Opinion
No. 3-507 / 02-1094.
Filed December 24, 2003.
Appeal from the Iowa District Court for Polk County, Robert D. Wilson, Judge.
Home Pride Foods appeals from adverse jury verdicts for fraud and violations of the Truth in Lending Act. AFFIRMED IN PART; REVERSED IN PART; AND REMANDED FOR NEW TRIAL.
Joseph Bertroche of Bertroche Law Offices, and Lawrence Scalise, Jill Mataya Corry, and Jennifer Jaskolka-Brown of Sullivan Ward, P.C., Des Moines, for appellant.
Lee Hook, Joseph Barron, and Mark Bosscher of Peddicord, Wharton, Spencer Hook, L.L.P., Des Moines, for appellee.
Heard by Sackett, C.J., and Vogel and Hecht, JJ.
Home Pride Foods of Iowa (Home Pride) appeals from adverse jury verdicts and damage awards for fraud and violations of the Truth in Lending Act 15 U.S.C. § 1601- 1649 (2001). We affirm in part, reverse in part, and remand for a new trial on the punitive damage issue.
I. Background Facts and Proceedings.
A reasonable juror could find the following facts from the record: A Home Pride salesman came to Lynn Martin's house to give a sales presentation for Home Pride's line of frozen foods. Martin agreed to purchase six months' worth of frozen food for $339.95 each month. The Home Pride salesman then offered Martin a gas grill "at no additional cost." Martin was led to believe that the grill would be free with her food purchase. The salesman explained that although she would have to sign two contracts, the grill would cost her nothing because Home Pride would reduce her monthly payments for the food by the amount of the payment for the grill. The grill, however, was not free — it cost $2764.68 plus $833.52 in interest over a thirty-six month term.
Martin received a gas grill and a six months' supply of frozen food. She made the first two payments on the grill. When the third invoice arrived in January 2000, Martin examined it and realized that the grill contract obligated her to make payments for three years at eighteen percent interest. In an attempt to cancel her purchase, she contacted Home Pride and asked them to pick up the grill. Home Pride refused. Martin made no more payments on the contract, and in December 2000 Home Pride filed suit in small claims court to recover the balance due on the grill contract.
Martin counterclaimed with allegations of fraud and violations of the Truth in Lending Act. The case was transferred to the district court, and a jury trial was held. During deliberations, the jury sent the judge a note:
We are confused as to what to do with the grill. The instructions don't really mention the disposition of the grill. Can we send the grill back to Home Pride Foods as part of our final decision?
Judge Wilson responded, "Don't worry about it. Based on what you decide, I'll decide what happens to the grill."
The jury returned verdicts in favor of Lynn Martin. Although the jury found Martin had proved all the elements of her fraud claim, they awarded zero actual damages. The jury then awarded $82,228.20 in punitive damages. The jury also found that Home Pride violated the Truth in Lending Act by engaging in "loan splitting" and by failing to make clear and conspicuous disclosures. The district court awarded Martin $42,368.71 in attorney fees and assessed a $3,334.08 penalty against Home Pride pursuant to the Truth in Lending Act.
Home Pride appeals, alleging several errors by the district court. Home Pride contends a punitive damage award should not be allowed because the jury did not award Martin actual damages. Home Pride further argues that even if an award of punitive damages is allowed, it should be reduced because the amount awarded violates Home Pride's due process rights. Home Pride also asserts the district court abused its discretion when it admitted certain testimony, awarded attorney fees, and calculated the statutory penalty for the Truth in Lending violations.
II. The Award of Punitive Damages.
Home Pride contends the district court erred by denying its post-trial motion asking the court to enter a remittitur or grant a new trial. We review the denial of a motion for new trial for correction of errors at law. Iowa R. App. P. 4; Johnson v. Knoxville Cmty. Sch. Dist., 570 N.W.2d 633, 635 (Iowa 1997). However, if the motion is based on a discretionary ground, we review for abuse of discretion. Johnson, 570 N.W.2d at 635. A ruling on a motion for new trial following a jury verdict is a matter for the trial court's discretion. Id. In ruling upon such motions for new trial the trial court has a broad, but not unlimited, discretion in determining whether the verdict effectuates substantial justice between the parties. See Iowa R. App. P. 14(6)( c). Generally, we are reluctant to interfere with a jury verdict and give considerable deference to a trial court's decision not to grant a new trial. Spaur v. Owens-Corning Fiberglas Corp., 510 N.W.2d 854, 869 (Iowa 1994). When considering a remittitur, we will reduce or set aside a jury award only if it (1) is flagrantly excessive or inadequate; or (2) is so out of reason as to shock the conscience or sense of justice; or (3) raises a presumption it is a result of passion, prejudice or other ulterior motive; or (4) is lacking in evidentiary support. If a verdict meets this standard or fails to do substantial justice between the parties, we must either grant a new trial or enter a remittitur. Spaur, 510 N.W.2d at 869.
Home Pride contends that because the jury awarded no actual damages, Martin was not entitled to punitive damages. They argue that no punitive damages are permitted unless actual compensatory damages are first shown. Schlegel v. Ottumwa Courier, 585 N.W.2d 217, 226 (Iowa 1998).
While we agree that actual damages must be shown, they do not necessarily have to be awarded to support a punitive damage award. Hockenberg Equip. v. Hockenberg's Equip. Supply, 510 N.W.2d 153, 156-157 (Iowa 1993); Kennedy v. Thomsen, 320 N.W.2d 657, 659 (Iowa 1982); Pringle Tax Service, Inc. v. Knoblauch, 282 N.W.2d 151, 154 (Iowa 1979). Our review of the record convinces us that, although not awarded, a reasonable juror could find actual damages have been shown. Not only did Martin pay roughly $200 for a grill she thought was free, she was forced to defend herself against a lawsuit initiated by Home Pride. Given the jury's question during deliberations and Judge Wilson's response regarding the disposition of the grill, it is clear why the jury awarded zero actual damages, even though the jury found Martin proved her fraud claim.
Home Pride further argues that even if a punitive damages award is allowed, the amount awarded should be reduced. Home Pride asserts the $82,228.20 award is so excessive as to demonstrate the jury acted out of passion or prejudice and it violates Home Pride's due process rights. See State Farm Mutual Ins. Co. v. Campbell, 538 U.S. ___, ___, 123 S.Ct. 1513, 1524, 155 L.Ed.2d 585, 605-606 (2003); BMW of North America, Inc. v. Gore, 517 U.S. 559, 582-583, 116 S.Ct. 1516, 1602-1603, 134 L.Ed.2d 819, 830-831 (1996).
While the United States Supreme Court in both State Farm and Gore declined to prescribe a mathematical bright line between what is constitutionally acceptable and what is not, the court has indicated that ratios of punitive damages to actual damages of 500 to one and 145 to one are unconstitutional. State Farm, 538 U.S. at ___, 123 S.Ct. at 1526, 155 L.Ed. at 608; Gore, 517 U.S. at 585, 116 S.Ct. at 1603-1604, 134 L.Ed. at 833. "[I]n practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process." State Farm, 538 U.S. at ___, 123 S. Ct at 1524, 155 L.Ed. at 605-606. Because we cannot reconcile the $82,228.20 punitive damage judgment with the due process requirements pronounced by the United States Supreme Court in the State Farm and BMW cases, we reverse on this issue and remand to the district court for a new trial on Martin's claim for punitive damages.
III. Evidentiary Rulings.
Home Pride contends the district court abused its discretion in allowing Home Pride's president to be cross-examined about investigations by the Attorney General's Office and allowing a former Home Pride customer to testify about her experience with the company. Because of our disposition of the punitive damages issue, a new trial will be conducted and new evidentiary rulings will be required based on the evidence presented during the new trial. We choose not to speculate about what evidence will be offered on retrial. Future evidentiary rulings will properly turn on the state of the new record made by the parties. We therefore conclude it is unnecessary to reach the merits of Home Pride's evidentiary claims in this appeal.
IV. Attorney Fees.
Home Pride contends the district court erred when it awarded Martin attorney fees totaling $42,368.71. We review a district court's award of attorney fees for an abuse of discretion. Equity Control Assoc., Ltd. v. Root, 638 N.W.2d 664, 670 (Iowa 2001).
The jury found that Home Pride violated the Truth in Lending Act by engaging in "loan splitting" and by failing to make clear and conspicuous disclosures. The Truth in Lending Act allows for the recovery of reasonable attorney fees for any successful action to enforce a violation of the Act. 15 U.S.C. § 1640(a)(3). Martin submitted an attorney fee affidavit requesting attorney fees in the amount of $46,537.50 plus costs. The district court awarded a total of $42,368.71 for attorney fees and costs. Home Pride contends this award constituted an abuse of the district court's discretion because it did not differentiate between fees incurred for Martin's fraud claim and fees incurred for her Truth in Lending claims.
Martin asserts the proof required for the fraud claim was almost identical to the proof needed for the Truth in Lending claims. She contends it would be nearly impossible to separate the fees incurred for the different claims and that the district court did not abuse its discretion by declining to separate the fees. We agree. The proof needed to establish the elements of the fraud claim and the Truth in Lending violations are so similar that we cannot conclude it was an abuse of discretion for the district court to decline to separate the fees incurred for each claim.
Home Pride further argues that the attorney fees awarded are excessive when compared to the zero damages Martin was awarded for the Truth in Lending violations. However, an award of actual damages is not necessary for recovery of attorney fees and penalties under the statute. Gambardella v. G. Fox Co., 716 F.2d 104, 107 (2d Cir. 1983). The amount of attorney fees awarded is to be determined by the value of time reasonably spent, and not by the amount of the consumer's recovery. Public Fin. Co. v. Van Blaricome, 324 N.W.2d 716, 726 (Iowa 1982). We conclude the district court did not abuse its discretion in its award of attorney fees.
Home Pride also argues that there was insufficient evidence to support the jury's verdict on Martin's Truth in Lending claim for "loan splitting" and that this claim cannot support an award of attorney fees. Even if we were to agree with Home Pride's assertion, we note that the jury found two violations of the Truth in Lending Act by Home Pride. Thus, Home Pride would still be liable for attorney fees and the statutory penalty for the other Truth in Lending violation. A conclusion that Home Pride had not engaged in "loan splitting" would not alter the amount of attorney fees Martin could recover because as long as one Truth in Lending claim is successful, a party is entitled to receive the attorney fees incurred for other, unsuccessful, Truth in Lending claims. See Postow v. OBA Federal Savings Loan Assoc., 627 F.2d 1370, 1388 (D.C. Cir. 1980). Accordingly, we affirm the district court's award of attorney fees.
V. Statutory Penalty.
Home Prides asserts the district court erred when it assessed a penalty of $3,334.08. The Truth in Lending Act provides for a penalty to be assessed for "twice the amount of any finance charge in connection with the transaction . . . except that the liability under this subparagraph shall not be less than $100 nor greater than $1000." 15 U.S.C. § 1640(a)(2)(A). The finance charge on the grill contract was $833.52. Although twice that amount is $1,667.04, the penalty is clearly limited to $1000.00. Accordingly, we reverse that portion of the district court's judgment and direct the district court on remand to impose a penalty which does not exceed the statutory limit of $1000.00.