Opinion
No. 2-548 / 01-1649.
Filed April 30, 2003.
Appeal from the Iowa District Court for Boone County, DAVID R. DANILSON, Judge.
The respondent in a dissolution of marriage proceeding appeals from the district court's ruling vacating the property division contained in the parties' dissolution decree. AFFIRMED AND REMANDED.
Judd Kruse of Kruse Dakin Law Office, Boone, for appellant.
Loren Nalean of Nalean Nalean, Boone, for appellee.
Heard by SACKETT, C.J., and MILLER and EISENHAUER, JJ.
Tracy Anderson appeals from the district court's ruling vacating the asset and debt division contained in the parties' dissolution decree. He contends (1) the trial court erred in finding clear and convincing evidence to support the conclusion that he committed extrinsic fraud, (2) the trial court erred in setting aside the property division of the dissolution decree where his former wife, Krystal Anderson, was reckless in protecting her own interest, and (3) there was not substantial evidence in the record to support the district court's finding of fraud. Krystal argues Tracy has failed to preserve error on his claim involving Krystal's alleged recklessness in protecting her own interest. We affirm and remand.
I. BACKGROUND FACTS AND PROCEEDINGS.
Krystal and Tracy Anderson were married June 14, 1997. They moved to Iowa shortly thereafter so that Tracy could manage a Golden Corral restaurant in Boone. He was given forty-nine percent ownership in that business. Tracy has cystic fibrosis, and the couple had trouble securing health insurance for him. As a result, they decided to dissolve their marriage so that Krystal could procure health insurance as a single person, and then they would remarry and add Tracy to Krystal's policy.
While hospitalized in January 2000, Tracy was anxious for the divorce, and at his urging Krystal filed a petition for dissolution of marriage. The parties entered into a stipulation distributing their assets and debts, and the same was filed with the court on January 31, 2000. The stipulation provided that "[e]ach party shall pay any and all obligations incurred by them subsequent to the date of separation, and shall hold the other harmless thereon." The stipulation did not address allocation of the restaurant, but merely provided that "[e]ach party shall be awarded those items of personal property . . . presently in their own possession, free and clear of the claims of the other and subject to any encumbrances thereon." After the parties' separation but before entry of the dissolution decree, Krystal and Tracy took out a second mortgage on their home, in the amount of $100,000 or $150,000, to finance Tracy's purchase of the remaining fifty-one percent interest in the Golden Corral restaurant. The court entered a dissolution decree on May 30, 2000. The court incorporated the written stipulation into the decree.
Krystal was upset when she received the dissolution decree on June 1 or 2, 2000. Tracy assured her the dissolution was not "for real." In June 2000, Krystal asked Tracy when he thought they would remarry, and he said he did not know, so they did not discuss remarriage much after that. In July and August 2000, the parties experienced problems. Tracy informed Krystal that he did not intend to remarry her on August 25, 2000.
Krystal filed a petition to set aside the property settlement and division of debt on May 24, 2001. The petition alleged that Tracy made false representations to Krystal that the parties would remarry to obtain a favorable property settlement. The district court determined there was extrinsic fraud and vacated the parties' dissolution decree. Tracy appeals.
II. SCOPE OF REVIEW.
Actions under Iowa Rule of Civil Procedure 1.1012(2) are law actions, and not equity actions. In re Marriage of Cutler, 588 N.W.2d 425, 429 (Iowa 1999). Our review, therefore, is for the correction of errors of law. Iowa R.App.P. 6.4. The district court's findings of fact are binding on us if supported by substantial evidence. Iowa R.App.P. 6.14(6)( a).
The district court enjoys wide discretion in deciding whether to vacate an order under Iowa Rule of Civil Procedure 1.1012(2). In re Adoption of B.J.H., 564 N.W.2d 387, 391 (Iowa 1997). We do not reverse the trial court's decision on this question unless an abuse of discretion has been shown. Id. We are more reluctant to find an abuse of discretion where the judgment has been vacated than when relief has been denied. Id.
III. MERITS.
Rule 1.1012(2) permits the court to vacate a judgment if "fraud [was] practiced in obtaining it." Fraud is either extrinsic or intrinsic. Id. at 391. "[E]xtrinsic fraud is some act or conduct of the prevailing party which has prevented a fair submission of the controversy." Stearns v. Stearns, 187 N.W.2d 733, 735 (Iowa 1971). It "includes lulling a party into a false sense of security or preventing the party from making a defense." Costello v. McFadden, 553 N.W.2d 607, 612 (Iowa 1996). Intrinsic fraud inheres in the judgment itself, such as false testimony or fraudulent exhibits. B.J.H., 564 N.W.2d at 391. Fraud sufficient to vacate a judgment under rule 1.1012(2) must be extrinsic to the judgment. Id. at 392. To prove fraud, a plaintiff must show by clear and convincing evidence the following factors: (1) misrepresentation or failure to disclose when under a legal duty to do so, (2) materiality, (3) scienter, (4) intent to deceive, (5) justifiable reliance, and (6) resulting injury or damage. Cutler, 588 N.W.2d at 430. Fraud may be an affirmative misstatement or the concealment of or failure to disclose a material fact. Clark v. McDaniel, 546 N.W.2d 590, 592 (Iowa 1996).
We conclude clear and convincing evidence supports the trial court's conclusion that "at some point prior to entry of the dissolution decree, Tracy meant for the decree to be permanent by not remarrying Krystal, yet he did not tell her this fact." The record arguably contains clear and convincing evidence that Tracy misrepresented an intention to remarry Krystal as early as when the dissolution petition was filed. He urged Krystal to file the dissolution petition when he was in the hospital in January 2000. The stipulation was entered in late January. Tracy asked Krystal to remortgage their home in March, knowing that she would be responsible for the payments pursuant to the stipulation. He then used the money to purchase the remaining interest in Golden Corral. In June, almost immediately after the parties' marriage was dissolved, he was noncommittal when Krystal inquired as to when they would remarry. In August he admitted he did not intend to remarry. There is no evidence that Tracy pursued the idea of obtaining health insurance after the dissolution decree was entered, although he had represented to Krystal that this was the sole reason for the dissolution and in January he had represented he was anxious to proceed with the dissolution in order to be able to acquire the insurance.
"In order to prove the `falsity' element of a fraud action, it is necessary to establish that the representation was false at the time it was relied upon." Hagarty v. Dysart-Geneseo Comm. Sch. Dist., 282 N.W.2d 92, 95 (Iowa 1979) (emphasis added). Further, "[T]he weight of authority holds that the truth or falsity of representations must be determined as of the time they were relied on and acted on." See 37 C.J.S. Fraud § 25 (1997) Regardless of whether the record contains clear and convincing evidence that Tracy's misrepresentation began as early as January 2000, the evidence noted in the preceeding paragraph constitutes clear and convincing evidence that by the time the dissolution decree was entered Tracy did not intend to remarry Krystal but failed to disclose this material fact to her. Just like an affirmative misstatement, this failure to disclose a material fact satisfies the misrepresentation element of a fraud claim. Clark, 546 N.W.2d at 592.
We readily conclude that the trial court did not err in finding the remaining elements of a fraud claim had been proved by clear and convincing evidence. Whether Tracy intended to remarry Krystal was material to her decisions concerning whether to go forward with the dissolution of the parties' marriage and to the terms of any decree. By the time the dissolution occurred Tracy knew his representation of an intent to remarry was untrue, satisfying the scienter requirement. His failure to disclose his true intention can reasonably only have been with an intent to deceive Krystal into proceeding with the dissolution. Krystal proceeded solely for Tracy's benefit, to secure health insurance for him, thus justifiably relying on his assurances the dissolution was solely for that purpose and that the parties would remarry once the insurance was secured. Krystal has sustained injury or damage in that she has become liable for a very large second mortgage on the parties' home, but has no interest in Tracy's apparently valuable business that was purchased with the money from the loan secured by that second mortgage.
We conclude the district court did not err in finding extrinsic fraud was practiced by Tracy in obtaining the property division contained in the decree dissolving the parties' marriage. We find Tracy's third assignment of error, that there was not substantial evidence to support the district court's finding of fraud, to be fully encompassed within his first assignment. We have addressed and resolved that assignment and therefore do not separately address his third assignment.
Tracy's second assignment of error is a claim the trial court erred in setting aside the property division because Krystal was reckless in protecting her own interest. More specifically, he claims Krystal was careless in drafting the stipulation. Krystal asserts Tracy did not preserve error on this claim. Although we tend to agree that error was not preserved for the reasons stated by Krystal, we nevertheless choose to address the claim.
Tracy relies entirely on this court's opinion in In re Marriage of Heneman, 396 N.W.2d 797 (Iowa Ct.App. 1986) as support for his second assignment of error. In that case Mrs. Heneman filed for dissolution and had Mr. Heneman served with original notice. He moved out of the parties' home. The parties later entered marriage counseling. Mr. Heneman returned to the family home, and the parties lived together for the next sixteen months. Mrs. Heneman then told Mr. Heneman that she was going to proceed with the dissolution and proceeded to a final hearing about two weeks later. Mr. Heneman filed a petition to vacate the judgment about two weeks after the decree was entered, relying on what is now rule of civil procedure 1.1012(2), the same rule relied on by Tracy in this case.
The court found that Mrs. Heneman had at all times been open with Mr. Heneman, notifying him of the dissolution action, making a sincere effort to reconcile, telling him she was proceeding, and sitting down and discussing the proceedings with him. Heneman, 396 N.W.2d at 800. We concluded she did not commit any fraud. Id. We went on to affirm the trial court's denial of the petition to vacate "based not only on the [trial] court's broad discretion but also on our finding that [Mr. Heneman] was careless and lacked diligence in protecting his rights." Id.
The facts in the present case are entirely different than those in Heneman, and Heneman is of no assistance to Tracy. Tracy was not open and honest with Krystal, as Mrs. Heneman was with Mr. Heneman. To the contrary, he misled Krystal by not disclosing the fact he did not intend to remarry her. Mr. Heneman's failure to protect his rights was solely a result of his own inaction. Any failure by Krystal to protect her own interest was a direct result of Tracy's misrepresentation and does not inure to his benefit.
We affirm the detailed and well-reasoned decision of the trial court vacating the property division, and remand for further appropriate proceedings.