Dakota Cheese, Inc. v. Ford

• Decision Date: 23 November 1999
• Docket Number: No. 20943.,20943.
• Citation: 603 N.W.2d 73,1999 SD 147
• Court: South Dakota Supreme Court
• Parties: DAKOTA CHEESE, INC. and James J. Dee, Plaintiffs and Appellants, v. Bruce M. FORD and Burns & Ford, Trial Lawyers, a partnership, Defendants and Appellees.

603 N.W.2d 73

1999 SD 147

DAKOTA CHEESE, INC. and James J. Dee, Plaintiffs and Appellants, v. Bruce M. FORD and Burns & Ford, Trial Lawyers, a partnership, Defendants and Appellees.

No. 20943.

Supreme Court of South Dakota.

Argued October 18, 1999.

Decided November 23, 1999.

John S. Theeler of Morgan, Theeler, Cogley & Petersen, Mitchell, South Dakota, for plaintiffs and appellants.

James E. McMahon and Lisa Hansen Marso, Boyce, Murphy, McDowell & Greenfield, Sioux Falls, South Dakota, for defendants and appellees.

SABERS, Justice.

[¶ 1.] Dakota Cheese, Inc. and its President, James Dee, appeal an Order granting a motion for summary judgment in favor of Bruce M. Ford and Burns & Ford, Trial Lawyers (Ford). We reverse and remand for trial.

FACTS

[¶ 2.] Dakota Cheese and Dee hired Ford to represent them in a legal malpractice action against E. Steeves Smith, James Taylor and the law firm of "Tinan, Padrnos, Smith & Taylor." This action was involuntarily dismissed due to Ford's failure to prosecute. We affirmed this dismissal. See Dakota Cheese, Inc. v. Taylor, 525 N.W.2d 713 (S.D.1995). While the present case involves the alleged negligence of Ford, we need to explore the facts of the underlying case, the case within the case.

[¶ 3.] Dakota Cheese was a cheese production company located in Mitchell, South Dakota. From 1983 to 1985, it contracted to sell mozzarella cheese to the United States Department of Agriculture (USDA) through the Commodity Credit Corporation (CCC), an agency of the USDA. In 1983, Dakota Cheese began using calcium caseinate in the mozzarella cheese that it sold to the government.¹ However, Dakota Cheese did not label this cheese "imitation;" an omission which is illegal and ultimately led to Dakota Cheese saving $695,000 on its government contract in one year.²

[¶ 4.] In 1985, Dakota Cheese and Dee hired Smith and Taylor to represent them in an audit conducted by the USDA. Prior to the audit, original invoices from New Zealand Milk Products, Inc. were altered; i.e. the name "calcium caseinate" was removed leaving only the product description, "Alanate 310," on the invoice.³ Dee alleges that "Smith and Taylor advised [him] not to turn over relevant documents to the auditor." He further alleges that Smith and Taylor "advised [him] that some of the original New Zealand invoices could be altered and redacted, giving the auditors access only to the altered documents, but without disclosing the alteration to the auditors;" a process that Dee claims Smith and Taylor advised was "legal and customary."

[¶ 5.] Taylor testified that he directed a staff member with the Smith and Taylor law firm to perform the alterations to the New Zealand invoices. Smith admitted that he had full knowledge of the alterations and that he consented. However, Smith and Taylor claim that Dee stated "he did not want to produce invoices with the phrase `calcium caseinate' on them" because calcium caseinate was a trade secret and that its exclusion was not illegal as long as the term "Alanate 310" was used and it was used. Smith further testified that Dee stated, on delivering the original invoices to Smith, that he didn't ever want to see the documents again.

[¶ 6.] Dee then transported all relevant documents, including the original New Zealand invoices, to the Smith and Taylor law office. This was the last time Dee saw the New Zealand invoices. The USDA conducted its audit at this law office. The auditors subsequently filed a subpoena for, among other documents, the original New Zealand invoices which were not produced in the audit. According to Dee, he thought these invoices had been produced.

[¶ 7.] The USDA then involved the U.S. Attorney in an investigation that evolved into a federal grand jury investigation. A subpoena, demanding all documents that had been reviewed by the auditors at Smith's office and the originals, was issued. Smith personally drove 21 boxes of documents to Sioux Falls and delivered them to U.S. Attorney Bonnie Ulrich. However, he did not include the original New Zealand invoices that had been altered and redacted. Smith later testified as to the whereabouts of these documents:

Q: Where were the original New Zealand invoices that had been redacted in your office?

A: The originals?

Q: Yes.

A: I think they were in our office.

Q: And they weren't delivered to the U.S. Government per the subpoena. Is that correct?

A: They were not delivered, as far as I know.

Smith further testified that his withholding of these invoices was not at Dee's instruction.

[¶ 8.] At Smith's recommendation, Dakota Cheese and Dee employed a Minneapolis law firm to represent them in the government investigation. Smith turned over his legal file and pertinent documents to the Minneapolis attorneys, but did not produce the original invoices nor did he tell them about the alterations.

[¶ 9.] The government eventually brought a motion to enforce the grand jury subpoena and an order to show cause to hold Dakota Cheese in contempt for failing to produce the original documents to the auditors and to the grand jury pursuant to the subpoena. Prior to the hearing, the Minneapolis attorneys contacted Smith and inquired into the whereabouts of the invoices. Smith informed him that he did not know the whereabouts of the invoices. Dee saw Smith the morning of the hearing and the invoices had not yet been located.

[¶ 10.] The contempt hearing resulted in Dakota Cheese being fined $500 each day the originals were not produced. Dee alleges that he went to Smith's office the following day and Smith stated he could not find the originals. The contempt fines ran from December 1, 1987 to July 19, 1988. The total contempt fine, with interest, was $121,234.75. It was paid in 1989 by Dakota Cheese.

[¶ 11.] In July 1988 Dakota Cheese and Dee were indicted and criminal charges were brought against them. On November 10, 1988, the Minneapolis attorneys interviewed Taylor at his Mitchell office in preparation for Taylor's testimony at the criminal trial. When Taylor was asked if he then knew the whereabouts of the original New Zealand invoices, he reached into his desk drawer and retrieved the invoices. When questioned whether it bothered him that the invoices had been withheld from the auditors, Taylor stated:

A: Not particularly. I tell you what really bothered me was if I should give them to Smith or not.

Q: Why would that be the case? He's Dakota Cheese's lawyer.

A: But in the process[,] Smith, at least I understood[,] Smith was trying to screw me at every turn.

Q: So you were hanging onto those documents to use to defend yourself if needed?

A: If necessary.

Smith testified that he knew either he or Taylor had the invoices on the day of the contempt hearing. The documents were withheld without Dee's knowledge.

[¶ 12.] In June 1989, Dakota Cheese and Dee employed Ford to represent them in a legal malpractice action against Smith and Taylor. He caused a summons to be served against Smith and Taylor without a complaint in June 1989. From June 1989 to November 1992, Ford investigated, researched and prepared the case. However, in November 1992, he withdrew from the case because he "didn't believe [his] firm had the resources to carry on with the case alone." Ford never filed a complaint in the three and a half years he had the case even though he believed that Smith and Taylor were "grossly negligent."⁴

[¶ 13.] Dakota Cheese and Dee hired another set of lawyers, Steven Johnson and Scott Heidepriem, who served the complaint against Smith and Taylor on May 24, 1993. However, the case against Smith and Taylor was dismissed for want of prosecution. The South Dakota Supreme Court affirmed this decision. See Dakota Cheese, Inc. v. Taylor, 525 N.W.2d 713 (S.D.1995).

[¶ 14.] Dakota Cheese and Dee then sued Ford and Burns & Ford on July 12, 1995 for legal malpractice. Dakota Cheese and Dee were seeking damages equal to the contempt fines, interest and attorneys fees associated therewith. On February 5, 1999, the trial court granted Ford's motion for summary judgment and dismissed the complaint with prejudice. Ford also recovered costs in the amount of $3,595.20. Dakota Cheese and Dee appeal this decision and raise three issues:

1. Whether genuine issues of material fact exist that Smith and Taylor intentionally concealed the original New Zealand invoices and caused a loss to Dakota Cheese and Dee.

2. Whether the trial court abused its discretion in allowing Ford to amend his answer after making a motion for summary judgment.

3. Whether the trial court erred in granting summary judgment on the basis of public policy, unclean hands, collateral estoppel and in determining Dakota Cheese and Dee proximately caused their own damages.

STANDARD OF REVIEW

[¶ 15.] Our standard of review for summary judgment is well established:

In reviewing a grant or a denial of summary judgment under SDCL 15-6-56(c), we must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. The nonmoving party, however, must present specific facts showing that a genuine, material issue for trial exists. Our task on appeal is to determine 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.

Campion v. Parkview Apartments, 1999 SD 10, ¶ 22, 588 N.W.2d 897, 902 (quoting Wildeboer v. S.D. Junior Chamber of Comm., 1997 SD 33, ¶ 9, 561 N.W.2d 666, 668 (citations omitted)). "The burden of proof is upon the movant to show clearly that there is no genuine issue of material fact and that he is entitled to judgment as a matter of law ." Wildeboer, 1997 SD 33, ¶ 10,561 N.W.2d

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