Granite Buick GMC, Inc. v. Ray, No. 26842.

• Court: Supreme Court of South Dakota
• Writing for the Court: ZINTER, Justice.
• Citation: 856 N.W.2d 799
• Parties: GRANITE BUICK GMC, INC., f/k/a McKie Buick GMC, Inc., Plaintiff and Appellant, v. Adam RAY and Gateway Autoplex, LLC, Defendants and Appellees. McKie Ford Lincoln, Inc., Plaintiff and Appellant, v. Scott Hanna and Gateway Autoplex, LLC, Defendants and Appellees.
• Docket Number: No. 26842.
• Decision Date: 05 November 2014

856 N.W.2d 799

GRANITE BUICK GMC, INC., f/k/a McKie Buick GMC, Inc., Plaintiff and Appellant
v.
Adam RAY and Gateway Autoplex, LLC, Defendants and Appellees.

McKie Ford Lincoln, Inc., Plaintiff and Appellant
v.
Scott Hanna and Gateway Autoplex, LLC, Defendants and Appellees.

No. 26842.

Supreme Court of South Dakota.

Argued Oct. 6, 2014.
Decided Nov. 5, 2014.

856 N.W.2d 800

John K. Nooney, Robert J. Galbraith, Nooney, Solay & Van Norman, LLP, Rapid City, South Dakota, Attorneys for plaintiffs and appellants.

Roger A. Tellinghuisen, Michael V. Wheeler, DeMersseman, Jensen, Tellinghuisen, Stanton & Huffman, LLP, Rapid City, South Dakota, Attorneys for defendants and appellees.

Opinion

856 N.W.2d 801

ZINTER, Justice.

¶ 1.] Adam Ray worked for Granite Buick GMC (Granite Buick), and Scott Hanna worked for McKie Ford Lincoln (McKie Ford). Ray and Hanna signed noncompete agreements during the course of their employments. When the two started their own automobile dealership, Granite Buick and McKie Ford moved for injunctions to enforce the agreements. The cases were consolidated, and the circuit court bifurcated the proceedings. The court impaneled a jury to determine Ray's and Hanna's affirmative defenses, and it ruled that it would determine the right to injunctive relief after the jury trial. The jury found for Ray and Hanna on several of their defenses. In accordance with the jury verdict, the circuit court denied injunctive relief. Granite Buick and McKie Ford appeal. We conclude that the circuit court erred in utilizing a binding jury to determine equitable defenses without the consent of the parties. We reverse and remand for the circuit court's entry of findings of fact and conclusions of law on all claims and defenses.

Facts and Procedural History

[¶ 2.] Granite Buick hired Adam Ray, and McKie Ford hired Scott Hanna as automobile salesmen.¹ Both Ray and Hanna signed materially identical noncompete agreements during the course of their employments. Ray and Hanna later terminated their respective employments to start Gateway Autoplex, a used car dealership. Ray asserted that his noncompete agreement was unenforceable because of statements Granite Buick representatives made to get him to sign the agreement.² Ray pleaded the defenses of fraud in the inducement, equitable estoppel, promissory estoppel, and waiver. Hanna asserted that his agreement was unenforceable because of representations the owner of McKie Ford made after Hanna informed the owner that Hanna was leaving.³ Hanna pleaded the defenses of waiver, promissory estoppel, and equitable estoppel.

[¶ 3.] Granite Buick and McKie Ford subsequently sued Ray, Hanna, and Gateway Autoplex, seeking preliminary and permanent injunctions. At an evidentiary hearing on the requests for preliminary injunctions, Granite Buick and McKie

[856 N.W.2d 802

Ford introduced evidence rebutting Ray's and Hanna's defenses. The circuit court granted a preliminary injunction against Hanna but denied a preliminary injunction against Ray. The court explained that it found Ray established a viable defense against Granite Buick, but McKie Ford was likely to succeed against Hanna on the merits. The court ruled that it would decide the requests for permanent injunctions after a jury determined Ray's and Hanna's defenses.

¶ 4.] The jury found in favor of Ray on the defenses of fraud in the inducement, promissory estoppel, equitable estoppel, and waiver. The jury found in favor of Hanna on the defenses of promissory estoppel and waiver. In accordance with the jury's findings, the court denied both Granite Buick's and McKie Ford's requests for injunctions.

[¶ 5.] McKie Ford and Granite Buick appeal. They contend that the circuit court erred in allowing a jury trial on Ray's and Hanna's affirmative defenses. They also contend that the court erred in denying Granite Buick's and McKie Ford's motions for judgment as a matter of law on Ray's and Hanna's defenses. They finally contend that the court erred in awarding Ray and Hanna disbursements.

Decision

[¶ 6.] Granite Buick and McKie Ford point out that they only sought equitable relief; i.e. to enjoin Ray and Hanna from engaging in a competing business. They also point out that Ray and Hanna only sought equitable relief; i.e. nonenforcement of the agreements. Granite Buick and McKie Ford argue that because the only relief sought was equitable, and because they did not consent to a binding jury trial, the circuit court improperly allowed a jury to determine this case by deciding equitable defenses. Ray and Hanna respond that they had a right to a trial by jury because their defenses involved fraud. They contend that fraud implicates an action at law because fraud in contractual relations is prohibited by a statute. See SDCL 53–4–5. They also contend that they had a right to a jury trial on their defenses because the defenses involved disputed issues of fact. The parties' contentions require us to discuss: the right to a jury trial in actions at law and actions in equity; whether the claims in this case sounded in law or equity; whether a binding or advisory jury trial is permitted in equitable actions; the procedure for trial with advisory juries; and whether our scope of review on appeal from an advisory jury permits us to review the appellants' challenges to the jury's findings.

[¶ 7.] “Article VI, Section 6 of the South Dakota Constitution guarantees a right to a jury trial in all cases at law.” Mundhenke v. Holm, 2010 S.D. 67, ¶ 14, 787 N.W.2d 302, 305–06. Thus, this “right ... does not exist for all civil cases.” Id. ¶ 14, 787 N.W.2d at 306 (quoting First Nat'l Bank of Philip v. Temple, 2002 S.D. 36, ¶ 10, 642 N.W.2d 197, 201 ).

If the pleadings request equitable relief, “a jury trial is a matter for the trial court's discretion.” Id. (quoting First Nat'l Bank of Philip, 2002 S.D. 36, ¶ 10, 642 N.W.2d at 201 ). But unless the parties agree to a binding jury in an equitable action, the jury verdict is advisory. “In all actions not triable of right by a jury the court upon motion or of its own initiative may try any issue with an advisory jury, or the court, with the consent of both parties, may order a trial with a jury whose verdict has the same effect as if trial by jury had been a matter of right.”SDCL 15–6–39(c) (emphasis added). See also First W. Bank, Sturgis v. Livestock Yards Co., 466 N.W.2d 853, 856 (S.D.1991) (“If the relief sought is equitable, the decision of whether

[856 N.W.2d 803

to empanel an advisory jury is wholly within the trial court's discretion.” (emphasis added) (citing Nizielski v. Tvinnereim, 453 N.W.2d 831, 833–34 (S.D.1990) )); Nizielski, 453 N.W.2d at 834 (“[O]n equitable issues a jury's verdict is advisory only[.]”).

¶ 8.] In this case, the circuit court treated the jury's verdict as binding. However, the parties did not agree to submit the matter to a binding jury as required by SDCL 15–6–39(c). On the contrary, Granite Buick and McKie Ford objected to a jury trial, arguing that all issues were equitable. Therefore, we must determine whether the defenses were “cases at law” triable to a jury as a matter of “right” within the meaning of Article VI, § 6 of the South Dakota Constitution, or whether they were claims sounding in equity.

[¶ 9.] We look “to the common law” to determine whether a claim is an action at law triable to a jury as a matter of right or whether it is an equitable action for trial to the court. Grigsby v. Larson, 24 S.D. 628, 124 N.W. 856, 858 (1910).⁴ The question is whether the “subject” of the action “is the type of...