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McKie Ford Lincoln, Inc. v. Hanna

Supreme Court of South Dakota

February 7, 2018

McKIE FORD LINCOLN, INC., Plaintiff and Appellant,
v.
SCOTT HANNA and GATEWAY AUTOMOTIVE, LLC, Defendant and Appellees.

          CONSIDERED ON BRIEFS JANUARY 8, 2018

         APPEAL FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT PENNINGTON COUNTY, SOUTH DAKOTA THE HONORABLE CRAIG A. PFEIFLE Judge

          JOHN K. NOONEY ROBERT J. GALBRAITH of Nooney & Solay, LLP Rapid City, South Dakota Attorneys for plaintiff and appellant.

          ROGER A. TELLINGHUISEN MICHAEL V. WHEELER of DeMersseman, Jensen, Tellinghuisen & Huffman, LLP Rapid City, South Dakota Attorneys for defendants and appellees.

          JENSEN, JUSTICE.

         [¶1.] McKie Ford Lincoln, Inc. (McKie Ford) filed suit against Scott Hanna and Gateway Automotive, LLC (Gateway) seeking to enforce a non-competition and disclosure agreement (Agreement). Hanna and Gateway filed a counterclaim alleging a cause of action for barratry. The parties filed cross-motions for summary judgment. The circuit court granted Hanna and Gateway's motion and denied McKie Ford's motion. McKie Ford appeals.

         Background

         [¶2.] Scott Hanna was hired as a sales manager for McKie Ford in June of 2009. On June 18, 2009, as part of his employment, Hanna signed the Agreement, which included a covenant not to compete, stating in pertinent part:

On termination of my employment, for any cause whatsoever, I will not engage to work for any individual, firm, or entity engaged in the same or similar business or be a principal, member, or owner of any entity who is engaged in the same or similar line of business within 200 miles of the city limits of Rapid City for a period of one year subsequent to such termination, not to include any period of violation or period of time required for litigation to enforce the covenants.

         [¶3.] On February 1, 2013, Hanna approached Mark McKie (McKie) to resign his position. Hanna told McKie he was leaving McKie Ford to sell cars, trucks, SUVs, campers, RVs, boats, and other recreational vehicles at another location in Rapid City. In March of 2013, Hanna and Adam Ray began operating Gateway Autoplex, LLC (Gateway Autoplex) in Rapid City. Ray was an employee of Granite Buick GMC (Granite Buick) and had also signed a non-compete agreement.

         [¶4.] On April 4, 2013, in response to the operation of Gateway Autoplex, McKie Ford sued Hanna seeking injunctive relief to enforce the covenant not to compete against Hanna. Granite Buick sued Ray seeking to enforce the covenant not to compete against Ray. The two cases were consolidated. Hanna and Ray each asserted affirmative defenses to the enforcement of the covenants not to compete, including estoppel, waiver, and fraudulent inducement. The circuit court bifurcated the proceedings to allow the jury to make fact determinations on the affirmative defenses raised by Hanna and Ray. A jury found for Hanna and Ray on several of their defenses to the enforcement of the covenants not to compete. The circuit court treated the jury's determination as binding and entered an order denying injunctive relief against both Hanna and Ray. Granite Buick and McKie Ford appealed, asserting they did not consent to a trial by jury on the equitable issues. In Granite Buick GMC, Inc. v. Ray (Granite I), 2014 S.D. 78, ¶ 16, 856 N.W.2d 799, 805, this Court reversed and remanded for the circuit court to make findings of fact and conclusions of law on the claims and defenses for injunctive relief.

         [¶5.] On remand, the circuit court found in favor of Hanna and Ray and denied injunctive relief. Granite Buick and McKie Ford appealed. In Granite Buick GMC, Inc. v. Ray (Granite II), 2015 S.D. 93, ¶ 13, 872 N.W.2d 810, 816, we affirmed the circuit court's determination that McKie Ford had waived its right to enforce Hanna's covenant not to compete. The case was remitted by the Court on December 30, 2015.

         [¶6.] On July 24, 2015, Hanna became an owner in Gateway[1] in Pierre. Gateway began operating in August of 2015, selling both new and used automobiles, including new Ford and Lincoln models. McKie Ford also sold new Ford and Lincoln models. Gateway is located within 200 miles of McKie Ford in Rapid City. In August 2015, McKie Ford filed this action against Hanna and Gateway in an attempt to enforce the Agreement.

         [¶7.] The circuit court heard the parties' cross-motions for summary judgment on February 4, 2016. The court granted the motion for summary judgment filed by Hanna and Gateway and denied McKie Ford's motion. The court determined that the tolling provision in the Agreement did not extend the one year term of the non-compete because McKie Ford was unsuccessful in the other litigation and because the non-compete could not be enforced beyond the two year limit in SDCL 53-9-11. On April 18, 2017, the circuit court entered a final dismissal of Hanna and Gateway's counterclaim ...


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