ON NOVEMBER 8, 2017
FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT
MINNEHAHA COUNTY, SOUTH DAKOTA THE HONORABLE LAWRENCE E. LONG
MICHAEL D. BORNITZ KENT R. CUTLER KIMBERLY R. WASSINK of
Cutler Law Firm, LLP Sioux Falls, South Dakota Attorneys for
plaintiff and appellant.
A. PARSONS, JR. of Johnson, Janklow, Abdallah & Reiter,
LLP Attorneys for defendants and appellees.
MATTHEW S. MCCAULLEY LISA M. PROSTROLLO JON HANSEN of
Redstone Law Firm, LLP Sioux Falls, South Dakota Attorneys
for defendants and appellees.
This is the second appeal to this Court from a breach of
contract action by Stern Oil Company, Inc. (Stern Oil)
against James R. Brown (Brown). In Stern Oil Co., Inc. v.
Brown (Stern Oil I), 2012 S.D. 56, 817 N.W.2d
395, Brown appealed a judgment awarding Stern Oil over eight
years of lost profits exceeding $900, 000. This Court
reversed and remanded, determining the circuit court erred in
granting summary judgment in favor of Stern Oil on its breach
of contract claims against Brown and by denying Brown's
fraud claims against Stern Oil. On remand, a jury found in
favor of Stern Oil on the breach of contract and fraud claims
and awarded $260, 464 in damages. Stern Oil appeals that
award, raising three issues for our review. Brown raises one
issue by notice of review. We reverse and remand.
Stern Oil is a fuel and petroleum distributor based in
Freeman operated by Scott and Staci Stern and Scott's
father, Gillas. The business supplies fuel at locations
across the Midwest. Brown is a businessman from Gettysburg.
Brown operates two convenience stores in North Sioux City,
South Dakota: Goode to Go and Freeway Mobil.
In 2005, Brown and Stern Oil entered into two ten-year Motor
Fuel Supply Agreements (MFSAs) for Stern Oil to supply
ExxonMobil branded fuel to Brown to sell at his two
convenience stores. The MFSAs required Stern Oil to sell and
deliver up to a contractually determined "Maximum Annual
Volume" of fuel to Brown. Brown was obligated to
purchase at least 75% of that amount annually. Approximately
a year and a half into the ten-year agreements, Brown stopped
purchasing fuel from Stern Oil.
Stern Oil sued Brown for breach of contract. Brown
counterclaimed and asserted that Stern Oil fraudulently
induced him to enter into the MFSAs by verbally guaranteeing
Brown a five-cent profit on each gallon of fuel sold at his
convenience stores. Brown also asserted defenses to the
validity of the MFSAs. The circuit court granted Stern
Oil's motion for summary judgment on its claims for
breach of contract and on Brown's fraud claims. The
parties waived a jury on the issue of damages, and the case
proceeded to a bench trial in October 2009 and January 2010.
The circuit court awarded Stern Oil lost profits in the
amount of $925, 317. Brown appealed and this Court reversed
in Stern Oil I, determining that genuine issues of
material fact existed on Stern Oil's breach of contract
claim and Brown's fraud claims. 2012 S.D. 56, ¶ 23,
817 N.W.2d at 403-04.
On remand to the circuit court, the matter proceeded to a
jury trial on liability and damages. The jury found that
Brown breached the MFSAs and rejected Brown's fraud
claims and other contract defenses. The jury awarded Stern
Oil lost profit damages in the amount of $260, 464. Following
the trial, Stern Oil moved for recovery of prejudgment
interest. Stern Oil also moved for costs and attorney's
fees under the terms of the MFSAs requiring the
"non-prevailing party" to pay attorney's fees
and costs to the "prevailing party." The circuit
court determined that Stern Oil was not the prevailing party
and denied attorney's fees or costs to either party. The
circuit court entered a judgment on the jury's verdict
and for prejudgment interest of $143, 708.77 on the damage
Stern Oil appeals the circuit court's judgment, raising
three issues, which we reorder and restate as follows:
1. Whether the circuit court erred in instructing the jury
that Stern Oil's damages had to be foreseeable to Brown.
2. Whether the circuit court erred by excluding Stern
Oil's lost profit evidence.
3. Whether the circuit court erred in determining that Stern
Oil was not a prevailing party entitled to attorney's
fees and costs.
Brown's notice of review challenges the circuit
court's award of prejudgment interest. Brown asks this
Court to consider whether prejudgment interest was
Whether the circuit court erred in instructing the jury that
Stern Oil's damages had to be foreseeable to
Stern Oil objected to the following damage instructions at
Instruction No. 30: The measure of damages
for a breach of contract is the amount which will compensate
the aggrieved party for all determent legally caused by the
breach, or which, in the ordinary course of things, would be
likely to result from the breach. Damages for a breach of
contract which are not clearly ascertainable in both their
nature and origin are unrecoverable. Consequential damages
must be reasonably foreseeable by the breaching party at the
time of contracting. If consequential damages were not
reasonably foreseeable, then they are not recoverable.
Instruction No. 30A: Consequential damages
are damages that do not arise within the scope of the
buyer-seller transaction, but rather stem from losses
incurred by the non-breaching party in its dealings, often
with third parties, which were a proximate result of the
breach, and which were reasonably foreseeable by the
breaching party at the time of contracting.
Stern Oil claims it was reversible error for the circuit
court to give these instructions. It argues that lost profits
resulting from an immediate payment discount given by
ExxonMobil were recoverable as direct damages and not as
consequential damages, and as such, the damages were not
subject to a foreseeability requirement. Brown contends that
any profits arising from the discount received from
ExxonMobil were consequential to the breach of the MFSAs
because they were based upon a third-party contractual
agreement between Stern Oil and ExxonMobil. Brown was not a
party to that agreement and claimed he was not aware of its
terms. He maintains the jury was properly instructed. In the
alternative, Brown claims that if an error occurred, it was
In its complaint and at trial, Stern Oil asked for damages in
the form of lost profits caused by Brown's breach of the
MFSAs. Stern Oil presented evidence showing that there were
three sources of profit that Stern Oil would have earned
under the MFSAs. These sources of profit included: a 1.5-cent
markup per gallon above the price paid by Stern Oil; profit
earned by Stern Oil for transporting the fuel to Brown's
convenience stores; and a 1.25% discount Stern Oil received
from ExxonMobil for immediate payment on fuel Stern Oil
purchased from ExxonMobil.
At trial, Scott Stern (Stern) testified that the 1.25%
prompt-payment discount received from ExxonMobil is a part of
the total profit Stern Oil receives under the MFSAs. Stern
stated that when Stern Oil takes ExxonMobil fuel from a
terminal, ExxonMobil debits Stern Oil's bank account for
the cost of the fuel the next business day. Thereafter, Stern
oil receives a 1.25% credit off the purchase price of the
fuel. Stern also testified that Stern Oil is not given an
option regarding the terms of the discount and that
ExxonMobil has been providing Stern Oil with the
prompt-payment discount for at least 15 years. Stern claimed
that Stern Oil relies on the 1.25% discount to set the amount
of its markup on fuel and freight charges.
The jury awarded lost profit damages to Stern Oil as follows:
(1) $176, 152 for gasoline; (2) $0 for diesel fuel; (3) $61,
653 for freight; (4) $0 for the Stern Oil discount of 1.25%;
and (5) $22, 659 for BIP contract damages. Stern Oil claims
that the jury did not award lost profits from the 1.25% fuel
discount because the circuit court erroneously instructed the
jury on its lost profit claim.
A trial court has discretion in the wording and arrangement
of its jury instructions, and therefore we generally review a
trial court's decision to grant or deny a particular
instruction under the abuse of discretion standard. However,
no court has discretion to give incorrect, misleading,
conflicting, or confusing instructions. Karst v.
Shur-Co., 2016 S.D. 35, ¶ 8, 878 N.W.2d 604, 609
(quoting Vetter v. Cam Wal Elec. Coop.,
Inc., 2006 S.D. 21, ¶ 10, 711 N.W.2d 612, 615).
"Therefore, 'when the question is whether a jury was
properly instructed overall, that issue becomes a question of
law reviewable de novo.'" Id. (quoting
Vetter, 2006 S.D. 21, ¶ 10, 711 N.W.2d at 615).
The Uniform Commercial Code (UCC), codified at SDCL Title
57A, applies to transactions in goods. SDCL 57A-2-102. Fuel
sold under the MFSAs qualifies as "goods" under the
UCC definition, SDCL 57A-2-105(1), and both parties
acknowledge that the UCC applies to this transaction. Under
Title 57A, a seller's damages for breach of contract
after nonacceptance or repudiation are generally measured by
"the difference between the market price at the time and
place for tender and the unpaid contract price[.]" SDCL
57A-2-708(1); Vanderwerff Implement, Inc. v.
McCance, 1997 S.D. 32, ¶ 11, 561 N.W.2d 24, 25-26.
Subsection (2) of SDCL 57A-2-708 provides an alternative
measure of damages to a seller for nonacceptance or
repudiation of a contract. Under subsection (2), if the
contract/market price remedy is "inadequate to put the
seller in as good a ...