Johnson v. Miller , 818 N.W.2d 804 ( 2012 )

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2012 S.D. 61IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
ARLA M. JOHNSON, Plaintiff and Appellee,
v.
CLAUDE S. MILLER, Defendant and Appellant.
****
APPEAL FROM THE CIRCUIT COURT OF
THE FIRST JUDICIAL CIRCUIT
DAVISON COUNTY, SOUTH DAKOTA
****
THE HONORABLE TIMOTHY W. BJORKMAN
Judge
****
MARK V. MEIERHENRY
WILLIAM E. BLEWETT of
Meierhenry & Sargent, LLP
Sioux Falls, South Dakota Attorneys for plaintiff
and appellee.
STEVEN R. BINGER
Sioux Falls, South Dakota Attorney for defendant
and appellant.
****
CONSIDERED ON BRIEFS
ON APRIL 17, 2012
OPINION FILED 08/15/12
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GILBERTSON, Chief Justice
[¶1.] Arla Johnson deeded farmland to her daughter, Linda, and son-in-law,
Claude Miller. Linda subsequently filed for divorce from Claude. Arla then sued
Claude, claiming she was fraudulently induced by him into deeding the land. The
circuit court granted summary judgment in favor of Claude. Claude appeals the
denial of his motion for attorney’s fees. We affirm.
FACTS
[¶2.] Claude and Linda Miller were married in 1992. Shortly after, Arla
began to rent her farmland to them. They established an arrangement whereby
Arla paid one-third of the expenses and received one-third of the profits. This
arrangement continued for approximately 16 years. Claude handled all the day-to-
day operations of the farm.
[¶3.] In January 2008, Arla decided Linda and Claude had paid enough over
the years to deserve ownership of the land. Arla’s attorney drew up the deeds and
she then gifted the farm real estate to Linda, her only daughter, and Claude. For
one dollar consideration, Arla conveyed via warranty deeds approximately 720 acres
of land, granting Linda and Claude joint tenancy with right of survivorship. There
were no conditions on the deeds. Arla testified at her deposition that she did not
discuss deeding the land to Claude and Linda before she went to her attorney to
have the deeds drawn.
[¶4.] In October 2009, Linda filed for divorce. Desiring the land to stay in
the family, Arla sued Claude, alleging she was fraudulently induced to deed the
land. She contended that Claude made promises and statements that he would
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continue to farm the land and raise his family there. Arla also asserted that
Claude’s alleged promise to continue to be Linda’s husband was consideration for
transferring the land to him. Arla’s request for relief was to have the land’s
ownership restored to her and any other equitable remedy the court believed
appropriate.
[¶5.] Depositions were taken of both Arla and Claude. After a hearing, the
circuit court granted summary judgment in favor of Claude. The court found that
its primary reason for granting summary judgment was Arla’s deposition testimony.
No appeal was taken from the grant of summary judgment.
[¶6.] Claude filed a motion requesting attorney’s fees under SDCL 15-17-51.
The court held a hearing on the request. The attorneys presented arguments, but
there was no testimony. The court stated at the hearing that a claim for fraudulent
inducement was well-grounded in the law and that this case turned on fact
questions. The circuit court denied Claude’s motion for attorney’s fees and entered
findings of fact and conclusions of law. On appeal, Claude alleges the court erred in
determining Arla’s suit was not “frivolous or brought for malicious purposes.”
STANDARD OF REVIEW
[¶7.] “We review a trial court’s ruling on the allowance or disallowance of
costs and attorney fees under an abuse of discretion standard.” Stratmeyer v.
Engberg, 2002 S.D. 91, ¶ 12, 649 N.W.2d 921, 925 (quoting Eccleston v. State Farm
Mut. Auto. Ins. Co., 1998 S.D. 116, ¶ 20, 587 N.W.2d 580, 583). 1 “An abuse of
1. We disagree with Claude’s assertion that the standard of review is de novo.
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discretion refers to a discretion exercised to an end or purpose not justified by, and
clearly against reason and evidence.” Ronan v. Sanford Health, 2012 S.D. 6, ¶ 8,
809 N.W.2d 834, 836 (quoting St. John v. Peterson, 2011 S.D. 58, ¶ 10, 804 N.W.2d
71, 74). “We will overturn the trial court’s findings of fact on appeal only when a
complete review of the evidence leaves the Court with a definite and firm conviction
that a mistake has been made.” Nemec v. Goeman, 2012 S.D. 14, ¶ 11, 810 N.W.2d
443, 446 (quoting Pietrzak v. Schroeder, 2009 S.D. 1, ¶ 38, 759 N.W.2d 734, 744).
ANALYSIS
[¶8.] SDCL 15-17-51 provides:
If a civil action or special proceeding is dismissed and if the
court determines that it was frivolous or brought for malicious
purposes, the court shall order the party whose cause of action
or defense was dismissed to pay part or all expenses incurred by
the person defending the matter, including reasonable attorneys’
fees.
The terms “frivolous” and “malicious” are stated in the alternative. To recover
attorney’s fees, the applicant must prove at least one of these conditions. After a
hearing, the circuit court held that Arla’s action was not frivolous or malicious.
Malicious
[¶9.] We have previously “held that an action is malicious if it ‘is begun in
malice, and without probable cause to believe it can succeed, and which finally ends
in failure.’” Stratmeyer, 2002 S.D. 91, ¶ 20, 649 N.W.2d at 926 (emphasis added)
(quoting Michlitsch v. Meyer, 1999 S.D. 69, ¶ 19, 594 N.W.2d 731, 735).
Malice “exists when the proceedings are instituted primarily for
an improper purpose.” An improper purpose occurs in situations
where:
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the plaintiff in the original action was actuated by any
unjustifiable motive, as where he did not believe his claim would
be held valid, or where his primary motive was hostility or ill
will, or where his sole purpose was to deprive the defendant of a
beneficial use of his property or to force a settlement having no
relation to the merits of the claim.
Id. (quoting Manuel v. Wilka, 2000 S.D. 61, ¶ 39, 610 N.W.2d 458, 465).
[¶10.] The circuit court found that Claude failed to establish facts that would
indicate Arla instituted the action for malicious purposes. The court also found that
Arla’s motive was “to recover title to a sizeable amount of real estate.” Claude
asserts the claim was malicious because it was only filed after he and Linda had
begun divorce proceedings. He also points to Arla’s testimony that they had not
discussed deeding the land until it was actually done and the fact that Linda was
not named as a defendant.
[¶11.] The complaint asserts that Claude had “promised” to continue to be
Linda’s husband and farm the land. She specifically testified that when she signed
the deeds, she “figured [she] was giving the land to Linda and the kids” and Claude
was “just kind of the caretaker . . . there to kind of do the work and be a support to
them.” Arla repeatedly testified that her motivation for filing suit was to keep the
land in the family. 2 Arla expressed feelings of disappointment and dissatisfaction
towards Claude as a farmer and as a husband and father. However, the record does
not demonstrate feelings of malice, ill will, or hostility by Arla against Claude.
2. We note that the Legislature has recognized the value of retaining farmland
in a family farm setting. See SDCL 47-9A-1. “The Legislature of the State of
South Dakota recognizes the importance of the family farm to the economic
and moral stability of the state . . . .”
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Further, there is no indication that Arla believed her claim would not be held valid,
or that she was simply trying to force a settlement. The court’s discretion in
determining the claim was not malicious has not been shown to be “clearly against
reason and evidence.” The record does not support a conclusion that Arla brought
the suit for malicious purposes or that the court’s findings were clearly erroneous.
Frivolous
[¶12.] We have previously stated:
A frivolous action exists when the proponent can present no
rational argument based on the evidence or law in support of the
claim. To fall to the level of frivolousness there must be such a
deficiency in fact or law that no reasonable person could expect a
favorable judicial ruling. Frivolousness connotes an improper
motive or a legal position so wholly without merit as to be
ridiculous.
Citibank (S.D.), N.A. v. Hauff, 2003 S.D. 99, ¶ 31, 668 N.W.2d 528, 537 (quoting
Ridley v. Lawrence Cnty. Comm’n, 2000 S.D. 143, ¶ 14, 619 N.W.2d 254, 259).
Because of the language “no reasonable person could expect a favorable judicial
ruling,” id., we examine whether a claim or defense is frivolous by an objective
standard. 3
[¶13.] Arla sued claiming fraudulent inducement. “Fraudulent inducement
requires willful deceit and intent to induce another to alter his position.” Schwaiger
v. Mitchell Radiology Assocs., P.C., 2002 S.D. 97, ¶ 15, 652 N.W.2d 372, 379. “For a
3. Of course, if a person asserts a claim or defense subjectively knowing that
there is no basis, that claim or defense could be deemed frivolous. See Hobart
v. Ferebee, 2009 S.D. 101, ¶ 28, 776 N.W.2d 67, 75 (affirming award of
attorney’s fees after repeated motions were made on previously litigated
issues). The claim or defense might also be based on an improper motive or
be malicious, depending on the factual situation.
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theory based upon fraud to succeed, it is not enough that one party intend to
defraud another. It is also necessary that the fraudulent behavior induced the other
party to act to its detriment.” Fenske Media Corp. v. Banta Corp., 2004 S.D. 23, ¶
12, 676 N.W.2d 390, 394 (citing Cleveland v. BDL Enters., Inc., 2003 S.D. 54, ¶ 26,
663 N.W.2d 212, 220). Although the circuit court granted summary judgment
against Arla, the court found and concluded that Arla’s suit was not frivolous.
[¶14.] A claim can be frivolous from its inception.
To determine whether sanctions are appropriate [because a
claim or defense is frivolous], it is necessary to determine
whether there was a reasonable basis to believe that the facts
supporting the claim were true at the time the lawsuit was filed .
. . . No experienced attorney or judge would dispute the fact
that discovery and other circumstances during the course of
litigation effect the evaluation of a case and its potential
outcome if tried. If this were not true, there would seldom, if
ever, be settlement of a case before trial. There is a significant
difference between bringing a lawsuit with no basis in law or
fact at the outset and failing to present sufficient evidence to
justify relief at trial.
Louya v. William Beaumont Hosp., 475 N.W.2d 434, 439 (Mich. 1991). A claim may
not initially be, or appear to be, frivolous. However, it may become apparent
through discovery and other case developments that a claim or defense has become
frivolous under the standard set forth in our case law. Therefore, courts can
analyze whether an action is frivolous at the inception of the claim or defense, or
became frivolous anytime thereafter.
[¶15.] There is no specific allegation, determination, or evidence that Arla’s
claim was frivolous at the time it was filed. From the record, there is no evidence
that a reasonable person could not have expected a favorable judicial ruling. Arla
testified to wanting to keep the land in the family, which is not unreasonable in
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family farm operations, but soon after the land was deeded, problems in the
marriage led Linda to file for divorce. Because of some of the problems, Arla was
concerned that her grandchildren would not end up with the land. Arla also
testified that as a renter, Claude was expected to take care of the land and
buildings, but that he had not sufficiently done so. She testified that in deeding the
land, she thought Claude would take better care of it. It is not unreasonable to
expect that someone would care more for property they own rather than rent. When
Claude’s care for the land did not improve, Arla filed this suit. Because Arla’s
thoughts could be those of a reasonable person, Claude has not shown that the
claim was frivolous at the time it was filed. 4
4. We note that there is no allegation that Arla’s counsel violated SDCL 15-6-
11(b) in this case, i.e., that her counsel acted improperly. SDCL 15-6-11(b)
provides:
By presenting to the court (whether by signing, filing,
submitting, or later advocating) a pleading, written motion, or
other paper, an attorney or unrepresented party is certifying
that to the best of the person's knowledge, information, and
belief, formed after an inquiry reasonable under the
circumstances:
(1) It is not being presented for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase in the
cost of litigation;
(2) The claims, defenses, and other legal contentions therein are
warranted by existing law or by a nonfrivolous argument for the
extension, modification, or reversal of existing law or the
establishment of new law;
(3) The allegations and other factual contentions have
evidentiary support or, if specifically so identified, are likely to
have evidentiary support after a reasonable opportunity for
further investigation or discovery; and
(4) The denials of factual contentions are warranted on the
evidence or, if specifically so identified, are reasonably based on
a lack of information or belief.
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[¶16.] As noted, it is possible for a claim or defense to become frivolous as the
case evolves. In asserting that the circuit court erred, Claude relies on Arla’s
deposition testimony, claiming that it “contradicted and refuted the claims made in
her complaint.” Claude focuses on Arla’s testimony that she did not discuss deeding
the land to Claude and Linda before doing so, and that she made the decision on her
own. From this testimony and the subsequent grant of summary judgment, Claude
infers that her claim was frivolous.
[¶17.] A grant of summary judgment does not mean that the claim was
frivolous. “Simply because a claim or defense is adjudged to be without merit does
not mean that it is frivolous.” Stratmeyer, 2002 S.D. 91, ¶ 17, 649 N.W.2d at 926(quoting Ridley, 2000 S.D. 143, ¶ 14, 619 N.W.2d at 259). Furthermore, we have
previously stated that we do not apply the test for frivolity to “meritorious actions
that prove unsuccessful, legitimate attempts to establish a new theory of law, or
good-faith efforts to extend, modify, or reverse existing law.” Hartman v. Wood, 436
N.W.2d 854, 857 (S.D. 1989) (quoting W. United Realty, Inc. v. Isaacs, 679 P.2d
1063, 1069 (Colo. 1984)).
[¶18.] Here, when the motion for attorney’s fees was made, the court had
nothing to examine in determining frivolousness except depositions. Arla’s
testimony ultimately defeated her case on its merits, but Claude has not met his
burden of showing that she could not present a “rational argument based on the
evidence or law,” or that there was “such a deficiency in fact or law that no
reasonable person could expect a favorable ruling.” Citibank v. Hauff, 2003 S.D. 99,
¶ 31, 668 N.W.2d 528, 537. Arla alleged a recognized cause of action that she
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believed fit her situation. Claude has not shown that a reasonable person would not
have agreed with Arla. “Any doubt about whether or not a legal position is frivolous
or taken in bad faith must be resolved in favor of the party whose legal position is in
question.” Ridley, 2000 S.D. 143, ¶ 15, 619 N.W.2d at 260.
[¶19.] “The court’s decision to deny a motion for attorney fees is reviewed
under an abuse of discretion standard.” Stratmeyer, 2002 S.D. 91, ¶ 18, 649 N.W.2d
at 926. Admittedly this case is a close call. Had the court awarded attorney’s fees,
that decision could have also stood up under an abuse of discretion analysis.
Herein, there simply is not enough in the depositions, and too many inferences need
to be drawn from the testimony, to overcome the standard of review. On this
record, we do not have a “definite and firm conviction that a mistake has been
made.” Claude has not shown that the court abused its discretion. We affirm.
[¶20.] SEVERSON, Justice, concurs.
[¶21.] KONENKAMP, Justice, concurs specially.
[¶22.] ZINTER and WILBUR, Justices, dissent.
KONENKAMP, Justice (concurring specially).
[¶23.] “Frivolous” is an elusive word. In enacting SDCL 15-17-51, our
Legislature supplied no definition of what constitutes a frivolous civil action. Can it
mean that any case dismissed for inadequate evidence or legal support will be
deemed frivolous? After all, claims can be dismissed under such statutes as SDCL
15-5-9, SDCL 15-6-12, SDCL 15-6-41, SDCL 15-6-50, and SDCL 15-6-56, to cite only
a few. In every instance where a cause of action is dismissed on summary
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judgment, for example, will the dismissal result in a finding that the claim was
frivolous? A rigid interpretation of SDCL 15-17-51 would mandate such a result.
[¶24.] We are not alone in struggling to find an effective legal definition.
“Numerous courts encounter[] difficulty defining the term, articulating consistent
standards for identifying it, and providing clear guidance to counsel and litigants.”
Carl Tobias, The 1993 Revision to Federal Rule 11, 70 Ind. L.J. 171, 196 (1994).
Judge Easterbrook, joined by Judge Posner, once imposed sanctions for a frivolous
claim, describing the plaintiff’s theory as “wacky, sanctionably so.” Szabo Food
Serv., Inc. v. Canteen Corp., 823 F.2d 1073, 1080 (7th Cir. 1987). Another case
labeled a claim “vacuous.” Frantz, v. United States Powerlifting Fed’n, 836 F.2d
1063, 1068 (7th Cir. 1987). As a synonym for frivolous, we use “ridiculous.” Ridley
v. Lawrence Cnty. Comm’n, 2000 S.D. 143, ¶ 14, 619 N.W.2d 254, 259 (citation
omitted). Perhaps the most helpful guidance comes from Judge Weinstein’s
dictionary definition:
“Frivolous” is of the same order of magnitude as “less than a
scintilla.” It is defined in Webster’s Third New International
Dictionary (1967) as “of little weight or importance: having no
basis in law or fact: light, slight, sham, irrelevant, superficial.”
The Oxford English Dictionary (1971) defines it as “[o]f little or
no weight, value or importance; paltry; trumpery; not worthy of
serious attention; having no reasonable ground or purpose . . .
In pleading: Manifestly insufficient or futile.”
Eastway Constr. Corp. v. City of New York (Eastway II), 637 F. Supp. 558, 565 (E.D.
N.Y. 1986). Can we say that the circuit court here abused its discretion in failing to
expose this case as trumpery, a sham, lacking a scintilla of merit, vacuous, paltry,
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ridiculous, or wacky? “Frivolous” surely connotes something worse than simply
failing for lack of merit.
[¶25.] The difficulty here illustrates why our standard of review is crucial.
The appellant urges us to adopt a de novo review. The United States Supreme
Court dealt with this very issue at a time when Federal Rule 11 contained a
provision similar to the language in SDCL 15-17-51. Between 1983 and 1993, Rule
11 provided that trial courts “shall” impose upon the attorney or the attorney’s
client “an appropriate sanction” for a frivolous filing, which may include “a
reasonable attorney’s fee.” See Federal Rule of Civil Procedure 11 (from 1983 to
1993). In reviewing trial court rulings on allegations of frivolousness, several
federal circuits took either a full de novo review or a three-tiered review, using, in
turn, abuse of discretion, clearly erroneous, and de novo standards.
[¶26.] Rejecting these approaches, the Supreme Court ruled that “appellate
courts should review all aspects of a district court’s imposition of Rule 11 sanctions
under a deferential standard,” including the trial court’s legal conclusions. Cooter &
Gell v. Hartmarx Corp., 496 U.S. 384, 401, 110 S. Ct. 2447, 2458, 110 L. Ed. 2d 359(1990). Of course, an abuse of discretion could be established if the trial court
“based its ruling on an erroneous view of the law or on a clearly erroneous
assessment of the evidence.” Id. at 405, 110 S. Ct. at 2461. But the Court cautioned
that simply because “sanctions ‘shall’ be imposed when a violation is found does not
have any bearing on how to review the question whether the attorney’s conduct
violated Rule 11.” Id. at 404, 110 S. Ct. at 2460. Thus, the Court applied “a unitary
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abuse-of-discretion standard to all aspects of a Rule 11 proceeding.” Id. at 403, 110
S. Ct. at 2459.
[¶27.] As Justice O’Connor explained, de novo review would require investing
“time and energy in the unproductive task of determining ‘not what the law now is,
but what [a party] was substantially justified in believing it to have been.’” Id.(citations omitted). An appellate court “would be required to determine whether, at
the time the attorney filed the pleading[,] . . . his legal argument would have
appeared plausible.” Id. at 403-04, 110 S. Ct. at 2460. These rulings “‘will either
fail to produce the normal law-clarifying benefits that come from an appellate
decision on a question of law, or else will strangely distort the appellate process’ by
establishing . . . law in ‘a most peculiar, secondhanded fashion.’” Id. (citation
omitted).
[¶28.] Trial courts are better acquainted with “the local bar’s litigation
practices and thus best situated to determine when a sanction is warranted to serve
[the statute’s] goal of specific and general deterrence.” Id. Indeed, “[d]eference to
the determination of courts on the front lines of litigation will enhance these courts’
ability to control the litigants before them.” Id. And this unburdens the appellate
process “from the duty of reweighing evidence and reconsidering facts already
weighed and considered[.]” Id. It also discourages “litigants from pursuing
marginal appeals, thus reducing the amount of satellite litigation.” Id.[¶29.] Concern over unnecessary satellite litigation cannot be overstressed.
While deterring irresponsible and abusive lawsuits, SDCL 15-17-51 should not be so
misconstrued as to chill ingenuity in advocacy and the beneficial development of the
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law. A heavy-handed application of this statute would convert it from being a
safeguard against nonsense lawsuits into a whole new source for derivative
litigation over demands for attorney’s fees. To complicate matters, were we to take
plenary review of claims for frivolous filings, we would not just be the final arbiters
on any appeal of a dismissal, but also the final judges on all the inevitable
accompanying claims that these dismissed cases were frivolous.
[¶30.] What claims are frivolous, in any event, raises delicate questions, not
easily susceptible to bright-line rules. A finding of frivolousness, therefore, should
be reserved for “exceptional circumstances.” See Garr v. United States Healthcare,
Inc., 22 F.3d 1274, 1281 (3d Cir. 1984) (citation omitted). Of course, SDCL 15-17-51
should have its bite. But misuse of this statute as a tonic for the perception that we
are steeped in bogus civil filings could impair open access to our courts embodied in
South Dakota’s Constitution and in the tolerant pleading scheme of our rules of civil
procedure. See S.D. Const. art VI, § 20; SDCL ch. 15-6. Truly not every claim
dismissed for “lack [of] any merit” is legally frivolous. See Gurary v. Nu-Tech Bio-
Med, Inc., 303 F.3d 212, 221 (2d Cir. 2002); see also Ridley, 2000 S.D. 143, ¶¶ 14, 15,
619 N.W.2d at 259-60.
[¶31.] Doubts about frivolousness should inure, at the very least, to the
benefit of responsible counsel. It is one thing to say, as we did in Ferebee v. Hobart,
that multiple pro se resubmissions of previously decided motions were frivolous; it
is quite another to declare that a good faith but unsuccessful argument on a weighty
issue made by experienced counsel should also be deemed frivolous. See 2009 S.D.
102, ¶ 25, 776 N.W.2d 58, 65. In truth, this case was far from insubstantial: a
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grandmother deeded her multi-million dollar farmland to her daughter and son-in-
law, mistakenly believing that they would remain married and pass the farm
ultimately to the grandchildren.
[¶32.] Adding to our concern, a finding of frivolousness suggests that the
attorney submitting such a pleading has committed unethical conduct. Under
South Dakota’s Rules of Professional Conduct, Rule 3.1, “A lawyer shall not bring or
defend a proceeding, or assert or controvert an issue therein, unless there is a basis
in law and fact for doing so that is not frivolous. . . .” SDCL ch. 16-18, App. Rule 3.1
(emphasis added). Unlike Rule 11, however, SDCL 15-17-51 only applies to parties,
not their attorneys. Are clients, then, to be held to a higher pleading standard than
counsel? Of course not, as that would ascribe to clients greater legal expertise than
their attorneys.
[¶33.] Accordingly, we must consider the commentary to Rule 3.1: “The filing
of an action or defense or similar action taken for a client is not frivolous merely
because the facts have not first been fully substantiated or because the lawyer
expects to develop vital evidence only by discovery. . . .” SDCL ch. 16-18, App. Rule
3.1. Nor is an action “frivolous even though the lawyer believes that the client’s
position ultimately will not prevail.” Id. On the other hand, an “action is frivolous .
. . if the lawyer is unable either to make a good faith argument on the merits of the
action taken or to support the action taken by a good faith argument for an
extension, codification or reversal of existing law.” Id. (emphasis added).
[¶34.] Litigants can ordinarily (and rightly) anticipate that significant
evidence may only become available during discovery after a lawsuit starts. This
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case did not come up for summary judgment consideration until after both the
plaintiff’s and the defendant’s depositions were taken. Any case can take
unexpected turns even with the best preparation. Thus, our judgment should not be
skewed by the convenience of hindsight. See Oliveri v. Thompson, 803 F.2d 1265,
1275 (2d Cir. 1986). The objective reasonableness of a party’s actions under the
circumstances known to him or her should be examined at the time the
questionable pleading was submitted. See Bus. Guides, Inc. v. Chromatic Commc’ns
Enters., Inc., 498 U.S. 533, 548-49, 551, 111 S. Ct. 922, 931-32, 933-34, 112 L. Ed.3d
1140 (1991).
[¶35.] Judge Weinstein called for a “frank recognition of the fact that rather
than being adequately described by the frivolous-nonfrivolous dichotomy, cases
really do lie along a continuum. Some are clearly frivolous, some clearly
nonfrivolous, and some are difficult to call.” Eastway II, 637 F. Supp. at 574. As
our Court notes here, this case was close. Yet a lawyer has an ethical duty to
zealously assert a client’s cause, even if that cause might come close to frivolous. A
narrow interpretation of SDCL 15-17-51 would impose strict liability for attorney’s
fees no matter how slightly the line was crossed.
[¶36.] All these considerations lead to the conclusion that rulings on whether
an action was frivolous should be left to the discretion of the judges on the front
lines of litigation. Deferential review gives trial courts “the necessary flexibility to
resolve questions involving ‘multifarious, fleeting, special, narrow facts that utterly
resist generalization.’” Cooter & Gell, 496 U.S. at 404, 110 S. Ct. at 2460 (citation
omitted). Under the proper standard of review, the trial court was within its
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discretion in ruling that this case was not frivolous. As an appellate court, our
function is to decide what the law is — not to decide, as a question of law, whether a
party made a good faith argument in believing what the law was or should have
been.
ZINTER, Justice (dissenting).
[¶37.] There is no dispute regarding the factual basis or the motivation for
Arla Johnson’s suit. Arla was the only witness on the matter. She candidly
admitted that she did not sue Claude because she had relied on any promise or
statement Claude made that induced her to gift the land. She testified that she
made the decision to gift the land on her own, without any input from Claude, and
with the assistance of her own attorney. Arla also candidly admitted that her
motivation for the suit was: her “mistake” in originally gifting the land; her
daughter Linda’s pending divorce from Claude; and her desire to obtain the land for
Linda and the grandchildren. The facts of this case reflect that Arla never
possessed any factual basis to support any argument establishing fraud. Further,
not one of Arla’s stated purposes for suing Claude related to alleged fraud.
Therefore, although I agree that every case dismissed for inadequate evidence or
lack of legal support is not subject to SDCL 15-17-51, the circuit court abused its
discretion in determining that Arla’s suit was not frivolous and not brought for
improper purposes.
[¶38.] Prior to 1997, attorney’s fees were awardable as a matter of discretion
under SDCL 15-17-51. At that time, the statute provided that a circuit court “may”
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award attorney’s fees if a suit was frivolous or brought for malicious purposes. Id.(1996). In 1997, a bill was passed “to require the mandatory payment of costs and
attorney’s fees in frivolous or malicious actions.” See Senate Bill 178, adopted as
1997 S.D. Sess. Laws ch. 113, § 1. Under the new Act, the Legislature directed that
attorney’s fees “shall” be awarded if a suit is frivolous or brought for malicious
purposes. Id. Consequently, if an action is frivolous or malicious, attorney’s fees
are now mandated. Gronau v. Wuebker, 2003 S.D. 116, ¶ 6, 670 N.W.2d 380, 382.
Although the majority’s authority for discretionary review is based on the prior
discretionary statute, 5 we need not determine whether the mandatory language of
the new statute requires a different standard of review in this case. 6 As explained
5. See supra ¶ 7 (quoting Stratmeyer v. Engberg, 2002 S.D. 91, ¶ 12, 649 N.W.2d
921, 925 (quoting Eccleston v. State Farm Mut. Auto. Ins. Co., 1998 S.D. 116,
¶ 20, 587 N.W.2d 580, 583 (citing Fullmer v. State Farm Ins. Co., 498 N.W.2d
357, 363 (S.D. 1993)))).
6. The special concurrence argues for an abuse of discretion standard based on
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S. Ct. 2447, 110 L. Ed. 2d
359 (1990). Cooter applied a unitary abuse of discretion standard of review to
appeals involving sanctions under former Federal Rule 11. Special
concurrence ¶¶ 25-26. Even though former Rule 11 provided that the trial
court “shall” award some sanction, the rule vested the trial court with
discretion to determine the “appropriate” sanction. The rule specifically
provided that the trial court “may” include an order to pay attorney’s fees.
The rule provided in relevant part:
If a pleading, motion, or other paper is signed in violation of this
rule, the court, upon motion or upon its own initiative, shall
impose upon the person who signed it, a represented party, or
both, an appropriate sanction, which may include an order to
pay to the other party or parties the amount of the reasonable
expenses incurred because of the filing of the pleading, motion,
or other paper, including a reasonable attorney’s fee.
(continued . . .)
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below, this case should be reversed even under the abuse of discretion standard of
review.
[¶39.] The definitions of frivolous and malicious are settled in this
jurisdiction. In our last case on the matter, we noted that a “frivolous action exists
when the proponent can present no rational argument based on the evidence or law
in support of the claim. To fall to the level of frivolousness there must be such a
deficiency in fact or law that no reasonable person could expect a favorable judicial
ruling.” Citibank (S.D.), N.A. v. Hauff, 2003 S.D. 99, ¶ 31, 668 N.W.2d 528, 537
(citations and internal quotation marks omitted). The special concurrence agrees,
noting that the dictionary definition of frivolous suits includes those “having no
basis in law or fact.” See special concurrence ¶ 24. “A malicious action is one
brought for an improper, unjustifiable motive.” Citibank, 2003 S.D. 99, ¶ 32, 668
N.W.2d at 537. “Malice exists when the proceedings are instituted primarily for an
improper purpose. An improper purpose [includes] situations where . . . [the]
primary motive was hostility or ill will, or where [the] sole purpose was to deprive
the defendant of a beneficial use of his property . . . .” Id. (internal quotation marks
omitted).
_______________________________
(. . . continued)
Cooter, 496 U.S. at 392, 110 S. Ct. at 2454 (emphasis added). Unlike SDCL
15-17-51, an award of attorney fees under this version of Rule 11 was
discretionary. The Supreme Court specifically noted that the attorney’s fee
“sanction may, but need not, include payment of the other parties’ expenses.”
Id. at 393, 110 S. Ct. at 2454.
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[¶40.] In this case, Arla’s suit was both frivolous and brought for improper
purposes. Arla’s April 2010 suit alleged that Claude had fraudulently induced her
into transferring the property in January 2008. The elements of fraud require:
[T]hat a representation was made as a statement of fact, which
was untrue and known to be untrue by the party making it, or
else recklessly made; that it was made with intent to deceive
and for the purpose of inducing the other party to act upon it;
and that he did in fact rely on it and was induced thereby to act
to his injury or damage.
N. Am. Truck & Trailer, Inc. v. M.C.I. Commc’n Servs., Inc., 2008 S.D. 45, ¶ 8, 751
N.W.2d 710, 713 (alteration in original). Accordingly, Arla specifically pleaded that
she transferred the property “in reliance” on a number of “promises, statements,
and understandings” that Claude had given her. She pleaded that she relied on
“promises and statements” that Claude would “continue to farm the land,” he would
“raise his family there,” and he would “continue to be a husband to [his wife].” Arla
finally pleaded that Claude “had no intention of keeping” his promises.
[¶41.] But when Arla was deposed, it became evident that she never
possessed, and never anticipated that she would develop, any factual basis to
support any of these allegations. Arla admitted that she had not relied on any
promises, statements, or understandings in gifting the land to Linda and Claude.
Arla testified that she made the decision on her own in late 2007 and considered the
transfer to be an unconditional gift. She explained that at the time of the transfer,
she felt that Linda and Claude had worked hard enough and paid enough over the
years “to qualify them to obtain ownership” of the land. She was even aware of
Linda and Claude’s marriage problems at that time, but she “thought maybe then
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things would straighten out . . . .” She also admitted that she had consulted with
her personal attorney before making the gift, and she had gifted the property
without any input or knowledge of Claude or Linda. Arla conceded that there had
never been any discussions about the land transfer with Claude or Linda until after
she had already filed the deeds. Therefore, the circuit court specifically found—a
finding that is not contested by Arla or the majority—“that there were no
conversations between [Arla] and [Claude] in which [Claude] induced her to deed
her farmland to [Claude] and [Linda].”
[¶42.] Under these undisputed facts, Arla’s suit was frivolous as a matter of
law. Arla could not identify any rational argument to support her pleaded claim
that she had relied on fraudulent promises, statements, and understandings to
induce her to gift the land to her daughter and son-in-law. As the majority
recognizes, “[i]t is . . . necessary that the fraudulent behavior induced the other
party to act to its detriment.” Fenske Media Corp. v. Banta Corp., 2004 S.D. 23, ¶
12, 676 N.W.2d 390, 394 (citing Cleveland v. BDL Enters., Inc., 2003 S.D. 54, ¶ 26,
663 N.W.2d 212, 220); supra ¶ 13.
[¶43.] The majority relies on Arla’s subjective expectations that induced her
to gift the land. The majority reasons: “[Arla] specifically testified that when she
signed the deeds, she ‘figured [she] was giving the land to Linda and the kids’ and
Claude was ‘just kind of the caretaker . . . there to kind of do the work and be a
support to them.’” Supra ¶ 11 (emphasis added). But this expectation was not
reasonable. And even if it were, it is well established that Arla’s “subjective
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expectation[s] . . . cannot rise to the level of fraudulent inducement.” See Schwaiger
v. Mitchell Radiology Assocs., P.C., 2002 S.D. 97, ¶ 15, 652 N.W.2d 372, 379.
[¶44.] The majority also reasons that a reasonable person could have
expected a favorable judicial ruling on Arla’s claim for fraud because “Arla testified
to wanting to keep the land in the family, . . . but soon after the land was deeded,
problems in the marriage led Linda to file for divorce.” Supra ¶ 15 (emphasis
added). This reasoning highlights the majority’s error. Arla’s wish to keep the land
in the family when family problems developed after the gift cannot be the factual
basis for a claim for fraud in the inducement: Arla admitted that there had been no
conversations to induce Arla to gift the land in the first place.
[¶45.] The majority’s reliance on Arla’s other family concerns is also
misplaced. Although Arla’s “thoughts” about her grandchildren, the divorce, and
Claude’s ability as a farmer “could be those of a reasonable” grandmother, see supra
¶ 15, no reasonable person could have believed that such thoughts supported a
claim of fraud. Arla’s suit was frivolous because she could “present no rational
argument based on the evidence or law in support of [her] claim” that she was
fraudulently induced to gift the land when she made the decision. See Citibank,
2003 S.D. 99, ¶ 31, 668 N.W.2d at 537.
[¶46.] Arla’s claim was malicious because she conceded that her motives and
purpose for her lawsuit had nothing to do with her pleaded contention that the gift
was induced by fraud. Arla testified she brought the suit because in December
2009, she learned that Linda and Claude were divorcing, and she then believed that
she had made a “mistake” in originally gifting the property. She indicated that she
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“regret[ed] that [she] had ever done this” because of “how Linda and the kids were
treated afterwards.” Thus, Arla repeatedly testified that she should not have gifted
the property to Claude and Linda in the first place. She indicated it was “stupid”
and a “mistake.” She admitted that even prior to the gift, she knew “things were
going downhill” and “should have realized” things in the family were not going the
way she had hoped. The majority concedes that these were reasons for the lawsuit.
See supra ¶ 15; special concurrence ¶ 31. But these reasons are all predicated on
mistake, and Arla did not sue or argue for rescission based on mistake. She sued
for fraud. Obviously, the desire to correct a mistake is not a proper purpose to sue
another for fraud.
[¶47.] Furthermore, contrary to the majority’s argument, Arla admitted that
the April 2010 suit was motivated by hostility towards Claude and her desire to
obtain his land for her daughter and grandchildren. Arla repeatedly referenced the
divorce and related hostility, stating that she sued because “if you [(Claude)] don’t
care anymore for [Linda], then you don’t care for this ground.” The majority agrees
that Arla brought the suit because Linda and Claude were divorcing and Arla
wanted the land to stay in the family. Supra ¶¶ 3-4, 15. We should reverse the
circuit court. “Hostility” and “depriv[ing] [a] defendant of a beneficial use of his
property” are “unjustifiable” motives establishing malice as a matter of law.
Citibank, 2003 S.D. 99, ¶ 32, 668 N.W.2d at 537.
[¶48.] The uncontested facts also establish improper motives because Arla
conceded she brought the suit for other reasons wholly unrelated to her pleaded
claim of fraud. Arla testified that she sued because she believed that Claude had let
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the farm become run-down, she believed Claude had not “shared” with her
daughter, Arla believed Claude was bribing the grandchildren to stay with him and
kept it a secret where they were living, and Claude had not encouraged the
grandchildren to see Arla more often. Arla repeatedly conceded that there was no
other reason why she was suing Claude for fraudulent inducement. But not one of
these reasons—especially the majority’s reliance on Arla’s “feelings of
disappointment and dissatisfaction towards Claude as a farmer and as a husband
and father,” supra ¶ 11—are a proper purpose for suing another for fraud.
[¶49.] The majority reasons that the suit was filed for proper purposes
because the “motivation for filing suit was to keep the land in the family.” Supra ¶
11. According to the majority, this motivation is a proper purpose to sue someone
for fraud because the Legislature recognizes the value of family farming.
We note that the Legislature has recognized the value of
retaining farmland in a family farm setting. See SDCL 47-9A-1.
“The Legislature of the State of South Dakota recognizes the
importance of the family farm to the economic and moral
stability of the state . . . .” [Id.]
Id. n.2. But the question in this case is a factual matter whether Arla ever
possessed any basis for claiming that she had been defrauded at the time she gifted
the land. The Legislature’s view of the value of family farming in South Dakota is
irrelevant to that question of fact. I would not let feelings regarding family farming
color the outcome of an individual case involving a factual claim of fraud.
[¶50.] The circuit court should be reversed even under the abuse of discretion
standard of review. The circuit court found no malice without considering Arla’s
motives for bringing the suit. The court reasoned that there was no malice solely
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because Arla was “attempt[ing] to recover title to a sizable amount of real estate.”
The circuit court erred in focusing only on “what” Arla was attempting to do. The
circuit court failed to assess the relevant evidence; i.e. Arla’s motives for attempting
to recover the real estate. A trial court abuses its discretion when it bases its
decision on a clearly erroneous “assessment of the evidence” in a request for
sanctions. Cooter, 496 U.S. at 405, 110 S. Ct. at 2461. Further, because Arla did
not argue that any of her motives or purposes were related to fraud, the circuit
court’s decision was “against reason and evidence,” constituting an abuse of
discretion. See supra ¶ 11; Gross v. Gross, 355 N.W.2d 4, 7 (S.D. 1984).
[¶51.] With respect to frivolousness, the circuit court reasoned that Arla gave
honest testimony at her deposition and she “may have thought that she had a
justifiable claim.” But Arla did not claim that she honestly believed a state of facts
that ultimately proved untrue in discovery. Therefore, Arla’s honesty and candor in
discovery were irrelevant to the question whether, at the time the suit was filed, her
suit was frivolous. Further, as the majority and special concurrence correctly note,
in this case the test for frivolousness is an objective one measured by what a
reasonable person would have believed. See supra ¶ 12 (quoting Citibank, 2003
S.D. 99, ¶ 31, 668 N.W.2d at 537 (stating “there must be such a deficiency in fact or
law that no reasonable person could expect a favorable judicial ruling”)); special
concurrence ¶ 34 (objective reasonableness should be examined at the time the
questionable pleading was submitted). The circuit court’s reliance on Arla’s
subjective beliefs and honesty in discovery was erroneous as a matter of law. An
error of law constitutes an abuse of discretion. Credit Collection Servs., Inc. v.
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Pesicka, 2006 S.D. 81, ¶ 5, 721 N.W.2d 474, 476; Cooter, 496 U.S. at 405, 110 S. Ct.
at 2461 (“A district court would necessarily abuse its discretion if it based its ruling
on an erroneous view of the law or on a clearly erroneous assessment of the
evidence.”).
[¶52.] This is not a case involving hindsight review of frivolousness and
maliciousness following unexpected turns in the course of Arla’s lawsuit. Arla did
not argue that she had a good faith, anticipated factual claim that proved
unsuccessful in the course of discovery. She was also unable to make any good faith
argument on the merits, and she made no argument for an extension or reversal of
existing law. Further, although this case does not raise any question concerning
trial counsel’s conduct, the case does not involve ingenuity in advocacy or an
attempt to develop the law. This is a case where “the historical facts are admitted
or established, the rule of law is undisputed, and the issue is whether . . . the rule of
law as applied to the established facts is or is not [favorably satisfied].” See In re
Dorsey & Whitney Trust Co., 2001 S.D. 35, ¶¶ 5-6, 623 N.W.2d 468, 471. Because
Arla’s undisputed testimony clearly reflects that at the time she filed her pleadings
she possessed absolutely no factual basis for her claim of fraud, and because not one
of Arla’s motives or purposes for suing related to fraud, I would reverse and remand
for the award of a reasonable attorney’s fee.
[¶53.] WILBUR, Justice, joins this dissent.
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