Opinion
No. 5-636 / 04-1458
Filed September 28, 2005
Appeal from the Iowa District Court for Marshall County, David R. Danilson, Judge.
Plaintiff appeals from the judgment entered upon his claim and defendant's counter-claim based upon the oral agreement for the sale of an internet provider business. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Erin Broadston of the Mowry Law Firm, Marshalltown, for appellant.
Patrick Wilson of the Wilson Law Office, Marshalltown, for appellee.
Considered by Huitink, P.J., and Vogel and Zimmer, JJ.
This case vividly illustrates the pitfalls of attempting to orally contract for the sale of a business. Here, the plaintiff-buyer Steven Ford appeals from the judgment entered upon his claim and the defendant-seller Dirk Zuercher's counterclaim arising out of the oral agreement for the sale of an internet service provider business. We affirm in part, reverse in part, and remand for the entry of an appropriate order.
I. Background Facts and Proceedings.
Dirk Zuercher became involved in the sales and service of personal computers in 1988 and established an internet service provider business in Marshalltown under the name of Managed Information Systems (MIS) in 1995. Also in 1995, Zuercher acquired the domain name "mtnia.com" for use by his MIS subscribers. Around April of 2002 Steven Ford began discussing with Zuercher the possibility of buying a portion of Zuercher's business, and in May of that year Ford began working at the MIS facilities. His agreement with Zuercher provided that he would not be compensated for his work but that in return, he would receive office space and the opportunity to learn about the computer business.
In June of 2002, Ford and Zuercher began discussing the terms of the MIS sale to Ford. The two eventually agreed that Ford would purchase MIS and its active paying dial-up customers for $100.00 per paying subscriber. However, they further agreed that Ford would not purchase the equipment MIS was using, but rather that Ford would provide internet access to MIS users though a wholesale internet service provider. Ford subsequently set up an account with ISPpath, which is located in British Columbia, Canada, to provide that access. In August of 2002, Ford set up 338 formerly MIS accounts with ISPpath. Initially those 338 accounts relied on ISPpath merely for internet access; however, in January of 2003, all email accounts were transferred from Zuercher's servers to ISPpath.
Zuercher claimed that the parties agreed Ford would take over the MIS dial-up customers on August 1, 2002, while Ford maintained that date was later moved back to September 1 due to the difficulty in culling the inactive accounts from the paying accounts. The parties did agree, however, that Ford would begin paying the expenses of MIS in August but that Zuercher would retain the income from the dial-up subscribers, continuing through their December payments. Ford would receive credit on the purchase price for those payments retained by Zuercher. The parties conducted their business accordingly through the end of 2002. Ford retained the income from the accounts beginning with the January 2003 payments, with no further demand for additional payment from Zuercher until either August of 2003, when Zuercher claimed he orally demanded a portion of the alleged shortfall, or December of 2003, when Ford claimed that Zuercher provided him with a spreadsheet detailing the alleged deficiencies.
Ford then moved out of the previous MIS offices on January 27, 2004, as the parties' business relationship deteriorated. Each participated in some antics that only intensified their soured relationship. In February of 2004, Ford filed a petition in the district court claiming interference with a contractual relationship and requesting interpretation of and breach of the oral contract, compensatory damages, and punitive damages. Zuercher responded by filing a counterclaim seeking damages for Ford's failure to pay the full purchase price of MIS and for secretarial and other business expenses. Zuercher also sought the return of control of the mtnia.com domain name.
Following a trial, the court entered a judgment, largely finding in favor of Zuercher. Among other things, the court granted Zuercher control of the mtnia.com domain and awarded him a total of $14,947.32 in damages. That total consisted of an amount left unpaid under the contract to pay $100.00 for each customer, an alleged unpaid loan in the amount of $2,416.00, $213.39 representing the value of software allegedly destroyed by Ford, and $750.00 for time spent re-entering the data lost by Ford. Ford appeals from this judgment.
II. Scope and Standards of Review.
Where a breach-of-contract claim is tried as a law action, our review is for correction of errors of law. See Land O'Lakes, Inc. v. Hanig, 610 N.W.2d 518, 522 (Iowa 2000). The trial court's "legal conclusions and application of legal principles are not binding on the appellate court." Id. In contrast, any findings of fact made by the trial court are binding on appeal if supported by substantial evidence. See Van Oort Constr. Co. v. Nuckoll's Concrete Serv., Inc., 599 N.W.2d 684, 689 (Iowa 1999). Evidence is substantial for purposes of sustaining a finding of fact when a reasonable mind would accept it as adequate to reach a conclusion. Land O'Lakes, 610 N.W.2d at 522. The evidence is viewed "in a light most favorable to the trial court's judgment." Van Oort Constr., 599 N.W.2d at 689.
Because this case involved an oral contract, proof of a claimed oral contract must be clear, satisfactory, and convincing. Ehlinger v. Ehlinger, 253 Iowa 187, 192, 111 N.W.2d 656, 659 (1961). A mere preponderance of the evidence is not sufficient. Id. A party seeking to enforce any agreement has the burden of proving the terms of the contract. See Anderson v. Douglas Lomason Co., 540 N.W.2d 277, 283 (Iowa 1995). Thus, in this case, the party seeking to enforce a particular portion of their agreement holds the burden of proof on that issue.
We first note that the district court certainly had a formidable task in attempting to ascertain the terms of the apparently very fluid and inexact agreement. Much of the testimony from the parties was totally contradictory. Credibility findings thus appear to have weighed heavily in certain of the court's findings. In those findings, we apply deference. See Kostelac v. Feldman's, Inc., 497 N.W.2d 853, 856 (Iowa 1993) (noting assessment of the credibility of witnesses is a role peculiarly within the realm of the fact finder).
III. Number of Accounts.
As noted above, the parties agreed that Ford would purchase MIS and its active paying dial-up customers at a rate of $100.00 per paying subscriber. In Zuercher's counterclaim and at trial, he alleged that MIS held 338 paying subscribers on August 1, 2002, the time of the transfer of accounts and that he thus would have been owed $33,800.00. However, the parties stipulated at trial that Ford was only credited with $24,141.75 in payments to Zuercher. The district court found that the number of paying customers was actually 332 and awarded Zuercher the difference between the $33,200.00 amount and the credited amount of $24,141.75. On appeal, Ford asserts substantial evidence does not support this finding. Specifically, he claims the initially agreed-upon date of August 1 was pushed back to September 1, and the number of paid customers was actually far less.
We conclude substantial evidence supports the district court's findings on this issue. We begin by affirming the district court's finding that August 1, 2002 was the date the business was sold. While Ford disputes that date, claiming the parties pushed back the date because they needed more time to sort out the paying customers from the list generated, there was a letter sent to all MIS customers informing them of the change in the business as of August 1, 2002. This, along with the undisputed facts that Ford began paying the expenses and Zuercher began receiving the income as of August 1, constitutes substantial evidence.
Next, Zuercher presented evidence that when Ford switched over to ISPpath, 338 customers were entered. Ford, however, questions whether some of these 338 were either duplicate accounts or non-paying customers. First, Zuercher testified that as of August 1, there was only one duplicate subscription and five non-paying customers. Moreover, Krista Vanness, Zuercher's secretary, testified that she spent ten hours reviewing the customer list upon Ford's request, thus affirming the number that Ford later entered into ISPpath. The fact that the number of paying customers may have subsequently decreased does not detract from the substantial evidence supporting the district court's conclusion that the sale involved 332 active, paying dial-up customers. We affirm the district court in this regard.
IV. Mtnia.com Domain.
Zuercher obtained the domain name "mtnia.com" in 1995 when he founded MIS. After the sale of MIS, both Zuercher and Ford had customers whose email addresses were based on the mtnia.com domain name. Disputes later arose as to who held the ownership of mtnia.com. In Zuercher's counterclaim he alleged Ford did not purchase the mtnia.com domain when he purchased MIS. Ford contends the sale did include mtnia.com.
The district court concluded Zuercher should control the mtnia.com domain. It relied heavily on a December 2003 letter written by Ford to Zuercher which stated, "In June of 2002 we agreed that at some point I would purchase [MIS's] name and active paying customer list for $100.00 per paid subscription. I would not be purchasing the wireless accounts nor the equipment owned by you." (Emphasis added.) The court reasoned that the letter refers to the MIS "name" and not the actual business: thus, there was not "reasonable certainty" that the domain name was included in the sale.
First, we believe the letter which heavily influenced the district court's finding on this matter does not provide the inference arrived at by the district court; and we further conclude that, standing on its own, it does not constitute substantial evidence supporting the court's finding. The letter was written nearly one-and-a-half years following the oral agreement. In addition, the letter purports to list certain items excluded from the sale, including the wireless accounts and equipment. That exclusion list did not mention the mtnia.com domain. Furthermore, no other evidence was cited supporting that the sale was merely for a name. The fact that the subscriber accounts were purchased as well belies the assertion the sale was simply for the name. We also note the registrant of the domain name was always listed as MIS, a company indisputably purchased by Ford from Zuercher. Ford introduced into evidence a letter informing his new clients of their change to the incoming mail server mtnia.com. The purchase of MIS was clearly more than just the name; it also included the customer accounts, all of which had the mtnia.com email address. Ford, as part of the sale of MIS, became both the administrative and technical contact for the domain.
In summary, we find no substantial evidence supporting the court's conclusion that the mtnia.com domain was not part of the sale of MIS from Zuercher to Ford. Accordingly, we reverse the award of the mtnia.com domain to Zuercher and remand for entry of an order setting forth the manner in which that transfer shall occur
V. Alleged Loan of $2,416.
In August of 2002 Zuercher made a payment of $2,416.00 to Ford, with no documentation to explain the transaction. Zuercher testified that he had loaned this money to Ford in order to cover expenses incurred on Ford's PayPal account. However, Zuercher further testified as to some uncertainty, informing the court he did not remember how that number was arrived at, but that he could "guess." Ford, on the other hand, claimed that the money was to compensate him for ISPpath charges due to certain non-existent subscriber accounts from the initial customer list. The district court noted that because Ford's PayPal account held only a minimal balance and because Ford was responsible for the MIS expenses at the time, the payment "could well have been a loan." The court further found, though, that Ford's explanation "might be plausible." It thus awarded Zuercher this item of damages, concluding "whether the payment was a loan or reimbursed expenses, Zuercher is entitled to" these damages. Ford appeals from this award.
Ford contends that because a loan was not pleaded, this is not a proper item of recovery. Because we reverse this award on other grounds, we need not decide this issue.
Initially, we believe the substantial evidence test is not met upon a finding of "could well have been" or even "might be plausible." Moreover, it appears the district court misconstrued the nature of a PayPal account, which according to Ford, never retained excess funds, as it was a "flow-through" account. The court apparently inferred that because Ford's account held a minimal balance, he must have been in need of cash. However, the evidence provided by Ford showed that his account never contained an excess balance and that the account was regularly paid with his credit card. Based on the contrary, yet equally plausible, inferences that can legitimately be drawn from the evidence and testimony, we conclude Zuercher has not carried his burden to prove a right to recovery. See generally Greenberg v. Alter Co., 255 Iowa 899, 905, 124 N.W.2d 438, 442 (1963) (holding where evidence is in equipoise, party has not carried burden of proof by preponderance of evidence); Christensen v. Iowa State Highway Comm'n, 252 Iowa 1351, 1353, 110 N.W.2d 573, 574-75 (1961) (stating to sustain burden to prove claim by preponderance of evidence, evidence to support claim "must produce the stronger impression and be more convincing when weighed against [opposing] evidence"). We therefore reverse the portion of the district court's judgment awarding Zuercher this measure of damages.
VI. Peachtree Software.
Zuercher prayed in his counterclaim for damages for the misappropriation or retention of certain personal property. At trial Zuercher testified that Ford had destroyed certain software known as the Peachtree Accounting Software and the data contained therein. The district court found "Ford intentionally or negligently removed or destroyed the Peachtree Accounting Software used by Zuercher." It awarded $312.39 for replacement costs and $750.00 for time required to recover and re-enter the lost data.
On appeal, Ford argues the evidence does not support a finding that the Peachtree software was destroyed. He distinguishes between the actual software and the data allegedly once contained therein. He maintains that if only the data was missing, Zuercher's recovery was improper. We find the distinction between the software and data to be without merit. When asked by the court whether the data or software was destroyed, Zuercher responded "both." A number of times Zuercher responded affirmatively to questions whether the software and data were missing. Even Ford admitted that he had "inadvertently" deleted some MIS files from this laptop. It is clear that the court's award of $750.00 was for the re-entry of the lost data. The court's judgment that Zuercher was entitled to recovery for damages incurred due to the missing Peachtree Software and data is supported by substantial evidence. They are recoverable items of damage and we therefore affirm them.
VII. Summary.
We affirm the portions of the district court judgment (1) concluding the sale of MIS included 332 paying customers, and (2) awarding damages based on the missing Peachtree Software and data. However, we reverse those portions of the judgment (1) granting Zuercher the mtnia.com domain, and (2) awarding Zuercher $2,416.00 for his payment to Ford in August of 2002 and remand for entry of judgment consistent with this opinion.