Schwaiger v. MITCHELL RADIOLOGY ASSOCIATES

• Decision Date: 07 August 2002
• Docket Number: No. 22197.,22197.
• Citation: 2002 SD 97,652 N.W.2d 372
• Parties: Jim SCHWAIGER, M.D., Plaintiff and Appellant, v. MITCHELL RADIOLOGY ASSOCIATES, P.C., Defendant and Appellee.
• Court: South Dakota Supreme Court

652 N.W.2d 372

2002 SD 97

Jim SCHWAIGER, M.D., Plaintiff and Appellant, v. MITCHELL RADIOLOGY ASSOCIATES, P.C., Defendant and Appellee.

No. 22197.

Supreme Court of South Dakota.

Considered on Briefs May 28, 2002.

Decided August 7, 2002.

Robert A. Christenson, Sioux Falls, Jonathan K. Van Patten, Vermillion, for plaintiff and appellant.

Monte R. Walz of Davenport, Evans, Hurwitz & Smith, Sioux Falls, for defendant and appellee.

AMUNDSON, Justice.

[¶ 1.] Jim Schwaiger (Schwaiger), a radiologist, sued Mitchell Radiology Associates, P.C. (MRA), for misrepresentations that allegedly occurred while MRA was recruiting Schwaiger as an employee. The trial judge granted MRA's motion for summary judgment. Schwaiger appeals. We affirm.

FACTS

[¶ 2.] This dispute stems from actions that took place prior to Schwaiger's association with MRA. Dr. David Kundel (Kundel) and Dr. Carey Buhler (Buhler), both radiologists, formed MRA. Each owned an equal number of shares in the corporation and had equal ownership and voting rights. In 1994, a disagreement between Buhler and Kundel arose from Kundel's failure to disclose a medical malpractice claim against him to Buhler, which impacted their malpractice insurability. In resolving the dispute, the two signed an agreement stating Buhler would take over most of the management responsibilities of the corporation, and that Kundel would vote for Buhler as president and treasurer as long as Kundel was a director of the corporation. In essence, control of the corporation shifted to Buhler.

[¶ 3.] MRA began hiring additional staff, and Schwaiger responded to a posting for a radiology position. Schwaiger claims that during the initial discussions, Buhler and Kundel commented on the potential for a "partnership" position within a short time after acting as an employee of MRA.¹ Schwaiger came from Texas to Mitchell twice to visit MRA and discuss possible employment. He claims the discussions all indicated that there would be an opportunity to become a "full partner." After initially turning down MRA's offer for employment, Schwaiger later left a position in Texas and called Kundel to see if the job was still open.² It was, and the parties again negotiated for Schwaiger's employment at MRA. Based on Schwaiger's desire to become a partner more quickly, the parties agreed that his salary would be reduced in exchange for lessening the amount of time before Schwaiger could be considered for partner from two years to one year.

[¶ 4.] On April 8, 1998, Schwaiger signed a one-year employment contract with MRA, which included the following clause:

18. Eligibility to Purchase stock: Following completion of twelve (12) full months of employment, Corporation or its shareholders shall consider selling to Employee a stock ownership interest in the Corporation. The Corporation's or shareholders' decision to sell employee an ownership interest requires the unanimous vote of the shareholders on such terms and conditions as are acceptable to the Corporation and shareholders. Corporation's or shareholders' decision to sell an ownership interest to Employee is wholly within the discretion of the Corporation and shareholders.

(emphasis added). The contract also contained an integration clause superseding any prior understanding or agreement among the parties involved and a clause permitting termination of Schwaiger's employment at any time, with or without cause, on sixty days notice.

[¶ 5.] At the end of the first year of employment at MRA, Schwaiger was given the following information through a letter from MRA:

This letter is to advise you that we desire to continue your employment under the same terms and provisions of our contract date April 8, 1997, pending a modification of your compensation.

It is our intent to make an offer to you regarding your purchase of 1/3rd of the outstanding shares of common stock in Mitchell Radiology Associate, P.C. Upon agreement of price and terms of payment, which then will provide that your compensation will be that of a 1/3rd owner, subject to the terms and conditions of an employment contract which is in the process of being prepared.

This is our letter of intent to continue our relationship. If the same is agreeable with you, please acknowledge by your signature on the bottom of this letter, where indicated.

Schwaiger did not want to continue his employment without knowing if a stock purchase agreement would be worked out. He was then given a copy of the stock-purchase contract, but decided it was different than Buhler's contract, so he did not sign it.³ After further bargaining, Schwaiger claims the parties came to an agreement, but then, he alleges, "Buhler accidentally disclosed the existence of this secret agreement." The "secret agreement" Schwaiger was referencing was the voting agreement between Kundel and Buhler from 1994. Therefore, Schwaiger chose not to become a shareholder, and subsequently sued MRA for alleged misrepresentation of his employment.

[¶ 6.] MRA moved for summary judgment, and on October 1, 2001, the circuit court granted that motion. Schwaiger appeals the following issues:

1) Whether the circuit court erred in granting summary judgment.

2) Whether there was a duty to disclose the shareholders' agreement affecting management and voting.

3) Whether parol evidence is admissible to prove fraud in the inducement of a contract.

4) Whether admissions were made by a corporation shareholder.

STANDARD OF REVIEW

[¶ 7.] "When challenging a summary judgment, the nonmoving party `must substantiate his allegations with sufficient probative evidence that would permit a finding in his favor on more than mere speculation, conjecture, or fantasy.'" Estate of Elliott ex rel. Elliott v. A & B Welding Supply Co., Inc., 1999 SD 57, ¶ 16, 594 N.W.2d 707, 710 (quoting Himrich v. Carpenter, 1997 SD 116, ¶ 18, 569 N.W.2d 568, 573) (other citations omitted).

In reviewing a grant or a denial of summary judgment under SDCL 15-6-56(c), we must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. The nonmoving party, however, must present specific facts showing that a genuine, material issue for trial exists. Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied. If there exists any basis which supports the ruling of the trial court, affirmance of a summary judgment is proper.

S.D. State Cement Plant Comm'n v. Wausau Underwriters Ins. Co., 2000 SD 116, ¶ 9, 616 N.W.2d 397, 400-01 (quoting Stoebner v. S.D. Farm, Bur. Mut. Ins. Co., 1999 SD 106, ¶ 6, 598 N.W.2d 557, 558) (other citations omitted). A material fact is one that would impact the outcome of the case "under the governing substantive law in that `a reasonable jury could return a verdict for the nonmoving party.'" Id. (citation omitted).

DECISION

[¶ 8.] 1) Whether the circuit court erred in granting summary judgment.

[¶ 9.] The trial court held that any of Schwaiger's claims of misrepresentation are contradicted by the subsequent written contract, the contract superceded all prior negotiations, and that to allow plaintiff's claims of fraud or deceit would amount to rewriting the contract. Therefore, summary judgment was granted on his fraud claim.⁴

[¶ 10.] Fraud in the inducement may exist where one party to a contract is unable to "negotiate fair terms and make an informed decision" because he is "undermined by the other party's fraudulent behavior[,]" thereby creating recoverable tort damages. 37 Am.Jur.2d Fraud and Deceit § 279 (2001). This Court has previously cited to two statutes when discussing fraud in the inducement. Mash v. Cutler, 488 N.W.2d 642, 652 (S.D.1992). The first, SDCL 20-10-1, states that "[o]ne who willfully deceives another, with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers." Id. Secondly, SDCL 20-10-2 states that "deceit" under SDCL 20-10-1 is either:

(1) The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

(2) The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true;

(3) The suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or

(4) A promise made without any intention of performing.

These statutes "are declaratory of common law and comprehend an intention to mislead." Mash, 488 N.W.2d at 652; Dede v. Rushmore Nat'l Life Ins. Co., 470 N.W.2d 256, 259 n. 2 (S.D. 1991).

[¶ 11.] MRA argues that a party cannot claim fraud where the alleged fraudulent misrepresentations are expressly contradicted by the terms of a signed written agreement. We agree that if a written contract is in direct contradiction of an oral representation, reliance on that oral representation, as a matter of law, is unjustified. Davidson v. Wilson, 973 F.2d 1391, 1401 (8th Cir.1992) (affirming motion for summary judgment where investors unjustifiably relied on oral representations that were contradicted by written subscription agreement). See also Calhoun v. Exxon Corp., 64 F.3d 656 (4th Cir.1995) (stating that plaintiff failed to state a claim under Federal Rule of Civil Procedure 12(b)(6) where plaintiff allegedly relied on oral representation, which was contradicted in written contract). Before fraud in the inducement can be proven, an employee must show he justifiably relied on representation fraudulently made, or his claim will be unsuccessful. Houlihan v. Offerman, 31 F.3d 692, 695-96 (8th Cir.1994). Logically, if the employment contract itself contradicts any alleged oral promises made, reliance...