ( 2015 )

#27074-aff in pt, rev in pt & rem-JMK
2015 S.D. 80
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
CASPER LODGING, LLC, Plaintiff and Appellee,
v.
ROBERT W. AKERS, Defendant, Third-Party
Plaintiff and Appellant,
v.
ZAKCO COMMERCIAL
CONSULTANTS, INC.,
ABEL DELGADO, DONALD E. DELZER,
DUSTY GRAY, KYLE HAGEN,
PAUL LANDE, JR., JAMES C. HOYT,
KEN PREISLER, SANDRA PREISLER,
JOA SASSER, DEAN SHOELL,
ANGIE SHOELL, BINSWANGER
ENTERPRISES, LLC, MCCALL
POOLS, INC., MOORE
INSULATION, INC. and SHEET
METAL SPECIALTIES, INC., Third-Party Defendants.
****
APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA
****
THE HONORABLE WALLY EKLUND
Judge
****
ARGUED ON MARCH 24, 2015
OPINION FILED 10/28/15
GREGORY J. ERLANDSON
SARAH E. BARON HOUY
TERRY L. HOFER of
Bangs, McCullen, Butler,
Foye & Simmons, LLP
Rapid City, South Dakota Attorneys for plaintiff
and appellee.
MITCHELL PETERSON
ANTHONY M. HOHN of
Davenport, Evans, Hurwitz
& Smith, LLP
Sioux Falls, South Dakota Attorneys for defendant, third-
party plaintiff and appellant.
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KERN, Justice
[¶1.] In this breach of contract case, the jury found in favor of Casper
Lodging, LLC, concluding that Robert Akers failed to deliver to James Koehler a
Holiday Inn Express in compliance with the parties’ agreements. The jury awarded
Casper Lodging $1,019,468.74. Prior to the verdict, the parties had stipulated that
the circuit court would determine the date on which prejudgment interest would
begin to accrue if there was a plaintiff’s verdict. Upon receipt of the verdict, the
court declared that prejudgment interest accrued, as a matter of law, from the date
of the delivery of the completed Hotel and awarded plaintiff $997,682.83 in
prejudgment interest. The court further awarded plaintiff post-judgment interest
on the combined sum of the jury verdict and the prejudgment interest calculation.
In multiple post-trial motions, Akers asserted that the circuit court made erroneous
evidentiary rulings and failed to correctly instruct the jury. Akers claimed that the
errors warranted reversal of the jury’s verdict and a new trial. The court denied
Akers’s motions and Akers appeals. We reverse the circuit court’s calculation of
prejudgment interest and remand for the court to make a factual determination as
to the date the loss on which prejudgment interest shall begin to accrue. We affirm
on all remaining issues.
BACKGROUND
[¶2.] On October 15, 2003, Robert Akers agreed to sell to James Koehler a
“turn key Eighty-Four (84) unit Holiday Inn Express” in Casper, Wyoming. The
purchase price was set at $4,850,400. The hotel was not yet built; therefore, the
parties executed a contract entitled “Improvement Purchase Agreement”
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(Agreement). The Agreement “set forth the terms and conditions under which
[Akers] agree[d] to sell to [Koehler] the improvements [Akers] is constructing[.]” In
particular, Akers was to build the improvements “pursuant to the plans and
specifications prepared by Associated Architects, Ltd. . . . and the improvements”
were to be “constructed by Zakco Commercial Consultants, Inc.,” the general
contractor.
[¶3.] The Agreement contained eight conditions precedent, “any of which
may be waived by the buyer at any time[.]” One condition provided that Akers
“must complete the construction of the improvements in a manner acceptable to
[Koehler] in [Koehler’s] reasonably exercised judgment.” Another condition
required Akers to “complete the construction of the improvements in compliance
with all city, county, state, and federal government requirements; government
approvals, if any, shall be provided to [Koehler] prior to closing.” Koehler was
required, “[o]n a date prior to closing,” to obtain “the approval from the Holiday Inn
Express system that the Hotel complies with all systems requirements and can be
opened for business.”
[¶4.] The Agreement identified that Akers and Koehler “have been
negotiating this agreement for at least six months.” The estimated completion date
was set at the “end of 2003 of [sic] the beginning of 2004.” Koehler had a right to
monitor the construction of the Hotel, but could “not make changes to any of
[Akers’s] contracts unless the terms and conditions of this agreement [were]
complied with.” Akers represented to Koehler that “he will transfer all warranties
that are transferable by [him] to [Koehler] at closing[.]”
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[¶5.] On January 16, 2004, Akers and Koehler executed an Addendum to the
Agreement. The Addendum accelerated the purchase date to facilitate Koehler’s
involvement in a 1031 tax-free exchange, with which Akers had previously agreed
to cooperate. The Addendum acknowledged that construction of the Hotel “will not
be completed in January, 2004, and it is not known when the [Hotel] will be
completed,” and Koehler “must close the transaction, before the completion of the
Improvements[.]” The parties incorporated the Addendum into the Agreement and
provided that Akers “shall have a continuing obligation to construct and finish the
Improvements in accordance with all governmental requirements and the standards
and specifications of the Holiday Inn Express system.”
[¶6.] On February 5, 2004, Akers and Koehler closed on the sale and, on
March 11, 2004, Koehler opened the Hotel. Koehler assigned his rights under the
agreements to Casper Lodging, LLC, and Casper Lodging entered into a
management agreement with The Koehler Organization (TKO) to staff, operate, and
maintain the Hotel. Almost immediately after opening the Hotel, guests began
complaining about the noise level from accompanying rooms, and Casper noticed
issues with sound proofing. Koehler claimed that he informed Akers of the sound
issue, to no avail. Ultimately, TKO hired Ernie Cuthbertson to facilitate the repair
of the sound issue, which involved taking off sheetrock throughout the rooms and
ceilings and installing soundboard. Casper also claimed that within the first six
months it began to notice problems with water penetrating the Hotel’s exterior.
Casper addressed the problems in-house by replacing moist sheetrock, repainting
walls, and applying caulk to some windows.
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[¶7.] Although the sound issue was remedied, Casper claimed that problems
persisted with the poolroom and with water penetration in the guest rooms. In
2007, TKO hired John Farr of Wiss, Janney, Elstner Associates, Inc. to inspect the
poolroom and issue a report. Farr issued his report in late 2007. No formal steps
were taken by Casper as a result of Farr’s report, although Koehler testified that he
was in constant contact with Akers about the problems. Casper continued to
address the problems in-house by using its maintenance staff to make repairs.
Casper also hired certain outside professionals to assist.
[¶8.] In 2009, Koehler contacted Wendell Potratz of Pro Group to renovate
the Hotel’s lighting and color in order to make the Hotel match the current Holiday
Inn Express aesthetics. Casper also directed Potratz to address the moisture issues
in the poolroom. Potratz was aware that Farr issued a report in 2007 concerning
the poolroom. Potratz enlisted the help of Farr to assess the current state of the
poolroom. Potratz’s original contract covered renovating the Hotel and repairing
the issues in the poolroom. However, Potratz amended that contract after the
project started because he and his team noticed additional concerns throughout the
Hotel. Ultimately, Potratz’s contract price for the upgrade and repairs was
$1,133,913.30, of which he related $802,383 to problems with the building’s original
construction. The repairs, renovations, and upgrades were accomplished between
2009 and 2010.
[¶9.] In October 2009, Casper brought suit against Akers for breach of
contract. Casper alleged that Akers failed to provide an 84-unit turn-key Holiday
Inn Express that met all city, county, state, and federal government requirements.
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Casper further claimed that Akers failed to build the Hotel in compliance with the
controlling plans and specifications. Akers answered the complaint and asserted
the affirmative defenses of failure to mitigate damages and waiver. After extensive
discovery between the parties, Akers moved the circuit court to amend his answer to
assert a third-party complaint against multiple subcontractors. The circuit court
granted the motion over Casper’s objection, and Akers named fifteen additional
parties. The parties stipulated to a trial date of August 2012, which was continued
to February 2013, and continued again to December 2013, constituting a delay of
sixteen months.
[¶10.] On July 23, 2013, five months prior to trial, Akers again moved the
circuit court to amend his third-party complaint to add a claim against TKO and
asked that TKO be joined as an indispensable party under SDCL 15-6-19(a). The
court denied Akers’s motions. Ultimately, Akers settled his claims against certain
third-party contractors and his claim against the general contractor was bifurcated.
[¶11.] A ten-day jury trial on Casper’s claim against Akers was held in
December 2013. Koehler and Akers testified about the Agreement and Addendum.
Koehler described the extensive construction defects in the building and what
actions he took to remedy the problems. Koehler also testified about his efforts to
exercise any alleged warranty rights. James Hopkins, the maintenance person
employed by the Hotel, testified about the actions he and Casper took to address the
poolroom problems. Tom Pogroszewski, the Hotel supervisor, reiterated the
measures Hopkins and Casper took to remedy the problems with the Hotel. Doug
Vogt, the general manager for TKO, testified that TKO hired Ernie Cuthbertson to
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repair the sound issues, at a cost between $200,000 and $250,000. Vogt also
testified that, although Farr was hired in 2007 to evaluate the poolroom problems,
TKO and Casper did not act on that report.
[¶12.] Both parties presented expert testimony about the condition of the
Hotel on the date Koehler took possession, identifying the problems that occurred
and the cause of the defects. Dave Stafford, an architect and expert for Casper,
testified about the plans and specifications governing the construction of the Hotel
under the parties’ Agreement and Addendum. He opined that the plans and
specifications did not properly provide that the wall and floor assembly must meet a
certain soundness level.
[¶13.] Ryan Pace was in charge of the day-to-day repairs and renovations
undertaken by Potratz, which took nearly a year to complete. He testified in detail
about the problems he observed, the reasons for them, and the steps taken to rectify
the damage. Pace explained that in order to make the repairs, it was necessary to
remove the exterior stucco on portions of the building and strip it down to the
oriented standard boards (OSB). The OSB are a veneered waferboard similar to
sheets of plywood. He described problems including: the insulation and studs were
damaged in the poolroom due to moisture, 90% of the walls did not have the
required vapor barrier to prevent moisture from the outside getting to the inside,
some of the anchor bolts were deficient, all of the air conditioning units were
installed without caulk or seal, and the studs had a lot of “mis-nails.” Pace testified
that in order to properly secure the structure it took two laborers three full days
and 25,000 additional nails to re-nail the exterior of the building. He further
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indicated that the doors and windows were installed without the necessary flashing
or weatherproofing barriers, which caused water penetration problems throughout
the Hotel. He testified that to renovate the poolroom, they had to replace certain
windows, repair the ceiling, and increase the air handler in the poolroom to reduce
condensation. Additionally, he testified that portions of the roof were too short and
the entire roof needed a new drip edge and ice and water shield.
[¶14.] Trent Nelson, a structural engineer hired by Potratz to conduct a site
inspection of the building, opined that the building did not comply with the 1997
Uniform Building Code. Specifically, he testified that the structure of the building
was lost and was not to code because the studs rotted in response to moisture. He
further opined (over Akers’s objection) that the building was structurally unsafe at
the time of construction. Nelson based this opinion in part on Pace’s previous
testimony that 25,000 additional nails had to be used to ensure a proper nailing
pattern. Nelson also explained that the poolroom should have contained shear
walls made up of “studs, properly attached sheathing, and anchors[,]” and that all
three must be properly installed to make the structure sound. He testified that the
OSB were not properly fastened to the wall by mechanical anchors or hold-downs.
Because the OSB were not properly fastened, Nelson opined that the “portion of the
intended shear wall in that pool structure” was rendered “useless” and unsafe. He
also observed that the exterior grade in front of the building at ground level was
about a foot higher than the floor inside. He attributed this to the fact that “there
may have been some cultured stone or stucco on the outside” and “typical wood stud
framing, non-treated lumber, OSB sheathing” on the inside. According to Nelson,
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“code requires that any untreated wood needs to be a minimum of 6 inches above
the exterior finish grade.” Because “non-treated wood noncompliant with the code
had been placed below grade basically along” the front portion of the Hotel, Nelson
opined that “over time [it] would likely deteriorate.”
[¶15.] Akers moved for a mistrial after the cross-examination of Nelson,
asserting that Nelson testified to a previously undisclosed expert opinion and that
Nelson’s testimony prejudiced Akers. On cross-examination, Nelson admitted that
his opinion that the building was unsound from day one was made for the first time
at trial and was formed in response to Pace’s trial testimony that the nailing
pattern was inadequate. The court, disturbed by the new opinion, took a short
break to consider the motion for a mistrial. Akers then requested that the court
strike Nelson’s testimony and admonish the jury. The court granted Akers’s
request and admonished the jury immediately after the break. The court had also
directed Akers that it would admonish the jury again at the end of trial. (At the end
of trial, Akers did not request the second admonishment and none was given.)
[¶16.] Loren Schoeneman testified next. Potratz had hired Schoeneman to
address the dehumidification issues in the poolroom. Schoeneman, a mechanical
engineer, testified that the dehumidification system was deficient and any improper
or inadequate maintenance measures taken by Casper were immaterial. He then
explained the reasons for his opinion and what actions were needed to rectify the
problem.
[¶17.] Potratz, as the person hired to oversee the renovations and repairs,
testified about the scope of the repairs undertaken. He explained that he assessed
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the needed repairs against code requirements and concluded that the Hotel was not
delivered to Koehler in accordance with the required plans and specifications. He
also testified to each expense incurred in relation to the type of repair necessary and
used as a reference Casper’s damages summary prepared pursuant to now-
renumbered SDCL 19-19-1006 (Rule 1006). 1 He opined that $1,019,468.74 was a
reasonable and necessary amount to fix the Hotel’s problems.
[¶18.] In response to Potratz’s opinion regarding damages, Akers sought to
admit the rebuttal opinion of its expert Merl Potter. Potter is a construction
manager and had given two depositions in preparation for the case. Prior to
Potter’s testimony at trial, Casper moved in limine to prevent Potter from testifying
specifically in regard to Casper’s Rule 1006 damages summary. Casper argued that
Potter did not, in either deposition, express an opinion related to Casper’s specific
damages and, therefore, any opinion by Potter on Casper’s damages would be new
and previously undisclosed. Akers responded that he had previously identified
Potter as an expert on damages. He further claimed that Potter’s testimony was
not a new opinion, but instead, was to be given in rebuttal to the testimony of
Potratz. Akers further claimed that Casper only recently issued its Rule 1006
damages summary. The court indicated it would reserve its ruling; however, during
Potter’s testimony the court prevented Potter from testifying specifically to Casper’s
claimed damages. Akers made an offer of proof following Potter’s testimony.
1. The Code Commission, at the direction of the Supreme Court, renumbered
the sections in SDCL chapters 19-9 to 19-13, inclusive, and 19-14 to 19-18.
Although SDCL 19-18-6 (Rule 1006) has been renumbered to SDCL 19-19-
1006, the previous code section is cited in this opinion.
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[¶19.] Despite being precluded from testifying in specific reference to the
damages Casper incurred, Potter did testify about the unsatisfactory efforts Casper
undertook to remedy the deficiencies in the building and thereby mitigate its
damages. In particular, Potter explained that Casper’s failure to take immediate
action to repair known issues exacerbated the damage to the Hotel. Potter further
testified that even though there were problems with the dehumidification system
from day one and the PTAC (packaged terminal air conditioner) units were sloped
incorrectly and improperly sealed, Casper failed to timely identify and remedy these
issues. In regard to the sound issue, Potter asserted that it was unreasonable for
Casper to engage in the repair work before addressing other issues that could have
contributed to the problem. Potter admitted that the windows were likely installed
incorrectly, but claimed that the problems should have been noticed before the
stucco went on and addressed in a different manner. He further testified that it
was unreasonable to repair the water damage by cutting out wet drywall, air drying
it, replacing it, and painting it. Finally, in Potter’s expert opinion, Casper sat on its
warranty rights when it failed to conduct the one-year warranty walk through and
when it failed to exercise and enforce its warranty rights as problems arose.
[¶20.] At the close of the case, Akers moved for a directed verdict—now called
a judgment as a matter of law. Akers argued that Casper failed to meet its burden
of proof on damages because Casper did not present evidence on both the cost of
repair and the diminution in value measures of damages. Akers further claimed
that he did not breach the parties’ contract as a matter of law because Casper failed
to identify any provision in the Agreement or Addendum that Akers breached.
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Further, Akers argued that because Casper failed to pursue certain warranty
rights, Casper waived its right to seek relief. Finally, Akers asserted that Casper
failed to mitigate its damages as a matter of law when it waited until 2009 to
address the issues with the Hotel. The court denied Akers’s motion for a judgement
as a matter of law.
[¶21.] During the settling of jury instructions, Akers objected to the court’s
instruction on damages. Instruction 47 provided:
If you decide for Casper Lodging on the question of liability, you
must then fix the amount of money which will reasonably and
fairly compensate Casper Lodging for any elements of loss
suffered, proved by the evidence to have been legally caused by
Akers’ conduct, taking into consideration the nature, extent, and
duration of the damages, whether such loss could have been
anticipated or not, namely:
The reasonable expense of necessary repairs to the damaged
property.
Whether any elements of damages have been proved by the
evidence is for you to determine. Your verdict must be based on
evidence and not upon speculation, guesswork, or conjecture.
Akers claimed that the proper measure of damages was the lesser of the diminution
in value and the cost of repairs. The court overruled the objection because, in its
view, diminution in value would only come into play when there is an issue whether
the building cannot be repaired and, here, it clearly could. The court further
refused Akers’s requested instruction 45, which would have provided that the
measure of damages was the lesser of the diminution in value of the property and
the reasonable expense of repair.
[¶22.] Akers also objected to the court’s proposed Instruction 50 defining
Casper’s duty to mitigate its damages, which provided in part: “If you find that
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Casper Lodging took reasonable steps in an effort to mitigate its damages, then you
must find that Casper Lodging properly mitigated its damages.” Akers argued that
the court’s proposed instruction would allow the jury to conclude that, so long as
Casper took any step that was reasonable, it mitigated its damages. The court
overruled the objection and included Instruction 50. Akers also requested an
instruction telling the jury that under Wyoming law Koehler had certain warranty
rights against the contractors who worked on the Hotel. 2 Akers’s requested
warranty instruction further provided that Akers did not give Koehler any
warranties related to the work on the Hotel. The court refused the instruction.
[¶23.] The jury returned a verdict in favor of Casper, awarding Casper the
full amount requested: $1,019,468.74. In a post-trial hearing to address the parties’
stipulation that the court determine the date upon which Casper’s prejudgment
interest accrued, Casper argued that interest should accrue from the date Koehler
received the defective Hotel—March 11, 2004. Akers, however, submitted that it
2. Akers’s requested instruction provided:
As a purchaser of property, Plaintiff was given implied
warranties from the contractors who performed work on the
Casper, Wyoming, Holiday Inn Express. Those warranties
provided that the contractors’ work would be performed in a
skillful, careful, diligent, and workmanlike manner. Plaintiff
had the ability to assert warranty claims and enforce their
warranty rights against the contractors involved in the project
with regard to any allegedly defective work performed on the
project.
As a non-builder seller of the hotel, Defendant Robert W. Akers
did not provide any warranties, express or implied, to Plaintiff
or James Koehler with regard to the work performed at the
hotel.
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should accrue from the time Casper incurred damages—2009 or 2010. The court
ruled that under Gettysburg School District v. Helms & Associates, it was required
to award prejudgment interest from the date Casper received the defective Hotel,
March 11, 2004, because that was the date of the breach of contract. See 2008 S.D.
35, 751 N.W.2d 266. The court awarded Casper $997,682.83 in prejudgment
interest. The court also awarded post-judgment interest set to accrue on the
combined jury award and prejudgment interest calculation.
[¶24.] Akers moved for a mistrial and new trial, asserting that the court
improperly admitted Nelson’s expert opinion on the nailing pattern, erred when it
excluded Potter’s rebuttal expert testimony and erred when it allowed counsel for
Casper to make improper and highly prejudicial comments during closing
argument. In closing argument, counsel for Casper stated, “Mr. Akers has his own
remedies against Sheet Metal Specialties.” Akers claimed this was in direct
violation of the court’s order in limine precluding either party from referring to
third-party liability. Further, during Casper’s rebuttal closing, counsel remarked
that if Akers wanted the pictures, “all they had to do was ask.” This was in
response to Akers’s counsel’s closing argument that Casper was hiding or concealing
evidence of photos taken by Pace. The court denied Akers’s motion for a mistrial.
[¶25.] Thereafter, Akers moved for a judgment as a matter of law and, in the
alternative, a new trial. Akers restated the same issues he asserted in his motion
for a mistrial and alleged four additional errors. Akers submitted that (1) Casper
failed to meet its burden of proof on damages because Casper did not present
evidence on the diminution in value measure of damages, (2) the court improperly
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instructed the jury on mitigation of damages, (3) Casper failed to identify any
provision of the Agreement or Addendum that Akers breached, and (4) Casper failed
to exercise its warranty rights as a matter of law. The court denied the motion.
[¶26.] Akers appeals, and we restate the issues as follows:
1. The circuit court committed reversible error when it denied
Akers’s motion for a judgment as a matter of law due to Casper’s
failure (a) to present evidence identifying what specific terms of
the Agreement or Addendum Akers breached, (b) to present
evidence of the diminution in value measure of damages, and (c)
to mitigate damages and exercise its warranty rights.
2. The circuit court committed reversible error when it denied
Akers’s motion for a mistrial and later motion for a new trial
based on (a) the court admitting Nelson’s previously undisclosed
expert opinion, (b) the court excluding Potter’s rebuttal expert
testimony on damages, and (c) Casper’s counsel’s inflammatory
and prejudicial closing remarks.
3. The circuit court abused its discretion when it refused to
instruct the jury on Casper’s warranty rights, when it refused to
instruct the jury that the appropriate measure of damages was
the lessor of the diminution in value and cost of repair, and
when it improperly instructed the jury on the issue of mitigation
of damages.
4. The circuit court committed reversible error when it awarded
Casper prejudgment interest from March 11, 2004, and when it
allowed post-judgment interest to accrue on prejudgment
interest.
5. The circuit court committed reversible error when it struck
Akers’s third-party complaint against TKO and when it did not
compel joinder of TKO as an indispensable party defendant.
ANALYSIS
1. Judgment as a Matter of Law
[¶27.] Under SDCL 15-6-50(a), a court may grant a judgment as matter of
law against a party “[i]f during a trial by jury a party has been fully heard on an
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issue and there is no legally sufficient evidentiary basis for a reasonable jury to find
for that party on that issue[.]”
a. Evidence of a Breach of the Agreement or Addendum
[¶28.] Akers claims that he was entitled to a judgment as a matter of law on
Casper’s breach of contract claim because neither the Agreement nor the Addendum
promised a certain quality of construction. He further contends that Koehler
waived the “Conditions Precedent” when he accepted the Hotel before construction
was complete. Lastly, Akers contends that Casper’s dissatisfaction with the lack of
sound proofing does not establish a breach of contract because neither the
Agreement nor Addendum contains a sound rating requirement.
[¶29.] We review the court’s decision to deny a judgment as a matter of law
for an abuse of discretion. Bertelsen v. Allstate Ins. Co., 2013 S.D. 44, ¶ 16, 833
N.W.2d 545, 554 (citing Jacobs v. Dakota, Minn. & E. R.R. Corp., 2011 S.D. 68, ¶ 9,
806 N.W.2d 209, 212). We do not weigh the evidence. Id. “We ‘view the evidence
and testimony in a light most favorable to the verdict’” and determine if the
evidence did support the verdict or if it would have supported it. Id. (citation
omitted). “If sufficient evidence exists so that reasonable minds could differ,
judgment as a matter of law is not appropriate.” Id. (quoting Roth v. Farner-Bocken
Co., 2003 S.D. 80, ¶ 8, 667 N.W.2d 651, 659).
[¶30.] From our review of the record, there is sufficient evidence to support
the jury’s verdict that Akers breached the parties’ contract. The parties agreed as a
term of the initial contract that Akers would sell to Koehler a turn-key Hotel “built
pursuant to the plans and specifications prepared by Associated Architects[.]” This
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was not one of the enumerated conditions precedent. The Agreement also provided,
as a condition precedent, that Akers was to “complete the construction of the
improvements in compliance with all city, county, state, and federal government
requirements[.]” The Addendum further required that Akers “shall have a
continuing obligation to construct and finish the Improvements in accordance with
all governmental requirements and the standards and specifications of the Holiday
Inn Express system.”
[¶31.] At trial, the jury heard evidence that Akers constructed the Hotel in
violation of applicable code provisions because of improperly installed windows and
air conditioning units, inadequate wind-load requirements, and the absence of
necessary vapor barriers on many wall assemblies. The jury also heard testimony
that, contrary to the plans and specifications, the poolroom dehumidification system
was defective, windows were installed in violation of manufacturer instructions,
portions of the Hotel roof lacked proper edging and necessary underlayment or tar
paper and were too short, the stucco system was not properly constructed, and the
windows and PTAC units were not properly flashed. On the sound rating issue,
Casper presented evidence that the Hotel standards required a certain sound rating
and that Akers did not construct the walls to this rating.
[¶32.] Because there is a legally sufficient evidentiary basis for the jury to
find for Casper on the issue of breach, the circuit court did not abuse its discretion
when it denied Akers a judgment as a matter of law on this issue.
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b. Diminution in Value Measure of Damages
[¶33.] Akers first contends that the court abused its discretion when it did
not enter a judgment as a matter of law against Casper on Casper’s failure to
present evidence of competing measures of damages. According to Akers, the
proper measure of damages is the lesser of (1) the difference between the reasonable
value of the Hotel with and without the construction defects and (2) the reasonable
cost to repair the Hotel. Akers further argues that Casper bore the burden of
presenting evidence of both measures of damage to the jury. Akers submits that to
hold otherwise would allow Casper to recover more than it would have gained had
Akers not breached the Agreement or Addendum.
[¶34.] Casper, on the other hand, relies on SDCL 21-2-1, which sets forth that
the general measure of damages in a contract dispute “is the amount which will
compensate the party aggrieved for all the detriment proximately caused thereby,
or which, in the ordinary course of things, would be likely to result therefrom.”
Casper argues it was not required to present evidence on the diminution in value
because it presented evidence to support the amount that was necessary to
compensate it for the damage proximately caused by the breach, namely the cost of
making the repairs. Moreover, Casper contends that Akers had the burden to
present evidence that Casper’s method of proving damages was unreasonable or
unwarranted.
[¶35.] We have said that the purpose of contract damages is to put the
injured party in the same position it would have been in had there not been a
breach. Lamar Adver. of S.D., Inc. v. Heavy Constructors, Inc., 2008 S.D. 10, ¶ 14,
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745 N.W.2d 371, 376; see also SDCL 21-1-5 (cannot recover more than what the
party could have gained by full performance by both sides). However, “[n]o
damages can be recovered for a breach of contract which are not clearly
ascertainable in both their nature and their origin.” SDCL 21-2-1. Moreover,
“[d]amages must in all cases be reasonable[.]” SDCL 21-1-3.
[¶36.] Akers relies upon our holding in Rupert v. City of Rapid City, a recent
inverse condemnation case, in which we recognized that a “landowner may
generally only recover restoration costs if that amount does not exceed the
diminution in value of the property.” See 2013 S.D. 13, ¶ 27, 827 N.W.2d 55, 66.
This is because this Court has “traditionally held that the proper measure of
damages in condemnation cases involving a partial taking or damaging of property
‘is the difference between the fair market value of the unit before the taking and the
fair market value of what remains after the taking[.]” Id. ¶ 20 (emphasis added)
(citing Corson Vill. Sanitary Dist. v. Strozdas, 539 N.W.2d 876, 879 (S.D. 1995)
(quoting City of Sioux Falls v. Kelley, 513 N.W.2d 97, 103 (S.D. 1994))). This case,
however, is not a condemnation case and, therefore, Rupert is not controlling.
[¶37.] Akers next directs this Court to Ward v. LaCreek Electric Association,
Inc., where we held that the proper measure of damages “is the lesser of the
following: I. The difference between the reasonable value of the house immediately
before and immediately after its injury, or II. The reasonable expense of repair if
the house can thereby be substantially restored to its former condition.” See 83 S.D.
584, 594, 163 N.W.2d 344, 349 (1968). He further relies on Subsurfco, Inc. v. B-Y
Water District, a breach of contract case in which we reversed because “B-Y
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recovered an improper measure of damages contrary to the diminution in value rule
and SDCL 21-1-3 and [SDCL] 21-1-5.” 337 N.W.2d 448, 455 (S.D. 1983).
[¶38.] A closer reading of both cases, however, reveals that neither Ward nor
Subsurfco, Inc., stand for the proposition that in order to recover damages for a
breach of contract, the plaintiff must present evidence on both the diminution in
value and cost of repair measures of damages. In Ward, the plaintiff presented
evidence to support the diminution in value measure of damages and the defendant
countered with evidence on the cost of repair measure of damages. 83 S.D. at 591,
163 N.W.2d at 348. We held that “with reference to the house in this case” the
proper measure of damages was the lesser of the diminution in value and cost of
repair. Id. at 594, 163 N.W.2d at 349. Here, however, the jury did not have before
it evidence of both measures of damages. Further, Akers does not claim that
Casper’s damages were not clearly ascertainable in their nature and origin in
violation of SDCL 21-1-5.
[¶39.] In Subsurfco, Inc., the defendant presented evidence that the plaintiff’s
damage award violated the diminution in value rule. The defendant further
claimed that the damage award was unreasonable, unconscionable, and grossly
oppressive in violation of SDCL 21-1-5, and that, in violation of SDCL 21-1-3, the
plaintiff recovered more than it would have had the contract been fully performed.
337 N.W.2d at 455. We held that the plaintiff recovered an improper measure of
damages because the defendant established that “the defects cannot be remedied
without reconstruction of a substantial portion of the work[,]” and the plaintiff
“recovered damages totalling [sic] 49% of the bid price of the entire contract and
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almost a million dollars more than the price bid for the material and installation of
the pipe in question.” Id. Yet, here, Akers does not allege that, by recovering the
cost of repair, Casper was placed in a better position than it would have been in had
Akers performed under the contract. Akers further has not alleged or presented
evidence that the defects caused by Akers’s breach could only be remedied by
reconstruction of a substantial portion of the Hotel.
[¶40.] “Frequently, both measures of damages are in evidence and are
complimentary to the other,” but “[a]n injured party may choose to present his case
using either or both methods of measuring damages[.]” John Thurmond & Assocs.,
Inc. v. Kennedy, 668 S.E.2d 666, 668-69 (Ga. 2008). See Martin v. Design Constr.
Servs., Inc., 902 N.E.2d 10, 15 (Ohio 2009); GSB Contractors, Inc. v. Hess, 179
S.W.3d 535, 543 (Tenn. Ct. App. 2005); Legacy Builders, LLC v. Andrews, 335 P.3d
1063, 1069-70 (Wyo. 2014). Therefore, if an injured party seeks to recover the fair
market value of the damaged property, the injured party must present evidence to
support a claim for damages under that method. The defendant, then, “has the
burden to present any contradictory evidence challenging the reasonableness or
proportionality of those damages and where appropriate, evidence of an alternative
measure of damages for the jury’s consideration.” John Thurmond & Assocs., Inc.,
668 S.E.2d at 669.
[¶41.] Because neither Ward nor Subsurfco, Inc., are controlling, and Akers,
as the party challenging the reasonableness of Casper’s damages, had the burden to
present evidence to support his claim that Casper’s damages were unwarranted,
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unreasonable, or excessive, the circuit court did not abuse its discretion when it
denied Akers’s motion for a judgment as a matter of law on this issue.
c. Mitigation of Damages and Warranty Rights
[¶42.] Akers argues that he is entitled to a judgment as a matter of law on
his affirmative defenses that Casper failed to mitigate its damages and that Casper
waived its right to recover when it failed to exercise its warranty rights under
Wyoming law. In regard to Casper’s duty to mitigate its damages, Akers contends
that many of the problems with the Hotel were observable in 2004, which problems
Casper ignored and failed to repair until 2009–2010. Akers further claims that
Casper, as a subsequent purchaser, had implied warranty rights under Wyoming
law. Because Casper failed to pursue these rights, Akers submits that the “risk of
construction defects was allocated to Casper[.]”
[¶43.] A judgment as a matter of law is not appropriate when sufficient
evidence exists such that reasonable minds could differ. Bertelsen, 2013 S.D. 44,
¶ 16, 833 N.W.2d at 554. With reference to Casper’s alleged failure to mitigate its
damages, the jury heard testimony from Akers’s witnesses related to the actions
Casper and its agents failed to take when the water penetration problems were first
observed at the Hotel. The jury then heard contradictory evidence from Casper’s
witnesses that Casper mitigated its damages because it continued to take action to
address the problems as they occurred. On the warranty issue, Akers presented
evidence that he transferred his warranty rights to Koehler and that Casper failed
to timely exercise these rights. Casper, however, presented evidence through
Koehler’s testimony that it attempted to contact certain subcontractors when
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defective work was observed, but that the subcontractors would not respond.
Casper also argued to the jury that Akers had no evidence that Akers actually
transferred to Casper the necessary warranty information as required in the
Agreement.
[¶44.] Because we do not weigh the evidence and because we view the
evidence in the record in a light most favorable to the verdict, we cannot say the
court abused its discretion when it denied Akers a judgment as a matter of law on
this issue. See Jacobs, 2011 S.D. 68, ¶ 9, 806 N.W.2d at 212. The jury could have
believed that Casper’s efforts to mitigate the problems as they arose were sufficient
and reasonable under the circumstances. Further, there is evidence in the record
that may have led the jury to conclude that Casper did not waive its right to recover
when it did not exercise alleged warranty rights.
2. Motion for a Mistrial and Motion for a New Trial
[¶45.] “We review denials of mistrial and new trial motions for an abuse of
discretion.” Walter v. Fuks, 2012 S.D. 62, ¶ 22, 820 N.W.2d 761, 767. “[A] new trial
may follow only where the violation has prejudiced the party or denied him a fair
trial. Prejudicial error is error which in all probability produced some effect upon
the jury’s verdict and is harmful to the substantial rights of the party assigning it.”
Kjerstad v. Ravellette Publ’ns, Inc., 517 N.W.2d 419, 426 (S.D. 1994).
a. Previously Undisclosed Expert Opinion
[¶46.] Prior to Trent Nelson’s testimony and outside the presence of the jury,
counsel for Akers asked the circuit court to prevent Nelson from testifying that the
inadequate nailing pattern made the structure unsound and unsafe from day one.
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Akers submitted that the opinion was new and previously undisclosed and
substantially prejudiced his defense. In response, Casper quoted Nelson’s
deposition testimony and submitted to the court that nailing pattern meant
fastening pattern and, therefore, Nelson’s opinion was not new. The court allowed
the testimony, remarking that “a nail is a fastener” and, therefore, Nelson did give a
previous opinion about the fastening pattern.
[¶47.] During direct examination, Nelson offered the opinion that from day
one the Hotel was unsafe, structurally unsound, and in violation of the applicable
code as a result of the inadequate nailing pattern related to the OSB. On cross-
examination, Nelson admitted that his opinion was new—he formed it after
listening to Pace’s previous trial testimony. Counsel for Akers then engaged in a
lengthy cross-examination challenging the basis of Nelson’s opinions and his
qualifications to render an opinion.
[¶48.] Akers now claims that the court abused its discretion when it denied
his motions for a mistrial and new trial. According to Akers, Nelson’s opinion that
the Hotel was unsound and unsafe from day one negated his critical and viable
defense that Casper had failed to mitigate its damages. Thus, he submits that,
although the court ultimately struck Nelson’s opinion and admonished the jury, he
was denied a fair trial because the “damage had already been done.”
[¶49.] “As a general rule, if a court excludes improperly admitted evidence
and directs the jury to disregard it, the error is cured.” Young v. Oury, 2013 S.D. 7,
¶ 18, 827 N.W.2d 561, 567. “If, however, after probing the record, it appears the
prejudicial effect of the admission was not fully overcome, despite the curative
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instruction, a new trial is warranted.” Id. In Young, we identified certain
considerations relevant to assessing whether the prejudicial effect of an admission
was fully overcome. Those are: “(1) to what extent did the evidence go directly to a
critical issue, (2) is the evidence inherently prejudicial and of such a character that
it would likely impress itself upon the minds of the jurors, (3) was the curative
instruction firm, clear, and accomplished without delay, and (4) was there any
misconduct on the part of the offering party?” Id. ¶ 19.
[¶50.] There is no doubt that Nelson’s testimony that the inadequate nailing
pattern made the Hotel unsafe and unsound from day one related directly to a
critical issue in the case. However, the court’s curative instruction was firm, clear,
and accomplished without delay. 3 The instruction was crafted by the parties and
was given at the first moment possible—after the jury returned from its recess. In
regard to misconduct by Casper, there is no evidence that Casper knew Nelson was
going to express this opinion until trial. Indeed, Nelson admitted he formed his
opinion while listening to another witness’s testimony.
[¶51.] Lastly, we consider whether the evidence was “inherently prejudicial
and of such a character that it would likely impress itself upon the minds of the
3. The admonishment provided:
1. Mr. Nelson’s opinions that the OSB was improperly fastened
or had insufficient nails is stricken by the court.
2. Mr. Nelson’s opinions that the building was structurally
unsound at the time Mr. Akers sold the building to the
plaintiff based on improper fastening or not having enough
nails in the OSB is stricken by the court.
3. You shall disregard these opinions in their entirety.
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jurors.” See id. In Young, we explained that this factor concerns “what the jury
actually saw and heard and how much the jurors were expected to disregard.” Id.
¶ 21. On direct examination, the jury heard Nelson testify that the OSB were
improperly nailed during the original construction. The jury also heard Nelson
explain that the improper nailing violated certain applicable code provisions and
made the building unsafe and unsound from the day it was delivered to Koehler.
This testimony spanned approximately five transcript pages. Then, through cross-
examination, the jury heard Nelson admit that his opinion was new and was formed
only after Nelson heard Pace previously testify. The jury also heard counsel for
Akers explore and scrutinize the veracity of Nelson’s newly-disclosed opinion.
[¶52.] Based on our review of the character of the evidence, we cannot say
that Nelson’s opinion was so inherently prejudicial so as to impress itself on the
minds of the jurors. His new opinion, given on direct examination, was short in
duration and delivered solely through verbal statements. Contra Young, 2013 S.D.
7, ¶ 21, 827 N.W.2d at 567 (witness left the witness stand to use a laser pointer to
draw attention to the chart). It is also relevant that Nelson’s opinion was not the
first time the jury heard that the structure was short 25,000 nails; Pace had already
alerted the jury to that fact and that it took two men three days to correct the
problem.
[¶53.] After probing the record, we cannot say that the prejudicial effect of
Nelson’s testimony was not fully overcome by the curative instruction and by the
court’s admonition to the jury that the opinion be stricken and disregarded. The
court promptly and sufficiently admonished the jury and struck the testimony. The
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improper testimony was not relied upon or highlighted through the remainder of
the trial. The circuit court did not abuse its discretion when it denied Akers’s
motions for a mistrial and new trial on this issue.
b. Exclusion of Potter’s Rebuttal Expert Testimony on
Damages
[¶54.] Akers next contends that the circuit court improperly excluded Akers’s
rebuttal expert testimony on damages. Akers sought to have Potter testify in direct
response to the damages testimony presented by Casper’s expert Potratz. Prior to
Potter’s testimony, Casper moved in limine to prevent any opinion by Potter on
Casper’s damages because Potter did not testify in his deposition about Casper’s
alleged damages and did not update his expert opinion after Akers had in his
possession Casper’s Rule 1006 damages summary. Akers responded that Potter
was unable to testify in response to Casper’s damages summary because Casper
submitted its damages summary after the deadline for disclosures. Akers further
highlighted that even Casper’s expert—Potratz—could not testify to Casper’s
damages summary during his deposition because the summary had just been
completed. Because Potratz was allowed to testify about the new damages
summary, Akers submitted Potter should similarly be permitted to testify. The
court reserved ruling on Casper’s motion in limine, but ultimately sustained each
objection by Casper related to any testimony from Potter on Casper’s damages
summary.
[¶55.] On appeal, Akers argues that the circuit court abused its discretion
when it denied his motions for a mistrial and new trial based on the exclusion of
Potter’s rebuttal testimony. In Akers’s view, “there was no way Potter could answer
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specific questions regarding Casper’s damages” during his deposition because
Casper did not provide its damages summary until after the deposition and after the
expert disclosures deadline. Akers further contends that he was prejudiced because
the jury awarded Casper 100% of its requested damages “[d]espite overwhelming
evidence of Casper’s failure to mitigate damages, and Casper’s admission that
prompt action would have reduced damages[.]”
[¶56.] A court has discretion to admit expert testimony and we review the
decision to admit or exclude it for an abuse of discretion. Supreme Pork, Inc. v.
Master Blaster, Inc., 2009 S.D. 20, ¶ 15, 764 N.W.2d 474, 481. It is well established
that “parties are ‘under a duty seasonably to supplement [their] response[s] with
respect to any question directly addressed to . . . the subject matter on which [the
expert witness] is expected to testify, and the substance of [the expert’s] testimony.’”
Id. (alterations in original); SDCL 15-6-26(e).
[¶57.] Here, the record supports the court’s decision to exclude Potter’s
rebuttal testimony on Casper’s Rule 1006 damages summary. Potter was deposed
two days before Casper submitted to Akers its Rule 1006 damages summary.
However, when Potter was deposed, Akers had received from Casper all documents
that ultimately formed the basis of Casper’s Rule 1006 damages summary. More
importantly, after Akers received Casper’s damages summary, Akers did not fulfill
its duty to supplement Potter’s intended expert opinion as required by SDCL 15-6-
26(e). It was insufficient to simply identify that Potter was an expert witness on the
issue of damages.
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[¶58.] We also note that, unlike Potter, Potratz gave a detailed opinion
during his deposition on the damages claimed by Casper. Potratz offered his expert
testimony on damages despite the fact that he (like Potter) did not have an
opportunity to specifically examine Casper’s Rule 1006 damages summary.
Furthermore, Potter made it clear in his deposition that he was not expressing an
opinion on the damages claimed by Casper. Finally, the exclusion of Potter’s
rebuttal testimony did not prevent Akers from presenting evidence contradicting
Casper’s claimed damages or in support of his defense that Casper failed to mitigate
its damages. The court did not abuse its discretion when it denied Akers’s motions
for a mistrial and new trial on this issue.
c. Closing Remarks by Casper’s Counsel
[¶59.] Prior to trial, the court issued an order instructing counsel to approach
the bench before discussing Akers’s third-party claims in open court. During
Casper’s closing argument, and without first approaching the bench, counsel stated,
“Akers has his own remedies against Sheet Metal and Zakco.” Sheet Metal is a
subcontractor and Zakco is the general contractor. Akers now claims that this
statement “was equivalent to telling the jury that Akers had insurance in the form
of remedies against contractors,” which statement he submits prejudiced him.
Akers further contends that during Casper’s rebuttal closing argument, counsel
“undercut a central defense theory by blaming Akers for Casper’s nondisclosure” of
700 renovation photographs. In light of Casper’s remarks in closing argument,
Akers insists the court abused its discretion when it did not order a mistrial or
grant a new trial.
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[¶60.] In reviewing the court’s decision to deny a new trial, we “interfere only
when[,] from an examination of the entire record, [we are] convinced that there has
been a miscarriage of justice.” Schoon v. Looby, 2003 S.D. 123, ¶ 18, 670 N.W.2d
885, 891 (quoting Roth, 2003 S.D. 80, ¶ 37, 667 N.W.2d at 664). This is because “a
plaintiff should not be penalized for the misstatements of his counsel and the
granting of a new trial should not be used to discipline counsel.” Id. Therefore, “a
new trial may follow only where the violation has prejudiced the party or denied
him a fair trial. Prejudicial error is error which in all probability produced some
effect upon the jury’s verdict and is harmful to the substantial rights of the party
assigning it.” Harter v. Plains Ins. Co., Inc., 1998 S.D. 59, ¶ 32, 579 N.W.2d 625,
633 (quoting Kjerstad v. Ravellette Publ’ns, Inc., 517 N.W.2d 419, 426 (S.D. 1994)).
[¶61.] From an examination of the entire record, counsel’s remarks in closing
argument did not in all probability produce some effect on the jury’s verdict.
Although Casper did not approach the bench before referring to Akers’s third-party
claims, counsel’s statement was isolated and not inflammatory. Also, the statement
was not the equivalent of putting evidence in the record that a person has liability
insurance. See Atkins v. Stratmeyer, 1999 S.D. 131, ¶ 13, 600 N.W.2d 891, 896
(plaintiff referred to health insurance, not liability insurance). In regard to
Casper’s statement suggesting that Akers could have obtained the 700 pictures,
Akers did not object to this statement. The failure to object deprived the circuit
court of the opportunity to rule on the issue and admonish the jury, and Akers’s
failure to object waived the right to argue the issue on appeal. See Veith v. O’Brien,
2007 S.D. 88, ¶ 67, 739 N.W.2d 15, 34. Because there is no prejudice from counsel’s
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remarks during closing argument, the circuit court did not abuse its discretion
when it denied Akers’s motions for a mistrial and new trial on this issue.
3. Jury Instructions
[¶62.] It is well-settled that ‘‘[a] trial court has discretion in the wording and
arrangement of its jury instructions, and therefore we generally review a trial
court’s decision to grant or deny a particular instruction under the abuse of
discretion standard.” Wangsness v. Builders Cashway, Inc., 2010 S.D. 14, ¶ 10, 779
N.W.2d 136, 140 (quoting State v. Cottier, 2008 S.D. 79, ¶ 7, 755 N.W.2d 120, 125).
We have said that a circuit “court should instruct the jury on issues supported by
competent evidence in the record”; however, the court “is not required to instruct on
issues that do not find support in the record.” Bauman v. Auch, 539 N.W.2d 320,
323 (S.D. 1995). Moreover, it is not error to refuse to give an instruction that does
not correctly set forth the law. Id.
a. Instruction on Warranty Rights
[¶63.] Akers requested an instruction describing the warranty rights Casper
had available under Wyoming law. The requested instruction provided that Casper
“had the ability to assert warranty claims and enforce [its] warranty rights against
the contractors involved in the project” based on Wyoming law, and that Akers “did
not provide any warranties, express or implied, to [Casper] or James Koehler with
regard to the work performed at the hotel.” Akers asserts that this instruction
supported his claim that Casper waived its right to seek relief because it failed to
exercise its warranty rights. The court refused Akers’s requested instruction. On
appeal, Akers submits that the instruction was a proper statement of the law and
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that, by refusing the instruction, Akers was prevented from adequately arguing to
the jury that Casper’s failure to exercise its warranty rights constituted a failure to
mitigate its damages.
[¶64.] From our review of the record, the court properly refused Akers’s
requested instruction. The requested instruction was not supported by competent
evidence in the record and would have improperly told the jury that, as a matter of
law, Casper had certain warranty rights. Any warranty rights that Casper may
have had (and waived) were disputed in the case. Moreover, the court adequately
instructed the jury on the issue of waiver:
A waiver occurs when one in possession of a right, whether
obtained by law or by agreement, who with full knowledge of the
facts, voluntarily and intentionally does or fails to do something
inconsistent with the enforcement of that right.
To support a defense of waiver, there must be a showing of a
clear, unequivocal and decisive act or acts showing an intention
to give up the existing right. There can be no waiver unless so
intended by one party and so understood by the other. A person
who has waived a right cannot recover based on that right.
The burden of proof to establish waiver is on the party who
seeks to rely on it.
Instruction 42. Therefore, the court did not abuse its discretion when it refused
Akers’s requested warranty and waiver instruction.
b. Instruction on the Measure of Damages
[¶65.] Akers next claims that the court abused its discretion when it failed to
instruct the jury that the appropriate measure of damages was the lesser of the
diminution in value or the cost of repair. Because Akers did not present any
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evidence on the diminution in value measure of damages, the circuit court properly
refused Akers’s requested instruction. See supra ¶¶ 38-41.
c. Instruction on Mitigation
[¶66.] Akers contends the court’s instructions on mitigation of damages were
incorrect and misled the jury, which error necessitates a new trial. The court
provided two instructions on mitigation:
Instruction 49
In determining the amount of money which will reasonably
compensate the plaintiff, you are instructed that a person whose
property is damaged must exercise reasonable diligence and
effort to minimize existing damages and to prevent further
damages. The law imposes upon a party injured by another’s
breach of contract the active duty of making reasonable exertion
to render the injury as light as possible. If, by his negligence or
willfulness, he allows the damages to be unnecessarily
enhanced, the increased loss, which was avoidable by the
performance of his duty, falls on him. Plaintiff cannot recover
money for damage to property which could have been avoided by
the exercise of reasonable diligence and effort.
Instruction 50
Akers has the burden of proving that Casper Lodging failed to
mitigate its damages. Casper Lodging claims that it mitigated
its damages. If you find that Casper Lodging took reasonable
steps in an effort to mitigate its damages, then you must find
that Casper Lodging properly mitigated its damages.
Akers objected to Instruction 50, asserting that it would allow the jury to find
against Akers if Casper took any reasonable step to mitigate. On appeal, Akers
claims he was prejudiced by the court’s incorrect and misleading instruction from
the fact “the jury awarded Casper every penny of its claim,” even though Casper
admitted some damages could have been avoided by making repairs earlier.
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[¶67.] We recently explained that the duty to mitigate damage caused by a
breach of contract is an “active duty of making reasonable exertion to render the
injury as light as possible.” Arrowhead Ridge I, LLC v. Cold Stone Creamery, Inc.,
2011 S.D. 38, ¶ 16, 800 N.W.2d 730, 735 (quoting Ducheneaux v. Miller, 488 N.W.2d
902, 917 (S.D. 1992)). Thus, if a plaintiff, by his negligence or willfulness, “allows
the damages to be unnecessarily enhanced, the increased loss, that which was
avoidable by the performance of his duty, falls upon him.” Id. The burden is on the
breaching party to prove that “damages would have been lessened by the exercise of
reasonable diligence on the part of the non-breaching party.” Ducheneaux, 488
N.W.2d at 918 (citing Hepper v. Triple U Enters., Inc., 388 N.W.2d 525, 530 (S.D.
1986); Renner Elevator Co. v. Schuer, 267 N.W.2d 204, 207 (S.D. 1978)).
[¶68.] Upon review of our prior cases, it is clear the last sentence of
Instruction 50 should not have been given. That sentence reads: “If you find that
Casper Lodging took reasonable steps in an effort to mitigate its damages, then you
must find that Casper Lodging properly mitigated its damages.” Casper’s duty to
mitigate its damages required that Casper exercise reasonable diligence, not take
reasonable steps in an effort. See Sun Mortg. Corp. v. W. Warner Oils Ltd., 1997
S.D. 101, ¶ 26, 567 N.W.2d 632, 637 (defining reasonable diligence); see also
Stadheim v. Becking, 290 N.W.2d 273, 275 (S.D. 1980).
[¶69.] Nonetheless, we do not view an instruction in isolation. Rather, “we
construe jury instructions as a whole to learn if they provided a full and correct
statement of the law.” Behrens v. Wedmore, 2005 S.D. 79, ¶ 37, 698 N.W.2d 555,
570 (quoting First Premier Bank v. Kolcraft Enters., Inc., 2004 S.D. 92, ¶ 40, 686
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N.W.2d 430, 448). The court, consistent with our past cases, properly informed the
jury that Akers had the burden of proving that Casper failed to mitigate its
damages. The court further adequately defined for the jury that the duty to
mitigate required Casper to “exercise reasonable diligence and effort to minimize
existing damages and to prevent further damages.” Because the court’s
instructions, taken as a whole, provided a correct statement of the law on mitigation
of damages, we cannot say that “in all probability it produced some effect upon the
verdict” or that it was harmful to Akers’s substantial rights. See id.
4. Prejudgment Interest and Post-Judgment Interest
[¶70.] During the settling of the jury instructions, the parties agreed to allow
the circuit court to determine the appropriate date to calculate prejudgment
interest in the event the jury found in favor of Casper. At a post-trial hearing to
determine prejudgment interest, Akers submitted that, assuming that there was a
breach of contract, Casper did not suffer damage until the time Casper undertook
substantial repairs, which was 2009 or 2010. During the oral argument before this
Court, Casper admitted that it had incurred zero expense on March 11, 2004 (the
date of the breach and delivery of the Hotel). However, Casper argued that based
upon this Court’s decision in Gettysburg, the date of loss was March 11, 2004,
notwithstanding that Casper had yet to incur an expense as a result of the breach.
See 2008 S.D. 35, 751 N.W.2d 266.
[¶71.] At the post-trial hearing, the circuit court informed the parties that it
believed Gettysburg required it to calculate prejudgment interest from March 11,
2004. It remarked, “It’s contrary to my thinking that you can collect interest on
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something before you expend the money for repair, but that is what the Gettysburg
school case tells me.” Counsel for Akers argued that Gettysburg did not stand for
that proposition and urged the court to make a factual determination on the date
Casper was damaged and suffered a loss. In response the court said,
As much as I would like to accept your argument on that, I think
the Gettysburg case tells me to the contrary. But the nice part
about it is, it’s easily calculated for the Supreme Court to
straighten me out if I’m wrong. And, truthfully, I think I may
very well be wrong, but I think - - I mean, to me, common sense
tells me you you shouldn’t collect interest on something that
hasn’t gone out of your pocket yet. But on the other hand, Jim
Koehler did pay for the hotel in full as of the date. So to that
extent, he’s out that money.
The court awarded prejudgment interest starting on March 11, 2004, which amount
equaled $997,682.83.
[¶72.] In Gettysburg, the school district received a defective track in 2002,
and for nearly two years, the contractor attempted to repair the problems with the
track. Id. ¶¶ 2-5. In June 2004, after efforts to correct the problems had failed, the
school district hired an outside consultant to examine the track. Id. ¶ 6. The
consultant issued a report setting forth the underlying structural defects in the
track’s construction and reached the conclusion that the defects would be nearly
impossible to repair. Ultimately, the school district brought suit against the
contractor for breach of contract and prevailed in a jury trial. The jury awarded the
school district damages and prejudgment interest from July 4, 2004. Id. ¶ 7.
[¶73.] On appeal the contractor asserted “that damages were too uncertain to
be taxed with prejudgment interest” because the school district had not yet
expended funds to repair the defective track. Id. ¶ 23. We noted that prejudgment
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interest is calculated “from the day the loss or damage occurred.” Id. ¶ 24 (quoting
SDCL 21-1-13.1). We then declared that “[t]he loss or damage occurred when the
District received the faulty track.” Id. Yet, the school district received the track in
2002, and the jury awarded prejudgment interest to begin on July 4, 2004. From
our review of this decision, we cannot ascertain the basis for the jury’s selection of
this date. Regardless, this Court’s statement that “[t]he loss or damage occurred
when the District received the faulty track” suggests that prejudgment interest in a
breach of contract case must be calculated on the date of the breach. We now
expressly reject this language, and to the extent Gettysburg created such a rule, it is
overruled.
[¶74.] Prejudgment interest is mandatory and it is recoverable “from the day
that the loss or damage occurred, except during such time as the debtor is
prevented by law, or by act of the creditor, from paying the debt.” SDCL 21-1-13.1;
see JAS Enters., Inc. v. BBS Enters., Inc., 2013 S.D. 54, ¶ 45, 835 N.W.2d 117, 129.
The purpose of prejudgment interest “is to do justice to one who has suffered a loss
at the hands of another.” S.D. Bldg. Auth. v. Geiger-Berger Assocs., P.C., 414
N.W.2d 15, 19 (S.D. 1987). An award of prejudgment interest “seeks to compensate
the injured party for this wrongful detention of money owed.” Id.
[¶75.] Although the purpose of prejudgment interest is well established, our
case law is not as clear on what date prejudgment interest should begin to accrue
for each measure of damages. We find the Colorado Supreme Court’s analysis in
Goodyear Tire & Rubber Co. v. Holmes, helpful on the proper method to compute
prejudgment interest in a breach of contract case. See 193 P.3d 821, 828 (Colo.
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2008). Although Colorado’s prejudgment interest statute is distinguishable, we find
the court’s analysis instructive. See id. at 825.
[¶76.] The court in Goodyear explained that in order to seek recovery from a
loss, a plaintiff must first quantify the loss by establishing a measure of damages.
Id. at 826. “During the period between the time at which the plaintiff’s loss is
measured and the judgment, the plaintiff is deprived of the use of the money or
property that would constitute the award.” Id. “As a result, the plaintiff suffers a
loss, frequently termed ‘time value of money.’” Id. “This lost value is caused by
inflation, reducing the value of money over time, and by plaintiff’s inability . . . to
earn a return on it.” Id.
[¶77.] In a case where the measure of damages is the diminution in the
market value of the property, the “damages focus on the damaged asset and
measure the resulting change in the plaintiff’s net worth.” Id. at 827. Accordingly,
when a plaintiff seeks damages for diminution in value, his loss is properly
measured at the time of the injury to his property. To conclude otherwise would
deny the plaintiff the ability “to earn a return on the amount of the damages, and
he will also suffer a loss due to inflation between the time the damages are
calculated and the time of the judgment.” Id. at 827-28.
[¶78.] However, when the measure of damages is cost of repair, the focus is
on the actual expenditures made by the plaintiff to make the repairs rather than
the damaged property itself. This is because “the plaintiff retains the use of the
money later used to repair or obtain a replacement and therefore can earn a return
on it.” Id. at 828. Therefore, the loss or damage will not occur until sometime after
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the plaintiff is wronged. Indeed, “the plaintiff does not suffer any time value of
money loss until the time when she incurs the replacement costs[.]” Id.
[¶79.] Applying these concepts to the facts of this case, we note that Casper
sought and the circuit court authorized the cost of repair measure of damages.
Therefore, Casper did not suffer any loss of return on its original investment until it
incurred costs of repair. Although the circuit court was justified in relying on our
holding in Gettysburg, upon remand the court is instructed to compute prejudgment
interest based on the cost of repairs incurred by Casper from the date the expenses
were incurred.
[¶80.] Akers further contends that the circuit court erred when it ordered
that post-judgment interest was to accrue on the court’s award of prejudgment
interest. Akers submits that the circuit court improperly awarded interest on
interest. This Court has not before addressed the precise question whether an
award of post-judgment interest can accrue on prejudgment interest. A review of
cases from other courts, however, reveals that an award of post-judgment interest
on an award of prejudgment interest does not result in an award of interest on
interest. Air Separation, Inc. v. Underwriters at Lloyd’s of London, 45 F.3d 288, 290
(9th Cir. 1995) (collecting cases); see also Arthur Young & Co. v. Reves, 937 F.2d
1310, 1338 (8th Cir. 1991) (analyzing similar federal rule, 28 U.S.C.A § 1961);
Balder v. Haley, 441 N.W.2d 539, 544 (Minn. Ct. App. 1989). Post-judgment
interest is intended to compensate an injured plaintiff for being deprived of
compensation for a loss during the time of the ascertainment of the loss and the
recovery. See SDCL 54-3-5.1. It is not designed to operate as a penalty. Thus,
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prejudgment interest is part of the loss—compensation to the injured party for that
party’s loss of use of their money caused by the breach of contract. See Jackson v.
Lee’s Travelers Lodge, Inc., 1997 S.D. 63, ¶ 40, 563 N.W.2d 858, 868. The circuit
court did not err when it awarded Casper post-judgment interest on prejudgment
interest.
5. Claims against TKO by Akers
[¶81.] The Koehler Organization (TKO) is the management company for
Koehler’s hotels. During his testimony, Koehler explained that he is in essence
TKO because TKO is a sole proprietorship. Akers does not dispute that he knew of
TKO and its role in the management of the Hotel. Nonetheless, Akers submits that
SDCL 15-6-19 does not give the court discretion to join or exclude TKO as a party,
and that he had a “right” to assert a third-party claim against TKO under SDCL 15-
6-14(a).
[¶82.] A circuit court has no discretion whether to join an indispensable party
because SDCL 15-6-19(a) is mandatory. Titus v. Chapman, 2004 S.D. 106, ¶ 15, 687
N.W.2d 918, 923. Thus, “[a] party’s status as an indispensable party is a conclusion
of law.” Id. Under SDCL 15-6-19(a),
A person who is subject to service of process shall be joined as a
party in the action if:
(1) In his absence complete relief cannot be accorded
among those already parties; or
(2) He claims an interest relating to the subject of the
action and is so situated that the disposition of the action
in his absence may (i) as a practical matter impair or
impede his ability to protect that interest or (ii) leave any
of the persons already parties subject to a substantial risk
of incurring double, multiple, or otherwise inconsistent
obligations by reason of his claimed interest. If he has not
been so joined, the court shall order that he be made a
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party. If he should join as a plaintiff but refuses to do so,
he may be made a defendant, or, in a proper case, an
involuntary plaintiff. If the joined party objects to venue
and his joinder would render the venue of the action
improper, he shall be dismissed from the action.
“[W]hether or not a person is an indispensable party is [a decision] which must be
made on a case-by-case basis and is dependent upon the facts and circumstances of
each case.” Titus, 2004 S.D. 106, ¶ 36, 687 N.W.2d at 927 (citing Provident
Tradesmens Bank Tr. Co. v. Patterson, 390 U.S. 102, 119, 88 S. Ct. 733, 743, 19 L.
Ed. 2d 936 (1968)). However, simply because a person might have an interest in the
outcome of litigation does not make the person an indispensable party. Id.
[¶83.] TKO is not an indispensable party. TKO does not “have a direct
interest in the litigation[,]” and TKO’s interest is not “such that it cannot be
separated from that of the parties to the suit[.]” See Smith v. Albrecht, 361 N.W.2d
626, 627-28 (S.D. 1985). TKO is not necessary to determine whether Akers
breached the contract when Akers delivered the Hotel to Koehler. Nor is TKO’s
presence necessary for the jury to determine Akers’s defenses of waiver and failure
to mitigate damages. TKO is a potential joint tortfeasor, but that status does not
make it an indispensable party. See Temple v. Synthes Corp., 498 U.S. 5, 7, 111 S.
Ct. 315, 316, 112 L. Ed. 2d 263 (1990); see also Whiting v. Hoffine, 294 N.W.2d 921
(S.D. 1980). Because TKO is not an indispensable party, the court did not err in
denying Akers’s motion to join TKO under SDCL 15-6-19(a).
[¶84.] Lastly, Akers contends that he had a right to amend his third-party
complaint to assert a claim against TKO under SDCL 15-6-14 because his third-
party complaint was served “no later than ten days after he serve[d] his original
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answer.” To Akers, his “original answer” for this issue concerns only his “answer” to
a July 2013 third-party defendant counterclaim by Sheet Metal against Akers.
Akers submits that Sheet Metal’s negligence counterclaim “was the first time Akers
was alleged to be a tortfeasor,” and it was not until that point Akers was able to
assert a counterclaim against TKO for contribution on Casper’s claims.
[¶85.] A close review of Sheet Metal’s amended answer to Akers’s amended
third-party complaint does not support Akers’s contention. Sheet Metal asserted a
counterclaim against Akers for indemnification and contribution in the event Sheet
Metal would be found liable. Thus, Akers’s “answer” to Sheet Metal’s counterclaim
was not an “original answer” to Casper’s claims as contemplated under SDCL 15-6-
14(a). Because Akers filed his “original answer” to Casper’s complaint in 2009,
Akers was required to obtain leave to assert the third-party claim against TKO
when he sought to amend his third-party complaint in July 2013.
[¶86.] From our review of the record, the court did not abuse its discretion
when it denied Akers leave to amend his third-party complaint to add a claim
against TKO. Akers did not seek leave to add TKO until 2013, despite knowing well
before then that TKO was the management company for the Hotel. Moreover, the
court’s scheduling order set July 1, 2012, as the deadline to add new parties. Most
importantly, Akers’s motion came only six months before trial in a case that
involved extensive discovery and multiple continuances.
CONCLUSION
[¶87.] The circuit court did not err when it denied Akers’s motion for a
judgment as a matter of law because (1) there was sufficient evidence for the jury to
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conclude that Akers breached the Agreement or Addendum and that Akers did not
meet his burden of proof on the issue of waiver or on his claim that Casper failed to
mitigate its damages, and (2) Casper did not have a duty to present evidence on
both the diminution in value and cost of repair measures of damages. The court
further did not abuse its discretion when it denied Akers’s motions for a mistrial
and new trial because (1) the court’s curative instruction and striking of Nelson’s
undisclosed expert opinion was sufficient to overcome the prejudicial effect, (2) the
court properly excluded Potter’s expert opinion on Casper’s line-item damages
summary, and (3) Casper’s closing remarks were not inflammatory or prejudicial.
[¶88.] The court’s jury instructions, as a whole, properly set forth the
applicable law, and, therefore, the court’s incorrect statement in one of the two
instructions on mitigation does not necessitate a new trial. Furthermore, the court
properly refused Akers’s requested warranty instruction and damages instruction.
The court did not err when it refused to join TKO as an indispensable party and
struck Akers’s amended third-party claim against TKO. Lastly, the court did not
err when it calculated post-judgment interest on the award of prejudgment interest.
[¶89.] However, because we now overrule Gettysburg to the extent it created
a rule that prejudgment interest begins to accrue on the date of the breach, the
issue of prejudgment interest is remanded for the circuit court to identify the date
Casper’s loss or damage occurred as a result of Akers’s breach. Thereafter, the
circuit court must recalculate prejudgment interest and post-judgment interest.
[¶90.] GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and
WILBUR, Justices, concur.
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