Case Information
*1 #25621-a-GAS
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
* * * *
DENNIS LINDSKOV and
AUTOMOTIVE COMPANY, INC., Plaintiffs and Appellants, v.
LES LINDSKOV and PREMIER
EQUIPMENT, L.L.C., d/b/a
PREMIER EQUIPMENT and d/b/a
K&A IMPLEMENT, L.L.C., Defendants and Appellees.
* * * *
APPEAL FROM THE CIRCUIT COURT OF THE FIFTH JUDICIAL CIRCUIT WALWORTH COUNTY, SOUTH DAKOTA * * * *
HONORABLE TONY L. PORTRA
Judge
* * * *
RONALD A. PARSONS, Jr.
PAMELA R. BOLLWEG
STEVEN M. JOHNSON
SHANNON R. FALON of
Johnson, Heidepriem &
Abdallah, LLP
Sioux Falls, South Dakota Attorneys for plaintiffs
and appellants.
JOHN W. BURKE of
Thomas, Braun, Bernard
& Burke, LLP
Rapid City, South Dakota Attorneys for defendants
and appellees. * * * *
ARGUED ON MARCH 23, 2011 OPINION FILED 07/06/11 *2 SEVERSON, Justice
[¶1.] Dеnnis Lindskov purchased Les Lindskov’s interest in Automotive Company, Inc. Dennis and Les signed a dissolution agreement that contained a non-disparagement clause. When Les opened a competing business within months of the sale of his interеst in the company, Dennis initiated this breach of contract and fraud and deceit action, alleging that the non-disparagement clause contained a covenant not to compete. The trial court granted Les’s motions for summary judgment on both causes of action and dismissed Dennis’s complaint. We affirm.
Background Automotive Company is a South Dakota corporation engaged in the
sales and service of farm implement equipment. It is an authorized dealer of New Holland farm equipment with dealerships in Isabel and Mobridge, South Dakota. Automotive Company was incorporated in December 1982, and cousins, Dennis and Les, owned and operated it until 2006. They were equal shareholders of the company with each owning approximately 2,500 shares of common stock. Les served as the company’s president, and Dennis served as its secretary-treasurer. Both served on the company’s board of dirеctors. By spring 2005, the cousins’ relationship had deteriorated. Dennis and
Les therefore discussed the possibility of dividing Automotive Company. They wrote to New Holland to inquire whether one party could operate the Isabel deаlership while the other operated the Mobridge dealership. In March 2005, New Holland declined the cousins’ request, stating that it would “not approve any separation of the existing locations.” New Holland also declined to establish a new
- 1 -
dealership for either Dennis or Les. The cousins’ relationship became further strained in the coming months. In October 2005, Les initiated an action seeking the dissolution of
Automotive Company. The cousins were now represented by counsel, and each negotiated and extended offers to purchase the other’s interest in the company. On April 14, 2006, Dennis agreed to purchase Les’s 2,500 shares in the company for $1,190,000, as well as the real prоperty associated with the business for $210,000. The cousins executed a dissolution agreement that day. Section 4.1 of the agreement was entitled “Confidentiality and Non-disparagement”:
In addition, Seller and Buyer agree that they shall not hеreinafter engage in any form of conduct, or make any statements or representations, that will disparage or otherwise harm the reputation, goodwill, or commercial interests of the other party.
The cousins closed on their agreement on April 25, 2006. Les remained on the company’s board of directors and continued to serve as its president until the closing. Les subsequently elected to enter business with his four sons. On May
12, 2006, the South Dakota Secretary of State issued a Certificate of Organization to Les’s new venture, Premier Equipment, L.L.C. Les and his sons opened a farm implement dealership in Mobridge in late 2006. And in October 2006, they acquired K&A Implement, a New Holland dealership in Eureka, South Dakota. Finally, Premier Equipment opened a branch location in Isabel in spring 2007. Through Premier Equipment, Les now sells farm equipment in the Isabel and Mobridge areas in immediate competition with Automotive Company.
[¶6.] In September 2008, Dennis initiated this breach of contract and fraud and deceit action against Les. Les filed motions for summary judgment on both causes of action. After hearings on the motions, the trial court granted Les’s motions for summary judgment on both cаuses of action. As to the breach of contract claim, the trial court concluded that the non-disparagement clause did not prohibit competition by Les. As to the fraud and deceit claim, the trial court concluded that Les did not owe Dennis a duty to disclose his intent to open a competing business. The trial court entered a judgment dismissing Dennis’s complaint.
Standard of Review This Court’s standard of review of a grant or denial of a motion for
summary judgment is well-settled. “In reviewing a grant or a denial of summary
judgment under SDCL 15-6-56(c), we determine whether the moving party has
demonstrated the absence of any genuine issue of material fact and showed
entitlement to judgment on the merits as a matter of law.”
Advanced Recycling
Sys., L.L.C. v. Se. Prop., L.P.
,
Analysis and Decision 1. Whether Les breached the non-disparagement clause of
the dissolution agreement by opеning a competing business.
[¶9.]
Dennis argues that Les breached the non-disparagement clause of the
dissolution agreement by opening a competing business. In addressing his
argument, we strive to give effect to the plain meaning of the аgreement.
Lillibridge v. Meade Sch. Dist. #46-1
,
disparagement clause prohibits. Dennis argues that because the clause broadly prohibits Les from engaging in any form of conduct that harms his commercial interests, it essentially contains a covenant not to compete. He thus maintains that Les breached that covenant by opening a competing business within mоnths of his departure from Automotive Company. Les argues that, by its plain language, the clause is not a covenant not to compete. In examining the language of the entire clause, we ultimately disagree with Dennis’s contention that it creates a covenant not to compete. The plain language of the non-disparagement clause prohibits both
Dennis and Les from disparaging or harming the other’s commercial interests. If
the clause contains a covenant not to compete, it thus prohibits Dennis from
*6
competing with Les. Yet the intended purpose of the dissolution agreement was for
Dennis to own and operate Automotive Company. Reading the clause аs a covenant
not to compete thus negates the parties’ intent.
See Cramer v. Smith
, 1997 S.D.
137, ¶ 10,
[¶12.]
Dennis seizes on the prohibition in the non-disparagement clause of
any form of conduct that harms his commercial interests. But we cannot read that
imprecise language as prohibiting actual competition. In South Dakota, contracts
in restraint of trade are generally void as against public policy: “Any contract
restraining exercise of a lawful profession, trаde, or business is void to that extent,
except as provided by §§ 53-9-9 to 53-9-12, inclusive.” SDCL 53-9-8. There must be
a distinct agreement creating a covenant in restraint of trade.
Pub. Op. Publ’g Co.
v. Ransom
,
disclosing his intent to open a competing business.
Dennis argues that Les committеd fraud and deceit by not disclosing
his intent to open a competing business. “One who willfully deceives another, with
intent to induce him to alter his position to his injury or risk, is liable for any
*7
damage which he thereby suffers.” SDCL 20-10-1. Deceit is “[t]he suppression of a
fact by one who is bound to disclose it[.]” SDCL 20-10-2(3). To proceed on his fraud
and deceit claim, Dennis must establish that Les had a duty to disclose his intent to
compete. The existence of a duty to disclose is a question of law that we review de
novo.
Schwartz v. Morgan
,
Credit Co.
,
fiduciary duty, a party may be bound to disclose facts relаting to the transaction.
Schwartz
,
in which the advantage taken of the plaintiff’s ignorance is so shocking to the ethical sense of the community and is so extreme and unfair as to amount to a form of swindling, in which the plaintiff is led by appearances into a bargain that is a trap, of whose essence and substance he is unaware.
* Les’s preparations to open a competing business during this time were merely exploratory. He contacted New Holland to inquire about available dealerships in the area, but he neither utilized Automotive Company’s resources in laying his plans to compete nor directly solicited its customers or employees.
Id.
¶ 13 (quoting Restаtement (Second) Torts § 551(2)(e)(cmt 1)).
See, e.g.,
Ducheneaux
,
[¶19.]
Les’s failure tо disclose his intent to compete does not meet this high
standard. When Les initiated an action seeking the dissolution of Automotive
Company, Dennis and Les, who were both represented by counsel, extended offers
to purchasе the other’s interest in the company. This was an arms-length
transaction between business partners with equal bargaining power. Although a
duty to disclose may arise in some arms-length business transactions, Les’s failure
to disclose his intent to comрete is not “so shocking to the ethical sense of the
community and . . . so extreme and unfair as to amount to a form of swindling.”
See
Schwartz
,
Justices, and MEIERHENRY, Retired Justice, concur.