#26414, #26419-aff in pt, rev in pt & rem-GAS

2013 S.D. 54

IN THE SUPREME COURT

OF THE

STATE OF SOUTH DAKOTA

* * * *

JAS ENTERPRISES, INC.,

A SOUTH DAKOTA CORPORATION, Plaintiff and Appellant,

v.

BBS ENTERPRISES, INC., A

SOUTH DAKOTA CORPORATION,

BRADLEY STATON, BRIAN STATON,

and DANIEL STATON, Defendants, Third Party

Plaintiffs and Appellees,

 v.

JAS ENTERPRISES, INC., A

SOUTH DAKOTA CORPORATION, and

JAMES SWABY, Third Party Defendants

and Appellants.

* * * *

APPEAL FROM THE CIRCUIT COURT OF

THE SEVENTH JUDICIAL CIRCUIT

PENNINGTON COUNTY, SOUTH DAKOTA

* * * *

THE HONORABLE JEFF W. DAVIS

Judge

* * * *

JOHN K. NOONEY

ROBERT J. GALBRAITH of

Nooney Solay & Van Norman, LLP

Rapid City, South Dakota Attorneys for plaintiff, third 

party defendants and 

appellants.

STEVEN C. BEARDSLEY

MICHAEL S. BEARDSLEY of

Beardsley Jensen & Von Wald, Prof. LLC

Rapid City, South Dakota Attorneys for defendants, third 

party plaintiffs and appellees.

* * * *

ARGUED FEBRUARY 12, 2013

OPINION FILED 07/17/13
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SEVERSON, Justice

[¶1.] On January 27, 2000, JAS Enterprises, Inc. (JAS) entered into a 

purchase agreement with BBS Enterprises, Inc. (BBS), which Bradley, Brian, and 

Daniel Staton signed as personal guarantors. JAS sued BBS and the Statons for

breach of contract in February 2004. BBS and the Statons filed an answer and

counterclaim. A trial was held in March 2012, resulting in a judgment of $100,000 

for BBS and the Statons and a judgment of $67,000 for JAS. 

BACKGROUND

[¶2.] James Swaby is the principal shareholder of a company called 

Equipment Service Professionals, Inc. (ESP), which installs and services a variety of 

heating, air conditioning, and refrigeration systems, including ductwork, in 

commercial and residential buildings. ESP operates out of two offices in South 

Dakota, one in Rapid City and one in Spearfish. The Rapid City office is 

incorporated as JAS Enterprises, Inc. (JAS), but it does business as ESP. Swaby is 

also the principal shareholder of JAS.

[¶3.] Bradley and Brian Staton worked at ESP, installing sheet metal or 

ductwork, and associated heating and air conditioning systems. Bradley began 

working for ESP in 1992 and his brother, Brian, began working for ESP in 1993.

Both Statons began working for ESP out of the Spearfish office, but eventually 

transfered to the Rapid City office. In 1999, Swaby and the Statons began 

discussing whether the Statons were interested in purchasing the sheet metal 
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installation portion of the business.1 In November and December of 1999, the 

Statons worked with an accounting firm in Rapid City to develop a business plan 

and created a corporation called BBS Enterprises, Inc. (BBS) to purchase the sheet 

metal installation portion of the business.

[¶4.] On January 27, 2000, BBS entered into a purchase agreement with 

JAS only. Bradley, Brian, and Daniel Staton, Bradley and Brian’s father, signed 

the purchase agreement as personal guarantors of the agreement. The purchase 

agreement sold the vehicles, equipment, and inventory used in ESP’s sheet metal 

installation business. The purchase agreement also sold JAS’s goodwill related to 

the sheet metal business and contained a covenant not to compete, prohibiting JAS 

from working in the sheet metal installation business for seven years within a one 

hundred mile radius of Rapid City.2 The total purchase price was $245,000, which 

 

1. The parties dispute whether the “sheet metal installation” portion of the

business included only the sheet metal installation or the installation of sheet 

metal and heating and air conditioning units. The purchase agreement used 

the phrase “sheet metal installation.” 

2. The text of the covenant not to compete, identifying JAS Enterprises, Inc. as 

the Seller, states:

Recognizing Buyer’s need to protect their legitimate interest and 

goodwill, and in the furtherance of the sale of the business assets 

which includes the goodwill of the business being sold to Buyer, 

Seller agrees that for a period of seven (7) years following the 

Closing Date, Seller shall not alone or in combination with others, 

directly or indirectly, and whether acting as a principal, agent, 

employee, shareholder, director, partner or otherwise carry on, or 

be engaged in, or connected with, the sheet metal installation 

business within a geographical area of a one hundred (100) mile 

radius of Rapid City, South Dakota. 
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included $20,000 for the covenant not to compete and $58,000 for the goodwill of the 

business.

[¶5.] At the same time, BBS entered into a business consultant agreement 

with Swaby and an independent contractor’s agreement with JAS for bookkeeping 

and secretarial services. BBS agreed to pay Swaby $1,250 per month for consulting 

and $2,135 per month to JAS for bookkeeping and secretarial services. 

[¶6.] After signing the agreements at the end of January 2000, BBS began 

operating as Advance Heating and Air Conditioning. As early as March 2000, BBS 

had trouble making timely monthly payments under the purchase agreement. At 

various times over the next few years, ESP and JAS lent or advanced money to BBS 

to help BBS complete various projects. 

[¶7.] In February 2004, JAS filed suit against BBS and the Statons alleging 

breach of contract on the purchase agreement. BBS and the Statons filed an 

answer and counterclaim, arguing that (1) JAS and Swaby personally breached the 

covenant not to compete, and (2) JAS and Swaby personally defrauded BBS and the 

Statons. The Statons eventually identified seven different heating and air 

conditioning installation projects that they alleged Swaby, JAS, or ESP worked on 

in violation of the covenant not to compete.

[¶8.] A jury trial was held from March 28 through 30, 2012. At the close of 

the trial, the jury found that the parties mutually assented to the essential terms of 

the contract; that BBS and the Statons breached their obligation to JAS to make 

payments as required by the purchase agreement; that JAS and Swaby breached 

the covenant not to compete; that Swaby failed to give preference to BBS and the 
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Statons by competing against them in the sheet metal installation business; and 

that JAS and Swaby did not commit fraud or deceit. The jury awarded $67,000 to 

JAS and Swaby for breach of the purchase agreement and $100,000 to BBS and the 

Statons for breach of the covenant not to compete.

[¶9.] JAS and Swaby appeal the following issues: (1) whether BBS and 

Statons’ counterclaim against Swaby personally should have been dismissed based 

on a failure to obtain jurisdiction because a summons was never served on Swaby 

personally and he was not identified as a third-party defendant; (2) whether the 

trial court erred as a matter of law when it denied JAS’s motion for partial 

summary judgment on the separate claims of fraud or deceit; and (3) whether the 

trial court abused its discretion by admitting testimony from various witnesses at 

trial. 

[¶10.] BBS and the Statons appeal the following issues: (1) whether the trial 

court erred in denying BBS and Statons’ motion for partial summary judgment on 

the violation of the covenant not to compete and motion for directed verdict on the 

covenant not to compete; (2) whether the trial court erred in denying prejudgment 

interest to BBS and Statons; and (3) whether the trial court erred in answering a 

question from the jury without giving either party notice or an opportunity to be 

heard.

DISCUSSION

[¶11.] (1) Whether BBS and Statons’ counterclaim against Swaby 

personally should have been dismissed based on a failure to 

obtain jurisdiction because a summons was never served on 

Swaby personally as a third-party defendant.
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[¶12.] “‘When a [third-party] defendant moves to dismiss for insufficient 

service of process, the burden is on the [third-party] plaintiff to establish a prima 

facie case that the service was proper.’” R.B.O. v. Priests of the Sacred Heart, 2011 

S.D. 86, ¶ 7, 807 N.W.2d 808, 810 (quoting Grajczyk v. Tasca, 2006 S.D. 55, ¶ 22, 

717 N.W.2d 624, 631). “Whether a [third-party] plaintiff has presented a prima 

facie case of sufficient service of process is reviewed by this Court de novo, with no 

deference given to the circuit court’s legal conclusions.” Id. (citing Grajczyk, 2006 

S.D. 55, ¶ 22, 717 N.W.2d at 631). 

[¶13.] “We have recognized that ‘proper service of process is no mere 

technicality: that parties be notified of proceedings against them affecting their 

legal interests is a “vital corollary” to due process and the right to be heard.’” 

R.B.O., 2011 S.D. 86, ¶ 9, 807 N.W.2d at 810 (quoting Spade v. Branum, 2002 S.D. 

43, ¶ 7, 643 N.W.2d 765, 768) (citations omitted). Service of process advises a party 

that “‘a legal proceeding has been commenced’” and warns “‘those affected to appear 

and respond to the claim.’” Id. (quoting Spade, 2002 S.D. 43, ¶ 7, 643 N.W.2d at 

768). South Dakota statutes allow a defendant to bring a claim against a thirdparty that is not a party to the original action. SDCL 15-6-14(a). SDCL 15-6-14(a) 

provides, in part:

At any time after commencement of the action a defending 

party, as a third-party plaintiff, may cause a summons and 

complaint to be served upon a person not a party to the action

who is or may be liable to him for all or part of the plaintiff's 

claim against him. 

(Emphasis added.) If the third-party plaintiff serves the third-party complaint 

within ten days of serving the original answer, the third-party plaintiff does not 
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need the court’s permission to make a third-party complaint. Id. However, if the 

third-party plaintiff does not serve the complaint within ten days, the third-party 

plaintiff “must obtain leave on motion upon notice to all parties to the action.” Id.

If a plaintiff is suing a defendant personally, the summons must be delivered to the 

defendant personally. SDCL 15-6-4(d)(8). If, as in this case, a third-party plaintiff 

is suing a third-party defendant personally, the summons should be served on the 

third-party defendant personally. See id.

[¶14.] Here, BBS and the Statons argue that they substantially complied 

with the service of process so as to provide actual notice to Swaby via his attorney 

that Swaby personally was being sued. In Wagner v. Truesdell, we defined 

substantial compliance as:

“Substantial compliance” with a statute means actual 

compliance in respect to the substance essential to every 

reasonable objective of the statute. It means that a court should 

determine whether the statute has been followed sufficiently so 

as to carry out the intent for which it was adopted. Substantial 

compliance with a statute is not shown unless it is made to 

appear that the purpose of the statute is shown to have been 

served. What constitutes substantial compliance with a statute 

is a matter depending on the facts of each particular case.

1998 S.D. 9, ¶ 7, 574 N.W.2d 627, 629 (quoting State v. Bunnell, 324 N.W.2d 418, 

420 (S.D. 1982) (internal citations and quotation marks omitted)). As we noted in 

R.B.O., “‘[a]ctual notice will not subject [third-party] defendants to personal 

jurisdiction absent substantial compliance with’ the governing service-of-process 

statute.” 2011 S.D. 86, ¶ 17, 807 N.W.2d at 813 (quoting Wagner, 1998 S.D. 9, ¶ 9, 

574 N.W.2d at 629). 
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[¶15.] After JAS initiated this suit in 2004, BBS and the Statons filed an 

answer and counterclaim with a certificate of service stating that the answer and 

counterclaim were served on JAS’s attorney. Over three years later, BBS and the 

Statons filed a summons requiring an answer to the answer and counterclaim. But 

the summons did not state that Swaby was being sued personally and was not 

delivered to Swaby. Finally, although an affidavit of service was filed stating that 

Swaby was served the answer and counterclaim on April 26, 2007, Swaby was not 

personally identified as a third-party defendant in the caption of the affidavit of 

service or in the caption of the answer and counterclaim. Further, the affidavit of 

service stated that an answer and counterclaim were served, but did not list a 

summons as being served on Swaby. 

[¶16.] BBS and the Statons, as third-party plaintiffs, did not serve a 

summons and complaint within ten days of their answer. They did not obtain the 

leave of the court to file a summons and complaint after the ten-day period expired. 

They failed to serve Swaby personally with a summons and complaint at any point. 

If BBS and the Statons meant to sue Swaby personally, they were required to 

actually identify and properly serve Swaby. In this case, Swaby’s ownership of JAS 

and process served on JAS does not substantially comply with personal service on

Swaby. BBS and the Statons failed to follow the procedures set out in SDCL 15-6-

14(a), and thus, the trial court should have granted the motion to dismiss the 

counterclaim against Swaby personally.

[¶17.] In addition, if BBS and the Statons meant to assert a claim to pierce 

the corporate veil of JAS to attach liability to Swaby, they should have made such a 
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claim.3 Swaby did not waive service of process under SDCL 15-6-12(h) because he 

was never personally served with a third-party summons and complaint, and 

because he was never served, Swaby is not party to this lawsuit. The trial court 

erred when it denied Swaby’s motion to dismiss him personally.

[¶18.] (2) Whether the trial court erred as a matter of law when it 

denied JAS’s motion for partial summary judgment on the 

separate claims of fraud or deceit.

 

3. Our review of the record reveals that at a motions hearing prior to trial, the 

trial court made the following statement regarding piercing the corporate 

veil: 

You know, and, frankly to the plaintiff all this stuff about JAS 

being one and ESP being another and then Swaby being 

separate ain’t going to fly either. I mean, GM can hide behind a 

corporate veil. Small, closely held corporations cannot and I 

won’t let it happen here so don’t even argue, other than to make 

your record so you have it for appeal purposes. 

However, we have consistently held that “[t]he general rule is that the 

corporation is looked upon as a separate legal entity until there is sufficient 

reason to the contrary.” Mobridge Cmty. Indus., Inc. v. Toure, Ltd., 273 

N.W.2d 128, 132 (S.D. 1978). The corporate veil may be pierced “when 

retention of the corporate fiction would ‘produce injustices and inequitable 

consequences.’” Id. (quoting Hayes v. Sanitary & Improvement Dist. No. 194, 

244 N.W.2d 505, 511 (Neb. 1976)). There are a number of factors that may 

justify piercing the corporate veil, including: “(1) fraudulent 

misrepresentation by corporation directors; (2) undercapitalization; (3) failure 

to observe corporate formalities; (4) absence of corporate records; (5) payment 

by the corporation of individual obligations; and (6) use of the corporation to 

promote fraud, injustice or illegality.” Kan. Gas & Elec. Co. v. Ross, 521 

N.W.2d 107, 112 n.6 (S.D. 1994). We also developed and discussed a two-part 

test to evaluate when piercing the corporate veil is appropriate. See id. at

107.

In addition, we have specifically addressed the separate nature of Swaby, 

ESP, and JAS in another case. See Equip. Serv. Prof’ls, Inc. v. Denowh, 2005 

S.D. 20, 693 N.W.2d 54.
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[¶19.] JAS appeals the trial court’s decision to deny its motion for partial 

summary judgment on the issue of fraud or deceit alleged in BBS and the Statons’ 

counterclaim. Importantly, the jury determined that JAS did not commit fraud or 

deceit. Though JAS appeals the decision of the trial court to allow litigation of the 

claim in the first place, we need not address this issue. Any future effort to 

relitigate the claims of fraud or deceit against JAS is barred by res judicata. As we 

determined in Black Hills Jewelry Mfg. Co. v. Felco Jewel Indus., Inc., “[r]es 

judicata bars an attempt to relitigate a prior determined cause of action by the 

parties, or one of the parties in privity, to a party in the earlier suit.” 336 N.W.2d 

153, 157 (S.D. 1983) (citing Melbourn v. Benham, 292 N.W.2d 335, 337 (S.D. 1980)).

We do not require strict privity and previously held:

In deciding who are parties for the purpose of determining the 

conclusiveness of prior judgments, “the courts look beyond the 

nominal parties, and treat all those whose interests are involved 

in the litigation and who conduct and control the action or 

defense as real parties, and hold them concluded by any 

judgment that may be rendered.” 

Schell v. Walker, 305 N.W.2d 920, 922 (S.D. 1981) (quoting Keith v. Willers Truck 

Serv., 64 S.D. 274, 266 N.W. 256, 258 (1936)). Based on the jury’s verdict and the 

res judicata effect of that determination, we decline to address this issue further. 

[¶20.] (3) Whether the trial court abused its discretion by admitting 

testimony from various witnesses at trial.

[¶21.] “This Court reviews a decision to admit or deny evidence under the 

abuse of discretion standard.” Ferebee v. Hobart, 2009 S.D. 102, ¶ 12, 776 N.W.2d 

58, 62 (citing Fiechuk v. Wilson Trailer Co., Inc., 2009 S.D. 62, ¶ 8, 769 N.W.2d 843, 

846). “This applies as well to rulings on motions in limine.” Id. (citing Dahlin v. 
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Holmquist, 766 P.2d 239, 241 (Mont. 1988); Gray v. Allen, 677 S.E.2d 862, 865 (N.C.

Ct. App. 2009)). “With regard to the rules of evidence, abuse of discretion occurs 

when a trial court misapplies a rule of evidence, not when it merely allows or 

refuses questionable evidence.” State v. Asmussen, 2006 S.D. 37, ¶ 13, 713 N.W.2d 

580, 586 (citing State v. Guthrie, 2001 S.D. 61, ¶ 30, 627 N.W.2d 401, 415).

[¶22.] Prior to trial, JAS filed fifteen motions in limine, fourteen of which 

were denied. The fourteen motions that were denied all relate to testimony at trial.

JAS renewed its objections to the testimony of various witnesses at trial. On 

appeal, JAS groups the testimony into six categories.

[¶23.] Testimony that Swaby personally or ESP violated the covenant not to 

compete

[¶24.] “The court is to enforce and give effect to the unambiguous language 

and terms of the contract[.]” Campion v. Parkview Apartments, 1999 S.D. 10, ¶ 25, 

588 N.W.2d 897, 902 (quoting Production Credit Ass'n v. Wynne, 474 N.W.2d 735, 

740 (S.D. 1991)). The purchase agreement at issue in this case and the covenant 

not to compete within the purchase agreement refer to “Buyer” and “Seller.” The 

agreement identifies the Buyer as BBS and the Seller as JAS. Swaby personally 

and ESP, another company owned by Swaby, are not parties to the purchase 

agreement or the covenant not to compete. This language is unambiguous and the 

terms of the contract should be enforced as written. Notably, we have specifically 

addressed the separate nature of ESP and JAS in a previous case. See Equip. Serv.

Prof’ls, Inc. v. Denowh, 2005 S.D. 20, 693 N.W.2d 54. We stated, “[i]t is improper to 

ignore the separate corporate identity of these entities.” Id. ¶ 13, 693 N.W.2d at 58 

(citing Fed. Land Bank of Omaha v. Mogck, 66 S.D. 514, 286 N.W. 322, 323 (1939)).
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JAS and ESP are separate corporate entities. ESP and Swaby personally are not 

parties to the purchase agreement or the covenant not to compete. The trial court 

erred by allowing testimony that ESP and Swaby personally violated the covenant 

not to compete because it is irrelevant without a further showing that the seller, 

JAS, as the contracting party, violated the covenant not to compete alone or with 

others acting “as a principal, agent, employee, shareholder, director, [or] partner.”

Thus, admission of this testimony was an abuse of discretion.

[¶25.] Testimony that JAS and Swaby violated the business consultant 

agreement

[¶26.] JAS’s complaint alleged that BBS and the Statons violated the 

purchase agreement between BBS and JAS. In BBS and the Statons’ answer and 

counterclaim against JAS, they alleged that JAS and Swaby violated the separate 

business consultant agreement by competing against them. As noted above, BBS 

and the Statons have never served a summons and complaint for their claims 

against Swaby personally. JAS was not a party to the business consultant

agreement; Swaby personally was a party to the business consulting agreement.

Importantly, the business consultant agreement did not contain a covenant not to 

compete. Again, Swaby is separate from the corporate entity of JAS. We cannot 

ignore the terms of the purchase agreement and business consultant agreement and 

the parties to those contracts. Thus, testimony regarding JAS’s breach of the 

business consultant agreement was irrelevant because JAS was not a party to that 

agreement and the agreement did not contain a covenant not to compete. The 

admission of this testimony was an abuse of discretion.
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[¶27.] Testimony from Attorney Kurt E. Solay4

[¶28.] Solay was subpoenaed by BBS and the Statons to testify because 

Solay drafted the purchase agreement, the independent contractor agreement, and

the business consultant agreement. Solay was also present when the contracts 

were signed. At trial, Solay was asked to interpret the contracts, including the 

purchase agreement’s covenant not to compete, and offer his specialized knowledge.

However, “[t]he primary rule in the construction of contracts is that the court must, 

if possible, ascertain and give effect to the mutual intention of the parties.” 

Huffman v. Shevlin, 76 S.D. 84, 89, 72 N.W.2d 852, 855 (1955) (citations omitted)

(emphasis added). See also Weekley v. Weekley, 1999 S.D. 162, 604 N.W.2d 19; 

Chord v. Pacer Corp., 326 N.W.2d 224 (S.D. 1982); Johnson v. Johnson, 291 N.W.2d 

776 (S.D. 1980). Solay testified regarding his legal interpretation of the contract, 

which is not appropriate because the interpretation of the unambiguous contract 

should be supplied by the judge. Thus, the trial court abused its discretion in 

admitting Solay’s testimony interpreting the contract.

[¶29.] Testimony regarding other litigation against Swaby or ESP

[¶30.] Relevant evidence is “evidence having any tendency to make the 

existence of any fact that is of consequence to the determination of the action more 

probable or less probable than it would be without the evidence.” SDCL 19-12-1

(Rule 401). In general, evidence of wrongs or acts other than those at issue in the 

 

4. The issue whether it was appropriate for an attorney and partner in a law 

firm to be called as an adverse witness to testify against the client his law 

firm represented during the trial was not presented for review.
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case is not relevant or admissible to prove a person’s character. SDCL 19-12-5

(Rule 404(b)). However, evidence of other wrongs or acts may “be admissible for 

other purposes, such as proof of motive, opportunity, intent, preparation, plan, 

knowledge, identity, or absence of mistake or accident.” Id.

[¶31.] In this case, BBS and the Statons argue that evidence regarding other 

lawsuits against Swaby show his intent to deceive. BBS and the Statons allege that 

Swaby and JAS defrauded them. Intent to deceive is an element of fraud. SDCL 

53-4-5. However, Swaby is not a party to this lawsuit and testimony regarding 

lawsuits against him personally or against ESP are not relevant and do not show 

the intent of JAS to defraud BBS and the Statons. Further, as discussed, the claims

for fraud or deceit by JAS were rejected by the jury.

[¶32.] Testimony regarding witnesses’ personal opinions that Swaby was 

dishonest

[¶33.] In general, evidence of a person’s character or character trait is not 

admissible except in certain circumstances. SDCL 19-12-4 (Rule 404(a)). The 

credibility of a witness may be attacked in a limited way. See SDCL 19-14-9 (Rule 

608(a)). South Dakota statutes provide:

The credibility of a witness may be attacked or supported by 

evidence in the form of opinion or reputation, but subject to 

these limitations:

(1) The evidence may refer only to character for truthfulness or 

untruthfulness; and

(2) Evidence of truthful character is admissible only after the 

character of the witness for truthfulness has been attacked by 

opinion or reputation evidence or otherwise.

Id. This statute was adopted by Supreme Court Rule 78-2 in 1978. We have 

subsequently held that witnesses may offer their opinion as to the character for 
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truthfulness of another witness. See State v. Devall, 489 N.W.2d 371, 377 (S.D. 

1992); State v. Tribitt, 327 N.W.2d 132, 135 (S.D. 1982). However, “[s]pecific 

instances of the conduct of a witness, for the purpose of attacking or supporting his 

credibility, other than conviction of crime as provided in §§ 19-14-12 to 19-14-16, 

inclusive, may not be proved by extrinsic evidence.” SDCL 19-14-10 (Rule 608(b))

(emphasis added). 

[¶34.] In this case, Bob Lochner, Keith Denowh, and Paul Schneider testified 

about Swaby’s reputation in the community for being untruthful and about their 

personal opinions as to whether Swaby’s character was truthful. This testimony 

was properly admitted so that the jury might infer that Swaby was more or less 

likely to be testifying truthfully. Then Lochner, Denowh, and Schneider testified 

about the specific instances or circumstances that formed the basis for their 

opinions that Swaby’s character was untruthful. Their testimony about the specific 

instances that formed the bases of their opinions about Swaby’s character for 

truthfulness was impermissible. Thus, the trial court abused its discretion in 

admitting the testimony from Lochner, Denowh, and Schneider about the specific 

instances that formed the bases of their opinions.

[¶35.] Testimony concerning conversations which occurred prior to the time 

the contracts were signed

[¶36.] South Dakota statutes provide that “[t]he execution of a contract in 

writing, whether the law requires it to be written or not, supersedes all the oral 

negotiations or stipulations concerning its matter which preceded or accompanied 

the execution of the instrument.” SDCL 53-8-5. “[P]arol evidence cannot be used to 
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show the substance of the parties’ agreement absent an ambiguity.” Johnson v. 

Coss, 2003 S.D. 86, ¶ 21, 667 N.W.2d 701, 708. 

[¶37.] BBS and the Statons offered evidence regarding Swaby’s statements 

about his intent not to comply with the covenant not to compete in the purchase

agreement. Again, Swaby was not party to the purchase agreement; JAS was the 

seller in the purchase agreement. BBS and the Statons are not claiming fraud in 

the inducement. In addition, the purchase agreement’s terms are unambiguous. 

Thus, the trial court abused its discretion in admitting evidence regarding 

negotiations or Swaby’s intent prior to the signing of the purchase agreement.

[¶38.] (4) Whether the trial court erred in denying BBS and Statons’ 

motion for partial summary judgment on the violation of the 

covenant not to compete and motion for directed verdict5 on 

the covenant not to compete.

[¶39.] We review motions for summary judgment by determining “only 

whether a genuine issue of material fact exists and whether the law was correctly 

applied. If there exists any basis which supports the ruling of the trial court, 

affirmance of a summary judgment is proper.” Jacobson v. Leisinger, 2008 S.D. 19, 

¶ 24, 746 N.W.2d 739, 745 (quoting Cooper v. James, 2001 S.D. 59, ¶ 6, 627 N.W.2d 

784, 787) (internal quotation marks omitted). Further, “[a] trial court’s ruling on a 

motion for directed verdict is reviewed under the abuse of discretion standard.” 

Harmon v. Washburn, 2008 S.D. 42, ¶ 8, 751 N.W.2d 297, 300 (citing Christenson v. 

 

5. The parties and the trial court in this case refer to a motion for “directed 

verdict.” However, a motion for “directed verdict” should now be referred to

and analyzed as a motion for “judgment as a matter of law.” SDCL 15-6-

50(a); 2006 S.D. Sess. Laws ch. 318 (Supreme Court Rule 06-44). See also

Harmon v. Washburn, 2008 S.D. 42, ¶ 10, 751 N.W.2d 297, 300.
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Bergeson, 2004 S.D. 113, ¶ 10, 688 N.W.2d 421, 425). “‘If sufficient evidence exists 

so that reasonable minds could differ, a directed verdict is not appropriate.’” Id.

(quoting Christenson, 2004 S.D. 113, ¶ 22, 688 N.W.2d at 427).

[¶40.] South Dakota statutes provide:

Any person who sells the good will of a business may agree with 

the buyer to refrain from carrying on a similar business within a 

specified county, city, or other specified area, as long as the 

buyer or person deriving title to the good will from the seller 

carries on a like business within the specified geographical area.

SDCL 53-9-9. “What constitutes ‘a similar business’ is not further defined by 

statute.” Franklin v. Forever Venture, Inc., 2005 S.D. 53, ¶ 12, 696 N.W.2d 545, 

550. “However, based on the underlying purpose of statute, the offending activity 

would need to be of a nature that detrimentally competes with the purchaser in 

order to be considered a similar business. A California court required the business 

or activity to be substantial, not ‘infrequent or isolated transactions.’” Id. (citing 

Monogram Indus., Inc. v. Sar Indus., Inc., 134 Cal. Rptr. 714, 719 (Cal. Ct. App. 

1976)). 

[¶41.] As part of the purchase agreement between JAS and BBS, JAS agreed 

to sell the goodwill of its sheet metal installation business to BBS and also agreed to 

not to compete with BBS. The covenant not to compete provided:

Recognizing Buyer’s need to protect their legitimate interest and 

goodwill, and in the furtherance of the sale of the business 

assets which includes the goodwill of the business being sold to 

Buyer, Seller agrees that for a period of seven (7) years following 

the Closing Date, Seller shall not alone or in combination with 

others, directly or indirectly, and whether acting as a principal, 

agent, employee, shareholder, director, partner or otherwise 

carry on, or be engaged in, or connected with, the sheet metal 

installation business within a geographical area of a one 

hundred (100) mile radius of Rapid City, South Dakota. 
#26414, #26419

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[¶42.] BBS and the Statons assert that Swaby admitted to engaging in the 

installation of seven heating and air conditioning units within the geographical area 

and time period covered by the covenant not to compete. However, Swaby 

personally was not a party to the purchase agreement containing the covenant not 

to compete and is not an individual party to this lawsuit. Further, BBS and the 

Statons failed to assert a claim to pierce the corporate veil of JAS to attach liability 

to Swaby. In addition, BBS and the Statons’ claims focus on the installation of 

heating and air conditioning units, but the purchase agreement and covenant not to 

compete include only sheet metal installation, and do not refer to heating and air 

conditioning installation. Factual issues exist as to whether sheet metal 

installation includes the installation of heating and air conditioning units or just 

the installation of sheet metal. Viewing the evidence in a light most favorable to 

the nonmoving party, BBS and the Statons did not establish that there was no 

genuine issue of material fact as to whether JAS violated the covenant not to 

compete. Thus, the trial court did not abuse its discretion in denying the motion for 

directed verdict (judgment as a matter of law) and it was appropriate to submit the 

issue of whether JAS violated the covenant not to compete for consideration by the 

jury.

[¶43.] (5) Whether the trial court erred in denying prejudgment 

interest.

[¶44.] “Prejudgment [interest] calculations are done as a matter of law. As 

such, the standard of review is de novo.” Dakota, Minn. & E. R.R. Corp. v. Acuity, 

2006 S.D. 72, ¶ 26, 720 N.W.2d 655, 663 (citing City of Sioux Falls v. Johnson, 2001 
#26414, #26419

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S.D. 108, ¶ 8, 632 N.W.2d 849, 852 ;City of Colton v. Schwebach, 1997 S.D. 4, ¶ 8, 

557 N.W.2d 769, 771). 

[¶45.] South Dakota statutes require an award of prejudgment interest on 

compensatory damages, calculated “from the day that the loss or damage 

occurred[.]” SDCL 21-1-13.1. “Prejudgment interest is now mandatory, not 

discretionary.” Alvine v. Mercedes-Benz of North America, 2001 S.D. 3, ¶ 29, 620 

N.W.2d 608, 614. SDCL 21-1-13.1 provides, in part:

If there is a question of fact as to when the loss or damage 

occurred, prejudgment interest shall commence on the date 

specified in the verdict or decision and shall run to, and include, 

the date of the verdict or, if there is no verdict, the date the 

judgment is entered. If necessary, special interrogatories shall 

be submitted to the jury. Prejudgment interest on damages 

arising from a contract shall be at the contract rate, if so 

provided in the contract; otherwise, if prejudgment interest is 

awarded, it shall be at the Category B rate of interest specified 

in § 54-3-16. . . . The court shall compute and award the 

interest provided in this section and shall include such interest 

in the judgment in the same manner as it taxes costs.

In this case, the jury received instructions on awarding prejudgment interest and 

special interrogatories to enable them to choose a date “when the loss or damage 

occurred.” See SDCL 21-1-13.1. The jury awarded compensatory damages to both 

JAS and BBS and the Statons, but the jury did not choose a date for the occurrence 

of the loss or damage to either party. No prejudgment interest was awarded in this 

case, although it is mandated by statute. See Bunkers v. Jacobson, 2002 S.D. 135, ¶ 

45, 653 N.W.2d 732, 744. Before entering the judgment, the trial court should have 

required the jury to choose a date when the damage occurred to enable the trial 

court to properly calculate prejudgment interest. Accordingly, we reverse and 
#26414, #26419

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remand the issue of prejudgment interest to the trial court for determination of the 

amounts owed on damages.

[¶46.] (6) Whether the trial court erred in answering a question from 

the jury without giving either party notice or an opportunity 

to be heard.

[¶47.] Until 2006, South Dakota statutes explicitly required a trial court “to 

notify counsel and ‘settle in writing . . . a response to a jury question sent out by the 

jury during deliberations.’” Duda v. Phatty McGees, Inc., 2008 S.D. 115, ¶ 21, 758 

N.W.2d 754, 760 (quoting SDCL 15-6-51(c) (amended July 1, 2006)). Section 15-6-

51(c) was altered to follow Federal Rule of Civil Procedure 51. Duda, 2008 S.D. 115, 

¶ 21, 758 N.W.2d at 760. As we noted in Duda, 

[D]espite the fact that South Dakota rules no longer contain an 

express requirement that a court inform the parties of jury 

questions or that the questions be settled in writing, it is still 

error even under the federal rule for a court to answer jury 

instructions without giving the parties notice and an 

opportunity to be heard.

Id. (citing Dunne v. Libbra, 448 F.3d 1024, 1028 (8th Cir. 2006); Murphy v. Tivoli 

Enters., 953 F.2d 354, 360-61 (8th Cir. 1992)). “For such error to be reversible in a 

civil case, however, prejudice must be established.” Id. (citing Dunne, 448 F.3d at 

1028).

[¶48.] Here, during deliberations, the jury sent the following question to the 

trial court:

#5 Fraud & DeceitDoes this pertain to consultant contract & if so does it pertain to 

time of signing the contract or does it mean for then the entire 7 

years of the contract? Or does this pertain to all 3 contracts?
#26414, #26419

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The trial court responded to the question, without notifying either side in the 

dispute:

You Must Determine The Facts From The Testimony And 

Evidence Received In Open Court. The Law Is Contained In The 

Instructions And You Must Apply That Law To Your Specific 

Findings.

BBS and the Statons allege that the trial court’s failure to notify the parties and its

response resulted in the jury failing to award punitive damages. BBS and the 

Statons state that the trial court should have referred the jury to the specific 

instructions involving fraud and deceit, which were instructions 30, 31, and 32. 

However, referring the jury to the jury instructions generally rather than three 

instructions specifically does not demonstrate that BBS and the Statons were 

prejudiced by the trial court’s response. BBS and the Statons fail to show why 

referring the jurors to the jury instructions generally, rather than the three specific 

instructions addressing the fraud or deceit claims, would make any difference in 

this case. Though the trial court erred when it did not inform the parties about the 

question, BBS and the Statons fail to demonstrate that their substantive rights 

were adversely affected. 

CONCLUSION

[¶49.] As to the issues appealed by JAS, the trial court erred when it denied 

Swaby’s motion to dismiss based on a failure to obtain jurisdiction because Swaby 

was never personally served with a third-party summons and complaint. We 

decline to address whether the trial court should have granted JAS’s motion for 

partial summary judgment because the jury determined that there was no fraud or 

deceit and the res judicata effect of that determination. The trial court abused its 
#26414, #26419

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discretion in allowing testimony that JAS violated the business consultant 

agreement because JAS was not a party to the agreement. The trial court also 

abused its discretion in admitting the testimony of Solay interpreting the contract.

In addition, the trial court abused its discretion in admitting the testimony from 

Lochner, Denowh, and Schneider regarding extrinsic evidence that formed the bases 

of their opinions regarding Swaby’s character for truthfulness. Finally, the trial 

court abused its discretion in admitting parol evidence as the contract was 

unambiguous and no claim was made for fraud in the inducement.

[¶50.] As to the issues appealed by BBS and the Statons, the trial court did 

not abuse its discretion in denying BBS and the Statons’ motion for directed verdict

(judgment as a matter of law). It was appropriate to submit the issue whether JAS 

violated the covenant not to compete to the jury for consideration, but it was error 

to include Swaby personally. We reverse and remand the issue of damages on the 

counterclaim against JAS for breach of the covenant not to compete and the issue of 

prejudgment interest to the trial court for determination of the amount of interest

owed. The trial court erred by failing to inform the parties about the question from 

the jury, but BBS and the Statons failed to demonstrate that their substantive 

rights were adversely affected.

[¶51.] GILBERTSON, Chief Justice, and KONENKAMP, ZINTER and 

WILBUR, Justices, concur.