Mueller et al vs Cedar Shore Resort et al
Annotate this CasePaul A. Mueller and Mary Pat Mueller, Individually, and
Paul A Mueller and Mary Pat Mueller, by and on Behalf of Cedar Shore Resort, Inc.,
Cedar Shore Development, Inc., and Al's Oasis, Inc.
Plaintiffs and Appellants
v.
Cedar Shore Resort, Inc.; Cedar Shore Development, Inc.; Edward G. Geddes, Individually
and in His Capacity as Director of Cedar Shore Resort Inc., Cedar Shore Development Inc., DeEtte Geddes,
Indiviually and in Her Capacity as Director of Cedar Shore Resort, Inc., Cedar Shore Development, Inc.
and Officer of Al’s Oasis, Inc., Steven B. Mueller, Individually and in His Capacity As Directory of Cedar Shore Resort, Inc.,
Cedar Shore Development, Inc., and Officer of Al’s Oasis, Inc.; Mark J. Mueller, Individually and in His Capacity
as Officer of Al’s Oasis, Inc,; Gopal Vyas, Individually and in His Capacity as Director of Cedar Shore Resort, Inc.;
Steve Hansman, Individually and in His Capacity as Director of Cedar Shore Resort Inc.; Marlene Billars, Individually
and in her Capacity as Director of Cedar Shore Resort Inc.; Darrel Viereck, Individually and in His Capacity as Director
of Cedar Shore Resort Inc.; Al’s Oasis, Inc.,
Defendants and Appellees
[2002 SD 38]
South Dakota Supreme Court
Appeal from the Circuit Court of
The Sixth Judicial Circuit
Hughes County, South Dakota
Hon. James W. Anderson, Judge
Michael P. Reynolds
of Barker, Wilson, Reynolds & Burke
Rapid City, South Dakota
Attorneys for appellants.
Thomas J. Welk
Jeffery C. Clapper of
Boyce, Murphy, McDowell
Sioux Falls, South Dakota
Attorneys for appellees, E. Geddes, D. Geddes,
S. Mueller, M. Mueller, G. Vyas, S. Hansman,
M. Billars, Cedar Shore Development, Inc.
Clair R. Gerry of
Stuart, Gerry & Schlimgen
Sioux Falls, South Dakota
Attorneys for appellee Cedar Shore Resort, Inc.
John S. Theeler of
Morgan, Theeler, Wheeler Cogley & Petersen
Mitchell, South Dakota
Attorneys for appellee Al’s Oasis, Inc.
Argued November 15, 2001
Opinion Filed 3/20/2002
#21852
GILBERTSON, Chief Justice
[¶1.] Paul A. and Mary Pat Mueller brought this action against Al’s Oasis, Cedar Shore Resort, Inc. (CSR), and individually named directors and shareholders of the two companies. Plaintiffs appeal the trial court’s grant of Defendants’ motions for summary judgment on the issues of (1) minority shareholder oppression; (2) breach of fiduciary duty; (3) tortious interference with a business relationship or expectancy; (4) pro rata contribution on a promissory note; and (5) performance under a subscription agreement. Al’s Oasis, CSR and the individual defendant directors and shareholders appeal the trial court’s denial of Defendants’ motion for severance. We affirm in part, reverse in part, and remand for further proceedings.
FACTS AND PROCEDURE1. Whether the trial court was correct in determining no genuine
issue of material fact existed with respect to Paul and Mary
Pat’s claim of minority shareholder oppression by Al’s Oasis and
CSR.
2. Whether the trial court was correct in determining no genuine
issue of material fact existed with respect to Paul and Mary
Pat’s claim that the individually named majority shareholders
breached the fiduciary duties owing to Paul and Mary Pat as
minority shareholders in a close corporation.
3. Whether the trial court was correct in determining no genuine
issue of material fact existed with respect to Paul and Mary
Pat’s claim that the individually named directors tortiously
interfered with their business relationships or expectancies in
Al’s Oasis and CSR.
4. Whether the trial court was correct in determining no genuine
issue of material fact existed with respect to the counterclaim by
the defendant directors, Steven Mueller and Edward Geddes, for
Paul and Mary Pat’s pro rata contribution on the marina
promissory note.
5. Whether the trial court was correct in determining no genuine
issue of material fact existed with respect to CSR’s counterclaim
for Paul and Mary Pat’s payment due pursuant to a stock
subscription agreement.
STANDARD OF REVIEW
[¶10.] In reviewing the trial court's grant of a motion for summary judgment, we have repeatedly stated:
Summary judgment is authorized "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 judgment as a matter of law." We will affirm only when there are no genuine issues of material fact and the legal questions have been correctly decided. All reasonable inferences drawn from the facts must be viewed in favor of the non-moving party. The burden is on the moving party to clearly show an absence of any genuine issue of material fact and an entitlement to judgment as a matter of law.
Hayes v. N. Hills General Hosp., 1999 SD 28, ¶12, 590 NW2d 243, 247 (quoting SDCL 15-6-56(c)) (internal citations and additional citations omitted). Thus, this Court has held that, not only does summary judgment require there be no material facts at issue, but also that there be no genuine issue on the inferences to be drawn from those facts.
[¶11.] “Whether conduct is oppressive is a legal conclusion.” Landstrom v. Shaver, 1997 SD 25, ¶37, 561 NW2d 1, 7 (citing Robblee v. Robblee, 841 P2d 1289, 1293 (WashCtApp 1992); Davis v. Sheerin, 754 SW2d 375, 380-81 (TexApp 1998)). Likewise, “[t]he existence of a fiduciary duty and the scope of that duty are questions of law for the trial court.” Landstrom, 1997 SD 25 at ¶84, 561 NW2d at 18. We review conclusions of law de novo, giving no deference to the trial court. Id. at ¶37. The question of whether there has been a breach of that duty, however, is one of fact to be decided by the trial court. Hayes, 1999 SD 28 at ¶57, 590 NW2d at 253.
ANALYSIS AND DECISION[¶12.] 1. Whether the trial court was correct in determining no
genuine issue of material fact existed with respect to
Paul and Mary Pat’s claim of minority shareholder
oppression by Al’s Oasis and CSR.
[¶13.] South Dakota has adopted the Model Business Corporations Act, which provides equitable relief for minority shareholders who have been oppressed, particularly in the context of a close corporation. See SDCL 47-7-34. The Code, however, does not define what constitutes oppression. We have resolved the question “by considering oppressive actions to refer to conduct that substantially defeats the 'reasonable expectations’ held by minority shareholders in committing their capital to the particular enterprise.” Landstrom, 1997 SD 25 at ¶38, 561 NW2d at 8. See also Gimpel v. Bolstein, 477 NYS2d 1014, 1018 (NYSupCt 1984) (defining oppression in context of “reasonable expectations” of minority shareholder or “burdensome, harsh and wrongful conduct” by majority shareholders). If the minority shareholder’s expectations are held to be reasonable:
A court considering a petition alleging oppressive conduct must investigate what the majority shareholders knew, or should have known, to be the petitioner's expectations in entering the particular enterprise. Majority conduct should not be deemed oppressive simply because the petitioner's subjective hopes and desires in joining the venture are not fulfilled. Disappointment alone should not necessarily be equated with oppression.
Landstrom, 1997 SD 25 at ¶38, 561 NW2d at 8.
[¶14.] “Reasonable expectations are to be analyzed in light of the entire history of the parties’ relationship, and include expectations such as participation in management of corporate affairs.” Longwell v. Custom Benefit Programs Midwest, Inc., 2001 SD 60, ¶19, 627 NW2d 396, 399 (quoting Landstrom, 1997 SD 25 at ¶39, 561 NW2d at 8).[2] The determination of whether a stockholder’s
expectations are reasonable, however, must include a balancing test. The court weighs the minority shareholder’s expectations against the “corporation’s ability to exercise its business judgment and run its business efficiently.” Id. There is a presumption that directors will make decisions “on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company.” Whalen v. Connelly, 593 NW2d 147, 154 (Iowa 1999) (quoting Spiegel v. Buntrock, 571 A2d 767, 774 (Del 1990)). Even in the context of a close corporation, where the directors may have substantial personal interests, courts are loathe to second guess the business decisions of the directors. Robert W. Hamilton, Business Organizations: Unincorporated Businesses and Closely Held Corporations § 9.41 (1996). Oppression will only arise where the minority shareholder’s expectations were “both reasonable under the circumstances and were central to the decision to join the venture.” Longwell, 2001 SD 60 at ¶19, 627 NW2d at 399 (quoting Landstrom, 1997 SD 25 at ¶39, 561 NW2d at 8).
[¶15.] The four categories of conduct alleged by Paul and Mary Pat to be oppressive conduct by Al’s Oasis, CSR and the individually named directors or majority shareholders all amount to the deprivation of employment in a managerial capacity. “Typically, relief has been granted in non-fraud oppression cases where the majority has engaged in a freeze-out or squeeze-out conduct.” Landstrom, 1997 SD 25 at ¶46, 561 NW2d at 10. Freeze-out or squeeze-out conduct may occur when the controlling shareholders or directors:
refuse to declare dividends; they may drain off the corporation's earnings in the form of exorbitant salaries, and bonuses to the majority shareholder-officers and perhaps to their relatives . . . ; they may deprive minority shareholders of corporate offices and of employment by the company; they may cause the corporation to sell its assets at an inadequate price to the majority shareholders.
Id. at ¶44 (emphasis added). Accordingly, we must determine whether the conduct in this case, with facts taken in a light most favorable to Paul and Mary Pat, amounted to the squeeze-out or freeze-out of Paul and Mary Pat’s interests.
[¶16.] We recognize that shareholders of a close corporation often expect to be actively involved in its management and operation. Balvik v. Sylvester, 411 NW2d 383, 386 (ND 1987).
Unlike the typical shareholder in a publicly held corporation, who may be simply an investor or a speculator and does not desire to assume the responsibilities of management, the shareholder in a close corporation considers himself or herself as a coowner [sic] of the business and wants the privileges and powers that go with ownership. Employment by the corporation is often the shareholder's principal or sole source of income. As a matter of fact, providing for employment may have been the principal reason why the shareholder participated in organizing the corporation.
Id. (citing 1 F. O'Neal and R. Thompson, O’Neal’s Close Corporations § 1.07 (3d ed 1987) (footnotes omitted)). A common method of effectuating this squeeze-out is to discharge the minority shareholder from the board of directors or from employment, while also withholding dividends, thus depriving the shareholder of his only source of income. Balvik, 411 NW2d at 387.
[¶17.] A. Al’s Oasis
[¶18.] “The term oppression is a comparative term that assumes a minority shareholder has a certain minimum economic return or right of participation . . . [which] is usually judged, where applicable, by the terms on which the minority shareholder originally invested in the corporation or the promises which induced [him] to invest.” Hamilton, supra at § 8.25. See also Landstrom, 1997 SD 25 at ¶38, 561 NW2d at 8 (holding 'reasonable expectations’ of minority shareholders to be judged in light of capital committed to the particular enterprise); Gimpel, 477 NYS2d at 1019 (defining oppression as “a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely”) (emphasis added). Thus, the standard is not the same where a shareholder received his shares by gift or inheritance. In those cases, the standard is somewhat lower, requiring only “'decent’ conduct by controlling shareholders.” Hamilton, supra at § 8.25 n84.
[¶19.] In Gimpel, the court explained that the “reasonable expectations” test was not entirely appropriate where the corporation had been in existence for many years and the complaining shareholder had received his shares by gift or devise.
While the manner of [the present shareholders’] dealing with each other may in some respects resemble that of partners, it cannot fairly be said that they entered into the business with the same “reasonable expectations” as partners do. Since they all acquired their shares by bequest or gift from other parties, they in no sense chose each other as business associates.
Gimpel, 477 NYS2d at 1019. The court explained that only those original participants, parties that had committed capital and resources to the venture, were entitled to rely upon their “reasonable expectations.”[3] Id. Any agreement between those parties is “personal in nature” and “will not 'run with the shares.’” Id. Thus, the complaining gifted shareholder was required to demonstrate, under the alternative test, that the majority shareholders’ conduct was inherently oppressive. Id. Under that test, the court found the complaining shareholder’s discharge and subsequent exclusion from corporate management in the family-owned dairy farm were not oppressive.
[¶20.] In this case, however, there are significant indications that Paul and Mary Pat’s family members did not satisfy even this good faith and fair dealing standard. Paul claims that he was excluded from all substantive discussions concerning the management and operations of Al’s Oasis. He was denied meaningful employment in the family corporation and he was excluded from discussions regarding the future development and management of Al’s Oasis.[4] None of these, in and of themselves, rise to the level of inherent oppression. But the pattern of conduct, as well as the fact that it may have been done in retaliation for the problems occurring between the siblings at CSR, may be. See, e.g., Hendrick v. Hendrick, 755 A2d 784, 791 (RI 2000) (holding family members’ series of coercive and retaliatory acts manifested bad faith and amounted to oppression). Cf. Orloff v. Weinstein Enter., Inc., 677 NYS2d 544, 545-46 (NYAppDiv 1998) (noting that expectations of family member minority shareholder who had inherited interest is not comparable to that of an investor and holding exclusion from decision making or employment was not retaliatory act constituting oppression); O’Farrell v. Steel City Piping Co., 403 A2d 1319, 1326 (PaSuperCt 1978) (holding no oppression where appellees terminated appellant “not in retaliation for her failure to sell her stock at a reduced price, but in the good faith belief that the 1967 buy-sell agreement” allowed such action).
[¶21.] Paul and Mary Pat were removed from their officer positions in CSR on January 10, 1995. On April 25, 1995, the Board of Directors of Al’s Oasis fired Paul for alleged non-performance. Construing all inferences of fact in favor of Paul and Mary Pat, the deposition testimony of Paul, Mary Pat, Ed and DeEtte all, at a minimum, raise genuine issues of material fact with regard to this possible retaliation. We do not hold that fair treatment means equal treatment.[5] We simply maintain that majority shareholders’ conduct in a family-owned close corporation, because of the relative illiquidity,[6] must maintain a certain level of decency. Therefore, Paul and Mary Pat should have the opportunity to prove that Defendants have not satisfied the decentness standard of good faith and fair dealing.
[¶22.] B. CSR
[¶23.] A somewhat different analysis is applied with regard to Paul and Mary Pat’s claim against CSR and its majority shareholders and directors. Under the reasonable expectations test, Paul and Mary Pat’s claim that they had been deprived of their right to perpetual employment in a managerial capacity at CSR does not constitute shareholder oppression. First, it is undisputed that there were no dividends paid to any shareholder, nor were any contemplated, even while Paul was President of CSR. Second, it is undisputed that Paul had been working without compensation and without any formal employment contract. See SDCL 60-4-4 (providing employment at-will may be terminated without cause). There is no provision in either the bylaws or the shareholder’s agreement[7] to indicate either Paul or Mary Pat is entitled to perpetual employment or managerial control. See Enchanted World Doll Museum v. Buskohl, 398 NW2d 149 (SD 1986) (holding writing between parties presumed to accurately reflect parties’ intent). Third, Paul and Mary Pat were both lawfully removed from their offices in compliance with the procedures set out in CSR’s bylaws.[8] Paul was not removed from the Board entirely, but voluntarily resigned and both Paul and Mary Pat remain involved in the corporation by attending shareholder meetings. Finally, while Paul alleges secret meetings were conducted to have him removed as President, the only evidence he presents is an impression by a former shareholder that Ed, DeEtte, and Steve presented a united front. This, however, is not evidence of secret meetings. Paul must present more than bare allegations to survive a summary judgment.
[¶24.] As noted above, a minority shareholder’s expectations must be balanced against the corporation’s need to conduct its business in accordance with the business judgment rule. “It is not considered oppression when the controlling shareholders seek to control management and the affairs of their corporation.” Landstrom, 1997 SD 25 at ¶50, 561 NW2d at 11. Paul and Mary Pat have merely
“established that [they were] outvoted and subjectively disappointed with corporate management.” Id. This conduct does not rise to the level of oppression.
[¶25.] 2. Whether the trial court was correct in determining no
genuine issue of material fact existed with respect to
Paul and Mary Pat’s claim that the individually named
majority shareholders breached the fiduciary duties
owing to Paul and Mary Pat as minority shareholders in
a close corporation.
[¶26.] Generally, corporation law states that, while directors owe a fiduciary duty to the corporation, shareholders do not owe a fiduciary duty to either the corporation or their fellow shareholders. Hamilton, supra at § 8.35. This standard is different, however, for close corporations. “[I]n almost every state, majority, dominant, or controlling shareholders, or a group of shareholders acting together to exercise effective control, are held to owe a fiduciary duty to minority shareholders.” Hayes, 1999 SD 28 at ¶52, 590 NW2d at 253 (quoting Moore v. Maine Indus. Services, Inc., 645 A2d 626, 628 (Me 1994) (citation and internal quotation omitted) (emphasis in original)). This fiduciary duty is characterized by a high degree of diligence and due care, as well as the exercise of utmost good faith and fair dealing. See id.; Landstrom, 1997 SD 25 at ¶84, 561 NW2d at 18; Case v. Murdock, 488 NW2d 885, 889-90 (SD 1992); Mobridge Cmty. Indus., Inc. v. Toure, Ltd., 273 NW2d 128, 133 (SD 1978).
[¶27.] A. Al’s Oasis
[¶28.] Because of the potential for abuse, the scope of the fiduciary duty owed by a family-owned corporation that has gifted its shares to the shareholders is somewhat more limited than that duty owed in the context of a traditional close corporation. As explained above, where the shareholders receive their stock by gift and invest no capital, the shareholders’ minimum economic return and right of participation become limited. Hamilton, supra at § 8.25. We are not prepared to allow a shareholder to use the fiduciary duty concept to rewrite the original deal he or she made with the corporation, a modification that the original parties to the transaction almost certainly would not have chosen. To do so would significantly undermine a primary method of tax planning and wealth sharing by holding family business owners hostage, subject to the demands of every gifted shareholder, whether reasonable or not. Therefore, the question is whether Paul and Mary Pat have identified in the record sufficient evidence to demonstrate that the conduct of the individually named directors, under these circumstances, amounted to something below the “decentness” standard set forth above.
[¶29.] Paul and Mary Pat must show evidence of bad faith or a breach of the duty of loyalty. Hallmark behavior of such a breach includes the failure to disclose information, director or shareholder self-dealing, making fraudulent misrepresentations regarding past or future events, and surreptitious conduct or communications. Hayes, 1999 SD 28 at ¶57, 590 NW2d at 253; Landstrom, 1997 SD 25 at ¶¶84-85, 561 NW2d at 18; Balvik, 411 NW2d at 387; Toure, 273 NW2d at 133; Schurr v. Weaver, 74 SD 378, 384, 53 NW2d 290, 293 (SD 1952).
[¶30.] Our conclusion above, as to Paul and Mary Pat’s claim of oppression, establishes a prima facie case for breach of fiduciary duty. See Hendrick, 755 A2d at 791-92; Donahue v. Rodd Electrotype Co. of New England, Inc., 328 NE2d 505, 515 (Mass 1975); Hayes v. Olmsted & Assoc., Inc., 21 P3d 178, 181 (OrCtApp 2001) (citations omitted). Due to the facts of this case, these two claims are inextricably intertwined. Therefore, as with the oppression claim, we remand for a determination of whether Al’s Oasis and its directors breached their fiduciary duty to Paul and Mary Pat.
[¶31.] B. CSR
[¶32.] Paul and Mary Pat claim that the trial court erred in granting summary judgment on their breach of fiduciary duty claim. The defendant directors contend that this claim was dismissed pursuant to the trial court’s Order Granting Motion to Dismiss Cedar Shore Resort, Inc., As To All Derivative Claims
on July 15, 1999, and has not been appealed. We agree.
[¶33.] The July 15 Order states “the court dismisses with prejudice all of Counts II, IV and V of the Complaint and those portions of Counts I and III which are derivative or specifically identified within this Order.” This dismissal includes the claim against CSR and its individual directors for a breach of fiduciary duty. Paul and Mary Pat’s notice of appeal, however, does not include the trial court’s July 15 Order of dismissal. Thus, the breach of fiduciary duty by CSR and its individual directors is not before this Court. See SDCL 15-26A-4.
[¶34.] 3. Whether the trial court was correct in determining no
genuine issue of material fact existed with respect to
Paul and Mary Pat’s claim that the individually named
directors tortiously interfered with their business
relationships or expectancies in Al’s Oasis and CSR.
[¶35.] This Court recognized the claim of tortious interference with business relations or expectancy in the case of Tibke v. McDougall, 479 NW2d 898 (SD 1992). The essential elements of the claim include:
(1) the existence of a valid business relationship or expectancy;
(2) knowledge by the interferer of the relationship or expectancy;
(3) an intentional and unjustified act of interference on the part of the interferer;
(4) proof that the interference caused the harm sustained; and
(5) damage to the party whose relationship or expectancy was disrupted.
Id. at 908 (citations omitted). In Nelson v. Web Water Dev. Ass’n, 507 NW2d 691 (SD 1993), we limited this recognition by refusing to hold a corporate director or officer personally liable in a claim of tortious interference for discharging an employee, an act fully within the scope of his or her authority. Paul and Mary Pat now ask us to consider whether the officer or director may be held personally liable in a tortious interference claim where the director or officer acted in bad faith or outside the scope of employment. We decline to recognize such a claim.
[¶36.] “In Tibke, we held that to establish a 'valid business relationship or expectancy,’ there had to be a showing of a 'contract or business relationship’ between the plaintiff and an identifiable third party.” Landstrom, 1997 SD 25 at ¶75, 561 NW2d at 16 (quoting Tibke, 479 NW2d at 908-09). The fact that no contract existed in this case is undisputed. In fact, Paul and Mary Pat do not even attempt to argue the existence of an implied employment contract. If they were to do so, they would eliminate any distinction between the corporation and its directors for the purpose of proving the existence of the necessary third party. See Nelson, 507 NW2d at 700. Thus, Paul and Mary Pat urge us to focus upon whether they had a valid business relationship with Al’s Oasis or CSR, which was distinct from their dealings with the individual directors.[9]
[¶37.] The actions of directors are often indistinguishable from those of the corporations. It is for this reason that the overwhelming majority of jurisdictions refuse to hold corporate directors personally liable in tortious interference claims.
[T]hey (defendants) had the right while acting as corporate officers and agents to counsel and advise with the defendant corporation as to the management of its affairs in all matters with which the corporation was concerned without the risk of rendering themselves personally liable to third parties for their acts in that regard if they should err. “Any other rule would make it impossible for corporate business to be carried on at all except at the peril that every agent who advised concerning corporate action would be suable under some such allegations as are made in this complaint.”
Nelson, 507 NW2d at 700 (quoting Bossuyt v. Osage Farmers Nat’l Bank, 360 NW2d 769, 779 (Iowa 1985)). This is also the very rationale that spawned limited liability for corporations and the protection of the business judgment rule for directors.
[¶38.] The same problem exists here. In order for Paul and Mary Pat to prevail, “there must be a 'triangle’ – a plaintiff, an identifiable third party who wished to deal with the plaintiff, and the defendant who interfered with the plaintiff and third party.” Landstrom, 1997 SD 25 at ¶75, 561 NW2d at 16. No such triangle existed here. The actions of the individually named directors, which Paul and Mary Pat have claimed tortiously interfered with their business relationships or expectancies, include: (1) denial of a management role in Al’s Oasis; (2) denial of a management role in CSR by removing Paul as President; (3) denial of a development role by dissolving the management contract between CSR and CSD; (4) denial of meaningful employment in either of the two corporations; and (5) denial of meaningful participation in either of the two corporations by not disclosing information. These actions, however, were all done in the individual defendants’ capacities as directors. Therefore, we affirm the trial court’s summary judgment.
[¶39.] 4. Whether the trial court was correct in determining no
genuine issue of material fact existed with respect to the
counterclaim by the defendant directors, Steven Mueller
and Edward Geddes, for Paul and Mary Pat’s pro rata
contribution on the marina promissory note.
[¶40.] It is undisputed that Paul executed a promissory note to Norwest Bank in the amount of $25,015, along with Ed Geddes and Steve Mueller, to pay for CSR’s marina construction. Paul now contends that he does not owe on the promissory note because all three parties expressly agreed to pay the note out of CSD’s earnings from the management contract with CSR. According to Paul, CSD’s Board, of which Ed and Steve were members, commercially frustrated his ability to pay the note when they dissolved the management contract with CSR and removed Paul from the project. We do not agree.
[¶41.] While Paul and Mary Pat correctly quote the Restatement (Second) of Contracts definition of commercial frustration, the record fails to support their claim by containing evidence of its elements. The contract doctrine of commercial frustration requires proof of three elements: (1) the purpose that is frustrated must have been a principle purpose of that party in making the contract; (2) the frustration must be substantial; and (3) the non-occurrence of the frustrating event must have been a basic assumption on which the contract was made. Groseth Int’l, Inc. v. Tenneco, Inc., 410 NW2d 159, 165 (SD 1987) (citing Restatement (Second) of Contracts § 265 (1981)). The absence of any of these elements causes the claim to fail.
[¶42.] First, Paul and Mary Pat have neglected to identify evidence which demonstrates how CSD’s management contract with CSR was the principal purpose for signing the promissory note with Norwest Bank. “It is not enough that [they] had in mind some specific object without which [they] would not have made the contract. The object must be so completely the basis of the contract that, as both parties understand, without it the transaction would make little sense.” Groseth, 410 NW2d at 165 (quoting Restatement (Second) of Contracts § 265, cmt a (1981)). It is conceivable that the parties, as shareholders and directors of CSR, may have executed the promissory note to benefit their corporation by facilitating the construction of its marina. Paul and Mary Pat have not alleged that the promissory note would not have been executed but for the management contract; they have only alleged that they were relying upon the management contract’s earnings to repay their portion. This is not enough to satisfy the first element.
[¶43.] Second, Paul and Mary Pat have not demonstrated that the frustration caused them anything more than a net loss. “The fact that performance has become economically burdensome or unattractive is not sufficient to excuse performance.” Groseth, 410 NW2d at 165 (citations omitted). “The frustration must be so severe that it is not fairly to be regarded as within the risks that [they] assumed under the contract.” Id. It was surely a foreseeable possibility that CSD’s earnings on the management contract would not be sufficient to pay the note when it came due. “If the event was foreseeable when the contract was made, then the party will be presumed to have assumed the risk of its occurrence.” Id. (citing 18 Williston, Contracts § 1954 (1978); 17A CJS Contracts §§ 463(2), 464 (1963)). Thus, Paul and Mary Pat are presumed to have assumed the risk that they would have to pay their portion of the note through other means. The trial court’s summary judgment for the defendant directors, Ed Geddes and Steve Mueller, on the promissory note is affirmed.
[¶44.] 5. Whether the trial court was correct in determining no
genuine issue of material fact existed with respect to
CSR’s counterclaim for Paul and Mary Pat’s payment due
pursuant to a stock subscription agreement.
[¶45.] The minutes of CSR’s December 7, 1994, Board meeting reflect that “all shareholders and Directors present agreed to come up with their pro rata share of the . . . subscription agreements that will be signed today.” CSR asserts that the subscription agreement described in the minutes essentially involved one capital call of $500,000 that would be paid by the shareholders in two separate installments. Paul and Mary Pat, however, contend that the second installment was part of a separate contract, one they did not sign or agree upon. Therefore, we must determine whether the parties came to a meeting of the minds, with a mutual consent to contract, as to the entire sum. See Jacobson v. Gulbransen, 2001 SD 33, ¶22, 623 NW2d 84, 90 (citations omitted).
[¶46.] A contract is formed when all essential elements are met: (1) the parties are capable of contracting; (2) they consent to the subject of the contract; (3) the object of the contract is lawful; and (4) there was sufficient cause or consideration. See SDCL 53-1-2. As long as these elements are satisfied, and there is no statutory requirement that the contract be in writing, an oral contract is formed. See SDCL 53-8-1. Paul and Mary Pat do not argue that the elements of a contract were not met; they argue only that the written memorialization of the agreement was missing material terms, and therefore no meeting of the minds was achieved. It is unnecessary, however, to even consider the written agreement. Because the terms of the agreement were to be performed within one year, it is inconsequential that the subscription agreement was not signed by Paul or Mary Pat. See SDCL 53-8-2. The oral contract is binding.
[¶47.] In determining the proper interpretation of a contract, a court is to seek to ascertain and give effect to the intention of the parties. Hisgen v. Hisgen, 1996 SD 122, ¶4, 554 NW2d 494, 496 (citing Chord v. Pacer Corp., 326 NW2d 224 (SD 1982) (other citations omitted)). While they did not sign the written subscription agreement later prepared by CSR’s corporate attorney, Paul and Mary Pat attended the meeting, participated in the vote, and agreed to the stock subscription amount of $500,000. They even began performance by paying the first installment on the agreement. Furthermore, Paul, as President of the Board, prepared a letter to all shareholders describing the subscription agreement and method of payment, complete with a chart outlining the details:
The call for capital is in the sum of $500,000. A chart showing the pro rata equity contribution for shareholders is enclosed with this memorandum. This chart shows the total required contribution to capital in the column entitled Total Anticipated. The next column entitled December 10 sets forth equity contribution required immediately . . . . The third column entitled January 10 sets forth the pro rata balance of the remaining equity.
(emphasis in original). Paul’s own language indicates that he clearly understood and agreed to the terms set forth in the Board’s minutes. Therefore, we affirm the trial court’s summary judgment for CSR on the remaining installment of $59,400.
[¶48.] 6. Whether the trial court was clearly erroneous in denying
Defendant CSR’s motion for severance on grounds that
trying the cases of Al’s Oasis and CSR together would be
unfairly prejudicial.
[¶49.] Because we affirm the trial court’s summary judgment on all issues appealed by Paul and Mary Pat, with regard to CSR, there is no need to determine whether the trial court was correct in denying Defendants’ motion to sever.
[¶50.] SABERS, AMUNDSON, and KONENKAMP, Justices, and BASTIAN, Circuit Judge, concur.
[¶51.] BASTIAN, Circuit Judge, sitting for GORS, Acting Justice, disqualified.
[1] . Mary Pat was paid $11 per hour for her administrative work at CSR, which amounted to $24,000 for work performed between September 1993 and January 1995.
[2] . Paul and Mary Pat allege that the question of reasonable expectations, because it is made on a case by case basis, “is a question of fact which cannot be resolved on a motion for summary judgment.” Meiselman v. Meiselman, 307 SE2d 551, 563 (NC 1983) (citing Pierce v. Ford Motor Co., 190 F2d 910, 915 (4thCir) (holding summary judgment not appropriate unless "it is perfectly clear that no issue of fact is involved and inquiry into the facts is not desirable to clarify the application of the law."), cert. denied, 342 US 887, 72 SCt 178, 96 LEd 666 (1951)). This Court, however, has made it clear that whether conduct amounts to oppression, including the determination of reasonable expectations, is a question of law. Landstrom, 1997 SD 25 at ¶37, 561 NW2d at 7. We do not choose to adopt the position of the authority cited by Paul and Mary Pat.
[3] . The court noted that “[e]ven if an original participant had had a reasonable expectation of personal employment, after his death the surviving shareholders would not be bound to employ any dolt who happened to inherit his stock.” Gimpel, 477 NYS2d at 1019 n6.
[4] . Paul and Mary Pat’s claim that they had been deprived of their right to perpetual employment in a managerial capacity at Al’s Oasis would not, alone, constitute shareholder oppression. In Willis v. Bydalek, the court stated that discharging a minority shareholder from employment, even if the discharge is wrongful, is “simply not the sort of 'burdensome, harsh or wrongful conduct,’ or 'visible departure from the standards of fair dealing’ that may constitute shareholder oppression.” 997 SW2d 798, 802-03 (TexApp 1999). The court held, in an at-will employment state, and in light of the broad discretion given under the business judgment rule, any expectation of continued employment without an employment contract cannot be “objectively reasonable.” Id. at 803. South Dakota is also an employment at-will state. SDCL 60-4-4. Therefore, the same holds true here.
[5] . Neither Paul nor Mary Pat cite, nor could we find, any authority that requires all shareholders to be treated identically, particularly in a family-owned close corporation. See State v. Pellegrino, 1998 SD 39, ¶22, 577 NW2d 590, 599 (failure to cite supporting authority violates SDCL 15-26A-60(6) and issue is thereby waived) (additional citations omitted).
[6] . We do not go so far as to say that this illiquidity justifies a higher standard of care. While it is true that the minority shareholder who has received his shares by gift or devise “never had the opportunity to negotiate for any sort of protection,” neither was he required to expose himself to any risk. See Meiselman, 307 SE2d at 558-59.
[7] . These documents were drafted while Paul was President, discussed in shareholder meetings, and reviewed by Paul before he signed them.
[8] . Removal of an officer requires a majority vote of the seven directors. Because only three of the seven Board seats are controlled by Mueller family members, it seems unlikely and unreasonable that either Paul or Mary Pat could expect to remain officers indefinitely.
[9] . In Setliff v. Akins, 2000 SD 124, ¶35, 616 NW2d 878, 889, we recognized that a valid business relationship need not be cemented by contract. At-will employment relationships may be valid business relationships for the purpose of establishing a cause of action for tortious interference. Id. at n6.
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