Fritzmeier v. Krause Gentle Corp.

• Decision Date: 10 September 2003
• Docket Number: No. 22308., No. 22307
• Citation: 2003 SD 112,669 N.W.2d 699
• Parties: Janet FRITZMEIER, Jay Fritzmeier, Chuck Colmenero, Todd Lundgren, Jack Rentschler, Julie Rentschler, Don Rose, Jean Rose, Mike Wilbur, Steve Brashears and Randy Heaton, Plaintiffs and Appellees, v. KRAUSE GENTLE CORPORATION, Defendant and Appellant, and Blimpie Midwest, L.L.C., Defendant.
• Court: South Dakota Supreme Court

669 N.W.2d 699

2003 SD 112

Janet FRITZMEIER, Jay Fritzmeier, Chuck Colmenero, Todd Lundgren, Jack Rentschler, Julie Rentschler, Don Rose, Jean Rose, Mike Wilbur, Steve Brashears and Randy Heaton, Plaintiffs and Appellees, v. KRAUSE GENTLE CORPORATION, Defendant and Appellant, and Blimpie Midwest, L.L.C., Defendant.

Nos. 22307, 22308.

Supreme Court of South Dakota.

Argued May 29, 2003.

Decided September 10, 2003.

Rehearing Denied October 21, 2003.

Rick Johnson of Johnson, Eklund, Nicholson, & Peterson, Gregory, SD, and Thomas J. Nicholson of Johnson, Eklund, Nicholson, & Peterson Sioux Falls, SD, for plaintiffs and appellees.

Steven W. Sanford of Cadwell, Sanford, Deibert & Garry, Sioux Falls, SD, and Michael A. Dee of Pingel & Templer, P.C., West Des Moines, IA, for defendant and appellant Krause Gentle Corporation.

GILBERTSON, Chief Justice.

[¶ 1.] This appeal is the result of a jury trial in which eight plaintiffs were awarded compensatory and punitive damages for their allegations of fraudulent misrepresentations against Krause Gentle Corporation (Krause Gentle) which they allege induced them to buy Blimpie Sub franchises. We affirm on all issues except for prejudgment interest.

FACTS AND PROCEDURE

[¶ 2.] Starting in 1993, Krause Gentle of Des Moines, Iowa entered into a series of "Subfranchise Agreements" with Blimpie International, which entailed the sharing of franchise fees between Krause Gentle and Blimpie International. As part of this business arrangement, Krause Gentle was given the power to engage in "the selling, opening and servicing of all Blimpie Restaurants" in portions of Iowa and eastern South Dakota. Blimpie Midwest, an L.L.C., was used for operational purposes by Krause Gentle and was primarily owned by William Krause and his family.

[¶ 3.] By 1995, Krause Gentle owned and operated several Blimpie restaurants out of its Kum & Go stores. Additionally, Krause Gentle hired Steve Abbott and Todd Byers as area developers to sell Blimpie franchises to others. Although counsel for Krause Gentle argued that Abbott did not represent Krause Gentle, the jury rejected this and found that Abbott was employed by Krause Gentle. Accordingly, Blimpie Midwest is not a party to this appeal. Eventually, the franchises were sold to eight separate newly formed or existing corporations, consisting of the ten individual plaintiffs in this case. These eight corporations operated nine Blimpie restaurants in South Dakota and Iowa. These franchises had to pay a franchise fee of $18,000 plus make a capital investment for equipment and supplies for an investment averaging in excess of $100,000.

[¶ 4.] The Plaintiffs claim that Abbott and Byers held themselves out as experts concerning the Blimpie business. Although Byers did not testify at trial, Abbott was called as a witness for Krause Gentle and denied the allegations against him. Moreover, the Plaintiffs allege that Abbott and Byers made several fraudulent representations to induce them to buy the Blimpie franchises. Specifically, the Plaintiffs allege that they were told that they could expect "immediate cash flow" from their Blimpie franchises; Defendants approved Plaintiffs' business plans knowing that Plaintiffs' projected sales were significantly higher than could be realistically expected¹; Defendants told Plaintiffs that Blimpie International was in the process of instituting a national advertising program similar to Subway's and that sales would dramatically increase; Krause Gentle would provide its expertise to enable the businesses to be successful; and some Plaintiffs were directly given the gross sales and net profit figures they could expect.² [¶ 5.] Each of the nine Blimpie franchises lost money and ended up going out of business. Soon thereafter, the Plaintiffs commenced this action against Krause Gentle and Blimpie Midwest, alleging fraud and deceit. The actions were brought in their individual names, not in the names of the corporations. Although Krause Gentle moved to sever the claims against it, the trial court denied its motion. Following a five-week jury trial, the jury returned an 89-page special verdict form against Krause Gentle, awarding compensatory damages to eight of the ten Plaintiffs in an amount totaling $747,115.00, and punitive damages to some of the Plaintiffs in the amount totaling $995,000.

[¶ 6.] Krause Gentle appeals the jury's verdict. It raises the following issues for review:

1. Whether the trial court abused its discretion when it refused to grant Defendants' motion to sever.

2. Whether there was sufficient evidence at trial to sustain the jury's finding of fraud on the part of Krause Gentle.

3. Whether the jury's determination of damages should be sustained when Plaintiffs brought their claims in their individual capacities.

4. Whether the jury instruction given at trial amounted to prejudicial error.

5. Whether the jury's awards of punitive damages were inappropriate and excessive.

6. Whether the trial court applied the wrong prejudgment interest rate to the Iowa Plaintiff's judgment against Krause Gentle.

[¶ 7.] Plaintiffs raise the following issue on cross-appeal:

1. Whether the trial court abused its discretion when it ruled that Plaintiff Denton Olson's testimony was inadmissible hearsay and granted Defendants' motion to dismiss his claim.

STANDARD OF REVIEW

[¶ 8.] According to Landstrom v. Shaver, 1997 SD 25, ¶ 24, 561 N.W.2d 1, 5, SDCL 15-6-42(b) "allows the trial court the discretion to order separate trials in proper circumstances `in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy[.]'" (quoting Sybesma v. Sybesma, 534 N.W.2d 355, 360 (S.D.1995)).

[¶ 9.] "When reviewing the sufficiency of the evidence, we accept all evidence favorable to the verdict, and reasonable inferences therefrom, without weighing credibility or resolving conflicts." Maryott v. First Nat. Bank of Eden, 2001 SD 43, ¶ 21, 624 N.W.2d 96, 104 (citing State v. Buchholz, 1999 SD 110, ¶ 33, 598 N.W.2d 899, 905). If there is evidence if believed by the fact finder that supports the jury's verdict, then we will affirm. Id.

[¶ 10.] The question of whether a party has standing to maintain an action is a question of law reviewable by this Court de novo. Winter Brothers Underground Inc. v. City of Beresford, 2002 SD 117, ¶ 13, 652 N.W.2d 99, 102.

[¶ 11.] According to Veeder v. Kennedy, 1999 SD 23, ¶ 32, 589 N.W.2d 610, 618, we review jury instructions under the following:

Under our standard of review, we construe jury instructions as a whole to learn if they provided a full and correct statement of the law. Sommervold v. Grevlos, 518 N.W.2d 733, 739 (S.D.1994); Frazier v. Norton, 334 N.W.2d 865, 870 (S.D.1983); Mueller v. Mueller, 88 S.D. 446, 450, 221 N.W.2d 39, 42 (1974). Misleading, conflicting, or confusing instructions create reversible error. Schaffer v. Edward D. Jones & Co., (Schaffer II) 1996 SD 94, ¶ 19, 552 N.W.2d 801, 808; Wallahan v. Black Hills Elec. Co-op., Inc., 523 N.W.2d 417, 423 (S.D.1994). Nonetheless, an appellant must show not only that a particular instruction was erroneous, but also that it was prejudicial, meaning the jury probably would have returned a different verdict if the faulty instruction had not been given. LDL Cattle Co., Inc. v. Guetter, 1996 SD 22, ¶ 32, 544 N.W.2d 523, 530; Sybesma, 534 N.W.2d at 359 (quoting Chambers v. Dakotah Charter, Inc., 488 N.W.2d 63, 64 (S.D.1992)).

(citing Davis v. Knippling, 1998 SD 31, ¶ 4, 576 N.W.2d 525, 526-7).

[¶ 12.] The determination of an applicable statutory interest rate is a question of law. See Wharf Resources (USA) Inc. v. Farrier, 1996 SD 110, ¶ 43, 552 N.W.2d 610, 618. Therefore, the review is de novo.

[¶ 13.] We review an award of punitive damages under the abuse of discretion standard. Leisinger v. Jacobson, 2002 SD 108, ¶ 9, 651 N.W.2d 693, 696. We consider the following question: "[Is] the verdict ... so large as to clearly indicate that it must have been given under the influence of passion or prejudice ... [?]" Id. (citing Grynberg v. Citation Oil & Gas Corp., 1997 SD 121, ¶ 36, 573 N.W.2d 493, 504).

[¶ 14.] The trial court's evidentiary rulings are presumed correct and will not be overturned absent an abuse of discretion. State v. Perovich, 2001 SD 96, ¶ 11, 632 N.W.2d 12, 15 (citing State v. Goodroad, 1997 SD 46, ¶ 9, 563 N.W.2d 126, 129). "The test is not whether we would have made the same ruling, but whether we believe a judicial mind, in view of the law and the circumstances, could have reasonably reached the same conclusion." Goodroad, 1997 SD 46, ¶ 9, 563 N.W.2d at 129 (citing State v. Rufener, 392 N.W.2d 424, 426 (S.D.1986)). While the "ultimate decision to admit or not admit evidence is reviewable under the `abuse of discretion' standard, the court's preliminary determination of whether the hearsay evidence is reliable will not be overturned unless it is clearly erroneous." State v. Davi, 504 N.W.2d 844, 849 (S.D.1993) (quoting Matter of R.S.S., 474 N.W.2d 743, 749 (S.D.1991)).

ANALYSIS AND DECISION

[¶ 15.] 1. Whether the trial court abused its discretion when it refused to grant Defendants' motion to sever.

[¶ 16.] Pursuant to SDCL 15-6-20(a), actions may be joined in certain circumstances. Specifically, this statute provides:

All persons may join in one action as plaintiffs if they assert any right to relief jointly, severally, or in the alternative in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action. All persons may be joined in one action as defendants if there is asserted against them jointly, severally, or in the alternative, any right to relief in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all defendants will

...