Veblen District v. Multi-Community Cooperative Dairy

#26097-a-DG

2012 S.D. 26

IN 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.
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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-

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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:

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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

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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).

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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.

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[¶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.

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[¶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

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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.

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