Nelson v. Promising Future, Inc.

#24670-rev & rem-RWS

2008 SD 130

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

* * * *

SECRETARY OF STATE,
CHRIS NELSON, Plaintiff and Appellant,

v.

PROMISING FUTURE, INC.,
and ROGER W. HUNT, Defendants and Appellees.

* * * *

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

* * * *

HONORABLE KATHLEEN K. CALDWELL
Judge

* * * *

LAWRENCE E. LONG
Attorney General

JEFFREY P. HALLEM
Assistant Attorney General
Pierre, South Dakota Attorneys for plaintiff
and appellant.
STEVEN W. SANFORD
SHAWN M. NICHOLS of
Cadwell, Sanford, Deibert & Garry, LLP
Sioux Falls, South Dakota Attorneys for defendants
and appellees.

* * * *

ARGUED SEPTEMBER 29, 2008

OPINION FILED 12/30/08
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SABERS, Justice.

[¶1.] After Promising Future, Inc. (PFI) refused to indentify the unnamed

third party who gave it $750,000, which in turn was given to South Dakotans for

1215/VoteYesforLife.com (VoteYesforLife), Secretary of State Chris Nelson

(Secretary) filed a declaratory judgment action mandating the disclosure of the

unnamed third party’s identity as required by SDCL 12-25-19.1 and 12-25-13.1. On

summary judgment, the circuit court found that Defendants’ conduct did not meet

the definition of a ballot question committee, and therefore dismissed the case. We

reverse and remand.

FACTS

[¶2.] PFI is a for-profit South Dakota corporation formed September 14,

2006, 1 by an unnamed third party and Roger W. Hunt (Hunt).2 The unnamed third

1. PFI’s Articles of Incorporation set forth its stated purpose as follows:
The purpose for which the corporation is organized is to invest
in real estate and other commercial venture; for the
advancement and support of public and special activities,
causes, events, issues, and entities furthering the general
welfare and interests of the people of South Dakota; for
education of the public concerning ballot issues; and to engage in
and support public and private endeavors, interests, activities,
causes, events, programs, and entities in and related to
maintaining and preserving traditional family values; and in
general to carry on any other lawful business whatsoever in
connection with the foregoing or which is calculated directly or
indirectly, to promote the interests of the corporation or to
enhance the value of its properties. Nothing herein contained
shall be deemed to limit or deprive the corporation of the powers
and rights granted to it by the South Dakota Business
Corporation Act.

2. Hunt serves as PFI’s registered agent, director, president, vice president,
treasurer, and secretary. He is not a shareholder or equity holder.
(continued . . .)
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party, who is PFI’s sole shareholder, provided PFI with $750,000. Thereafter, PFI

made three $250,000 contributions to VoteYesforLife. 3

[¶3.] On November 3, 2006, the Secretary informed Defendants that SDCL

12-25-19.1 and 12-25-13.1 required them to file campaign finance reports setting

forth the name, address, and place of employment of any individual who provided

funds to PFI. Defendants filed pre-election and supplemental campaign finance

reports under protest which identified the $750,000 PFI gave to VoteYesforLife.

However, Defendants refused to disclose the identity of the source of money given to

PFI. The Secretary filed a declaratory judgment action, asking the court to declare

that Defendants formed a ballot question committee, and therefore mandate the

disclosure of the unnamed third party’s identity.

[¶4.] Defendants filed a motion to dismiss, which was denied. Upon filing

their answer, Defendants filed a motion for judgment on the pleadings or

alternatively, for summary judgment. The circuit court granted summary judgment

to Defendants after finding that “the actions of the Defendants and the unnamed

third party failed to create a ballot question committee under then SDCL 12-25-

1(1A).” The Secretary appealed, raising the following issue:

Whether Hunt, the unnamed third party, and PFI formed a ballot
question committee under South Dakota law.

________________________
(. . . continued)
Hunt, the unnamed third party, and PFI will be referred to as Defendants,
unless further distinction is necessary.

3. VoteYesforLife is a ballot question committee organized to support the
adoption of HB 1215, which was referred and voted upon at the November 7,
2006, general election.

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STANDARD OF REVIEW

[¶5.] In Rotenberger v. Burghduff, we set forth the standard of review for

statutory interpretation and application:

Statutory interpretation and application are questions of law,
and are reviewed by this Court under the de novo standard of
review. Statutes are to be construed to give effect to each
statute and so as to have them exist in harmony. It is a
fundamental rule of statutory construction that the intention of
the law is to be primarily ascertained from the language
expressed in the statute. . . . “We give words their plain
meaning and effect, and read statutes as a whole, as well as
enactments relating to the same subject.”

2007 SD 7, ¶8, 727 NW2d 291, 294 (additional and internal citations omitted).

[¶6.] Whether Hunt, the unnamed third party, and PFI formed a
ballot question committee under South Dakota law.

[¶7.] The Secretary claims the circuit court erred in characterizing the funds

PFI gave to VoteYesforLife as “contributions,” and thereby concluding that a ballot

question committee was not formed. The Secretary argues that Defendants formed

a ballot question committee, and subsequently violated SDCL 12-25-19.1 and 12-25-

13.1 (contributor identification statutes), by refusing to identify the unnamed third

party. Defendants contend summary judgment was appropriate in light of the

Secretary’s improper interpretation of the disclosure statutes. Furthermore, they

claim the circuit court’s rationale: because the word “contribution” is not included

in the statutory language, Defendants’ contributions to PFI did not form a ballot

question committee, and therefore, the unnamed third party’s identity need not be

disclosed. We disagree.

[¶8.] Defendants’ principal argument is that the complaint cannot state a

cause of action because the Secretary’s interpretation of the statutes requires

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disclosure upon the Secretary’s determination of Defendants’ subjective intent to

make a contribution to a ballot question committee. Defendants contend that the

statutes cannot be construed to create a ballot question committee every time, in

the judgment of the Secretary, any two or more individuals collaborate with intent

to contribute to such a committee. Defendants point out that such a construction

would absurdly make everyone (such as husbands and wives or friends) a ballot

question committee subject to disclosure merely because they discuss a ballot

measure and agree to contribute to a ballot question committee.

[¶9.] Defendants’ argument is misplaced for two reasons. First, Defendants

mischaracterize the question presented under the facts alleged. In this case, we

have not been asked to determine whether all acts of collaboration with intent to

contribute trigger the formation of a ballot question committee when a contribution

is made. This case presents a narrower question: whether two or more persons

become a ballot question committee by making a contribution through the

additional step of forming a corporation whose “real purpose” is to function as a

“corporate shell” for the “sole purpose” of making anonymous contributions to a

ballot question committee as alleged by the Secretary. Complaint, ¶¶7, 17-18.

Because this case only involves alleged collaborators who take that additional step,

we need not reach Defendants’ hypotheticals.

[¶10.] Second, Defendants’ argument incorrectly assumes that because the

statute could be absurdly construed to apply to others, it may not be construed to

apply to them. Concededly, there are other factual scenarios that could trigger

absurd results. Those other factual scenarios do not, however, relieve these

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Defendants of responsibility for their conduct. Citing Justice Holmes, we have

previously recognized that criminal statutes may not be construed under some

artificial rule creating an inference that because a statute’s penalty cannot lawfully

be applied to others, it may not be applied to those who are prosecuted. State v. Hy-

Vee Food Stores, Inc., 533 NW2d 147, 150 (SD 1995) (citing United States v. Union

Supply Co., 215 US 50, 30 SCt 15, 54 LEd 87 (1909)). Therefore, even if the

criminal disclosure statutes at issue today may not be construed to apply to every

husband, wife, and friend who collaborate, agree, and contribute to a ballot question

committee, the statutes may be construed to apply to these Defendants’ conduct.

Defendants’ statutory construction argument is without merit.

[¶11.] The pivotal statute in this case is SDCL 12-25-1(1A), which defines a

ballot question committee as “any two or more people who cooperate for the purpose

of raising, collecting or disbursing money for the adoption or defeat of any question

submitted to the voters at any election[.]” 4 The elements of the statute relevant to

the issue before this Court are: “two or more people;” “cooperate;” and “raising,

collecting or disbursing money.” The circuit court focused its analysis on the last of

4. This case is decided under the 2006 version of this law, as the Legislature
repealed SDCL 12-25-1 to 12-25-26, inclusive, in 2007. A ballot question
committee is now defined in SDCL 12-27-1(2) as:
[A] person or organization that raises, collects, or disburses
contributions for the placement of a ballot question on the ballot
or the adoption or defeat of any ballot question. A ballot
question committee is not a person, political committee, or
political party that makes a contribution to a ballot question
committee. A ballot question committee is not an organization
that makes a contribution to a ballot question committee from
treasury funds[.]

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these elements. In demonstrating that all of these statutory elements are capable

of being met, however, each is discussed in turn. We caution that the following

analysis is not intended as factual findings in favor of the Secretary, but rather to

demonstrate that the Complaint states a cause of action for disclosure under the

relevant statutes.

[¶12.] The first pertinent element is “two or more people.” Defendants claim

that this element is not met because “the contributions came from one source” and

“a corporation and its participants are one person.” 5 Brief for Appellee at 9, 10.

Defendants’ argument is misplaced. This is not a complicated analysis. “People” is

not defined in the South Dakota code, but “person” is defined in SDCL 2-14-2(18) to

include “natural persons, partnerships, associations, cooperative corporations,

limited liability companies, and corporations[.]” Under the facts of this case, we

must consider both pre- and post-incorporation actors and their actions. Here, it is

plausible that three persons were involved: initially, Hunt and the unnamed third

party; later, Hunt, the unnamed third party, and the corporation they formed, PFI.

Hunt, the unnamed third party, and/or PFI may qualify as persons under the

statute.

5. Defendants cite Fritzmeier v. Krause Gentle Corp., 2003 SD 112, ¶37, 669
NW2d 699, 707, as support for this position. Fritzmeier involved fraudulent
misrepresentations of a restaurant franchise. This Court considered whether
corporate damages could be sustained by shareholders who brought claims in
their individual capacities. We do not find that analysis applicable here.

Defendants also cite Meyer v. Holley, 537 US 280, 123 SCt 824, 154 LEd2d
753 (2003), a vicarious liability case involving alleged racial discrimination.
The applicability of that case to these facts is too attenuated to be instructive
here.

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[¶13.] The second element is that the two or more people “cooperated.”

“Cooperation” is defined as “[a]n association of individuals who join together for a

common benefit.” BLACK’S LAW DICTIONARY 359 (8thed 2004). Here, a finder

of fact could find that Hunt, the unnamed third party, and/or PFI “join[ed] together

for [the] common benefit” of giving $750,000 to VoteYesforLife. Therefore, the

second element may be met.

[¶14.] The last, and perhaps most important, element of SDCL 12-25-1(1A) at

issue here is whether the relevant conduct involved “raising, collecting or disbursing

money.” The circuit court characterized the Defendants’ acts as “contributing,” and

thereafter concluded that because “contributing” is not specifically stated in the

statute, Defendants did not form a ballot question committee. The terms

“contributing” and “raising, collecting or disbursing” are not mutually exclusive. A

party may be found to have “contributed” money to a cause, while at the same time,

the party may have “rais[ed], collect[ed] or disburs[ed] money” to the same cause.

Moreover, because the language is stated in the disjunctive, the Secretary need only

prove one of the acts. In this case, however, a finder of fact may determine that

Hunt, the unnamed third party, and PFI performed any or all of these acts.

[¶15.] “Raise” is defined, in part, as “[t]o gather or collect[.]” BLACK’S LAW

DICTIONARY 1287 (8thed 2004). “Collect” is defined as “to bring together into one

body or place.” MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 225 (10thed

1996). Lastly, “disburse” is defined as “paying out money[.]” BLACK’S LAW

DICTIONARY 495 (8thed 2004) (defined under “disbursement”). It is within the

fact finder’s province to determine if the evidence supports a determination that

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Defendants performed any of these acts. Therefore, even if the actions can be

classified as “contributing,” the actions may still fall under the purview of SDCL 12-

25-1(1A).

[¶16.] PFI was established to shield the unnamed third party from the

mandates of SDCL 12-25-19.1 and 12-25-13.1. This is clear from Defendants’

concession in the pleadings. Paragraph 18 of the Complaint sets forth: “[T]he real

purpose of Defendant Corporation’s creation was to provide a corporate shell by

which the sole shareholder that directed Defendant Hunt to incorporate could make

anonymous contributions to ballot question committees that supported the passage

of Referred Law 6, such as VoteYesForLife.” In paragraph 18 of the Defendants’

Statement of Undisputed Material Facts, Defendants concede this was true solely

for purposes of their motion for summary judgment. Had the unnamed third party

given $750,000 directly to VoteYesforLife, he or she would have had to disclose his

or her identity for summary judgment purposes. Hunt and the unnamed third

party formed PFI to avoid this result. Therefore, because the unnamed third party

would have otherwise been required to reveal his or her identity, the attempted

manipulation of the statutes fails and summary judgment was improper.

[¶17.] Lastly, Defendants claim that requiring the unnamed third party to

identify him or herself raises constitutional questions. Because the circuit court did

not address these issues below, we do not reach them on appeal.

[¶18.] For summary judgment purposes, two or more people cooperated in

raising, collecting or disbursing money. The fact that the money was later labeled a

“contribution” is insignificant for statutory interpretation purposes. Summary

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judgment was improperly granted. The Secretary should have the opportunity to

prove his case in a trial before a finder of fact, and thereby allow the finder of fact to

determine whether a ballot question committee was formed.

[¶19.] Accordingly, we reverse and remand for trial.

[¶20.] GILBERTSON, Chief Justice, and KONENKAMP, ZINTER, and

MEIERHENRY, Justices, concur.

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