recognizing that the Restatement is not binding and concluding that "even if we were to recognize the third party beneficiary exception, plaintiffs have brought forth insufficient evidence to invoke it here"
How later courts described this case
- recognizing that the Restatement is not binding and concluding that "even if we were to recognize the third party beneficiary exception, plaintiffs have brought forth insufficient evidence to invoke it here"
- explaining that a liable attorney must have "rendered 'substantial assistance' to the breach of duty, not merely to the person committing the breach"
- noting that because trust and confidence between an attorney and his or her client are essential, the attorney-client relationship requires greater protection from third-party claims than do nonconfidential relationships
- explaining that plaintiff asserting a claim for breach of a fiduciary duty must show a fiduciary relationship
Written by the judges who cited it.
The opinion
SABERS, Justice
(dissenting in part B. and concurring in parts C., D.I., and E.2.).
[¶ 55.] There are genuine issues of material fact whether Glover committed a fraud on the corporation and the individual plaintiffs.
[¶ 56.] The majority opinion asks the right questions and gets most of the facts correct but reaches the wrong conclusion. The majority opinion asks at ¶ 11 “... is there a question of material fact on whether Glover committed a fraud on the corporation or the individual plaintiffs?” and at ¶ 12 “Did Glover’s acts or representations fall under one or more of the four categories listed in [SDCL 20-10-2]?” The answer is Yes!
[¶ 57.] Glover’s acts or representations fall under SDCL 20-10-2(3): “The suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact ...” The recitation of facts set forth in the majority opinion at ¶¶¶ 47, 48 and 49 raise genuine issues of material fact concerning fraud under SDCL 20-10-2(3) and are as follows:
[¶ 47] Glover recounts that shortly after incorporation, Dahl told him that the two investors, Pederson and Shepard, had decided not to proceed and that the business would be solely controlled by Dahl as a proprietorship. Because no shares were issued, Glover took the position that the company had no official existence. But we think that what Glover actually knew and what he should have known, are questions of credibility. After all, Glover notarized Pederson’s and Shepard’s signatures on corporate documents without having them in his presence. If he did not know his client was in the midst of a swindle, he certainly knew Dahl had several questionable investment schemes in the past, leaving unhappy investors in his wake. Thus his decision to notarize these signatures may or may not have been an altogether innocuous act. Perhaps if Glover had met with Pederson and Shepard at that time, instead of simply notarizing their signatures unseen, and heard their expectations, he could have disabused' them of any misunderstanding or encouraged them to seek independent legal advice. Pederson and Shepard allege that this was part of a pattern in which Glover allowed Dahl to use his legal services as a means to allow Dahl to misappropriate investor funds. The creation' of a corporation with the assistance of an attorney gave a patina of authenticity to Dahl’s otherwise rogue activities. Moreover, Glover listed himself as registered agent for the company. Pederson and Shepard claim that they began investing more heavily once they learned that the company had been incorporated and an attorney was onboard. They say that they felt reassured upon incorporation that the business would proceed with all the formalities required of corporations.
*778 [¶ 48] Four months after the business was incorporated, Glover received a “gift” of office furniture from Dahl, bought with the company credit card. Glover claimed he did not know how the furniture was paid for. Accepting such a “gift” from a client like Dahl, who Glover knew had longstanding financial problems, raises a question of constructive knowledge and exposes the problem of improper, personal financial gain in assisting Dahl.
[¶ 49] We think it also significant that Glover assisted Dahl in selling assets that were obtained with investor funds in the corporation. In a meeting with the investors and their lawyer, Glover was present when Dahl assured the investors that upon the sale, they would be receiving their money back. The next month, with Glover’s help, the company’s assets were sold to a Wisconsin business. Dahl and Glover had taken the position that Chem-Age Industries, Inc. was not a corporation but a proprietorship owned solely by Dahl. See SDCL 47-6-18, 47-6-19 (sale of substantially all assets authorization from board and resolution from shareholders). Yet Glover helped to arrange the sale of Chem-Age assets through another entity: “Byron Dahl d/b/a BMD Associates, a South Dakota sole proprietorship.” Glover later testified that he did not know the relationship between BMD and Chem-Age.
[¶ 58.] As indicated in the majority opinion, Glover notarized the signatures even though Pederson and Shepard had not signed the document in his presence. This is not only a crime but enabled Dahl to use the corporation documents to defraud Pederson and Shepard and caused them to part with an additional $140,000.
[¶ 59.] Shortly thereafter, Glover assisted Dahl in selling the assets of the corporation enabling Dahl to run off with the money. Throughout this time period, Glover was paid with corporation funds and even received a “gift” of office furniture from Dahl. None of this could have happened but for Glover’s crime in notarizing the signatures, enabling the corporation to be set in motion, to purchase assets and then assist their sale by a “sole proprietorship” owned by Dahl.
[¶ 60.] Clearly, these facts raise genuine issues whether Glover aided and abetted Dahl’s fraud to the corporation and to the individuals from start to finish. Specifically, genuine issues of fact arise as to Glover’s suppression of the fact that the corporation assets were not owned by Dahl as a sole proprietor from the corporation, Pederson, Shepard and from the buyer of the corporation assets. This suppression enabled Dahl to walk off with the money to their detriment in violation of SDCL 20-10-2(3).
[¶ 61.] Therefore, I would reverse Issue B. Fraud and remand for a fair trial.