County of Harding, S.D. v. Frithiof

• Decision Date: 05 April 2007
• Docket Number: No. 06-2793.,06-2793.
• Parties: COUNTY OF HARDING, SOUTH DAKOTA, a political subdivision of the State of South Dakota, by and through its Board of Commissioners; Casey Olson, for himself and on behalf of all the other similarly situated taxpayers of Harding County, South Dakota, Plaintiffs/Appellees, v. Ron FRITHIOF, Kim Hollrah, Melody Harrell, Defendants/Appellants, Fred Debrovner, Unidentified Defendants A through E, Defendants.
• Court: U.S. Court of Appeals — Eighth Circuit

483 F.3d 541

COUNTY OF HARDING, SOUTH DAKOTA, a political subdivision of the State of South Dakota, by and through its Board of Commissioners; Casey Olson, for himself and on behalf of all the other similarly situated taxpayers of Harding County, South Dakota, Plaintiffs/Appellees, v. Ron FRITHIOF, Kim Hollrah, Melody Harrell, Defendants/Appellants, Fred Debrovner, Unidentified Defendants A through E, Defendants.

No. 06-2793.

United States Court of Appeals, Eighth Circuit.

Submitted: December 14, 2006.

Filed: April 5, 2007.

Robert Gusinsky, argued, Rapid City, SD (Thomas G. Fritz, Lynn & Jackson, Rapid City, SD, Joseph Eugene Ellingson, Spearfish, SD, on the brief), for Defendants/Appellants.

Kenneth E. Barker, argued, Barker & Reynolds, Belle Fourche, SD, for Plaintiffs/Appellees.

Before BYE, COLLOTON, and BENTON, Circuit Judges.

BYE, Circuit Judge.

Ron Frithiof, Kim Hollrah, and Melody Harrell appeal the district court's determination that a fossil-collecting lease agreement between Frithiof and Harding County, South Dakota, was invalid because the County Commission did not hold a public hearing before approving the lease. Frithiof, Hollrah, and Harrell also appeal the dismissal of their unjust enrichment counterclaim against the County. We reverse and remand for further proceedings.

I

On November 9, 2000, Harding County reached a five-year agreement with Ron Frithiof allowing him to collect, prepare, and sell fossil vertebrates he might find on 200 acres of the County's land in the badlands of western South Dakota. Prior to negotiating the lease, Frithiof had been excavating fossils in the same general area pursuant to a lease agreement negotiated with Gilbert Cattle Company and Gary Gilbert, the adjacent landowner. Gilbert Cattle Company leased the 200 acres from the County for grazing purposes.

The "Rent" provision of the lease did not provide for a fixed annual payment, but instead indicated Frithiof would pay:

[T]en percent (10%) of the actual selling price of any fossils collected from the Lessor(s) property and which are sold by the Lessee for a sum exceeding One Thousand and No/100 Dollars ($1,000.00). Lessee will pay such sum to Lessor(s) within thirty (30) days of such sale and receipt of the purchase price by Lessee.

This "Rent" provision is identical to the payment terms used in one of two exemplar leases the County provided Frithiof's attorney during negotiations for the lease, specifically, a fossil-collecting lease the County reached with an individual named Mike Triebold in 1996.

On August 19, 2004, the County brought suit against Frithiof and his partners in federal district court. The suit alleged Frithiof excavated the fossil remains of a juvenile Tyrannosaurus rex—referred to as Tinker—from the leased land prior to the year 2000,¹ secured an $8.5 million offer for Tinker, and did not advise the County of the discovery during the lease negotiations "despite having a duty to disclose such information." The suit contained nine counts sounding in actual fraud, constructive fraud, conversion, trespass, civil conspiracy, rescission, breach of the duty of good faith and fair dealing, breach of fiduciary duty, and one count for a declaratory judgment. The declaratory judgment count alleged in part "because the Commission failed to comply with various rules governing the sale and/lease (sic) of property owned by County when it executed the Second Lease,² the Second Lease is void and/or voidable." Frithiof and his partners denied the County's allegations and brought a counterclaim for breach of contract and unjust enrichment/quantum meruit.

Frithiof and his partners brought a motion for summary judgment arguing they did not commit fraud and had title to Tinker pursuant to the valid and enforceable lease.³ The County filed a motion for partial summary judgment arguing the agreement was invalid on three grounds: a) the agreement was actually a contract for the sale of public property, not a lease, and invalid because the County did not follow statutory requirements for the sale of public property; b) if a lease, the County did not follow the public hearing requirements under South Dakota Codified Law § 7-18-32 rendering the lease void ab initio; and c) the lease should be rescinded based upon a mutual mistake of law.

With respect to the second argument, § 7-18-32 requires the County to hold a public hearing before authorizing a lease "for a term exceeding one hundred twenty days and for an amount exceeding five hundred dollars annual value."⁴ In the district court, the County contended the lease had an annual value of more than five hundred dollars because Frithiof removed a portion of the fossils before the lease was negotiated, and then later received an $8.5 million offer for their sale. Frithiof countered no public hearing was required because the lease should be construed as of the date on which it was made, and as of that date the lease's value to the County was highly speculative and contingent upon the sale of fossils found on the land, and no sale had occurred. He further contended the County did not present any evidence to prove the value of the contingency. In the alternative, he contended the failure to hold a public hearing did not render the lease void ab initio but merely meant the County exercised its power irregularly and was estopped from rescinding the lease under South Dakota law. See Mellette County v. Arnold, 76 S.D. 210, 75 N.W.2d 641, 643 (S.D.1956) (distinguishing between the irregular exercise of a granted power and a total absence of power, stating: "When an act or contract is beyond the power conferred upon a county, it cannot be estopped. When, however, a county has power to act, it may be estopped by the acts of its agents although the method of exercising the power was irregular.").

The district court granted the County's motion for partial summary judgment and denied Frithiof's motion. The district court focused on the County's argument regarding the public hearing requirements of § 7-18-32. Although the County's complaint alleged Frithiof received an $8.5 million offer for the sale of Tinker, the district court noted he denied receiving such an offer in his answer. Instead, the district court indicated Frithiof did not contest federal diversity jurisdiction which required the amount in controversy to be $75,000 or more, and had alleged a counterclaim of unjust enrichment in the amount of $200,000. Based upon those two facts, the district court concluded it was "not unreasonable to place the value of the contract as an amount exceeding five hundred dollars." The district court held the County's failure to hold a public hearing rendered the lease invalid ab initio. Pursuant to the order granting the County's motion for partial summary judgment, a final judgment was entered in the County's favor, which also resulted in a dismissal of Frithiof's counterclaim for unjust enrichment.

Frithiof and his partners filed a timely appeal. On appeal, they contend the public hearing requirements of § 7-18-32 do not apply because the County did not present any evidence of the value of the lease at the time it was entered. In the alternative, they contend the County's failure to hold a public hearing was merely an irregular exercise of the County's power and the County should be estopped from rescinding the lease. Finally, Frithiof contends the district court erred when it entered full judgment in the County's favor without giving notice the counterclaim would be dismissed, or independently addressing the merits of the counterclaim.

II

We review the district court's grant of summary judgment de novo, viewing the evidence in the light most favorable to the nonmoving party. Revels v. Vincenz, 382 F.3d 870, 874 (8th Cir.2004).

Frithiof first contends the district court erred in determining the lease was invalid for lack of a public hearing under § 7-18-32 because the County presented no evidence of the value of the lease at the time it was entered. We agree. Section 7-18-32 does not require a public hearing unless a lease is "for an amount exceeding five hundred dollars annual value." Because the statute does not further define the term "value," we understand it to mean fair market value. In addition, we agree with Frithiof's contention the relevant time period for analyzing the fair market value of the lease requires it to be construed as of the date on which it was made, without regard to events which may have occurred subsequent to its execution.⁵ Thus, the value relevant to determining whether a public hearing was required is the amount for which the County could have sold the lease on November 9, 2000 (as calculated on an annual basis), i.e., its fair market value on the day it was signed.

Our view that the relevant inquiry requires us to determine fair market value on the day the lease was signed is buttressed by one apparent purpose of § 7-18-32, which is to ensure public assets are not used unfairly to advantage private interests, that is, to prevent the County Commission from entering sweetheart deals with select individuals. The circumstances under which § 7-18-32's meaning of value is disputed in this case are somewhat unusual; we expect the more common situation in which a dispute about value would arise might be where a taxpayer sues the County alleging someone received a sweetheart deal without the benefit of a public hearing. In such a situation, it would be incumbent upon the County to show it received adequate compensation, i.e., fair market value. Similar statutes in other states explicitly refer to "fair market value." See, e.g., Neb.Rev. Stat. § 23-107.01 (providing a "county board has power to sell or lease real estate owned by the county and not required for county purposes at a fair market value [after] an open and public hearing"); W. Va.Code § 20-1A-5 (requiring state agencies to hold a public hearing prior to the sale or lease of land or...