Opinion
No. 5-735 / 04-1128
Filed December 7, 2005
Appeal from the Iowa District Court for Linn County, William L. Thomas, Judge.
Brokaw Industries, Inc., appeals from adverse rulings of the district court. REVERSED AND REMANDED.
John J. Hines of Dutton, Braun, Staack, Hellman, P.L.C., Waterloo, for appellant.
Timothy J. Hill and Kimberly H. Blankenship of Bradley Riley, P.C., Cedar Rapids, for appellees.
Heard by Huitink, P.J., and Mahan and Hecht, JJ.
Brokaw Industries, Inc. appeals from adverse rulings of the district court. We reverse and remand for further proceedings consistent with this opinion.
I. Background Facts and Proceedings.
A reasonable fact-finder could find the following facts from the record in this case. Kim Brokaw and his wife Katherine are the proprietors of Brokaw Industries, Inc., a vending business. James and Steve Byard are the proprietors of Cedar Rapids Merchandising Company (CRMC), a competing vending business. In May of 2002, CRMC began negotiations for the sale of its assets to Brokaw Industries, and a business broker was engaged to facilitate the transaction. The parties agreed to a contract price of $540,000, an amount equal to forty-five percent of one year of CRMC's sales. To shield Brokaw Industries from the risk of near-term loss of customers upon notification of the sale of CRMC's interest to Brokaw Industries, the parties agreed to place $75,000 of the purchase price in escrow for ninety days following closing. The parties agreed Brokaw Industries would receive distributions from the escrow account to reimburse it for the loss of any customers who might discontinue their business relationship with the vending enterprise during the ninety days after closing for reasons other than Brokaw Industries' failure to provide proper service.
In addition to the contract price of $540,000, the parties negotiated a separate purchase price formula for the sale of CRMC's 320 vending machines. Brokaw Industries offered CRMC two options. Option one set a par value to be paid for each machine, and contemplated that Brokaw Industries would retain all product and cash in the machines at the time of closing of the transaction. Option two called for CRMC to remove all cash held in the machines at the time of closing, but Brokaw Industries would retain all merchandise in the machines. This second option was viewed as less desirable to the parties as it would require a complete post-closing inventory of the machines, and therefore the parties ultimately chose the first option.
Paragraph 4.3 of the Asset Purchase Agreement signed by the parties, after displaying the formula by which par value for each machine would be established, states that at closing:
[Brokaw Industries] will retain all inventory and coinage in the machines on location. [CRMC] will empty and retain all cash and coinage in the estimated 13 bill changers . . . [Brokaw Industries] reserves the right to call for a complete physical inventory of machines on location, if during "spot checking" while changing locks, they determine that inventory and/or cash, or coinage is short and cannot be agreed upon.
Shortly before the designated closing date of Tuesday, June 25th, CRMC contacted Kim Brokaw and requested the closing be delayed one day. Brokaw agreed to the proposal so long as the par value for the machines was adjusted downward to reflect the extra cash CRMC would be able to collect from the machines without restocking the machines. The purchase agreement reflects this downward adjustment. In the email confirming his acceptance of CRMC's proposal to delay the closing one day, Kim Brokaw warned CRMC against returning to machines after closing to "sweep additional monies that might accumulate in larger accounts" before the locks to the machines could be changed.
To facilitate the transfer of the machines to Brokaw Industries' ownership, teams made up of CRMC and Brokaw Industries representatives were to visit each of the seventy CRMC vending locations and replace the machines' locks. Because the machines were dispersed throughout Cedar Rapids and Iowa City, the lock-changeover was expected to take several days to complete. Until the locks were changed, however, Brokaw Industries could not be assured that money generated from post-closing sales would not be "swept" by CRMC employees. When Steve Byard failed to appear at the contract closing, Kim Brokaw repeated to James Byard his concern about the theft of post-closing sales proceeds. Byard assured Kim that Steve Byard was at home and would not be entering any of the machines.
In the evening hours following the closing, Steve Byard was observed by witnesses at two different vending locations, Tanager Place and the Motel 6 in Coralville. One witness, who was the manager at the Motel 6, testified that Steve Byard entered two vending machines in the motel and removed bills and coins from the machines. The witness observed Byard remove the bills from the bill acceptor, which she testified was at about eye-level. The information from these witnesses was relayed to Kim Brokaw, who promptly telephoned both James Byard and CRMC's attorney, Brad Hart. Hart admitted during the telephone call that Steve Byard had visited four other accounts in addition to those of which Kim Brokaw was already aware.
In addition to presenting evidence that CRMC removed money from certain vending machines after the closing, Brokaw Industries offered evidence tending to prove that much of the merchandise in the vending machines at the time of closing was either expired or had had the expiration date removed.
Kim Brokaw testified at trial that approximately forty percent of the merchandise in the machines at closing was expired. Brokaw Industries claims most of that merchandise was disposed of except a representative sample which was retained and received in evidence at trial. Representatives of CRMC admitted on cross-examination that CRMC did stock their machines with expired merchandise, and had on occasion removed expiration dates by applying lacquer to the packaging.
At the expiration of the ninety-day escrow period, Brokaw Industries informed CRMC that because of the alleged post-closing theft of money, the substantial quantity of expired product discovered in the vending machines immediately after closing, and the cancellation of several customer accounts, the entire escrow balance would be withheld from CRMC. On October 15, 2002, CRMC filed suit alleging Brokaw Industries breached the purchase agreement by withholding the entire escrow payment without justification.
Waste Management and Cedarapids, Inc. were among the customers who chose to discontinue their business relationship with Brokaw Industries during the ninety days after the contract closing. Brokaw Industries claimed Waste Management's decision to terminate the vending relationship was in retaliation for Brokaw Industries' own pre-closing termination of Waste Management's trash hauling services. The facts surrounding the loss of the Cedarapids, Inc. account, however, appear to be rather murky. Kim Brokaw testified he was under the impression, before the contract closing, that CRMC had provided Cedarapids, Inc. with free coffee in lieu of paying vending machine sales commissions. Brokaw claimed he discovered after the closing, however, that CRMC had historically received payment for coffee products provided to Cedarapids, Inc., and that Cedarapids, Inc. refused to make such payments to Brokaw Industries in the future. Although CRMC alleged Brokaw Industries lost the Cedarapids, Inc. account because Brokaw suggested that the account be put up for bids, Kim Brokaw testified it was Cedarapids, Inc., who announced it would not pay for coffee services and insisted its vending services account be put up for bids. Brokaw Industries submitted a bid which was not accepted by Cedarapids, Inc.
Brokaw Industries filed a counterclaim alleging CRMC breached the contract by removing cash from machines after closing and loading the machines with expired or stale merchandise. The counterclaim further alleged (1) CRMC's conduct constituted a breach of the covenant of good faith and fair dealing, and (2) CRMC committed the tort of conversion when it removed cash from the vending machines after the contract closing. In addition to its claim for actual damages flowing from the alleged breach of contract and conversion, Brokaw Industries prayed for punitive damages.
In advance of trial, CRMC filed numerous motions in limine seeking to exclude evidence, including references to (1) Kim Brokaw's post-closing telephone conversation with Brad Hart about CRMC's alleged post-closing removal of money from certain vending machines, and (2) Brokaw's claim that CRMC had engaged in vandalism against Brokaw Industries' vending machines during a period of years before the asset purchase agreement was executed by the parties. After an extensive pre-trial hearing on the motions in limine, the district court sustained each of CRMC's motions relevant to this appeal.
The jury returned a verdict in favor of both parties on their breach of contract claims, awarding plaintiff CRMC $102,905 and defendant Brokaw Industries $22,040 on its counterclaim. The district court declined Brokaw Industries' request for jury instructions on (1) breach of the covenant of good faith and fair dealing theory, (2) conversion, and (3) punitive damages. The court entered judgment reflecting the jury's damage verdicts and an award in favor of CRMC for attorney fees in the amount of $84,436 based on the fee-shifting provision in the purchase agreement.
The jury answered special interrogatories finding CRMC breached the purchase agreement both by (1) stocking the machines with expired merchandise, and (2) entering the machines after closing and removing money that belonged to Brokaw Industries. However, the jury did not allocate a specific amount of damage for each of these elements of breach, but instead awarded a lump sum of damages for the two theories of breach.
The district court, noting that the purchase agreement provides indemnity to both parties for the other's respective breach of the agreement, explained its rationale for CRMC's attorney fee award. The court (1) concluded Brokaw Industries had committed the major breaches of the agreement, (2) calculated each party's percentage of the total damages awarded [eighty-two percent versus eighteen percent], (3) applied those percentages to the attorney's fees and expenses claimed by each party [CRMC: .82 × $117,280.54; Brokaw: .18 × $65,189.24], (4) and then subtracted Brokaw Industries' fee award from CRMC's [$96,170-$11,734] to arrive at CRMC's net attorney's fee award of $84,436.
Brokaw Industries now appeals, alleging the district court abused its discretion in (1) failing to instruct the jury on its claim for conversion, punitive damages, and breach of the covenant of good faith and fair dealing; (2) excluding evidence of CRMC's prior vandalism; and (3) excluding evidence of post-closing phone conversations between Brokaw and CRMC's counsel. Brokaw Industries also contends the district court erred in awarding CRMC attorney fees where both parties were held to have breached the purchase agreement.
II. Scope and Standards of Review.
We review for abuse of discretion the district court's refusal to instruct the jury on Brokaw Industries' claims. Kiesau v. Bantz, 686 N.W.2d 164, 171 (Iowa 2004). In determining whether sufficient evidence supported a proposed jury instruction, we view the evidence in the light most favorable to the requesting party. Weyerhaeuser Co. v. Thermogas Co., 620 N.W.2d 819, 824 (Iowa 2000). The district court must give a requested jury instruction if the instruction (1) correctly states the law, (2) has application to the case, and (3) is not stated elsewhere in the instructions. Id. Reversal is not warranted unless we determine the appellant suffered prejudice as a result of the district court's refusal to give the requested instruction. Id.
We also review the district court's exclusion of evidence relevant to a claim at issue for abuse of discretion. Hutchison v. Am. Family Mut. Ins. Co., 514 N.W.2d 882, 885 (Iowa 1994). An abuse of discretion occurs when the trial court exercises its discretion on grounds or for reasons clearly untenable or to an extent clearly unreasonable. State v. Rodriquez, 636 N.W.2d 234, 239 (Iowa 2001). Lastly, because "[t]he decision to award attorney fees rests within the sound discretion of the court, we will not disturb its decision absent a finding of abuse of discretion." In re Marriage of Rosenfeld, 668 N.W.2d 840, 849 (Iowa 2003).
III. Discussion.
A. Jury Instructions.
We begin by addressing Brokaw Industries' claim the district court erred in refusing to instruct the jury on conversion and punitive damages. After viewing the record in the light most favorable to Brokaw Industries, we conclude sufficient evidence supported jury instructions on these legal theories. Herbst v. State, 616 N.W.2d 582, 585 (Iowa 2000).
To prove conversion, Brokaw Industries must demonstrate Steve Byard or other CRMC employees exercised wrongful control or dominion over Brokaw Industries' property. The wrongful control must amount to a serious interference with Brokaw's right to control its property. Condon Auto Sales Service, Inc. v. Crick, 604 N.W.2d 587, 594 (Iowa 2000). Brokaw Industries' proposed instruction correctly stated the law on the conversion theory. We believe that instruction was appropriate in this case because Brokaw Industries presented substantial evidence tending to prove Steve Byard entered and removed money from the upper portion of one or more vending machines after the contract closing. Weyerhauser, 620 N.W.2d at 824.
Our conclusion that the conversion instruction has application to this case is further buttressed by the jury's verdict form, which indicated Brokaw Industries proved Byard's entry and removal of money constituted a breach of the purchase agreement.
CRMC contends the district court did not err in refusing to give the instructions requested by Brokaw Industries, however, because they duplicated other instructions given to the jury. With regard to the conversion instruction, CRMC contends the jury instructions adequately addressed Steve Byard's alleged post-closing removal of cash from the vending machines in the breach of contract instruction. Moreover, CRMC contends separate jury instructions on the conversion theory would have been duplicative and therefore violative of the rule expressed in Hutchinson v. Broadlawns Medical Center, 459 N.W.2d 273, 275 (Iowa 1990). We disagree.
Hutchinson teaches that parties are not entitled to any particular jury instruction if the issue is adequately covered in other instructions. "As long as the issues involved are adequately covered, the court may choose its own language." Id. However, this rule does not restrict a party's right to bring alternative theories of recovery for the same conduct where sufficient record evidence supports more than one theory of recovery. We find nothing in the jury instructions informing the jury of the law pertaining to Brokaw Industries' conversion claim or the prayer for punitive damages. Because we conclude substantial evidence supports these alternative legal theories, we now must address whether Brokaw Industries suffered prejudice as a consequence of the district court's jury instruction rulings. Weyerhauser, 620 N.W.2d at 824.
The opportunity to assert alternative theories of recovery is of particular importance to Brokaw Industries because punitive damages are not recoverable for a breach of contract where the conduct constituting the breach did not itself rise to the level of an independent intentional tort committed maliciously. Magnusson Agency v. Public Entity Nat'l Co., 560 N.W.2d 20, 29 (Iowa 1997). In this case, Brokaw Industries claimed the conduct of CRMC which constituted a breach of contract also constituted conversion, a tort for which actual and punitive damages are recoverable.
Substantial evidence of CMRC's alleged post-closing conversion of money from the vending machines entitled Brokaw Industries to an instruction on its conversion claim and on its claim for punitive damages. See Pogge v. Fullerton Lumber Co., 277 N.W.2d 916, 920 (Iowa 1979) (noting claim for punitive damages may be asserted where breach of contract is accompanied by an independent tort). Because the district court erroneously refused to instruct the jury on the conversion claim, Brokaw Industries was precluded from advancing its claim for punitive damages, and, as a consequence, suffered prejudice.
Because substantial evidence supports a jury instruction on the (1) conversion claim, and (2) punitive damages claim, and because Brokaw Industries suffered prejudice as a result of the district court's abuse of discretion in refusing to instruct on these theories, we must reverse and remand for a new trial. See Mills County State Bank v. Fisher, 282 N.W.2d 712, 715 (Iowa 1979) (noting that if proof similar to that which was in the record on appeal were presented at retrial, then the omitted instruction would be mandated).
Brokaw Industries also claimed it suffered prejudice as a consequence of the district court's refusal to instruct on the implied covenant of good faith and fair dealing, arguing that proper jury instructions on this legal theory would have permitted the jury to find CRMC acted in bad faith, and increased the likelihood that the jury would have found CRMC committed a material breach of the purchase agreement, precluding CRMC's own recovery for breach of contract. See Taylor Enter., Inc. v. Clarinda Prod. Credit Assoc., 447 N.W.2d 113, 116 (Iowa 1989) (stating "[a] material condition which is agreed to by the parties must be fulfilled by the party bringing suit in order for such party to recover on the contract"). While we agree Brokaw Industries' proposed instruction on this contract theory has application to this case and correctly states the law, Weyerhauser, 620 N.W.2d at 824, we need not reach and therefore do not decide whether the district court's failure to instruct on this alternative breach of contract theory constituted reversible error.
B. Issues on Remand.
We now turn to the proper scope of the remand. In the interest of judicial economy, the scope of a retrial may be properly limited where the issues decided in the former trial are entirely separate from those that must be addressed on remand. Home-Crest Corp. v. Albright, 414 N.W.2d 89, 91 (Iowa 1987); Wederath v. Brant, 319 N.W.2d 306, 310 (Iowa 1982). However, the policy of advancing judicial economy must be reconciled with the well-established rule that "[a] successful plaintiff is entitled to one, but only one, full recovery, no matter how many theories support entitlement." Clark-Peterson Co. v. Independent Ins. Assocs., 514 N.W.2d 912, 915 (Iowa 1994). See also Team Cent., Inc. v. Teamco, Inc., 271 N.W.2d 914, 925 (Iowa 1978) (stating "[d]uplicate or overlapping damages are to be avoided"). Here, Brokaw Industries' conversion and contract claims overlap in the sense that they are based upon common conduct and seek compensation for actual damages. Because the contract and tort claims arise, at least in part, from the same constellation of facts and overlap in the context of the actual damage remedy claimed by Brokaw Industries, we believe our interest in judicial economy must give way to the need to retry all liability and damage issues. Because Brokaw Industries' breach of contract claim must be retried, we also conclude CRMC's breach of contract claim should be retried. Competing claims of breach of contract are intrinsically related in that one party's breach, if found to be material, would relieve the other party from performing under the contract. Taylor Enter., 447 N.W.2d at 116. Finding none of the claims presented by the parties is sufficiently severable to limit the scope of retrial to those claims improperly omitted from the jury's consideration in the initial trial, Albright, 414 N.W.2d at 91, we must remand for the retrial of all claims.
C. Attorney Fees and Evidentiary Issues.
We acknowledge that evidentiary issues raised in this appeal may recur on remand. However, because we expect our decision will change the issues tried on remand, we cannot know the precise contours of the evidence that will be presented on remand. We are therefore hesitant to constrain the district court's ability to freely assess the relevance of the previously excluded evidence in relation to the issues presented on remand, and to evaluate anew the danger of unfair prejudice. See Iowa R. Evid. 5.403. For these reasons, we decline to prejudge the admissibility of the evidence of CRMC's alleged prior acts of vandalism, and the evidence of telephone conversations between Brokaw and attorney Brad Hart that were excluded during the previous trial.
We deem it unnecessary to address Brokaw Industries' challenge to the district court's attorney fee award. Because our disposition reverses the judgment including the attorney fees award, the district court must adjudicate anew the merits of the parties' respective claims for attorney fees and costs after the results of the new trial are known.
IV. Conclusion.
The district court abused its discretion in failing to instruct the jury on all of Brokaw Industries' claims. We reverse and remand for retrial of all claims.