In Nooney v.StubHub, Inc., the South Dakota Supreme Court affirmed in part and reversed in part a circuit court decision regarding a contractual dispute between John and Kimberly Nooney and StubHub, Inc. after concert tickets, which the Nooneys claim they were fraudulently induced into purchasing from StubHub, were not honored at the event, and StubHub failed to uphold its “FanProtect Guarantee” by not providing comparable replacement tickets. The circuit court granted StubHub’s motion to dismiss under SDCL 15-6-12(b)(5) based on both the complaint as well as the “Guarantee,” a document it considered that was not attached to the complaint.
On appeal to the Supreme Court, the Nooneys presented two arguments. First, they argued that the “Guarantee” should not have been considered unless the motion to dismiss was converted to a motion for summary judgment because the document was “outside” the pleadings, and second, that they did not fail to state a claim upon which relief could be granted as defined under SDCL 15-6-12(b)(5). The Supreme Court affirmed in part, holding that the circuit court did not err in considering the document because the “Guarantee” was not “outside” the pleadings. However, the Court otherwise reversed the circuit court by holding that the Nooneys’ complaint did state a claim upon which relief could be granted because the circuit court’s contrary decision was based on the summary of the “Guarantee” rather than the actual language.
FACTS & DECISION
In June 2014, the Nooneys purchased tickets from StubHub for a concert in Colorado. Upon arriving at the concert venue, the presented tickets were declined as invalid, and the Nooneys were denied access to the event. On October 21, 2014, the Nooneys started an action for fraudulent inducement, alleging that StubHub made representations that the tickets would allow access to the concert, and breach of contract, alleging that the StubHub “FanProtect Guarantee” stated Stubhub would provide comparable replacement tickets, which StubHub refused to honor after the ticket denial. StubHub moved to dismiss for failure to state a claim under SDCL 15-6-12(b)(5), offering an affidavit of four exhibits, one of which included the StubHub “FanProtect Gurarantee;” the Nooneys responded with an affidavit and brief. The circuit court relied solely on the complaint and the “Guarantee” to make its decision.
Under SDCL 15-6-12(b)(5) a court may not consider documents “outside” the pleadings when ruling on a motion to dismiss for failure to state a claim, and if matters are presented outside the pleadings that are not excluded by the court, “the motion shall be treated as one for summary judgment.” The Supreme Court based its holding on the guidance of a United States Supreme Court case Tellabs, Inc. v. Makor Issues & Rights, Ltd., which allows courts to consider documents incorporated by reference in a motion to dismiss for failure to state a claim. 551 U.S. 308, 322 (2007). The Supreme Court held that the “FanProtect Guarantee” was not “outside” the pleadings because the Nooneys incorporated the document into their complaint by referencing it twice and basing their pleadings on representations made in the “Guarantee.”
As to the substantive question, the Supreme Court reviewed the question of law de novo. Under SDCL 15-6-8(a), “[a] complaint need only contain a short plain statement of the claim showing the pleader is entitled to relief and a demand for judgment for the relief. . . .” The statement need not have detailed factual allegations, but it must contain more than labels, conclusions, or a “formulaic recitation of the elements of a cause of action,” and must contemplate a statement of circumstances, occurrences, and events in support of the claim presented.
The Supreme Court identified that the circuit court dismissed the Nooneys’ complaint based on an interpretation error by finding that the “Guarantee” bound StubHub to either find replacement tickets or offer a refund, which required the Nooneys to allege both “alternatives” were not honored. The circuit court found these representations as alternatives based on the language in the summary of the “Guarantee,” rather than the actual language, which followed the summary. The Supreme Court found that the circuit court overlooked the actual language, which expressly stated that a refund was contingent on StubHub’s unsuccessful attempt to find replacement tickets.
Based on the newly interpreted contingency, the Supreme Court found that the Nooneys’ pleaded facts constituted a statement of circumstances, occurrences, and events that supported both breach of contract and fraudulent inducement claims. The elements of a breach of contract claim are: 1) an enforceable promise; 2) a breach of the promise; and 3) resulting damage. The Court found that 1) the Nooneys were promised replacement tickets upon denial of the purchased tickets; 2) StubHub breached that promise by failing to honor the “FanProtect Guarantee;” and 3) the Nooneys suffered damages when they were denied access to the concert, all of which, if proven to be true, could constitute a breach of contract.
Furthermore, fraudulent inducement entails willfully deceiving persons to act to their disadvantage. The Court reasoned that the Nooneys’ pleadings included allegations that: 1) StubHub knew the representations in the “Guarantee” were made to induce them into purchasing the tickets; 2) they were untrue or recklessly made; and 3) the Nooneys did purchase the tickets to their detriment, all of which, if found to be true, may support a claim for fraudulent inducement.
Thus, although the Supreme Court affirmed the circuit court properly considered the “Guarantee” under a motion to dismiss claim, it also held that the circuit court improperly dismissed the Nooneys’ complaint by failing to consider the actual language of the “Guarantee.”