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Dykstra v. Page Holding Co.

May 20, 2009



The opinion of the court was delivered by: Gilbertson, Chief Justice


[¶1.] Norvil Dykstra, Twila Dykstra, Marvin Dykstra, and Julie Dykstra (Dykstras) sued Page Holding Company*fn1 and Farmers and Merchants State Bank (Defendants) for breach of a fiduciary obligation and intentional interference with a business relationship or expectancy. Defendants filed a motion for summary judgment, which was granted by the trial court. Dykstras appealed. We affirm.


[¶2.] Norvil (Norvil) Dykstra and Twila Dykstra (Twila), husband and wife, owned and operated a farm in Aurora County, South Dakota. Marvin Dykstra (Marvin) and Julie Dykstra (Julie), husband and wife, also owned and operated a separate farming operation in Aurora County. In addition, Norvil and Marvin were engaged in a joint venture cattle operation. Norvil and Marvin were also members of an entity known as Mudslingers, L.L.C. Both had eighth-grade educations and had farmed their entire lives.

[¶3.] Norvil began banking with Farmers and Merchants State Bank (Bank) in the mid-1980s. Norvil opened a checking account and obtained loans to finance his farming operation with the Bank. Ron Kristiansen served as Norvil's loan officer until Kristiansen's promotion to bank president in the mid-1990s.

[¶4.] Ed Fett (Fett) eventually took over as Norvil's loan officer. Fett was a college graduate and had completed some post-graduate work in addition to an intensive banking course. Fett helped on his father's farm while in high school and the first two summers he attended college. Norvil, however, testified he was unaware whether Fett knew anything about farming. While serving as Dykstras' loan officer, Fett prepared Dykstras' financial statements for loan documentation purposes with information provided by Dykstras.

[¶5.] Norvil and Twila borrowed a substantial amount of money from the Bank through 2003 in an effort to expand their farming operation and maximize its profitability. The process for borrowing annual operating funds was the same each year. Norvil presented his farming operation plan to Fett at the beginning of the calendar year for approval, and then farmed in conformity with the annual plan. Loans included an operating line of credit, cattle line of credit, and installment loans for the acquisition of capital equipment. The annual operating line of credit and cattle line of credit were rewritten on March 1 of each year. Thereafter, Norvil and Twila would use their operating line of credit to pay farm expenses and then notify Fett of the expenditures. The expenditures would then be covered by the Bank and Fett would determine which loan to use for a particular payment.

[¶6.] Marvin and Julie's relationship with the Bank began in 1999 or 2000. Marvin had used Farmers State Bank of Stickney prior to that time, but moved his business after being told by a banker that Marvin was a poor operator. Marvin and Julie maintained a checking account and received several loans from the Bank through 2003 for their cow-calf operation.

[¶7.] The Bank retained a security interest in almost all of Dykstras' property and was over secured at the time the banking relationship started to sour.

Dykstras were not permitted to sell any property pledged as collateral unless the Bank first authorized the sale. The Bank, through Fett, also controlled the allocation of loan payments and expenses to either operating or cattle lines of credit or installment loans. The disbursement of loan proceeds was also controlled by the Bank, which had the effect of controlling which of Dykstras' bills were paid and when.

[¶8.] During the time Norvil used the Bank as his primary banking institution, he also maintained other outside creditor relationships. Norvil maintained credit cards issued by other banks. He also obtained loans from other financial institutions for trading pickup trucks on a biannual basis, for financing for Mudslingers, L.L.C., a wind rower, and a tractor. Norvil and Twila also maintained a checking account at another bank.

[¶9.] Similarly, Marvin and Julie maintained a checking account at another bank. In addition, Marvin obtained loans from other institutions for the purchase of a feed wagon, two tractors, as well as the biannual trading of pickups.

[¶10.] Dykstras made decisions about what crops to plant, when to buy cattle, and managed the day-to-day operations of their respective farms. However, on occasion, Fett would direct Norvil to sell a crop based on the current price of that crop. When Dykstras were contemplating entering into a new Holstein venture, Norvil asked Fett to accompany the Dykstras to two meetings regarding Dykstras proposed Holstein venture and to a meeting on another possible new venture. Dykstras did so as the Bank would be lending the funds for the Holstein operation.

[¶11.] Norvil had in the past purchased hedge contracts for his feeder pig operation in the 1990s. The Bank began requiring Norvil to obtain hedge contracts to secure a price on their cattle in order to protect the Bank's interests. Norvil asked Fett for permission to dispose of the hedge contracts in the spring of 2004, which Fett declined to do. Norvil testified that Fett said that as long as the Dykstras had money on loan from the Bank they would not be selling the contracts. These contracts constituted a portion of the Bank's collateral. Dykstras subsequently did not dispose of the contracts and were not able to realize the possible substantial gain on the contracts possible due to the price of cattle at that time.

[¶12.] Prior to 2004, Norvil testified there were no specific problems with Fett. He further testified, however, that he told Kristiansen on at least two occasions that Norvil was more comfortable and preferred banking with Kristiansen. Norvil also testified he told Kristiansen he was never sure where he was with Fett because at times Fett would say one thing and then do another. However, no specific complaints were made to Kristiansen.

[¶13.] The procedure and the banking relationship started to break down in 2004. In January 2004, Fett made a visit to Norvil and Twila's farm. During the visit, Fett told Norvil the bank would not loan him any more money to feed the calves currently in the yard. Fett told Norvil "he better sell the calves," which were approximately one-half the weight needed to turn a profit. Norvil sold the calves at a loss. Fett did not require the sale of the calves but his directive resulted in the sale given the Bank was Dykstras' only source of operating funds at that time.

[¶14.] Fett made another visit to the farm in February 2004, at which time Norvil presented his farming plan and Fett gave an oral approval. Fett advised Norvil of some irregularities in Norvil's loans but gave no details. During a third farm visit in March of 2004, Fett advised Norvil and Twila that their loans had been "classified" by banking examiners.

[¶15.] During this time frame, Fett advised Norvil that the overdraft policy at the Bank had changed and asked Norvil and Twila to sign a document regarding overdrafts. Fett did not explain the document, and it appeared from the record that neither Norvil nor Twila read it. The customary practice for Dykstras was to write checks for goods and services necessary for their farming operation with Fett's prior approval. After writing the check, Norvil would advise Fett who then transferred funds into Norvil's farm checking account to cover checks written on the account.

[¶16.] In May 2004, Norvil was confronted at the bank by Kristiansen and Fett and told that the Bank was terminating its banking relationship with Norvil and that all notes would be termed out. The Bank returned two of Norvil and Twila's checks including a $9,600.00 check written for a fuel bill. During that meeting, Fett told Norvil that Norvil's credit rating was "shitty." Fett also told Norvil he wanted to see Norvil sweat and hoped that Norvil lost some sleep over the termination of his financing. At a subsequent farm visit, Fett told Norvil that it "sucks" when you do not have any money.

[ΒΆ17.] After the meeting, Norvil and Marvin sought to have Bank West refinance their entire outstanding debt with the Bank. An FSA application filed by Bank West on behalf of Dykstras was declined. Dykstras appealed the denial to the United States Department of Agriculture, which affirmed the denial. As part of the refinancing effort, Bank ...

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