941 N.W.2d 207
S.D.2020Background
- GEAR UP is a federal grant program administered by the U.S. Department of Education; the South Dakota DOE (SDDOE) received a GEAR UP grant in 2011 and contracted with Mid‑Central Educational Cooperative (MCEC), which subcontracted with the American Indian Institute for Innovation (AIII).
- In Sept. 2015, MCEC business manager Scott Westerhuis (and his wife Nicole) were discovered to have mismanaged/embezzled funds; SDDOE terminated its agreement with MCEC shortly thereafter.
- Two students, Alyssa Black Bear and Kelsey Walking Eagle‑Espinosa, alleged they were denied GEAR UP services due to the mismanagement and sued MCEC, AIII, directors, and Estates of the Westerhuises asserting third‑party‑beneficiary contract claims and tort claims (theft/conversion, negligent supervision); they sought class certification.
- The circuit court initially denied several defense summary‑judgment motions and certified a class, but on renewed motions granted summary judgment based on federal preemption and dismissed the suit.
- On appeal the South Dakota Supreme Court affirmed the dismissal but did so on the independent ground that the students lacked standing: they were not intended third‑party beneficiaries, had no legal property interest in GEAR UP funds, and failed to show concrete injury, causation, or redressability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal law preempts state‑law claims | GEAR UP does not preempt private state remedies for loss of services | Federal statutory/regulatory scheme covers enforcement and preempts private suits | Not reached on the merits by Supreme Court; dismissal affirmed on standing grounds (circuit court had earlier granted SJ on preemption) |
| Standing (injury‑in‑fact, causation, redressability) | Plaintiffs lost supplemental GEAR UP services and thus suffered concrete, traceable injury that monetary relief could redress | Plaintiffs lack a concrete, particularized injury, causal trace to defendants, and redressability by damages | Plaintiffs lack standing; summary judgment dismissal affirmed |
| Third‑party‑beneficiary status (ability to enforce SDDOE–MCEC and MCEC–AIII contracts) | Contracts that funded services were intended to benefit cohort students; students can enforce breaches | Contracts were public agreements made for the State’s benefit; any benefit to students was incidental absent express contractual language creating enforcement rights | Students are not intended third‑party beneficiaries of the contracts; incidental benefit only; no standing to sue on contract claims |
| Tort/Conversion claims re: GEAR UP funds (property interest and causation) | Misappropriation of grant funds constitutes theft/conversion and caused loss of services to students | Students had no legal property or ownership interest in the grant funds; causation is speculative | No legal property interest in funds; conversion/theft and related tort claims fail for lack of legally protected interest and causal proof |
Key Cases Cited
- Sisney v. State, 754 N.W.2d 639 (S.D. 2008) (public‑contract third‑party beneficiary rights require plain, clear contractual language showing intent to permit enforcement by private persons)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (standing elements and the evidentiary burden at summary judgment)
- Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (standing and redressability requirements)
- Cable v. Union County Bd. of County Comm’rs, 769 N.W.2d 817 (S.D. 2009) (framing injury, causation, and redressability elements for standing under South Dakota law)
- Drummond v. Univ. of Pa., 651 A.2d 572 (Pa. Commw. Ct. 1994) (public‑contract scholarship case treating plaintiffs as incidental beneficiaries without enforcement rights)