TOTAL AUCTIONS AND REAL ESTATE, LLC, a South Dakota Limited Liability Company, ANDREW HARR and JASON BORMANN, Plaintiffs and Appellants,
SOUTH DAKOTA DEPARTMENT OF REVENUE & REGULATION, SOUTH DAKOTA DEPARTMENT OF MOTOR VEHICLES, PEGGY LAURENZ, individually and in her official capacity as an employee and Director of the South Dakota Department of Motor Vehicles, and RONALD RYSAVY, individually and in his official capacity as an employee and agent of the South Dakota Department of Motor Vehicles, Defendants and Appellees.
ON NOVEMBER 8, 2016
FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT LINCOLN
COUNTY, SOUTH DAKOTA, THE HONORABLE JOHN SOGN Judge.
W. FIDELER CHRISTOPHER L. FIDELER of Christopherson,
Anderson, Paulson & Fideler, LLP Sioux Falls, South
Dakota Attorneys for plaintiffs and appellants.
E. MOORE JOEL E. ENGEL III of Woods Fuller Shultz &
Smith, PC Sioux Falls, South Dakota Attorneys for defendants
Total Auctions and Real Estate, LLC (Total Auctions) planned
to conduct automobile auctions in Lincoln County. Part of its
business plan included the sale of vehicles consigned from
automobile dealers not located in Lincoln County. A Division
of Motor Vehicles dealer agent advised Total Auctions on how
to comply with the applicable law. After incurring expenses
setting up its business, Total Auctions was informed by a
Division supervisor that state law prohibited auctioning
vehicles consigned from dealers outside Lincoln County. Total
Auctions and its members sued the Division agent, the
Division, its director, and the Department of Revenue and
Regulation on theories of negligence and negligent
supervision. The circuit court dismissed the complaint for
failure to state a claim upon which relief could be granted.
and Procedural History
Because this is an appeal from a dismissal for failure to
state a claim, we restate the facts alleged in the complaint.
Total Auctions is a South Dakota limited liability company
with its principal place of business in Lincoln County. It is
a licensed automobile dealer that intended to hold automobile
auctions that would be open to the public.
The members of Total Auctions-Andrew Harr and Jason Borman
(hereafter collectively referred to as "Total
Auctions")-met with Ronald Rysavy on July 11, 2014, to
discuss Total Auctions' business plan. Rysavy was a
"dealer agent" employed by the South Dakota
Division of Motor Vehicles (DMV), a division of the South
Dakota Department of Revenue and Regulation (DRR). According
to the complaint, dealer agents are "responsible for
answering dealer business questions, providing training and
instruction on compliance and procedures, enforcing laws and
regulations, investigating complaints and violations, and
Total Auctions informed Rysavy that it intended to auction
vehicles consigned from dealers outside Lincoln County.
Rysavy provided forms required by the DMV to complete vehicle
consignments and advised Total Auctions on compliance with
South Dakota law. He also instructed a dealer outside Lincoln
County regarding the necessary consignment paperwork for the
auctions. The complaint alleged that "it was
[Rysavy's] professional opinion that Total Auctions'
business complied with South Dakota law." Total Auctions
followed Rysavy's instructions and began preparing for
its first auction. It also met with Rysavy on additional
occasions, including at the location of the auction, to
ensure Total Auctions was in compliance with the law.
However, Rysavy failed to inform Total Auctions that state
law did not permit it to auction vehicles consigned from
dealers outside Lincoln County, the county of Total
Auctions' place of business.
The day before the first auction, Rysavy informed Total
Auctions for the first time that there was a problem with the
out-of-county consignments. Peggy Laurenz, the Director of
the DMV, informed Total Auctions that under South Dakota law,
it could not sell vehicles from dealers outside Lincoln
County. Director Laurenz allowed the noncompliant auction to
proceed but indicated that such sales would be prohibited in
any future auction. Total Auctions
alleged that because it could not sell vehicles from dealers
outside Lincoln County, its inventory for future auctions
"was drastically reduced, " causing substantial
damages and the failure of the business.
Total Auctions subsequently sued the DRR, the DMV, Director
Laurenz, and Rysavy (Defendants). Count I of the complaint
alleged negligence, claiming that Rysavy breached a
"duty to follow the established Department of Motor
Vehicles Protocols before issuing an opinion on the
application of South Dakota law to Total Auctions'
business." Count II alleged negligent supervision,
claiming that Director Laurenz failed to adequately supervise
Rysavy to ensure that he followed DMV protocols and provided
accurate information regarding compliance with South Dakota
law. Both claims incorporated allegations in the complaint
claiming that Rysavy had given erroneous advice on the law.
Defendants moved to dismiss the complaint for failure to
state a claim upon which relief could be granted.
See SDCL 15-6-12(b)(5). Relying on this Court's
decision in Meyer v. Santema, 1997 S.D. 21, ¶
13, 559 N.W.2d 251, 255, the circuit court ruled that the
alleged negligent conduct was predicated on a ...