Grynberg v. Citation Oil & Gas Corp.

1997 SD Grynberg GRYNBERG, Pe J.

Jack d/b/a Co., Inc.; Company; Janex Oil troleum Newberry; Kugler, Jr.; Ja W.B.

Andrew Ltd.; Reserve Fund 90-7A

nex Co. Oil Inc.;

Headington Properties, H.A. Oil Mammel;

Mayor, Jr.,; Dr. Keith Carl G.

Mccorrmic; Investments; Preston Appel

Lloyd Peterson, Plaintiffs

lees, CORP., OIL & GAS

CITATION Appellant.

Defendant and

No. 19258.

Supreme South Dakota. Court of

Argued Oct. 1996. July

Reassigned 1997. Oct. 1997.

Decided

Rehearing Denied Dec.

495

497 Bennett,

Max S. Main Main & Freder- ickson, P.C., Fourche, Belle Tom C. Toner Toner, Sheridan, WY, plaintiffs & for Yonkee appellees. and Pfeifle, Craig Helmers of A. Steven J. P.C., Jackson, Lebrun, Lynn, Rapid & Shultz appellant. City, for and defendant GILBERTSON, Justice. and 1.] Defendant Citation Oil Gas

[¶ (Citation) appeals Corporation verdict contract, plaintiffs in favor for breach of damages resulting from fraud and wrongful operator certain actions oil its as part, affirm in reverse and wells. We and puni- remittitur on the issue remand with damages. tive AND PROCEDURAL FACTS

BACKGROUND operation of 2.] This case involves the [¶ County Fall oil River two fields located Wyoming-South the Dakota border: near Hollingsworth and the East the North Field times, plaintiffs At the various Simms Field. gas or both of acquired oil and leases in one subject into became the fields and entered (JOAs) Agreements with Operating to Joint operator the of the Citation. Citation responsible operator, Citation was fields. As production managing exploration and for profits accounting and oil of the owners. expenses on behalf of all provided is re- complete equip The JOAs for what the well. of the [¶ Some penalty.” ferred to as a “nonconsent Under predecessors go their to elected JOAs, well, if an to owner wanted drill well, nonconsent. Citation drilled the 1-19 proposal to that owner would make a good producing which came in as well. other and submit an Authorization Therefore, owners Citation, along with other (AFE) Expenditure setting For forth the owners who to in the elected share cost complete cost drill to well. The well, 1-19 was entitled to nonconsent other elect owners could then to either share penalties noneonsenting from the owners drilling proposed go the cost well or respect to with costs associated with the 1-19 “nonconsent” and not share in costs. those months, approximately Within well. twelve hole, If dry the well was drilled was a additional two wells were drilled go the owners who elected nonconsent did Hollingsworth North field. None of own- pay any have the costs of the respect ers went nonconsent these However, drilling. unsuccessful if the well wells, produced additional both of which oil. oil, produced the owners who elected to drilled, 6.] After wells were Cita- drilling share in the cost of the well were began improperly allocating tion costs plus to recover costs entitled their a noncon- well. 1-19 This allocation maximized Cita- penalty sent from noneonsenting owners. receipt penalties. Spe- tion’s of nonconsent penalties, There were two'tiers of nonconsent cifically, Citation misalloeated to the 1-19 ranging percent first to 400 (1) the production well: entire cost of a road percent of up the costs incurred well- ($27,000), actually all seven served (costs work head incurred for done below (2) fields; wells both cost of a entire ground, such drilling, surface cas- battery ($39,416), tank which was used to ing, completing). The second tier oil from store all of the wells in the North ranged percent from 100 percent (3) Hollingsworth Field; cost of entire (costs the costs incurred after the wellhead converting a dispose well used to of salt for equipment, production incurred surface produced water from wells in both fields roads, short, operating expenses). and In (4) ($13,571); and other costs actu- for work put up money the who owners the to the drill addition, ally on done other wells. In Cita- pro- well were entitled to recover from the improperly belonged tion moved items which that well duction of several times their actual percent penalty the 200 nonconsent cate- a penalty costs noneonsenting as before the (costs wellhead) gory incurred after the into any pro- owners would receive share of the (costs percent category the 400 up incurred ceeds from that well. wellhead).1 The required [¶ 4.] JOAs further that Ci- approximately For years, [¶ 7.] two these provide tation monthly Pay- the owners with by misallocations continued undetected (PSRs), out Reports Status which were expenses, owners. The not PSRs did itemize itemized drilling, statements of costs of using “lump instead sum” amounts. Addi- well, completing, equipping and each and tionally, provided PSRs were not on a month- any penalties nonconsent owed. The JOAs ly required by as Although basis the JOAs. provided also for the removal of as Citation seventy over PSRs should have been sent out operator, by majority nonopera- vote of the period operator, over Citation it was tors, should carry fail refuse Citation to only provided. eleven PSRs were out its duties. In proposed

[¶ In Citation drill- 1986 an audit was conducted (the ing TIPCO, North Hollingsworth 1-19 one of well the owners. TIPCO discover- well). 1-19 According to the AFE improper charges submitted ed Citation’s to 1-19 Citation, $327,000 drill, it would cost report well. TIPCO submitted its audit example, improperly hauling For did production not Citation water after had been production allocate the entire cost of the relating road to achieved and on various services to in- well, put stalling 1-19 but it beyond cost in the 400 tank batteries and flow lines percent penalty category. In Citation producing wellhead after it is established that a addition. charged percent penalties expenses on exists. well operator. Despite rep- as its earlier September objecting Citation Citation step down, respond not until Citation did resentation that it would Citation allocation. 15,1988, that it misallo- agreed had but to do June refused so. production with the costs associated cated against filed suit 13.] Plaintiffs Citation [¶

road, water battery, tank and the salt contract, alleging fraud and breach seek- granted TIPCO’s ex- disposal well. Citation ing compensatory and and However, not reallo- ceptions. Citation did operator. the removal of Citation other these costs to the owners cate jury plain- in favor returned a verdict nor re- the TIPCO audit Citation’s neither tiffs, $222,850 awarding for of con- breach provided were to the other owners. sponse fraud, tract, million for $4.8 23, 1989, out Citation sent 9.] On June [¶ punitive The trial damages. court denied report was inaccurate PSR. This another judgment for notwith- Citation’s motions and still contained again itemized trial, standing verdict and new allocations. improper appealed. Citation Prom to 1991 allo- Citation following raises the issues 14.] Citation vehicles, salaries, operating (e.g., cated costs appeal: on insurance, supervision) among equally give to an 1. Did Citation’s actions rise Hollingsworth wells the North the seven on independent cause tort of action August In Fields. and East Simms fraud a claim for dam- unilaterally volumet- converted to a ages? result, costs of allocation.2 As a ric method jury properly 2. Was the instructed previously charged to owners had been the elements of deceit? (which had become East Simms Field uneconomical) providing err in 3. Did the trial court were the owners shifted effect, “global” punitive with a Hollingsworth North Field. Hollings- form? in the North the owners wells subsidizing East worth Field were Simms verdict un- 4. Was Field, allowing wells to the East Simms Field matter and excessive as a reasonable produce. Citation was then able continue of law? charges and continue to collect overhead salary expenses to East Field allocate Simms AND DECISION ANALYSIS wells. give 1. Did Citation’s actions 15.] [¶ Representatives of met the owners independent of to cause rise tort Al- September Citation puni- for fraud and a claim for action already though changed Citation had damages? tive allocation, of Citation volumetric method during meeting it was still stated recently handed This has 16.] Court [¶ allocating per-well costs on a basis. indepen- on the of two issue down decisions its represented relinquish that it would also contract. Sundt arising torts from See dent operator, majority if a position as 1997 SD Dep’t Transp., rel. ex SD State of rep- Based on owners so desired. Citation’s 476; Gravel Fisher Sand & 566 N.W.2d regarding the allocation resentations cost Dep’t Transp., 1997 ex v. State rel. SD Co. of step as willingness and its to down method 864. Both Sundt 558 N.W.2d SD con- allowed Citation to operator, owners con- highway construction Fisher involved operator. tinue as cases, tracts,3 we that there held both give independent no tort which would majority Finally in March 1992 a 12.] [¶ distinctively punitive damages. The rise to field to remove of the owners of each voted 3,000 Dakota operated sued the South 3. Both Fisher and Sundt over wells that Citation 2. Out of nationwide, Department pursuant SDCL Transportation located on the North seven wells Hollingsworth 31-2-34, were the quasi- East Simms Fields requires a contract or which operating were allo- wells where such costs contract. basis. on volumetric cated Weber, of the case now before us created contract. Smith v. different facts (1944). justify a different result. S.D. 16 N.W.2d recently more As stated: “Conduct which damages “are 17.] Punitive not [¶ tort, merely is a breach of contract is not a ordinarily breach recoverable actions for may the contract but establish relation- because, rule, contract, general as a dam ship demanding proper the exercise of care ages for contract are limited breach of performance and acts and omissions in pecuniary loss sustained.” Hoffman may give liability.” rise tort Kunkel v. Corp., 435 Dreyfus Louis Co., Security 116, 135, United Ins. 84 S.D. (S.D.1989) (quoting Damages Am.Jur.2d (1988)). public policies § 751 are un There Id. First, derpinning general rule. breach generally private injury, contract is un independent [¶ 19.] This tort doctrine has tort, like a malicious which some authorities functions, two as described the Indiana injury. public have held to be a L. Schleu- Supreme Casualty Court Vernon &Fire Redden, § Damages & K. ter Punitive 7.2 v. Sharp, Insurance Co. 264 Ind. (3d 1995). Second, sys ed. free our market (1976): N.E.2d economically tem allows efficient breaches First, it symmetry maintains the contract, example, for it costs when less general allowing rule not dam- party for one to breach an unwise contract actions, ages in puni- contract because the pay party compensatory other tort, tive are awarded for the not completely than it would cost to Secondly, independent the contract. Third, perform the contract. com “[w]hile requirement judicial tort review facilitates pensatory damages encourage reliance on limiting scope evidence agreements, business the threat of addition review a search the elements punitive damages al would create uncertain tort. ty apprehension marketplace.” in the (second added). 349 N.E.2d at 180 emphasis Id. Becton, See also Morrill v. Dickinson and Nonetheless, majority 18.] [¶ (8th Co., 1217, 1222 Cir.1984) (focus 747 F.2d jurisdictions allow analysis ing its on whether the evidence was breach of contract cases under certain cir fraud). prove sufficient the elements of cumstances, including: conversion; forgery; South recognized Dakota has fiduciary duty; breach tortious interfer independent tort doctrine. In Da South expectancy; ence with business intentional kota, punitive damages are codified in SDCL accompanied by breaches willful acts of vio 21-3-2, provides, part, relevant lence, conduct; fraud; oppressive malice or follows: and, good breach covenant of faith and fair any action the breach of an obli- cases). dealing. §at (listing Id. 7.3 Puni contract, gation arising where damages may tive arise in these situations has guilty oppres- defendant been of complaining party prove

when the can an sion, fraud, malice, presumed, or actual or independent separate tort is that and distinct jury, ... the in addition the actual Hoffman, from the breach of contract. 435 damage, may give damages the of for sake independent N.W.2d at 214. “While the tort example, by of way punishing and de- the may occur at the time of and in connection fendant. breach, may with out of arise the same transaction, it merely is by not committed (1987) added). (emphasis This statute states contract, breaching the if even such act is that no are a available for (citing intentional.” Id. 22 Damages Am.Jur. of obligation. breach contract language The (1988)). § 752 clearly of permits punitive the statute dam- may

It usually signi- however, be conceded that tort ages, for a arising independent tort legal fies a of duty independent breach obligation, of of contract and when the dam- contract. duty may But such of ages necessary breach are to deter the wrongful arise out of a relation or state punish of facts conduct and to the defendant. by facts con- independent relation or state of created tort doc 21.] The (citations omitted). by this Court in Smith at 539 applied was first Id. trine tractu” Weber, 232, 16 N.W.2d 537 legal duty 70 S.D. is a law. question existence of a of ¶ Smith, brought Fisher, tenant suit aggrieved In 1997 SD at 8 N.W.2d at 867 tried to force against his landlord who had Tabor, (citing Tipton v. Town of by shutting off the apartment out of his him (S.D.1995)). 783, 785 of questions We review services, heat, telephone and tenant’s water Fisher, In we law de novo. Id. Sundt and job remodeling causing a to de debris from duty as law that outside found a matter of no $1,500 stroy personal proper of the tenant’s support the contract existed their claims building’s in the ty, garbage burning Sundt, negligence. of SD at upholding award Id. at In furnace. Fisher, 479; at 8 566 N.W.2d at 1997 SD this punitive damages, of Court stated: ¶ 16, a at 868. This case is N.W.2d may granted that an omission to It be duty story. hold Citation had a different We is a obligation a never perform contract plaintiffs arose the con- which outside tort, is also unless that omission an omis- duty obligation, namely, “legal tract duty legal legal But such duty. sion of a fellow, every is man due from to his may spring ... from extraneous circum- respect property ... rights his and refrain stances, constituting elements of Smith, by ... invading from them fraud.” such, although contract connected Simply 70 S.D. at 16 N.W.2d at 539. it, dependent upon and born of that a a put, allowing contract is not license one range legal duty which is due wider party to cheat or defraud other. fellow, every respect to his his from man property person, rights refrain Having passed first [If23.] A force or invading them fraud. duty, analytical legal hurdle we next focus of, part may grow of or make tort out (or nonexistence) of the existence with a contract. The fact be coincident independent alleged. Although tort the mat that there existed a contract between complained may origin have ters “their im- plaintiffs and defendant would not contract, alleged gist of the action is for penalty mune the latter from that Id. wrongful tortious acts defendant.” ordinarily upon tortfeasors. visited put aside our of the We therefore review Kelly, (quoting 208 Cal. Id. Jones cause of action and care breach of contract added). (1929)) (emphasis 280 P. fully presented analyze the evidence to deter case, this as determined Under facts of alleged mine whether each element of the clearly jury, invaded the proven (recognizing that on tort has been rights property of the commit- verdict, “re appeal this Court ting fraud. quired to evidence and all reason view the light from the evidence in the able inferences review, Upon order

[¶22.] winner and most favorable to verdict conclusion, first this must focus on reach we is to be resolved favor conflicting evidence independent legal duty whether exists Co., Nelson v. Nelson Cattle verdict.” obligations under the contract. (S.D.1994)). If each Smith, it although this noted that Court present, then usually element is “may signifies a be conceded that tort If may properly be awarded the tort.4 legal independent of duty contract breach absent, are no tort may any elements then duty ... breach arise out of such Hernandez, See Miller v. juncture there no fraud. 4. We note can be Wold, 266, (Sabers, (S.D.1994) damages, Ripple recovery v. J. dissent double of N.W.2d 272 68, 673, 674-75, ¶ 7, N.W.2d and 1996 SD 549 ing); Strong, 469 v. N.W.2d Stormo plaintiffs required prove to fraud dam- are (S.D. 1991) spe (encouraging the of submission separate ages distinct from the breach of and jury regarding interrogatories cial to the amount however, case, damages. In the instant contract damages of as a meth each element awarded for special interrogatories there no because were eliminating of od confusion over calculation for jury, requested or we cannot submitted to aiding types damages in awarded and separate jurors at how the arrived ascertain damages review). meaningful appellate breach of contract and for 502 committed, law, aggrieved party gain

has and the defendant has all to and been action, only with a breach If in nothing caught is left of contract to lose. he is not his punitive scheme, damages no are available. then to re- which fraudulent he is able resulting profits. tain If he dishonest case, plaintiffs In [¶ this caught, only pay he has that to back that allege Citation’s actions constitute the paid have first he should elements of tort of deceit. The essential place. are: deceit give parties To hold otherwise would to a representation was made as a [T]hat steal, undercutting license to one contract a fact, which was untrue statement and policy very withholding reasons for it, party making to be untrue known i.e., punitives, “encourage to reliance busi- made; recklessly was or else that it made ¶ agreements.” Supra, ness twin 17. The the intent for the with deceive and punitive purposes damages—deterrence inducing purpose party the other act punishment—are and well served in a con- it; rely that on it upon he did in fact party tract where one commits an intentional was act thereby induced to his tort like deceit. injury damage. past 27.] We have in award [¶ Huether, Holy Parish v. 308 N.W.2d Cross punitive damages ed for fraudulent induce (S.D.1981). S.W. Croes 576 See also Miller, ment of a contract. Ducheneaux v. Admin., Trust Family v. Small Bus. 446 (S.D.1992). Hoffman, 488 902 N.W.2d su Sittner, (S.D.1989); v. Dahl pra. courts have Some held that (S.D.1991). deceit in a contract are presented 25.] The evidence trial available when fraud was used to induce (1) supports representa- the conclusions that See, e.g., City the contract. Parks v. (2) Citation; fact were made that tions of Marshalltown, (Iowa 1989) 440 N.W.2d 377 (3) untrue; representations such were that (adopting Pogge test under v. Fullerton either representations Citation knew the Co., (Iowa 1979)); Lumber 277 N.W.2d 916 (4) recklessly; untrue or were made them ex United States rel. Farmers Home Admin. representations that made such Redland, v. (Wyo.1985); P.2d 1031 Las plaintiffs, the intent to deceive and in- Assocs., Palmas v. Las Assocs. Palmas Ctr. (or act) ease, duce them to act this Cal.App.3d Cal.Rptr.2d them; (5) upon plaintiffs that the did in Court This no such distinction made rely representations fact on Citation’s false Industries, Hulstein Meilman Food pay and were induced to excessive noneon- (S.D.1980), N.W.2d 889 a case with facts penalties sent to contin- allow Citation strikingly similar to those now before operator.5 ue as cattle, purchase Court. In contract for policy is a [¶ 26.] We believe there price where the contract on the based underpinning our conclusion that grades, deliberately cattle Meilman underre- appropriate are upon finding here ported grades at which the cattle had agree reasoning We deceit. with the sold, underreporting, been concealed its de Supreme the North Carolina Court Oestr wrongdoing, nied and “lost” the sale records. Inc., eicher American National Stores case, Id. at that 892. that the we held (1976): N.C. 225 S.E.2d trial properly court had instructed the In the so-called breach of contract ac- that finding there must be a before fraud tions smack of punitives tort because be could awarded. Id. fraud This involved, and deceit not think fraud we do ulent during behavior Hulstein occurred enough just permit contract, it is defendant rather than at inception, its pay required that which the ... contract were af awarded and pay place. Oestreicher, him to in the first If this were also firmed. See S.E.2d infra, 5. We note that the did not need to doctrine raised Issue prove this fifth element under the law of case claims the instruction was erroneous the intentional understatement Citation (involving monthly ground sales which percentage net on new that the instruction the the part of agreed pay as party’s National American of the law. misstatement When no reason at agreement). We find objec- its objection lease at trial is not as its the same time to draw a new distinction point in jury this appeal, improper tion on issue fraud in the inducement and a fraud between preserved not for our instruction is review. during performance, contract committed 355, Sybesma, Sybesma v. 534 N.W.2d party damaged re- is since the defrauded (S.D.1995); v. Hogg Bank Ab- First Nat’l gardless of when the fraud occurred. (S.D.1986). erdeen, 386 N.W.2d complaining party properly have must “[T]he jury properly in- 2. Was pre- objected in order to instruction the elements of deceit? structed improper appeal, serve the issue on or the argues that In Citation [¶29.] instruction becomes the of the case.” law 20,6 ¶ which set forth Knudson, struction Number 1996 SD 137 556 N.W.2d at fraud, by fail the law elements of misstated 77; Co-op., v. Black Hills Elec. Wallahan of reliance. ing include the element (S.D.1994); 419-20 v. State Wil- 15-6-51(b) governs procedures SDCL lis, (S.D.1985); 370 N.W.2d Shaull It jury instructions at trial. settlement Hart, (S.D.1982). v. 327 N.W.2d Be- part: provides, in relevant object to properly failed to cause Citation counsel, party, specify or instruction, shall jury given [E]aeh instruction particular ground grounds or case, state has failed to law of the Citation any giving rejecting of or upon which the preserve appeal. the issue for in- objected to. It shall be instruction Did the trial court err 3. [¶30.] that an in- generally to state sufficient jury “global” pu- providing the with a law, does or does not state struction nitive form? clearly necessary specify but it shall be instruction, any part thereof or wherein tri argues that the [¶ 31.] Citation to, not state objected is insufficient or does jury with providing court erred in al grounds objection to No the law.... in favor of “global” award refusing an instruction giving or opposed speci plaintiffs, as to a verdict form motion for shall be considered either on plaintiff. due fying the amount each Citation appeal, to the presented trial or unless new object to the this verdict form failed to use of in- upon the of such court “settlement” at trial. struction. to be submit- 32.] “Verdict forms must party objecting to an instruction jury in the same to the should be treated ted objection clear trial court is make the so the to be submit- manner as instructions errors, possible also not advised but ted_ Similarly, instruction con- [the] given the instruc- opportunity correct object any parties should errors Hess, ference accordingly. tions Knudson or omission in the verdict forms commission 556 N.W.2d Ci- SD Hiway jury.” to be submitted give oppor- tation did not trial court Inc., Term., trial, Tri-County Agri-Supply, objected to the tunity. At Citation Inc., 671, 675 ground on the it was 235 Neb. instruction fraud Co., (1990); Masonry appeal, see also Walsh v. Wild supported not the evidence. On suppressed provided, Citation facts which Number 20 in relevant b. That Instruction true, part, knowledge follows: had were action, suppressed; belief of the facts In this have burden following proving promise issues: without c. That Citation made it; performing any Fraud intention Citation, plain- to deceive the That intent any other act d. That Citation committed action: tiffs in this plaintiffs. designated to deceive the a.Suggested as a that which was fact true, and that which citation did not believe true; to be 504

Inc., 416, 447, fact, 241 72 Wis.2d N.W.2d 420 would have a less awarded amount. (1976) (defendant pro- who did not submit large Unless the verdict is so as to clear posed judge approval to the verdict ly indicate that it given must have been would alert raise an to the form of the error, did not submitted Citation has object objection by plaintiff the trial court to the claimed to the form of the verdict as verdict). By failing failed the verdict waived preserve any objection form this under the 78 S.D. 1912)]). (quoting Bogue dice, it 137 N.W.2d should stand. Stene v. influence 98 N.W.2d [v. Gunderson ^[595] passion 156, at 596 159 ], Hillgren, 30 [(S.D. preju (1959) S.D. appeal. Hogg, issue for See N.W.2d obviously extremely This creates diffi- anyone cult burden for attempting to over- jury turn a on ground verdict of exces- punitive damages 4. Were the [¶ 38.] Knudson, damages. sive Wangen v. unreasonable and excessive as a mat- (S.D.1988). N.W.2d ter of law? II, 94, 26, 1996 SD at 552 N.W.2d Schaffer argues puni- [¶ 34.] Citation next that the However, at 809-10. uphold we will not tive award is unreasonable and ex- punitive damage oppressive awards that are cessive, and should therefore be set aside. large or so as to shock the sense of fair- agree. We Hulstein, persons. minded 293 N.W.2d jury punitive [¶35.] The awarded dam- Noah, 892. See also Hannahs v. 83 S.D. ages of against million Citation. Prior $4.8 (1968); Hillgren, N.W.2d 678 Stene v. case, largest punitive damages to this (1959).. S.D. 98 N.W.2d 156 imposed single award ever against defen- guarantee dant, uniformity [¶37.] To subsequently challenged appeal law, application we have estab excessive and affirmed as reasonable Court, $750,000. lished a five-factor test to determine whether See v. Ed- Schaffer punitive Co., damage appropriate award is ward D. Jones & 1996 SD II). excessive. Wyant, Flockhart v. N.W.2d 801 {Schaffer (S.D.1991). 473, 479 Under this test we con At the outset of our anal (1) sider: the amount compensato allowed in ysis, field, we playing admit there is no even (2) ry damages, enormity the nature and gives as this Court the benefit of the doubt to (3) wrong, wrongdoer, the intent of the jury’s verdict. (4) wrongdoer’s condition, financial consistently We have held that the de- (5) all of the circumstances attendant termination punitive whether to award wrongdoer’s actions. Id. damages and the amount in large rests part jury. with the The first factor to be consid

Great latitude is allowed in the class of ered is the compensatory amount of purpose cases. exemplary One relationship dam- and its or ratio to the amount of ages person is to against punitive deter the damages. whom The amount of they are awarded from repeating the damages must bear a relationship reasonable offense and others from committing Centrol, it. compensatory damages. Inc. An Morrow, amount pur- (S.D.1992). sufficient to serve this 489 N.W.2d pose in might one wholly instance be Here the compensatory awarded dam inadequate in $354,250 another. ages Each action for fraud of dam governed by must be peculiar its own ages of million for a $4.8 ratio 13 and one- facts. [A]ll circumstances are to be con- half prior to one. While cases from this question sidered. The jurisdiction is not upheld whether have fractional awards court, the trial court or this equal here,7 as triers of greater to or even than occurred Bower, (S.D. Pierce, 7. See tively); Lynch, Davis v. Merrill Fenner & Hoff 1992) (two Smith, punitive damage (8th Cir.1990) awards of (Eighth 906 F.2d 1206 Cir- compensatory damages $639.45 Appeals, applying cuit Court of law; South Dakota $623.45, respec- ratios of to 1 and $2 27 to 26½ million based on com- II, valve; nevertheless, er of a LP victims had in we cautioned defective no Schaffer knowledge that: of and severely the defect were injured by comparisons, explosion by however are of an caused Such ratio de (S.D. fect); Bower, there some value. Were to be limited v. 492 N.W.2d 912 Hoff implies, 1992) ratios as bright-line rule on Jones (painters in Aberdeen were awarded remaining four criteria would become punitive painting damages against contractor process judicial irrelevant and the entire of representation being for fraudulent lured reduced to a turn review would be that of by promises high wages to California and ‘[tjhere have held no at a calculator. We is working ap excellent when “it conditions precise ratio mathematical between com- pears transcript nearly every that damages.’ pensatory punitive and Wan- promise plain men [the made to these two Therefore, gen, N.W.2d at 246. while 428 lie.”) was a tiffs] concern, cause for this ratio we [30 1] analyze applica- proceed pits plain- must other 40.] The case now before us [¶ per- ratio in tiffs, ble factors to set the matter who are sophisticated, experienced all spective. investors, gas against oil and operators or ¶ 28, expertise plain- II, of the The at 94 defendant. 1996 SD Schaffer drilling tiffs were well familiar with the oil 810-11. JOAs,8 contrary business and to the investor The second factor is the nature II, nothing in I & who knew about enormity wrong. and of the Here the Schaffer in investing partnerships. the risks in limited expertise parties worthy of the two becomes prior compared our note when ease law considering punitive damage on II a fraud and deceit. was also Schaffer awards, Supreme the United States Court in compensatory case on a award for based Inc., America, v. BMW North Gore fur- II in that a factor deceit. We stated Schaffer “likely potential ther focused on harm” punitive damage in upholding the substantial plaintiff a result of the defendant’s of the award was the deceit defendant bro- -, -, fraudulent acts. 517 U.S. 116 kerage selling plain- firm securities to the 809, (1996). 1589,1599,134 830 S.Ct. L.Ed.2d tiff, eighth grade a farmer with an who was enormity as the specifics As far unsophisticated types education and these wrong perpetrated upon plaintiffs I, 521 investments. See N.W.2d Schaffer us, they now case before informed Court (S.D.1994); 921 also Davis Merrill see v. $165,- they approximately stood to lose (8th Cir.1990) Lynch, 1210 906 F.2d rate, per year overcharges.9 At that 000 (affirming punitive damage million $2 in this awarded case “unsophisticated award to an investor who represent years “potential over 29 addi- completely [her broker] trusted and relied plaintiffs. tional harm” to the Yet life advice”); Oil, upon Wegman Holmes v. his (a (S.D.1992) expectancy generating of the wells those punitive 492 N.W.2d 107 dam- Thus, $500,000 overcharges years five or less. age plaintiffs each to was award of five plaintiffs’ potential could not for fraudulent concealment manufactur- loss exceed $100,000, 1); (10th Cir.1972); "experienced, pensatory award of ratio of 20 to F.2d 623 Cattle, Mayer, sophisticated, intelligent with business[man] K Inc. v. vast & E Land and 330 ($7,000 (S.D.1983) petroleum engineer experience education and ing, exploration, compensatory gas ... oil and ... [the] award of and based 1); $199.60, Hulstein, makeup drilling rigs operation 35 to of oil a ratio of ($50,000 Drilling equipment[.]" Grynberg damage & N.W.2d at 892 verdict Universal (10th $4,574, Camay Drilling, compensatory 737 F.2d Cir. a ratio of 1984); 1). "sophisticated international business Grynberg, 44 F.3d man[.]” Klein v. Cir.), denied, (10th U.S. 116 S.Ct. cert. Plaintiff, Grynberg has been vari- 8. described 133 L.Ed.2d 22 appellate operator,” ous courts as an "oil well Grynberg, Bellet v. 114 N.M. P.2d scheme, (1992); "By improp- geophysical engi- deceptive petroleum 9. its Citation “a $165,000 per erly profiting organized at a rate of almost neer who has several natural resource year.” p. companies,” Lloyd Grynberg, Plaintiffs’ brief investment wells, sponsible wrongful upon acts during the lifetime of committed using figures. plaintiffs. even their own The evidence indicates that deceitfully intentionally the acts were The factor is that [¶42.] third against done for the intent, wrongdoer’s intent. “From we purpose enriching Citation. reprehensibility degree ‘the determine conduct,’ factor the defendant’s viewed as fourth is the consider- probably important wrong- indication of ation of the most financial condition of the II, damage punitive analyzed a award.” doer. In we reasonableness of this factor Schaffer II, by 1996 at 94 552 a of the worth SD N.W.2d review defendant’s net Schaffer ¶¶ BMW, income, at -, 36-37, (citing 517 at 812 U.S. 116 net 1996 SD at 94 552 826). 1599, 134 at Trick 813. punitive S.Ct. at L.Ed.2d at N.W.2d at We noted the ver- ery reprehensible per- deceit more than dict are awarded less than one-half of one defendant, Id.10 a net negligence. Of more serious nature cent of the worth of the income, in injury up those which would be acts result to based on its it could make the loss persons through twenty to and reckless “indifference award between four safety for of disregard the health or others.” hours of net income. Id. n. 18. BMW, U.S. -, 517 at See 116 S.Ct. contrast, In in the case now before reprehensible, 134 L.Ed.2d at 826. The most us, punitive greater has a award much view, point from intent of an would be an effect It defendant. constitutes ten against intentional malicious assault or attack percent defendant’s entire net worth. Parrott, person. Shippen a Id. See 1996 Hoff, 492 (upholding an N.W.2d Cf. II); (Shippen SD N.W.2d Zah equal percent award two of the defen- Dahl, rowski v. 78 S.D. 100 N.W.2d 802 worth). dant’s significantly, net More Stene, (1960); supra. punitive damage represent award would all Cases where the year,

[¶43.] defendant Citation’s net income for an entire operating despite or its officers dispute knew or committed the fact is a this case over (one-half reprehensible 3,000 only the deceit are more than eases seven wells of one punitive involving liability percent) on respon- operates. Hoff, based Citation Cf. (where superior deat where misdeeds were com at 915 N.W.2d award was three by employees income). percent mitted whose were un gross acts of the defendant’s II, corporate leadership. known to jurisdiction There case is no law in this which Schaffer ¶ 34, at 94 812. approaches upholding SD 552 N.W.2d at Here even an award that makes no of respondeat supe Citation claim would this an a have kind of effect on defen- partial being rior as a defense for held re- dant.11 10. are only Punitive for available most chooses to work a few each week. hours negligence actions. Yankton Prod. CreditAss'n Wyant’s supports provides husband her and Jensen, (S.D.1987). 416 N.W.2d Under all the necessities of her life.” 467 N.W.2d 21-3-2, oppression, SDCL there must be fraud words, Wyant getting In other a free Sittner, or malice. Dahl v. (S.D.1991). 474 N.W.2d life, financially through ride owned addition malice, may Malice be actual only an unknown amount assets worked another, by injure evidenced ated presumed intention actu- part get money supply time to her alcohol by person; or hatred ill-will towards that or addiction which was the source of the accident malice, legal imputed by which is a personal injury which resulted in to Flockharts. person willfully wantonly who acts Wyant’s Whether in her interest home could be injury of another. Id. satisfy judgment taken her to is doubt- exemp- ful. SDCL See ch 43-31 "homestead by

11. The dissent takes issue with this conclusion reality, greatest potential tion.” In effect Wyant, citation Flockhart v. 467 N.W.2d (S.D.1991), Wyant deny the verdict on be points would her dis- 479 upheld it where out this Court that, $30,000 cretionary money liquor. against Beyond a verdict of her totally supported life-style Defendant who had an annual income of would not be affected. $2,400. However, reading contrast, of Flockhart shows In in the case now before us there is no that the extent of the Defendant’s assets was suggest evidence in record to that Citation’s never established. At was a minimum she co- subject type assets and income were to the same held; owner a home. In addition Court Wyant. as was subsidies "Wyant approximately fifty years age, is ¶ 42, position at 814. No such final factor is a consid in this case. relevant circum is advanced all the other eration II, we In of this case. stances Schaffer summary, the avail In factors two concerns. One was focused on sanctions, deceit, un including those ability guilty of other show that Citation plaintiffs argue code. Here our criminal statutes of this State and the der condemned ‘comparable’ to theft “are Citation’s acts from this decisions of this Court. Cases 22-30A-3 or theft by deception under SDCL to show jurisdiction and others can be cited 22-30A-10.” under SDCL embezzlement the sake of greater being ratios affirmed for II, statutes discussing these However, Schaffer punishing a defendant. here penalties included noted that criminal we of what award is five times excess sentence, a ten-year penitentiary maximum if have lost even would ever ¶ 39, at 94 fine or both. 1996 SD through went Citation’s actions undetected at 814. See 22-6-1. Restitu SDCL Moreover, out the lifetime the wells. 23A-28-2(3), authorized under SDCL tion is represents a substantial amount of award spe pecuniary damages and is limited to but worth result in the Citation’s net and would damages.12 There cifically punitive excludes year’s profits for actions loss of an entire any to show no evidence in the record is percent involving than one-half of one less con charges pending are or even criminal supervises. it the wells which templated. giving Even with the [¶ 49.] BMW teaches us to consider to which it is jury’s verdict the deference remedy achieve a less drastic could whether test, entitled, we con under our five-factor deterring future misconduct. 517 goal of the punitive shockingly that the award was at -, 1603, clude 116 S.Ct. at 134 L.Ed.2d U.S. clearly oppressive.14 goes It in excessive13 this rationale Applying at 832. Schaffer sympathy of fairness and against one’s sense would not that a lesser amount we found pleas party of a who has challenge to listen to the been given suffice the defendant’s Nevertheless, guilty of deceit. the again.” 1996 at found jury “we do it SD that would at -, 1592, BMW, (citing 116 S.Ct. at point 517 U.S. in their brief 12. Plaintiffs advanced this 818). at The net worth of the tort- extensive 134 L.Ed.2d thus we address it. The dissent’s typical factors to be consid purported of 18 USC feasor is one of effect discussion of fraud) (RICO (mail determining reason the constitutional and 18 USC 1962-1964 ered 1341 ¶ 50, (citing at 816 activity) of the award. Id. at racketeering never briefed nor ableness Corp., applicable. Corp. Resources by any party TXOProduction v. Alliance argued as to this Court 2711, 2722 n. 462 n. 113 S.Ct. it. 509 U.S. As such we do not address (1993)). 366 n. 28 125 L.Ed.2d any punitive damages was sub- 13. The award of punitive upholding from consti- verdict dispute. ject The was not unanimous II, we that observed attack in tutional Schaffer award, jurors would not have award- as two destroy the award "this is not a case where will juror damages. any punitive one more ed Had seriously damages even Jones.” award, hung jury would dissented from the damages hear a reasonable should "Punitive on this issue. SDCL 15-14-25. have resulted likely relationship occur that is harm as conduct well defendant’s from actually If the defen- firmly has occurred. harm that are now 14. Excessive likely cause in implications. actions cause or would carry Such dant's constitutional held to harm, damages only slight similar damages may that which is situation not be in excess of relatively is If the harm necessary punish be small. "reasonably and deter.” should ¶ II, damages greater[.]” It grievous, should be at SD at 94 552 N.W.2d 1996 Schaffer magnitude appropriate Haslip to consider the (citing Mutual Ins. Co. Pacific Life 1032, 1046, 1, 22, potential conduct harm that the defendant's 111 S.Ct. 499 U.S. (1991)). victim if have caused to its intended "Damages would wrongful plan awarded L.Ed.2d succeeded, as well as ‘arbitrary had criteria amount to excess of that ” might possible have to other victims (citing Mo- harm deprivation properly.’ Id. Honda 430-432, were not future behavior Oberg, S.Ct. resulted if similar U.S. Co. v. tor 2331, (1994)). deterred. 129 L.Ed.2d TXO, (citing at 816 Id. at process of the Fourteenth Amendment due clause 2721-22, 460-61, 113 S.Ct. "grossly U.S. at prohibits imposing a exces- a state from (emphasis original)). at 380-81 punishment Id. L.Ed.2d punitive on the tortfeasor. sive” punish, possible relevance that have to this purpose punitive is to does destroy. permanently cripple or case? This case differs from II Schaffer repeatedly deliberately because Citation proeedurally ap As was lied, records, overcharged falsified II, proved Shippen after a consideration of unsophisticat- well owners. “Schaffer was an factors,” “all we reduce the relevant partnerships” ed investor in limited and the million damages award to one dollars. This duty properly defendant “owed Schaffer a potential figure the maximum finan exceeds informing of the [defendant] Schaffer risks $825,000 cial Plaintiff of and thus loss to the knew to be involved with this investment.” potential gain the maximum to the Defen ¶ 31, If 1996 SD 94 552 N.W.2d at 811. compensato dant. It is well excess business, Grynberg were novice the oil jury.15 ry awarded verdict duty would Citation owe a to disclose its II, Shippen given Per should be practiced deception? Of course not. Does option accept together this remittitur Grynberg’s sophistication reduce thereon, acceptable, or if not be interest resulting duplicitous from Citation’s and de- granted trial on issue of new major- ceitful behavior? Of course not. The damages. given days Plaintiffs are ity opinion rewarding Citation because its opinion the date of this to make this election. sophisticated. victims were This is a $3.8 A plain- million dollar windfall to Citation. MILLER, C.J., concurs. sophistication mitigating tiff’s not be a should AMUNDSON, JJ., [¶ 52.] SABERS and factor in a of ease fraud and deceit such as part part. concur in in and dissent this. TUCKER, Judge,

[¶ 53.] Circuit dissents. majority opinion pays lip The [¶ 58.] ser- punishment aspect vice to the and deterrence TUCKER, Judge, sitting Circuit [¶ 54.] ¶ punitive damages. supra of See KONENKAMP, J., disqualified. for provides: SDCL 21-3-2 SABERS, part (concurring Justice in & any In action for the breach of an obli- dissenting part). in contract, gation arising not from where the join Judge I Tucker’s [¶ 55.] dissent. guilty oppression, defendant has been of fraud, malice, or presumed, actual or or in separately point I [¶ 56.] write to out the animals, any wrongful injury ease of inconsistency majority opinion between the being subjects property, of in- committed majority prior opinion and the writer’s tentionally by or willful and wanton mis- regarding punitive damages. II Schaffer conduct, humanity, in disregard of majority opinion relies exces- jury, damage, may in addition to the actual sively Grynberg’s sophistication on as an oil give damages example, the sake and of operator. only well He is one of eleven by way punishing the of defendant. plaintiffs. sophistication imputed Is his to be added); II, they experienced (Emphasis to the others? Were all so see also 1996 Schaffer ¶ sophisticated? importantly, and More what at 94 SD 552 N.W.2d at 809: $1,000,000 enough repeat 15. We are at a loss to construe a to cause that individual not to punitive top compensatory verdict wrongful on of verdict especially action in the future where of aas "windfall” to Citation who has potential financial rewards do not come close $1,000,000 pay punitive that amount. The equaling that amount? verdict reduced as this Court still amounts to $1,000,000 being "relatively large,” far as As year. one-fourth of Citations income for an entire largest punitive verdict ever affirmed slapped If a or business individual were with a challenged Court when as excessive and exceeds penalty amounting to of their annual in- 25% $250,000. previous high amount of or 25% top compensatory property come loss "lip amount, See II. If be this mere service to again they of half that would find it a Schaffer punishment aspect and suggested by deterrence "windfall” as the dissent or a "sub- dissent, damages,” hypothesized by "relatively penalty large” what stantial” as deter- by majority prior mined of this Court. Is a of all our substantial case law on the sub- loss of approximately ject? of one’s annual income 37½% Star, Eagle of the trial court.” v. the nature of tions State 21-3-2 describes SDCL (cita- 143, 22, example, 1996 SD 558 N.W.2d to be “for the sake the award omitted); see Nat’l by way punishing the defendant.” tion also First Bank Ranch, Inc., Minneapolis v. Kehn approach in This has been our consistent (S.D.1986) (“It is, course, types of awards since examination these Huston, presumed that the understood and abid- 10 S.D. Richardson instructions.”). damage ed these This Punitive awards N.W. 234 damage fairly punishment for award arrived and le- to act as extend gally. “relatively It is “substantial” and past defendant for tortious the individual large,” as it must be to achieve the desired repeti- acts and deter defendant Gunderson, goals punishment tion, and deterrence. Bogue 30 S.D. Schaf- II, (1912), supra. That fact does not constitute but also to serve N.W. fer tempted grounds “perma- for remittitur. Nor does it be notice to others who would future, nently cripple destroy” as the repeat they that such actions ¶49). majority implies (supra opinion Ac- peril. Hulstein do so at their substantial Industries, cordingly, we should affirm rather than re- Food v. Meilman (S.D.1980). jury’s verse the award.16 accomplish To these purposes, punitive damages must be “relatively large.” Id. AMUNDSON, (concurring part Justice omitted). added) (footnote

(Emphasis Cita- dissenting part). pattern in a engaged tion fraudulent I Issue One. dissent on period approxi- over a deceitful conduct mately Surely merits a years. seven order maintain cause “relatively large” punitive “substantial” to breach of action fraud addition damages award. Accord North BMW of contract, “the fraud must be extraneous America, Gore, -, Inc. v. 517 U.S. contract, than a non- rather fraudulent 1589, 1599-1600, 134 L.Ed.2d S.Ct. performance of the contract itself.” Bevins (1996): 203, 1044, King, v. Vt. 514 A.2d

Certainly, that a has omitted). evidence defendant (1986) (citations significance The repeatedly engaged prohibited in conduct in of this is outlined Bevins distinction knowing suspecting that it was while [P]rinciples principles contract and support provide unlawful would relevant kept separate must be and distinct fraud argument strong is for an that medicine every promise were to “[i]f broken required disrespect to cure the defendant’s fraud, resulting constitute ... the instabili- holdings for the law. Our that a recidivist ty severely impair the would conduct severely may punished more than a be also Hertz Commercial business.” See recognize repeated mis- first offender that Data, Inc., Leasing Corp. v. LMC reprehensible an in- conduct is more than 689, 1009, 1013, Misc.2d 343 N.Y.S.2d of malfeasance. dividual instance (Civ.Ct.1973) (“If simply, by party could (Citations omitted). in- alleging contracting party that a never promise, create a tor- properly The trial court instructed tended to fulfill his

[¶ 59.] fraud, by be no punitive damages law tious action there would the on the every way preventing almost setting forth the factors we consider effective five reviewing punitive damages being contract case from converted to when award. jurisdictional purposes.”) presumed to follow instruc- tort for “Juries are the 16. While a figure to 1. bright-line formula is that is 5.8 to 1 rather than 13.5 See mathematical BMW, at -, punitive damages, not may majority opinion points the ratio determinative 517 U.S. 116 S.Ct. at in this than stated. The be even closer case (discussing approval at 830 with L.Ed.2d if de- out that Citation’s comparison with “the harm undetected, gone amount ceit had of loss the the maximum likely result from the defendant’s conduct as plaintiffs could have sustained was occurred.”) actually the harm that has well as $825,000. relationship Supra The between omitted). (citation (emphasis original) punitive damage $4.8 award of million Jones, ords,

Id. at Union Bank 4-5. (citing agreed, stating, The trial court 1338, 1343(1980)). relationship parties Vt. 411 A.2d “[T]he between the by is [JOAs] controlled terms of their case, duty In must exist this agreement voluntarily made.... [T]he relationship in outside of the or- contractual specifically by JOAs defined standard (collectively der plaintiffs for the referred to operator’s which conduct measured.” Grynberg) independent action to create A similar situation occurred party for fraud. A cannot convert a breach Co., Brick Cohn-Hall-Marx wherein the merely of contract action into a tort cause of plaintiff alleged kept the “defendant by upheld false stating recently it as We such. books, statements, rendered false law in state in Fisher Sand & made settled which sales for it did not account.” 276 N.Y. Gravel v. State. 11 N.E.2d an action obligations general obligations “Tort are in fraud, plaintiff sought damages in the imposed policy that are law on consid- royalties form of contract which were not erations to some kind of loss to avoid paid due conduct. The defendant’s They obligations imposed are others. plaintiff’s held the court action sounded apart independent from promises contract, stating: any apart made and mani- therefore any plaintiff [I]f defendant owes the parties fested intention to a contract or money, it agreement is because of the Therefore, other bargaining transaction. royalties it pay upon which made to sales if alleged obligation not to do or do though were which made. Even the defen- something breached could may falsely dant have stated the amount of intent, have for a existed but manifested statements, sales and rendered false then contract should be law theo- liability the fact remains its on the actual ry upon liability imposed.” would be depends upon amount of sales the contract. ¶8, 1997 SD 867-68 deliberately Whether defendant re- § (quoting Keeton on Prosser & Torts payment, fused to make thus breaching its (5th 1984)) (emphasis original). ed. contract, through neglect whether it majority attempts Gryn- to transform statements, false made or whether it delib- berg’s action for breach contract into an erately statements, made false the action stating action for fraud for the bases upon founded and based independent action fraud are factual false contract, they without which would representations made no claim at falsity have all. The of these ¶¶ Grynberg. supra. intent to deceive statements and the fraud of the defendant However, Operating Agreements Joint according to the allegations a amounted (JOAs) promise adjust include the to the of breach and were no more contract joint pursuant account audit as TIPCO or a less breach of the contract then if the step to promise operator. well a down as deliberately defendant had pay refused to Therefore, impliedly JOAs create ob- neglected or pay. had to ligation representations to factual make true Locker, Id. at 904. See also Wood & Inc. v. Grynberg. to is duty There no outside Assoc., & F.Supp. Doran 708 689 duty clearly this contractual in the defined (W.D.Pa.1989) (holding a contract cause of See, Gravel, e.g., JOAs. Fisher Sand & 1997 involving action operating agreements is not ¶8, 18, (stating, SD 558 N.W.2d at 868-89 converted to a fraud cause action when “In order against to maintain its tort claim plaintiff’s injury is recoverable the con- [defendant], [plaintiff] [defen- must show action). tract acts or dant’s] omissions resulted independent duty already breach of an not The majority [¶ cites Vernon 64.] Fire & contract.”) by Grynberg Casualty defined even v. Sharp, Insurance Co. 264 Ind. (1976), relationship “[t]he admits JOAs define the N.E.2d bad-faith insur- parties.” case, and duties of support Plaintiffs’ Brief theory ance its that each Summary Partial Judgment/Defendants ought element fraud to be shown without Keep Adequate Accounting Failure to Rec- reference to the breach of contract action in joinder independent an The mere of a claim contract whether order determine in tort not Then, claim does alter the applying the elements of tort exists. fundamental rule: breach of contract can- deceit, majority are suffi concludes there recovery exemplary support not support independent tort in cient facts to an damages. recovery It that a is well settled injury Regarding case. the element punitive damages requires finding majority damage, states the independent accompanying an tort with ac- pay nonconsent were “induced to excessive damages. availability tual The mere of a to continue as penalties and to allow Citation theory recovery tort-based is not suffi- operator.” supra. Paying nonconsent cient; damages actual sustained an allowing continue in penalties and Citation to from independent proven tort must be however, damages arising capacity, its are before damages are available. contract. As solely from the breach of we Dreyfus Corp., (citations 193,197 stated in v. Louis (Tex.App.1996) 941 S.W.2d Hoffman omitted) independent separate added); Quinn tort must be (emphasis “[t]he see also v. 2000, Inc., distinct from the breach of contract.” 435 F.Supp. Workforce (S.D.1989) (E.D.Tex.1995) (quoting 22 Am. (stating, nature of the “The (1988)). § injury duty When contract and often Jur.2d most determines which asserted, injury fraud claims are the critical distinc duties are breached. When the alleged subject loss to the tion is whether the fraud “occurred the economic itself, relationship contract the action sounds in contract before or after the contractual alone.”) Homes, (quoting Jim Inc. v. Deutz & Crow State Cement Walter existed[.]” Reed, Comm’n, (S.D. (Tex.1986)); 711 S.W.2d 617 Cornwell Plant 636-37 1991). Jespersen, If before a contrac 238 Kan. 708 P.2d the fraud occurs (1985) formed, (stating injuries by relationship independent suffered tual contract; therefore, However, plaintiff flowed from the may tort claim exist. Id. at 637. denied). parties the action for fraud was if the fraud occurs after the enter contract, separate into a claims do not exist. pleadings A review of the reveals Clearly, Grynberg’s allegations Id. each of damages allegedly actual suffered disputes involve which occurred recovery Grynberg operat- after include: of lease relationship contractual was formed. No they ing expenses in excess of the amount alleged inducement claims were fraudulent JOAs; deemed to be reasonable under the Therefore, by Grynberg. sepa there are no expenses lease reimbursement additional rate tort claims. charged change to them reason of the basis; allocation method to a volumetric Furthermore, the tort of fraud is recovery penalties charged un- of nonconsent separate from contract at and distinct specific parties. None of der the JOAs injuries there are no that arise hand when of “actual these consist alone. For exam- fraudulent conduct wrongful acts of [Citation] attributable ple, Corp. in Textron Financial v. Nation- those which are in addition to attributable Co., wide Mutual Insurance the Ohio Court Textron Finan- the breach of the contract.” Appeals stated: App.3d Corp., cial 115 Ohio indepen- containing duty addition added). (emphasis N.E.2d 1261 at 1271 contract, dent of that created an action Rather, damages is an each of these asserted arising is out of contract which also based economic loss incurred as a result of upon tortious conduct must include actual separate actual breach of contract. Without damages wrongful to the acts attributable damages, punitive damages cannot be fraud in alleged of the tortfeasor which are addi- supported. tion to those attributable the breach of Therefore, I would reverse the [¶ 67.] the contract. instruc- damage tort award and remand with (9 App.3d 684 N.E.2d 1261 115 Ohio claim in judgment tions to enter on the fraud (citations omitted). Dist.) Likewise, in of favor Citation. Drake, Appeals of of Chachere v. the Court I on Four. concur Issue [¶ 68.] Texas stated: TUCKER, permissible previous occasions. Judge (dissenting). found Circuit bright though Even a mathematical line is agree majority’s I deci- [¶ 69.] determining not used the reasonableness I, II, regard III. sion on Issues and With ratio, comparisons of the and such ratio are IV, respectfully Issue I dissent. value, present this case does not of limited damages punitive The issue of falls [¶ 70.] of ratio that “shocks the con- kind jury, largely province within the of the Schaffer, at 810-11. science.” 552 N.W.2d great of is afforded a deal latitude deter- fact, justified higher may In an even ratio be if mining punitive damages, the amount injury in cases which the is difficult any, v. Edward D. to be awarded. Schaffer America, Inc. v. detect. BMW North (S.D.1996). Co., 801, 809 Jones & 552 N.W.2d Gore, 1589, 134 517 U.S. 116 S.Ct. strictly question jury is The (1996). Here, L.Ed.2d 809 Citation utilized Dakota, question. Kamp Inc. v. Salem trickery in an involved scheme of deceit and Co., Inc., Lumber 89 S.D. 237 N.W.2d Therefore, wrongdoing. order to hide their I (S.D.1975) Becker, (citing v. Rowan would have to conclude that this factor does (1950)) (emphasis S.D. N.W.2d sway finding in the direction added). Only cases where damages oppressive. oppressive large or so award is persons shock the conscious fair-minded The second factor is the nature kingdom enormity should court “invade sacred wrong. of the In this case it jury.” Hulstein Meilman Food plain simple wrong what the is: theft (S.D.1980). Industries, law, prior fraud. Pursuant ease majority opportunity takes this to examine making In its determination that [¶ 71.] sophistication parties. of the While it is jury shockingly ease is verdict plaintiffs true that both and defendant had oppressive, majority cor- excessive ample experience education and in the oil rectly uses the five factor determination that industry, majority places I believe that the give “guideposts” judicial was set forth to emphasis plaintiffs too much on the intellect Wyant, review. Flockhart enough and not on the defendant’s conduct (S.D.1991). 473, 479 The factors for this test defendant, magnitude. through and its (1) compensatory are: the amount allowed in given by plaintiffs, stealing trust (2) damages, enormity the nature and thousands thousands dollars. This (3) (4) wrong, wrongdoer, the intent of the despicable easily conduct should not be so (5) condition, wrongdoer’s financial outweighed by plaintiffs the status of the so- all of the circumstances attendant to the fact, phistication. sophistication In wrongdoer’s Upon analyzing Id. actions. plaintiffs simply emphasizes the com- proper these factors with the deference and plexity of the fraud and the need for exten- award, comity jury’s a result different punitive damages. sive The defendant majority than that of the seems to be re- judicially large should not be relieved of a quired. punitive damages award because it and The first factor to be considered industry. were skilled in the oil compensatory damages the amount of and its punish If sought Theft is theft. relationship puni- or ratio to the amount of conduct, ap- its defendant for we should damages. parties’ quickly tive Both briefs preciate Again, that conclusion. this factor point range out the vast ratios that have tipped is not in defendant’s favor. crumpled weight both survived and under the judicial review. footnote seven of the The third factor that is considered majority opinion, wrongdoer’s the Court lists several is that of the intent. This factor upheld. awards that were degree reprehensibili- These awards should focus on the range high ty Schaffer, from a of 35 to 1 to a low of 11 to of the defendant’s conduct. BMW, presents compensatory 1. pu- (citing This case at 812 at U.S. -, 826). damage yield nitive that a ratio of at at awards 116 S.Ct. 134 L.Ed.2d damages “perhaps important 13.5 to 1. The ratio of here is This factor is the most easily within bounds that the Court has indicium the reasonableness of a BMW, at -, The defendant was 116 S.Ct. at award.” Id. U.S. Here, only taking it was not entitled at 826 fn. 24. not what L.Ed.2d de take, undoubtedly reprehensible, but taking fendant was so much that instead wells, efforts to affirma taking making profit plain considerable their oil was a legitimate” $67,000 its fraud tively losing per conceal or much tiffs were as “make granted by the position power using year. Grynberg’s p. its at Brief 18. Unlike Defendant Operating Agreements. majority, say Joint can this dissenter plain taking advantage of its control of was jury’s punish that the determination to "the taking advantage of property as well as tiffs by taking away year defendant one of its operation being that the plaintiffs belief profit unjustified shocking.17 own statements, honestly. run Deliberate false third, factor, important This and most does misconduct, or conceal acts of affirmative jury not favor reduction of verdict. improper motive are ment of evidence The fourth factor is the consider- [¶ 76.] in favor of factors that must be considered wrong- ation of the financial condition of the BMW, at -, 517 U.S. plaintiffs. net net doer. Both worth and income are 1601, 134 at at L.Ed.2d S.Ct. analyzed. Schaffer, 552 N.W.2d at 813. The The evidence that the de shows [1175.] defendant’s net worth has risen $43 intentionally repeatedly allocat fendant in 1992 to million in million 1994. Within $48 against plaintiff; in improper ed costs years, has a five two defendant amassed tentionally charged higher penalties than million in worth. dollar increase net Defen- allowed; provided plaintiff with false of million dant’s net income is excess $4 funds to pay-out reports; never credited per year. readily apparent It is dollars so; plaintiffs despite saying it would do pay jury The the defendant can the award. allocating secretly changed the method of this as must have believed well. wells; among engaged the costs majority’s The assertion that this on-going pattern of conduct an fraudulent upheld Court has never improper According to conceal its actions. an award that “would have this kind of effect BMW, espe injury, infliction of economic on a defendant” is error. This Court has cially intentionally through affir when done upheld punitive damages which con- award acts of misconduct can warrant a mative 1,200 percent stituted more than of the de- BMW, penalty. 517 U.S. at substantial income, fendant’s annual net and would take -, 134 L.Ed.2d at 827. S.Ct. years pay her well over twelve if she Also, represent intentional malice can paying income to committed her entire net in a decisive element “close and difficult Wyant, the same.18 Flockhart v. BMW, at -, case.” 517 U.S. S.Ct. strong puni- at 479. This has affirmed Court (citing at 827 134 L.Ed.2d TXO individuals; corpora- damages against tive Corp. v. Alliance Resources Production preferentially. tion should not be treated Corp., 509 U.S. S.Ct. Again, this factor does not induce the (1993)). L.Ed.2d 366 Intentional malice required for reversal this Court. “shock” appears in such the defendant statements as, fifth final factor is a con- you “I what and we don’t don’t care do circum- Working owners do sideration of all the other relevant care what the Interest either;” and, Schaffer, working of the case. Under the two interest owners stances remedy they that were examined were the avail- only was to sue and that concerns id., ability determining if a “go Grynberg’s to hell.” Brief of other sanctions and could 23; remedy goal of Transcript pp. drastic could achieve the pp. 18 and Trial 1661- less BMW, majori- In the deterring As future misconduct. 1662 and 915-916. stated sanctions, possible other it ty’s fit review of punishment should crime. $30,000 punitive dam- majority assessed that the 18. The 17. The states represent approxi- ages award would all of Citation’s income against the defendant who earned n year despite the fact that this case is entire mately part-time job. at her 3,000 dispute wells that over seven of the operates. (fine (1991) $250,000 for mail grand conduct as F.2d 1183 recognizes the defendant’s light of the defen- is committed when fraud was reasonable theft. theft Grand amounting property stolen exceeds five dant’s income to over million $1 of the value dollars). Shelton, dollars, imposi- can warrant the also United States v. hundred See (1982). year twenty a ten fine as well as A tion of a 669 F.2d 446 sentence 22-30A-17, 22-6-1. prison light sentence. SDCL years was not abuse discretion However, statutory Dakota scheme approaching the South losses one massive fraud with Moss, the criminal dollars; fails to differentiate between million United States (1980). criminal who steals who steals and the $501 the defendant was F.2d 105 Where face the million. The two criminals would fraud, $5 mail convicted of twelve counts of his sentence. This lack possible same maximum forty-five-year the maxi- sentence was within magnitude in which limits the distinction mum sentence allowed. punished a criminal con- the thief can be clearly As stated 18 U.S.C.A. [¶80.] distinction, I of this believe text. Because 1961(1)(B), “racketeering activity” § means damage in the higher punitive award that (relat- any act indictable under section 1341 certainly justified when the civil context is fraud). ing Participating mail RICO’s money that so thief steals an amount of prohibited activities allows both criminal and greatly exceeds $500. §§ penalties. civil 1962-1964. U.S.C.A. Also, majority to be seems penalty permits The criminal an unlimited looking at the defendant’s conduct while prison fine and a maximum term of 20 wearing appears It that blinders. other years.20 penalty Id. The civil includes the charges easily brought could have been recovery of treble as well as the Both against the defendant. mail fraud and cost of the suit. Id. This includes a reason- violations of the Racketeer Influenced and attorney’s sting Id. of all the able fee. (RICO) Corrupt Organizations Act are feasi possible punishments permits that RICO surveying ble when the defendant’s actions. would be one the did not soon defendant fraud, § Mail as defined in 18 U.S.C.A. forget. imprison fine authorizes an unlimited majority [¶ 81.] The concludes years.19 separate mailing ment of five Each severity in disproportion of other sanctions is single part made as of a scheme to defraud However, punitive damage with the award. may separate be a mail fraud offense. Cen spectrum when a broader of available sanc- Trust, ter Cadillac v. Bank Leumi examined, jury’s tions award is well F.Supp. 213 Over the course of the Also, acceptable within tolerances. while parties’ relationship, the defendant falsified remedy might possibly less drastic deter fu- pay-out reports, overcharged expenses, misconduct, ture but there is no doubt that improperly changed expense allocation this verdict will assure that the defendant If to a volumetric basis. these actions were again.” will not it This “do last factor fails reported to the in the form of a any afford defendant assistance. letter, extreme mailed sanctions could have example, This must also been levied the defendant. For Court be “mindful upon if passing the defendant had mailed five letters which that the trial court in the rea plain jury contained fraudulent material to each sonableness of the verdict had the bene tiff, they fifty hearing observing things could have faced around counts fit of same fines, Extremely jury, large opportunity of mail fraud. as the has had the [and] possibility years imprisonment, signs passion observe the itself prejudice, would be warranted. United States v. Pac and has considered the ” cione, (1990), Mattern, F.Supp. 949 amount of the verdict. Brewer v. affirmed crime, crime, severity severity 19. As evidence of the 20. As this this evidence change change statute was amended in 1994 to statute was amended in 1988 to $1,000” $25,000” phrase phrase "fined not more than to read "fined to read not more than thereby thereby express giving express giving "fined under title” “fined under this title” authority impose larger authority larger impose fines. Pub.L. 1OS- fines. Pub.L. 100- 322, 330016(1)(H). 690, 7058(d). § § 327, 332-33 85 S.D. judgment adopt- the trial court entered

Since

ing jury’s punitive verdict million, trial it is fair to assume that the

$4.8 least, oppose

judge, very at the did not

verdict. jury returned this

[¶83.] verdict; judge trial entéred

judgment imposing punitive damages; appeal split. court is million

and on 4.8 majority,

dollars shocks the conscience of the unexplained

but for reasons one million dol- area where the

lars does not. In this Court

really special expertise no has determine not nor

damages and did see the witness testimony, kingdom of

hear the the “sacred jury” should be disturbed. Because analysis of the five factor test does not verdict,

support a modification of the

jury’s award of should respectfully I

stand. dissent. TUCKER, C.J.

KONENKAMP, J., disqualified. SD 6 Dakota, Plaintiff

STATE South Appellee, SMITH,

Michael Lee Defendant Appellant.

No. 19744.

Supreme Court of South Dakota.

Considered on Briefs Dec. 1997.

Decided Jan.

Case Details

Case Name: Grynberg v. Citation Oil & Gas Corp.

Court Name: South Dakota Supreme Court

Date Published: Oct 22, 1997

Citation: 573 N.W.2d 493

Docket Number: None

Court Abbreviation: S.D.