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Beals v. Autotrac, Inc.

Supreme Court of South Dakota

November 21, 2017

VARNER BEALS, Plaintiff and Appellant,
AUTOTRAC, INC., Defendant and Appellee.

          Considered on Briefs on August 28, 2017


          BRAD A. SCHREIBER Pierre, South Dakota Attorney for plaintiff and appellant.

          PAMELA R. REITER RONALD A. PARSONS JR. of Johnson, Janklow, Abdallah, Reiter & Parsons LLP Sioux Falls, South Dakota Attorneys for defendant and appellee.


          GILBERTSON, Chief Justice

         [¶1.] Varner Z. Beals appeals the circuit court's grant of summary judgment in favor of AutoTrac Inc. on Beals's claims of deceit, fraud, and undue influence. Beals argues there are genuine disputes of material fact that preclude summary judgment. We affirm in part, reverse in part, and remand.

         Facts and Procedural History

         [¶2.] AutoTrac Inc. is a manufacturing company located in Fairfax, South Dakota. John Parsons founded AutoTrac as a sole proprietorship focused on automotive and farm-equipment repair. After Parsons's cousin Dennis Howard became involved in the company, AutoTrac's focus shifted to manufacturing. In 2008, AutoTrac was incorporated as a subchapter S corporation. Howard serves as AutoTrac's president and chief executive officer. Currently, the company has four full-time employees.

         [¶3.] After incorporation, AutoTrac devised a plan to diversify and expand its operations. AutoTrac's banker advised that such a plan required $500, 000 in capital investments. On February 3, 2012, AutoTrac's board of directors passed a resolution authorizing the creation and sale of 200 shares of Class A stock at $2, 500 per share. Parsons and Howard began looking for potential investors.

         [¶4.] At the time of briefing, Varner Beals was an 83-year-old resident of Fairfax. Beals began consulting with a physician in 2008 for memory loss and was eventually diagnosed with a type of dementia. Even so, Beals lived alone and managed his own financial affairs. Beals also owned and operated a successful bee business, collecting and selling honey and related products, which he sold in 2014. Parsons had previously transported Beals's product to customers in Iowa. Sometime after the February 3 meeting of AutoTrac's board of directors, Parsons and Beals met to discuss the possibility of Beals investing in AutoTrac. At some point following the meeting, Beals began paying money to AutoTrac. By January 2013, Beals had paid $100, 000 to AutoTrac.

         [¶5.] On February 8, 2013, Beals signed an agreement with AutoTrac, promising to purchase 200 shares of Class A stock for $500, 000. The agreement acknowledged Beals's previous $100, 000 contribution and required two additional payments of $200, 000 each. The first $200, 000 payment was due by March 30, 2013. Under the agreement, AutoTrac was required to use Beals's money only "for the construction of an expansion to the existing facility and the acquisition of capital equipment to do more/bigger work available from existing AutoTrac, Inc. customers." The agreement specifically prohibited AutoTrac from using Beals's money to pay existing debts. Finally, the agreement provided:

Until all financial commitments by Mr. Beals . . . have been satisfied, AutoTrac, Inc. will consider Mr. Beals' investment(s) as intended for the purchase of a lesser class of AutoTrac, Inc. stock (i.e., NOT Class A stock) with proportionally lesser rights and privileges. The precise definition of said lesser rights and privileges to be determined by the Board Of Directors and assigned, in part, by Mr. Beals' total investment sum.

         [¶6.] On February 10, 2013, AutoTrac's board of directors passed another resolution that recognized the signed agreement with Beals. Because Beals agreed to pay the $500, 000 in installments, the resolution modified the February 3, 2012 resolution, prohibiting the issuance of any stock "until all of the terms of the Working Agreement have been satisfied." AutoTrac's board also authorized hiring an attorney to assist "in drafting the language for the S.D. Secretary of State filing, and amendments to all the necessary formal documents, in order that there be no delay in executing corporate responsibilities for the issuance of stock through the Working Agreement with Varner Z. Beals."

         [¶7.] During the February 10, 2013 meeting, AutoTrac's board also instructed Parsons and Howard to develop a plan "for facility expansion and capital equipment purchase, working to a budget of $500, 000." The board required the plan to "include all planned expenses, and an expense timeline scheduled to match receipt of contributions from Varner Z. Beals based on the dates in the Working Agreement." One of Parsons and Howard's first objectives was to expand AutoTrac's facilities. In furtherance of this objective, Parsons and Beals visited an existing facility in Howard, South Dakota, that was owned by the State. AutoTrac made an offer to purchase the property, but the State rejected the offer.

         [¶8.] In the meantime, two of Beals's sons, Jim and Rob, learned of their father's relationship with AutoTrac. While Jim was visiting South Dakota, he visited AutoTrac and informed Parsons that AutoTrac would not receive any additional money from Beals. In addition to the initial $100, 000, Beals had paid another $100, 000 toward the $200, 000 due by the March 30, 2013 deadline. On January 11, 2014, AutoTrac's board of directors met to address Beals's failure to meet the March 30, 2013 payment deadline. The board decided that in light of receiving only $200, 000 from Beals instead of $500, 000, it would "scale down the plan for facility expansion and capital equipment purchase not-to-exceed a total of $180, 000, making no further commitments to contractors and/or vendors, until such time as Varner Z. Beals continued contribution intentions are known."

         [¶9.] On February 9, 2015, Jim Beals, acting under power of attorney, filed a complaint on Beals's behalf against AutoTrac, alleging numerous claims relating to the agreement entered into by Beals and AutoTrac. While Beals claims he does not remember signing the agreement, he acknowledges that his signature is on it. The complaint primarily alleged that Beals had been deceived into giving money to AutoTrac. On February 14, AutoTrac's board of directors met to address the lawsuit. The board viewed Beals's lawsuit as a definitive signal of his intention to repudiate the agreement. Pursuant to the agreement with Beals, the board passed a resolution that required AutoTrac to immediately amend its articles of incorporation to create Class B shares of stock and to issue 80 such shares to Beals.

         [¶10.] On July 22, 2016, AutoTrac filed a motion for summary judgment. After a hearing on September 14, the circuit court granted the motion on September 28. Beals appeals, raising the following issues:

1. Whether the circuit court erred by granting summary judgment on Beals's claim of deceit.
2. Whether the circuit court erred by granting summary judgment on Beals's claim of fraud.
3. Whether the circuit court erred by granting summary judgment on Beals's claim of undue influence.[1]

         Standard of Review

         [¶11.] Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." SDCL 15-6-56(c). "We view the evidence 'most favorably to the nonmoving party and resolve reasonable doubts against the moving party. If there exists any basis which supports the ruling of the [circuit] court, affirmance of a summary judgment is proper.'" Gades v. Meyer Modernizing Co., 2015 S.D. 42');">2015 S.D. 42, ¶ 7, 865 N.W.2d 155, 158 (citation omitted) (quoting Peters v. Great W. Bank, Inc., 2015 S.D. 4, ¶ 5, 859 N.W.2d 618, 621).

         Analysis and Decision

         [¶12.] Beals argues the circuit court erred in entering summary judgment on his tort claim of deceit and his contract claims of fraud and undue influence. Beals contends Parsons deceived him by exaggerating the financial status and viability of AutoTrac. He also asserts that AutoTrac owed $100, 000 and that Parsons and Howard's failure to disclose that fact was fraudulent.[2] Finally, Beals asserts that he suffers from dementia, that Parsons was aware of his affliction, and that Parsons nevertheless persisted in soliciting money for AutoTrac. Because Beals has the burden of proof as to each element of his stated ...

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