Dunes v. Country Kitchen
Dunes Hospitality, L.L.C.,
a South Dakota Limited Liability Company,
Plaintiff and Appellee
Country Kitchen International, Inc.,
a Minnesota Corporation
Defendant and Appellant
Country Kitchen International, Inc.,
a Minnesota Corporation
Third-Party Plaintiff and Appellant
Venerts Investments, Inc., a South Dakota Corporation,
James Berven, and William Folkerts
Third-Party Defendant and Appellee
[2001 SD 36]
South Dakota Supreme Court
Appeal from the Circuit Court of
The First Judicial Circuit
Union County, South Dakota
Hon. Richard Bogue, Judge
Thomas K. Wilka
Hagen, Wilka & Archer, P.C.
Sioux Falls, South Dakota
Attorneys for plaintiff and appellee
Dunes Hospitality, L.L.C.
Lawrence R. Commers
Tim A. Staum
Mackall, Crounse & Moore
Brian J. Donahoe
Cutler, Donahoe & Mickelson
Sioux Falls, South Dakota
Attorneys for defendant and appellant
Country Kitchen International, Inc.
Argued January 10, 2001
Opinion Filed 3/21/2001
[¶2.] Dunes was granted the right to manage a Country Kitchen restaurant in North Sioux City, South Dakota for a period of fifteen years. Dunes entered into an agreement for management of the restaurant with CKI on December 14, 1994. The members of Dunes included at least three lawyers, a law professor, a real estate broker and a doctor. In early 1996, the members became frustrated when the restaurant was still not meeting its revenue expectations. The members of Dunes asserted that the restaurant was mismanaged. They repeatedly sent complaints to CKI concerning poor service and the quality of food, apparently with no improvement. As problems persisted, the members of Dunes began to consider their options under the management agreement.
[¶4.] Pursuant to the settlement agreement, CKI agreed to designate a representative at its expense to perform management functions, waive all manager fees, modify the cash call provisions, and allow early termination of the agreement without cause. The agreement specifically provided that the law of Minnesota was to control its terms, that the agreement constituted the entire understanding between the parties, and unconditionally released CKI from any claims that relate to the management agreement.
[¶5.] On November 4, 1996, Dunes terminated the management agreement and filed this lawsuit. Dunes asserted that the settlement agreement was procured by fraud and economic duress and was therefore void. Dunes also alleged that CKI understated accounts payable to vendors by almost one-hundred percent, forced settlement by the all or nothing approach to the South Dakota restaurants, threatened complete withdrawal from the South Dakota locations, demanded additional cash calls and would have left the Dunes without service for the Country Inn and Suites Hotel to which the restaurant was affixed.
[¶6.] The jury found that the settlement agreement was not procured by fraud but by economic duress and was unenforceable. CKI appeals contending:
1. The trial court should have applied Minnesota law on economic duress.
2. The trial court incorrectly instructed the jury on economic duress.
3. Dunes failed to meet its burden of proof on economic duress, thereby requiring a directed verdict or judgment notwithstanding the verdict.
STANDARD OF REVIEW
[¶7.] “Jury instructions are considered as a whole and will not be deemed erroneous if they sufficiently and correctly state the applicable law.” Isaac v. State Farm Mut. Ins. Co., 522 NW2d 752, 759 (SD 1994). In addition, the trial court’s ruling on a motion for a directed verdict or for judgment notwithstanding the verdict “are presumed correct and this Court will not seek reasons to reverse.” US v. State, 1999 SD 94, ¶7, 598 NW2d 208, 211. “If sufficient evidence exists so that reasonable minds could differ, a directed verdict is not appropriate.” Id. Questions of law are reviewed de novo. Id. ¶8.
[¶8.] 1. WHETHER THE TRIAL COURT SHOULD HAVE APPLIED MINNESOTA LAW ON ECONOMIC DURESS.
AMUNDSON, Justice (concurring in result).
[¶37.] I agree with the majority that Dunes failed to show fraud or economic duress on the part of CKI. I, however, must part company due to the majority’s failure to apply Minnesota law, rather than South Dakota’s. As the majority points out, Dunes failed to show that one of the public policy exceptions to the validity of a choice of law provision, i.e. fraud or economic duress, exists. The majority recognizes that the settlement agreement provides that it “shall be construed in accordance with the laws of the State of Minnesota,” but curiously fails to express why that state’s law should not apply.
[¶38.] There is a presumption of validity for choice of law clauses. Elgar v. Elgar, 679 A2d 937 (Conn 1996); Milanovich v. Costa Crociere, S.P.A., 954 F2d 763 (DC Cir 1992); Delhomme Indust. Inc. v. Houston Beechcraft Inc., 669 F2d 1049 (5th Cir 1982). Unless the challenger to the clause clearly shows it to be against public policy, the clause will be enforced. S. Leo Harmonay Inc. v. Binks Mfg. Co., 597 FSupp 1014 (SDNY 1984), judgment aff’d, 762 F2d 990 (2nd Cir 1985).
Courts favor, and tend to uphold, choice of law provisions in contracts, particularly when such provisions are used in interstate transactions. Finally, a court will be more likely to uphold the provisions of a contract made in a business transaction than the terms impressed by adhesion on an unknowledgeable consumer. The more commercial the context of the transaction . . . the greater the need for validation and stronger the presumption of validity. . . . The burden of showing illegality is upon the party asserting it and it is not sufficient merely to create suspicion and suggest doubts as to its illegality.
Delhomme, 669 F2d at 1058-59 (internal citations omitted). The mere allegations of fraud and economic duress do not overcome this heightened burden. At a minimum, the trial court should have made a preliminary ruling as to whether the contract containing the choice of law clause was invalid under South Dakota law before it applied such law. See Restatement (Second) of Conflicts of Laws § 187 cmt. b, illus. 3; see also Unarce v. Staff Builders, Inc., 61 F3d 912 (9th Cir 1995) (unpublished opinion).
[¶39.] I submit Dunes did not overcome its burden of proving the clause invalid by merely alleging fraud and economic duress. In fact, the jury found against Dunes on the issue of fraud, and the issue was not appealed. If we allowed the mere allegations of one party to overcome contractual obligations, then what is to stop every plaintiff subject to an apparently unfavorable choice of law provision from making frivolous allegations of fraud or economic duress. Contract law should not depend on the legal tactics of the allegedly aggrieved party. While the end result is the same under Minnesota law, as economic duress is not recognized in that jurisdiction, the majority should explain why the bargained for, at arms length agreement of the parties does not control. The majority provides no authority for its non-observance of the parties’ agreement.
[¶40.] Therefore, I concur in result only.
. See infra discussion ¶¶30-33.
. See Newburn v. Dobbs Mobile Bay Inc., 657 So2d 849, 852 (Ala 1995); Zeilinger v. Sohio Alaska Petroleum Co., 823 P2d 653m 657 (Alaska 1992); Saint Alphonsus Med. Center v. Krueger, 861 P2d 71, 77 (IdahoApp 1992); Mellon v. Norwest Bank, 493 NW2d 700, 703 (ND 1992); see also 25 AmJur2d Duress and Undue Influence § 7 (1996).
. CKI proposed the following instruction:
Plaintiff must prove by a preponderance of the evidence that circumstances permitted no alternatives. If you find that at the time of entering into the Settlement Agreement, Plaintiff possessed a legal remedy of refusing to sign and, instead, suing the Defendants for damages, or operating the restaurant themselves, the Plaintiff has failed to show that circumstances permitted no other alternative.
It would not have been error under these circumstances to give this instruction if it had been modified to provide for “reasonable” alternatives.
. It is interesting to note that during their deliberation, the jury requested the definition of “acquiesce” from the trial court. The trial court provided the following definition: To agree without arguing; to comply without protest, to comply. This does not meet the legal requirement of coercion or involuntary consent.
. Note that we are not overturning a valid jury verdict. This verdict was based on incorrect jury instructions and flawed. Based on proper jury instructions, we conclude that reasonable minds would not differ on the non-existence of economic duress under these circumstances.