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Total Auctions and Real Estate, LLC v. South Dakota Department of Revenue & Regulation

Supreme Court of South Dakota

December 14, 2016

TOTAL AUCTIONS AND REAL ESTATE, LLC, a South Dakota Limited Liability Company, ANDREW HARR and JASON BORMANN, Plaintiffs and Appellants,
v.
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.

          ARGUED ON NOVEMBER 8, 2016

         APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT LINCOLN COUNTY, SOUTH DAKOTA, THE HONORABLE JOHN SOGN Judge.

          CASEY W. FIDELER CHRISTOPHER L. FIDELER of Christopherson, Anderson, Paulson & Fideler, LLP Sioux Falls, South Dakota Attorneys for plaintiffs and appellants.

          JAMES E. MOORE JOEL E. ENGEL III of Woods Fuller Shultz & Smith, PC Sioux Falls, South Dakota Attorneys for defendants and appellees.

          ZINTER, Justice.

         [¶1.] 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. We affirm.

         Facts and Procedural History

         [¶2.] 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.

         [¶3.] 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 conducting inspections."

         [¶4.] 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.

         [¶5.] 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.[1] 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.

         [¶6.] 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.

         [¶7.] 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 ...


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