Fiegen v. North Star, Ltd., 17054

• Decision Date: 27 March 1991
• Docket Number: No. 17054,17054
• Citation: 467 N.W.2d 748
• Court: South Dakota Supreme Court
• Parties: Clarence and Phyllis FIEGEN, Leroy and Shirley Kasma, Clarence and Anna Marie Frost, Norwin and Peggy Bittner, James and Sandra Terveen, Phillip and Audrey Olson, and Ed Zylstra, Plaintiffs and Appellants, v. NORTH STAR, LTD., a corporation, Les Hawkey, and Les Hawkey d/b/a P & S, Inc., Dixie Hawkey, William Ezell, Charles A. Schindler, and Charles Stintson, Defendants and Appellees.

Page 748

467 N.W.2d 748

Clarence and Phyllis FIEGEN, Leroy and Shirley Kasma Clarence and Anna Marie Frost, Norwin and Peggy Bittner James and Sandra Terveen, Phillip and Audrey Olson, and Ed Zylstra, Plaintiffs and Appellants, v. NORTH STAR, LTD., a corporation, Les Hawkey, and Les Hawkey d/b/a P & S, Inc., Dixie Hawkey, William Ezell Charles A. Schindler, and Charles Stintson, Defendants and Appellees.

No. 17054.

Supreme Court of South Dakota.

Argued Feb. 12, 1991.

Decided March 27, 1991.

Thomas L. Fiegen, Cedar Rapids, Iowa, for plaintiffs and appellants.

Thomas K. Wilka of Hagen and Wilka, Sioux Falls, for defendants and appellees North Star, Ltd., Les Hawkey and Dixie Hawkey.

Charles A. Schindler, Lenexa, Kan., pro se.

HERTZ, Acting Justice.

Clarence and Phyllis Fiegen, Leroy and Shirley Kasma, Clarence and Anna Marie Frost, Norwin and Peggy Bittner, James and Sandra Terveen, Phillip and Audrey Olson, and Ed Zylstra (collectively referred to as producers) bring this intermediate appeal from an order of the trial court denying their motion, brought pursuant to SDCL 21-1-4.1 (the statute), to allow discovery relating to punitive damages. We reverse and remand.

FACTS

In October 1986, producers brought an action for consequential and punitive damages for breach of contract, common law deceit and fraud, obtaining money under false pretenses, fraudulent inducement, conspiracy to breach contract, and conspiracy to defraud against North Star, Ltd., Les Hawkey, P & S, Inc., Dixie Hawkey, William Ezell, Charles A. Schindler, and Charles Stintson (collectively referred to as defendants). The facts that gave rise to this action concern the solicitation of producers to enter defendants' planned Rex rabbit fur business. This appeal involves only the denial of producers' motion to permit discovery relating to their punitive damage claim.

Producers contended at the hearing held on December 4 and 22, 1989, that the following facts established their right to obtain discovery on their punitive damage claim under the statute. Producers were first introduced to the Rex rabbit business of North Star, Ltd. when they responded to a newspaper advertisement that put them in contact with Les and Dixie Hawkey. Defendants personally contacted prospective producers to persuade them to enter the Rex rabbit business. In addition, defendants distributed promotional information touting the advantages of joining their rabbit growing and marketing business, such as "performance guaranteed," "knowledgeable guidance," "management assistance," "trouble shooting," and "central grading, storage, [and] auctions." Other information outlined management's obligations to process, distribute and market pelts and carcasses. Included in the promotional information were projected net income figures which, by the third year, were to reach $39,557 based on what were called conservative estimates. The rabbit business of North Star was also promoted as "The Ultimate Tax Shelter," with instructions on how to structure the operation to "pay little or no income tax."

Serious prospects were brought to Hawkeys' farm where the rabbit business was operated. During Clarence and Anna Marie Frost's visit to the farm, Les Hawkey and Charles Schindler allowed Frosts to tape record their sales pitch for another prospective purchaser who was unable to come to Hawkeys' farm. This tape was introduced at the hearing, and Les Hawkey later admitted making several promises to the prospective producers. He admitted that in that conversation he made statements such as: "We'll guarantee you that we'll buy the pelts at market price"; "We will buy the pelts back from you until we get organized and get ten or twenty thousand"; and "We're working right now on a processing plant." However, Hawkey's testimony at the hearing was that "we had never, ever intended to buy fifteen to twenty thousand pelts and keep them on hand."

In 1983, producers each entered into a contract with North Star, Ltd. and its principals Les Hawkey, Dixie Hawkey, and William Ezell. Each paid approximately $12,000 in exchange for eighteen breeding rabbits, cages, expert advice, slaughtering facilities, and processing and marketing breeding rabbits, fur, and meat raised by producers. However, the contract they were required to sign recited a payment of only $495.00. It also included standard merger language that "there are no oral or other conditions, promises, covenants, representations or inducements in addition to or at variance with any of the terms [of the contract.]"

After signing up with North Star, Ltd., producers encountered many problems and broken promises. The rabbits became sick and some did not reproduce. Defendants failed to provide trouble-shooting guidance by experts, and to come to producers' farms to pick up mature rabbits. No processing plant was ever built, the rabbits were not processed in a federally inspected plant but in Hawkeys' barn, the meat was not marketed, and the pelts were not prepared for marketing. Producers claimed that in May 1984 Hawkey told them that he and North Star were out of the Rex rabbit business and had given up on the enterprise. Producers Jim Terveen and Ed Zylstra testified that they did not even see evidence that North Star had even prepared to perform their obligation to collect, process, and market the rabbit pelts and meat.

After hearing this evidence, the trial court observed that "[m]ost of the evidence ... goes to the issue of breach of contract." On February 21, 1990, the trial court ruled that producers had failed to satisfy the statutory prerequisites for discovery on their punitive damages claim. We subsequently granted producers' petition for intermediate appeal.

ISSUE

DID THE TRIAL COURT ERRONEOUSLY DENY PRODUCERS' MOTION FOR DISCOVERY RELATING TO PUNITIVE DAMAGES PURSUANT TO SDCL 21-1-4.1?

ANALYSIS

In their brief, producers challenge the trial court's decision on three bases: (1) the statute employs a burden of proof inconsistent with Aschoff v. Mobil Oil Corporation, 261 N.W.2d 120 (S.D.1977); (2) the statute is a form of summary judgment and decisions under the statute must comport with traditional summary judgment standards; and (3) the statute is an unconstitutional deprivation of producers' right to a jury trial and right to pursue a common law remedy. Producers ask us to interpret the validity of SDCL 21-1-4.1 to evaluate whether the trial court erroneously denied their motion for discovery. We need not address these claims, however, because it is apparent that the evidence produced at the hearing was sufficient to satisfy the statute. We will not engage in statutory interpretation unless it is necessary to resolve the merits of the controversy. Wold v. Lawrence County Comm'n, 465 N.W.2d 622 (S.D.1991). See State v. Big Head, 363 N.W.2d 556 (S.D.1985) (constitutionality reviewed only if necessary to make a decision on the merits).

SDCL 21-1-4.1 reads:

In any claim alleging punitive or exemplary damages, before any discovery relating thereto may be commenced and before any such claim may be submitted to the finder of fact, the court shall find, after a hearing and based upon clear and convincing evidence, that there is a reasonable basis to believe that there has been willful, wanton or malicious conduct on...