#26072-a-GAS

2012 S.D. 53

                          IN THE SUPREME COURT
                                  OF THE
                         STATE OF SOUTH DAKOTA

                                    ****

RANDY KRAMER, an Individual,               Plaintiff and Appellant,

      v.

WILLIAM F. MURPHY SELF-
DECLARATION OF TRUST and
MIKE D. MURPHY, an Individual,             Defendants and Appellees.


                                    ****

                  APPEAL FROM THE CIRCUIT COURT OF
                     THE SECOND JUDICIAL CIRCUIT
                  MINNEHAHA COUNTY, SOUTH DAKOTA

                                    ****

                   THE HONORABLE PATRICIA C. RIEPEL
                               Judge

                                    ****
SANDER J. MOREHEAD of
Woods, Fuller, Shultz & Smith, PC
Sioux Falls, South Dakota                  Attorneys for plaintiff
                                           and appellant.

BRETT A. LOVRIEN of
Cadwell, Sanford, Deibert & Garry, LLP
Sioux Falls, South Dakota                  Attorneys for defendants
                                           and appellees.


                                    ****
                                           CONSIDERED ON BRIEFS
                                           ON FEBRUARY 14, 2012

                                           OPINION FILED 06/27/12
#26072

SEVERSON, Justice

[¶1.]         Randy Kramer initiated a breach of contract action against Mike D.

Murphy and the William F. Murphy Self-Declaration of Trust (Trust). The circuit

court dismissed the case, finding that it was precluded from hearing the case under

the terms of a forum-selection clause incorporated into the parties’ contract.

Kramer appeals. We affirm.

                                  BACKGROUND

[¶2.]         Tri-State Ethanol, LLC owned an ethanol plant in Rosholt, South

Dakota. Kramer was one of the members and managers of Tri-State Ethanol.

Kramer was also a member of White Rock Pipeline, LLC, which owned a pipeline

that supplied natural gas to Tri-State Ethanol. The other individuals and entities

that held membership interests in White Rock Pipeline included Murphy, Walter

Woods, Tri-State Ethanol, and the Trust.

[¶3.]         In order to comply with various federal regulations, Tri-State Ethanol

determined it was necessary to purchase the membership interests of Kramer,

Murphy, Woods, and the Trust. To accomplish this, Tri-State Ethanol entered into

a loan agreement (Loan Agreement) with Murphy and the Trust. Tri-State

Ethanol’s duty to repay the loan was evidenced by a $2,100,000 secured promissory

note (Promissory Note) and a $380,000 secured balloon promissory note (Balloon

Note). 1 The two notes were attached to the Loan Agreement.



1.      The Loan Agreement provided that each party had the following financial
        interest in White Rock:

              1) Tri-State: $275,000
                                                            (continued . . .)
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[¶4.]         The Loan Agreement contained a forum-selection clause, which

stated, “[Tri-State Ethanol] . . . agrees that at the sole election of [Murphy and the

Trust], the jurisdiction and venue for any suit hereon shall be the Fourteenth

(14th) Judicial District in Rock Island County, Illinois.” The Promissory Note and

the Balloon Note also contained similar forum-selection clauses.

[¶5.]         To compensate the members who held an interest in White Rock

Pipeline, an agreement to disburse funds (Disbursement Agreement) was also

executed. The parties to the Disbursement Agreement included Murphy, Woods,

Kramer, and the Trust. 2 The Disbursement Agreement provided that 79.3% of

each monthly payment Tri-State Ethanol made on the Balloon Note was to be

disbursed to Murphy, Walter Woods, Kramer, and the Trust until they were each

fully compensated for the value of their respective interests.

[¶6.]         The Disbursement Agreement was attached to the Loan Agreement

along with the Balloon Note and the Promissory Note. However, the Disbursement

Agreement did not contain a forum-selection clause.


_______________________________
(. . . continued)
               2) William Murphy Trust: $78,497
               3) Mike D. Murphy: $78,504
               4) Walter Woods: $78,616
               5) Randy Kramer: $65,842

        The two notes were to be paid back to Murphy and the Trust. Tri-State
        Ethanol was to receive a $275,000 set-off on the $2,100,000 Secured
        Promissory Note because of the value of its ownership interest in White
        Rock Pipeline.

2.      Tri-State Ethanol was not a party to the Disbursement Agreement because
        it was to receive a set-off on the Promissory Note for its ownership interest
        in White Rock Pipeline.

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#26072

[¶7.]        Tri-State Ethanol was unable to meet its financial obligations and

eventually filed for Chapter 11 bankruptcy. During the course of the bankruptcy

proceedings, Murphy and the Trust reached a settlement agreement regarding

payment of the Loan Agreement and the Disbursement Agreement. Murphy and

the Trust, through its trustee, represented to the bankruptcy court that they would

use the settlement proceeds to pay Kramer the amounts owed under the

Disbursement Agreement. The bankruptcy court approved the settlement

agreement.

[¶8.]        After the settlement proceeds from Tri-State Ethanol’s bankruptcy

estate were distributed, Murphy and the Trust refused to pay Kramer the full

amount listed in the Disbursement Agreement. Kramer then filed a complaint

against Murphy and the Trust for breach of the Disbursement Agreement. The

complaint was filed in the Second Judicial Circuit of South Dakota.

[¶9.]         Murphy filed a motion to dismiss on the grounds of improper venue.

He claimed that the forum-selection clauses contained in the Loan Agreement, the

Balloon Note, and the Promissory Note controlled for any suit brought on the

Disbursement Agreement. The circuit court agreed and dismissed the case. It

found that while the Disbursement Agreement itself had no forum-selection clause,

the other three agreements contained forum-selection clauses providing that the

Fourteenth Judicial District in Rock Island County, Illinois was the proper forum.

The circuit court reasoned that the agreements must be considered as a whole.




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                            STANDARD OF REVIEW

[¶10.]       To determine whether the circuit court erred in dismissing this case,

we must interpret the terms of the parties’ agreements. “The interpretation of a

contract is a question of law, which is reviewed de novo.” Kernelburner, LLC v.

MitchHart Mfg., Inc., 2009 S.D. 33, ¶ 7, 765 N.W.2d 740, 742 (quoting Arch v. Mid-

Dakota Rural Water Sys., 2008 S.D. 122, ¶ 7, 759 N.W.2d 280, 282).

                                    DECISION

[¶11.]       Kramer argues that the circuit court erred in granting Murphy’s

motion to dismiss. He emphasizes that the Distribution Agreement did not contain

specific language incorporating the terms of the Loan Agreement, the Promissory

Note, or the Balloon Note. In the absence of any such express language, Kramer

argues that the agreements cannot be construed as a single contract.

[¶12.]       Kramer’s argument is contrary to this Court’s holding in Baker v.

Wilburn, 456 N.W.2d 304 (S.D. 1990). In Baker, we recognized that “[a]ll writings

that are executed together as part of a single transaction are to be interpreted

together.” Id. at 306 (citing Restatement (Second) Contracts § 202 (1981)). Thus,

“[w]hen two or more instruments are executed at the same time by the same

parties, for the same purpose and as part of the same transaction, the court must

consider and construe the instruments as one contract.” Id. (quoting GMS, Inc. v.

Deadwood Social Club, Inc., 333 N.W.2d 442, 444 (S.D. 1983)).

[¶13.]       Here, in accordance with our holding in Baker, several facts exist

which demonstrate that the documents at issue were executed together as a part of

a single transaction. The documents were executed on the same day in order to


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transfer ownership of White Rock Pipeline to Tri-State Ethanol. In addition, the

Disbursement Agreement was dependant upon the execution of the Loan

Agreement, the Promissory Note, and the Balloon Note. Dakota Gasification Co. v.

Natural Gas Pipeline Co. of Am., 964 F.2d 732, 735 (8th Cir. 1992) (“[H]inging one

contract upon the execution of another contract . . . heightens the need for joint

interpretation.”). Finally, the documents were attached to each other and labeled

sequentially. In light of these facts, the separate documents cannot be viewed in

isolation, but “must be construed together as a single contract involving the same

transaction.” Baker, 456 N.W.2d at 306. See Talley v. Talley, 1997 S.D. 88, ¶ 23,

566 N.W.2d 846, 851 (construing four contracts together because they were

executed simultaneously as part of a transaction to transfer a mother’s interest in

a ranch, ranch equipment, and certain tools to her son, and to provide for the

mother and her cattle); GMS, 333 N.W.2d at 444 (construing a contract for deed

and a bill of sale as one contract because they “were executed simultaneously, by

the same parties, as part of the same transaction –the sale and purchase of . . .

[certain] property”). Cf. Ponderosa-Nevada, Inc. v. Venners, 90 S.D. 579, 243

N.W.2d 801 (1976) (construing a contract for deed and an option agreement as two

separate contracts because each contract related to a different piece of real

property, provided for separate consideration, and required performance on

different dates).

[¶14.]       In Baker, we held that in determining whether separate documents

are to be viewed as one contract, “it is not critical whether the documents were




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executed at exactly the same time or whether the parties to each agreement were

identical.” Baker, 456 N.W.2d at 306. We explained,

             Where several writings are connected by internal references to
             each other, even if they were executed on different dates and
             were not among all of the same parties, they will constitute a
             single contract as long as they involve the same subject matter
             and prove to be parts of an entire transaction.

Id. (quotation omitted).

[¶15.]       In this case, the Loan Agreement references the Disbursement

Agreement. It expressly provides that the proceeds of the Promissory Note and the

Balloon Note “shall be advanced . . . in accordance with the Disbursement

Agreement . . . .” The Disbursement Agreement also references the Loan

Agreement and the Balloon Note. The recitals of the Disbursement Agreement

state that the parties executed the Disbursement Agreement to provide a

mechanism for them to receive payments for their respective membership interests

in White Rock Pipeline. The Disbursement Agreement requires that monthly loan

payments made pursuant to the terms of the Balloon Note were to be distributed to

compensate those who held a membership interest in White Rock Pipeline. Read

together, the documents at issue in this case “represent successive steps” taken in

order to transfer ownership of White Rock Pipeline to Tri-State Ethanol. Dakota

Gasification Co., 964 F.2d at 734-35. The Disbursement Agreement, Loan

Agreement, Promissory Note, and Balloon Note must be construed as a single

contract involving the same transaction. After reviewing these documents

collectively as a single contract, we believe the parties intended the venue for any




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suit on the Disbursement Agreement to be the Fourteenth (14th) Judicial District

in Rock Island County, Illinois.

[¶16.]       The dissent notes, “The plain language of the Loan Agreement’s

recitals reflects that Tri-State Ethanol, White Rock, and Murphy were the only

parties who intended to be bound by the terms of that agreement.” Dissent ¶ 27.

But Kramer signed the Loan Agreement in his individual capacity. In doing so,

Kramer agreed “to accept the amounts set forth . . . [in the Loan Agreement], for

[his] interest[] in White Rock.”

[¶17.]       The recitals of the Disbursement Agreement acknowledge that “the

parties are . . . some of the signatories to [the] Loan Agreement . . . .” The recitals

also note that the “Loan Agreement provides for the repayment of the membership

interest in White Rock of the parties herein in the total amount of $301,459.00 . . .

.” The Disbursement Agreement was to serve as no more than a mechanism for the

parties “to repay their membership interest in White Rock out of the loan

payments to the William F. Murphy Self-Declaration of Trust and Mike D. Murphy

required by the Balloon Secured Promissory Note.”

[¶18.]       Moreover, the Promissory Note states, “The payment of this Note is

secured by a Mortgage, Security Agreements, and Loan Agreement of even date

herewith.” (Emphasis added.) The term “Note” is also utilized elsewhere in the

document to refer specifically to the Promissory Note. Likewise, the Balloon Note

repeatedly uses the term “Note” when describing the rights and obligations of the

parties under the Balloon Note. However, the choice of law and venue provisions of

both the Promissory Note and the Balloon Note provide:


                                          -7-
#26072

                The undersigned agrees that this Agreement shall be governed
                by the substantive law of the State of Illinois, without regard to
                principles of conflicts of laws. The undersigned further agrees
                that at the sole election of the holder hereof, the jurisdiction and
                venue for any suit hereon shall be the Fourteenth (14th) Judicial
                District in Rock Island County, Illinois.

(Emphasis added.)

[¶19.]          If we view each of the documents at issue in this case as one contract,

the use of the term “Agreement” instead of “Note” in the forum-selection clauses of

both the Promissory Note and Balloon Note is significant. It indicates that the

parties intended the venue for any suit on the collective agreement, including the

Disbursement Agreement, to be the Fourteenth (14th) Judicial District in Rock

Island County, Illinois.

[¶20.]          After examining each of documents collectively as one contract, we

hold the trial court did not err in finding that the parties intended the venue for

any suit on the Disbursement Agreement to be the Fourteenth (14th) Judicial

District in Rock Island County, Illinois. The circuit court’s dismissal of this case is

affirmed.

[¶21.]          GILBERTSON, Chief Justice, and MACY, Circuit Court Judge,

concur.

[¶22.]          KONENKAMP and ZINTER, Justices, dissent.

[¶23.]          MACY, Circuit Court Judge, sitting for WILBUR, Justice,

disqualified.




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ZINTER, Justice (dissenting).

[¶24.]       I agree with the majority’s conclusion that “[t]he Disbursement

Agreement, Loan Agreement, Promissory Note, and Balloon Note [may] be

construed as a single contract involving the same transaction.” See supra ¶ 15.

But this “contract” contained the terms for: Tri-State Ethanol’s agreement to

acquire White Rock; Murphy’s agreement to finance the Tri-State Ethanol–White

Rock transaction; and, Murphy’s agreement with others to distribute the loan

proceeds. Therefore, the contract involved independent obligations and rights of

multiple parties, and obviously, each party was not subject to each term of each

agreement. Under those circumstances, we must examine the language of the

forum-selection clauses to see if they bound Kramer in his suit on the

Disbursement Agreement. They clearly did not.

[¶25.]       The majority believes that if the agreements are reviewed

“collectively,” Kramer “intended the venue for any suit on the Disbursement

Agreement to be . . . in . . . Illinois.” Id. But there is no forum-selection language

in the Disbursement Agreement to support that belief. Further, the majority’s

belief is not supported by the plain language of the Loan Agreement and Notes—

the only agreements containing forum-selection clauses. The plain language of

those agreements reflects that their forum-selection clauses only applied to loan

disputes between the borrower (Tri-State Ethanol) and the lender (Murphy).

Ultimately, there is no forum-selection term in any part of the “contract” that

purports to require forum selection for suits on the Disbursement Agreement, an




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agreement that required Murphy to distribute loan proceeds to persons like

Kramer who were not parties to the financing agreements.

[¶26.]         The Court’s analysis fails to acknowledge the cardinal rule that, in

determining the meaning of a contract, “effect will be given to the plain meaning of

its words.” In re Dissolution of Midnight Star Enters., L.P., 2006 S.D. 98, ¶ 12, 724

N.W.2d 334, 337. Courts look “to the language that the parties used in the contract

to determine their intention,” and if the parties’ intention is made clear by the

language of the contract “it is the duty of this [C]ourt to declare and enforce it.”

See Pauley v. Simonson, 2006 S.D. 73, ¶ 8, 720 N.W.2d 665, 667-68. “We will not

create a forced construction or a new contract for the parties when the language is

clear and we are able to ascertain the plain and ordinary meaning of the language

used.” Cole v. Wellmark of S.D., Inc., 2009 S.D. 108, ¶ 14, 776 N.W.2d 240, 246.

[¶27.]         The plain language of the Loan Agreement’s recitals reflects that Tri-

State Ethanol, White Rock, and Murphy were the only parties who intended to be

bound by the terms of that agreement. 3 Kramer was not a party to, and he had no

rights or obligations under, the terms of the Loan Agreement other than to




3.       The Loan Agreement recited:

               This Loan Agreement is made and entered into as of the 15th
               day of October, 2002 by and between Tri-State Ethanol
               Company, LLC, a South Dakota limited liability company,
               hereinafter called (“Borrower”), White Rock Pipeline, L.L.C., a
               South Dakota limited liability company, hereinafter called
               (“White Rock”) and the William F. Murphy Self-Declaration of
               Trust and Mike D. Murphy, hereinafter collectively called
               (“Murphy”).


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#26072

acknowledge the stated value of his interest in the pipeline. 4 Further, even though

the Loan Agreement may have been a part of an overall “contract,” the language of

the forum-selection clause in the Loan Agreement bound only the “[B]orrower [(Tri-

State Ethanol)]” and “Murphy,” the lender. The clause did not purport to bind non-

financing parties like Kramer. The clause provided:

               [B]orrower [(Tri-State Ethanol)] and Murphy agree that this
               Loan Agreement, the Notes, Mortgage, and Security Agreement
               shall be governed by the substantive law of the State of Illinois,
               without regard to principles of conflicts of laws. The Borrower
               [(Tri-State Ethanol)] further agrees that at the sole election of
               Murphy, the jurisdiction and venue for any suit hereon [(the
               Loan Agreement)] shall be the Fourteenth (14th) Judicial
               District in Rock Island County, Illinois.

(Emphasis added.) Kramer also could not have been bound to this term because it

specifically recited the related agreements to which it applied and the

Disbursement Agreement was excluded. Finally, Kramer could not have been

bound by this term because it applied only to suits “hereon”; i.e., suits on the Loan

Agreement. Kramer’s suit was on the Disbursement Agreement.

[¶28.]         Similarly, Kramer was not bound by the forum-selection clauses in

the Promissory Note and Balloon Note. Kramer was not a signatory to, and he had

no rights or obligations under, the notes. Further, even though the notes may have


4.       There is no dispute that Kramer signed the Loan Agreement in his
         individual capacity solely for the purpose of “agree[ing] to accept the
         amounts set forth [in the Loan Agreement], for [his] interest[] in White
         Rock.” (Emphasis added.) This suit does not involve a dispute over that
         amount. This is a suit on Murphy’s failure to distribute Kramer’s
         undisputed portion of the loan proceeds as required by the Disbursement
         Agreement. Kramer’s agreement to accept the stated amount of his interest
         in the pipeline is irrelevant to the question whether disputes arising under
         the Disbursement Agreement were subject to forum selection.


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been a part of an overall “contract,” the forum-selection clauses in the notes bound

only the borrower, “[t]he undersigned [Tri-State Ethanol].” They did not purport to

bind non-financing parties like Kramer. Both clauses provided:

               The undersigned [(Tri-State Ethanol)] agrees that this
               Agreement [(the Promissory Note and the Balloon Note)] shall
               be governed by the substantive law of the State of Illinois,
               without regard to principles of conflicts of laws. The
               undersigned [(Tri-State Ethanol)] further agrees that at the
               sole election of the holder hereof, the jurisdiction and venue for
               any suit hereon [(the notes)] shall be the Fourteenth (14th)
               Judicial District in Rock County, Illinois.

(Emphasis added.) Once again, Kramer could not have been bound by this term

because it applied only to suits “hereon”; i.e., suits on the notes. Kramer’s suit was

on the Disbursement Agreement.

[¶29.]         In sum, Kramer was not a party to any term requiring forum

selection. Even though all of the agreements may be considered to be parts of one

contract, the language of the forum-selection clauses in the Loan Agreement and

notes plainly (and logically) applied only to the lender (Murphy) and the borrower

(Tri-State Ethanol). No language in those forum-selection clauses even suggests

that they were intended to apply to suits on a Disbursement Agreement that

involved non-financing parties. Further, neither the majority opinion nor Murphy

have identified any language in the Disbursement Agreement—the only agreement

to which Kramer was a party—that incorporated the forum selection clauses by

reference. 5 Therefore, even if the various agreements are “collectively” construed



5.       The majority attempts to infer incorporation by drawing a distinction
         between the word “agreement” and the word “note” in the notes. See supra ¶
         19. The distinction is artificial. Obviously, a note is an agreement. Further,
                                                                (continued . . .)
                                            - 12 -
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as one contract, the borrower-lender terms of that contract do not reflect intent to

bind Kramer to forum selection in suits on the Disbursement Agreement. On the

contrary, a collective review of all agreements reflects the parties’ intent to exclude

forum selection in disputes arising on the Disbursement Agreement. The

agreements were negotiated among sophisticated parties who included forum-

selection clauses in the notes and Loan Agreement, while simultaneously excluding

any forum-selection provision from the Disbursement Agreement, an agreement

involving different parties. 6 Because the plain language of the agreements reflects

no intent to authorize forum selection in suits brought on the Disbursement

Agreement, I respectfully dissent.

[¶30.]         KONENKAMP, Justice, joins this dissent.




_______________________________
(. . . continued)
         there is no language in the notes’ forum-selection clauses that even suggests
         the singular form of the phrase “this agreement” was actually intended to
         mean the Disbursement Agreement, the Loan Agreement, the Promissory
         Note, and the Balloon Note.

6.       The Court downplays the absence of a forum-selection clause in the
         Disbursement Agreement. The court states that the Disbursement
         Agreement was “no more than a mechanism for the parties ‘to repay their
         membership interest in White Rock out of the loan payments to the William
         F. Murphy Self-Declaration of Trust and Mike D. Murphy required by the
         Balloon Secured Promissory Note.’” See supra ¶ 17. Nevertheless, the
         parties to that “mechanism” are entitled to have their suits on the
         mechanism resolved in accordance with the intent of the parties as is
         reflected in the plain language of the parties’ agreement.

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