Opinion
No. 1-416 / 99-1763
April 28, 2004.
Appeal from the Iowa District Court for Scott County, C.H. Pelton, Judge.
The defendants appeal a district court judgment, following a bench trial, in which among other things, the court awarded the plaintiff $250,000 in damages on its action for fraudulent misrepresentation. AFFIRMED.
Robert K. DuPuy of DuPuy Associates, Miami, Oklahoma, for appellants.
Carrie Roseberry, Steven H. Jacobs, and Peter J. Thill of Betty, Neuman McMahon, L.L.P., Davenport, for appellee New Uchtorff Companies.
Terry W. Giebelstein of Lane Waterman, Davenport, for appellees Jager, R.P., Inc., Whitehall Funding, Mid-Cities Acquisition Fund, and F.S. Lamprey Manufacturing.
Robert M. Hogg and Patrick M. Roby of Elderkin Pirnie, P.L.C., Cedar Rapids, for appellees Pastrnak and Pastrnak Law Firm.
Heard by Vogel, P.J., and Hecht and Vaitheswaran, JJ.
The defendants appeal a district court judgment, following a bench trial, in which among other things, the court awarded the plaintiff $250,000 in damages on its action for fraudulent misrepresentation. We affirm.
I. Background Facts and Proceedings.
In 1993, Irvin Johnson purchased the stock of The Uchtorff Company, a Davenport metal stamping business, and later renamed it National Metalcraft. By 1995, however, National Metalcraft was in dire financial condition. Johnson sought the advice of an attorney, Thomas Pastrnak, who introduced him to Thomas Jager. Jager declined to finance Johnson but expressed an interest in acquiring National Metalcraft's assets. Johnson decided to seek protection in bankruptcy, under U.S.C. ch. 11.
Following the bankruptcy filing, Johnson agreed to sell National Metalcraft to Jager's new corporation, Mid-Cities Acquisition Fund, Inc., for $1,400,000 in cash and the assumption of considerable tax liabilities. The proposed agreement also contained a contract clause with Johnson Manufacturing in order to provide Johnson with continued employment as the company's manufacturing sales representative. His proposed fee was $250,000 per year plus fifty percent of after-tax profits, with a buyout clause of $500,000 should he be terminated without just cause. However, National Metalcraft's bankruptcy attorney declined to submit the proposed sale to the bankruptcy court. The court then appointed Eric Lam as trustee for National Metalcraft.
After his appointment, Lam was granted an order from the bankruptcy court terminating Johnson's employment. Lam placed the remaining assets of National Metalcraft for sale under 11 U.S.C. § 363. Jager, through Whitehall Acquisition Fund, Inc., was the highest bidder and paid $1,500,000 in cash and a $300,000 unsecured note. Pastrnak indicated to Johnson that he had a deal as the manufacturer's sales representative with Jager. Jager and Johnson then negotiated a new deal but without the buyout clause or the assumption of the tax liabilities. Whitehall Fund, Inc. then leased the business to a new company, The New Uchtorff Companies, Inc. (New Uchtorff).
The closing on the bankruptcy sale occurred on May 20, 1996, and shortly thereafter, Jager learned that the Occupational Safety and Health Administration was inspecting the National Metalcraft facilities. Jager, believing he had been misled by Johnson regarding the status of prior OSHA violations, terminated Johnson's employment agreement. Jager ultimately spent at least $250,000 to remediate OSHA violations that Johnson failed to disclose.
In August 1996, New Uchtorff filed a petition against Johnson for negligent and fraudulent misrepresentations that occurred when Johnson was marketing the sale of National Metalcraft. Johnson, along with his wife, Karen, and Johnson Mfg., W.O.P. Inc., (collectively "Johnson") filed a counterclaim and a cross-petition against Jager and his entities, asserting breach of contract, fraud, interference with prospective business advantage, abuse of process, concert of action, and an Iowa Code section 91A (1995) wage claim. Johnson also filed a legal malpractice suit against Pastrnak. In November 1996, Johnson had an opportunity to acquire the assets of American Commercial Vehicles, Inc. (ACV). Pastrnak, representing Johnson in sale negotiations with the lender, called Jager and asked if he would be willing to supply a $150,000 bidding deposit. Johnson considered it, but later declined. Without Johnson's bid, ACV's assets were sold to another bidder.
Following trial, the district court dismissed New Uchtorff's claim of negligent misrepresentation, but concluded that Irvin Johnson had intentionally deceived Jager concerning the OSHA violations and that Johnson's misrepresentations were a deciding factor in inducing Jager to purchase National Metalcraft. The court awarded New Uchtorff damages of $250,000. On Johnson's counterclaims and cross-petition, the court concluded Johnson never had a written employment contract with Jager or his entities. The court also concluded Johnson had an at-will employment agreement with New Uchtorff and the value of his seventeen days of service prior to termination was $11,643.81. The court rejected his claims of fraud, interference with prospective business advantage, abuse of process, concert of action, and his wage claim. The court lastly concluded that although Pastrnak and his associates committed legal malpractice by dually representing both Johnson and Jager, there was no causation between Pastrnak's breach of duty and Johnson's damages. Johnson has appealed. II. Scope of Review.
The court has learned Rubert DuPuy, Johnson's appellate counsel, is now deceased. We have received no response following this court's attempts to contact his law firm regarding substitute counsel. No attorney appeared at oral arguments on behalf of Johnson.
Our review is for correction of errors of law. See In re Mount Pleasant Bank Trust Co., 426 N.W.2d 126, 129 (Iowa 1988). The factual findings made by the district court are binding on appeal if supported by substantial evidence. Id. We are not bound by the trial court's conclusions of law or its application of legal principles. Id. III. Claims on appeal.
Below, we will separately address the claims made on appeal by Johnson regarding each of the three different groups of appellees: New Uchtorff, the Jager entities, and attorney Thomas Pastrnak. However, we first comment on the credibility findings made by the district court. The court made specific, detailed findings and when comparing conflicting testimony, it found "Johnson's testimony is the least credible." Moreover, it also noted it was "hard pressed to give credibility to Irvin Johnson's evidence even when not conflicting." On appeal, Johnson argues this credibility finding was improper and not supported by substantial evidence. We disagree. On appeal in a law action we generally are bound by such factual findings on the credibility of witnesses. Grinnell Mut. Reins. Co. v. Voeltz, 431 N.W.2d 783, 785 (Iowa 1988). Here, the district court's findings were detailed, rational, and based upon substantial evidence in the record. Accordingly, we do not disturb the court's credibility findings.
In addition, prior to addressing the separate claims against each individual appellee, we first note our conclusion that a number of issues are either not preserved, waived for failure to cite authority, or otherwise not properly before this court. Among those claims that we thus do not address are the following: (1) that New Uchtorff is not a "real party in interest," (2) that New Uchtorff could not have suffered damages because it did not own the assets subject to the OSHA violations, (3) that New Uchtorff's claims are preempted by Federal law, (4) that the doctrine of caveat emptor bars New Uchtorff's claims, and (5) that New Uchtorff cannot suffer damages due to its lease with Whitehall Funding. See Iowa R. App. P. 6.14(1)( c) ("Failure in the brief to state, to argue or to cite authority in support of an issue may be deemed waiver of that issue."); State v. Hernandez-Lopez, 639 N.W.2d 226, 233 (Iowa 2002) (noting we will only review an issue raised on appeal if it was presented to and ruled on by the district court).
A. New Uchtorff.
As noted, the district court found in favor of New Uchtorff on its fraudulent misrepresentation claim against Johnson. The essential elements of an action for fraudulent misrepresentation are: materiality, falsity, representation, scienter, intent to deceive, justifiable reliance, and resulting injury and damage. See Clark v. McDaniel, 546 N.W.2d 590, 592 (Iowa 1996). Scienter is knowledge of the falsity of a material representation and can be proved "by showing that the defendant had actual knowledge of the falsity, possessed reckless disregard for the truth [or] falsely stated or implied that the representations were based on personal knowledge or investigation." McGough v. Gabus, 526 N.W.2d 328, 331 (Iowa 1995).
We conclude substantial evidence in the record supports the district court's conclusion under this claim. The record contains evidence reflecting numerous misrepresentations and non-representations concerning the unremediated and outstanding OSHA violations for which New Uchtorff eventually expended at least $250,000 to clear up. Jager testified that Johnson informed him prior to the bankruptcy sale that "the problems which had caused [the OSHA] claim to be filed had been corrected." The record thus supports that Irvin Johnson intentionally deceived Jager about National Metalcraft in a variety of ways, most notably regarding his knowledge of and the extent of the OSHA violations. New Uchtorff reasonably relied on Johnson's representations to its detriment. We therefore affirm on this claim.
B. Jager Defendants.
As noted, Johnson filed a claim against the Jager entities, alleging theories of fraud, interference with prospective business advantage, abuse of process, and concert of action. The district court rejected each of these claims.
Fraudulent Misrepresentation.
Johnson asserted Jager and his entities fraudulently misrepresented that he would be employed by New Uchtorff, that he was to receive $500,000 severance pay, that he would assume certain tax liabilities, and that Jager would provide funding to acquire another company (ACV). The district court rejected each claim. We conclude the district court properly rejected each of these claims. We laid out the elements of the tort of fraudulent misrepresentation in the previous division.
We agree with the district court's conclusion Johnson did not provide sufficient evidence of Jager's intent to deceive or his knowledge of the falsity of any of his statements. See McGough, 526 N.W.2d at 331. The employment terms claimed by Johnson to have been misrepresented were not agreed upon or accepted by the parties. Further, Johnson's attempt to borrow funds from Jager to bid on the assets of ACV never went beyond the discussion stage. Jager simply rejected the proposal.
Interference with Prospective Business Advantage.
Johnson appeals the district court's conclusion Jager did not wrongfully interfere with his opportunity to purchase the assets of ACV. This tort requires a plaintiff to prove: (1) the plaintiff had a prospective contractual relationship with a third person, (2) the defendant knew of the prospective relationship, (3) the defendant intentionally and improperly interfered with the relationship, (4) the interference caused either the third party not to enter into or to continue the relationship or that the interference prevented the plaintiff from entering into or continuing the relationship, and (5) damages. Nesler v. Fisher Co., 452 N.W.2d 191, 198-99 (Iowa 1990).
We conclude substantial evidence supports the district court's rejection of this claim. Interference with a prospective contract is an intentional tort which requires a showing that the sole or predominant purpose of the actor's conduct was to financially injure or destroy the plaintiff. Tredrea v. Anesthesia Analgesia, P.C., 584 N.W.2d 276, 283 (Iowa 1998). The evidence is lacking in this element.
Abuse of Process.
Abuse of process is the use of legal process against another primarily to accomplish a purpose for which it was not designed. Palmer v. Tandem Mgemt. Servs., 505 N.W.2d 813, 817 (Iowa 1993). The elements of abuse of process are (1) the use of legal process, and (2) its use in an improper or unauthorized manner. Id. The party claiming abuse of process must also suffer damages. Id. We affirm the district court's rejection of Johnson's claim that Jager used the legal process for an impermissible purpose. This lawsuit was initiated by New Uchtorff, and the Jager entities are simply defending against claims made by Johnson. Hence, Johnson cannot establish the Jager entities abused the legal process in any fashion.
Concert of Action.
A conspiracy is a combination of two or more persons to accomplish, through concerted effort, an unlawful end or a lawful end by unlawful means. Countryman v. Mt. Pleasant Bank and Trust Co., 357 N.W.2d 599, 602 (Iowa 1984). We affirm the district court's conclusion Thomas Pastrnak and the Jager entities did not conspire to injure Johnson.
C. Thomas Pastrnak.
Johnson appeals the district court ruling rejecting his legal malpractice claim. In particular, the court determined that Pastrnak's and his law firm's "dual representation" of Johnson and Jager was unwise, unethical, and in violation of his fiduciary duties. However, it further concluded that Johnson failed to establish that Pastrnak's breach of duty caused him any injury.
Significantly, Johnson failed to offer proof of or argue what different result a non-conflicted attorney may have achieved. As part of the prima facie case of legal malpractice, a claimant must prove that the breach proximately caused him actual injury, loss, or damages. See Huber v. Watson, 568 N.W.2d 787, 790 (Iowa 1997). Without sufficient proof of this element, the district court properly rejected Johnson's legal malpractice claim.
IV. Conclusion.
There is substantial evidence in the record to support the judgment against Johnson in favor of The New Uchtorff Companies, Inc. for $250,000. Whether or not specifically addressed in this opinion, we conclude the entirety of Johnsons' claims are either without merit, not preserved, or waived. We therefore affirm the judgment of the district court.