Case Information
*1 #26523-a-JKK
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
* * * *
LAW CAPITAL, INC
a/k/a LAW CAPITAL, Plaintiff and Appellant,
v.
DIANE KETTERING, PERSONAL
REPRESENTATIVE OF THE
DOUGLAS R. KETTERING ESTATE, Defendant and Appellee.
* * * *
APPEAL FROM THE CIRCUIT COURT OF THE FIRST JUDICIAL CIRCUIT HUTCHINSON COUNTY, SOUTH DAKOTA * * * *
THE HONORABLE GLEN W. ENG
Judge
* * * *
DAVID M. HOSMER
Yankton, South Dakota Attorney for plaintiff
and appellant.
WILLIAM FULLER of
Fuller & Williamson, LLP
Sioux Falls, South Dakota Attorneys for defendant
and appellee. * * * *
CONSIDERED ON BRIEFS ON APRIL 22, 2013 OPINION FILED 08/21/13 *2 KONENKAMP, Justice
[¶1.] This is a legal malpractice case against a deceased attorney’s estate. The circuit court granted summary judgment for the estate.
Background
[¶2.] In December 2005, Thomas Konrad urgently needed $225,000. No bank would lend him the money. He discussed his problem with Attorney Douglas Kettering, who had performed legal services for him in the past. Kettering told Thomas that he knew a person who could lend him the money: Bob Law of Law Capital, Inc. (Law). In addition to their attorney-client relationship, Law and Kettering had been partners in at least one of Law’s business ventures. During Kettering’s conversation with Law about a loan for Thomas, Law asked whether there would be collateral for the loan. Kettering told Law that there was a “half section of ground clear,” referring to Thomas’s parents’ land. In agreeing to the loan, Law dictated its terms: Thomas would repay $225,000 plus $20,000 in interest by January 15, 2006, and then $500 per day until Thomas paid the debt in full. [¶3.] Around the same time, Thomas was having marital problems. He feared that his wife, in their impending divorce, might gain an interest in his parents’ land when they died. Thomas’s parents, Norman and Leola Konrad, were farmers who owned an unencumbered 320 acres. Thomas shared his concern with his parents and suggested that they have Kettering draft the necessary paperwork to protect their land. The Konrads later testified that they remembered meeting with Kettering at his office in August 2005, and signing documents they thought would protect their land from Thomas’s wife.
[¶4.] On December 15, 2005, Thomas and his parents went to Kettering’s office and executed the promissory note and mortgage Kettering drafted, whereby the Konrads provided the collateral for Thomas’s $225,000 loan from Law. Thomas later claimed that he, alone, went into Kettering’s office, signed the note and mortgage, received a check for $225,000, and returned to his vehicle. His parents then went inside and signed paperwork. Thomas could not verify what his parents signed, and the Konrads could not remember what they signed. But their signatures appear on the note and mortgage, and they do not dispute that the signatures are theirs. Neither the Konrads nor Thomas left Kettering’s office with copies of the note or mortgage. Kettering recorded the mortgage with the Hutchinson County Register of Deeds.
[¶5.] On March 9, 2006, Thomas paid Law $25,000 on the note. He never made another payment. Law claimed that for several years he asked Kettering to collect the unpaid portion of the note from Thomas and that Kettering assured Law that he would. But Kettering took no action against Thomas. In late 2008, Law went to the Konrads’ home and told Norman that the note he and his wife had signed with Thomas was in default. According to Law, Norman acted as though he knew nothing of any note or mortgage.
[¶6.] On April 23, 2009, at age fifty-five, Kettering passed away. Seven months later, Law retained counsel and brought suit to enforce the note and mortgage against Thomas and the Konrads. In his answer, Thomas asserted an affirmative defense: the note and mortgage were void because Kettering failed to disclose his attorney-client and business relationship with Law and failed to obtain *4 a waiver of this conflict of interest. Law amended his complaint to add the Douglas A. Kettering Estate as a defendant. In the Konrads’ answer to Law’s amended complaint, they asserted that Kettering fraudulently induced them into signing the note and mortgage.
[¶7.] Law reached a settlement with Thomas and the Konrads. In exchange for $220,000 and an agreement to assist Law in his litigation against the Kettering Estate, Law released the mortgage on the Konrads’ land. Law then sought to recover from the Estate the amounts outstanding on the note, asserting that Kettering’s acts voided the note and mortgage, and, therefore, the Estate was liable to Law for the interest due on the note: $925,456.14.
[¶8.] In moving for summary judgment, the Estate argued that Law could have legally enforced the note and mortgage regardless of Kettering’s conflict of interest. The circuit court denied the motion. In its second motion for summary judgment, the Estate argued that regardless of Kettering’s failure to obtain a waiver of any conflict of interest, Kettering had not fraudulently induced the Konrads into signing the note and mortgage; consequently, Law could have enforced the note and mortgage against the Konrads. The court granted summary judgment for the Estate. Law appeals asserting that the court erred as a matter of law when it failed to void the note and mortgage on the “substantial and material evidence of Kettering’s conflict of interest and his fraudulent inducement[.]”
Analysis and Decision
[¶9.] Law contends that had Thomas and the Konrads defended the suit, they would have been able to void the note and mortgage, which would have *5 extinguished their legal obligations to Law. Now standing in their shoes, Law maintains that Kettering committed legal malpractice when he failed to disclose to Thomas his conflicting attorney-client relationship, thus violating the public policy of this State and consequently voiding the note and mortgage. Law further contends that Kettering fraudulently induced the Konrads into signing these documents, also making them void. With the note and mortgage void, Law argues the Estate is liable to him for the interest he would have recovered had Kettering not acted negligently or fraudulently.
[¶10.]
As in all summary judgment appeals, we review de novo whether there
were any genuine issues of material fact and whether the moving party was entitled
to judgment as a matter of law. SDCL 15-6-56(c);
Horne v. Crozier,
[¶12.] No one disputes that Kettering had an attorney-client relationship with both Thomas and Law. Kettering’s dual relationship conflicted, at the very least, because both clients would have presumably wanted the most advantageous lending agreement. This conflict, then, imposed a duty on Kettering to inform Thomas that he had an attorney-client relationship with Law, that it might conflict with his attorney-client relationship with Thomas, and that he needed to obtain Thomas’s informed, written consent. See SDCL ch. 16-18, app. Rule 1.7 (a), (b) (South Dakota Rules of Professional Conduct). Accepting Thomas’s assertion that Kettering never told him of Kettering’s relationship with Law, Kettering breached his duty to Thomas. Yet, as this Court has cautioned ever since territorial days, “‘The
power of courts to declare a contract void for being in contravention of sound public
policy, is a very delicate and undefined power; and, like the power to declare a
statute unconstitutional, should be exercised only in cases free from doubt.’”
Sch.
Dist. No. 61 v. Collins
,
loan while heedless of its terms invokes no manifest public policy to justify
invalidating the loan on the ground one’s lawyer had a conflict of interest.
Moreover, our courts look askance at those signing a contract without reading it and
knowing its conditions and then using such ignorance as a basis to evade the
contract’s obligations.
LPN Trust v. Farrar Outdoor Adver., Inc
.,
Konrads into signing the note and mortgage. Fraudulent inducement entails
willfully deceiving persons to act to their disadvantage.
Johnson v. Miller
, 2012
S.D. 61, ¶ 13,
(1) The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
(2) The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true; (3) The suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or (4) A promise made without any intention of performing.
Although questions of fraud and deceit are normally questions of fact for a jury,
such claims “may never be presumed and left to mere speculation or conjecture.”
Estate of Elliot v. A & B Welding Supply Co., Inc.
,
[¶16.] Norman and Leola Konrad testified in their depositions and by affidavit that they “were told the documents [they signed] would, in fact, keep [their] ex-daughter-in-law [ ] from inheriting [their] property.” They insisted they would have never signed the note and mortgage had they known their land was collateral for Thomas’s $225,000 loan. They did not recall signing the note and mortgage on December 15, 2005, in Kettering’s office, and therefore attested that they “were the victims of fraud or trickery[.]” Norman and Leola rely on their history of never borrowing money from others and only lending “very small amounts to [their] sons for very short periods of time.” Still, the theory that Kettering fraudulently induced the Konrads into
signing the note and mortgage rests on mere speculation. The Konrads do not
remember signing the note and mortgage and do not remember being in Kettering’s
office on December 15. This is not a case like
Hauck v. Crawford
, where a
landowner was tricked by sleight of hand into signing a mineral deed, because here
there is no evidence that Kettering prevented the Konrads from reading the
documents or manipulated them to prevent the Konrads from realizing what they
signified.
See
[¶19.] Affirmed. GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and
WILBUR, Justices, concur.