author: JOHNS, Circuit Judge.

text:
    2001 SD 13
    Rick BIEGLER, Plaintiff and Appellee, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant and Appellant.
    No. 21286.
    Supreme Court of South Dakota.
    Argued Sept. 20, 2000.
    Decided Jan. 24, 2001.

      Lee Schoenbeck and John W. Burke of Schoenbeck Law Office, Watertown, SD, Attorneys for plaintiff and appellee. ~
    Chester A. Groseclose, Jr. of Richardson, Groseclose, Wyly, Wise & Sauck, Aberdeen, SD, Attorneys for defendant and appellant.
   JOHNS, Circuit Judge.

[¶ 1.] American Family Insurance Company (American Family) appeals from a money judgment awarding Rick Biegler (Biegler) damages for breach of an insurance contract, compensatory and punitive damages for deceit/bad faith breach of the insurance contract, and attorney fees per SDCL 58-12-3. We affirm but remand with instructions.

FACTS AND PROCEDURAL HISTORY

[¶2.] In February 1996, S & R Food Mart (S & R), a convenience store, casino, and off-sale liquor store, located in Aberdeen, South Dakota, was owned by Sue and Rick Biegler and insured by American Family. On February 3,. 1996, Mike Schwan (Schwan), a disabled individual, entered S & R where he was harassed by employees of the store. Among other things, Schwan was served coffee and soft drinks spiked with alcohol, had a flammable liquid squirted on the back of his pants, and then had his pants set on fire.

[¶ 3.] After Schwan left S & R he lost control of his vehicle and drove into a snowbank. The police were called and Schwan was arrested and incarcerated for driving under the influence. This charge was later dropped when it was discovered that Schwan became involuntarily intoxicated. Two of S & R’s employees later plead guilty to various charges in connection with Schwan’s harassment.

[¶ 4.] After the incident at S & R there was an outpouring of negative publicity surrounding Biegler and his store. On February 7, one of American Family’s agents saw an article discussing the incident in an Aberdeen newspaper. The article was mailed to American Family’s claims office and two days later American Family’s adjuster, Mike Jares (Jares) met with Biegler. Jares interviewed Biegler for a brief period and then presented him with a non-waiver agreement. The agreement put forth the policy provisions that American Family felt would negate coverage for Biegler. Both parties signed the agreement.

[¶ 5.] Biegler felt that he needed the assistance of a lawyer and contacted H.I. Eing (King) of Aberdeen for advice. King then contacted one of Schwan’s lawyers and made a settlement offer of $5,000. This offer was rejected and on February 23 King wrote to American Family and asked them to defend Biegler under the policy. American Family did not respond to King’s letter; although it appears that Jares and King communicated by telephone or in person until early June.

[¶ 6.] On April 10, Schwan’s attorney, Rick Sommers (Sommers) wrote King detailing his representation of Schwan and the fact that there may be a claim for negligent supervision and management. King forwarded a copy of the letter to American Family. On April 26, American Family’s legal department was asked to review the letter. The legal department determined that there was no coverage for Biegler and a letter stating American Family’s position was sent to King. The letter dated May 10, stated: “it continues to be American Family’s position that coverage is excluded. We will be unable to provide any assistance for Mr. Biegler on this claim.”

[¶ 7.] On May 31 King wrote to American Family asking it to “clearly state reasons for [its] refusal to assume the contractual obligations under the insurance policy....” On June 3 King wrote American Family, correcting an error in his May 31 letter, and asking American Family “to be more clear and state specifically on what paragraphs of the insurance contract American Family Insurance relies upon to avoid their contractual obligations.” King also informed American Family to respond “as soon as possible, as the lawsuit is proceeding.”

[¶ 8.] On June 5 Sommers sent King an offer to settle Schwan’s case for $50,000. King forwarded this demand to American Family on June 11 and also advised Jares to put everything in writing from that date forward. By June 19 Vince Purtell (Pur-tell), an in-house attorney for American Family, concluded that American Family would have a duty to defend Biegler on the claim of negligent supervision, however he did not notify King of this. By June 19 Purtell had also concluded that the occurrence, liquor liability, and intentional tort exclusions did not defeat American Family’s duty to defend Biegler. Around this same time Biegler, increasingly worried about a lawsuit, incorporated S & R to protect his assets.

[¶ 9.] On September 24 Sommers mailed King a summons, complaint, and three admissions of service. Sommers advised King to have his “clients execute the admissions of service within ten (10) days or we will have the sheriff serve them.” The admissions of service were never signed, but Sommers and King had a conversation in which King said he would accept service. A date for admission of service was never discussed as the papers would be signed and returned to Sommers if settlement discussions failed. However, both attorneys believed a lawsuit had been started. The summons and complaint were mailed on September 30 to Richard Dale (Dale), American Family’s in-house counsel, with a letter stating “they are now attempting to serve ... all the parties.” On October 14 King mailed another copy of his September 30 letter to Dale. Dale never contacted any of the parties with regard to either of King’s letters, as Dale did not believe that a suit had been started.

[¶ 10.] Schwan’s complaint sued Biegler individually and in his capacity as owner of S & R for Biegler’s own acts and the acts of those employed by him. The complaint sought recovery on the theories of negligent supervision of employees, assault and battery, false imprisonment, and intentional infliction of emotional distress.

[¶ 11.] King and Sommers were able to settle the case between October 27 and October 29 and Schwan signed an agreement releasing all claims against Biegler and S & R. With the settlement complete, there was no reason to sign the admissions of service or file the complaint.

[¶ 12.] On November 7 Dale called Som-mers to find out the status of the action, however, Sommers was unavailable and never returned Dale’s call. Instead, Som-mers called King, who communicated the next day that the case had been settled and that Dale should not do anything on the case now. King refused to inform Dale of the terms or amount of the settlement.

[¶ 13.] King wrote Dale a letter on November 15 expressing his displeasure with the way American Family had handled the claim. Dale did not respond and King resent the letter on December 3. On December 19 Dale wrote a letter explaining why there was no duty to defend on five of the six causes of action alleged in Schwan’s complaint. Dale did admit American Family would be obligated to defend Biegler on the claim of false imprisonment. A copy was sent directly to Biegler and a courtesy copy was sent with a request for a copy of the release and other settlement documents to King. King responded by asking why American Family would now indicate they had a duty to defend after the case had been settled. There was some other brief correspondence between King and American Family in early 1997, ultimately; however, the action underlying this appeal was filed on July 7,1997.

[¶ 14.] Biegler commenced action against American Family seeking compensatory and punitive damages resulting from a breach of the contract of insurance. American Family denied liability and filed motions for summary judgment. After several amendments of the complaint and several hearings, four causes of action were left for trial: 1) breach of contractual duty to defend; 2) breach of contractual duty to pay and thus, to indemnify; 3) bad faith; and 4) deceit. The jury, through a special interrogatory, decided that: 1) American Family breached its contractual duty to defend Biegler resulting in compensatory damages of $20,000; 2) American Family breached its contractual duty to indemnify Biegler resulting in compensatory damages of $25,000; 3) American Family made fraudulent misrepresentations to Biegler or his attorney, H.I. King, resulting in compensatory damages of $100,000; 4) American Family acted in bad faith when it breached its contractual duty to defend Biegler in the lawsuit commenced by Schwan (the jury, however, was not asked to award any compensatory damages for this); and 5) American Family should be required to pay $100,000 in exemplary damages as, and for, its bad faith breach of the insurance contract and/or fraudulent misrepresentations.

[¶ 15.] Biegler then applied for costs, prejudgment interest, and attorney’s fees in the amount of $85,065 for vexatious refusal to defend. The trial court granted the applications for costs and prejudgment interest. The trial court awarded Biegler $40,000 in attorney’s fees. These amounts were added to the above judgment resulting in an award of $296,034.46 for Biegler.

[¶ 16.] American Family filed a motion for a new trial challenging, in part, the sufficiency of the evidence to support the verdict. Biegler conceded that breach of contract damages should not exceed $25,000 and a remitter was granted in the amount of $20,000. This reduced the total award to $276,034.46. However, its motion for a new trial was denied and American Family filed this appeal raising the following issues:

Did the trial court err in denying American Family’s motion for summary judgment and/or motion for new trial on Biegler’s claim for breach of American Family’s contractual duties to defend and to pay?
Did the trial court err in denying American Family’s motion for summary judgment and/or motion for new trial on Biegler’s claim for deceit?
Did the trial court err in denying American Family’s motion for new trial on the jury’s award of punitive damages for bad faith and/or fraudulent misrepresentation?
Did the trial court err in awarding attorney fees per SDCL 58-12-8 for American Family’s vexatious refusal to defend?

STANDARDS OF REVIEW

[¶ 17.] Our review of a trial court’s order on summary judgment is well established.

In reviewing a grant or a denial of summary judgment under SDCL 15 — 6—56(c), we must determine whether the moving party demonstrated the absence of any genuine issue of material fact .and showed entitlement to judgment on the merits as a matter of law. The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. The nonmoving party, however, must present specific facts showing that a genuine, material issue for trial exists. Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied. If there exists any basis which supports the ruling of the trial court, affirmance of a summary judgment is proper.

Read v. McKennan Hosp., 2000 SD 66, ¶ 8, 610 N.W.2d 782, 784 (citing Coffee Cup Fuel Stops & Convenience Stores, Inc. v. Donnelly, 1999 SD 46, 1117, 592 N.W.2d 924, 926 (quoting Walther v. KPKA Meadowlands Ltd. Partnership, 1998 SD 78, ¶ 14, 581 N.W.2d 527, 531)). Our standard of review on a motion for a new trial is also well established:

Whether a new trial should be granted is left to the sound judicial discretion of the trial court, and this Court will not disturb the trial court’s decision absent a clear showing of abuse of discretion. If the trial court finds an injustice has been done by the jury’s verdict, the remedy lies in granting a new trial. We determine that an abuse of discretion occurred only if no judicial mind, in view of the law and the circumstances of the particular case, could reasonably have reached such a conclusion.

Schuldies v. Millar, 1996 SD 120, ¶ 8, 555 N.W.2d 90, 95 (citation omitted).

ANALYSIS AND DECISION

[¶ 18.] Did the trial court err in denying American Family’s motion for summary judgment and/or its motion for new trial on Biegler’s claim for breach of American Family’s contractual duties to defend and to pay?

[¶ 19.] American Family contends the trial court erred by failing to grant its motions for summary judgment and/or new trial claiming that it has no duty to defend and/or to pay under the terms of its contract of insurance with Biegler. American Family’s motion for new trial was premised on SDCL 15-6-59(a)(6) and SDCL 15 — 6—59(a)(7). American Family alleged both that the evidence was insufficient to establish any duties and that the court erred as a matter of law in allowing the coverage questions to be presented to the jury.

[¶ 20.] The existence of the rights and obligations of parties to an insurance contact are determined by the language of the contract, which must be construed according to the plain meaning of its terms. Western Cas. & Sur. Co. v. Waisanen, 653 F.Supp. 825, 827 (D.S.D.1987) (applying South Dakota law on a duty to defend issue); Alverson v. Northwestern Nat. Cas. Co., 1997 SD 9, ¶ 8, 559 N.W.2d 234, 236 (S.D.1997). Therefore, we must review the instant policy in light of Schwan’s complaint to determine if American Family had a duty to defend and a duty to pay.

An insurer’s duty to defend and its duty to pay on a claim are severable and independent duties. Hawkeye-Security Ins. Co. v. Clifford, 366 N.W.2d 489, 490 (S.D.1985). ‘The duty to defend is much broader than the duty to pay a judgment rendered against the insured .’ Id. The insurer bears the burden of showing that it had no duty to defend its insured. North Star Mut. Ins. Co. v. Kneen, 484 N.W.2d 908, 912 (S.D.1992). To satisfy this burden, ‘the insurer must show that the claim clearly falls outside of the policy coverage.’ Id. (citing City of Fort Pierre v. United Fire and Cas. Co. 463 N.W.2d 845, 847 (S.D.1990); Bayer v. Employers Reinsurance Corp., 383 N.W.2d 858, 861 (S.D.1986); Hawkeye-Security, 366 N.W.2d at 492.) ‘If, after considering the complaint, and when appropriate, other record evidence, doubt exists whether the claim against the insured arguably falls within the policy coverage, such doubts must be resolved in favor of the insured.’ City of Fort Pierre, 463 N.W.2d at 847 (citing Hawkeye-Security, 366 N.W.2d at 492).

State Farm Mut. Auto. Ins. Co. v. Wertz, 540 N.W.2d 636, 638 (S.D.1995); South Dakota State Cement Comm’n v. Wausau Underwriters Ins. Co., 2000 SD 116, 616 N.W.2d 397. If just one claim falls within the policy coverage, the insurer must defend “even though the pleadings are ambiguous or reveal other claims not covered in the policy, and notwithstanding that extraneous facts indicate the claim is false, groundless or even fraudulent.” Hawkeye-Security, 366 N.W.2d at 491-92.

[¶ 21.] Rick and Susan Biegler had a Businessowner Package Policy with American Family Mutual Insurance Company. Section I of the policy covers replacement of property used in the business, including money or securities. Section II covers business liability and medical payments. Coverage A of Section II is for bodily injury and property damage liability. Coverage B of Section II is for personal injury and advertising injury liability. And Coverage C of Section II is for medical payments.

[¶ 22.] The policy contains definitions of terms used in Section II. At subsection 5, bodily injury is defined as “bodily harm, sickness, or disease sustained by a person including death resulting any of these at any time.” At subsection 13, personal injury is defined to mean “injury other than bodily injury arising out of one or more of the following offenses: a.) false arrest, detention or imprisonment....”

[¶ 23.] American Family argues that it had no duty to pay since various exclusions apply to preclude any liability it may have under the bodily injury insuring agreement of Coverage A. It is not necessary to analyze whether any of these exclusions under Coverage A apply since Schwan’s complaint alleged a cause of action for false imprisonment, which is a personal injury under Coverage B. Under Coverage B, American Family has agreed that it:

Will pay those sums that the insured becomes legally obligated to pay as damages because of personal injury or advertising injury to which this insurance applies. The personal injury or advertising injury must be caused by an offense committed during the policy period and in the coverage territory. We have the right and duty to defend any suit seeking those damages.

(emphasis added).

[¶ 24.] Clearly American Family had, under Coverage B of Section II, a duty to defend any suit brought against its insured for damages claimed to arise from a false imprisonment and also a duty to pay any resulting judgment based on false imprisonment. Since Schwan sued for damages arising from a false imprisonment, American Family had a duty to defend the suit against Biegler and to also pay any judgment arising from the claim of false imprisonment.

[¶25.] American Family contends, however, that even if it has a duty to defend a false imprisonment claim or a negligent supervision of employees claim, its duty in this case was never triggered because Biegler failed to provide it with proof of service of the summons and complaint sent to King by Sommers. American Family contends that without actual service of process or acceptance of the same by Biegler, there was never a suit to defend. The term suit is defined in the definitions portion of the policy as “a civil proceeding in which damages because of bodily injury, property damage, personal injury or advertising injury to which this insurance applies are alleged.” This definition does not tell us what Biegler’s obligations are concerning the tender of claims brought against him for false imprisonment and negligent supervision. It certainly does not tell us that Biegler had the obligation to accept service of process and provide proof of the same prior to American Family being obligated to defend. Biegler’s obligations are set forth in that portion of the policy entitled “WHAT TO DO IF YOU HAVE A LOSS.” There it provides in 2.d.:

If there is an occurrence or offense that may be covered under Section II which may lead to a claim or suit being made against you, you must:
d. If you or any insured are sued, or someone files a claim or suit against you, send us the legal documents right away. These documents would include demands, notices, summonses or other process received by you or your representative.

[¶ 26.] Biegler did what was required of him once he received notice that Schwan was suing him. He sent all legal papers to American Family and asked American Family to defend him. His formal offer of the defense to American Family is sufficient; especially when American Family never notified him that there were any further steps to be taken before it would assume the defense of the claim.

[¶ 27.] American Family also contends that since Biegler incorporated S & R and it was S & R’s check which paid the $25,000 to Schwan, Biegler is not the real party in interest and, therefore, lacks standing to seek recovery of the settlement money paid to Schwan. The real party in interest rule is satisfied “if the one who brings the suit has a real, actual, material, or substantial interest in the subject matter of the action.” Vander Vorste v. Northwestern Nat'l Bank, 81 S.D. 566, 572, 138 N.W.2d 411, 414 (1965). “The purpose of the real party in interest provision is to assure that a defendant is required only to defend an action brought by a proper party plaintiff and that such an action must be defended only once.” 59 Am.Jur.2d Parties § 35 (1987); see also Wang v. Wang, 393 N.W.2d 771 (S.D.1986).

[¶ 28.] S & R has no contractual relationship with American Family and there is no evidence that Biegler ever assigned any claim he had against American Family to S & R. Thus, contrary to American Family’s arguments, Biegler is the proper party in interest to seek damages against it and S & R has no basis upon which it can seek damages against American Family for breach of American Family’s duty to pay.

[¶ 29.] Did the trial court err in denying American Family’s motions for summary judgment and/or new trial on Bie-gler’s claim for deceit?

[¶ 30.] American Family contends the trial court erred when it denied its motion for a new trial under SDCL 15-6-59(a)(6) on the jury’s compensatory damages award of $100,000 for deceit. It claims that the evidence was insufficient to support a finding of deceit, and in the alternative, insufficient to support a jury award of $100,000 in compensatory damages. American Family also contends that the trial court erred when it denied American Family’s motion for summary judgment made on the ground that there was no evidence of deceit.

[¶ 31.] Was the evidence sufficient to support a finding of deceit? The tort action of deceit is recognized in SDCL ch. 20-10. SDCL 20-10-1 provides: “One who willfully deceives another, with intent to induce him to alter his position to his injury or risk, is hable for any damage which he thereby suffers.” SDCL 20-10-2 sets forth the methods by which deceit may be practiced. It provides:

A deceit within the meaning of § 20-10-1 is either:
(1) The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
(2) The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true;
(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; or
(4)A promise made without any intention of performing.

SDCL 20-10-2.

[¶ 32.] American Family contends that the evidence is insufficient to justify a finding of deceit. In Morrison v. Mineral Palace Ltd. Partnership, 1999 SD 145, 603 N.W.2d 193 (Morrison II ), we discussed at length the extent of a trial court’s review when faced with a motion for new trial based on the argument that the evidence is insufficient to support the verdict.

It is a well-established rule in South Dakota that a trial court has broad discretion to grant a new trial on the ground of insufficient evidence. Lewis v. Storms, 290 N.W.2d 494, 497 (S.D.1980). Nevertheless, a jury’s verdict should not be set aside ‘except in extreme cases where it is the result of passion or prejudice or the jury has palpably mistaken the rules of law....’ Stoltz v. Stonecypher, 336 N.W.2d 654, 657 (S.D.1983). A verdict should only be set aside if the jury’s conclusion was unreasonable and a clear illustration of its failure to impartially apply ‘the reasoning faculty on the facts before them.’ Lewis, 290 N.W.2d at 497.
Gilkyson [v. Wheelchair Express, Inc.], 1998 SD 45, ¶ 16, 579 N.W.2d [1], at 5 (quoting LDL Cattle Co., Inc. v. Guetter, 1996 SD 22, ¶ 13, 544 N.W.2d 523, 526-27). Furthermore, while this Court recognizes the trial court must exercise discretion when presented with a motion for a new trial, we do not mean to imply a court has carte blanche discretion to differ with the actions of the jury. Bakker [v. Irvine], 519 N.W.2d 41, at 49 [(S.D1994)]. [N]either the trial court nor this court may set aside a verdict unless it is clearly unreasonable, arbitrary and unsupported by the evidence. Id. (quoting Kusser v. Feller, 453 N.W.2d 619, 621 (S.D.1990) (internal quotations omitted) (citation omitted)). In Bokker we said:
‘In considering the verdict of a jury in any particular case, to determine whether or not it is sustained by the evidence, we are not to speculate or query how we would have viewed the evidence and testimony, or what verdict we would have rendered had we been the jury. The real and only question to be solved and answered is, Is there any legal evidence upon which the verdict can properly he based, and the conclusions embraced in and covered by it be fairly reached? It is the province of the jury to weigh and pass upon the evidence; to reconcile conflicting testimony; to determine the truth or value of evidence; to ascertain and declare, from all the evidence and testimony, the facts of the case; and from the facts, when ascertained by them, and the law as given to them by the court, to arrive at and announce their decision, which is their verdict.’
Bakker, 519 N.W.2d at 49 (quoting Drew v. Lawrence, 37 S.D. 620, 624, 159 N.W. 274, 275 (other citations omitted)).

Id. at ¶ 10, 603 N.W.2d at 196.

[¶ 33.] Based on our review of the record we are satisfied there were genuine issues of material fact addressed to the attention of the court at the time of the hearing on the motion for summary judgment and that, further, the verdict of the jury is reasonable in light of the evidence presented. Thus, we affirm the trial court’s denial of American Family’s motion for summary judgment and its motion for new trial made on the ground that the evidence was insufficient to justify the verdict. In this case American Family made it very clear in its correspondence that it was of the opinion that it had no responsibility to pay or to defend. This position was made known at the beginning of American Family’s involvement and no other position was ever communicated to Biegler or King even though Biegler tendered defense of Schwan’s lawsuit and American Family knew it had a duty to defend under the terms of the contract of insurance. American Family’s action becomes particularly egregious when one considers that it never did advise Biegler or King that it may have a duty to defend once Biegler provided proof of service of the summons and complaint. How would Biegler know what American Family was thinking when American Family did not communicate its thinking to him?

[¶ 34.] Prior to Biegler’s reaching his agreement with Schwan, American Family had sufficient information to know it had a duty to defend and it failed to impart this very important information to Biegler. Based on what a reasonable insurance company should understand, American Family’s initial denial was a fact that one would realize would be relied upon by another to their detriment. Knowing this, American Family failed to advise Biegler it had a duty to defend once Biegler provided it with Schwan’s complaint and American Family also failed to advise Biegler it did not consider Biegler’s tender as a proper tender. In sum, American Family tried to “sandbag” Biegler by not conveying important information to Biegler. As a reasonable insurance company, it knew that Bie-gler would have it assume defense of Schwaris complaint with that information and would not settle with Schwan outside his relationship with it. American Family’s actions clearly fall within the meaning of SDCL 20-10-2(3).

[¶ 35.] Was the evidence sufficient to support a finding that Biegler suffered compensatory damages of $100,000 as a result of the deceit? Jury interrogatory number 3 asked: “Did American Family Mutual Insurance Company make any fraudulent misrepresentations to Rick Bie-gler or his attorney, H.I. King?” To that question the jury answered “YES.” Jury interrogatory number 4 asked: “did American Family Mutual Insurance Company act in bad faith when it breached its contractual duty to defend Rick Biegler in the lawsuit commenced by Mike Schwan?” To this the jury also answered ‘TES.” Jury interrogatory number 7 asked: “If your answer to Question No. 3 is ‘YES,’ please state the amount of money that will compensate Rick Biegler for American Family Mutual Insurance Company’s fraudulent misrepresentations to Rick Biegler or his attorney, H.I. King?” To this inquiry, the jury inserted “$100,000.00.” Jury interrogatory number 8 asked: If your answer to either Question No. 3 or Question No. 4 is “YES,” please state the amount of money that will make an example of American Family Mutual Insurance Company for its conduct. “THIS AMOUNT SHOULD NOT INCLUDE ANY MONEY AWARDED IN RESPONSE TO QUESTION NOS. 5, 6, AND 7.” To this inquiry the jury inserted in the blank designated as “Exemplary damages” the sum of “$100,-000.00.”

[¶ 36.] American Family argues that compensatory damages for a finding of deceit could not exceed the sum of $25,000, the amount paid by Biegler to settle Schwan’s claim, and therefore, the evidence does not support the balance of the $100,000 award. Biegler concedes that the compensatory damages would be $25,000 but then argues that the balance of the award is punitive damages. Our review of this issue is hampered by the fact that the jury was never instructed on the elements of compensatory damages for deceit or bad faith and were never instructed that they would have to find compensatory damages before they could award punitive damages for deceit or bad faith. However, from our reading of all of the instructions and the interrogatories, particularly interrogatories numbers 7 and 8, we reject Biegler’s argument out of hand as interrogatory number 8 is the only time the jury was asked to award punitive damages.

[¶ 37.] From the record it is clear that Biegler proved compensatory damages in the amount of $25,000, the amount paid by him to settle Schwan’s claim. The question then is whether we should reverse the trial court and order a new trial on the issue of compensatory damages, or affirm the judgment on the condition that Biegler must remit $75,000 of the $100,000 jury award, or modify the judgment to $25,000. SDCL 15-26A-12 and 15-30-2 permit this Court to either reverse, affirm, or modify any judgment or order appealed from. SDCL 15-26A-12 also allows us to either direct a new trial or direct the trial court to enter such judgment as we deem required by the record. Finally, SDCL 15-30-2 allows this court to “direct the entry of such judgment or order as the court deems required by the record.”

[¶ 38.] The first option, reversal and remand for a new trial on the issue of compensatory damages, is not justified given the record and Biegler’s attorney’s concession at oral argument that he only had proof of $25,000 for the same.

An appellate court generally will not exercise its discretionary power to grant a new trial unless it is satisfied that the second trial will produce different results; if it appears that no purpose may be served by ordering a new trial, the entry of judgment by the appellate court, rather than the ordering of a new trial, may be appropriate. Where it is obvious that the grounds for prejudgment relief exist, remand is unnecessary and the appellate court may use facts found by the trial court to support its disposition.

5 Am.Jur.2d Appellate Review § 809 (1995).

[¶ 39.] This Court has in the past both modified money judgments, Griebel v. Ruden, 61 S.D. 507, 249 N.W. 810 (1938), aff'd. on rehearing, 62 S.D. 469, 253 N.W. 447 (1934), and ordered a conditional affir-mance if a party remitted a portion of the award, First Nat’l Bank of Custer City v. Calkins, 16 S.D. 445, 93 N.W. 646 (1903). We have particularly utilized the conditional affirmance upon remittitur in those cases where we determined that a punitive damage award was excessive. Shippen v. Parrott, 1996 SD 105, 553 N.W.2d 503 (Shippen II); Grynberg v. Citation Oil & Gas, 1997 SD 121, 573 N.W.2d 493; Hannahs v. Noah, 3 S.D. 296, 158 N.W.2d 678 (1968); Stene v. Hillgren, 78 S.D. 1, 98 N.W.2d 156 (1959). While either disposition is appropriate here, we must determine which of the two is the most appropriate under the circumstances. Given the concessions made by Biegler’s counsel, we fail to see where the result would be any different upon retrial of this case and, therefore, we elect to modify the compensatory damage verdict by reducing the amount of the award to $25,000. In doing so we emphasize that modification of a judgment, especially a money judgment, is to be used sparingly and only “when the record and evidence is such that such judgment may be rendered with confidence in the reasonableness, fairness, and accuracy of the decision.” 5 Am.Jur.2d Appellate Review §836.

[¶ 40.] Did the trial court err in denying American Family’s motion for new trial on the jury’s award of punitive damages?

[¶41.] American Family challenges the appropriateness of the punitive damage award on three grounds: 1) that Biegler failed to prove a tort independent of breach of contract; 2) that even if there is an independent tort, there is no sustainable recovery of compensatory damages; and 3) even if there is an independent tort and sustainable compensatory damages, Biegler failed to prove that it acted with malice.

[¶ 42.] American Family has failed to challenge on appeal the jury’s finding that it was guilty of the tort of bad faith breach of insurance contract and we have already upheld the finding of deceit. It also fails to recognize our holding in Grynberg, supra, that while our punitive damages statute (SDCL 21-3-2) does not allow punitive damages for breach of contract, it does permit them in the case of a tort arising independent of the contract obligation including an action for deceit. Finally, it fails to recognize our holding in Harter v. Plains Ins. Co., 1998 SD 59, 579 N.W.2d 625, where we held that an insured could seek punitive damages from her insurer when prosecuting a bad faith action. Thus, we reject its first argument.

[¶ 43.] As to the compensatory damages argument, we have found that Biegler did establish $25,000 in compensatory damages as a result of the tort of deceit. The $25,000 in damages was incurred, in part, as a result of American Family’s refusal to defend and Biegler having to pay a settlement to Schwan. The general measure of damages for breach of an obligation not arising from contract “is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.” SDCL 21-3-1. Clearly the $25,000 in compensatory damages for the deceit was also occasioned by the bad faith breach of insurance contract and for this reason we reject American Family’s second argument.

[¶ 44.] American Family’s third argument is that the evidence fails to establish a finding that it acted with malice. SDCL 21-3-2 allows for punitive damages when there is evidence of “oppression, fraud, or malice.” Sporleder v. Van Liere, 1997 SD 110, 569 N.W.2d 8; Kjerstad v. Ravellette Publications, Inc., 517 N.W.2d 419 (S.D.1994). Since the statute is in the disjunctive, it only necessary to prove one of the three. Sporleder, supra.

[¶ 45.] Malice under the statute is either actual or presumed. Kjerstad, supra (citing Holmes v. Wegman Oil Co., 492 N.W.2d 107, 112 (S.D.1992)).

Actual malice is a positive state of mind, evidenced by a positive desire and intention to injure one another, actuated by hatred or ill will towards, that person. Presumed malice may not, however, be motivated by hatred or ill will, but is present when a person acts willfully or wantonly to the injury of others. It implies that the act complained of was conceived in the spirit of mischief or criminal indifference to civil obligations. Dahl v. Sittner, 474 N.W.2d 897, 900 (S.D.1991). A claim for presumed malice can be shown by demonstrating a disregard for the rights of other. Flockhart [v. Wyant], 467 N.W.2d [473] at 475 [(SD 1991)].

Case v. Murdock, 488 N.W.2d 885, 891 (S.D.1992).

[¶ 46.] As we have already held, the evidence supports a jury finding of deceit. This alone is a sufficient basis upon which the jury’s award of punitive damages is justified. However, for all of the reasons stated herein, the evidence also supports a conclusion that American Family acted with presumed malice. That is, it acted in the spirit of mischief or criminal indifference to its civil obligation to Bie-gler or, at a minimum, demonstrated a total disregard for Biegler’s rights. American Family’s third argument is also rejected.

[¶ 47.] The jury awarded Biegler $100,000 in punitive damages. American Family has not challenged the amount of this award but it is appropriate (although not necessarily mandatory) that we review it in light of our modification of the compensatory damage award. Our reason is that American Family did not have notice that we might modify that award.

[¶ 48.] This Court reviews an award of punitive damages under a five-factor test. Schafer v. Edward D. Jones & Co., 1996 SD 94, ¶ 28, 552 N.W.2d 801, 810 (Schaffer II); Flockhart, 467 N.W.2d at 479. These factors are 1) the amount of compensatory damages awarded, 2) the nature and enormity of the wrong, 3) the intent of the wrongdoer, 4) the wrongdoer’s financial condition, and 5) all of the circumstances attendant to the wrongdoer’s actions. Id.

[¶ 49.] We first compare the $100,000 punitive damage award to the $25,000 in compensatory damages as modified by this Court. While we have stated that there is no bright-line rule on ratios of punitive damages to compensatory damages, we find no cause for concern here where the punitive award is merely four times that of the compensatory award. See Veeder v. Kennedy, 589 N.W.2d 610, 1999 SD 23, ¶ 52 n.19, 589 N.W.2d 610, 621 n.19 (citing prior cases where this Court has upheld punitive verdicts with ratios of 35 to 1, 30 to 1, 27 to 1 and 11 to 1).

[¶ 50.] The second factor to consider is the nature and enormity of the wrong. The record shows American Family knew it had a duty to defend Biegler under the terms of its contract of insurance but took the position it had no such responsibility and communicated this position to both Biegler and his attorney, King. It maintained this position until after the case had been settled.

[¶ 51.] The third factor considered is the intent of the wrongdoer. In Schaffer II, supra, we noted that “[t]rickery and deceit are more reprehensible than negligence.” (citing BMW v. Gore, 517 U.S. 559, 576, 116 S.Ct. 1589, 1599, 134 L.Ed.2d 809, 826-27 (1996)). There is no question that American Family’s conduct was not inadvertent or the result of negligence.

[If 52.] The fourth factor is the wrongdoer’s financial condition. Traditionally, net worth (assets less liabilities) is the guideline for assessing the amount of punitive damages. Schaffer II, 1996 SD 94 at ¶ 36, 552 N.W.2d at 813. Financial records of American Family for 1996, 1997, and 1998 were entered as an exhibit at trial and available to the jury in making its determination on Biegler’s request for punitive damages. The jury heard American Family’s net worth was over $2 billion. The punitive damages award of $100,000 is not out of line with this company’s ability to pay. Id. at ¶37, 552 N.W.2d at 813. This award is not unreasonable.

[¶ 53.] The last factor this Court must consider is all of the circumstances attendant to the wrongdoer’s actions. Biegler paid yearly premiums on his store’s insurance policy to provide coverage for the incident that befell Schwan. The evidence showed that American Family, knowing almost from the date the incident occurred, that it had a duty to defend under its policy with Biegler, went to great lengths to avoid this duty. The insured was left to fend for himself.

[¶ 54.] When applying all five factors, even against the reduced compensatory damage award, punitive damages in the amount of $100,000 is not unreasonable. The trial court did not err in denying American Family’s motion for new trial on this award.

[¶ 55.] Did the trial court err in awarding attorney fees per SDCL 58-12-3 for American Family’s refusal to defend?

[¶ 56.] “As a general rule, attorney fees may only be awarded by contract or

when specifically authorized by statute.” City of Sioux Falls v. Kelley, 513 N.W.2d 97, 111 (S.D.1994) (citation omitted). SDCL 58-12-3 provides in part:

In all actions or proceedings hereafter commenced against any employer who is self-insured, or insurance company, including any reciprocal or interinsurance exchange, on any policy or certificate of any type or kind of insurance, if it appears from the evidence that such company or exchange has refused to pay the full amount of such loss, and that such refusal is vexatious or without reasonable cause, the Department of Labor, the trial court and the appellate court, shall, if judgment or an award is rendered for plaintiff, allow the plaintiff a reasonable sum as an attorney’s fee to be recovered and collected as a part of the costs[.]

This statute requires the trial court to determine three things. First, whether the insurance company refused to pay the full amount of a' loss. Second, whether the refusal was vexatious or without reasonable cause. And third, what is a reasonable charge for the work performed to enforce the insurance contract claim, vis-a-vis any other claims jointly brought. Isaac v. State Farm Mutual Automobile Ins. Co., 522 N.W.2d 752 (S.D.1994); Brooks v. Milbank Ins. Co., 2000 SD 16, 605 N.W.2d 173.

[¶ 57.] American Family makes no complaint concerning the applicability of the statute. It does complain, however, there is no evidence in the record that its refusal to defend was either vexatious or without reasonable cause. American Family also complains that the amount of attorney fees awarded is excessive in light of its costs to defend this suit.

[¶ 58.] Whether American Family’s conduct was vexatious or without reasonable cause is a question of fact, reviewed by this court under the clearly erroneous standard. Isaac, 522 N.W.2d at 763 (citing North Star Mut. Ins. Co., 484 N.W.2d at 913). While we acknowledge that “a finding of bad faith on the part of an insurance company does not mean ‘ipso facto’ that its conduct was vexatious or without reasonable cause,” Isaac, 522 N.W.2d at 762, our review of the trial court’s detailed findings of fact and conclusions of law in light of the record does not leave us with the impression that the trial court was clearly erroneous. Succinctly stated, American Family did everything it could to put off, and thereby deceive, Bie-gler even though it knew that it had an obligation to defend him. American Family did not have a justifiable reason to deny defense of the suit and its actions are undoubtedly of a nature to vex any reasonable person.

[¶ 59.] American Family contends that the trial court’s allowance of $40,000 for the prosecution of the breach of contract claim was excessive in light of the fact it spent $36,292 to defend all claims, both contract and tort. Biegler’s counsel, by way of affidavit, submitted an itemized hourly billing for ⅛ $85,065 for all claims. Biegler’s counsel further indicated by affidavit that approximately one-half of the bill was associated with the breach of contract claims. The Court also had before it an affidavit of counsel as to what was the prevailing hourly rate charged by plaintiffs’ bar for this type of work. American Family’s counsel submitted an affidavit in opposition to Biegler’s which indicated that both the hourly rate charged and the number of hours claimed were unreasonable.

[¶ 60.] The trial court’s fee award is reviewed under the abuse of discretion standard. Brooks, 2000 SD 16 at ¶ 20, 605 N.W.2d at 178 (citing Rock v. Rock, 89 S.D. 583, 236 N.W.2d 191, 194 (1975) and DeWitt v. DeWitt, 86 S.D. 59, 191 N.W.2d 177 (1971)). The phrase abuse of discretion refers “to a discretion exercised to an énd or purpose not justified by, and clearly against, reason and evidence.” Herndon v. Herndon, 305 N.W.2d 917, 918 (S.D.1981).

[¶ 61.] Even though there is a disagreement between counsel as to what is reasonable, we cannot find an abuse of discretion by the trial court. Therefore, we affirm the trial court’s award.

SUMMARY

[¶ 62.] We affirm the trial court’s denial of American Family’s motions for summary judgment and new trial on Biegler’s claim for breach of American Family’s contractual duties to defend and to pay and on his claim for deceit. We affirm the trial court’s denial of American Family’s motion for a new trial on the issue of compensatory damages for deceit, but modify the amount of this award to $25,000. We affirm the trial court’s denial of American Family’s motion for a new trial on the issue of punitive damages for deceit and bad faith. We affirm the trial court’s award of attorney fees in the amount of $40,000, per SDCL 58-12-3, for American Family’s vexatious refusal to defend. We remand to the trial court to enter a new judgment reflecting the modification and recomputing prejudgment interest.

APPELLATE ATTORNEY FEES

[¶ 63.] Per SDCL 58-12-3 Biegler seeks appellate attorney fees for his defense of the breach of contract claims. His counsel claims to have spent 96.30 hours defending American Family’s appeal and estimates that one-half of that time or 48.25 hours can be attributed to the breach of insurance contract issues. At a claimed rate of $150 an hour, Biegler is asking for appellate attorney fees of $7,222.50. American Family responds that Biegler’s request is unreasonable as its total billing for prosecution of this appeal is only $4,756.82 and that, further, there is no basis for such an award in the first instance.

[¶64.] SDCL 58-12-3 does allow this Court to award reasonable attorney fees when we affirm a trial court’s finding that an insurer has refused to pay the full amount of an insured’s loss and that the refusal was vexatious or without reasonable cause. Since we have upheld the trial court’s insurance and attorney fee rulings, we will grant Biegler reasonable appellate attorney fees pertaining to the insurance coverage issues in the amount of $2,750.

MILLER, Chief Justice, and SABERS, AMUNDSON, and GILBERTSON, Justices, concur.

JOHNS, Circuit Judge, for KONENKAMP, Justice, disqualified.

      . Biegler argues that the denial of a motion for summary judgment is not reviewable on appeal after a full trial on the merits and the entry of judgment thereon. This same issue was just addressed in Carpenter v. City of Belle Fourche, 609 N.W.2d 751, 2000 SD 55, n.3, 609 N.W.2d 751, 757, where we reiterated that the denial of a motion for summary judgment is properly reviewable following trial per SDCL 15-26A-7 (our statute which provides for those orders and determinations subject to review on appeal following a judgment.) We, therefore, conclude that we may hear American Family’s arguments concerning the propriety of the trial court’s rulings but we address them along with our discussion concerning the propriety of the trial court’s denial of the motions for new trial since the same analysis applies to each.

      . We note that the jury was instructed as to actual and constructive fraud. Since Biegler’s theory of recovery was grounded on the tort of deceit, an instruction on constructive fraud was improper.
      An instruction on constructive fraud, as defined in SDCL 53-4-6, should not be given in a tort action for deceit brought under SDCL ch. 20-10. SDCL ch. 53-4 makes contracts obtained by duress, fraud, undue influence, or mistake voidable. SDCL 53-4-5 defines actual fraud which makes a contract voidable; SDCL 53-4-6 defines constructive fraud which makes a contract voidable. The tort action of deceit is based only upon actual fraud as defined by SDCL 20-10-2, and requires scienter or its equivalent. Constructive fraud, which requires no fraudulent intent, is not a basis for deceit under SDCL ch. 20-10, nor under common law. 37 CJS Fraud §§ 2,4; 37 Am. Jur.2d, Fraud and Deceit, §§ 185, 188, 197, 220. Although actual fraud may be the basis of tort actions and contract actions, constructive fraud is the basis only for actions for the avoidance of contracts. 37 CJS Fraud §§ 2,4; 37 Am.Jur.2d, Fraud and Deceit, § 220; 17 CJS Contracts §§ 149, 152, 154(c), 160.

        Schmidt v. Wildcat Cave, Inc., 261 N.W.2d 114, 116-17 (S.D.1977). Although American Family has not appealed the giving of this instruction, we must reiterate the important distinctions between constructive and actual fraud and deceit.

      . Jury interrogatories 5 and 6 asked the jury to indicate those amounts to be awarded for any breach of the duties to defend and pay.

      . During the settlement of instructions the parties did discuss what compensatory damages could be awarded as the result of the deceit and bad faith claims. They acknowledged that the pecuniary damages (i.e., out-of-pocket expenses) would be the amount of the settlement and any attorney fees and costs incurred by the insured in defending himself and in procuring the settlement. Counsel for Biegler further acknowledged that he would not be seeking any attorney fees and costs as a separate item of compensatory damage because of the difficulty of determining what portion of King’s fees were attributable to this one item. Thus, it was agreed that compensatory damages could not exceed Biegler's out-of-pocket expenses of $25,000. „

      . We note that the $25,000 awarded by the jury for the breach of contract and the $25,000 compensatory damage award for deceit are the same item of damage and can only be awarded once in the money judgment. Thus, the money judgment would include the following: 1) compensatory damages of $25,000 plus prejudgment interest; 2) punitive damages of $100,000; and 3) attorney fees of $40,000.


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
      2001 SD 15

    The PEOPLE of the State of South Dakota, In the Interest of T.G. and concerning S.G. and M.G.
    No. 21531.
    Supreme Court of South Dakota.
    Considered on Briefs Jan. 8, 2001.
    Decided Jan. 31, 2001.
    Marcia Whiting of Whiting Law Office, Rapid City, SD, Attorneys for appellee S.G.
    Rena Atchison of Langley Atchison Law Office, Rapid City, SD, Attorneys for appellant M.G.
   PER CURIAM.

[¶ 1.] M.G., father, brings an intermediate appeal of a trial court order and amended order retaining jurisdiction over this abuse and neglect case and awarding physical custody of father’s four-year-old daughter to the child’s mother, S.G. We reverse. •

FACTS

[¶ 2.] Father and mother are from Rapid City. In 1999, they were involved in a divorce proceeding. On August 27, the Pennington County Sheriffs Office took custody of their then three-year-old daughter after the child made complaints of improper touching in her vaginal area against father and, later, made similar allegations against mother. A temporary custody hearing was held on August 30 and the trial court subsequently granted the State Department of Social Services (DSS) legal and physical custody of the child for thirty days with leave to place the child in foster care.

[¶ 3.] An advisory hearing was held on September 29, 1999, after which the trial court entered an order continuing legal and physical custody of the child with DSS. That same date, the State filed an abuse and neglect petition against both mother and father alleging the child had been subjected to sexual abuse, molestation, or exploitation by both parents. The adjudicatory hearing was originally set for November 16 and then rescheduled for January 27, 2000. However, the State initiated what was later called a status hearing on January 18. At that hearing, the following exchange took place between the Deputy State’s Attorney and the trial court:

PROSECUTOR: Your Honor, I had called this hearing today to inform the Court that the State would be dismissing the abuse and neglect petition, and the Department of Social Services and myself and Ms. Cline have done a lot of talking on this case, and [T.G.] has now been out of the home for about five months, and in that period of time, there are some definite issues that need to be dealt with with their family, and based on the work with the family for the past five months, the Department of Social Services is recommending that the court maintain jurisdiction over this case for an additional 90 days, and in terms of reunification with which parent, it would be the State’s recommendation that that placement be with the respondent mother, and I base that primarily on my contact with Ms. Pfeiffer.
THE COURT: Ms. Pfeiffer talks about it being an interim?
PROSECUTOR: Yes, that’s how I would see it.
THE COURT: I think what the Court is going to do, it’s going to exercise it’s authority. It’s going to appoint Ms. Kay Lindgren of Rapid City to do an evaluation and recommend to the Court where the final — where the child should be placed final. This is a sick dysfunctional family. This child has a lot of problems, and I’m just not going to place the child without knowing and my being satisfied that that’s the best thing. So I’ll accept the recommendation that it be placed with the mother. I will keep the jurisdiction of this Court in this case, oh, for 90 days. I also then will schedule a custody hearing at which time I’ll decide whether I’m going to keep it with the mother or the father or take the child out of the house permanently, and I will be — I’ll use the services of Ms. Kay Lindgren. And I will ask you to sign an order to that effect and give her the necessary papers. She is a — woman with vast experience in this field, and I’m quite satisfied with — that she will do a thorough job for the Court[.]

[¶ 4.] After the January 18 hearing, the trial court entered an order granting temporary legal and physical custody of the child to mother and granting father supervised visitations. The court also retained jurisdiction of the matter for an additional ninety days and ordered evaluations for recommendations concerning permanent placement of the child. The court further ordered that a custody hearing be held after receipt of these evaluations and recommendations. On January 19, the State submitted a formal motion for dismissal of the abuse and neglect petition and a formal order of dismissal was signed by the trial court and attested and filed on January 20.

[¶ 5.] A status hearing was held on February 22 after which the trial court entered an order continuing legal and physical custody of the child with mother and also continuing father’s supervised visitations with the child. An evidentiary hearing was then noticed for April 11. A hearing was held on that date largely in the nature of a dispositional hearing wherein recommendations were made for the “long term placement” of the child. After the April 11 hearing, the trial court entered orders and amended orders granting legal custody of the child to DSS and physical custody to mother. The trial court further ordered that it would continue to maintain jurisdiction of the matter and imposed a variety of conditions and obligations on both parents such as attendance at domestic violence courses, AA, Al-Anon, etc. On May 30, father filed a motion for permission to take an intermediate appeal of the trial court’s post-April 11 orders which this Court granted on June 9. On June 16, the trial court entered an order “that the minor child [be] placed with Respondent Mother based upon the testimony and advice of expert witnesses and in the best interests of the minor child.”

ISSUE

[¶ 6.] Did the trial court err in retaining jurisdiction over this case after its dismissal of the abuse and neglect petition?

[¶7.] Father contends the trial court erred in its exercise of jurisdiction over this case after its dismissal of the abuse and neglect petition on January 20, 2000. We agree. Generally, the dismissal of a petition in juvenile court terminates the jurisdiction of the court. See R.A.C., Jr. v. State, 736 So.2d 718 (Fla.Dist.Ct.App.1999)(trial court had no jurisdiction over these delinquency cases because it entered an order dismissing the three petitions); Matter of Brandon C., 237 A.D.2d 821, 658 N.Y.S.2d 461 (N.Y.App.Div.1997)(after dismissal of petition, family court lacks jurisdiction to impose conditions on return of child); In Interest of Leif E.N., 189 Wis.2d 480, 526 N.W.2d 275 (Wis.Ct.App.1994)(filing of petition confers competency upon juvenile court and dismissal of petition revokes competency of that court). South Dakota law reflects this view in SDCL 26-7A-86, which provides in pertinent part:

If the court finds the allegations of the petition or amended petition are not supported by clear and convincing evidence in cases concerning an alleged abused or neglected child ... the court shall enter a final order accordingly and the action shall be terminated. In the case of an alleged, abused or neglected child, the court shall enter findings and conclusions in addition to the final order. On termination of the action, the child, the child’s parents, guardian or custodian and other parties respondent shall be released from any restriction or temporary order previously issued by the court and from the jurisdiction of the court, (emphasis added).

[¶ 8.] While in this case there was no trial court finding of insufficient evidence, the State essentially conceded that point at the January 18 “status hearing” when, rather than proceeding with an adjudicatory hearing, it sought a dismissal of the petition that was granted by the trial court. At that juncture, there was no reason the trial court should not have terminated its jurisdiction over this ease pursuant to the requirements of SDCL 26-7A-86. Instead, it continued proceedings up to and through a final custodial disposition of the child, a disposition entered without there ever having been any adjudication of abuse or neglect in this case. We condemned just such a procedure as a violation of due process in Matter of C.V., 1998 SD 47, 579 N.W.2d 17.

[¶ 9.] Based upon the foregoing, all trial court orders entered subsequent to its dismissal of the abuse and neglect petition in this case are reversed.

[¶ 10.] MILLER, Chief Justice, and SABERS, AMUNDSON, KONENKAMP, and GILBERTSON, Justices, participating.

       We note that, by the time of the dismissal, Circuit Judge Tice was presiding over father and mother’s divorce proceedings and was ready to assume jurisdiction of any custody dispute involving the child.


author: GILBERTSON, Justice.

text:
    2001 SD 16
    FIRST WESTERN BANK WALL, Petitioner and Appellant, v. Kenneth OLSEN; Kermit Olsen; Ray S. Olsen; Roberta Olsen; Roberta Olsen, as Executrix of the Estate of Ruth E. Olsen; Walborg M. Robbins, and Karen Kunstle, Appellees.
    No. 21441.
    Supreme Court of South Dakota.
    Argued Nov. 29, 2000.
    Decided Jan. 31, 2001.

      Gregory A. Eiesland, Kristi K. Wammen of Johnson Eiesland Huffman <& Clay-borne, Rapid City, SD, Attorneys for petitioner and appellant.

      Haven L. Stuck, Donald R. Shultz of Lynn, Jackson, Shultz & Lebrun, Rapid City, SD, Attorney for appellees.
   GILBERTSON, Justice.

[¶ 1.] Pursuant to SDCL 47-6-48, First Western Bank of Wall (Bank) petitioned the circuit court for a determination of “fair value” of certain fractional shares belonging to dissenting shareholders. The circuit court determined that the “fair value” of the fractional shares did not include a minority discount or a non-marketability discount. Therefore, the circuit court determined the “fair value” of the shares to be $1,414,640, rather than $601,268 as proposed by Bank. Bank appeals this determination. We affirm.

FACTS AND PROCEDURE

[¶2.] Bank has its principal place of business in Wall, South Dakota, with branches in Hot Springs, New Underwood and Edgemont. It is controlled by a holding company called First Western Bancorp (Bancorp). Bancorp owned 13,680 of the Bank’s 15,000 outstanding shares as of December 23, 1996. Bancorp is in turn controlled by Paul Christen (Christen) and his family who hold 86% of the voting shares of Bancorp. Christen is the President, chief executive officer and director of Ban-corp. Prior to December 23, 1996, the Olsens collectively owned 1,100 of the remaining shares in Bank.

[¶ 3.] On December 23, 1996, Bancorp, as the majority shareholder in Bank, voted its shares to amend Bank’s Articles of Incorporation to provide for a reverse stock split of 1 to 1,250 shares. This action reduced the Olsens’ interest to .88 shares. On July 2, 1997, a special shareholders’ meeting was held. At that meeting, Bank shareholders voted to repurchase all fractional shares. The Olsens were notified of this action before it was ratified at the subsequent shareholders’ meeting and they properly noted their intent to dissent. At a second meeting on July 2, Bank established the “fair value” of the fractional shares as $601,263. The Olsens were notified that they had the right to payment of the fair value of their shares as well as the right to demand supplemental payment for their shares if they disagreed with Bank’s estimation of fair value.

[¶ 4.] The Olsens submitted their fractional shares and collectively received $601,263 from Bank, which in turn can-celled the Olsens’ shares. On August 25, 1997, the Olsens tendered their written demand for payment of a deficiency pursuant to SDCL 47-6-47. Because the parties were unable to reach a settlement, Bank petitioned the circuit court for a determination of “fair value” of the Olsens’ shares on October 8, 1997. Bank claimed that “fair value” of the shares was equivalent to “fair market value.” According to Bank, the value of the fractional shares should have been reduced by a minority discount due to the lack of control over corporate affairs. Under Bank’s analysis, a non-marketability discount should also have been applied because the shares were not publicly traded and would be difficult to sell. The Olsens disagreed with this valuation and submitted their own proposal that fair value was equal to $1,414,640.

[¶ 5.] The circuit court determined that fair market value was not an appropriate method of valuation under South Dakota’s dissenters’ rights statutes. The circuit court further determined that the application of any minority or non-marketability discounts would be unjust and inequitable. Based on these findings, the trial court determined that the fair value of the Ol-sens’ shares was $1,414,640. Judgment was entered in favor of the Olsens for the difference between that amount and the amount previously paid by Bank, or $813,377. The Olsens were also granted $207,021 in prejudgment interest. Bank presents the following two issues on appeal:

1. Whether the trial court erred in admitting the testimony of Thorsten-son, the Olsens’ expert appraiser.
2. Whether the trial court erred in its interpretation of “fair value” as used in SDCL 47-6-40(3).

ANALYSIS AND DECISION

[¶ 6.] 1. Whether the trial court erred in admitting the testimony of Thor-stenson, the Olsens’ expert appraiser.

[¶ 7.] When reviewing the admissibility of expert testimony, we have often stated that:

[w]e review questions of admissibility of an expert witness’ testimony under an abuse of discretion standard. We have long acknowledged that the trial court has broad discretion concerning the admission of expert testimony. The trial court’s decision on such matters will not be reversed absent a clear showing of an abuse of discretion.

Nickles v. Schild, 2000 SD 131, ¶7, 617 N.W.2d 659, 661 (citing Maroney v. Aman, 1997 SD 73, ¶ 33, 565 N.W.2d 70, 78) (additional citations omitted). Thus, for a reversal, the Bank must establish that no “judicial mind, in view of the law and the circumstances, could have reasonably reached the same conclusion.” Id. (citing State v. Barber, 1996 SD 96, ¶ 14, 552 N.W.2d 817, 820).

[¶ 8.] The admission of expert testimony is governed by SDCL 19-15-2, which provides:

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.

This statute sets forth the test announced in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469, and adopted by this Court in State v. Hofer, 512 N.W.2d 482 (S.D.1994). Under this test, the trial judge must simply determine “ ‘that an expert’s testimony both rests on a reliable foundation and is relevant to the task at hand.’ ” Estate of Dokken, 2000 SD 9, ¶40, 604 N.W.2d 487, 498 (quoting State v. Moeller, 1996 SD 60, ¶ 52, 548 N.W.2d 465, 479). These principles are satisfied if the expert testimony is relevant and has “a reliable basis in the knowledge and experience of his discipline.” Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 148, 119 S.Ct. 1167, 1174, 143 L.Ed.2d 238, 250 (1999). Bank argues that Thorstenson’s testimony is irrelevant and unreliable because it “is speculative, not based on reliable foundations, and contradictory within its own definitions, and thus would be of no aid to the finder of fact in determining just compensation in this case.” We do not agree.

[¶ 9.] Bank challenges both Thor-stenson’s qualifications as an expert as well as his expert opinion. A witness may be qualified as an expert through “knowledge, skill, experience, training, or education .... ” SDCL 19-15-2. Bank challenges Thorstenson’s qualification because he had no experience in valuing banks prior to the present valuation. Assuming Bank’s claim to be true, we do not examine an expert’s qualifications under such a restricted focus. See Nickles, 2000 SD 131, 617 N.W.2d 659. Thorstenson has been involved in valuing closely held businesses since 1983. He is certified by the National Association of Certified Valuation Analysts, and has prepared or supervised more than seventy-five business valuation reports. In addition, through his work for clients in the area, he is familiar with the economic climate of the communities where Bank’s branches are located. Thor-stenson’s credentials qualify him as an expert under SDCL 19-15-2.

[¶ 10.] After reviewing his expert testimony, it is clear that Thorsten-son’s opinions as to valuation were relevant and based on generally accepted valuation principles. Use of these generally accepted principles is sufficient to establish admissibility under Kmnho and Daubert. Thorstenson examined the historical growth of the Bank’s income, the financial ability of Bank to pay dividends and its general financial health, the local economic climate of Bank and its branches, as well as the number of mergers in small banks and the resulting increase in small bank stock values. He used the same methods of valuation that Bank’s expert used. The difference in their valuations resulted, in part, from emphasizing one method over the other. The difference in valuation also resulted from disparate opinions as to Bank’s growth rate and cash flow. These differences do not cause the valuation to become unreliable or irrelevant. Rather, determining appropriate projections and deciding which method to apply in a certain situation is the specialized knowledge that is sought from a valuation expert. Bank’s objections essentially relate to the basis of Thorstenson’s opinions. We have often stated that “[t]he basis of an expert’s opinion is generally a matter going to the weight of the testimony rather than the admissibility.” Dokken, 2000 SD 9, ¶ 41, 604 N.W.2d at 499 (citing State v. Spiry, 1996 SD 14, ¶ 16, 543 N.W.2d 260, 264 (additional citations omitted)). Bank’s real dispute here is that the circuit court accepted Thorstenson’s opinion over that of Bank’s expert. Bank has failed to show that the circuit court abused its discretion in so doing.

[¶ 11.] 2. Whether the trial court erred in its interpretation of “fair value” under SDCL 47-6-40(3).

[¶ 12.] Although the circuit court entered findings of fact and conclusions of law, we are essentially presented with a question of statutory interpretation which is a question of law, reviewed under the de novo standard. Steinberg v. State Dept. of Military Affairs, 2000 SD 36, ¶ 6, 607 N.W.2d 596, 599.

[¶ 13.] At common law, fundamental corporate changes could only occur with the consent of all shareholders. Rigel Corp. v. Cutchall, 245 Neb. 118, 511 N.W.2d 519, 523 (1994) (citing Voeller v. Neilston Co., 311 U.S. 531, 535, 61 S.Ct. 376, 85 L.Ed. 322 (1941)). This rule protected minority shareholders by granting them an effective veto power over the majority. Id. However, this corporate hostage taking began to be looked upon with disfavor, as flexibility in modern corporations became a necessity. In response, legislatures exchanged unanimity with majority rule and the veto power was replaced by the right of dissenting shareholders to receive the fair value of their shares. Lawson Mardon Wheaton, Inc., v. Smith, 160 N.J. 383, 734 A.2d 738, 745 (1999).

[¶ 14.] Under South Dakota’s Model Business Corporation Act, when shareholders exercise these dissenting rights, they are entitled to “fair value” for their shares. SDCL 47-6-46. In addition, dissenting shareholders are entitled to a judicial appraisal of the fair value of those shares. SDCL 47-6-48. Fair value of shares is defined as “their value immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of such corporate action unless such exclusion would be inequitable.” SDCL 47-6-40(3). Bank claims that our precedent requires that “fair value” should be equated with fair market value. In addition, according to Bank, minority and non-marketability discounts should be applied in determining the fair market value of the shares.

[¶ 15.] Bank directs us to several of our decisions that it contends control the present situation. See Roseland v. Faulk County Bd. of Equalization, 474 N.W.2d 273, 275 (S.D.1991) (finding that in property tax dispute, “actual value” and “true and full value” were synonymous with fair market value); Federal Land Bank of Omaha v. Carlson, 411 N.W.2d 415, 417 (S.D.1987) (finding that in the context of deficiency judgment statutes, “fair and reasonable value” is equated with fair market value). Bank also notes that we have approved the application of a minority discount when valuing a closely held corporation in a division of marital assets context. Priebe v. Priebe, 1996 SD 136, ¶ 17, 556 N.W.2d 78, 82. In addition, Bank asserts that the Olsens should be bound by the use of a 20% minority discount applied on Ruth Olsen’s 1994 federal estate tax return.

[¶ 16.] The precedent cited by Bank is not controlling in this case because the purposes and policies expressed in those cases are inconsistent with the purpose and policies behind our dissenters’ rights statutes. The purpose of marital property division statutes is to effectuate a fair and equitable distribution of accumulated property. Inheritance and property tax laws operate to raise revenue for the governing body. These purposes contrast with the purpose of dissenters’ rights statutes, which is to protect minority shareholders. See HMO-W Inc. v. SSM Health Care Sys., 234 Wis.2d 707, 611 N.W.2d 250, 258 (2000) (HMO-W II) (noting that “the standard of valuation in any given context should reflect the purpose served by the law in that context.”). Therefore, we are not bound by those prior decisions.

[¶ 17.] Having determined that our precedent is not determinative, we examine what the legislature intended by the term “fair value” in the context of dissenters’ rights. Initially, it bears repeating that we are bound by what the legislature has written. State Subsequent Injury Fund v. Federated Mut. Ins., Inc., 2000 SD 11, ¶ 13, 605 N.W.2d 166, 169. If the legislature intended dissenting shareholders to receive the fair market value of their shares, it would have so stated. The reason the legislature did not use the term fair market value is obvious. Fair market value has often been defined as the price a willing buyer would pay a willing seller, both under no obligation to act. Zochert v. Nat'l Farmers Union Prop. & Cas., 1998 SD 34, ¶ 11, 576 N.W.2d 531, 534. Dissenting shareholders can hardly be termed “willing sellers” when, as in this case, they are being forced to sell their fractional shares. To protect minority shareholders, the legislature instead used the term fair value, defining it as the value of the shares “immediately before the effectuation of the corporate action to which the dissenter objects....” SDCL 47-6-40(3). This definition implies that fair value is the value of those shares as a proportionate interest in the business as an entity, in other words as “a going concern.” See Cutchall, 511 N.W.2d at 525 (quoting Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del.1983)). An appraisal proceeding must focus “not [on] the stock as a commodity, but rather the stock only as it represents a proportionate part of the enterprise as a whole.” In re McLoon Oil Co., 565 A.2d 997, 1004 (Me.1989). Therefore, we must determine whether the application of minority and non-marketability discounts is compatible with valuing those shares as a proportion of a viable, living business. We will deal with each discount in turn.

[¶ 18.] A. Minority Discount

[¶ 19.] A minority discount is applied to account for the lack of control that a minority shareholder holds in the corporation. Because there is no control over corporate decisions, the shares are considered less valuable than shares held by a majority shareholder. HMO-W Inc. v. SSM Health Care Sys., 228 Wis.2d 815, 598 N.W.2d 577, 582 (1999) (HMO-W I). Bank argues that the circuit court should have applied a 25% minority discount to the Olsens’ shares because their combined interest amounted to only 7.34% of Bank’s shares. The circuit court refused to apply a minority discount stating that to do so would be unjust and inequitable and would not constitute fair value.

[¶ 20.] The leading case on valuation in the context of dissenters’ rights is Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del.1989). In that case, a shareholder dissented to a merger and asserted appraisal rights pursuant to the Delaware dissenters’ rights statute. See Del Code Ann title 8, § 262 (1991 & Supp 1998). Like SDCL 47-6-46, the Delaware statute required payment of fair value for the shares. Id. The court stated that, “[t]he application of a discount to a minority shareholder is contrary to the requirement that the company be viewed as a ‘going concern.’ ” Cavalier Oil, 564 A.2d at 1145. The court continued on, stating that “to fail to accord to a minority shareholder the full proportionate value of his shares imposes a penalty for lack of control, and unfairly enriches the majority shareholders who may reap a windfall from the appraisal process by cashing out a dissenting shareholder, a clearly undesirable result.” Id. This reasoning has been adopted by a majority of the courts that have examined this issue.

[¶ 21.] The case of Arnaud v. Stockgrowers State Bank, 268 Kan. 163, 992 P.2d 216 (1999) involves a fact pattern similar to the present dispute. In Arnaud, the majority shareholders of a closely held bank initiated a reverse stock split, leaving the minority with a fractional share, which was later eliminated. The Kansas dissenters’ rights statutes required the payment of “fair value” for those eliminated shares. See Kan. Stat. Ann. § 17-6405 (1995). In determining the fair value, the bank applied a 23% minority discount. The Kansas Supreme Court determined that it was inappropriate to apply a minority discount to the dissenters’ shares. The court stated that:

To allow a discount under the facts of this case would discourage investments in corporations by persons who would acquire a minority interest because it would enable the majority shareholders to seize the minority shareholders’ interest in the corporation to the extent a minority ... discount is allowed. Investments should be encouraged, not discouraged.

Id. at 220. That court would not permit such a windfall to the majority shareholder. Id.

[¶ 22.] A minority discount is also inappropriate because when the shares are being sold to the majority shareholder, or to the corporation itself, the very purpose of applying the discount fails. As explained by the Montana Supreme Court:

When selling [minority shares] to a third party, the value of the shares is either the same as or less than it was in the hands of the transferor because the third party gains no right to control or manage the corporation. However, a sale to a majority shareholder or to the corporation simply consolidates or increases the interests of those already in control. Therefore, requiring the application of a minority discount when selling to an “insider” would result in a windfall to the transferee.

Hansen, 957 P.2d at 41. In situations envisioned by our dissenters’ rights statutes, the transferee will be either the majority shareholder or the corporation itself. In those situations, rather than lacking control, the transferee will have increased control over the affairs of the corporation.

[¶ 23.] We agree with the reasoning of Cavalier Oil and its progeny and hold that it is inappropriate to apply a minority discount when determining the fair value of dissenters’ shares.

[¶ 24.] B. Non-marketability Discount

[¶ 25.] We next turn to the question of whether a non-marketability discount is appropriate in dissenters’ rights appraisals. Bank argues that it is entitled to apply a 15% discount to the Olsens’ shares because the shares lack a ready and available market. According to Bank, because these shares have no market, those shares have less value than stock that is easily liquidated, justifying the discount. This discount is separate and distinct from the minority discount and theoretically, it would apply to all Bank stock, not simply the minority shares.

[¶ 26.] For the reasons discussed above, and announced in Cavalier Oil and its progeny, we conclude that such a discount is inapplicable when valuing dissenters’ shares. The appraisal process is not intended to reconstruct a pro forma sale. Cavalier Oil, 564 A.2d at 1145. The process merely values the business as a whole and divides up that value in proportion to the shares owned. McLoon Oil, 565 A.2d at 1004. As such, it is completely irrelevant whether the dissenting shareholders would have had a difficult time liquidating their shares. This discount is especially inapplicable in a dissenters’ rights context, as a ready market does exist for the dissenters’ shares, namely the majority shareholder or the corporation itself. To apply a non-marketability discount to the dissenters’ shares would “unfairly enrich[ ] the majority shareholders who may [attempt to] reap a windfall from the appraisal process.... ” Cavalier Oil, 564 A.2d at 1145.

[¶ 27.] C. Conclusion

[¶ 28.] SDCL 47-6-48 requires dissenting shareholders be paid the fan-value of their shares. The circuit court was correct in refusing to apply either a minority or non-marketability discount when determining the fair value of the Olsens’ shares. The appraisal process is a compromise that avoids corporate gridlock in exchange for the fair value of dissenters’ shares. Any discount that “fails to accord to a minority shareholder the full proportionate value of his shares” “penalizes the minority for taking advantage of the protection afforded by the appraisal statute .” Lawson, 734 A.2d at 749. Such a result frustrates the purpose of the dissenters’ rights statutes, namely protection of minority shareholders, and “would inevitably encourage corporate squeeze-outs.” McLoon Oil, 565 A.2d at 1005.

[¶ 29.] Judgment is affirmed.

[¶ 30.] SABERS, AMUNDSON and KONENKAMP, Justices, and ENG, Circuit Judge, concur.

[¶ 31.] ENG, Circuit Judge, sitting for MILLER, Chief Justice, disqualified.

      . The defendants in this action will be collectively referred to as "the Olsens.” The individual parties include Kenneth Olsen, Kermit Olsen, Ray Olsen, Roberta Olsen, Estate of Ruth E. Olsen, Walborg M. Robbins, and Karen Kunstle.

      . The only stockholder in attendance was Bancorp, represented at the meeting by Christen.

      . The purpose of these actions was to qualify Bank for treatment as a sub-chapter S corporation. Pursuant to I.R.C. § 136l(b)(3)(B)(i), all shares must be held by the corporation to qualify for sub-chapter S treatment.

      . That figure represented the "book” value of the shares.

      . Thorstenson had previously prepared a valuation of a limited partnership which owned an interest in a bank, but had never performed a full valuation of a bank.

      . See, e.g., HMO-W II, 611 N.W.2d at 257; Arnaud, 992 P.2d at 220; Hansen v. 75 Ranch Co., 288 Mont. 310, 957 P.2d 32, 41 (1998); Friedman v. Beway Realty Corp., 87 N.Y.2d 161, 638 N.Y.S.2d 399, 661 N.E.2d 972, 977 (1995); Cutchall, 511 N.W.2d at 526; MT Properties, Inc., v. CMC Real Estate Corp., 481 N.W.2d 383, 388 (Minn.Ct.App.1992); Woolf v. Universal Fidelity Life Ins. Co., 849 P.2d 1093, 1095 (OklaApp 1992); Charland v. Country View Golf Club, Inc., 588 A.2d 609, 612 (R.I.1991); McLoon Oil, 565 A.2d at 1003.


author: AMUNDSON, Justice.

text:
    2001 SD 14
    James MERGEN, Plaintiff and Appellee, v. NORTHERN STATES POWER COMPANY, Defendant, and City of Sioux Falls, Intervenor and Appellant.
    No. 21371.
    Supreme Court of South Dakota.
    Considered on Briefs Nov. 27, 2000.
    Decided Jan. 31, 2001.

      Steven M. Johnson and Matthew T. To-bin of Johnson, Heidepriem, Miner, Mar-low and Janklow, Sioux Falls, SD, Attorneys for plaintiff and appellee.
    R. Shawn Tornow, Chief Assistant City Attorney, Sioux Falls, SD, Attorney for intervenor and appellant.
   AMUNDSON, Justice.

[¶ 1.] The City of Sioux Falls (“City”) appeals the trial court’s determination to condition the City’s right to intervene on the payment of costs, including attorneys’ fees to James Mergen, the plaintiff. City appeals. We reverse and remand.

FACTS

[¶ 2.] On May 13, 1998, James Mergen, an employee with the City’s Lights Department, was called by Northern States Power (“NSP”) regarding an electrical connection in need of repair. Following NSP’s instructions, Mergen was electrocuted while attempting to repair the electrical connection. Soon thereafter, he filed an injury report with City, his employer, for the purpose of claiming medical expenses and lost compensation under the workers’ compensation laws. City accepted Mergen’s claim and paid approximately $19,000 in medical bills and $9,200 in temporary total disability benefits. Approximately one year later, on April 8, 1999, Mergen brought a personal injury suit against NSP as an alleged third-party tort-feasor in Minnehaha County Circuit Court. Mergen’s Complaint specifically excluded a request for recovery of worker’s compensation expense payments incurred by City.

[¶ 3.] On June 7, 1999, nearly two months after Mergen filed his original complaint against NSP, City filed a Motion to Intervene, pursuant to SDCL 15-6-24(a), in the lawsuit between Mergen and NSP. In response to City’s motion, Mer-gen filed a Brief in Resistance to such intervention by City and a hearing was held on September 20, 1999. The trial court conditioned City’s motion, finding that City could only intervene if it agreed to pay Mergen reasonable costs and attorneys’ fees. City now appeals, raising the following issue:

Whether the trial court erred as a matter of law when it conditioned City’s right to intervene by mandating the payment of reasonable expenses incurred by Mergen, including attorneys’ fees.

STANDARD OF REVIEW

[¶ 4.] “Statutory interpretation presents a question of law.” Satellite Cable Serv. v. Northern Elec. Coop., Inc., 1998 SD 67, ¶ 5, 581 N.W.2d 478, 480. “The construction of [a] statute and its application to [the] facts present questions of law, which we review de novo.” State v. Springer-Ertl, 1997 SD 128, ¶ 4, 570 N.W.2d 39, 40. A trial court’s findings of fact are to be reviewed under the clearly erroneous standard. State v. Karlen, 1999 SD 12, ¶ 6, 589 N.W.2d 594, 597; State v. Westerfield, 1997 SD 100, ¶ 8, 567 N.W.2d 863, 866. Because this case depends on our interpretation of SDCL 15-6-24(a), we will review this matter de novo.

DECISION

[¶ 5.] A party’s right to intervene in a lawsuit between a plaintiff and a third party tortfeasor is controlled by SDCL 15-6-24(a). SDCL 15-6-24(a) provides:

Upon timely application anyone shall be permitted to intervene in an action:
(1) When a statute of the state confers an unconditional right to intervene; or
(2) When the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant’s interest is adequately represented by existing parties.

The purpose of intervention is to obviate delay and multiplicity of suits by creating an opportunity to persons directly interested in the subject matter to join in an action or proceeding already instituted. The public policy addressed in SDCL 15-6-24(a) is clear.

[¶ 6.] We agree with City’s argument that “it is not legally permissible to deny or condition an intervenor’s right to enter an action.” According to SDCL 15-6-24(a), a party “shall be permitted to intervene.” Although SDCL 15-6-24(a) is a court rule rather than a statute enacted by the legislature, the general rules of construction still apply. ‘When the language of the [rule] is clear, certain, and unambiguous, there is no occasion for construction, and the court’s only function is to declare the meaning of the [court rule] as clearly expressed in the [rule].” State v. Sorensen, 1999 SD 84, ¶ 14, 597 N.W.2d 682 (internal citations omitted). “When ‘shall’ is the operative verb in a [rule], it is given ‘obligatory or mandatory’ meaning.” Fritz v. Howard Twp., 1997 SD 122, ¶ 15, 570 N.W.2d 240, 242 (citations omitted). City has an absolute right to intervene, and the trial court had no discretion to condition. “The fact that intervenor may have protected his right by pursuing another remedy is no reason for denying him the right to intervene.” Taylor v. Bank of Volga, 9 S.D. 572, 70 N.W. 834 (1897). SDCL 15-6-24(a) provides the option to intervene without condition. There appears to be no countervailing reason why the claim of City should not be adjudicated in this action.

[¶ 7.] Mergen agrees the general rule allows an employer, in the context of workers’ compensation, the right to intervene in a subsequent tort claim against a third-party tortfeasor in order to recover those expenses incurred by the employer. See Millers Mut. Ins. Assoc. v. Young, 601 So.2d 962 (Ala.1992); Mar v. Sakti Int’l. Corp., 9 Cal.App.4th 1780, 12 Cal.Rptr.2d 388 (1992); Hankee v. Wilkes-Barre/Scranton Int’l. Airport, 532 Pa. 494, 616 A.2d 614 (1992); Tucker v. Clare Bros. Ltd., 196 Mich.App. 513, 493 N.W.2d 918 (1992); Uva v. Alonzy, 116 Conn. 91, 163 A. 612 (1933). Rather, Mergen argues that the general rule does not apply because City’s motion was untimely. See Weimer v. Ypparila, 504 N.W.2d 333 (S.D.1993). In Weimer, we held “the most important factor is whether the delay in moving for intervention will unduly delay or prejudice the adjudication of the rights of the original parties.” Id. at 336 (citing Larson v. All-American Transport, Inc., 83 S.D. 622, 164 N.W.2d 603, 606 (S.D.1969)). We agree with the trial court that City’s intervention was not untimely as Mergen failed to show any prejudice. As such, we hold that the trial court did not abuse its discretion.

[¶ 8.] Our holding today, however, does not limit nor hinder a trial court’s discretion in imposing reasonable costs and fees between parties. Under our workers’ compensation law an employer must pay the reasonable expense of litigating its claim. SDCL 62-4-39 provides:

If compensation has been awarded and paid under this title and the employee has recovered damages from another person, the employer having paid the compensation may recover from the employee an amount equal to the amount of compensation paid by the employer to the employee, less the necessary and reasonable expense of collecting the same, which expenses may include an attorney’s fee not in excess of thirty-five percent of compensation paid, subject to § 62-7-36. (emphasis added).

This statute, in cases of this nature, certainly allows trial courts discretion so that an intervenor pays its fair share. The statutory authority is clear. South Dakota law permits the trial court to impose reasonable costs and expenses of litigation upon an intervenor. See Zoss v. Dakota Truck Underwriters, 1998 SD 23, ¶ 16, 575 N.W.2d 258, 263 (determining that when there is a third party recovery, “the expenses and attorney’s fee will be assessed on a pro rata basis”). It is clear that this Court has held that an intervenor cannot precipitously wait for expensive litigation costs to be incurred, then intervene without being obligated to pay its pro rata share of reasonable litigation expenses. Id. This rule is fair in that an intervenor, who enters a lawsuit as a matter of right, should be held responsible for its proportionate share of reasonable expenses incurred prior to intervention as determined by the trial court after an appropriate hearing.

[¶ 9.] Reversed and remanded.

[¶ 10.] MILLER, Chief Justice, and SABERS, KONENKAMP, and GILBERTSON, Justices, concur.