Opinion ID: 751579
Heading Depth: 2
Heading Rank: 3

Heading: Common Law Fraud and Statutory Deceit

Text: 32 The elements for common law fraud and statutory deceit are essentially identical under South Dakota law. The essential elements of common law fraud under South Dakota are: 33 That a representation was made as a statement of fact, which was untrue and known to be untrue by the party making it, or else recklessly made; that it was made with intent to deceive and for the purpose of inducing the other party to act upon it; and that he [or she] did in fact rely on it and was induced thereby to act to his [or her] injury or damage. 34 Dahl v. Sittner, 474 N.W.2d 897, 900 (S.D.1991) (quoting Northwest Realty Co. v. Colling, 82 S.D. 421, 147 N.W.2d 675, 683 (1967)). Section 20-10-1 of South Dakota's Codified Law, which governs actions for deceit, provides: One 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. S.D. Codified Laws § 20-10-1 (Michie 1995). Acts constituting deceit include, inter alia, [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.... S.D. Codified Laws § 20-10-2(3) (Michie 1995). 35 In light of the similarities between the fraud and deceit theories, we will discuss both issues together. Under both theories, we must first determine whether sufficient evidence in the record supports the jury's conclusion that Norwest intentionally or recklessly misled Stockmen's by making a false statement of fact or by suppressing facts that Norwest had the duty to disclose. 5 Joyce Knorr, a representative from the Livestock Board of Trade, testified at trial that on February 3, Rickert told her: (1) that Norwest deemed satisfactory D & R's checking account and that the account had funds available; and (2) that D & R had a revolving line of credit to a low seven figure, with outstanding funds, that rolls daily with extensive usage, which Norwest also deemed satisfactory. 6 36 Norwest argues that Rickert's statements to Knorr concerning the status of D & R's checking account were true. In the past, Norwest explains, D & R's cycles of low cash flow had either resolved themselves or Norwest had extended additional credit. Therefore, Norwest argues that it did not believe D & R's account showed any sign of default. Norwest denies that Rickert told Knorr that D & R had funds available on its line of credit. Norwest concedes that D & R did not have any credit available and, in fact, had been maxed out for months. Nonetheless, Norwest asserts that it considered D & R's line of credit satisfactory because D & R's interest payments were current, D & R did not default under the terms of its loan, and Norwest's collateral levels appeared to be more than adequate. 37 On our review of the record, we determine that sufficient evidence exists for a jury to reasonably conclude that Norwest provided a misleading report of D & R's financial status. According to Knorr's testimony, Rickert stated that D & R had funds available on its line of credit, Tr. (vol.II) at 287, which Norwest concedes D & R did not have. Tr. (vol.I) at 169, (vol.II) at 181-83. Furthermore, with respect to Rickert's characterization of D & R's checking account and line of credit as satisfactory, the record shows that Rickert signed the notice of security interest on the same day he spoke with Knorr. As previously stated, the notice of security interest required the slaughterhouses, including Iowa Beef, to make all further checks from D & R's cattle sales payable jointly to D & R and Norwest. In fifteen years of doing business with D & R, Norwest had never before sought this type of security interest. This evidence bears on whether or not Rickert falsely or recklessly misled Knorr. The jury could reasonably conclude that issuing the notice of security interest would be unnecessary if D & R's checking account and line of credit were actually satisfactory. 7 See Weiszhaar Farms, Inc., 522 N.W.2d at 492 (stating that the jury's verdict should receive all reasonable inferences that fairly can be drawn from the evidence) (citation omitted). 38 In addition to these false statements, Norwest also failed to disclose information that it had a duty to disclose. At trial, Rickert testified that when individuals call the bank to seek account information, he may decline to provide any information. However, Rickert recognized that when he does answer such inquiries, he has the duty to give them honest and accurate information. Tr. (vol.II) at 227. 39 Knorr's two primary questions to Rickert were: Is D & R's checking account satisfactory? Does D & R Feedlots have the ability to purchase cattle? Tr. (vol.II) at 225. In response to Knorr's questions, Rickert did not disclose Norwest's January decision to add an early warning designation to D & R's risk rating or the fact that D & R had a long record of overdrafts during the past year. 8 We conclude that a jury could have reasonably concluded that the nondisclosure of these facts contributed to a misleading assessment of D & R's ability to purchase cattle, especially in light of the inaccurate statements previously mentioned. 9 40 We turn next to the issue of whether sufficient evidence exists to support the jury's determination that Stockmen's relied upon Norwest's misrepresentations and that such reliance caused Stockmen's' injury. First, with respect to the $215,079.52 check D & R used to make its February 9 purchase, Norwest argues that Stockmen's cannot establish detrimental reliance because Gail Sohler, the owner of Stockmen's, conceded that receiving NSF checks from a buyer that were later made good would be no reason to stop doing business with the buyer. Therefore, Norwest argues that if it had disclosed its receipt of overdrafts from D & R, along with its experience that D & R unfailingly made good on such overdrafts, that Stockmen's would have continued doing business with D & R. 41 Stockmen's maintains that it would have refused to sell more cattle to D & R if Norwest had fully disclosed D & R's financial status on February 3. Gail Sohler, the owner of Stockmen's, testified at trial that he would not have allowed D & R to purchase cattle by check on February 9 if Sohler had known of D & R's financial difficulties. Tr. (vol.I) at 116-17. 10 Accordingly, with respect to D & R's February 9 check for $215,079.52 we conclude that sufficient evidence exists to support the jury's finding that Stockmen's detrimentally relied upon Norwest's fraudulent assertions. 42 Next, we turn to the issue of whether sufficient evidence in the record supports the jury's determination of detrimental reliance relating to the $405,324.52 check. This issue presents a different question than the $215,079.52 check because Stockmen's sold the cattle to D & R and received the $405,324.52 check in payment before inquiring with Norwest on the status of D & R's bank account. Thus, to establish detrimental reliance, Stockmen's needed to prove that it could have collected its debt owed by D & R, represented by the NSF check of $405,324.52, if it had received accurate information from Norwest about D & R's financial circumstances. We have examined the record. Adequate evidence does not support a conclusion that Stockmen's demonstrated detrimental reliance relating to the $405,324.52 NSF check. 11 43 Stockmen's relies upon highly speculative evidence and assertions. The $405,324.52 check arrived at Norwest on February 9 whereupon Norwest returned the check to Stockmen's because of insufficient funds in the account. Jt.App. at 91; Tr. (vol.II) at 241-42. Furthermore, the record does not indicate that Stockmen's could have obtained payment on the check if Stockmen's would have presented the check directly to Norwest before February 9. The record shows that the ending balance in D & R's account between February 3 and February 9 did not approach $405,324.52. Jt.App. at 91. Only one piece of testimony appears to support Stockmen's' contentions. Specifically, Rickert testified that at one point on February 8, D & R's account had a balance of approximately $520,000. Tr. (vol.III) at 568. We, however, conclude that this argument relies on the assumptions that Stockmen's could have presented the check at that moment in time and that no other checks required payment. The record supports neither of these assumptions. In fact, more than $300,000 in D & R checks arrived at Norwest on February 8. Jt.App. at 90-91. At all other times, the account contained insufficient funds to pay the $405,324.52. Moreover, Norwest did not owe Stockmen's any obligation to honor the presentation of D & R's check by Stockmen's before paying any other check presented at about the same time. 44 In addition, we do not consider persuasive the assertions by Stockmen's that it could have contacted Iowa Beef to reclaim the cattle or to obtain payment for the cattle. The record shows that D & R delivered most of the cattle to Iowa Beef on February 2, the day before Norwest's misrepresentations. See Tr. (vol.IV) at 748-56; Jt.App. at 322-53. The record also shows that Iowa Beef paid advances on the cattle deliveries. See id. Based on the evidence in the record, we conclude that by February 3, the cattle purchased at Stockmen's and the proceeds from those cattle were beyond any remedial action by Stockmen's.