S.D. Supreme Court Overturns Fuel Dispute Ruling

Lower court excluded evidence of fraudulent contract

PIERRE, S.D. -- A split South Dakota Supreme Court has overturned a lower court ruling that ordered the owner of two North Sioux City, S.D., convenience stores to pay more than $925,000 in damages to a fuel supplier, said an Associated Press report.

The high court's 3-2 ruling said further proceedings are needed in circuit court to resolve disputed facts in the case.

James R. Brown, who farms near Gettysburg, S.D., bought two c-stores along Interstate 29 in North Sioux City in 2004, according to court documents cited by the news agency. Brown agreed to buy fuel from Stern Oil Co. Inc. of Freeman, S.D., but notified the fuel supplier in May 2007 that he would no longer buy its fuel because its prices were so high he could not make any profit when he set prices at the pump at levels competitive with other gas stations.

Stern Oil sued Brown for breach of contract. Brown filed a counterclaim alleging that Stern Oil fraudulently induced him to enter the contract by verbally guaranteeing he would make a profit of five cents a gallon on fuel sold.

Circuit Judge Bradley Zell of Sioux Falls, S.D., ruled in favor of Stern Oil on both claims, finding that Brown had breached his contract with the fuel supplier. The judge awarded Stern Oil more than $925,000 in damages for eight years of lost profits.

However, the Supreme Court said Zell had been wrong to exclude Brown's evidence that Stern Oil fraudulently induced him to agree to the contract by verbally guaranteeing him a five-cent-per-gallon profit. Stern Oil contends it did not make that guarantee.

The high court's majority ruling said Zell decided the case too early because questions of fact remain to be determined on whether Brown signed the contract because he was relying on the alleged verbal guarantee that he would make a profit.

"This case is in large part a question of credibility: Brown says he signed the contract in reliance upon this representation and Stern Oil says he did not. Questions of credibility are also questions of fact for a jury," Chief Justice David Gilbertson wrote for the court majority.

The high court's two dissenting justices agreed the circuit judge should have admitted evidence on Brown's allegations that he was fraudulently induced to sign the contract, but that Zell could rule in Stern Oil's favor because Brown failed to present sufficient evidence that he had relied on the alleged misrepresentation.

The majority opinion said questions of fact also remain to be resolved on whether a breach of contract occurred.

Brown argues that the contract was not enforceable because it did not set the price he would pay for fuel. The Supreme Court said more evidence is needed on whether Brown and Stern Oil intended to make an agreement that did not set prices.