APPEAL FROM THE CIRCUIT COURT OF THE FOURTH JUDICIAL CIRCUIT BUTTE COUNTY, SOUTH DAKOTA THE HONORABLE JOHN W. BASTIAN Judge
The opinion of the court was delivered by: Konenkamp, Justice
CONSIDERED ON BRIEFS ON NOVEMBER 14, 2011
[¶1.] In this contract dispute, we conclude that the Restatement (Second) of Torts § 552B sets the proper measure of damages in a negligent misrepresentation claim.
[¶2.] Ross and Barbara Delzer owned a ranch in Butte County, South Dakota. In 2004, they hired Bob Gerkin, a real estate agent with Tri-State Realty, Inc., to list the ranch for sale. They gave Gerkin general information about the property, including the water system. Ronald and Sheryl Steineke expressed interest in the ranch. Their agents, Patrick Donahue and Jeb Hughes of Western Properties, Inc., had Gerkin show them the dams, the dugouts, and the well. According to the Steinekes, Gerkin represented that the well would produce "as much water" as they would need for their farming and ranching operation.
[¶3.] In April 2005, the parties completed the sale of the ranch. Almost two years later, the Steinekes sued the Delzers and their agent, Gerkin, who in turn sued the Steinekes' agents. Among other things, the Steinekes alleged a negligent misrepresentation claim, maintaining that that they were misled about the condition of the well and its potential to meet their farming and ranching needs. They sought $513,000 in damages: the estimated cost of installing a new well.
[¶4.] With the Steinekes' only proffered evidence of damages being the cost of a new well, the Delzers moved to prohibit any such evidence. The circuit court granted the motion. It ruled that Restatement (Second) of Torts § 552B sets forth the proper measure of damages: the Steinekes may recover only their "out-of-pocket loss" plus "the difference between what [they] paid for the property and what [they] should have paid absent the alleged negligent misrepresentation."*fn1 The court found that the cost of a new well was not a recoverable "pecuniary loss" and would be misleading, confusing, and prejudicial.
[¶5.] The circuit court also prohibited the Steinekes from testifying on the cost of the well as a means of proving the devaluation of their property.
Alternatively, the court found that the Steinekes failed to establish that they possessed "sufficient specialized knowledge" to testify as experts about the cost of drilling a new well or to offer an opinion that a new well would "generate the amount of water allegedly promised by [the Delzers' agent]."
[¶6.] These pretrial rulings effectively excluded the Steinekes' only evidence of damages on their negligent misrepresentation claim. For this reason, the parties stipulated to the entry of final judgment against the Steinekes. On appeal, the Steinekes challenge the court's rulings on damages.
Damages - Negligent Misrepresentation
[¶7.] We must decide whether the Restatement (Second) of Torts sets forth the proper measure of damages in South Dakota for negligent misrepresentation.
"Questions requiring the application of a legal standard are reviewed as are questions of law -- de novo." Voeltz v. John Morrell & Co., 1997 S.D. 69, ¶ 9, 564 N.W.2d 315, 316. "We give no deference to the circuit court under this standard of review." Id. And the court's evidentiary rulings, "are presumed correct and will not be reversed unless there is a ...