Opinion ID: 2212126
Heading Depth: 1
Heading Rank: 4

Heading: Intentional Concealment.

Text: The first issue alleging intentional concealment centers on the provisions of SDCL ch. 20-10, Liability for Deceit. SDCL 20-10-1 provides that [o]ne who willfully deceives another, with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers. Taggarts have based their claim of intentional concealment on the language of SDCL 20-10-2(3), which describes one of the acts constituting deceit within the meaning of SDCL 20-10-1 as [t]he 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[.] Simply put, to avoid summary judgment, Taggarts must show that a genuine issue exists regarding one of two things: (1) Ford or Ford Credit owed a duty to Taggarts that required them to reveal negative financial information about SFFT, or (2) Ford or Ford Credit provided information or facts to Taggarts which misled them into making the Stock Redemption Agreement and purchase of SFFT. We will examine each allegation separately. On the issue of duty to disclose, Taggarts point to numerous facts known by Ford and Ford Credit about the shaky financial condition of SFFT that were not communicated to them and argue that they preclude summary judgment on the willful deceit issue. [3] Even granting that all these facts are uncontested, they do not prevent summary judgment because they are not material facts. These facts would become material only if Ford or Ford Credit owed a duty to Taggarts, and they do not. Our statutes and case law explain why. The first clause of SDCL 20-10-2(3) imposes liability for suppression of a fact only on  one who is bound to disclose  the fact. This court has never imposed a duty to disclose information on parties to an arm's-length business transaction, absent an employment or fiduciary relationship. Voeller v. Geisler, 77 S.D. 96, 86 N.W.2d 395 (1957). Voeller affirmed the dismissal of a complaint which alleged fraudulent nondisclosure. We noted: [The complaint's] sole purpose appears to be to express the erroneous assumption that defendants were under [a] duty to volunteer to plaintiff the fact that they were receiving a broker's commission. Giving plaintiff's evidence full credence it does not show plaintiff's employment of defendants, or that there was a fiduciary relationship between them. 77 S.D. at 100-101, 86 N.W.2d at 398 (emphasis supplied). Cases where this court has found a duty to disclose have all involved an employment or fiduciary relationship. Zee v. Assam, 336 N.W.2d 162, 165 (S.D.1983) (real estate broker/client); Brenden v. Anderson, 327 N.W.2d 136, 140 (S.D.1982) (partnership); Hurney v. Locke, 308 N.W.2d 764, 769 (S.D.1981) (real estate broker/client); Golden v. Oahe Enterprises, Inc., 295 N.W.2d 160, 164 (S.D.1980) (incorporator/shareholders). It is undisputed that no employment relationship existed between Taggarts and Ford or Ford Credit. Thus, if either Ford or Ford Credit is subject to the duty to disclose under the first clause of SDCL 20-10-2(3), Taggarts must attempt to characterize the business relationship as a fiduciary one. SDCL 55-7-2(2) provides the applicable definition of fiduciary for purposes of determining when the duty under SDCL 20-10-2(3) arises. See SDCL 2-14-4 (statutory definitions used in one chapter are applicable to the same word or phrase wherever such word or phrase occurs). SDCL 55-7-2(2) defines a fiduciary as: [A] trustee under any trust, express, implied, resulting or constructive, executor, administrator, guardian, conservator, curator, receiver, trustee in bankruptcy, assignee for the benefit of creditors, partner, agent, officer of a corporation, public or private, public officer, or any other person acting in a fiduciary capacity for any person, trust or estate. The examples of fiduciaries listed in SDCL 55-7-2(2) reflect the traditional view that fiduciary duties are not inherent in normal arm's-length business relationships, and arise only when one undertakes to act primarily for another's benefit. The law will imply such duties only where one party to a relationship is unable to fully protect its interests and the unprotected party has placed its trust and confidence in the other. The position of Ford and Ford Credit relative to Taggarts is not analogous to any of the examples of fiduciaries in SDCL 55-7-2(2). Nor does the relationship between Ford or Ford Credit and Taggarts come within the traditional definition of a fiduciary relationship. Taggart is an experienced businessman capable of taking adequate precautions to protect himself in his business transactions. Indeed, he took an additional precaution by hiring able counsel to represent him in negotiating, structuring, and documenting his investment in SFFT. Ford and Ford Credit did not owe Taggart a duty to protect his interests. Taggarts' observation that an ongoing relationship between SFFT and Ford and Ford Credit was necessary to the dealership is insufficient to make the relationship between franchisor and franchisee, or between dealership and financing company, a fiduciary relationship. The one brief and easily forgotten (by Taggart) contact between Taggarts and a representative from Ford, after Taggart had already decided to do the deal, is hardly sufficient to create a fiduciary relationship. This is particularly true where Taggarts were represented by their lawyer, requested no information or advice from Ford or Ford Credit, and where neither Ford nor Ford Credit was even a party to the transaction at issue. It is inconceivable that a fiduciary relationship could arise in such a situation. Nor do we find a fiduciary relationship created by the fact that Taggarts signed as guarantors of the debt owed to Ford Credit by SFFT. A guaranty creates nothing more than a contract to pay the debt of another. Western Petroleum Co. v. First Bank of Aberdeen, 367 N.W.2d 773 (S.D.1985); SDCL 56-1-1. Other jurisdictions examining this issue have held that a guaranty does not create a fiduciary relationship. First National Bank & Trust Co. v. Notte, 97 Wis.2d 207, 293 N.W.2d 530 (1980); Sumitomo Bank of California v. Iwasaki, 70 Cal.2d 81, 73 Cal.Rptr. 564, 447 P.2d 956 (1968). We agree with the reasoning of these courts. Similarly, we do not find a fiduciary relationship created by the power of attorney granted by Taggarts to Ford merely to carry on normal franchise business such as making promissory notes, chattel mortgages, and conditional sales contracts. The obvious purpose of the power of attorney was to facilitate direct payment to inventory sellers to avoid the necessity of the signature of a separate note for each such occasion. As we noted in Groseth International Inc. v. Tenneco, 410 N.W.2d 159 (S.D.1987), there is no fiduciary duty created by such franchise relationships. Finally, on this issue, Taggarts rely on the Restatement (Second) of Torts to support their claim that they would have never purchased the SFFT stock and consequently would have never guaranteed SFFT's debt to Ford Credit if Ford or Ford Credit had disclosed to Taggarts all of their financial information regarding SFFT. However, a necessary element of each section of the Restatement that Taggarts cite is that the person or entity concealing information must be a party to the transaction. Restatement § 550 reads as follows: One party to a transaction who by concealment or other action intentionally prevents the other from acquiring material information is subject to the same liability to the other, for pecuniary loss as though he had stated the nonexistence of the matter that the other was thus prevented from discovering. (Emphasis added.) Restatement § 551(2) imposes a duty to disclose only on parties to a transaction: (2) One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated,.... (Emphasis added.) It is undisputed that neither Ford nor Ford Credit was a party to the Stock Redemption transaction. Accordingly, Ford and Ford Credit were not subject to a duty to disclose under the first clause of SDCL 20-10-2(3). The second aspect of SDCL 20-10-2(3) imposes liability for suppression of a fact if there was a partial disclosure which, without disclosure of the concealed information, misleads the plaintiff. Taggarts allege that (1) applications they made to Ford and Ford Credit, and (2) an opinion given by Ford sales manager Coady to Bertsch, and then related by Bertsch to Taggart, contained information that misled Taggarts into making the Stock Redemption Agreement and to purchasing SFFT stock, thus triggering this provision. In regard to the first theory, Taggarts argue that the information contained in applications that they and Bertsch submitted to Ford and Ford Credit constituted a misrepresentation, and that they relied on this misrepresentation to their detriment. These applications consisted of an application to Ford for dealership transfer and a guaranty of indebtedness made to Ford Credit. Though it was Taggarts and Bertsch who submitted these forms, Taggarts argue that it was the duty of Ford or Ford Credit to correct any data that they knew was inaccurate and to notify Taggarts of such inaccuracies before they accepted these applications. Specifically, Taggarts claim that the applications which they submitted did not reveal that out-of-trust sales had been made by SFFT in 1978 and that SFFT had contingent liabilities of $400,000. Though Taggart claimed that he had no knowledge of these facts at the time he agreed to purchase SFFT, Taggart admitted that he received financial reports from SFFT's accountants showing liabilities of at least $1 million. Further, the out-of-trust sales had been paid down to $13,500 when Taggart renewed his larger note with First National Bank. It seems almost painfully obvious that Ford and Ford Credit cannot be charged with providing misinformation on documents that were submitted to them, even if an employee of Ford brought them to Taggart for his signature. Even assuming, as Taggarts allege, that much of the dealership transfer application was blank when they signed it, and that Ford typed in portions of the information after Taggarts signed and submitted the application, Taggarts' claim fails. It is logically impossible for Taggarts to have been misled by information that was typed onto the application after it was submitted to Ford for approval. Moreover, the dealership application that Taggarts claim contains the misrepresentations also contains the following clear caveats: Any ... investments ... made by me/us [applicants Taggart and Bertsch] in anticipation of the acceptance of this application are done solely on my/our own responsibility and do not obligate you [Ford] or any representatives in any way. I/we admit that no representations or statements have been made to me/us in your behalf ... that I/we are relying on as an inducement to execute this application.... It is also understood ... that you make no representation or guaranty as to the profitability or success of the proposed dealership venture, and that my/our investment therein is made at my/our risk. This application clearly warned Taggarts that it was not to be relied on for investment purposes. More importantly, any alleged misrepresentation in the documents was made to Ford and Ford Credit by Taggart and Bertsch, not vice-versa. In addition, another element of the claim of intentional concealment under SDCL 20-10-1 is detrimental reliance. Taggarts must be able to demonstrate that a genuine issue exists regarding their reliance on the information contained in the applications submitted to Ford or Ford Credit. Considering Taggart's prior testimony and sworn statements, however, it is clear that he placed no reliance on the Ford documents and made his decision to invest in SFFT before he submitted the information. Addressing whether he had ever asked for or received any information from Ford and Ford Credit, Taggart testified at his deposition as follows: Q: Do you know whether he [Vance Goldammer, Taggart's attorney in the transaction] inquired at all of the Ford Tractor Division people about their opinion of this dealership? A: That, I would have no idea, sir. Q: Did you, prior to closing? A: I never talked to anybody from the Ford franchise or Ford Motor Credit. . . . . . Q: Did you call or write anyone at Ford Tractor Division or Ford Motor Credit prior to closing and ask them anything about Sioux Falls Ford Tractor, Inc.? A: Not that I know of, no.... Further, in answers to interrogatories, Taggart stated the following as to requesting or being provided any information from Ford or Ford Credit: The only documents that I can recall reviewing prior to becoming a shareholder in the company were the in-house financial statements for October and December of 1979 [of SFFT], which were shown to me by Mr. Rohrer. Since I had no reason to question the validity of the financial figures shown to me or to otherwise question the soundness of my investment, I did not request any information from Ford Motor Company. The event when the Ford documents were signed by Taggart was so uneventful that he at first forgot it during his deposition. When he did recall his only contact with Ford, he described it as a very brief meeting to sign documents ... to get the franchise changed over. Yet, these are the documents that Taggart claims he relied on to make his investment in SFFT. This is a matter about which different minds could reach only one conclusion: Taggarts could not have relied on the information from Ford and Ford Credit since Taggart signed the documents and entered into the agreement to purchase SFFT stock without requesting or reading any information from Ford or Ford Credit. Accordingly, the documents that Taggart supplied to Ford and Ford Credit cannot form a genuine issue of material fact preventing summary judgment. Nor are we dissuaded from this position by Taggart's eleventh-hour affidavit submitted to prevent summary judgment. In this affidavit, Taggart claims that he relied on the application for dealership change and that he believed that Ford had done a credit check of SFFT, that the application he submitted would have accurate figures as to contingent liabilities of SFFT, and that Ford would never approve this application unless the dealership financial affairs met all their standards. Rather than a statement of material facts, Taggart's affidavit was a recitation of assumptions and suppositions. In Camfield Tires Inc. v. Michelin Tire Corp., 719 F.2d 1361 (8th Cir.1983), the court was quick to pierce the ruse of a contradictory affidavit submitted for the purpose of creating a material issue of fact when there was no explanation for the change in testimony from the deposition to the affidavit. Echoing our sentiment, the Eighth Circuit said: If testimony under oath, however, can be abandoned many months later by the filing of an affidavit, probably no cases would be appropriate for summary judgment. A party should not be allowed to create issues of credibility by contradicting his own earlier testimony. Id. at 1365-66. See Babrocky v. Jewel Food Co. & Retail Meat Cutters, 773 F.2d 857 (7th Cir.1985); Nutt v. A.C. & S. Co., Inc., 517 A.2d 690 (Del.Supr.1986) aff'd, Mergenthaler v. Asbestos Corp of America, 480 A.2d 647 (Del.Supr.1984). Likewise, barring an explanation for his change in testimony or a showing that his answers were ambiguous and the affidavit clarified them, Taggart's affidavit did not create a material issue of fact. Camfield, supra ; Babrocky, supra ; Nutt, supra . Turning then to the second theory, Taggarts claim that opinions ventured from Ford sales manager Coady to Bertsch form the basis of misrepresentation. Taggarts allege that statements solicited by Bertsch from Coady as to Coady's opinion about the stock redemption and purchase transaction were misrepresentations of fact. The uncontradicted evidence is that in response to Bertsch's inquiry, Coady observed that the price for the business  might be reasonable and that the stock price was  probably ... book value or close to it. As to Ford, Coady's opinions simply cannot form the basis for misrepresentation. Under our case law, we have said that opinions such as those expressed by Coady cannot form the basis for fraud. Todd v. Winkelman, 320 N.W.2d 525, 529 (S.D.1982) (sellers' statements that the saloon would generate sufficient income were, at best, puffing); Aschoff v. Mobile Oil Corp., 261 N.W.2d 120, 124 (S.D.1977) (the mere expression of an opinion would not be a representation of a material fact). Furthermore, Comment d to Restatement (Second) of Torts § 533 only imposes liability on a person who makes a representation through a third party if the maker of the representation make[s] the misrepresentation with th[e] intent [that it be repeated to a third party for the purpose of influencing conduct], or must have information that gives him special reason to expect that it will be communicated to others, and will influence their conduct. As the record reflects, Taggarts have presented no evidence whatsoever to show Coady made the alleged comments to Bertsch with the intent or expectation that Bertsch would repeat them to Taggarts, and with the further intent or expectation that his off-the-cuff expressions of opinion would materially influence Taggarts' conduct. Taggarts mere allegations are not enough to prevent summary judgment. Dirks v. Sioux Valley Empire Elec. Ass'n, 450 N.W.2d 426 (S.D.1990). It almost goes without saying that the opinions expressed by a Ford employee cannot be attributed to Ford Credit, absent a showing that the separate corporate status should be disregarded. Though Taggart argues that he never distinguished between the two entities, Taggart's subjective mistake that Ford and Ford Credit were the same corporate entity is insufficient as a matter of law to make the opinions of a Ford employee the basis for liability of Ford Credit. See Midcontinent Broadcasting Co. v. Ava. Corp., 329 N.W.2d 378, 381 (S.D.1983) (The mere identification of a subsidiary without more information is insufficient to reach the conclusion that the subsidiary is the alter ego of the parent.). Further, the mere fact that Coady had Taggarts sign guaranties for Ford Credit does not impute his opinions to Ford Credit. Most importantly, Taggarts never raised at trial the contention that Coady was acting on behalf of Ford Credit; therefore, Taggarts have waived their right to do so on appeal. Jones v. Sully Buttes Schools, 340 N.W.2d 697 (S.D.1983). Finally, on a practical level, any factual information relayed to Taggart would have come from Bertsch. Bertsch, as one of two owners of SFFT, worked full-time at the business, and was its treasurer. Taggart believed that Bertsch knew how to run the entire SFFT operation. Obviously, Bertsch knew a lot more about SFFT's business than Coady did, and Coady told him so. Consequently, any factual representations that Bertsch made to Taggarts were based on Bertsch's own knowledge of SFFT, not on Coady's comments to Bertsch expressing Coady's opinion about Bertsch's own company. Thus, Bertsch's factual statements to Taggart cannot support the claim that Ford made representations of fact to Taggarts. The record supports the trial court's findings and demonstrates that no representations were made to Taggarts by Ford and no fiduciary or employment relationship existed between Taggarts and Ford or Ford Credit. Thus, it was proper for the trial court to conclude that Ford and Ford Credit were under no duty to disclose to Taggarts financial information as a matter of law. The cases cited by Taggarts are inapplicable. The trial court properly granted summary judgment on the first cause of action.