Glanzer v. St. Joseph Indian School

• Decision Date: 22 March 1989
• Docket Number: 16196,Nos. 16170,s. 16170
• Citation: 438 N.W.2d 204
• Parties: Greer and Alan GLANZER, Plaintiffs and Appellants (# 16170) v. ST. JOSEPH INDIAN SCHOOL, Defendant, Dehon Industries, Inc., Defendant and Appellant (# 16196).
• Court: South Dakota Supreme Court

Page 204

438 N.W.2d 204

Greer and Alan GLANZER, Plaintiffs and Appellants (# 16170) v. ST. JOSEPH INDIAN SCHOOL, Defendant Dehon Industries, Inc., Defendant and Appellant (# 16196).

Nos. 16170, 16196.

Supreme Court of South Dakota.

Argued Nov. 29, 1988.

Decided March 22, 1989.

Albert Steven Fox and David J. Larson of Larson, Sundall, Larson, Schaub and Fox Chamberlain, for plaintiffs and appellants.

Leonard E. Andera and Steven R. Smith of Andera, Rabuck and Smith Law Offices Chamberlain, for defendant and appellant.

TIMM, Circuit Judge.

This is an action by the limited partners (Glanzers) against their general partner (Dehon) and the general partner's parent corporation (St. Joseph's ¹).

BACKGROUND AND PROCEDURAL HISTORY

On June 20, 1984, the Glanzers and Dehon formed a limited partnership, Glanzer Tackle Company, to manufacture and distribute fishing tackle and related products. In the four years preceding the partnership, the Glanzers operated a tackle-making business out of their home near Chamberlain. The assets of that business, including inventory, equipment, customer sales list, good will, and the Glanzer name, were contributed by the Glanzers to the partnership.

The partnership agreement required Dehon to contribute $30,000 in cash, provide accounting services for one year, provide space for one year, and pay utilities and property taxes for one year. Dehon also agreed to pay Glanzers $20,000 for contributing the assets of their tackle business to the partnership, $10,000 of which was due on or before July 1, 1984, and the remaining $10,000 was to be paid to the partnership and passed through to the Glanzers on or before April 1, 1985. Additionally, the partnership was to employ Alan Glanzer for three years with minimum compensation for each of the years being $20,000, $22,000 and $24,000.

The Glanzers did not receive the $10,000 due them on or before April 1, 1985. Three months later Alan Glanzer's employment was terminated by the partnership, and Glanzer Tackle Company sought bankruptcy protection.

On August 6, 1985, Glanzers commenced an action against Dehon and St. Joseph's alleging breach of the partnership agreement, negligent and intentional infliction of emotional distress, fraudulent and negligent misrepresentation, guarantee, and breach of fiduciary duty. St. Joseph's liability was predicated on theories of disregard of corporate entity and agency.

On August 25, 1985, St. Joseph's entered a special appearance and motion to dismiss. A hearing on the motion took place November 7, 1985. On January 6, 1986, the trial court dismissed the action against St. Joseph's. The action against Dehon was tried to a jury in December of 1987. The jury returned a verdict for Glanzers in the amount of $120,001.00. Both parties appeal. We affirm, in part, reverse, in part, and remand for a new trial.

ISSUE I

WHETHER THE TRIAL COURT ERRED IN GRANTING ST. JOSEPH'S MOTION FOR SUMMARY JUDGMENT.

The South Dakota Rules of Civil Procedure in circuit courts state that if, on a motion to dismiss for failure to state a claim upon which relief can be granted, matters outside the pleadings are presented to and not excluded by the trial court, the motion should be treated as one for summary judgment and disposed of as provided in SDCL 15-6-56. ²

The record before us plainly indicates that matters outside the pleadings ³ were presented to the trial court. That they were considered is specifically mentioned in the trial court's order disposing of the motion. Accordingly, on review we treat St. Joseph's motion to dismiss as one for summary judgment and the disposition a grant of that motion.

SDCL 15-6-56(c) authorizes summary judgment only where "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Glanzers argue that the trial court erred in granting summary judgment because there is a factual dispute as to whether Dehon is an instrumentality or agent of St. Joseph's.

In gauging the propriety of the trial court's grant of summary judgment, we invoke the same legal principles that bind the trial court: (1) the burden of proof is on the moving party to show clearly that there is no genuine issue of material fact; (2) the evidence must be viewed most favorably to the nonmoving party; (3) summary judgment is not intended to be a substitute for trial where any genuine issue of material fact exists; (4) a surmise that a party will not prevail at trial is not a sufficient basis to grant the motion on issues which are not shown to be sham, frivolous, or so unsubstantiated that it is obvious it would be futile to try them; (5) summary judgment is an extreme remedy and should be awarded only when the truth is clear, and reasonable doubt touching the existence of a genuine issue as to a material fact should be resolved against the moving party; (6) however, the court may expose sham claims and defenses by the nonmoving party. Wilson v. Great Northern Railway Company, 83 S.D. 207, 157 N.W.2d 19 (1968); Farmers Feed & Seed v. Magnum Enterprises, 344 N.W.2d 699 (S.D.1984).

Glanzers predicated St. Joseph's liability for the acts of Dehon upon the instrumentality exception to the rule of corporate separateness and agency. St. Joseph's bore the burden of showing there was no genuine issue of material fact under either theory. In determining whether that burden was met, we first examine those theories.

A parent corporation is liable for the acts of its subsidiary under the instrumentality exception when (1) the parent controls the subsidiary to such a degree as to render the latter the mere instrumentality of the former; and (2) adherence to the rule of corporate separateness would produce injustices and inequities. Larson v. Western Underwriters, 77 S.D. 157, 87 N.W.2d 883, 887 (1958); Mobridge Community Industries, Inc. v. Toure, Ltd., 273 N.W.2d 128, 132 (S.D.1978). Similarly, a parent corporation is liable for the acts of its subsidiary when an agency relationship exists between them. Elvalsons v. Industrial Covers, Inc., 269 Or. 441, 525 P.2d 105 (1974); Soderberg Advertising, Inc. v. Kent-Moore Corp., 11 Wash.App. 721, 524 P.2d 1355 (1974).

Under the first leg of the instrumentality exception, a number of factors have been identified which indicate the degree of control necessary to hold the parent liable:

(a) The parent corporation owns all or most of the capital stock of the subsidiary.

(b) The parent and subsidiary corporations have common directors or officers.

(c) The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.

(e) The subsidiary has grossly inadequate capital.

(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.

(g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to it by the parent corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own.

(i) The parent corporation uses the property of the subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation in the latter's interest.

(k) The formal legal requirements of the subsidiary are not observed.

Powell, Parent and Subsidiary Corporations, Sec. 5-6, at 9 (1931). See Taylor v. Standard Gas & Electric Co., 96 F.2d 693, 704 (10th Cir.1938); Steven v. Roscoe Turner Aeronautical Corp., 324 F.2d 157, 161 (7th Cir.1963); Baker v. Raymond Int'l, Inc., 656 F.2d 173 (5th Cir.1981); Garrett v. Southern Ry., 173 F.Supp. 915 (E.D.Tenn.1959); Duff v. Southern Ry. Co., 496 So.2d 760 (Ala.1986); Jackson v. General Electric Company, 514 P.2d 1170 (Alaska 1973). See also Annotation, 7 A.L.R.3d 1343 (1966).

All of these factors need not be present for the trier of fact to conclude that the subsidiary is a mere instrumentality of its parent. Jackson, supra, at 1173. Nor is the list exhaustive. Duff, supra, at 763. Each case is sui generis and must be decided in accordance with its own underlying facts. Mobridge Community Industries, Inc., supra, at 132.

Upon finding instrumentality the trier of fact must then consider whether retention of corporate separateness would produce injustices and inequitable consequences. The second leg of the instrumentality exception is established where the wrong alleged is a result of fraudulent, unjust or illegal acts. Curtis v. Vlotho, 313 N.W.2d 469 (S.D.1981); Curtis v. Feurhelm, 335 N.W.2d 575 (S.D.1983); Farmers Feed & Seed, supra; Mobridge Community Industries, supra.

Liability on the agency theory is established if the following factual elements are present: (1) manifestation by the principal that the agent shall act for him; (2) the agent's acceptance of the undertaking; and (3) the understanding of the parties that the principal is to be in control of the undertaking. Southard v. Hansen, 376 N.W.2d 56, 58 (S.D.1985); Kasselder v. Kapperman, 316 N.W.2d 628 (S.D.1982); Watkins Company v. Dutt, 84 S.D. 453, 173 N.W.2d 41 (1969).

With these theories in mind, we turn to the facts presented by St. Joseph's to the trial court. At the hearing on the motion for summary judgment, St. Joseph's rested on the affidavit of Father Cassidy. The affidavit established that (1) St. Joseph's was operated by the Congregation of the Priests of the Sacred Heart, Inc.; (2) the Congregation of the Priests of the Sacred Heart, Inc., owned stock in Dehon; (3) Father Cassidy was superintendent of St. Joseph's, president of the board of directors of the Congregation of Priests of the Sacred Heart, Inc., and president of the board of...