Opinion
No. 3-527 / 02-1493.
Filed January 14, 2004.
Appeal from the Iowa District Court for Wapello County, Dan F. Morrison, Judge.
The City of Ottumwa and the Iowa Municipal Workers' Compensation Association appeal from the trial court's decree ordering rescission of an agreement to settle Russell Poole's workers' compensation claim based on fraudulent misrepresentation by a claims representative. REVERSED AND REMANDED.
Peter Sand of Grefe Sidney, Des Moines, for appellant.
Dennis Emanuel of Webber, Gaumer Emanuel, P.C., Ottumwa, for appellee.
Heard by Huitink, P.J., and Zimmer and Miller, JJ.
The City of Ottumwa and the Iowa Municipal Workers' Compensation Association (IMCWA) appeal from the trial court's decree ordering rescission of an agreement to settle Russell Poole's workers' compensation claim based on material misrepresentations by an IMWCA claims representative.
I. Background Facts and Proceedings
Poole sought workers' compensation benefits following a back injury sustained on March 14, 2001, while he was working as a transit driver for the City of Ottumwa. Iowa Municipal Workers' Compensation Association (IMWCA), the City's workers' compensation claims administrator, paid Poole temporary total disability benefits until he reached maximum medical healing. Thereafter, IMWCA agreed to pay permanent partial disability benefits based on Poole's six-percent whole person impairment rating as determined by IMWCA's independent medical examiner.
In an October 22, 2001, letter to Poole, IMWCA's claims representative, Toni Lockwood, asked if he was interested in final settlement of his claim, and if so, to send her a demand letter. In a subsequent telephone conversation with Poole's wife, Lockwood explained the matters Poole needed to address in his settlement demand On November 5, 2001, Poole sent a demand letter to Lockwood in which he described the nature of his back injury, medical treatment, mental and physical pain, as well as physical limitations caused by his back injury. Poole's letter also provided:
I attended a professional drivers school and have an Iowa State Class "A" Commercial Drivers License. With this license, I can drive a Semi, etc. I also have education and background in law enforcement. I am a highly decorated Viet Nam Veteran and served in the United States Marine Corps for ten years. Now, because of my injury, I am unable to work in positions for which I have training, education, or knowledge in.
If I could find employment in the future that would accept me with the work restrictions I now have because of my back injury, I once again would be facing a loss of income. In the Bloomfield IA area, I would probably earn $6.50 per hour at an entry-level position. Doing the math, this would be a loss of income for me. Moreover, because of my work restrictions, future employment is a big "IF."
Based on these factors and his estimated future medical expenses, Poole demanded $350,000 to settle his claim. In a December 4, 2001, letter, Lockwood rejected Poole's $350,000 demand, explaining that it exceeded the maximum allowable compensation for permanent and total disability. She made the following counteroffer in the same letter:
Based on several factors which includes a minimal permanent partial disability rating, and being a nonsurgical injury, we are able to extend an offer to you for 10% to the body less the amount of PPD paid at the time of settlement. The 10% * 500 weeks = 50 weeks of benefits at your compensation rate of $213.98 which totals $10699.00. The total amount of PPD paid thus far has been 22 weeks at your rate of $213.98 which totals $4707.56. Please keep in mind that previously we had voluntarily agreed to pay the additional 2% to the body, which was the difference between Dr. Carlstrom (treating physician) and Dr. Riggens (IME Physician) impairment ratings.
Poole accepted this offer in a December 6, 2001 letter to Lockwood. IMWCA's lawyers prepared the documentation necessary to implement final settlement of Poole's claim on the terms agreed upon. On December 24, 2002, Poole, through his attorney, informed IMWCA that he would not sign the settlement document or settle on the terms earlier agreed to. As a result, the City and IMWCA sued Poole for breach of contract. Their petition alleged that Poole entered a binding settlement contract and demanded that Poole be ordered "to sign the settlement documents implementing the contract." Poole denied the existence of a binding settlement contract, and alternatively claimed that any settlement contract should be rescinded because of material misrepresentations by IMCWA's claims representative.
After a trial on the merits, the trial court determined that the parties entered into an enforceable contract when Poole accepted IMCWA's December 4, 2001, counteroffer. The trial court made the following findings of fact concerning Poole's rescission claim:
Through her actions as a representative of IMWCA, Lockwood took on the role of an advisor to Poole and in doing so was duty-bound to provide full disclosure to him. Lockwood failed to do so and in her silence misrepresented material facts about the options available to Poole.
The trial court additionally cited Poole's testimonial version of a telephone conversation with Lockwood after receiving her counteroffer as proof Poole relied on Lockwood's misrepresentation that he would recover no more than the amount she offered because of his minimal permanent partial disability rating. Based on these findings, the trial court declined to specifically enforce the parties' settlement agreement and granted Poole's request to rescind it.
On appeal, the City and IMCWA contend the judge's decision rescinding the settlement agreement is contrary to the evidence. They also argue that the record fails to support the trial court's finding that Lockwood acted as Poole's advisor or that she had any resulting legal duty of full disclosure.
II. Standard of Review
This action was tried in equity, and our review is de novo. Iowa R. App. P. 6.4. In equity cases, especially when considering the credibility of witnesses, the court gives weight to the fact-findings of the trial court, but is not bound by them. Iowa R. App. P. 6.14(6)( g).
III. The Merits
We initially note the absence of any challenge to the trial court's conclusion that the parties entered into an enforceable contract to settle Poole's workers' compensation claim. Our consideration is accordingly limited to the merits of Poole's rescission theories.
To prevail on a rescission theory based on misrepresentation, the party requesting such relief must prove all of the following five elements: (1) a representation; (2) falsity; (3) materiality; (4) an intent to induce the other to act or refrain from acting; and (5) justifiable reliance. Hyler v. Garner, 548 N.W.2d 864, 872 (Iowa 1996); accord Utica Mut. Ins. Co. v. Stockdale Agency, 892 F. Supp. 1179, 1193 (N.D. Iowa 1995). Misrepresentations can occur through either false statements, or through silence. See, e.g., First Nat'l Bank in Lenox v. Brown, 181 N.W.2d 178, 182 (Iowa 1970).
In Rubes v. Mega Life Health Insurance Co., 642 N.W.2d 263, 269 (Iowa 2002), the court made these observations concerning the falsity, and inducement elements:
An action to rescind a contract is regarded as less severe, and hence less demanding in its proof requirements, than an action at law for damages based on fraud. Hyler, 548 N.W.2d at 871. In an equitable rescission action, it is not the knowledge of falsity that is at issue, but "whether misrepresentations induced the complaining party to contract." Utica, 892 F. Supp. at 1195. As this court stated in Hyler, injecting an "intent to deceive" element in a rescission case would reintroduce the concept of scienter, "making the elimination of this requirement in equity cases illusory." Hyler, 548 N.W.2d at 872.
With these principles in mind, we turn to the record and issues raised on appeal.
Poole's brief cites the following as the representations by Lockwood forming the basis of his rescission claim.
Ms. Lockwood's December 4, 2001, reference to the doctors' impairment ratings as a "minimal, permanent partial disability rating.". . . In addition to this affirmative misrepresentation, Ms. Lockwood engaged in communications that were false and misleading by concealing other significant factors in determining industrial disability, and further, the worth of Mr. Poole's workers' compensation claim. . . .
There is no dispute that Lockwood made representations concerning each of the matters Poole cites. Whether Lockwood intentionally concealed any factors relating to industrial disability or the worth of Poole's claim is of no consequence because her intent to deceive is not a necessary element of proof. Rubes, 642 N.W.2d at 269. The dispositive question accordingly is whether, with regard to each representation, Poole has satisfied his burden to establish the remaining four elements of proof. Based on our de novo review of the record, we conclude that he has not.
Contrary to Poole's claim, Lockwood's reference to Poole's "minimum permanent partial disability" rating was neither false nor misleading. The disability rating to which Lockwood referred was based on Poole's impairment rating under the American Medical Association's Guides to the Evaluation of Permanent Impairment used by the physicians who examined and treated him. The terms "impairment" and "disability" were equated with each other throughout Poole's communications with Lockwood, and it is clear from the record that Lockwood was referring to Poole's impairment rating rather than his industrial disability. We are also unable to find Lockwood's characterization of Poole's six-percent permanent partial disability rating as minimal was false or misleading when it is compared to a total permanent disability or maximum whole person impairment rating. Poole's contention that Lockwood was minimizing his industrial disability rather than referring to his impairment rating is also belied by the fact he was offered a "10% of the body" disability rating rather than a six-percent industrial disability.
Poole's rescission theory based on Lockwood's failure to make a complete disclosure of all of the factors relevant to the extent of his industrial disability also fails. The factors Poole claims Lockwood omitted were identified in the following excerpt from Lockwood's cross-examination by Poole's attorney:
Q. But as far as Mr. Poole's case, you knew that there were other factors involved, didn't you? They were very significant and entitled Mr. Poole to in excess of the functional rating, didn't they? A. As far as significant, I wouldn't say that they were significant.
Q. And that's the representation that you left Mr. Poole, because you didn't put it in your letter. If you thought them to be significant, you would have put them in your letter, right? Is that right?
MR. SAND: Are you — I'm trying to understand Are those two questions, or just the latter half?
MR. EMANUEL: Just that latter half.
A. Okay, can you û
Q. If you thought other factors could be significant, you would have put those in the letter, wouldn't you? A. I said based on other — several factors. They were — the Pooles were aware of all the factors considered in industrial disability. I had discussed those with Suzanne at the time that they did the settlement letter to me, so I û all those factors were taken into consideration.
Q. So you did talk to the Pooles about industrial disability factors, you represented to those factors that were involved in assessing industrial disability; is that correct? A. Yes. To my understanding, Suzanne had handwritten notes in that regard.
Q. So you were giving them representations about something that was legal in significance. A. I didn't give them any information that they hadn't already obtained in the pamphlet that the industrial — that the commissioner sends out, and in that pamphlet it lists some of those factors regarding industrial disability.
Q. Now Ms. Lockwood, you knew that there were other factors that were quite significant in Mr. Poole's case that would increase his disability over and above the functional, and they included the fact that he has not been able to accommodate because of his work, the fact that he had significant permanent work restrictions, and that he had lost earnings because he didn't have a job to go back to, didn't you? You knew those to be factors?
. . .
A. Those were factors, yes.
Our review of Poole's demand letter indicates that he discussed the factors cited by counsel in his November 5, 2001, demand letter. Even if Lockwood failed to include the cited factors in her discussions with Poole, Poole has failed to prove that he relied on Lockwood's allegedly incomplete explanation of the factors relevant to this industrial disability rating.
Poole's remaining rescission theory is based on Lockwood's understatement of the value of his claim during the telephone conversation in which he accepted her settlement offer. His testimonial version of that conversation included the following:
A. I had asked her to clarify — if she could clarify this letter, and then as I previously stated, that it was all based upon the doctors, and then that was all I was going to get and that there wasn't going to be any future medical.
Q. So when she offered four percent above what the doctors gave you, what did you think? A. I felt that — at that time that she was being more than fair, and as I previously said, I felt, well, at least they can't take a whole lot of money from my other settlement, should I be awarded something.
Q. From that December 4th letter, was there any indication of what factors were important in — for you, after you read Ms. Lockwood's letter? A. I believe it's the second paragraph, I felt the only factors was, you know, the doctor's determination, and that was what I was being awarded.
Q. Did you know, Mr. Poole, that there were other factors at work in your case that would substantially increase your entitlement to disability benefits? A. No, sir, I didn't. I was going by what that letter stated.
Q. When you had that conference on December 6th, did you ask Ms. Lockwood about your entitlement to future medical payments? A. Yes, sir. As I previously stated, I asked her if I was still going to get medical benefits, because her letter didn't mention that, and that's once again where she told me no, that I wouldn't be.
Q. Did you think that by settling the case that you would not be entitled, then, at all to future medical benefits? A. Yes, after talking to Toni, because she said, you know, there wouldn't be any medical benefits.
Q. Did you know you could have settled the case for ten percent and left open the medical? A. No, sir, I did not.
Poole's testimony is irreconcilable with other evidence concerning his familiarity with factors relevant to industrial disability and his earlier settlement discussions with Lockwood. Lockwood's assertion that she told both Poole and his wife that Lockwood preferred a "closed file settlement" resolving all issues, including future medical expenses, is supported by the content of Poole's letter in which he makes a lump sum demand including future medical expenses. Moreover, Poole cites no credible evidence concerning the probable outcome or amount of benefits he would be awarded if he prevailed in a contested hearing before the workers' compensation commissioner. Because Poole has again failed to prove Lockwood's representations concerning the worth of his claim were false or that he actually relied on them, we decline to order rescission on this theory.
In reaching our decision we have not ignored Poole's claim that Lockwood assumed the role of his advisor with a resulting duty of full disclosure. See Morton v. Underwriters Adjusting Co., 501 N.W.2d 72, 74 (Iowa Ct. App. 1993) (citing Harrison v. Keller, 254 Iowa 267, 271, 117 N.W.2d 477, 480 (1962) (for the holding that workers' compensation carriers' adjustors who assume the role of advisor have a duty of full disclosure)). Morton, however, must be read in the context of Poole's rescission theory based on misrepresentation. As we understand Morton, the duty of full disclosure and its breach are relevant to proof of the representation element of this theory. Id. Under our interpretation, Morton, does not obviate the need for proof of the remaining elements of a rescission theory based on misrepresentation. Even if we assume without deciding that Lockwood assumed the role of advisor, we fail to see how she breached any duty of full disclosure. As discussed earlier, Poole's claim that he was not fully informed of his potential entitlement to benefits based on industrial disability or future medical expenses is not supported by the record. There is also abundant evidence contradicting Poole's claim that he relied on Lockwood's representations.
We therefore reverse the judgment of the district court and remand for entry of judgment in conformity with our opinion.