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2011 S.D. 96 

IN THE SUPREME COURT 

OF THE 

STATE OF SOUTH DAKOTA 

* * * * 

RONALD STEINEKE and 

SHERYL STEINEKE, Plaintiffs and Appellants, 

 

v. 

ROSS O. DELZER and 

BARBARA T. DELZER, Defendants and Appellees, 

and 

BOB GERKIN d/b/a 

TRI-STATE REALTY, INC., Defendant and Third Party 

 Plaintiff and Appellee, 

v. 

PATRICK L. DONAHUE; JEB HUGHES; 

WESTERN PROPERTIES, INC. d/b/a 

UNITED COUNTRY/WESTERN 

PROPERTIES, INC., and/or 

UNITED COUNTRY REAL ESTATE, Third Party Defendants and 

 Appellees. 

* * * * 

APPEAL FROM THE CIRCUIT COURT OF 

THE FOURTH JUDICIAL CIRCUIT 

BUTTE COUNTY, SOUTH DAKOTA 

* * * * 

THE HONORABLE JOHN W. BASTIAN 

Judge 

* * * * 

CONSIDERED ON BRIEFS 

ON NOVEMBER 14, 2011 

 OPINION FILED 12/28/11
BRAD A. SCHREIBER of 

The Schreiber Law Firm, Prof. LLC 

Pierre, South Dakota 

and 

JOHN R. FREDERICKSON of 

Frederickson Law Office 

Deadwood, South Dakota Attorneys for plaintiffs 

 and appellants. 

KENNETH E. BARKER of 

Barker Wilson Law Firm 

Belle Fourche, South Dakota Attorneys for defendants 

and appellees Delzers. 

GREGORY J. ERLANDSON 

SARAH E. BARON HOUY of 

Bangs, McCullen, Butler, 

 Foye & Simmons, LLP 

Rapid City, South Dakota Attorneys for defendant and 

third party plaintiff and 

appellee Gerkin/Tri-State 

 Realty. 

JAMES S. NELSON 

REBECCA L. MANN of 

Gunderson, Palmer, Nelson 

 & Ashmore, LLP 

Rapid City, South Dakota Attorneys for third party 

defendants and appellees 

Donahue, Hughes and Western 

Properties, Inc. 
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KONENKAMP, Justice 

[¶1.] In this contract dispute, we conclude that the Restatement (Second) of 

Torts § 552B sets the proper measure of damages in a negligent misrepresentation 

claim. 

Background 

[¶2.] Ross and Barbara Delzer owned a ranch in Butte County, South 

Dakota. In 2004, they hired Bob Gerkin, a real estate agent with Tri-State Realty, 

Inc., to list the ranch for sale. They gave Gerkin general information about the 

property, including the water system. Ronald and Sheryl Steineke expressed 

interest in the ranch. Their agents, Patrick Donahue and Jeb Hughes of Western 

Properties, Inc., had Gerkin show them the dams, the dugouts, and the well. 

According to the Steinekes, Gerkin represented that the well would produce “as 

much water” as they would need for their farming and ranching operation. 

[¶3.] In April 2005, the parties completed the sale of the ranch. Almost two 

years later, the Steinekes sued the Delzers and their agent, Gerkin, who in turn 

sued the Steinekes’ agents. Among other things, the Steinekes alleged a negligent 

misrepresentation claim, maintaining that that they were misled about the 

condition of the well and its potential to meet their farming and ranching needs. 

They sought $513,000 in damages: the estimated cost of installing a new well. 

[¶4.] With the Steinekes’ only proffered evidence of damages being the cost 

of a new well, the Delzers moved to prohibit any such evidence. The circuit court 

granted the motion. It ruled that Restatement (Second) of Torts § 552B sets forth 

the proper measure of damages: the Steinekes may recover only their “out-of-pocket 
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loss” plus “the difference between what [they] paid for the property and what [they] 

should have paid absent the alleged negligent misrepresentation.”1 The court found 

that the cost of a new well was not a recoverable “pecuniary loss” and would be 

misleading, confusing, and prejudicial. 

[¶5.] The circuit court also prohibited the Steinekes from testifying on the 

cost of the well as a means of proving the devaluation of their property. 

Alternatively, the court found that the Steinekes failed to establish that they 

possessed “sufficient specialized knowledge” to testify as experts about the cost of 

drilling a new well or to offer an opinion that a new well would “generate the 

amount of water allegedly promised by [the Delzers’ agent].” 

[¶6.] These pretrial rulings effectively excluded the Steinekes’ only evidence 

of damages on their negligent misrepresentation claim. For this reason, the parties 

stipulated to the entry of final judgment against the Steinekes. On appeal, the 

Steinekes challenge the court’s rulings on damages. 

Damages – Negligent Misrepresentation 

[¶7.] We must decide whether the Restatement (Second) of Torts sets forth 

the proper measure of damages in South Dakota for negligent misrepresentation. 

 

1. Restatement (Second) of Torts § 552B(1) (1977) provides in full: 

The damages recoverable for a negligent misrepresentation are 

those necessary to compensate the plaintiff for the pecuniary 

loss to him of which the misrepresentation is a legal cause, 

including the difference between the value of what he has 

received in the transaction and its purchase price or other value 

given for it[ ] and [the] pecuniary loss suffered otherwise as a 

consequence of the plaintiff’s reliance upon the 

misrepresentation. 
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“Questions requiring the application of a legal standard are reviewed as are 

questions of law — de novo.” Voeltz v. John Morrell & Co., 1997 S.D. 69, ¶ 9, 564 

N.W.2d 315, 316. “We give no deference to the circuit court under this standard of 

review.” Id. And the court’s evidentiary rulings, “are presumed correct and will not 

be reversed unless there is a clear abuse of discretion.” Wilcox v. Vermeulen, 2010 

S.D. 29, ¶ 7, 781 N.W.2d 464, 467. 

[¶8.] In 2008, Federal District Court Judge Karen Schreier predicted that 

this Court would “follow the provisions relating to damages for negligent 

misrepresentation as set forth in the Restatement [(Second) of Torts].” O’Daniel v. 

Stroud NA, 604 F. Supp. 2d 1260, 1263 (D.S.D. 2008). In accord with this 

prediction, Judge Schreier ruled that Restatement (Second) of Torts § 552B 

precluded the plaintiff from introducing evidence of his lost profits. Id. at 1263. 

The Eighth Circuit Court of Appeals also predicted that this Court would adopt 

Restatement (Second) of Torts § 552B. Karas v. Am. Family Ins. Co., 33 F.3d 995 

(8th Cir. 1994).2

[¶9.] The Steinekes argue that the circuit court erred in applying the 

Restatement (Second) of Torts § 552B because SDCL 21-3-1 sets the proper 

standard for tort actions and no other statute expressly provides for the measure of 

damages for negligent misrepresentation.3 Although this argument was not 

 

2. The parties concede that these federal decisions are not binding on this 

Court. 

3. SDCL 21-3-1 provides the general measure of damages for breach of a 

noncontractual obligation: “For the breach of an obligation not arising from 

contract, the measure of damages, except where otherwise expressly provided 

 (continued . . .) 
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preserved for appeal because it was never made below, we elect to address it. 

Simply put, the Restatement (Second) of Torts § 552B does not violate SDCL 21-3-1 

because that statute merely addresses the general measure of damages for tort 

actions and does not foreclose establishing a specific measure of damages for a 

particular tort. 

[¶10.] Under the Restatement (Second) of Torts § 552B, damages recoverable 

for a negligent misrepresentation claim do not include the benefit of the plaintiffs’ 

contract with the defendant. “This position is consistent with . . . [the] general rule 

[of] no liability for merely negligent conduct that interferes with or frustrates a 

contract interest or an expectancy of pecuniary advantage.” Id. at cmt. b. “The 

considerations of policy that have led the courts to compensate the plaintiff for the 

loss of his bargain in order to make the deception of a deliberate defrauder 

unprofitable to him, do not apply when the defendant has had honest intentions but 

has merely failed to exercise reasonable care in what he says or does.” Id. 

[¶11.] The Restatement (Second) of Torts § 552B approach to damages is 

consonant with our prior reliance on § 552 in considering negligent 

misrepresentation jurisprudence. See, e.g., Bayer v. PAL Newcomb Partners, 2002 

S.D. 40, ¶ 11, 643 N.W.2d 409, 412; see also Fisher v. Kahler, 2002 S.D. 30, ¶ 10, 

641 N.W.2d 122, 126; Meyer v. Santema, 1997 S.D. 21, ¶ 9, 559 N.W.2d 251, 254; 

Pickering v. Pickering, 434 N.W.2d 758, 762 (S.D. 1989). We have not, however, 

__________________ 

(. . . continued) 

by this code, is the amount which will compensate for all the detriment 

proximately caused thereby, whether it could have been anticipated or not.” 
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specifically addressed “the amount of damages a plaintiff may recover for a 

negligent misrepresentation claim.” O’Daniel, 604 F. Supp. 2d at 1262. Because we 

are persuaded that the standard in Restatement (Second) of Torts § 552B properly 

governs the measure of damages in a negligent misrepresentation claim, the circuit 

court did not err in applying it. A plaintiff asserting such a claim may recover 

“damages . . . necessary to compensate the plaintiff for the pecuniary loss to him of 

which the misrepresentation is a legal cause.” Restatement (Second) of Torts § 

552B. This includes “the difference between the value of what he has received in 

the transaction and its purchase price or other value given for it[ ] and the 

pecuniary loss suffered otherwise as a consequence of the plaintiff’s reliance upon 

the misrepresentation.” Id. In sum, plaintiffs asserting negligent 

misrepresentation claims may recover reliance damages but not expectation 

damages. Accordingly, the Steinekes’ evidence of the estimated cost for a new well 

was properly excluded. 

Landowner Valuation 

[¶12.] The Steinekes argue that the circuit court abused its discretion in 

precluding them from testifying on their land’s value. Although owners are 

generally permitted to give an opinion on the value of their real estate, the 

Steinekes’ methodology — valuing the land as diminished by the cost of a new well 

— was merely a backdoor way to assert their expectation damages. A landowner’s 

method of valuation is subject to the same standards as other experts. City of Sioux 

Falls v. Johnson, 1999 S.D. 16, ¶ 13, 588 N.W.2d 904, 908. It was not admissible 
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under Restatement (Second) of Torts § 552B. The Steinekes’ remaining arguments 

lack sufficient merit for discussion. 

[¶13.] Affirmed. 

[¶14.] GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and 

WILBUR, Justices, concur.