Opinion
No. 72 / 98-2267
Filed September 6, 2001
On appeal from the Iowa District Court for Guthrie County, Peter Keller, Judge.
Defendant appeals from judgments entered on jury verdicts for breach of contract, fraudulent misrepresentation, and intentional interference with prospective business advantage.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH INSTRUCTIONS.
Jason D. Walke, Whitfield Eddy, P.L.C., Des Moines, and Jill Mataya Corry and John T. Ward of Sullivan and Ward, P.C., Des Moines, for appellant.
Lawrence L. Marcucci, West Des Moines, and Michael A. Dee of Pingel Templer, P.C., West Des Moines, for appellee.
This appeal arises out of a nearly ten-year-old contract dispute between appellant, Central Iowa Energy Cooperative (CIECO), and appellee, Lake Panorama Servicing Corporation (LPSC). A jury returned verdicts in favor of LPSC for breach of contract, fraudulent misrepresentation and intentional interference with prospective business advantage. On appeal CIECO contends, among other things, that LPSC failed to present sufficient evidence to generate jury questions on all three claims. For the reasons that follow, we affirm in part, reverse in part, and remand for entry of a corrected judgment.
I. Background Facts and Proceedings.
In 1992 CIECO and LPSC acquired interests in a resort development surrounding Lake Panorama in Guthrie County, Iowa. CIECO purchased the resort's conference center and the right to operate the adjoining golf course, Lake Panorama National (LPN). LPSC purchased the timeshare operation located near the conference center. LPSC planned to build an indoor pool and recreation area near the timeshare units to increase business in the winter months.
Both CIECO's and LPSC's interests in these properties were acquired out of the former owner's chapter 11 bankruptcy proceedings. The former owner was Clover Ridge, Ltd. Just before CIECO purchased the conference center, which stood on lot 9010 and a portion of the surrounding land known as lot 9009, Clover Ridge filed an affidavit stating a portion of the land had been dedicated to a horizontal property regime pursuant to Iowa Code chapter 499B (1991). Clover Ridge contended that because the land had been dedicated to the Clover Ridge Homeowners' Association, Clover Ridge could not provide clear title to CIECO. The bankruptcy court declared the affidavit void, ordering the sale of the conference center and a portion of lot 9009 to CIECO subject to the interest created in the homeowners' association under chapter 499B.
In 1993, after two financially unsuccessful years of operating the conference center, CIECO approached LPSC about taking over the building's operations under a lease agreement which would include meeting facilities, hotel rooms and restaurant. The proposed deal would give LPSC the option to purchase the conference center, which CIECO was admittedly anxious to sell. LPSC could also purchase a portion of the land adjoining the conference center, on which it could build the proposed indoor pool.
In 1994, the parties began negotiations to transfer control of the conference center to LPSC. The main subject of discussion was CIECO's title to the portions of lot 9009 which Clover Ridge had dedicated to the horizontal property regime. CIECO believed it owned fee title to the land, claiming the homeowners' association held only an interest akin to an easement. LPSC, on the other hand, believed the homeowners' association owned an undivided interest in lot 9009, which it needed to transfer to CIECO before clear title could be given to LPSC.
LPSC and CIECO attempted to deal with their disagreement in several ways. They first discussed CIECO purchasing title insurance to insure against any defects in title, but CIECO refused to obtain title insurance meeting LPSC's specifications. At one point CIECO informed LPSC that any requirement that CIECO provide clear title to lot 9009 would be considered a "deal-breaker." The solution incorporated into the parties' final letter of intent required CIECO to convey lot 9009 by warranty deed and to "cooperate fully" with LPSC to clear any title defects should CIECO not, in fact, be able to convey title free of all encumbrances. This agreement recognized both CIECO's belief that the homeowners' association's interest in lot 9009 was akin to an easement, and LPSC's contention that the association in fact held an ownership interest pursuant to the horizontal property regime.
The parties' final letter of intent also contained the following agreement between the conference center and golf course with respect to food sales:
CIECO agrees that neither it, LPN, nor any of their affiliates will compete with LPSC in the food and restaurant business except for the snack and sandwich food items currently provided at the golf pro shop and steak fries directly tied to LPN golf outings. With respect to steak fries for LPN golf outings, CIECO agrees to undertake best efforts to reach an agreement with LPSC to provide catering and food service for the aforementioned steak fries.
The agreement kept CIECO from competing with LPSC for most food sales, which the parties believed increased the chances that the conference center restaurant would be successful.
LPSC began operating the conference center on March 31, 1994. CIECO continued operating the golf course. Golf pro Jim Kirwan, who had been in charge of the conference center when it was operated by CIECO, was responsible for the day-to-day operation of the golf course as well as the pro shop.
The relationship between the conference center and the golf course was a rocky one from the start. The main point of conflict was the amount of food sold out of the pro shop. In addition to selling snack items and hosting steak fries, Kirwan also hosted cookouts at the pro shop on some holidays and weekends. Mark Esbeck, an LPSC director, contended that Kirwan did this to increase pro shop profits, and thus receive a bonus from CIECO. Esbeck also accused Kirwan of bad-mouthing conference center food on several occasions and directing golf course patrons to other restaurants, all of which contributed to the conference center's failure. Additionally, LPSC contended that Kirwan refused to cooperate in booking golf packages with overnight lodging at the conference center. Esbeck also testified about complaints he received about Kirwan's rude and uncooperative attitude toward both conference center and golf course customers.
Facing a turbulent working relationship with Kirwan and operating the conference center at a loss, LPSC exercised its option to terminate its lease of the conference center on March 31, 1996. While LPSC continued to operate the center on a month-to-month basis through the summer of 1996, it never exercised its option to purchase the property or construct an adjoining indoor swimming pool.
Shortly after LPSC terminated the lease, it brought this suit alleging CIECO's breach of contract, fraudulent misrepresentation, and intentional interference with prospective business advantage. The case proceeded to jury trial. The jury awarded LPSC $60,418 in compensatory damages for breach of contract and fraudulent misrepresentation. It also awarded $250,000 as compensatory damages for CIECO's alleged intentional interference with LPSC's prospective business relationships. Rejecting LPSC's claim that CIECO's actions were done in willful and wanton disregard of LPSC's rights, the jury declined to award punitive damages. The district court entered judgments on each of these verdicts, and CIECO now appeals.
Additional facts will be detailed as they relate to specific issues.
II. Issues on Appeal/Scope of Review.
CIECO's appeal stems principally from the district court's refusal to grant its motions for directed verdict on each of LPSC's claims. It also challenges the court's refusal to instruct the jury on the doctrine of issue preclusion (pertaining to the bankruptcy court's ruling on the title implications of the horizontal property regime) and the court's admission of certain testimony concerning damages.
Our review is for the correction of errors at law. The appeal of a denial of a motion for directed verdict is limited to the grounds raised in the motion. Leaf v. Goodyear Tire Rubber Co., 590 N.W.2d 525, 528 (Iowa 1999). We must view the evidence in the light most favorable to the non-moving party to determine whether sufficient evidence existed to submit the claims to a jury. James ex rel. James v. Burlington N., Inc., 587 N.W.2d 462, 464 (Iowa 1998). Sufficient evidence exists if reasonable minds could differ on the issues in dispute. Id.
A. Breach of contract/fraudulent misrepresentation . CIECO asserts the district court erred in failing to grant a directed verdict on LPSC's claims of breach of contract and fraudulent misrepresentation. LPSC claimed CIECO's failure to cooperate in clearing any defects in the title to lot 9009 constituted a breach of the parties' letter of intent. It also alleged CIECO fraudulently misrepresented its title to lot 9009. The loss sustained by LPSC under either theory was determined by the jury to be $60,418, a sum representing capital improvements made by LPSC during the lease term. Because, for the reasons that follow, we are convinced that LPSC furnished sufficient evidence to sustain its claimed damages for breach of contract, we need not address CIECO's challenge to submission of the fraudulent misrepresentation claim.
Turning to the breach of contract claim, CIECO and LPSC finally resolved their differences over CIECO's title to lot 9009 by agreeing that CIECO would "agree to cooperate fully in clearing any defects of title." This agreement essentially allowed CIECO and LPSC to agree to disagree about the title to lot 9009, with a promise that they would fix any problems at a later date. LPSC contended that once the parties signed the letter of intent, CIECO failed to cooperate with LPSC's attempts to remedy what it believed were problems with the title. CIECO asserts on appeal that LPSC failed to present substantial evidence that CIECO failed to cooperate.
The record reveals that after the parties signed the letter of intent, LPSC's attorney drafted a letter to the homeowners' association, on behalf of CIECO, outlining a proposed resolution to the title problems. The letter was not sent, however, because LPSC became frustrated with what it regarded as CIECO's reluctance to actually work with it and the association to resolve the disputed title. The homeowners' association wanted to resolve the ownership of lot 9009 as well as lot 9009B, which included a portion of the golf course driving range. LPSC preferred not to work on both lots at once, wanting instead to resolve the issues surrounding lot 9009 before tackling lot 9009B. The homeowners' association, fearful that once CIECO completed work on lot 9009 it would have no incentive to work on lot 9009B, declined to participate in what it viewed as a piecemeal solution.
From this evidence a jury could infer that CIECO's unwillingness to work with the homeowners' association on its terms prevented a resolution of lot 9009's title problems. While it is true that CIECO may not have been entirely responsible for the failure to resolve this issue, its intransigence and unwillingness to compromise provides substantial evidence from which a jury could determine CIECO failed to cooperate with LPSC's efforts, thus defeating the underlying purpose of the lease/purchase agreement. We therefore find the district court correctly submitted this claim to the jury.
B. Intentional interference with prospective business advantage . To prove CIECO intentionally interfered with LPSC's prospective business relationships, LPSC had the burden to show:
1. It had a prospective business relationship;
2. CIECO knew of this prospective relationship;
3. CIECO intentionally and improperly interfered with the prospective relationship;
4. As a result of CIECO's interference, the prospective relationship failed to materialize; and
5. The amount of damages resulting from the interference.
See Preferred Mktg. Assocs. Co. v. Hawkeye Nat'l Life Ins. Co., 452 N.W.2d 389, 396 (Iowa 1990); II Iowa Civ. Jury Instructions 1200.2 (1987). Although CIECO claims LPSC's evidence failed to establish four of these propositions, we need only address the "improper purpose" element.
The element of improper purpose focuses on CIECO's motivation to interfere with LPSC's potential business relationships. See Nesler v. Fisher Co., 452 N.W.2d 191, 197-98 (Iowa 1990) (focus of improper interference action is defendant's purpose in acting rather than fact of act itself). A defendant's conduct is improper only if it is undertaken with " the sole or predominant purpose to injure or financially destroy" another. Compiano v. Hawkeye State Bank Trust, 588 N.W.2d 462, 464 (Iowa 1999) (emphasis added). If the interference is a necessary consequence of actions taken for a different purpose, the acts may be deemed intentional, but are not improper. See id. at 466;Restatement (Second) of Torts § 766B cmt. d. Moreover, if a defendant acts for more than one purpose, the improper purpose must predominate before liability will be imposed. Willey v. Riley, 541 N.W.2d 521, 527 (Iowa 1995).
The case before us differs factually from our prior intentional-interference cases. Ordinarily the parties are business competitors. See, e.g., Compiano, 588 N.W.2d at 463-64 (action by independent insurance agents against bank engaged in insurance business); Willey, 541 N.W.2d at 525 (action by former associate against law firm); Preferred Mktg. Assocs., 452 N.W.2d at 391-92 (action by insurance agency against competing agency); Nesler, 452 N.W.2d at 193-94 (action by developer against competing landlord). Here, however, LPSC and CIECO's relationship was, by design, one of cooperation rather than competition.
From the outset both parties believed LPSC's operation and eventual purchase of the conference center would be mutually beneficial. CIECO hoped to successfully operate the golf course without the burden of running the financially-draining conference center. LPSC envisioned building its proposed indoor recreation center adjoining the conference center, thereby increasing its winter timeshare sales. Lack of success by LPSC at the conference center meant CIECO would regain control, something CIECO adamantly wanted to avoid. Thus it was clearly to both parties' advantage to work to ensure LPSC's success.
LPSC contends that despite the parties' collaborative intentions, Jim Kirwan sabotaged LPSC's successful operation of the conference center. The centerpiece of LPSC's theory is its claim that Kirwan held cookouts not authorized by the letter of intent in order to increase pro shop revenue and receive a bonus. LPSC supported its claim by offering proof of Kirwan's rude and uncooperative behavior towards customers and his "rules-oriented attitude." It also argued that Kirwan and his wife, who assisted in operating the pro shop, bad-mouthed the conference center's food and, on occasion, referred potential customers to other area restaurants.
Even viewed in the best light, however, LPSC's assault on Kirwan proved no more than his arguable failure as a team player. Proof centering on his personality and management style cannot overcome the fact that LPSC and CIECO were partners in a cooperative relationship. Kirwan himself acknowledged it was in the golf course's best interest to insure the success of the conference center because its success could translate into business for the golf course. Moreover, CIECO presented substantial evidence of Kirwan's cooperation with the conference center, including booking overnight accommodations with golf packages and coordinating the sale of box lunches to golf course patrons.
We have said that in order to constitute substantial evidence, "circumstances [must] have `sufficient probative force to constitute the basis for a legal inference, and not for mere speculation.'" Willey, 541 N.W.2d at 527 (quoting 32A C.J.S. Evidence § 1039, at 753-54 (1964)). LPSC may have presented substantial evidence that Kirwan was, at times, uncooperative toward LPSC and rude to both conference center and golf course customers. But these acts themselves are insufficient, as a matter of law, to sustain a claim requiring proof of a predominant purpose to injure or financially destroy a competitor. Because the jury was left to speculate about Kirwan's motive, the court should have sustained CIECO's motion for directed verdict. See id. (speculation not equivalent to evidence; court should not have submitted intentional interference claim to jury); Harsha v. State Sav. Bank, 346 N.W.2d 791, 800 (Iowa 1984) (lack of nexus between improper conduct and failed transaction with prospective client defeated claim of interference as a matter of law). We therefore reverse the judgment entered on this claim.
C. Miscellaneous issues . We briefly address two other issues raised by CIECO in its challenge to the damages awarded under LPSC's breach of contract claim. We conclude that neither warrants reversal of the district court's judgment.
Evidence of damages. LPSC directors and shareholders Mark Esbeck and Alan Ryerson testified, over CIECO's objection, as to their estimates of damages caused by CIECO's breach of contract. CIECO challenged this testimony and an accompanying exhibit, titled "Summary of Losses." It urged that even though Ryerson was a director of LPSC, he had no personal knowledge of the day-to-day operations of the conference center nor had LPSC designated him as an expert witness pursuant to Iowa Rule of Evidence 702.
Iowa Rule of Evidence 701 allows opinion testimony by a lay witness if such testimony is rationally based on the witness's perceptions and helpful to the determination of a fact at issue. We generally construe this rule liberally, allowing the fact-finder to determine what weight to accord to such testimony. See State v. Savage, 288 N.W.2d 502, 504 (Iowa 1980). Additionally, property owners are presumed qualified to provide an opinion as to their property's value based on the assumption that those who own property know something about it. See 31A Am. Jur. 2d Expert and Opinion Evidence § 319, at 313 (1989). And while this same presumption does not automatically apply to the owner of a private business, the owner must simply demonstrate personal knowledge of the company, typically gained through day-to-day operations. Id. § 314, at 308.
The record reveals that Esbeck oversaw daily operations at the conference center and timeshare units. Ryerson calculated damages sustained by LPSC based on estimates compiled by Esbeck. Ryerson testified he used LPSC's past financial records concerning lost revenue (along with the numbers supplied by Esbeck), to create a final damages estimate. Ryerson did not create the estimate; he only completed the calculations. Thus, Esbeck and Ryerson each had sufficient personal knowledge of the facts in issue to overcome CIECO's objection to their testimony. No ground for reversal appears.
Issue preclusion. At trial CIECO asked the court to instruct the jury on the affirmative defense of issue preclusion. According to CIECO, the dispute over title to lot 9009 had previously been resolved by the bankruptcy court, which rejected Clover Ridge's attempt to block the land's sale by filing an affidavit claiming it transferred an ownership interest to the homeowners' association. The bankruptcy court declared the affidavit void and ordered Clover Ridge to issue a corrected warranty deed to CIECO "subject to the Declaration of Submission of Property to Horizontal Property Regime for Clover Ridge . . . ." CIECO contends the district court should have instructed the jury on the elements of issue preclusion so that LPSC could not re-litigate the issue of title to lot 9009.
The district court correctly ruled that CIECO was not entitled to an instruction on issue preclusion based on the bankruptcy court's ruling. The defense is only applicable when the issues litigated in the prior action and current case are identical, the issue was raised and decided in the prior action, the issue was material and relevant to the disposition in the prior action and was necessary and essential to the prior judgment. Penn v. Iowa State Bd. of Regents, 577 N.W.2d 393, 398 (Iowa 1998). Here the issue of title to lot 9009 was never decided by the bankruptcy court. It only ordered the issuance of a deed to CIECO subject to any interest held by the homeowners' association. Because the bankruptcy court never determined the nature of the homeowners' association's interest, the district court correctly determined that no basis for an instruction on issue preclusion existed.
III. Conclusion.
We affirm the district court's judgment and award of damages for breach of contract and reverse the judgment entered for intentional interference with prospective business advantage. We remand for entry of a corrected judgment. Costs on appeal are taxed one-half to each party.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH INSTRUCTIONS.
Snell, S.J., participates in lieu of Streit, J., who takes no part.
Senior Judge assigned by order pursuant to Iowa Code section 602.9206 (2001).
This opinion shall not be published.