Dt-Trak Consulting, Inc. v. Kolda

#29725, #29726-aff in pt & rev in pt-JMK
2022 S.D. 50

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

****

#29725

DT-TRAK CONSULTING, INC.,
A South Dakota Corporation, Plaintiff and Appellee,

v.

REMA KOLDA, an Individual, Defendant and Appellant.

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#29726

DT-TRAK CONSULTING, INC.,
A South Dakota Corporation, Plaintiff and Appellant,

v.

REMA KOLDA, an Individual, Defendant and Appellee.

****

APPEAL FROM THE CIRCUIT COURT OF
THE THIRD JUDICIAL CIRCUIT
HAND COUNTY, SOUTH DAKOTA

****

THE HONORABLE KENT SHELTON
Judge

****

TIMOTHY R. WHALEN
Lake Andes, South Dakota Attorney for appellant in
#29725 and appellee in #29726.

****

ARGUED
MAY 26, 2022
OPINION FILED 08/17/22
****

SANDER J. MOREHEAD
JORDAN FEIST of
Woods, Fuller, Shultz & Smith P.C.
Sioux Falls, South Dakota Attorneys for appellant in
#29726 and appellee in #29725.
#29725, #29726

KERN, Justice

[¶1.] DT-Trak Consulting, Inc. (DT-Trak) sued its former employee, Rema

Kolda, for alleged violations of a non-compete agreement. DT-Trak and Kolda filed

cross-motions for summary judgment, both of which were denied by the circuit

court. We granted intermediate appeal of the circuit court’s denial of both parties’

respective summary judgment motions. We affirm in part, reverse in part, and

remand.

Factual and Procedural History

[¶2.] Both parties agree that the material facts in this case are undisputed.

DT-Trak is a medical consulting firm and independent contractor, based in Miller,

South Dakota. It provides consulting services to hospitals and other medical

providers, such as medical coding, compliance auditing, billing, medical staffing,

workflow analysis, and other support services. DT-Trak alleges that it provides its

services throughout the United States; specifically, that it has active contracts with

clients in 19 states and potential clients or pending bids for clients in several other

states.

[¶3.] Kolda first began working for DT-Trak in 2004. During Kolda’s

employment, DT-Trak provided her training so that she could receive a certification

in the ICD-10 system of medical coding. In exchange for DT-Trak paying for

Kolda’s training, Kolda agreed, in a prior written agreement, to either continue

working for DT-Trak for five years or, if she left DT-Trak’s employment early, repay

DT-Trak for the costs of her training and certification. The parties agree that the

ICD-10 medical coding system is a universal coding system in the public domain

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and is not, in and of itself, a trade secret, confidential information, or proprietary to

DT-Trak.

[¶4.] Kolda continued working for DT-Trak until July 2016, at which time

she voluntarily terminated her employment. After a few months, she returned to

work for DT-Trak as a medical coder beginning in September 2016. Kolda signed a

new agreement (the Agreement) when she returned to work, which is the non-

compete agreement at issue in this case. 1 In DT-Trak’s view, the Agreement, which

is discussed in more detail herein, prohibits Kolda from working, directly or

indirectly, for a period of two years upon cessation of employment with DT-Trak,

with any entity in the United States that engages in medical coding services.

[¶5.] On January 31, 2019, Kolda gave notice to DT-Trak that she was

terminating her employment effective February 15, 2019. Shortly before providing

this notice, Kolda had accepted employment with San Carlos Apache Healthcare

Corporation (San Carlos), a medical provider in Arizona operating a hospital and a

clinic, for which she would work remotely from her existing residence in St.

Lawrence, South Dakota. San Carlos previously had a contract with DT-Trak that

expired at the end of 2018 and was not renewed. Thus, there was no active contract

between San Carlos and DT-Trak for any of DT-Trak’s services at the time that

Kolda gave notice to DT-Trak that she was resigning and had accepted employment

with San Carlos.

1. Kolda signed a non-compete agreement with DT-Trak as part of her previous
employment; however, this first non-compete agreement does not appear in
the record.
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#29725, #29726

[¶6.] Since 2019, Kolda has been working remotely from her home in South

Dakota as a medical coder for San Carlos in Arizona. Because of this employment,

DT-Trak filed a four-count complaint against Kolda on October 28, 2019, asserting

that she is violating multiple provisions of the Agreement. In Count 1 of the

complaint, DT-Trak claims that Kolda is in breach of the non-disclosure provision of

the Agreement because she “is wrongfully using and disclosing DT-Trak’s

proprietary information, Confidential Information, and trade secrets during her

employment with San Carlos.” Count 2 alleges that Kolda is in breach of the non-

compete provision of the Agreement by working as a medical coder within the

United States. In Count 3, DT-Trak asserts that Kolda is in breach of the non-

solicitation provision of the Agreement because she “solicited DT-Trak’s employees

to leave employment with DT-Trak, and continues to do so despite written demand

that she cease doing so.” Count 4 of the complaint avers that “in the course of her

employment with San Carlos, Kolda has used[,] disclosed and otherwise

misappropriated trade secrets belonging to DT-Trak.”

[¶7.] In its complaint, DT-Trak requests that the circuit court enter

preliminary and permanent injunctions “prohibiting Kolda from working for San

Carlos Consulting, Inc.,[ 2] or any other ‘competing business’ as defined by the

Employment Agreements for two years after entry of the order and judgment;

prohibiting Kolda from using or disclosing DT-Trak’s Confidential Information or

2. San Carlos is not a consulting firm and its name does not include
“Consulting, Inc.” As discussed above, its full name is San Carlos Apache
Healthcare Corporation, and it is a medical provider that had previously
hired DT-Trak to provide consulting services.
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#29725, #29726

trade secrets; and prohibiting Kolda from directly or indirectly soliciting,

requesting, causing or inducing any person to leave the employment of DT-Trak[.]”

DT-Trak further requests damages, including “the greater of its liquidated or actual

damages under the Employment Agreement with Kolda[,]” “exemplary damages[,]”

and an “award for costs and expenses, including the reasonable attorney fees

incurred in enforcing the Employment Agreement[.]”

[¶8.] Kolda answered, denying DT-Trak’s claims and counterclaiming for

barratry. On April 16, 2021, DT-Trak filed a motion for partial summary judgment

on Count 2 of its complaint, asserting that no material issue of fact was in dispute

that Kolda has and is violating the non-compete provision of the Agreement. On

April 20, 2021, Kolda moved for summary judgment on all counts in DT-Trak’s

complaint, arguing that she did not violate any provisions of the Agreement.

Alternatively, Kolda argued that even if she is violating the Agreement, its non-

compete provision was invalid as an unlawful restraint on her trade because of the

breadth of the work prohibited and the expansive geographic limitations contained

therein. Kolda further asserted that she possessed no trade secret or confidential or

proprietary information of DT-Trak. Although Kolda’s motion requested summary

judgment on all counts in DT-Trak’s complaint, her brief in support of the motion

did not address Count 3, DT-Trak’s employee solicitation claim. However, in its

brief in opposition to Kolda’s summary judgment motion, DT-Trak stated that “it is

no longer seeking relief under Count III of its Complaint.” 3

3. Counsel for DT-Trak confirmed this position in oral argument before this
Court.
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#29725, #29726

[¶9.] The circuit court held a hearing on June 14, 2021, on the parties’ cross-

motions for summary judgment at which it denied both parties’ motions, stating

that it felt there was “enough information here to turn this to a jury.” During this

hearing, DT-Trak clarified that it did not believe that the circuit court needed to

reach any issue beyond Count 2 if it granted summary judgment to DT-Trak on that

count because “DT-Trak isn’t seeking additional relief under those [other] claims.”

However, it further asserted that “if the [c]ourt would reject DT-Trak’s claims under

count two, then under counts one and four, DT-Trak still has claims.” The circuit

court entered an “Order Denying Motions for Summary Judgment” on June 30,

2021.

[¶10.] Both parties petitioned this Court, on August 2, 2021, for intermediate

appeal of the circuit court’s denial of their summary judgment motions. On August

20, 2021, this Court granted both Kolda’s and DT-Trak’s petitions for intermediate

appeal, which we now consolidate.

Standard of Review

[¶11.] “We review a court’s denial of a motion for summary judgment under

the de novo standard of review.” Owners Ins. Co. v. Tibke Construction, Inc., 2017

S.D. 51, ¶ 8, 901 N.W.2d 80, 83 (citation omitted). “Summary judgment is

appropriate ‘if the pleadings, depositions, answer 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.’” North Star Mut. Ins. v. Korzan, 2015 S.D. 97, ¶ 12, 873 N.W.2d 57, 61

(quoting SDCL 15-6-56(c)). Additionally, we “review de novo both the interpretation

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#29725, #29726

of the terms of a contract and the meaning of a statute.” Franklin v. Forever

Venture, Inc., 2005 S.D. 53, ¶ 7, 696 N.W.2d 545, 548.

Analysis and Decision

[¶12.] DT-Trak moved for summary judgment as to Count 2 of its complaint,

while Kolda moved for summary judgment in her favor on all counts in the

complaint. Both parties agree that Count 3 is no longer an issue in this lawsuit.

Both parties also contend that there are no genuine issues of material fact and that

the circuit court erred in denying their respective summary judgment motions. We

first discuss whether the circuit court erred in denying summary judgment to both

DT-Trak and Kolda on Count 2. Next, we discuss whether the circuit court erred in

denying Kolda summary judgment on Counts 1 and 4.

Count 2—Cross Motions for Summary Judgment

[¶13.] Count 2 of DT-Trak’s complaint asserts that Kolda has and is violating

the non-compete provision of her Agreement with DT-Trak. Kolda argues that she

is not in breach of the plain language of the non-compete provision because San

Carlos does not provide medical coding services for other healthcare providers in the

same way that DT-Trak does.

[¶14.] The disputed non-compete provision is contained in § 2 and provides:

Non-Competition. At all times during which Employee is
employed by Employer and during the period commencing on
the date of the termination of Employee’s employment with
Employer and ending two years after such date, Employee
agrees that Employee will not, anywhere in the Business Area,
engage, directly or indirectly, in any capacity whatsoever,
whether as an officer, director, stockholder, owner, proprietor,
partner, member, co-owner, investor, employee, trustee,
manager, consultant, independent contractor, co-venturer,
lender, financier, agent, representative or otherwise, in a

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#29725, #29726

Competing Business, or otherwise hold any interest in a
Competing Business.

(Emphasis added.) The Agreement defines a Competing Business in § 1.3 as:

any individual, corporation, partnership, limited partnership,
limited liability company, association, trust (business or
otherwise), institution, foundation, pool, plan or other entity or
organization (other than Employer) that engages or proposes to
engage in the Business of Employer.

The definition of a Competing Business thus depends on the definition of the

Business of Employer, which the Agreement defines in § 1.1 as follows:

“Business” or “Business of Employer” shall mean professional
medical coding, data entry, third-party billing and accounts
receivable services and related activities for healthcare service
providers including, but not limited to, the following services:

Professional medical coding; Electronic Health Record
Services (EHR); Electronic Data Entry (any database or
software); Error Report Management and Completion;
Third Party Billing, all payer sources; Accounts
Receivable; Posting; Collections (120+ days, etc.); Quality
Assurance of Revenue Generation Cycle; Comprehensive
Revenue Generation Services; Compliance Auditing
HIPAA, etc.; Data Integrity Audits, entire revenue
generation cycle; Provider and Staff Education; Patient
Registration; Staff & Program Development/Evaluation
Criteria Development; Comprehensive Consultative
Services for Healthcare Administrative, Financial, HIM
and BO Functions; Revenue Enhancement Auditing;
Development and Implementation of Work Flow
Processes Relating to Revenue Generation Cycle;
Planning, Implementing and Facilitation of
Training/Workshops; Feasibility Studies for or
Development of Revenue Generation Cycle or
Development; Internal Controls Policy Evaluation,
Implementation and Management; “Special Projects”-
Analysis and Development of Various Health an [sic]
Revenue Generation Studies; Financial Projections for
Healthcare Facilities; Cost Analysis Studies for
Healthcare Facilities; Chargemaster Audit,
Implementation and Utilization.

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#29725, #29726

The Agreement additionally provides in § 1.2 that the “Business Area” within which

Kolda may not engage, directly or indirectly, with a Competing Business includes

the entirety of the United States.

[¶15.] It is undisputed that Kolda is working, within the United States,

directly as an employee for San Carlos, a healthcare provider. It is also undisputed

that she is employed as a medical coder for San Carlos. According to DT-Trak,

because Kolda is an individual engaging in the business of DT-Trak, she meets the

definition of a Competing Business. It further contends that because the

Agreement prohibits Kolda from engaging in any capacity whatsoever with a

Competing Business, she has violated the Agreement.

[¶16.] On the contrary, to determine whether a violation has occurred, we

first look at the language of the non-compete clause, not the definition of Competing

Business. Because Kolda is working as an employee for San Carlos the question is

whether Kolda’s employer, San Carlos, is a Competing Business under the

definition provided in the Agreement, not whether Kolda, an individual, is a

Competing Business. See Agreement § 2 (prohibiting Kolda from engaging “in any

capacity whatsoever” anywhere in the United States “as . . . an employee . . . in a

Competing Business”).

[¶17.] To be a Competing Business, San Carlos must engage in the Business

of Employer, which is defined in § 1.1 of the Agreement to mean “professional

medical coding, data entry, third-party billing and accounts receivable services and

related activities for healthcare service providers including, but not limited to, the

following services: Professional medical coding . . . .” (Emphasis added.)

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#29725, #29726

Importantly, San Carlos must provide the professional medical coding for

healthcare service providers in order to fall within the definition of the Business of

Employer and to constitute a Competing Business in which Kolda may not engage

as an employee.

[¶18.] Here, however, San Carlos does not provide professional medical

coding for a healthcare service provider; rather it is a healthcare provider. San

Carlos is also not providing medical coding services for other healthcare service

providers; it merely has in-house medical coding staff for its required medical

coding. Because San Carlos does not provide the service of medical coding or any

other listed service in the Agreement for healthcare service providers, it is not

engaging in the Business of Employer as defined in § 1.1 of the Agreement. For this

reason, San Carlos is not a Competing Business as defined in the Agreement.

Therefore, Kolda is not in violation of the non-compete provision of the Agreement

via being an employee doing medical coding for San Carlos, and summary judgment

should have been granted to Kolda as a matter of law on this count.

Counts 1 and 4—Kolda’s Motion for Summary Judgment

[¶19.] In Count 1, DT-Trak claims that Kolda is in breach of the non-

disclosure provision of the Agreement because she “is wrongfully using and

disclosing DT-Trak’s proprietary information, Confidential Information, and trade

secrets during her employment with San Carlos” and “will continue to wrongfully

use and disclose” such information and trade secrets “unless her employment with

San Carlos is terminated.” DT-Trak claims in Count 4 that “in the course of her

employment with San Carlos, Kolda has used[,] disclosed and otherwise

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#29725, #29726

misappropriated trade secrets belonging to DT-Trak.” The confidential and

proprietary information and trade secrets that DT-Trak alleges are being

wrongfully used, disclosed, and misappropriated are what it terms its “proprietary

protocol notes” as well as the DT-Trak-specific experience Kolda gained as a medical

coder.

[¶20.] In particular, DT-Trak argues that its protocol notes are trade secrets

in that they are based on DT-Trak’s specialized knowledge of “provider standards,

clinic visit types and locations, data entry and coding details” and that DT-Trak’s

“knowledge, design, and method of identifying and compiling these details is DT-

Trak’s proprietary trade secret and confidential information, which [Kolda] would

have learned from her training at DT-Trak.” DT-Trak asserts that it may petition

the court for injunctive relief for actual or mere threatened misappropriation of a

trade secret under SDCL 37-29-2 and that misappropriation is at a minimum

threatened here. 4

[¶21.] Kolda asserts that DT-Trak’s protocol notes and her experience and

knowledge as a medical coder are not trade secrets or proprietary or “Confidential

Information” and, even if they were, she did not misappropriate, use, or disclose

them. For these reasons, Kolda contends, she is entitled to summary judgment on

Counts 1 and 4.

4. DT-Trak also argues that during discovery Kolda refused to turn over certain
information relative to her work at San Carlos that she claimed was
confidential. However, DT-Trak did not present this claim to the circuit court
thereby precluding appellate review.
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#29725, #29726

[¶22.] The “existence of a trade secret is a mixed question of law and fact.

The legal question is, ‘whether the information in question could constitute a trade

secret under the first part of the definition of trade secret’ under SDCL 37-29-1(4)

. . . . The factual inquiry involves the remaining subsections of SDCL 37-29-1(4)(i)

and (ii).” Daktronics, Inc. v. McAfee, 1999 S.D. 113, ¶ 13, 599 N.W.2d 358, 361

(citation omitted). SDCL 37-29-1(4) defines a trade secret as:

information, including a formula, pattern, compilation, program,
device, method, technique, or process, that:
(i) Derives independent economic value, actual or
potential, from not being generally known to, and not
being readily ascertainable by proper means by, other
persons who can obtain economic value from its
disclosure or use; and
(ii) Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.

Although the second step of the trade secret analysis is an issue of fact, “a court

may determine a question of fact by summary judgment if it appears to involve no

genuine issues of material fact and the claim fails as a matter of law.” Daktronics,

1999 S.D. 113, ¶ 16, 599 N.W.2d at 362. Daktronics further clarifies that “the ease

with which information can be developed through other proper means” is relevant to

the factual portion of this inquiry—“if the information can be readily duplicated

without involving considerable time, effort or expense, then it is not a secret.” Id.

¶ 17, 599 N.W.2d at 362 (citation omitted). In other words, the compilation of

information or materials “cannot be considered a trade secret” if the compilation

was “within the realm of general skills and knowledge in the relevant industry.”

Weins v. Sporleder, 1997 S.D. 111, ¶ 21, 569 N.W.2d 16, 21 (cleaned up).

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#29725, #29726

[¶23.] Although Count 4 of the complaint alleges the existence of a trade

secret, Count 1 alleges the existence of a trade secret in addition to proprietary

information and “Confidential Information.” As such, DT-Trak directs us to the

language in the Agreement to guide our analysis. Section 1.4 of the Agreement

defines “Confidential Information” as:

any information or data concerning the Business of Employer
that is not generally known and that is proprietary to Employer
or that any party is obligated to treat as proprietary, including
without limitation: information or material of Employer relating
to trade secrets, inventions, improvements, discoveries, “know-
how,” technological developments, or unpublished writings or
works of authorship, or to the materials, apparatus, processes,
formulae, plans or methods used in the development, provision,
or marketing of Employer’s products or services; and
information that when received is marked as “proprietary,”
“private,” or “confidential.” Any information that Employer
reasonably considers as confidential or proprietary, or that
Employer treats as confidential or proprietary, will be presumed
to be Confidential Information without regard as to whether
Employer originally produced or created such information and
regardless of how Employer obtained such information.

Further, § 5.1 discusses the protection of said “Confidential Information”:

Employee may not, directly or indirectly, at all times during
which Employee is employed by Employer and during the period
commencing on the date of the termination of Employee’s
employment with Employer and ending five years after such
date, use Confidential Information in any fashion or manner or
disclose Confidential Information to any person not authorized
by Employer to receive it, except that Employee may disclose
Confidential Information to any governmental or regulatory
authority to which he is subject, but only pursuant to subpoena
or court order . . . .

[¶24.] We first address whether a trade secret exists here. Considering the

sealed documents in the record that DT-Trak alleges are its trade secrets, including

the protocol notes for San Carlos and the experience Kolda gained working at DT-

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Trak, it is difficult to conceive how these documents and Kolda’s work experience

could be trade secrets or further, how Kolda is using, disclosing, or

misappropriating any trade secret in a way that would be detrimental to DT-Trak.

Based on our careful review of the protocol notes, and considering the breadth of

experience Kolda gained from working at DT-Trak, we conclude that neither meet

the definition of a trade secret enunciated in SDCL 37-29-1(4)(i). DT-Trak has not

produced evidence supporting that this is the type of information that could not be

compiled by others with the general skills and knowledge in the medical coding

industry. And even if the protocol notes were trade secrets, Kolda does not appear

to be at risk of using, disclosing, or misappropriating them in a way that would be

detrimental to DT-Trak because the protocol notes, as Kolda emphasizes in her

brief, “changed daily[,] if not hourly, were not always customer specific, and are not

used by [Kolda] at San Carlos.” For this reason, we conclude that Kolda is entitled

to summary judgment as a matter of law on Count 4.

[¶25.] With reference to Count 1 and DT-Trak’s allegations regarding

“Confidential Information” as defined in the Agreement, even viewing the

undisputed facts in the light most favorable to DT-Trak and assuming that relevant

“Confidential Information” exists, DT-Trak has produced no evidence beyond

suspicion that Kolda is “using” and “disclosing” or will continue to use and disclose

any “Confidential Information,” trade secret, or proprietary information as alleged

in Count 1.

[¶26.] Kolda testified at her deposition that in working for San Carlos, she

does not “use any of these protocols [referring to the DT-Trak protocol notes].” In

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her statement of undisputed material facts before the circuit court, Kolda asserted

that DT-Trak “does not have any evidence that [Kolda] violated the terms of the

Agreement, but only has suspicions that she may have done so.” In support of this

assertion, Kolda cites, in part, to the deposition of Jewel Kopfmann, a

representative of DT-Trak, in which the following exchange occurred:

Q: So that begs this question, then: Is it your position that
[Kolda] has taken from DT-Trak protocols for San Carlos?
A: Yes.
Q: What evidence or proof of that do you have?
A: It’s the proprietary information that she’s gained through
her knowledge of working with DT-Trak.
Q: But the protocol is a written document; right?
A: They are.
Q: And they change? As we discussed earlier, they can
change; right?
A: The base of them stay the same. There could be updates.
Q: So it’s your testimony by virtue of the fact that [Kolda]
coded for a facility, she knows the protocol - -
A: Correct.
Q: - -and has taken it with her because of what she’s
learned? Is that what you’re saying?
A: Correct.
Q: She didn’t actually take the document?
A: I don’t know if she did or she didn’t.
Q: Do you believe that she did?
A: Possibly.
Q: What evidence do you have to support that suspicion?
A: I don’t.

DT-Trak’s response to this assertion in Kolda’s statement of undisputed material

facts is without citation to the record and merely provides: “Denied. It is

undisputed Kolda is working for San Carlos in violation of her non-compete and

other obligations[.]”

[¶27.] DT-Trak has provided no evidence beyond its suspicion that Kolda has

used and disclosed or will continue to use and disclose “Confidential Information,”

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trade secrets, or proprietary information to support its claim in Count 1. “Mere

speculation and general assertions, without some concrete evidence, are not enough

to avoid summary judgment.” North Star Mut. Ins., 2015 S.D. 97, ¶ 21, 873 N.W.2d

at 63. The record contains no evidence other than DT-Trak’s representative’s

speculation that Kolda has disclosed and used or will use and disclose any DT-Trak

trade secret, proprietary information, or “Confidential Information” as defined in

the Agreement—and use and disclosure is an integral component of DT-Trak’s

claim in Count 1. Because DT-Trak’s suspicions alone are insufficient to create a

dispute of material fact that would avoid summary judgment on Count 1, and

because Kolda is entitled to summary judgment as a matter of law on the

undisputed material facts present in the record, Kolda is entitled to summary

judgment on Count 1.

[¶28.] We conclude that summary judgment should have been granted to

Kolda as a matter of law on Counts 1, 2, and 4. Accordingly, we affirm the circuit

court’s denial of summary judgment to DT-Trak on Count 2; reverse the circuit

court’s denial of summary judgment to Kolda on Counts 1, 2, and 4; and remand for

further proceedings consistent with this opinion.

[¶29.] JENSEN, Chief Justice, and SALTER, DEVANEY, and MYREN,

Justices, concur.

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