Tri-State Refining and Inv. Co., Inc. v. Apaloosa Co., TRI-STATE

• Decision Date: 09 November 1988
• Docket Number: TRI-STATE,No. 15953,15953
• Citation: 431 N.W.2d 311
• Parties: REFINING AND INVESTMENT COMPANY, INC., Plaintiff and Appellee, v. APALOOSA COMPANY, Sioux Enterprises--Lorentz Opdahl, and Lorentz Opdahl, an Individual Person, Defendants and Appellants.
• Court: South Dakota Supreme Court

Page 311

431 N.W.2d 311

TRI-STATE REFINING AND INVESTMENT COMPANY, INC., Plaintiff and Appellee, v. APALOOSA COMPANY, Sioux Enterprises--Lorentz Opdahl, and Lorentz Opdahl, an Individual Person, Defendants and Appellants.

No. 15953.

Supreme Court of South Dakota.

Argued Aug. 30, 1988.

Decided Nov. 9, 1988.

Thomas K. Wilka of Hagen & Wilka, P.C., Sioux Falls, for defendants and appellants; Rick Johnson of Johnson, Eklund & Davis, Gregory, on brief.

Richard J. Helsper of Erickson & Helsper, P.C., Brookings, and Stephen M. Palmer, Sioux Falls, for plaintiff and appellee.

SABERS, Justice.

Lorentz Opdahl (Opdahl) appeals a damage award for fraud and breach of a lease contract, and sanctions imposed upon him pursuant to SDCL 15-6-11.

Facts

In 1973, Robert Hoff (Hoff) married Linda Opdahl (Linda) and began working with Linda's father, Opdahl, at Sioux Fertilizer Company in Hawarden, Iowa. That same year Opdahl started a small business extracting silver from X-ray and other film products (Tri-State). The business prospered. In 1976, Opdahl purchased a gas-fired smelting unit and moved it to his farm near Hudson, South Dakota. Hoff managed Tri-State throughout this time.

In 1978, at the urging of several associates, ¹ Opdahl placed his property into three trusts, with Opdahl named as trustee on each. The first trust, Sioux Enterprises (Sioux), consisted of the fertilizer business in Hawarden. Opdahl placed the refining business into a second trust known as Tri-State Refining Company. Finally, Opdahl placed the Hudson farm into a third trust, the Apaloosa Company (Apaloosa).

In November of 1979, Tri-State leased the Hudson farm from Apaloosa. The lease provided for a rental term of one year at $200 per month. Tri-State purchased equipment to mint the refined silver into bars at this farm.

Opdahl approached Hoff in 1980 concerning the purchase of Tri-State. In April of 1980, Opdahl and Hoff agreed upon a proposal, drawn up by Opdahl, for the sale of Tri-State. Opdahl was to receive 13,750 ounces of silver, valued at $275,000. In addition, Hoff agreed to pay a bank note owed by Tri-State before May 1, 1980. Finally, the proposal provided that Hoff was to make monthly payments over a period of ten years, beginning September 1, 1980. The proposal indicated that these payments would cover one-half the equity of Tri-State, plus certain other equipment.

A purchase and sale agreement, modeled after the proposal, was signed by Opdahl and Hoff on August 28, 1980. The sales agreement additionally provided that Hoff would continue to pay $200 per month rent for the lease of Apaloosa and that this rent was to be included in each monthly payment over ten years.

In December 1980, Hoff moved much of the Tri-State business to Sioux Falls. In February 1981, Hoff incorporated the Tri-State business. Tri-State continued to make monthly rental payments as some of the business remained on the leased property. Shortly thereafter, Opdahl made several attempts to evict Tri-State from the Apaloosa property. Opdahl sent a notice purporting to terminate the lease agreement and engaged in numerous physical interferences with Tri-State's use of the property. When Opdahl took possession of 75% of the property in October 1981, Tri-State reduced its monthly rental payments by $100. Eventually, Tri-State abandoned the remaining equipment on the property in 1983.

Tri-State experienced financial difficulties in 1981. Hoff suspected these difficulties stemmed from internal problems and hired a private investigator. This investigation led to a 1982 confession by an employee Nathan Clary (Clary), that he had stolen silver from Tri-State. Clary also admitted that he assisted Opdahl in removing excessive silver during 1980. It was undisputed that Opdahl received silver from Tri-State several times during the first six months of 1980. However, there was conflicting testimony concerning the amount of silver Opdahl received. Opdahl claimed that he did not even receive the amount he was entitled to under the sales agreement. In contrast, Tri-State, through its witnesses Clary and Paul East (East), a certified public accountant who reviewed Tri-State's financial records, claimed the amount received by Opdahl greatly exceeded what he was entitled to under the contract. This testimony indicated Opdahl received nearly $1,000,000 in silver.

Tri-State sued Apaloosa and Opdahl in 1984. The complaint alleged damages for breach of the lease contract and willful interference with Tri-State's use of the leased property. In 1986, Tri-State amended its complaint to include a claim for conversion of silver by Opdahl and his agents. After the close of the evidence at trial, the trial court permitted Tri-State to again amend its complaint to include an action for fraud and deceit. The trial court awarded Tri-State damages of $210,000 for fraud, $544,682.14 in prejudgment interest, and $13,400 for breach of the Apaloosa lease. The trial court also imposed sanctions of $5,500 on Opdahl.

1. Was Tri-State the proper party to bring suit?

Opdahl claims that Tri-State was not in existence at the time the cause of action arose, and could not be a real party in interest under SDCL 15-6-17(a). The real party in interest rule is satisfied if the "one who brings the suit has a real, actual, material, or substantial interest in the subject matter of the action." Vander Vorste v. Northwestern National Bank, 81 S.D. 566, 572, 138 N.W.2d 411, 414 (1965). Although no assignment appears in the record, Hoff conveyed his rights and interests in the silver business to Tri-State, at the time of incorporation in 1981. Tri-State obtained Hoff's right to sue and was the proper party to bring this action. This was not challenged by Opdahl at any time during the trial.

Tri-State, as the named plaintiff in the suit, would be barred from commencing the action again. Likewise, Hoff would be barred from bringing the action as he conveyed his rights to the corporation. "The purpose of a real party in interest provision is to assure that a defendant is required only to defend an action brought by a proper party plaintiff and that such an action must be defended only once." 59 Am.Jur.2d Parties Sec. 35 (1987), see also Wang v. Wang, 393 N.W.2d 771 (S.D.1986). This purpose is not infringed under the circumstances.

As indicated above, the record reveals that Opdahl failed to object during trial to Tri-State as the real party in interest. SDCL 15-6-17(a) provides in part that:

... No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest; ...

Opdahl had sufficient time to object to Tri-State as the real party in interest and his failure to object constitutes a waiver under our holding.

2. Damages for the excessive silver removed by Opdahl.

Opdahl initially contends that he could not be liable for conversion as the alleged conversion occurred while he was still owner of the refining business. ² The record reveals that the trial court based the damage award upon fraud, not conversion. To sustain an action for fraud there need only be a showing of "wilful deception made with the intention of inducing a person 'to alter his position to his injury or risk.' " Littau v. Midwest Commodities, Inc., 316 N.W.2d 639, 643 (S.D.1982) (citing SDCL 20-10-1).

A claim for fraud and deceit is generally a question of fact for the fact finder. Laber v. Koch, 383 N.W.2d 490 (S.D.1986). The trial judge, as finder of fact in this case, found that Opdahl represented that $760,000 in silver was stockpiled at Tri-State. The court based the damage award of $210,000 on Opdahl's representation to hold that amount of silver, as security, until Tri-State paid the bank note. The court found Tri-State detrimentally relied upon this representation by paying the note without receiving the silver from Opdahl. There is sufficient evidence in the record to support these findings.

Opdahl argues that the fraud claim is barred by the six-year statute of limitations under SDCL 15-2-13(6). Opdahl correctly asserts that the 1984 complaint failed to state a claim for the silver in that it was based solely upon breach of the Apaloosa lease. The cause of action for the conversion of the silver was pled in August of 1986 and the fraud claim was not pled until trial in 1987. Thus, both causes of action relating to the silver arose more than six years before being pled. However, SDCL 15-2-3 provides:

In an action for relief on the ground of fraud the cause of action shall not be deemed to have accrued until the aggrieved party discovers, or has actual or constructive notice of, the facts constituting the fraud.

Opdahl claims that Tri-State knew the silver was being taken in 1980, as Clary testified that he notified Hoff each time Opdahl took silver. There is nothing, however, to indicate that Tri-State had notice of the facts constituting fraud. Since the contract provided Opdahl would receive a certain amount of silver, Hoff would have no reason to suspect fraud based on Clary's phone calls. The trial court so found, and held that Tri-State first learned of the fraud in 1982, as a result of the report by the private investigator. This finding is not clearly erroneous and the fraud claim is not barred by the six-year statute of limitations under SDCL 15-2-3.

Opdahl also claims that Tri-State failed to plead fraud with particularity as required by SDCL 15-6-9(b). In Holy Cross Parish v. Huether, 308 N.W.2d 575 (S.D.1981), we stated that fraud is sufficiently pled if the pleading party has set out facts indicating that there was a knowing misrepresentation, and that the plaintiff relied upon this falsity. Tri-State's motion to amend its pleadings at the close of the trial alleged that Opdahl made misrepresentations...