872 N.W.2d 810
S.D.2015Background
- Adam Ray (Granite Buick) and Scott Hanna (McKie Ford) signed non-compete agreements as employees of the McKie automotive group; agreements limited post-employment competition for one year within the market area.
- Ray signed his covenant in 2006 after a sales meeting where general manager Troy Claymore said the covenant would not be enforced against employees who "bettered themselves." Ray later became exclusively employed by Granite Buick after the McKie group split.
- Hanna signed his covenant in 2009 as a sales manager. In February 2013 both employees formed Gateway Autoplex with a third partner, gave personal lease guarantees, and resigned.
- Before leaving, Ray and Hanna each had conversations with senior owners in which they were told (or understood) the owners would not "come after" them; Granite Buick sent Ray a letter dated February 7, 2013, asserting intent to enforce the covenant.
- Granite Buick and McKie Ford sued for injunctive enforcement. The circuit court found Ray proved fraudulent inducement (and other defenses) and found Hanna established waiver (and other defenses); the Supreme Court affirmed as to Ray and Hanna on these defenses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether parol evidence may be considered to support equitable/promissory estoppel defenses | Parol evidence was barred; court erred admitting pre-contract statements | Extrinsic evidence is admissible to prove fraud and related defenses | Court: Parol evidence admissible to prove fraud; need not decide further after fraud found |
| Whether Ray proved fraudulent inducement | Granite: No; Ray did not "better himself" and employer's position didn’t change | Ray: Claymore’s promise (only enforce on lateral moves) and employer’s later conduct show inducement | Court: Ray proved fraudulent inducement; employer never intended to honor Claymore’s promise; defense established |
| Whether Hanna proved waiver | McKie Ford: Conversation irrelevant because owner lacked knowledge of covenant | Hanna: Owner’s statements that he wouldn’t "come after" him amounted to waiver and reliance | Court: Waiver proven—owner’s statements, context, and Hanna’s reliance show relinquishment of enforcement right |
| Whether affirmative defenses by defendants defeated injunctive relief | Appellants: Court erred in findings and should have enjoined defendants | Defendants: Established defenses (fraud, waiver) bar enforcement of covenants | Court: Affirmed denial of injunctive relief based on proven affirmative defenses |
Key Cases Cited
- Poeppel v. Lester, 827 N.W.2d 580 (S.D. 2013) (parol evidence admissible to prove fraud in inducement)
- Miller v. Jacobsen, 714 N.W.2d 69 (S.D. 2006) (standard for review of factual findings — clear error)
- Funke v. Holland Furnace Co., 102 N.W.2d 668 (S.D. 1960) (fraud may be established by inference from surrounding facts)
- Auto-Owners Ins. v. Hansen Hous., Inc., 604 N.W.2d 504 (S.D. 2000) (definition and elements of waiver)
- Harms v. Northland Ford Dealers, 602 N.W.2d 58 (S.D. 1999) (waiver principles applied to contractual rights)
- Wehrkamp v. Wehrkamp, 773 N.W.2d 212 (S.D. 2009) (clarifies waiver requires knowledge of material facts and conduct inconsistent with enforcement)
- Donat v. Johnson, 862 N.W.2d 122 (S.D. 2015) (credibility determinations support circuit court findings)
- Granite Buick GMC, Inc. v. Ray, 856 N.W.2d 799 (S.D. 2014) (prior appellate decision remanding for findings)