[¶ 1.] Western Consolidated Cooperative (WestCon) sued Lynn Pew for conversion of grain he stole and sold to LaBolt Farmers Grain Company (LaBolt). WestCon also sued LaBolt for conversion for its role in purchasing the stolen grain from Pew. After discovery, WestCon's motion for summary judgment was granted and the circuit court ordered judgment jointly and severally against Pew and LaBolt. LaBolt appeals, arguing that its lack of knowledge about Pew's theft provided it with a defense against liability, or in the alternative, served to reduce proportionally its share of the damages payable to WestCon. LaBolt also argues that WestCon failed to mitigate its damages. We affirm in part and reverse in part and remand.
[¶ 2.] WestCon is a Minnesota cooperative with a grain elevator in Milbank, South Dakota. WestCon purchased the grain elevator from Harvest States in January 2003. In the final three years Harvest States owned the elevator, it employed Pew on a contract basis to be its lead grain hauler. Pew would make one or more trips from the elevator a day using his own semi-truck. When the elevator was sold to WestCon, Pew lost that job because WestCon had its own truckers. Pew never worked for the grain elevator after ownership was assumed by WestCon.
[¶ 3.] Beginning in mid-January 2003, after the sale to WestCon, and through January 2005, Pew surreptitiously stole grain from the WestCon grain elevator one truckload at a time and sold it in his name. Pew was able to steal the grain during the early morning hours when the elevator was unattended. Pew testified that when he stole the grain he would pull up to the elevator early in the morning around 5:30 a.m., fill his semi-truck, and leave. Given his prior relationship with Harvest States, the sight of Pew filling his semi-truck with grain was nothing out of the ordinary. Also due to that relationship, Pew was skilled at loading his semi-truck from the storage facility. Pew testified he could fill his semi-truck in a few minutes and be on his way.
[¶ 4.] Pew stated he found the grain elevator unlocked all but about a dozen times during the two years he stole grain.
[¶ 5.] WestCon became aware of shortages at its Milbank facility in January 2003. Chad Syltie, WestCon's credit manager who was assigned the task of determining the cause of the shortages, originally thought it was due to shrinkage or a miscount until March 2003 when the shortage grew to an estimated 22,000 bushels of grain. Early in the two-year scheme, WestCon did not identify outside theft as the source of the shortages because of the amount taken each time and because it had standard procedures in place to detect
[¶ 6.] WestCon's theft and shortage detection procedures included conducting a physical inventory each month and locking the gravity chutes on its two silos. It also maintained a running total for the grain in the silos using daily computer-generated position reports based on daily purchases and outbound shipments. Because grain has a shrinkage factor of two-to-three percent at any given time, the shortages in the first three months did not alert WestCon to any irregularities.
[¶ 7.] Once WestCon's management realized shrinkage was not the source of the shortages, its next theory was that the inventory it purchased in January 2003 from Harvest States was either miscalculated or understated. Over the course of a few months, Syltie was able to verify that Harvest States had measured its inventory correctly before the time of the sale and that no understatement had occurred.
[¶ 8.] On May 5, 2003, Mick Johnson, WestCon's manager, reported the shortage to the Milbank Police Department during an investigation into an unrelated break-in of WestCon's office area. According to Police Chief Tim Kwasniewski, Johnson laid out a scenario similar to the one used by Pew in which Johnson theorized that the grain could be stolen one truckload at a time using the gravity fed chutes on the silos. According to Kwasniewski, Johnson stated that all the thief would need was the key to the padlock on the silo chutes. Kwasniewski would later attest that it was his impression that Johnson suspected something criminal in nature was occurring. Kwasniewski agreed to have patrol cars make additional checks on the WestCon elevator after hours. Kwasniewski's affidavit did not identify whether Johnson suspected an internal or external thief was at work. However, according to Syltie's testimony, WestCon still continued to suspect employee theft or fraud as of May 2003. As a result, WestCon did not request additional police intervention. Instead, it continued to direct employees to lock the silo chutes at night.
[¶ 9.] Syltie next focused his investigation on an employee who had transitioned from Harvest States to WestCon after the sale and then abruptly quit a few months later. That employee's background, work, and role at the facility were investigated. However, the employee was found to have no role in the shortages. Other employees were also considered during the on-going investigation, but none were determined to be involved.
[¶ 10.] WestCon subsequently theorized that perhaps one or more of its customers were either miscalculating or purposely understating inbound loads. When that did not provide any answers, WestCon investigated its outbound truckers who transported all of its grain from Milbank to Minnesota for loading onto railcars. Again, no thefts or discrepancies were found.
[¶ 11.] All of WestCon's efforts to ascertain the source of the shortages were unsuccessful and each took several months to resolve. WestCon did not originally consider an outside thief due to the location of the Milbank facility. The elevator, located inside city limits, had no history of prior thefts according to Harvest States. As Syltie testified: "[they had] never [had] a theft like this before, and it took everyone by surprise." He also testified that he was unaware of any other security measures taken by other elevators in the area to protect against this kind of loss apart from those utilized by WestCon.
[¶ 12.] Finally, after the elimination of the other possible causes of the shortages,
[¶ 13.] On January 10 and January 18, 2005, Pew was caught on camera loading grain. Pew was apprehended in the process of accessing the elevator for a third time on January 19, 2005. Pew was charged criminally in federal court and eventually pleaded guilty.
[¶ 14.] WestCon's total losses were estimated at $726,000. Defendant LaBolt purchased 82,370.87 bushels of WestCon grain from Pew between March 1, 2003, and December 7, 2004. LaBolt's check register for this period showed it paid Pew $424,334.05 for the grain. LaBolt did not inquire as to the ownership of the grain sold by Pew. LaBolt also had no way of knowing to whom the grain belonged at the time of purchase.
[¶ 15.] In addition to the 82,370.87 bushels sold to LaBolt, Pew estimated that he sold 30% of all the WestCon grain he stole to Wheaton-Dumont, and 10,500 bushels of stolen corn to Northern Lights Ethanol, LLC. In addition, David Hanson, a friend of Pew's and his part-time employer, reported a shortage of 9,000 bushels of grain from his silos to the Milbank police. Hanson suspected Pew had stolen the grain while working on Hanson's property.
[¶ 16.] Upon Pew's arrest, WestCon recovered $51,093.36 in soybeans from LaBolt's facility. WestCon also recovered a cashier's check for $6,850 for stolen grain sold by Pew. In addition, WestCon recovered various items of personal property from Pew and his wife, Lynette Pew, valued at approximately $85,255.
[¶ 17.] WestCon sued Pew for conversion of the grain. WestCon moved to join LaBolt and Lynette Pew. WestCon amended its complaint to allege LaBolt was liable to WestCon for conversion by purchasing WestCon's grain from Pew. WestCon also claimed that Lynette Pew was liable to WestCon for conversion because she retained proceeds from the sale of stolen grain. LaBolt filed a cross-claim against Pew and Lynette Pew for indemnity and contribution.
[¶ 18.] WestCon moved for summary judgment against all defendants. LaBolt objected and asserted genuine issues of material fact existed on the issue of damages and LaBolt's defenses. After a hearing, the circuit court ordered summary judgment in favor of WestCon against LaBolt and Pew jointly and severally in the amount of $424,334.05. The circuit court also ordered $143,198.36 as a credit against the judgment, or other sums as the parties might agree or as might be determined
[¶ 19.] Our standard of review for a motion for summary judgment is settled.
Discover Bank v. Stanley, 2008 S.D. 111, ¶ 16, 757 N.W.2d 756, 761-62 (quoting Mueller v. Cedar Shore Resort, Inc., 2002 S.D. 38, ¶ 10, 643 N.W.2d 56, 62). Furthermore,
De Smet Farm Mut. Ins. Co. of S.D. v. Gulbranson Dev. Co., Inc., 2010 S.D. 15, ¶ 16, 779 N.W.2d 148, 155 (quoting Zephier v. Catholic Diocese of Sioux Falls, 2008 S.D. 56, ¶ 6, 752 N.W.2d 658, 662-63).
[¶ 20.] Statutory interpretation is an issue of law that this Court reviews under the de novo standard. Discover Bank, 2008 S.D. 111, ¶ 15, 757 N.W.2d at 761 (citing Martinmaas v. Engelmann, 2000 S.D. 85, ¶ 49, 612 N.W.2d 600, 611). The true intention of the law is ascertained primarily from the language in the statute. Id. "When the language in a statute is clear, certain and unambiguous, there is no reason for construction, and the Court's only function is to declare the meaning of the statute as clearly expressed." Id.
[¶ 21.]
[¶ 22.] "Conversion is the unauthorized exercise of control or dominion over personal property in a way that repudiates an owner's right in the property or in a manner inconsistent with such right." First Am. Bank & Trust, N.A. v. Farmers State Bank of Canton, 2008 S.D. 83, ¶ 38, 756 N.W.2d 19, 31 (quoting Chem-Age Indus., Inc. v. Glover, 2002 S.D. 122, ¶ 20, 652 N.W.2d 756, 766). In Rensch v. Riddle's Diamonds of Rapid City, Inc., 393 N.W.2d 269, 271 (S.D.1986), we quoted Poggi v. Scott, 167 Cal. 372, 375, 139 P.
(Emphasis added.) Furthermore, in order to prove conversion, the plaintiff must show
First Am. Bank & Trust, N.A., 2008 S.D. 83, ¶ 38, 756 N.W.2d at 31.
[¶ 23.] LaBolt argues that there is evidence questioning whether all the grain it purchased from Pew belonged to WestCon. There is some evidence that Pew may have stolen 9,000 bushels of grain from his part-time employer, Hanson. However, there is no evidence that Hanson's grain, if converted by Pew, was purchased by LaBolt.
[¶ 24.] WestCon offered LaBolt's check register as an exhibit showing it paid Pew $424,334.05 for grain delivered by Pew. It was undisputed that Pew did not farm and had no grain to sell. Pew testified that all the grain he sold was stolen from WestCon.
[¶ 25.] LaBolt objected to WestCon's statement of undisputed facts that LaBolt had purchased $424,334.05 in grain stolen exclusively from WestCon. LaBolt, however, did not include in its statement of disputed facts any allegation as to the ownership of the $424,334.05 in grain it purchased. At best, LaBolt suggested it may have purchased some or all of the 9,000 bushels of grain Hanson reported might have been stolen by Pew. LaBolt admitted in its statement of disputed facts that it had "no evidence that the grain was owned by anyone else."
[¶ 26.] Offering only argument while failing to offer contradictory evidence cannot defeat a prima facie showing by a plaintiff. Fin-Ag, Inc. v. Pipestone Livestock Auction Mkt., Inc., 2008 S.D. 48, ¶ 37, 754 N.W.2d 29, 44. LaBolt failed to offer anything other than argument as to the ownership of the grain it purchased. WestCon provided evidence and testimony sufficient to make a prima facie showing that LaBolt converted $424,334.05 of the $726,000 in grain Pew stole from WestCon. The prima facie showing by WestCon went unrebutted by LaBolt.
[¶ 27.] LaBolt next argues that the language in SDCL 21-3-3 only permits damages for wrongful conversion. It further contends that the circuit court did not make a specific determination that LaBolt's control over the grain was wrongful. WestCon asserts that LaBolt misapplies the law of conversion in that there is no good faith defense to conversion as it is by definition "wrongful" under SDCL 21-3-3.
[¶ 28.] SDCL 21-3-3 provides how damages for conversion are calculated:
(Emphasis added.)
[¶ 29.] LaBolt argues that the use of the word wrongful in SDCL 21-3-3 required WestCon to show that LaBolt's possession of the grain was wrongful or unwarranted. LaBolt further contends that it occupied the position of a good faith purchaser for value without knowledge or notice of WestCon's rights in the grain. As such, LaBolt argues that it was a question for the jury whether LaBolt's status limited liability or limited damages.
[¶ 30.] Our case law is clear that it is immaterial that a defendant who purchases goods from a seller who has converted those goods "had neither knowledge nor notice that the [seller] was committing a wrong by the sale." Fin-Ag, Inc., 2008 S.D. 48, ¶ 34, 754 N.W.2d at 44 (citing Sanborn Cnty. Bank, Inc. v. Magness Livestock Exch., Inc., 410 N.W.2d 565, 567 (S.D.1987)). All that is required for a defendant/purchaser to be liable for conversion is that the defendant/purchaser exercised control or dominion over the personal property of another in a way that repudiated the other's rights in the property or in a manner inconsistent with such rights. Id. The tort of conversion does not require the intent to deprive the true owner of his property rights. Rensch, 393 N.W.2d at 271 ("Intent or purpose to do a wrong is not a necessary element of proof to establish conversion."). "It is immaterial that the agent had neither knowledge nor notice that the principal was committing a wrong by the sale." Fin-Ag, Inc., 2008 S.D. 48, ¶ 34, 754 N.W.2d at 44. The use of the word "wrongful" in SDCL 21-3-3 does not add an element to the tort, or an additional element that must be satisfied in order to calculate damages once the defendant has been found liable for conversion. It is the act of conversion itself that is the wrong. Id. Thus, the language of the statute and its subsequent interpretative case law holds that as between the owner and the subsequent purchaser from the thief, the subsequent purchaser is to bear the consequences of the loss, not the original owner.
[¶ 31.]
[¶ 32.] LaBolt next argues that there is a genuine issue of material fact as to LaBolt's proportion of fault. LaBolt further asserts that because it did not act in concert with Pew to convert the grain, WestCon must show that LaBolt engaged in "wrongful conversion" before WestCon can
[¶ 33.] SDCL 15-8-15 provides: "When there is such a disproportion of fault among joint tort-feasors as to render inequitable an equal distribution among them of the common liability by contribution, the relative degrees of fault of the joint tort-feasors shall be considered in determining their pro rata shares." SDCL 15-8-15.1 provides:
SDCL 15-8-15.2 provides:
[¶ 34.] As this Court has often noted:
Discover Bank, 2008 S.D. 111, ¶ 15, 757 N.W.2d at 761.
[¶ 35.] In order to impose joint and several liabilities upon the defendants, the circuit court was required under SDCL 15-8-15.1 and -15.2 to have the trier of fact determine LaBolt's percentage of fault, or to determine that LaBolt and Pew were to be treated as a single party. If the trier of fact determines that LaBolt and Pew are to be treated as a single party under SDCL 15-8-15.2, their respective conduct must be "so interrelated that it would be inequitable to distinguish between them." If the trier of fact finds that the conduct of LaBolt and Pew are not so interrelated as to be able to distinguish between their respective conduct, then a percentage allocation of fault must be entered for each defendant by the trier of fact. Any defendant who is found by the trier of fact to be responsible for "less than fifty percent of the total fault allocated to all the parties may not be jointly liable for more than twice the percentage of fault allocated to that party."
[¶ 36.] WestCon's motion for summary judgment on the issue of damages was improperly entered. There is a genuine issue of material fact for the trier of fact regarding the percentage of fault that could be allocated to each defendant under SDCL 15-8-15.1 and -15.2. That portion of the order is vacated and the matter remanded to the circuit court for the trier of fact to determine the percentage of fault for each defendant, and entry of a new order on the issue of damages in
[¶ 37.]
[¶ 38.] LaBolt again states that there are genuine issues of material fact regarding whose grain Pew stole and to whom it was sold, this time in an effort to argue that WestCon's damages were not "reasonably certain." However, this argument was not presented to the circuit court below and is deemed waived. See State v. Engesser, 2003 S.D. 47, ¶ 32, 661 N.W.2d 739, 750.
[¶ 39.] LaBolt's argument that WestCon failed to mitigate its damages was preserved below. LaBolt, citing Restatement (Second) Torts § 918(1)(1979), argues that WestCon failed to make reasonable efforts and expenditures to prevent its own losses. It argued before the circuit court that WestCon failed to take effective action to mitigate its damages at the time WestCon first suspected or became aware of the shortages in March 2003. WestCon countered that it was not required to mitigate until it discovered Pew was stealing grain in late December 2004 and early January 2005.
[¶ 40.] The circuit court disallowed the defense rather than finding there were disputed issues of material fact. The question before this Court is a legal one rather than a factual dispute. At issue is whether the mitigation of damages rule applies under the facts of this case. This is not a question of common law; it is one of statutory construction as it is controlled by SDCL 21-3-3, which has been in effect in this jurisdiction since 1877. Dakota Revised Civil Code §§ 1970, 1971 (1877). As such, the statute and its interpretative case law are what control the resolution of this issue.
[¶ 41.] Under SDCL 21-3-3 and its interpretative case law, WestCon is the victim of an on-going conversion by continual theft and is not required to anticipate that the theft will continue into the future. Even under an opposite legal conclusion that this is a series of individual thefts, the result is the same.
[¶ 42.] A review of our case law shows that application of the doctrine of mitigation to conversion of a plaintiff's property is very limited and, in those few circumstances where allowed, only recognized after the injury occurs. In the case of Rosum v. Hodges, 1 S.D. 308, 47 N.W. 140 (1890), this Court in its initial interpretation of SDCL 21-3-3 made a passing reference to a victim's potential negligence. Id. at 142. However, this Court refined its analysis to recognize the unequivocal protection of the property rights of the victim unless he had qualified his right to the property or his right of immediate possession.
[¶ 43.] Another claim for mitigation was rejected by this Court in Arneson v. Nerger, 34 S.D. 201, 147 N.W. 982 (1914). In Arneson, the defendant sought to diminish the claim for damages by tendering the disputed stock with the court after suit was initiated. Id. at 983. This Court observed that, "[a]fter the conversion of property has become complete, the wrongdoer cannot escape liability nor lessen the actual damage recoverable, by a tender back of the property." Id. (quoting Dooley v. Gladiator Consol. Gold Mines & Milling Co., 134 Iowa 468, 109 N.W. 864 (1906)).
[¶ 44.] LaBolt relies heavily upon Security State Bank v. Benning, 433 N.W.2d 232 (S.D.1988), to support its thesis. However, LaBolt fails to acknowledge our limiting statement in Security State Bank that "[t]his rule does not require respondent to anticipate the injury before it occurs but rather relates to an act or omission relating to the injury after it occurs." Id. at 235 (emphasis all original).
[¶ 45.] This observation is taken from a more in-depth analysis of the mitigation issue in Chicago, Burlington & Quincy R.R. Co. v. Wheaton, 76 S.D. 467, 80 N.W.2d 868 (1957). There, the appellant built a dam that used the railroad right-of-way as a wall. Id. As time went on, the water had a deteriorating effect and weakened the railroad grade. Id. The dam ultimately burst due to high water and caused substantial damage to the grade. Id. The appellant argued that the railroad should have been aware of the existence of the dam and taken some affirmative action to mitigate its on-going damages from the water. Id. at 870. We rejected such a contention, noting that "It would seem to us that the duty to take the ... action that appellant claims respondent should have taken would primarily lie with appellant whose continuous trespass was the underlying cause of the injury to respondent's property." Id. at 870-71. While acknowledging the victim did have a duty to eliminate the injury and prevent further damages, we concluded that such a mitigation defense "does not require respondent to anticipate the injury before it occurs but rather relates to an act or omission relating to the injury after it occurs." Id. at 871 (emphasis added).
[¶ 46.] Based on what case law we have, the facts of this case constitute a single on-going conversion, rather than a series of conversions. Therefore, under the cases cited above, the doctrine of mitigation does not apply. Pew's thefts were part of a continuing plan or scheme, as demonstrated by the identical method he used in every theft and his repeated sale of the stolen grain to LaBolt. Pew's uncontradicted testimony as to how he continually took the grain from WestCon is detailed earlier in this opinion. His method never varied. He always acted alone with the same truck, removing the same item— grain—from the same elevator, in the same amounts, at the same time of day, hauled on the same route directly to LaBolt, and obtained payment in the same manner. Of the 100 loads taken, nothing was unique to distinguish one of the 100 loads from any other. It became such a continual process that when deposed in prison, Pew was not able to differentiate between the various thefts and did not even know the total number of loads he
[¶ 47.] Even if one accepts the contrary premise that this is a series of individual conversions, it still does not mean that an owner of property must clear himself or herself in a contested trial from failure to mitigate damage claims before or while the conversion was occurring. Such a contention has been considered and rejected by the Utah Supreme Court in Angelos v. First Interstate Bank of Utah, 671 P.2d 772 (Utah 1983). In Angelos, the plaintiff Dr. Angelos sought to recover funds embezzled from him by an assistant over an eleven-year period. 671 P.2d at 774. The office assistant forged Dr. Angelos's signature on patient's checks and deposited them into her personal account at First Interstate Bank (Bank). Id. On appeal, the Bank raised the mitigation of damages argument claiming that Dr. Angelos "as a reasonably prudent businessman, knew or reasonably should have known of the embezzlement by [the office assistant] before March of 1975 and before September of 1978." Id. at 775. The Utah Supreme Court rejected Bank's mitigation of damages argument on appeal. It held as a matter of law that the eleven-year embezzlement scheme was a series of wrongful acts and not one continuous act as contended by Bank. Id. at 777. "Under the doctrine of avoidable consequences [mitigation of damages], `one need never take steps in advance to avoid the consequences of a future threatened wrong ...,' but rather, need only avoid or minimize damages that arise out of a wrong that has already been committed." Id. (quoting C. McCormick, McCormick on Damages § 37, at 137 (1935)). That court held that under the mitigation of damages rule, Dr. Angelos's failure to discover the assistant's embezzlement scheme did not preclude him from recovering for the subsequent embezzlement of funds because each act of embezzlement in the scheme was a separate wrongful act. Id. As such, the embezzlement of a check earlier in time did not trigger a duty on the part of the victim to stop the subsequent checks from being embezzled or risk a reduction in damages under the mitigation rule. Id.
[¶ 48.] In 1877, the Territorial Legislature made the decision when conversion occurred that as between an innocent victim and an innocent purchaser, the purchaser should sustain the loss as he could obtain no better title than the seller, who was a thief, possessed. See Dakota Revised Civil Code §§ 1970, 1971 (1877).
[¶ 49.] LaBolt's argument would in essence alter the doctrine of conversion into a common-law negligence standard. Unless as a victim you were fortunate enough to be a one-time victim, in subsequent acts resulting in further losses you would have
[¶ 50.] Further, in Rensch, we categorically rejected negligence tort concepts as applied to the conduct of a defendant in a conversion case:
393 N.W.2d at 271. Based on our case law cited above, the same standard should be applicable to the plaintiff in a conversion case.
[¶ 51.] SDCL 21-3-3 has never been materially amended and there is no reason to interpret it differently after 133 years. WestCon was not required to mitigate its damages until after it discovered Pew was stealing grain in late December 2004 and early January 2005.
[¶ 52.] Affirmed in part, reversed in part, and remanded.
[¶ 53.] SEVERSON, Justice, concurs.
[¶ 54.] ZINTER, Justice, concurs specially in part and concurs in result in part.
[¶ 55.] KONENKAMP and MEIERHENRY, Justices, concur in part and dissent in part.
ZINTER, Justice (concurring specially on Issue 2 regarding "contribution among joint tortfeasors," and concurring in result on Issue 3 regarding mitigation).
[¶ 56.] In Issue 2, the Court discusses "applying the Uniform Contribution among Joint Tortfeasors Act." I concur specially only to point out that we are not applying that act. The Uniform Contribution among Joint Tortfeasors Act (SDCL 15-8-11 to 15-8-15 and 15-8-16 to 15-8-22) is a 1945 enactment
[¶ 57.] The 1945 Act is South Dakota's version of the 1939 Uniform Contribution Among Tortfeasors Act. See 1945 S.D. Sess. Laws. ch. 167; Uniform Contribution
[¶ 58.] The 1987 Act we apply today (SDCL 15-8-15.1 and 15-8-15.2) does not involve contribution among joint tortfeasors. It regulates the predicate question whether, and to what extent, individuals are jointly and severally liable to a plaintiff in the first instance. The primary purpose of this Act is to limit the extent of joint and several liability of defendants. See SDCL 15-8-15.1.
[¶ 59.] Thus, although codified together, separate procedural steps and separate substantive considerations are involved in applying the statutes in SDCL ch. 15-8. As today's case illustrates, a plaintiff seeking a joint and several liability judgment against a defendant must first satisfy the limitations on joint and several liability in the 1987 Act. Once the existence and extent of joint and several liability is established under SDCL 15-8-15.1 and 15-8-15.2, joint tortfeasors may then seek contribution among themselves under the 1945 Act (SDCL 15-8-15). Today's case only involves the first step of determining the extent of LaBolt's joint and several liability under SDCL 15-8-15.1 and 15-8-15.2. Contribution among the joint tortfeasors is not at issue.
[¶ 60.] On Issue 3 regarding mitigation of damages, I concur in the result reached by Chief Justice Gilbertson. Considering the summary judgment facts in a light most favorable to LaBolt, those facts only suggest that WestCon suspected theft. But because the most favorable inferences from the summary judgment facts do not suggest that WestCon had full and specific knowledge of the particular injury and harm resulting from Pew's conversions until Pew's thefts were actually discovered, mitigation principles do not apply as a matter of law.
[¶ 61.] Both Chief Justice Gilbertson and Justice Konenkamp agree that contributory negligence is not a defense to an action for conversion. See Justice Konenkamp's dissent ¶ 78 (citing Restatement (Second) of Torts § 918(1)); Chief Justice Gilbertson's opinion ¶ 50 (citing Rensch, 393 N.W.2d 269). With respect to mitigation of damages, both opinions rely on Security State Bank, which discussed the general rule and the limitation on the defense of avoidable consequences (mitigation of damages) as set forth in the Restatement (Second) of Torts § 918(1) and (2):
Id.
[¶ 62.] The disagreement in this case arises in application of the "anticipat[ion of] the injury" distinction mentioned in this last limiting sentence. Both legal and factual difficulties make application of this distinction problematic in continuing tort cases. The legal difficulty arises because of the similarity of the doctrines of contributory negligence and mitigation of damages:
C.W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 65, at 458 (5th ed.1984).
[¶ 63.] The factual difficulty arises because Pew stole approximately 100 loads of grain over a period of two years. Further, as Justice Konenkamp correctly points out, LaBolt produced evidence for summary judgment purposes suggesting WestCon "suspected" that there was an ongoing loss of grain that was being caused by theft. Justice Konenkamp's dissent ¶¶ 74-75. WestCon suspected theft as early as May 5, 2003, nineteen months before all of the conversions had occurred and all the damages had been sustained. And finally, although WestCon suspected theft, there is evidence suggesting that if WestCon would have taken better security measures earlier, Pew would have been apprehended earlier, which would have stopped the thefts and reduced WestCon's damages.
[¶ 64.] Thus the dilemma: was WestCon's failure to act on "suspicion" the unavailable defense of contributory negligence in failing to discover the invasion of its rights before the injury or damage was incurred? Or, was WestCon's failure to act on "suspicion" the available defense of negligence in failure to mitigate damages after the conversion had occurred but while some damages could still have been averted? Most courts conclude that failure to act on suspicion is contributory negligence rather than the failure to mitigate damages. See infra ¶¶ 67-71.
[¶ 65.] Justice Konenkamp relies on an unpublished federal district court opinion holding that the mitigation defense barred recovery in a continuing forged endorsement scheme "after February 29, 1992, since [the plaintiff], with knowledge of [the
[¶ 66.] In our case, there is no dispute that as of May 5, 2003, WestCon did not have full knowledge and the specific information regarding Pew's thefts. LaBolt's factual allegations resisting summary judgment only reflect WestCon suspected that Pew's type of theft might be occurring. Justice Konenkamp's dissent ¶¶ 74-75. Because LaBolt produced no evidence even suggesting that WestCon had full and specific knowledge that Pew was stealing truckloads of grain from one of WestCon's silos, Universal Premium is no authority for a mitigation defense in this case.
[¶ 67.] Courts of Appeal from Arizona, Wisconsin, and Texas more persuasively demonstrate proper application of the mitigation rules discussed in Security State Bank and the Restatement (Second) of Torts § 918(2) when there is an ongoing series of conversions. Most apposite is Strawberry Water Co. v. Paulsen, 220 Ariz. 401, 207 P.3d 654 (Ariz.Ct.App.2008). In that case, a property owner had been diverting water from a water company's supply line by means of a diversion pipe. Id. at 405, 207 P.3d at 658. The water company sued the property owner for conversion of water occurring over the four years before the water company actually discovered the pipe. Id. Like the case we are considering today, that defendant argued that the plaintiff should have mitigated damages by taking measures earlier to ascertain the cause of its losses. But the court noted that the damages at issue were for a period preceding the plaintiff's "discovery" of the specific conversion by the specific defendant. Id. at 410, 207 P.3d at 663. Therefore, the court noted that the evidence the defendants relied on to support their mitigation instruction referred to the plaintiff's "diligence in discovering, not remedying, the damages." Id. (emphasis added). The court further held: "Mitigation of damages only applies once the plaintiff, knowing of the damage, fails to mitigate. The plaintiff's knowledge must be of the `particular harm' intended by an intentional tortfeasor." Id. (emphasis added) (citing Restatement (Second) of Torts § 918(2)). Because the water company did not have knowledge of the particular harm until it actually discovered the property owner's diversion pipe, the court refused to allow a mitigation defense that was premised on the theory that an earlier discovery would have prevented future conversions and damages. Id. at 410-11, 207 P.3d at 663-64.
[¶ 68.] The Wisconsin Court of Appeals, interpreting Restatement (Second) of Torts § 918(2), also concluded that actual knowledge of an intentional tort is required before the mitigation defense may be asserted. S.C. Johnson & Son, Inc. v. Morris, 322 Wis.2d 766, 786, 779 N.W.2d 19, 29 (Wis.Ct.App.2009). In that case, employees of S.C. Johnson had conspired with outside transportation companies over a period of ten years to solicit bribes in return for inflating transportation invoices and overcharging S.C. Johnson. Id. at
Id. at 784, 779 N.W.2d at 28.
[¶ 69.] The S.C. Johnson court concluded that a mitigation defense is unavailable under the "should have known" theory. Id. Instead, the court applied the Restatement (Second) of Torts § 918(2)'s requirement of actual knowledge of the tort, explaining:
S.C. Johnson, 322 Wis.2d at 786, 779 N.W.2d at 29 (emphasis added). The court also declined to allow "should have discovered" mitigation theories because they would "expand[ ] the duty to mitigate in such a way as to place a burden on the victim to investigate whether warning signals existed[, which] would allow tortfeasors to purposely exploit a victim's weak internal investigation mechanism and then use it as an affirmative defense at trial." Id. at 774, 779 N.W.2d at 23.
[¶ 70.] In Southwest Bank v. Information Support Concepts, Inc., 85 S.W.3d 462, 463 (Tex.App.2002), an employee converted over $300,000 by depositing 183 of her employer's checks in her personal bank account over an eighteen-month period. Her employer did not have an account at that depository bank. Nevertheless, the bank accepted the deposits over inadequate endorsements and allowed payment on the checks. Id. The bank's mitigation defense was predicated on the theory that if the employer had only looked at its bank statement, it would have discovered the forgery and theft and "interrupted [the employee's] stream of stolen check deposits at [the depository bank]. As a consequence, [employer] would have sustained smaller damages from [the depository bank's] conversion of the checks." Id. at 469. But the Texas Court of Appeals disallowed the mitigation defense, holding that this "chain reaction of events" theory was contributory negligence rather than the failure to mitigate damages. Id. See also Morgan, Olmstead, Kennedy & Gardner, Inc. v. Schipa, 585 F.Supp. 245, 249 (D.C.N.Y.1984) (rejecting a mitigation defense on defendants' argument that plaintiffs' acts or omissions in a continuing tort case "delayed discovery of the alleged fraud and therefore allowed damages to continue to grow").
[¶ 71.] Like Strawberry Water Co., S.C. Johnson, and Southwest Bank, LaBolt's mitigation defense is premised on a chain of events theory conjecturing that WestCon would have discovered Pew's thefts earlier if it had employed security measures
[¶ 72.] Furthermore, "we require `those resisting summary judgment [to] show that they will be able to place sufficient evidence in the record at trial to support findings on all the elements on which they have the burden of proof.'" Bordeaux v. Shannon Cnty. Schs, 2005 S.D. 117, ¶ 14, 707 N.W.2d 123, 127 (quoting Chem-Age Indus., 2002 S.D. 122, ¶ 18, 652 N.W.2d at 765). In this case, LaBolt had the ultimate trial burden of proving the defense of failure to mitigate damages. Kowing v. Williams, 75 S.D. 454, 459, 67 N.W.2d 780, 783 (1954). Yet it failed to meet its summary judgment burden of showing it would have been able to present evidence that WestCon had full and specific knowledge of the particular harm being inflicted by Pew. Like Strawberry Water Co., S.C. Johnson, and Southwest Bank, there is no evidence that WestCon had actual knowledge of Pew's conversions. Until Pew was caught, WestCon may have suspected theft, but LaBolt identified no evidence even inferentially suggesting that WestCon had full knowledge of the particular harm; i.e., that Pew was stealing from a WestCon silo by acting as if he was normally transporting grain. Because WestCon's suspicions are not full knowledge of the specific information surrounding Pew's conversions, LaBolt failed to meet its summary judgment burden as a matter of law. Even Universal Premium did not allow the mitigation defense until that plaintiff acquired "full knowledge" of the "specific information" concerning the particular tortfeasor's scheme. Universal Premium, 1996 WL 432488, at * 6-7. For the foregoing reasons, I would affirm the circuit court.
KONENKAMP, Justice (dissenting on Issue 3).
[¶ 73.] The Court first argues that the mitigation defense does not apply here because there is no duty to mitigate when there is a single ongoing, continuous conversion, as the victim is not required to anticipate an injury. Then it argues that the mitigation defense does not apply to a series of individual conversions, because the previous conversions do not trigger a duty to mitigate the subsequent conversions. When, then, is there a duty to mitigate damages in a conversion case? Clearly, this Court has applied the mitigation of damages defense to conversion actions. As early as 1892, this Court held that the victim of a conversion was limited to recoverable damages "commensurate with his actual loss; and any facts which, if established by proof, will go towards a mitigation of damages, are competent evidence in a trial of an action of trover or conversion." See Stone v. Chicago, M. & St. P. Ry. Co., 3 S.D. 330, 53 N.W. 189 (1892) (citations omitted). Moreover, this Court has clearly held that SDCL 21-3-3 allows for the mitigation defense. In Security State Bank v. Benning, the Bank argued that SDCL 21-3-3 "rules out mitigation." 433 N.W.2d 232, 233 (S.D.1988). But we wrote that the Legislature did not specifically rule out mitigation in the statute, and, therefore, we would "not enlarge the statute." Id. at 234. Thus, the Court unduly constrains the doctrine in conversion actions.
[¶ 74.] The duty to mitigate damages arises when an injured party "has knowledge of the danger or harm and intentionally or heedlessly fails to protect its own
Universal Premium Acceptance Corp. v. York Bank & Trust Co., 1996 WL 432488, *7 (E.D.Pa.1996) (citations omitted).
[¶ 75.] Considering the evidence in a light most favorable to the non-moving party, LaBolt, there are genuine questions in dispute on the issue of mitigation of damages. LaBolt identified facts suggesting that WestCon may have intentionally or heedlessly failed to protect its own interests after it believed that conversions were occurring. As early as May 5, 2003, WestCon's manager, while reporting an unrelated burglary of WestCon's office, informed the police that WestCon believed 22,000 bushels of grain had been stolen. According to LaBolt's affidavit in opposition to summary judgment, WestCon's manager disclosed a suspected theft scheme while Pew was committing his offenses. According to the information provided by WestCon, the Milbank Police Chief believed that WestCon suspected something "criminal in nature" was occurring. Yet WestCon's credit manager conceded at the summary judgment hearing that WestCon employed no security measures to prevent the ongoing thefts until December 7, 2004.
[¶ 76.] As evidence that WestCon failed to mitigate its damages, LaBolt also relied on Pew's deposition testimony, in which Pew described how easy it was to steal WestCon's grain. He would drive up to the silo, park under the chute, pull on a chain, and the grain would gravity load into his truck. It took about three minutes. He was able to steal grain loads over 100 times because WestCon did not actually lock the silo. Pew could see the padlocks hanging by the chute. The chute, as described by Pew and another witness, was twenty feet from the ground. Pew was able to steal the grain without having to climb up to the chute, "jimmy" a lock, or use any kind of special tool. "Occasionally," according to Pew, WestCon would lock the silo chute and Pew could not steal any grain. Thus, there is evidence that WestCon was able to secure its grain but did not regularly do so.
[¶ 77.] Allowing a mitigation defense in a conversion case does not mean that "the injured person has a duty to act" or "that the conduct of the tortfeasor ceases to be a legal cause of the ultimate harm[.]" Restatement (Second) Torts, § 918 cmt. a. Rather, "recovery for the harm is denied because it is in part the result of the injured person's lack of care, and public policy requires that persons should be discouraged from wasting their resources, both physical or economic." Id. WestCon did not have a duty to mitigate damages before the grain was first stolen, but if WestCon had information that its grain
[¶ 78.] This is not the same as saying that WestCon's damages should be reduced because it was negligent, i.e., "could have avoided [the harm] by the use of reasonable effort or expenditure after the commission of the tort." See Restatement (Second) Torts, § 918(1). Nor does it mean that Pew should somehow escape criminal responsibility for his thefts because of WestCon's failure to mitigate its damages. See Restatement (Second) Torts, § 918 cmt. a ("[A] wrongdoer is criminally responsible for all the legal consequences of his crime, irrespective of the lack of care of his victim, either before or after the commission of the tort."). Rather, the question here is whether WestCon "intentionally or heedlessly failed to protect [its] own interests" after it had knowledge of the danger or harm. See Restatement (Second) Torts, § 918(2). The record contains genuine issues of material fact on this question of damages.
[¶ 79.] This issue should be reversed and remanded for a trial on mitigation of damages. I concur on the other issues.
[¶ 80.] MEIERHENRY, Justice, joins this special writing.
Rosum, 47 N.W. at 142.
Section 1971 (1877) provides:
