2024 S.D. 42
S.D.2024Background
- Ross Determan sold his accounting practice to FDJ, LLC (owned by Flugge and Julius), with payment terms and a non-compete clause included in the Purchase Agreement.
- FDJ, LLC was required to make periodic payments to Determan for six years, as specified in the Purchase Agreement.
- Disputes arose less than a year after the sale due to late payments and alleged failure by the LLC to properly calculate or remit amounts owed to Determan.
- Determan stopped receiving payments in May 2018, resigned from employment, and later began servicing former clients after notifying the LLC of its breach.
- FDJ, LLC and its members sued Determan for breaching the non-compete; Determan counterclaimed for breach of contract for non-payment by the LLC.
- The circuit court ruled in favor of Determan, awarded damages, and imposed joint and several liability on all plaintiffs, not just the LLC.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Which party first materially breached contract? | Determan breached first by violating non-compete. | LLC failed to make required payments first, excusing Determan’s non-compete duty. | LLC's failure to pay was first and material breach; Determan excused. |
| Whether Determan was owed payment under the Purchase Agreement | Flugg and Julius alleged claimed expenses offset owed payments. | Determan disputed validity of offsets; no documentation provided by LLC. | Circuit court found for Determan; offsets not proven. |
| Joint and several liability of LLC members | Judgment should be against LLC only, not personal liability for Flugge and Julius. | No express argument for veil piercing; liability should attach to LLC. | Imposing liability on individuals reversed; LLC liable only. |
| Effect of withdrawal/dissociation from LLC on contract | Determan’s withdrawal breached Operating Agreement. | Dispute centered on non-compete and payment, not operating agreement withdrawal. | Withdrawal issue not considered; contract performance and payment at issue. |
Key Cases Cited
- Melstad v. Kovac, 723 N.W.2d 699 (S.D. 2006) (outlines standards of review for conclusions of law and factual findings)
- Eagle Ridge Ests. Homeowners Ass’n v. Anderson, 827 N.W.2d 859 (S.D. 2013) (clarifies clearly erroneous standard for factual findings)
- FB & I Bldg. Prod., Inc. v. Superior Truss & Components, 727 N.W.2d 474 (S.D. 2007) (material breach excuses non-breaching party from further performance)
- Icehouse, Inc. v. Geissler, 636 N.W.2d 459 (S.D. 2001) (defines material breach and its effect)
- Thunderstik Lodge, Inc. v. Reuer, 585 N.W.2d 819 (S.D. 1998) (discusses defeat of contract purpose by material breach)
- Paul v. Bathurst, 997 N.W.2d 644 (S.D. 2023) (lists factors for piercing the corporate veil)
- Brevet Int'l, Inc. v. Great Plains Luggage Co., 604 N.W.2d 268 (S.D. 2000) (high bar for disregarding corporate entity)
- Ziegler Furniture & Funeral Home, Inc. v. Cicmanec, 709 N.W.2d 350 (S.D. 2006) (contract interpretation based on parties’ intent)