Koopman v. City of Edgemont

#29105, #29120-aff in pt & rev in pt-SRJ
2020 S.D. 37

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

****
MICHAEL DOUGLAS KOOPMAN, Plaintiff and Appellee,

v.

CITY OF EDGEMONT BY MAYOR
JERRY J. DRIBBLE, Defendant and Appellant.

****

APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
FALL RIVER COUNTY, SOUTH DAKOTA

****

THE HONORABLE JANE WIPF PFEIFLE
Judge

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PATRICK M. GINSBACH of
Farrell, Farrell & Ginsbach, P.C.
Hot Springs, South Dakota Attorneys for plaintiff and
appellee.

REBECCA L. MANN of
Gunderson, Palmer, Nelson
& Ashmore, LLP
Rapid City, South Dakota Attorneys for defendant and
appellant.

****

CONSIDERED ON BRIEFS
APRIL 20, 2020
OPINION FILED 06/24/20
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JENSEN, Justice

[¶1.] Michael Koopman filed this action, which originated in small claims

court, against the City of Edgemont (City) alleging he was owed employee benefits

under the City’s Personnel Manual (Manual). Following a bench trial, the circuit

court found that Koopman was a City employee as of December 3, 2012, but only

awarded employee benefits to Koopman under the Manual after his appointment as

City Engineer/Code Officer on May 6, 2014. The court entered a judgment in favor

of Koopman for employee benefits, but denied Koopman’s motion for attorney fees.

City appeals arguing the circuit court erred in determining Koopman was a City

employee and in awarding benefits beyond those provided for in a written

agreement between City and Koopman. We affirm in part and reverse in part.

Facts and Procedural History

[¶2.] Koopman is a licensed engineer who retired early from employment

with the State of Wyoming in 2000. Koopman’s retirement agreement imposed a

maximum limit on his post-retirement earnings of $1,000 per month until he turned

66 years old in March 2015.

[¶3.] Koopman moved to Edgemont in 2012, as the City was converting to a

new water system. The City’s mayor approached Koopman about providing

consulting services for the water system as well as code enforcement duties.

Koopman submitted written proposals to provide both project engineering and

building code enforcement services to City at set hourly rates, but in no event was

he to be paid more than $1,000 per month for his work. City and Koopman

executed a written Agreement for Professional Services (Agreement) on July 13,

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2012 for Koopman to provide project engineering, building inspection, and code

compliance services to City. The Agreement set forth the hourly rates for his

services and provided for reimbursement of his travel expenses. The Agreement

also recited that “[n]o other benefits are requested or are part of this agreement.”

Koopman immediately began providing services to City.

[¶4.] Koopman and the mayor agreed that Koopman would work a regular

35-hour schedule Monday through Friday of every other week. Koopman submitted

a monthly invoice for his services which were always in the amount of $1,000,

regardless of the number of hours worked. City did not withhold any taxes from

Koopman’s monthly payments.

[¶5.] This arrangement continued until late 2012, when Koopman asked if

the City would begin issuing payroll checks to him and withholding federal income

taxes, Social Security, and Medicare from his compensation. City agreed and

provided Koopman the City’s Personnel Manual, for which he signed an

acknowledgment of receipt of the Manual. Koopman also submitted a W-4 form

required of all employees for withholding payroll taxes. City began issuing payroll

checks to Koopman and withholding payroll taxes in December 2012. However,

Koopman continued to submit monthly invoices for payment in the amount of

$1,000. Koopman was paid monthly, unlike other City employees who were paid

every two weeks. Koopman continued to provide the same services to City and work

the same schedule after December 2012. 1

1. In 2013, Koopman and the City’s mayor signed a memorandum reaffirming
the terms of the December 2012 arrangement. The memorandum reaffirmed
(continued . . .)
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[¶6.] When Koopman began receiving payroll checks, his paystubs showed

that he was accruing vacation and sick leave, a benefit provided to eligible

employees in the Manual. This continued until February 2014 when the City

finance officer deleted the vacation and sick leave shown to be accruing on his

paystubs. She told Koopman that he was not entitled to additional benefits under

his Agreement and the accrued leave shown on his paystubs was an error.

Koopman did not object to the finance officer deleting the accrued vacation and sick

leave or discuss this action with any other city official.

[¶7.] On May 6, 2014, the City Council adopted a written Resolution

appointing Koopman as City Engineer/Code Officer. The Resolution entitled

“Agreement for Services” stated that Koopman was “to provide those services

outlined in the [Agreement].” It further provided that Koopman would continue to

be paid $1,000 per month. In addition, the Resolution stated that “the City agrees

to provide a City cell phone, to pay for basic monthly charges and provide motel,

meals, & Mileage ($.37 per mile) for travel outside of [City] with Council approval.”

Koopman accepted the appointment and took the oath of office. The Resolution

provided that Koopman’s appointment was for a period of one year, until May 5,

2015. After the appointment, Koopman continued providing the same services,

working the same schedule, and submitting monthly invoices for payment of

________________________
(. . . continued)
the Agreement between City and Koopman for his services and did not
provide for any additional compensation or benefits. Koopman expressed a
desire to renegotiate the terms of the agreement after he turned 66 in 2015.

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compensation in the amount of $1,000. Koopman’s pay stubs did not show any

accruing vacation, sick leave, or other benefits after his appointment.

[¶8.] In March 2015, Koopman turned 66. At this time, he asked City to pay

him hourly rates for his services, rather than the capped monthly rate of $1,000.

Koopman claimed that these rates were consistent with the rates already in place

and reminded City that he was not receiving any additional benefits. At the May 5,

2015 City Council meeting, Koopman was not reappointed as City Engineer/Code

Officer. Koopman subsequently filed for unemployment benefits asserting he was

an employee of City. The Department of Labor determined Koopman was an

employee of City and awarded him unemployment benefits.

[¶9.] Koopman filed a small claims action against City on April 27, 2017,

seeking employee benefits under the Manual from December 2012, when he claims

he became a City employee. The City petitioned to remove the case from small

claims court, and the case was transferred to circuit court. City argued that

Koopman was an independent contractor and therefore not eligible for benefits

under the Manual. City also argued that regardless of Koopman’s employment

status, he was not entitled to any additional benefits outside the terms of the

Agreement.

[¶10.] The circuit court held that Koopman became a City employee in

December 2012 when he signed a W-4 to withhold taxes and began receiving payroll

checks. However, the court determined that Koopman was not entitled to any of the

benefits in the Manual until May 2014, when he was appointed as City

Engineer/Code Officer. The circuit court found that from May 6, 2014 through May

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5, 2015, the Manual provided Koopman with the following benefits as an appointed

City official: $727.20 for water bill reimbursement, $2,484 for holiday pay, $2,161.08

for vacation pay and $6,000 for health insurance, for a total judgment of $11,372.28.

The court also calculated prejudgment interest on the award in the amount of

$4,651.87.

[¶11.] Following the court’s ruling, Koopman filed a motion for attorney fees

under SDCL 60-11-24. 2 The circuit court denied the motion, determining that

SDCL 60-11-24 only authorized attorney fees on wage claims removed for a jury

trial under SDCL 15-39-59, which had been repealed. The circuit court further

reasoned that the City had removed the case under SDCL 15-38-57 and the

language of SDCL 60-11-24 does not specifically authorize attorney fees for a case

removed under SDCL 15-38-57.

[¶12.] We address the following issues on appeal:

1. Whether Koopman was entitled to employee benefits in the
Manual.

2. Whether Koopman was entitled to attorney fees under SDCL 60-11-
24.

Standard of Review

[¶13.] “Findings of fact, whether based on oral or documentary evidence, may

not be set aside unless clearly erroneous, and due regard shall be given to the

opportunity of the trial court to judge the credibility of the witnesses.” Estate of

2. SDCL 60-11-24 provides: “In any action for wages brought in small claims
court which is removed to magistrate court or circuit court under § 15-39-59,
the court may, in addition to awarding judgment to the plaintiff, allow costs
of the action including reasonable attorney fees to be paid by the defendant.”

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Henderson v. Estate of Henderson, 2012 S.D. 80, ¶ 9, 823 N.W.2d 363, 366 (quoting

SDCL 15-6-52(a)). “Conclusions of law are reviewed under a de novo standard,

‘with no deference to the trial court’s conclusions of law.’” Id. (quoting Detmers v.

Costner, 2012 S.D. 35, ¶ 9, 814 N.W.2d 146, 149).

[¶14.] The “existence of a valid contract is a question of law[,]” which is

reviewed de novo. Behrens v. Wedmore, 2005 S.D. 79, ¶ 20, 698 N.W.2d 555, 566

(quoting In re Estate of Neiswender, 2000 S.D. 112, ¶ 9, 616 N.W.2d 83, 86).

Likewise, “the interpretation of a contract is a question of law, which is reviewed de

novo.” Weitzel v. Sioux Valley Heart Partners, 2006 S.D. 45, ¶ 18, 714 N.W.2d 884,

892. “If in dispute, however, the existence and terms of a contract are questions for

the fact finder.” Behrens, 2005 S.D. 79, ¶ 20, 698 N.W.2d at 566 (quoting Morrisette

v. Harrison Int’l Corp., 486 N.W.2d 424, 427 (Minn. 1992)).

Analysis and Decision

1. Whether Koopman was entitled to employee benefits in the Manual.

[¶15.] The parties agree that Koopman initially provided services to City as

an independent contractor, but disagree as to whether he later became an employee

of City. City challenges the court’s conclusion that Koopman became an employee

when he started receiving payroll checks in December 2012, and also argues that

Koopman was not entitled to any additional benefits outside the terms of the

Agreement. Koopman argues that the circuit court correctly determined that he

became an employee in December 2012, but should have awarded him benefits from

that time rather than from the time of his appointment as a City official in May

2014.

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[¶16.] SDCL 53-1-3 provides that “[a] contract is either express or implied.”

“An express contract exists only when the parties mutually express an intent to be

bound by specific terms and conditions.” Neiswender, 2000 S.D. 112, ¶ 9, 616

N.W.2d at 86 (quoting Owens v. Moyes, 530 N.W.2d 663, 665 (S.D. 1995)). The

Agreement entered into between City and Koopman was an express written

contract that set forth the services to be provided by Koopman and his

compensation for those services. Further, the Agreement limited Koopman’s

benefits to those provided in the Agreement, by stating that “no other benefits are

requested or are part of this Agreement.”

[¶17.] Although concluding that Koopman became a City employee in

December 2012, the circuit court rejected his claim for benefits contained in the

Manual for the period from December 2012 through May 2014, determining that the

terms of the Agreement controlled his compensation and benefits. However, the

court reasoned that the Resolution appointing Koopman as City Engineer/Code

Officer “altered the written contract with a new writing.” The circuit court relied on

SDCL 53-8-7 which provides, “[a] contract in writing may be altered by a contract in

writing without a new consideration or by an executed oral agreement, and not

otherwise.” The court concluded that as an appointed official under the Manual,

Koopman was entitled to the benefits in the Manual, including cancellation of water

bills, vacation and sick leave, holiday pay, health insurance and life insurance.

[¶18.] The circuit court correctly denied Koopman’s claim for additional

benefits from December 2012 through May 2014. The Agreement provided that it

could only be terminated by written notice, and there is no evidence that either

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party took any action to terminate the Agreement. Rather, Koopman continued to

provide the same services and was paid the compensation as provided in the

Agreement. Additionally, both parties continually referenced the terms of the

Agreement after December 2012. Even as late as June 5, 2015, after Koopman’s

position with the City had ended, Koopman continued to claim that the Agreement

was in force.

[¶19.] Koopman relies on the Manual to support his claim that City was

obligated to provide him additional benefits beginning in December 2012. However,

the Manual was not a contract. As such, it could not modify the express terms of

the Agreement. The Manual contained a disclaimer stating:

This manual does not confer a contract of employment. The
policies, procedures, rules and benefits contained herein are
subject to change upon a majority vote of the council. These
policies are provided as a reference of present policies and not a
guarantee of employment or specific employment benefits.

Further, the acknowledgement form signed by Koopman provided, “I understand

the policies, rules and benefits described are subject to change or may be

revised. . . . It is expressly understood that the contexts of this manual do not

constitute the terms of a contract of employment . . . .” The language of the Manual

expressed a clear intention that the City was not contractually bound by any

provisions in the Manual. See Neiswender, 2000 S.D. 112, ¶ 9, 616 N.W.2d at 86.

[¶20.] We have previously recognized that an employment handbook may

create an implied contractual obligation with respect to the terms and conditions of

employment. Harvey v. Reg’l Health Network, Inc., 2018 S.D. 3, ¶ 54, 906 N.W.2d

382, 397-98. See also Nelson v. WEB Water Dev. Ass’n, Inc., 507 N.W.2d 691, 696

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(S.D. 1993); Osterkamp v. Alkota Mfg., Inc., 332 N.W.2d 275, 277 (S.D. 1983).

However, an implied contract cannot exist where the Agreement between City and

Koopman governed their employment relationship and the terms of compensation.

“Where there is a valid express contract existing between parties in relation to a

transaction fully fixing the rights of each, there is no room for an implied promise.”

FB & I Bldg. Prods., Inc. v. Superior Truss & Components, a Div. of Banks Lumber,

Inc., 2007 S.D. 13, ¶ 18, 727 N.W.2d 474, 479 (quoting Mid-America Mktg. Corp. v.

Dakota Indus., Inc., 281 N.W.2d 419, 425 (S.D. 1979). “Only when parties do not

expressly agree will the law intercede and determine whether the conduct of the

parties has created an implied contract.” Aberle v. City of Aberdeen, 2006 S.D. 60, ¶

19, 718 N.W.2d 615, 621.

[¶21.] Here, the language of the Agreement set forth the services to be

provided by Koopman, the compensation to be paid by City for those services, and

expressly provided that “no other benefits are requested or are part of this

Agreement.” Based upon the express terms of the Agreement, the circuit court

correctly determined that Koopman was not entitled to any of the benefits listed in

the Manual as of December 2012.

[¶22.] After Koopman was appointed by written Resolution as a City official

in May 2014, the circuit court determined that the Resolution altered the terms of

the Agreement pursuant to SDCL 53-8-7. However, there is no showing that the

parties intended to terminate the Agreement. Further, Article 9 of the Agreement

provided that it could only be modified with a writing between the parties: “Such

changes, including any increase or decrease in the amount of [Koopman’s]

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compensation, which are mutually agreed upon by both Parties, shall be

incorporated in written amendment to this Agreement.” (Emphasis added).

[¶23.] Although the Resolution modified some of the terms of the Agreement,

the circuit court erred in concluding that Koopman was entitled to additional

benefits under the Manual after his appointment as City Engineer/Code Officer.

The Resolution reaffirmed the basic work and compensation terms of the Agreement

by stating that Koopman would continue “to provide those services outlined in the

[Agreement]” and that City would continue to pay Koopman $1,000 per month. The

modifications of the Agreement via the Resolution were limited to providing

Koopman with a City cell phone, reducing his mileage reimbursement to $.37 per

mile, and modifying his term of service to a period of one year. The Resolution did

not provide for any other changes to his compensation or benefits.

[¶24.] “This Court need only look to the language that the parties used in the

contract to determine their intention.” Ziegler Furniture & Funeral Home, Inc. v.

Cicmanec, 2006 S.D. 6, ¶ 16, 709 N.W.2d 350, 355. “If that intention is clearly

manifested by the language of the agreement, it is the duty of this Court to declare

and enforce it.” Id. (quoting In re Estate of Stevenson, 2000 S.D. 24, ¶ 14, 605

N.W.2d 818, 821). Outside of the limited written modifications to Koopman’s

existing Agreement, nothing in the City’s Resolution indicated that the other

provisions in the Agreement were no longer applicable, particularly the express

provision precluding any benefits outside of those stated in the Agreement.

Therefore, Koopman was not entitled to any benefits in the Manual during the time

he provided services for City.

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[¶25.] However, even if the appointment of Koopman as a City official

triggered the provisions in the Manual relating to benefits for appointed officials,

the circuit court’s decision to award Koopman additional benefits was nevertheless

erroneous. The Manual delineates which policies designated therein apply to

appointed officials. Manual, Policy #12.4. The benefits in the Manual that the

circuit court awarded to Koopman are all governed based on how an individual

employee is classified. Manual, Policy #6.5 and #7.2. Consistent with the evidence,

the circuit court found that Koopman did not work 20 or more hours per week.

Therefore, he did not qualify for the benefits afforded to regular full-time or part-

time employees. Rather, he fell within the classification for temporary or seasonal

employees who “work for less than 20 hours per week.” Manual policy #3.1 provides

that such employees are not entitled to any benefits.

[¶26.] Because we conclude Koopman was not entitled to any of the benefits

in the Manual while he was providing services to City, it is unnecessary to resolve

the question of whether Koopman was an employee or independent contractor after

December 2012.

2. Whether Koopman was entitled to attorney fees under SDCL 60-11-24.

[¶27.] South Dakota applies the “American rule for attorney fees in ‘that each

party bears the burden’” of paying their own attorney fees. Eagle Ridge Estates

Homeowners Ass’n, Inc. v. Anderson, 2013 S.D. 21, ¶ 28, 827 N.W.2d 859, 867

(quoting In re S.D. Microsoft Antitrust Litig., 2005 S.D. 113, ¶ 29, 707 N.W.2d 85,

98). One exception is where attorney fees are authorized by statute. “In

determining whether a statute authorizes the award of attorney’s fees, ‘this Court

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has rigorously followed the rule that authority to assess attorney fees may not be

implied, but must rest upon a clear legislative grant of power.’” Long v. State, 2017

S.D. 78, ¶ 10, 904 N.W.2d 358, 362 (quoting Rupert v. City of Rapid City, 2013 S.D.

13, ¶ 32, 827 N.W.2d 55, 67).

[¶28.] SDCL 60-11-24 provides that in an action for wages removed to

magistrate court or circuit court under SDCL 15-39-59, the court may award

reasonable attorney fees “in addition to awarding judgment to the plaintiff.” The

language of the statute does not authorize an award of attorney fees unless the

plaintiff prevails on the wage claim. Because we reverse the circuit court’s award of

employee benefits to Koopman, his claim for attorney fees fails.

Conclusion

[¶29.] We affirm the circuit court’s decision denying Koopman any additional

employee benefits under the Manual from December 3, 2012 to May 6, 2014. We

reverse the circuit court’s entry of the judgment in favor of Koopman for benefits

under the Manual from May 6, 2014 through May 5, 2015. Koopman is not entitled

to attorney fees under SDCL 60-11-24 because he did not prevail on his wage claim.

[¶30.] GILBERTSON, Chief Justice, and KERN, SALTER, DEVANEY,

Justices, concur.

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