Veblen District v. Multi-Community Cooperative Dairy

#26097-a-DG
2012 S.D. 26IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
VEBLEN DISTRICT, JERRY PIERSON
CLARICE BLAESER, DON L. MONSON,
SCOTT NICKESON, RON NICKESON,
GERRY PERSON, RALPH KEINTZ,
LEROY AADLAND, CARMAN LIEN,
and GERALD HEITMANN, Plaintiffs and Appellants,
v.
MULTI-COMMUNITY COOPERATIVE DAIRY, Defendant,
and
RICHARD MILLNER, INDIVIDUALLY AND
AS GENERAL MANAGER, AARON ANDERSON,
INDIVIDUALLY AND AS A DIRECTOR,
MATTHEW MILLNER, INDIVIDUALLY AND
AS A DIRECTOR, DENNIS PHERSON, JR.,
INDIVIDUALLY AND AS A DIRECTOR,
JORDAN HILL, INDIVIDUALLY AND AS
AN OFFICER, WAYNE VIESSMAN,
INDIVIDUALLY AND AS AN OFFICER,
MICHAEL WYUM, INDIVIDUALLY AND AS
AN OFFICER, AND DUANE BALDWIN,
INDIVIDUALLY AND AS AN OFFICER, Defendants and Appellees.
****
APPEAL FROM THE CIRCUIT COURT OF
THE FIFTH JUDICIAL CIRCUIT
MARSHALL COUNTY, SOUTH DAKOTA
****
THE HONORABLE JACK R. VON WALD
Judge
****
ARGUED FEBRUARY 15, 2012
OPINION FILED 04/11/12
STEVEN D. SANDVEN
Sioux Falls, South Dakota Attorney for plaintiffs
and appellants.
REED RASMUSSEN of
Siegel, Barnett and Schutz, LLP
Aberdeen, South Dakota Attorneys for defendants
and appellees.
#26097
GILBERTSON, Chief Justice
[¶1.] Minority shareholders (Plaintiffs) brought this action against majority
shareholders (Defendants), individually and as officers or directors of Multi-
Community Cooperative Dairy (MCC Dairy). Plaintiffs appeal the circuit court’s
grant of Defendants’ motion for summary judgment on the issues of: (1) minority
shareholder oppression; (2) breach of fiduciary duties; (3) tortious interference; (4)
restraint of trade or commerce; (5) negligence; and (6) unjust enrichment. Plaintiffs
also appeal the circuit court’s award of sanctions against them for abuse of
discovery. We affirm.
FACTS & PROCEDURAL HISTORY
[¶2.] Plaintiffs are minority shareholders in MCC Dairy, which was
incorporated in South Dakota in 1997. Defendant Richard Millner was hired as the
general manager for MCC Dairy in January 2000. Most of the members of the
Board of Directors, including several Plaintiffs, were removed in March 2001
pursuant to the bylaws. In 2002, some of the Plaintiffs met with the South Dakota
Attorney General’s Office to discuss their suspicions of criminal wrongdoing by
Defendants. An investigation by the Attorney General’s Office concluded there had
been no criminal wrongdoing.
[¶3.] Plaintiffs filed a shareholders’ derivative complaint in November 2007
against Defendants and MCC Dairy. Defendants filed a motion to dismiss in
December 2007 and a motion for summary judgment on January 23, 2008. On
January 28, 2008, Plaintiffs filed an amended, direct complaint under SDCL 15-6-
-1-
#26097
15(a), which allows parties to amend their complaint “as a matter of course at any
time before a responsive pleading is served . . . .”
[¶4.] The court stayed the case in February 2008 under SDCL 47-18-21
because a separate receivership action was filed. The case resumed around March
2011. A hearing on the motion for summary judgment was held in June 2011. The
court granted Defendants’ motion for summary judgment on the amended
complaint.
[¶5.] Defendants also filed a motion for sanctions in January 2008, claiming
Plaintiffs and their counsel had abused the discovery process. Depositions of
Plaintiffs were taken in December 2007 and January 2008. In June 2011, the court
held a hearing regarding the sanctions motion. The court granted the motion,
awarding Defendants $2,472.15 for attorneys’ fees and travel expenses. The court
issued findings of fact and conclusions of law regarding this award.
[¶6.] On appeal, the issues presented are:
1. Whether the circuit court erred in granting summary judgment.
2. Whether the circuit court abused its discretion in ordering
sanctions against Plaintiffs for abuse of discovery.
STANDARD OF REVIEW
[¶7.] A party is entitled to summary judgment “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if
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). Our standard
of review for evaluating the entry of summary judgment is well established:
-2-
#26097
In reviewing a grant or a denial of summary judgment under
SDCL 15-6-56(c), we determine whether the moving party has
demonstrated the absence of any genuine issue of material fact
and showed entitlement to judgment on the merits as a matter
of law. The evidence must be viewed most favorably to the
nonmoving party and reasonable doubts should be resolved
against the moving party. The nonmoving party, however, must
present specific facts showing that a genuine, material issue for
trial exists.
Dykstra v. Page Holding Co., 2009 S.D. 38, ¶ 23, 766 N.W.2d 491, 496. “All
reasonable inferences drawn from the facts must be viewed in favor of the non-
moving party.” Robinson v. Ewalt, 2012 S.D. 1, ¶ 10, 808 N.W.2d 123, 126.
Furthermore,
[a]lthough we often distinguish between the moving and
nonmoving party in referring to the parties’ summary judgment
burdens, the more precise inquiry looks to who will carry the
burden of proof on the claim or defense at trial. Entry of
summary judgment is mandated against a party who fails to
make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party
will bear the burden of proof at trial.
One Star v. Sisters of St. Francis, Denver, Colo., 2008 S.D. 55, ¶ 9, 752 N.W.2d 668,
674.
ANALYSIS
[¶8.] 1. Whether the circuit court erred in granting summary
judgment.
[¶9.] Plaintiffs’ amended complaint alleged six causes of action: (1)
oppression and/or unfairly prejudicial conduct toward minority shareholders; (2)
breach of fiduciary duty; ( 3) tortious interference; (4) restraint of trade or
-3-
#26097
commerce; (5) negligence; and (6) unjust enrichment. The court granted summary
judgment in entirety.1
[¶10.] Plaintiffs allege that summary judgment was improper because there
are disputed issues of material fact. For summary judgment, Defendants have to
show no genuine issue of material fact and entitlement to judgment as a matter of
law. “[E]ntry of summary judgment is mandated against a party who fails to make
a showing sufficient to establish the existence of an element essential to that party’s
case, and on which that party will bear the burden of proof at trial.” Danielson v.
Hess, 2011 S.D. 82, ¶ 8, 807 N.W.2d 113, 115. For purposes of summary judgment,
Defendants admitted to all of Plaintiffs’ facts. Even with all facts construed in their
favor, Plaintiffs cannot demonstrate any conduct supporting their causes of action.
[¶11.] Nothing in the record demonstrates that Defendants’ activities were
actionable. When questioned at oral argument as to where the record shows
Defendants’ activities were actionable, Plaintiffs’ counsel directed the Court to the
forensic audit. Despite having several years to acquire support, there is no expert
testimony demonstrating what in the forensic audit shows impropriety by
Defendants. We are not experts in forensic audit. “[A]bsent expert testimony, we
cannot, by telepathy, act as mind readers determining from [a forensic audit] the
factual determinations” of its author. See In re Appeal of Schramm, 414 N.W.2d 31,
1. Plaintiffs have asserted that the circuit court erred in granting summary
judgment on the amended complaint because it did not go through the
elements of the claims, which were different than the claims in the derivative
complaint. “Since a summary judgment presupposes there is no genuine
issue of fact, findings of fact and conclusions of law are unnecessary.” Wilson
v. Great N. Ry. Co., 83 S.D. 207, 211, 157 N.W.2d 19, 21 (1968).
-4-
#26097
36 (S.D. 1987). Consequently, Plaintiffs have not guided this Court to any evidence
that supports their assertion that Defendants acted wrongly.
[¶12.] Overall, Plaintiffs fail to adequately articulate what material facts are
in dispute to support their claims, and fail to identify how the court erred in its
legal conclusion. Based on the entire record, and even examining the facts in a light
most favorable to Plaintiffs, there is no support that Defendants engaged in any
wrongdoing. Defendants have met their burden to achieve summary judgment.2
Because Plaintiffs have failed to show that the circuit court erred as a matter of law
in granting summary judgment, we affirm.
[¶13.] 2. Whether the circuit court abused its discretion in
ordering sanctions against Plaintiffs for abuse of
discovery.
[¶14.] SDCL 15-6-37(d) provides:
If a party . . . fails (1) to appear before the officer who is to take
the deposition, after being served with a proper notice . . . after
proper service of the request, the court in which the action is
pending on motion may make such orders in regard to the
failure as are just, and among others it may take any action
authorized under subdivisions 15-6-37(b)(2)(A), (2)(B), and
(2)(C). In lieu of any order or in addition thereto, the court shall
require the party failing to act or the attorney advising him or
both to pay the reasonable expenses, including attorney’s fees,
caused by the failure, unless the court finds that the failure was
substantially justified or that other circumstances make an
award of expenses unjust. The failure to act described in this
subdivision may not be excused on the ground that the discovery
sought is objectionable unless the party failing to act has applied
for a protective order as provided by § 15-6-26(c).
(Emphasis added.)
2. Plaintiffs did not request a continuance of the summary judgment hearing in
order to complete additional discovery.
-5-
#26097
[¶15.] Plaintiffs argue that they were justified in refusing to attend the
depositions because: (1) they were scheduled unilaterally; (2) Defendants failed to
act in good faith; (3) the depositions were scheduled at locations designed to harass
Plaintiffs; and (4) service of the deposition notice was improper because counsel for
Plaintiffs never agreed to accept service by facsimile as required by SDCL 15-6-5(f).
[¶16.] The circuit court issued findings of fact and conclusions of law
regarding the sanctions. Essentially, two days before the depositions were
scheduled to begin, Plaintiffs’ counsel discovered that the address was for a bar
owned by some of the Defendants. Several Plaintiffs refused to attend because they
believed security cameras in the bar could broadcast to outside locations. Plaintiffs’
counsel sent notice to Defendants’ counsel cancelling the depositions. The next day,
Defendants’ counsel faxed notice that the depositions would occur as scheduled at
an alternate location.
[¶17.] After several correspondences, Plaintiffs considered the depositions
cancelled, and Defendants believed the depositions would continue as scheduled.
Defendants’ counsel had informed Plaintiffs’ counsel that Plaintiffs’ counsel would
have to seek a protective order to effectively cancel the depositions. None of the
scheduled depositions occurred because Plaintiffs and their counsel did not attend.
Some depositions were rescheduled for a later date. When a witness for the
Plaintiffs failed to appear, Plaintiffs’ counsel asked whether Defendants’ counsel
had served the witness with notice of the deposition. Plaintiffs’ counsel had not
informed his client to attend the deposition, and all parties had to wait until the
witness arrived.
-6-
#26097
[¶18.] Based on these events, Defendants moved for sanctions. At no time
did Plaintiffs file for a protective order. The court found that as a result of the
Plaintiffs’ failure to appear or late appearances, counsel for Defendants incurred
unnecessary attorneys’ fees and travel expenses. The court awarded $2,472.15 in
sanctions against Plaintiffs and their counsel.
[¶19.] Plaintiffs argue that service by facsimile was improper under SDCL
15-6-5(f). SDCL 15-6-5(f) provides in part:
Whenever under these rules service is required or permitted to
be made upon a party represented by an attorney, such service
may be made by facsimile transmission pursuant to the
following conditions:
(1) The attorney upon whom service is made has the necessary
equipment to receive such transmission;
(2) The attorney has agreed to accept service by facsimile
transmission, or has served the serving party in the same case
by facsimile transmission; and
(3) The time and manner of transmission comply with the
requirements of § 15-6-6(a), unless otherwise established by the
Court.
Plaintiffs’ counsel stated at the hearing for the motion on sanctions that “[P]laintiffs
faxed a memorandum to the defendants . . . .” Consequently, Plaintiffs consented,
perhaps unintentionally, to service by facsimile under SDCL 15-6-5(f)(2). However,
even if Plaintiffs did not consent to service in that form, we are unable to locate
anything in the record indicating that Plaintiffs raised this argument below. It is
therefore waived.
[¶20.] The court concluded that the depositions were properly noticed and
Plaintiffs’ counsel failed to seek a protective order. The court also found that
sanctions were appropriate given Plaintiffs’ and Plaintiffs’ counsel’s actions, which
-7-
#26097
constituted a violation of SDCL 15-6-37(d). Plaintiffs have not demonstrated that
the circuit court’s findings of fact are clearly erroneous.
[¶21.] “The authority of the trial court concerning sanctions is flexible and
allows the court ‘broad discretion with regard to sanctions imposed thereunder for
failure to comply with discovery orders.’” Schwartz v. Palachuk, 1999 S.D. 100, ¶
23, 597 N.W.2d 442, 447 (quoting Chittenden & Eastman Co. v. Smith, 286 N.W.2d
314, 316 (S.D. 1979)). Plaintiffs have not demonstrated that the circuit court
abused its discretion in awarding sanctions.
CONCLUSION
[¶22.] Based on the record, we affirm the circuit court’s grant of summary
judgment. We also affirm the award of sanctions because Plaintiffs have not shown
the circuit court’s findings to be clearly erroneous, that there was legal error, or that
the court abused its discretion.
[¶23.] KONENKAMP, ZINTER, SEVERSON, and WILBUR, Justices, concur.
-8-