High Plains Genetics Research, Inc. v. J K Mill-Iron Ranch

• Decision Date: 17 August 1995
• Docket Number: No. 18687,MILL-IRON,18687
• Citation: 535 N.W.2d 839
• Parties: HIGH PLAINS GENETICS RESEARCH, INC., Plaintiff and Appellant, v. J KRANCH, a Colorado Business, and John Stamison, Individually and as Proprietor or Owner d/b/a J K Mill-Iron Ranch, Defendants and Appellees.
• Court: South Dakota Supreme Court

Page 839

535 N.W.2d 839

HIGH PLAINS GENETICS RESEARCH, INC., Plaintiff and Appellant, v. J K MILL-IRON RANCH, a Colorado Business, and John Stamison Individually and as Proprietor or Owner d/b/a J K Mill-Iron Ranch, Defendants and Appellees.

No. 18687.

Supreme Court of South Dakota.

Argued Oct. 18, 1994.

Decided July 12, 1995.

Rehearing Denied August 17, 1995.

Franklin J. Wallahan, Ronald W. Banks, Benjamin J. Eicher of Wallahan, Banks & Eicher, Rapid City, for plaintiff and appellant.

Daniel Duffy of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, for defendants and appellees.

KONENKAMP, Justice.

High Plains Genetics Research, Inc. brought suit against J K Mill-Iron Ranch and its owner, John Stamison, to collect unpaid billings for livestock embryo transfer services. Stamison counterclaimed. Following trial on December 15, 1993, the jury awarded High Plains $6,074.60 on its claim and returned a verdict for Stamison on his counterclaim: $47,000 for breach of contract and $103,000 for breach of fiduciary duty. The circuit court denied High Plains' motions for a new trial, judgment NOV, and remittitur. High Plains appeals raising five major assignments of error with numerous sub-assignments. Not all merit discussion. We review the following issues:

I. Did Stamison produce sufficient evidence to justify submission of his case against High Plains for breach of fiduciary duty and breach of contract?

II. Was the breach of contract verdict in error due to the admission of evidence which inflamed the sympathy, passion, and prejudice of the jury?

III. Did the trial court commit reversible error by failing to instruct the jury on affirmative defenses raised by High Plains?

IV. Did the trial court err in failing to grant a directed verdict for High Plains on its breach of contract complaint and in awarding certain costs to Stamison?

On High Plains' breach of contract claim, we affirm the damage award. On Stamison's counterclaim, we reverse the award for breach of fiduciary duty, affirm the finding of liability for breach of contract and remand for a new trial on damages only.

FACTS

High Plains performs "fresh" and "frozen" embryo transfers. "Fresh" transfers entail retrieving, or "flushing," fertilized eggs one week into their embryonic stage from "donor" cows induced with hormones to "superovulate" to produce multiple pregnancies. These embryos are then inserted into "recipient" cows "cycled" to prepare them to accept implanted embryos. A "frozen" embryo permits deferring transfer to recipient cows. Freezing an embryo is a complex process in which it is first dehydrated, transferred into a straw, frozen through a special process, and stored. High Plains' services includes superovulation, cycling, freezing and transfer processes. The goal of either transfer process, of course, is to expand a cattle herd.

John Stamison specializes in raising registered Simmental cattle on his ranch in Barnesville, Colorado. After two other embryo transfer experts failed to obtain any pregnancies, Stamison contacted Dr. Merlin Gebauer of High Plains about using its facilities at Colorado State University to collect bulls and flush cows. Instead, Gebauer convinced Stamison that by using High Plains' services in Piedmont, South Dakota, he could achieve results superior to his past experience with the other service providers. From 1987 through 1991, Stamison made numerous trips to Piedmont, paying over $50,000 for fresh and frozen embryo transfer services. Only the frozen transfers were in issue in this case; Stamison was well satisfied with the fresh transfers. In 1990 High Plains assured Stamison that with frozen embryos it could achieve the industry standard of fifty percent pregnancies. Despite 126 frozen embryo transfers to recipient cows, only 16 pregnancies resulted.

When presented with his 1990 billings Stamison expressed dissatisfaction over what he thought were dismal results. Gebauer reduced the 1990 charges by $11,777.91; Stamison paid the bills, and continued to use High Plains' services until May 19, 1991. High Plains' success rate for Stamison failed to improve resulting in a decline in cattle sales. Stamison refused to pay for any 1991 services, frozen or otherwise, prompting this action.

I. PROOF OF FIDUCIARY DUTY AND BREACH OF CONTRACT

The trial court allowed the jury to consider awarding separate damages on both theories in Stamison's counterclaim, which is permissible under some circumstances. See Merrill Iron & Steel v. Minn-Dak Seeds, Ltd., 334 N.W.2d 652 (N.D.1983). But the court gave no direction on how the jury should differentiate between damages allowable under breach of contract and those permissible under breach of fiduciary duty so that a verdict would not yield double damages. See Nelson v. WEB Water Dev. Ass'n, 507 N.W.2d 691 (S.D.1993); Greenwood Ranches, Inc. v. Skie Const. Co., 629 F.2d 518 (8th Cir.1980) (applying South Dakota law); SDCL 21-1-5. On the contrary, the court instructed the jury that it could award damages for loss of business reputation for "breach of contract or breach of fiduciary duty" which suggests that such loss could be different, and thus compensable, under each theory. For these and other reasons set forth below we are compelled to reverse and remand. High Plains contends that both theories were legally and factually inadequate to go to the jury. For the guidance of counsel and the court we will address the legal propriety of both theories and the trial court's rulings.

Breach of Fiduciary Duty

The existence of a fiduciary duty and the scope of that duty are questions of law for the court. Garrett v. BankWest, Inc., 459 N.W.2d 833, 839 (S.D.1990). The trial court instructed the jury that "in South Dakota the relationship between a licensed embryo transplant facility such as High Plains Genetics and its customers is a fiduciary relationship." A fiduciary relationship is founded on a "peculiar confidence" and trust placed by one individual in the integrity and faithfulness of another. Id. at 837. When such relationship exists, the fiduciary has a "duty to act primarily for the benefit" of the other. Id. at 837. "Generally, in a fiduciary relationship, the property, interest or authority of the other is placed in the charge of the fiduciary." Id. at 837-38; Nelson, 507 N.W.2d at 698 (S.D.1993). South Dakota law reflects

the traditional view that fiduciary duties are not inherent in normal arm's-length business relationships, and arise only when one undertakes to act primarily for another's benefit. The law will imply such duties only where one party to a relationship is unable to fully protect its interests and the unprotected party has placed its trust and confidence in the other.

Taggart v. Ford Motor Credit Co., 462 N.W.2d 493, 500 (S.D.1990) (citing SDCL 55-7-2(2)). We recognize no "invariable rule" for ascertaining a fiduciary relationship, "but it is manifest in all the decisions that there must be not only confidence of the one in the other, but there must exist a certain inequality, dependence, weakness of age, of mental strength, business intelligence, knowledge of the facts involved, or other conditions, giving to one advantage over the other." Mash v. Cutler, 488 N.W.2d 642, 652 (S.D.1992). We have held in bank cases, for example, that to establish a fiduciary relationship with a customer, that person must repose a faith, confidence and trust in the bank "which results in dominion, control or influence over the borrower's affairs." Garrett, 459 N.W.2d at 838. Also, the customer must be in a position of "inequality, dependence, weakness or lack of knowledge." Id.

Stamison argues that he placed his utmost confidence in High Plains entrusting it with his most valuable possessions: his donor cows and their financial potential. Evidence at trial established that one of High Plains' principals, Merlin Gebauer, holds a Ph.D. in reproductive physiology and that the company is certified by the American Embryo Transfer Association. Stamison, on the other hand, has a high school education. Thus by Stamison's reckoning, High Plains was in a position of superiority over him: the very nature of embryo transfer work, being highly specialized and requiring scientific expertise and training, placed Stamison in a position of dependence.

Nevertheless, characteristic features in a fiduciary relationship are absent in the Stamison-High Plains arrangement. Stamison never capitulated his will or his vigilance. Though Stamison entrusted valuable property to High Plains and placed confidence in its ability to perform highly technical tasks, High Plains never exerted dominance and influence over him. An experienced cattleman, Stamison performed some of the embryo transfer functions himself, including superovulating donor cows and cycling recipient cows. He also decided when to use his cattle or High Plains' cattle for the transfer process.

One party cannot transform a business relationship into one which is fiduciary in nature merely by placing trust and confidence in the other party. There must be additional circumstances, or a relationship that induces the trusting party to relax the care and vigilance which he would ordinarily exercise for his own protection.

Ainsworth v. First Bank of South Dakota, 472 N.W.2d 786, 788 (S.D.1991). High Plains may have had superior knowledge and technical skills in embryology, but Stamison was not in a dependent position, lacking in mental acuity, business intelligence or knowledge of the basic principles involved.

Fiduciary relationships juxtapose trust and dependence on one side with dominance and influence on the other. Stamison's relationship with High Plains more closely possessed the earmarks of an arm's length business transaction. High Plains provided a specialized service and Stamison chose how and under what circumstances that service would be used. Stamison may have relied on High Plains' expertise to accomplish his...