Lead Opinion
[¶ 1.] This appeal is the result of a jury trial in which eight plaintiffs were awarded compensatory and punitive damages for their allegations of fraudulent misrepresentations against Krause Gentle Corporation (Krause Gentle) which they allege induced them to buy Blimpie Sub franchises. We affirm on all issues except for prejudgment interest.
FACTS AND PROCEDURE
[¶ 2.] Starting in 1993, Krause Gentle of Des Moines, Iowa entered into a series of “Subfranchise Agreements” with Blim-pie International, which entailed the sharing of franchise fees between Krause Gentle and Blimpie International. As part of this business arrangement, Krause Gentle was given the power to engage in “the selling, opening and servicing of all Blim-pie Restaurants” in portions of Iowa and eastern South Dakota. Blimpie Midwest, an L.L.C., was used for operational purposes by Krause Gentle and was primarily owned by William Krause and his family.
[¶ 3.] By 1995, Krause Gentle owned and operated several Blimpie restaurants out of its Kum & Go stores. Additionally, Krause Gentle hired Steve Abbott and Todd Byers as area developers to sell Blimpie franchises to others. Although counsel for Krause Gentle argued that Abbott did not represent Krause Gentle, the jury rejected this and found that Abbott was employed by Krause Gentle. Accordingly, Blimpie Midwest is not a party to this appeal. Eventually, the franchises were sold to eight separate newly formed or existing corporations, consisting of the ten individual plaintiffs in this case. These eight corporations operated nine Blimpie restaurants in South Dakota and Iowa. These franchises had to pay a franchise fee of $18,000 plus make a capital investment for equipment and supplies for an investment averaging in excess of $100,000.
[¶ 4.] The Plaintiffs claim that Abbott and Byers held themselves out as experts concerning the Blimpie business. Although Byers did not testify at trial, Abbott was called as a witness for Krause Gentle and denied the allegations against him. Moreover, the Plaintiffs allege that Abbott and Byers made several fraudulent representations to induce them to buy the Blimpie franchises. Specifically, the Plaintiffs allege that they were told that they could expect “immediate cash flow” from their Blimpie franchises; Defendants approved Plaintiffs’ business plans knowing that Plaintiffs’ projected sales were significantly higher than could be realistically expected
[¶ 6.] Krause Gentle appeals the jury’s verdict. It raises the following issues for review:
1. Whether the trial court abused its discretion when it refused to grant Defendants’ motion to sever.
2. Whether there was sufficient evidence at trial to sustain the jury’s finding of fraud on the part of Krause Gentle.
3. Whether the jury’s determination of damages should be sustained when Plaintiffs brought their claims in their individual capacities.
4. Whether the jury instruction given at trial amounted to prejudicial error.
5. Whether the jury’s awards of punitive damages were inappropriate and excessive.
6. Whether the trial court applied the wrong prejudgment interest rate to the Iowa Plaintiffs judgment against Krause Gentle.
[¶ 7.] Plaintiffs raise the following issue on cross-appeal:
1. Whether the trial court abused its discretion when it ruled that Plaintiff Denton Olson’s testimony was inadmissible hearsay and granted Defendants’ motion to dismiss his claim.
STANDARD OF REVIEW
[¶ 8.] According to Landstrom v. Shaver,
[¶ 9.] “When reviewing the sufficiency of the evidence, we accept all evidence favorable to the verdict, and reasonable inferences therefrom, without weighing credibility or resolving conflicts.” Maryott v. First Nat. Bank of Eden,
[¶ 10.] The question of whether a party has standing to maintain an action is a question of law reviewable by this Court de novo. Winter Brothers Underground Inc. v. City of Beresford,
[¶ 11.] According to Veeder v. Kennedy,
Under our standard of review, we construe jury instructions as a whole to learn if they provided a full and correct statement of the law. Sommervold v. Grevlos,518 N.W.2d 733 , 739 (S.D.1994);*703 Frazier v. Norton,334 N.W.2d 865 , 870 (S.D.1983); Mueller v. Mueller,88 S.D. 446 , 450,221 N.W.2d 39 , 42 (1974). Misleading, conflicting, or confusing instructions create reversible error. Schaffer v. Edward D. Jones & Co., (Schaffer II)1996 SD 94 , ¶ 19,552 N.W.2d 801 , 808; Wallahan v. Black Hills Elec. Co-op., Inc.,523 N.W.2d 417 , 423 (S.D.1994). Nonetheless, an appellant must show not only that a particular instruction was erroneous, but also that it was prejudicial, meaning the jury probably would have returned a different verdict if the faulty instruction had not been given. LDL Cattle Co., Inc. v. Guetter,1996 SD 22 , ¶ 32,544 N.W.2d 523 , 530; Sybesma,534 N.W.2d at 359 (quoting Chambers v. Dakotah Charter, Inc.,488 N.W.2d 63 , 64 (S.D.1992)).
(citing Davis v. Knippling,
[¶ 12.] The determination of an applicable statutory interest rate is a question of law. See Wharf Resources (USA) Inc. v. Farrier,
[¶ 13.] We review an award of punitive damages under the abuse of discretion standard. Leisinger v. Jacobson,
[¶ 14.] The trial court’s eviden-tiary rulings are presumed correct and will not be overturned absent an abuse of discretion. State v. Perovich,
ANALYSIS AND DECISION
[¶ 15.] 1. Whether the trial court abused its discretion when it refused to grant Defendants’ motion to sever.
[¶ 16.] Pursuant to SDCL 15-6-20(a), actions may be joined in certain circumstances. Specifically, this statute provides:
All persons may join in one action as plaintiffs if they assert any right to relief jointly, severally, or in the alternative in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action. All persons may be joined in one action as defendants if there is asserted against them jointly, severally, or in the alternative, any right to relief in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all defendants will arise in the action. A plaintiff or defendant need not be interested in obtaining or defending against all the relief de*704 manded. Judgment may be given for one or more of the plaintiffs according to their respective rights to relief, and against one or more defendants according to their respective liabilities.
[¶ 17.] Krause Gentle argues that there is no common question of law or fact that binds all the Plaintiffs. Therefore, it contends that the trial court’s denial of Krause Gentle’s motion to sever deprived Krause Gentle of a fair trial. Plaintiffs argue that because all the franchises suffered from the lack of advertising, lack of sales, and advisors with no experience, the trial court did not abuse its discretion when it found that severing the trials would be a waste of judicial economy.
[¶ 18.] Defendants moved to sever the trials pursuant to SDCL 15-6-42(b), which provides:
The court, in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy may order a separate trial of any claim, cross-claim, counterclaim, or third-party claim, or of any separate issue or of any number of claims, cross-claims, counterclaims, third-party claims, or issues, always preserving inviolate the right of trial by jury as declared by the state or federal Constitution or as given by a statute.
In Landstrom,
[¶ 19.] In Martinmaas v. Engelmann,
[¶ 20.] As in Martinmaas and Land-strom, we find that in the case at hand, in view of the circumstances, the trial court did not abuse its discretion when it denied Defendants’ motion to sever. Krause Gentle cannot meet its burden in showing prejudice. The trial was nearly six weeks in length and eight individual trials would have taken months and would not have been an efficient use of judicial resources. Moreover, in Martinmaas we noted that “each plaintiffs testimony would have been admissible in the others’ cases ...” Id., ¶ 37. The same is true in this case. Because Krause Gentle denied making fraudulent representations to the Plaintiffs, its intent was at issue. Therefore, each of the Plaintiffs testimony would have been admissible in each other’s trials to prove Defendant’s intent. See Novak v. McEldowney,
[¶ 21.] It is significant to note that the jury awarded different amounts of compensatory and punitive damages to each of the remaining eight Plaintiffs. After it was instructed that each Plaintiff had to prove his or her case separately, the jury found a different basis of fraud for each Plaintiff. Their verdict shows that they were able to sort and weigh the evidence as it pertained to each Plaintiff.
[¶ 22.] 2. Whether there was sufficient evidence at trial to sustain the jury’s finding of fraud on the part of Krause Gentle.
[¶ 23.] With respect to eight Plaintiffs in this case, the jury found the following: Krause Gentle made the fraudulent representation that national advertising would be implemented “like Subway” upon reaching the 1,500 store national level to Plaintiffs Janet Fritzmeier, Jack Rentschler, Chuck Colmenero, and Randy Heaton. The jury found that Krause Gentle fraudulently promised operational support to Plaintiffs Janet Fritzmeier, Jack Rentschler, Chuck Colmenero, Don Rose, Randy Heaton and Todd Lundgren. The jury found that Krause Gentle made the fraudulent representation that it would provide reasonable assistance in choosing a store location to Plaintiffs Jack Rentschler, Mike Wilbur and Steve Brashears. Finally, the jury found that Krause Gentle made the fraudulent representation that it was knowledgeable in the operation of fast food restaurants to Plaintiff Todd Lund-gren.
[¶ 24.] Krause Gentle argues that under South Dakota and Iowa law, an essential element of fraud claims is the existence of proof that Defendant did not intend to perform the claimed promises when they were made. Furthermore, it claims that the Plaintiffs did not provide any evidence of a deceitful intent on the part of Krause Gentle. For support, it points to Famous Brands, Inc. v. David Sherman Corp.,
[¶ 25.] However, Famous Brands dealt with a motion for summary judgment on the issue of deceit. The court in that case found that there were no material issues in dispute concerning the issue of deceit and therefore, summary judgment as to the issue of deceit was properly granted. In the instant case, all of Plaintiffs’ evidence went before the jury, and the jury was properly instructed on the Plaintiffs’ burden of proving the elements of fraud and deceit. The Plaintiffs testified as to the alleged representations made by Krause Gentle’s agents. Although some of the alleged promises were for future events, there was evidence to allow the jury to find the superior knowledge claimed by Krause Gentle as to the Plaintiffs, who mostly had no experience with running a franchise or fast-food restaurant, was the basis for a finding of fraud.
[¶ 26.] In Sporleder v. Van Liere,
[¶ 27.] In Commercial Property Investments v. Quality Inns,
[¶28.] In the present case, Plaintiffs relied on the expertise of Abbott and Byers. The Plaintiffs were led to believe that Defendants had “superior knowledge” of the fast-food restaurant and would get operational support to make their restaurants profitable. They were told that they could expect immediate cash flows and national advertising. Additionally, they were given sales projections that were not reasonable. Even Krause Gentle’s own Blim-pie franchises were not generating the profits that the Plaintiffs were told that they could expect their own restaurants to generate.
[¶ 29.] Krause Gentle next argues that the Plaintiffs each signed a franchise agreement that contained an express acknowledgment that they had been made no representations as to sales, profits, revenues, and so forth. Therefore, it asserts that the Plaintiffs are precluded from alleging that Krause Gentle made fraudulent misrepresentations to them.
[¶ 30.] Initially, we note that the integration clause was part of the franchise contract drafted by Blimpie International, Inc., who was not a party to the lawsuit. In other words, Krause was not a party protected by the terms of the franchise agreement, which they now seek to use as shield from liability.
[¶ 31.] Aside from the fact that Krause Gentle was not a party to the signed contract, it still does not prevail. In Schwaiger v. Mitchell Radiology Associates, P.C.,
[¶32.] In Schwaiger, we affirmed the trial court’s grant of summary judgment. In so doing, we held that the radiologist’s claims that he was orally promised to be made a full partner were superseded by the written, signed employment contract. Id., ¶ 12,
[¶ 33.] However, in the case at hand, the Plaintiffs, most who had little or no experience in running a business, each signed a non-negotiable 25-page contract after they received Blimpie literature which contained representations such as “immediate cash flow” and “no restaurant experience necessary.” See Commercial Property,
Any condition, stipulation or provision purporting to waive compliance with any provision of this chapter or any rule or order thereunder is void. Any acknowl-edgement provision, disclaimer or integration clause or a provision having a similar effect in a franchise agreement does not negate or act to remove from judicial review any statement, misrepresentation or action that would violate this chapter or a rule or order under this chapter.
[¶ 34.] 3. Whether the jury’s determination of damages should be sustained when Plaintiffs brought their claims in their individual capacity.
[¶ 35.] Under this issue, Krause Gentle argues that Plaintiffs’ recovery for claimed corporate losses is contrary to settled South Dakota and Iowa law. Moreover, it claims that under our holding in Landstrom,
[¶ 36.] In Landstrom, we adopted the general rule that “an action to redress injuries to a corporation cannot be maintained by a shareholder on an individual basis but must be brought derivatively.” Id. at ¶ 54,
[¶ 37.] However, unlike the present case, in Landstrom, the claims were brought by a minority shareholder against the remaining shareholders in Black Hills Jewelry Manufacturing. Id. ¶ 1,
[¶ 38.] The Plaintiffs argue that in the special verdict form the jury specifically found that each Plaintiff purchased a Blim-pie franchise in his/her personal capacity rather than as a corporate agent. They further assert that it is they who were ultimately cheated and defrauded into purchasing the franchises. Most of the corporations were not yet formed when the alleged fraudulent misrepresentations were made to the individual Plaintiffs.
[¶ 39.] Krause Gentle cites to Tri-State Refining v. Apaloosa Company,
[¶ 40.] The Plaintiffs testified about the amount of money they personally lost after investing in the Blimpie Franchise. Although Plaintiffs’ damage expert, Jerome Sherman, testified at trial that he calculated damages based upon corporate financial statements and tax returns, the corporations were wholly owned by the Plaintiffs. Additionally many of the corporations were not formed at the time of the fraudulent misrepresentations.
[¶ 41.] 4. Whether the jury instruction given at trial amounted to prejudicial error.
[¶ 42.] Krause Gentle argues that the trial court prejudicially erred in instructing the jury regarding fraud and deceit under Chapter 21-10, franchise fraud under Chapter 37-5A, actual contract fraud under SDCL 53-4-5 and constructive fraud under SDCL 53-4-6. It alleges that instructing the jury to the elements of both deceit and constructive fraud were confusing as to the proper standard of fraud to be applied.
[¶ 43.] After reviewing the record, Krause Gentle was the party that requested a jury instruction for actual and constructive fraud. In this appeal, Krause Gentle claims it mistakenly made this request but cured it by arguing later to the trial court that it should not be given. However, Krause Gentle did not object to its own actual and constructive fraud instruction based on the reasons it now argues in this appeal.
[¶ 44.] It is a well-settled rule of law that “[w]hen a party’s objection at trial is not the same as its objection on appeal, the issue of the improper jury instruction is not preserved for our review.” Grynberg,
[¶ 45.] 5. Whether the jury’s awards of punitive damages were inappropriate and excessive.
[¶ 46.] Plaintiffs Fritzmeier, Col-menero, Heaton were each awarded punitive damages of $165,000, Plaintiff Lund-gren was awarded punitive damages of $200,000, and Plaintiff Rentschler was awarded punitive damages of $300,000.
[¶ 47.] In Leisinger, we set out a five-factor test in determining whether punitive damages are appropriate or excessive.
(1) the amount allowed in compensatory damages, (2) the nature and enormity of the wrong, (3) the intent of the wrongdoer, (4) the wrongdoer’s financial condition, and (5) all of the circumstances attendant to the wrongdoer’s actions.
Id.
[¶48.] The first factor is the amount allowed in compensatory damages. We have stated that there must be a “reasonable relationship between the punitive damages and compensatory damages but that there is no ‘precise mathematical ratio between’ the two.” Leisinger,
[¶ 49.] In the case at hand, the lowest punitive damage award is 1.31 times compensatory damages. The highest ratio of punitive damages to actual damages was for Plaintiff Rentschler. This Plaintiff was awarded $94,075 in compensatory damages and $300,000 in punitive damages, which amounts to punitive damages of 3.19 times the actual damages. In other cases handed down by this Court, we reversed punitive damages where the ratio was much higher. See e.g. Leisinger,
[¶ 50.] Our review does not end here; instead we examine the second factor, the
[¶ 51.] In this case, the Plaintiffs sought to better their financial conditions by investing in Blimpies’ franchises. They were fraudulently induced into investing large amounts of money into their fast food restaurants and lost money from the outset. In the case of the Fritzmeiers, they lost the family farm that Janet had inherited from her parents. Based on the facts of the case, the Plaintiffs suffered great financial hardship as a result of Krause Gentle’s actions. Not only were the Plaintiffs harmed, but the possibility of others being fraudulently induced into investing in the Blimpie’s franchise was real.
[¶ 52.] The third factor is the intent of the wrong doer. We stated in Veeder,
From intent, we determine ‘the degree of reprehensibility of the defendant’s conduct,’ which is viewed as probably the most important indication of the reasonableness of the punitive damage award.
(quoting Schaffer II,
[¶ 53.] Furthermore, in Veeder, we stated that “[tjrickery and deceit are more reprehensible than negligence.”
[¶ 54.] The fourth factor is consideration of the wrongdoer’s financial condition. We look at both net income and net worth. See Grynberg,
[¶ 55.] The final factor is consideration of all circumstances attendant to the
[¶56.] After a review of all the relevant factors, we hold that the punitive damages awarded to Plaintiffs are justified.
[¶ 57.] 6. Whether the trial court applied the wrong prejudgment interest rate to the Iowa Plaintiffs judgment against Krause Gentle.
[¶ 58.] Krause Gentle asserts that the trial court applied the wrong prejudgment interest rate to Iowa Plaintiffs’ award of compensatory damages. The Iowa Plaintiffs in this case are Wilbur, Brashears, Heaton and Lundgren. Instead of applying the interest rate in effect on the date of entry of judgment, it contends that the trial court erroneously applied the interest rate in effect at the time the Plaintiffs filed their original complaint.
[¶ 59.] According to Iowa Code Section 668.13(1), prejudgment interest accrues “from the date of the commencement of the action.” Under 668.13(3), the rate of interest is the rate in effect on the date of judgment, plus two percent.
[¶ 60.] Iowa’s Plaintiffs’ lawsuits were filed on May 15, 1998. Judgment against Defendant was entered on November 20, 2001. The last auction of fifty-two week treasury bills prior to the date of judgment entry was 3.481 percent. Based on that percentage, the correct prejudgment interest rate that should have been applied was 5.481 percent. Apparently erroneously using the last auction of fifty-two week treasury bills immediately prior to May 14, 1998, the trial court applied the rate of 7.407 percent (5.407 percent plus two percent).
[1Í 61.] We, therefore, reverse and remand on the issue of prejudgment interest.
Plaintiffs’ cross appeal.
[¶ 62.] 1. Whether the trial court abused its discretion when it ruled that Plaintiff Denton Olson’s testimony was inadmissible hearsay and granted Defendants’ motion to dismiss his claim.
[¶ 63.] Denton Olson made an offer of proof at trial concerning representations allegedly made to him in Rock Rapids, Iowa. It is alleged that Denton Olson’s brother, Russell Olson, who was president of a bank holding company for a banking company that was owned by William Krause and who was also a member of the Board of Directors of Krause Gentle, told Denton that he should make an investment in a Blimpie franchise that Russell had recently purchased. Russell allegedly told Denton that they could split profits of at least $40,000 if Olson invested in the Blim-pie Franchise that Russell had just purchased. Denton claims Steve Abbott was sitting in on the meeting and never expressed disagreement as to what Russell told Denton.
[¶ 64.] The trial court found the testimony hearsay and ultimately dismissed Denton’s claim for lack of other admissible evidence to support it. Denton argues that this was an abuse of discretion and that Denton’s testimony concerning what his brother allegedly told him should have been admitted at trial because Russell was an agent of Krause Gentle and the statements were made in the presence of Steve Abbott, another Krause Gentle Agent.
[¶ 65.] We agree that the statements at issue can, under certain circumstances and upon proper foundation, be admitted as non-hearsay admissions (i.e. a statement of
Notes
. Average sales in all of the Krause Gentle Corporation Blimpie restaurants for 1994 was $10,384 per month. However, Abbott approved Plaintiffs’ business projections of two and three times that much for average monthly sales.
. The jury did not find that all misrepresenta
. Based upon a proposal by Krause Gentle, the trial court submitted an 89-page special
. See footnote 1.
. See footnote 1.
. Unlike the defendant in Roth v. Farner-Bocken Co., (
In State Farm Mutual Automobile Insurance Co., v. Campbell, the United States Supreme Court noted that there are "procedural and substantive constitutional limitations" on the award of punitive damages. U.S.-,- ,123 S.Ct. 1513 , 1519,155 L.Ed.2d 585 (2003). The Court reiterated its three guideposts earlier articulated in BMW of North America, Inc. v. Gore, 517 U.S. 559,116 S.Ct. 1589 ,134 L.Ed.2d 809 (1996), that reviewing courts should consider when reviewing punitive damages. Id. at 1520. These guideposts are the following:
1. the degree or reprehensibility of the defendant’s misconduct,
2. the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award, and,
3. the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.
Campbell,
. In Roth, the defendant had no reason to open anyone else’s mail without permission other than its ex-employee Roth. It did not even have access to other third party mail which il should not have received. However herein, the more Blimpie franchises Krause Gentle sold to members of the public, the more money it made.
Concurrence Opinion
(concurring specially).
[¶ 70.] I concur on Issues 1 through 6 and concur specially on Issue 7.
[II71.] SDCL 19-16-3(2) (Federal Rule of Evidence 801(d)(2)(B)) provides in part:
A statement is not hearsay if it is offered against a party and is ...
(2) a statement of which he has manifested his adoption or belief in its truth; or
(4) a statement by his agent or servant concerning a matter within the scope of his agency or employment, made during the existence of the relationship[.]
(Emphasis supplied.)
[¶ 72.] The commentary to FRE 801(d)(2)(B) provides in part:
Under established principles an admission may be made by adopting or acquiescing in the statement of another ... [a]doption or acquiescence may be manifested in any appropriate manner. When silence is relied upon, the theory is that the person would, under the circumstances, protest the statement made in his presence, if untrue. The decision in each case calls for an evaluation in terms of probable human behavior.
(Emphasis supplied.) It is not necessary that the out-of-court statement be against the declarant’s interest at the time it is made. The statement must be adverse to the party’s case at the time of trial and be offered against the party at trial.
Any prior statement of a party is admissible if it is offered against the party at trial. The test is whether the statement is being offered at trial for a purpose that is relevant to the lawsuit. Personal knowledge of the matter admitted is not required, nor is mental capacity. The admission can be oral or written, or nonverbal conduct if intended as an assertion ... [admissions are substantive evidence, and no preliminary foundation by examining the declarant is necessary, the rule being specifically excepted from SDCL 19-14-25 (613(b)).
John W. Larson, South Dakota Evidence, 801.3 (2003 Supp).
[¶ 73.] If Russell Olson was being untruthful in telling his brother that Abbott
[¶ 74.] Olson argues that Russell was on the board of directors for Krause Gentle and that he was acting as an agent for Krause Gentle when he made the statements regarding profitability. Olson asserts that Russell’s comments were not hearsay because they were an admission under FRE 801(d)(2)(D)(a statement by his agent or servant concerning a matter within the scope of his agency or employment, made during the existence of the relationship). This argument also fails because Olson offered no proof to the jury that Russell was an agent of Krause Gentle. Olson points out that the attorney for Krause Gentle conceded at the hearing on Olson’s offer of proof that Russell was on the board of directors. Olson contends that this amounts to a judicial admission and as such should be deemed a settled fact.
[¶ 75.] In Tunender v. Minnaert, we defined judicial admissions as statements “made in court by a person’s attorney for the purpose of being used as a substitute for the regular legal evidence of the facts at the trial.” Tunender v. Minnaert,
[¶ 76.] Olson points to no attempt on the record to present evidence of his brothers directorship before the jury. Indeed, other than his initial offer of proof, the briefs point to no place in this voluminous record where any evidence regarding Olsons claim was presented to the jury. Having failed to establish Russell’s agency, Olson’s claim that Russell’s sales pitch was a statement by Krause Gentle’s agent or servant is insufficient. The Court need not determine whether Olson has shown prejudicial error because Olson failed to lay the proper foundation to bring this conversation before the jury as an admission by party opponent. However, we continue to disagree with the majority opinion’s claim that establishing prejudice is a precondition to establishing error.
Concurrence Opinion
(concurring in part and concurring specially in part).
[¶ 69.] I join the majority opinion on Issues 1 through 6. I join Justice Sabers’ special concurrence on the cross-appeal issue.