Gruhlke v. Sioux Empire Fed. Credit Union

• Decision Date: 10 September 2008
• Docket Number: No. 24579.,24579.
• Citation: 756 N.W.2d 399,2008 SD 89
• Parties: Becky GRUHLKE, Plaintiff and Appellant, v. SIOUX EMPIRE FEDERAL CREDIT UNION, INC., and CU Mortgage Direct, LLC, Defendants, and David Bednar, Individually, Defendant and Appellee.
• Court: South Dakota Supreme Court

756 N.W.2d 399

2008 SD 89

Becky GRUHLKE, Plaintiff and Appellant, v. SIOUX EMPIRE FEDERAL CREDIT UNION, INC., and CU Mortgage Direct, LLC, Defendants, and David Bednar, Individually, Defendant and Appellee.

No. 24579.

Supreme Court of South Dakota.

Argued March 28, 2008.

Decided September 10, 2008.

Richard D. Casey, Ryland Deinert of Lynn, Jackson, Shultz & Lebrun, PC, Sioux Falls, South Dakota, Attorneys for plaintiff.

Eric C. Schulte of Davenport, Evans, Hurwitz & Smith, LLP, Sioux Falls, South Dakota, Attorneys for defendant and appellee.

KONENKAMP, Justice.

[¶ 1.] As part of her wrongful termination and breach of contract suit against her company, plaintiff also sued a company officer. She asserted that the company officer, to advance his own interests, tortiously interfered with her contractual relationship by advocating for the nonrenewal of her employment contract. Ruling that no such cause of action could be brought against a company officer, the circuit court granted the officer's motion to dismiss. We conclude that in the employment context, under limited circumstances, an action for intentional interference with contractual relations against a corporate officer can be maintained in South Dakota. Plaintiff, however, failed to plead a cause of action sufficient to meet the requirements for bringing the claim. Accordingly, we affirm.

I.

[¶ 2.] Because this action was dismissed for failure to state a claim upon which relief can be granted, under our standard of review, we must accept as true the following facts alleged in the complaint. CU Mortgage employed Becky Gruhlke as a senior mortgage underwriter. She was hired in January 2004, with an employment contract renewable annually. CU Mortgage renewed her contract in 2004 and 2005, but did not renew it thereafter. The renewal clause stated: "This Agreement shall be renewed with the same provisions for additional one-year terms, unless either party gives written notice of termination thereof to the other party at least thirty (30) days prior to the end of any such term." As Gruhlke's complaint acknowledged, the "contract was essentially a one year employment-at-will agreement."

[¶ 3.] Gruhlke brought suit against Sioux Empire Federal Credit Union and CU Mortgage Direct alleging wrongful discharge and breach of contract. She also sued David Bednar, the chief operating officer at CU Mortgage, alleging "wrongful interference with [her] business relationship/contract." This appeal addresses only the suit against Bednar.

[¶ 4.] In her complaint, Gruhlke averred that Bednar "acted intentionally and was unjustified in his actions" and "acted out of his personal interests" when he "advocated for the termination of Gruhlke's business relationship with CU Mortgage." According to Gruhlke, Bednar asked her to submit false and misleading information to investment mortgage companies in order to secure financing for certain home loans. When she refused, Bednar "yelled at her and tried to intimidate her into complying with his requests." Gruhlke reported Bednar to her direct supervisor. In December 2006, CU Mortgage chose not to renew Gruhlke's employment contract.

[¶ 5.] Bednar moved to dismiss under SDCL 15-6-12(b)(5), arguing that South Dakota does not recognize a cause of action against a company officer for tortious interference with a business relationship or expectancy. He relied on our language in Mueller v. Cedar Shore Resort, Inc., in which we considered "whether the officer or director may be held personally liable in a tortious interference claim where the director or officer acted in bad faith or outside the scope of employment." 2002 SD 38, ¶ 35, 643 N.W.2d 56, 68. According to Bednar, we refused to recognize such a cause of action. Gruhlke, on the other hand, contended that when an officer acts outside the scope of employment, South Dakota should allow a claim for tortious interference with a contractual relationship.

[¶ 6.] The circuit court granted Bednar's motion to dismiss, concluding that South Dakota does not recognize the cause of action, regardless of whether the officer acted outside the scope of employment. Gruhlke now appeals.

II.

[¶ 7.] In general, the tort of intentional interference with contractual relations serves as a remedy for contracting parties against interference from outside intermeddlers. To prevail on a claim of tortious interference, "there must be a `triangle' —a plaintiff, an identifiable third party who wished to deal with the plaintiff, and the defendant who interfered with" the contractual relations. Id. ¶ 38 (quoting Landstrom v. Shaver, 1997 SD 25, ¶ 75, 561 N.W.2d 1, 16). South Dakota has long recognized this tort. See Lien v. Nw. Eng'g Co., 73 S.D. 84, 88, 39 N.W.2d 483, 485 (1949); see also Tibke v. McDougall, 479 N.W.2d 898, 908 (S.D.1992); Groseth Int'l, Inc. v. Tenneco, Inc., 410 N.W.2d 159, 172 (S.D.1987).

[¶ 8.] In this case, we must decide the narrower question: whether South Dakota will recognize a cause of action against a corporate officer for tortious interference with the corporation's employment contract with another. Only then can we determine whether Gruhlke has adequately pleaded the action. In Nelson v. WEB Water Dev. Ass'n, we wrote that an officer acting within the scope of employment cannot be liable for tortious interference when the officer discharges an employee. 507 N.W.2d 691, 700 (S.D.1993). Actions of an officer within the scope of employment are intrinsically the actions of the corporation itself, and therefore, there is no identifiable third party.

[¶ 9.] In limited circumstances, many jurisdictions allow contractual interference claims against corporate officers for interference with corporate employee contracts. See generally, Thomas G. Fischer, Liability of Corporate Director, Officer, or Employee for Tortious Interference with Corporation's Contract with Another, 72 A.L.R.4th 492 (1989).¹ According to Bednar however, our statement in Mueller that "[w]e decline to recognize such a claim" means that we expressly rejected any suit against an officer of a corporation for tortious interference of a business relationship under any circumstances. See 2002 SD 38, ¶ 35, 643 N.W.2d at 68. This language was only expressed in relation to the plaintiffs' failure to support their claim, as all the actions of the defendants were done within the scope of their authority.² Our writing in Mueller should not be construed to foreclose such suits in every instance.

[¶ 10.] In the employment context, we think a claim of tortious interference with contractual relations may be made against a corporate officer, director, supervisor, or co-worker, who acts wholly outside the scope of employment, and who acts through improper means or for an improper purpose. Such individuals should not stand immune from their independently improper acts committed entirely for personal ends. There are two reasons, however, why judicial vigilance is called for here. First, the tort should not be tolerated as a device to bypass South Dakota's at-will employment law. "An employment having no specified term may be terminated at the will of either party on notice to the other, unless otherwise provided by statute." SDCL 60-4-4. If we fail to hold the line on these types of tort actions, we put at stake converting at-will employment law into a rule requiring just cause for every employee termination. See Clement v. Rev-Lyn Contracting Co., 40 Mass.App.Ct. 322, 663 N.E.2d 1235, 1236 n. 6 (1996). In this case, Gruhlke concedes in her complaint that her employment was based on a "one year employment-at-will agreement."

[¶ 11.] Second, use of the tort without adequate controls could chill the advantages of corporate formation. As the Minnesota Supreme Court wrote:

If a corporation's officer or agent acting pursuant to his company duties terminates or causes to be terminated an employee, the actions are those of the corporation; the employee's dispute is with the company employer for breach of contract, not the agent individually for a tort. To allow the officer or agent to be sued and to be personally liable would chill corporate personnel from performing their duties and would be contrary to the limited liability accorded incorporation.

Nordling v. N. States Power Co., 478 N.W.2d 498, 505-06 (Minn.1991). Indeed, a rule allowing suits against corporate officers who act within the scope of their authority would be a "dangerous doctrine." Nelson, 507 N.W.2d at 700 (citation omitted). Moreover, the distinction between contract and tort would be blurred by the untrammeled imposition of tort liability on contracting parties.

[¶ 12.] Because this tort could eclipse wrongful termination actions by the maneuver of simply pleading around at-will employment law, many courts place a heavy burden on plaintiffs.³ We believe the Restatement formulation adequately protects the interests involved when its conditions are strictly complied with.⁴ Thus, to state a claim against a corporate officer for intentional interference with corporate contractual relations with another, a plaintiff must allege and prove each of the following elements: (1) the existence of a valid contractual relationship, (2) intentional interference with that relationship, (3) by a third party, (4) accomplished through improper means or for an improper purpose, (5) a causal effect between the interference and damage to the relationship, and (6) damages. See Tibke, 479 N.W.2d at 908 (following Restatement (Second) of Torts §§ 766, 766B).⁵ See also McGanty v. Staudenraus, 321 Or. 532, 901 P.2d 841, 844 (1995) (reciting these factors in following section 766 of the Restatement). We next examine two elements more closely: third party and improper means or purpose.

III. Third Party—Conduct Outside Scope of Employment

[¶ 13.] A third party is an indispensable element in the tort of intentional interference with contractual relations. With interference suits...