IN THE COURT OF APPEALS OF IOWA
No. 1-733 / 99-1649
Filed April 24, 2002
HARVEY KLINE, a Resident of the State of Michigan, HOWARD L. MILLER
HAMBURG APARTMENTS, L.P., f/k/a HOWARD L. MILLER HAMBURG
APARTMENTS, LTD., a Missouri Limited Partnership, by and through HARVEY
KLINE, Derivatively Pursuant to Iowa Code Section 487.1001 et. seq. by its
Limited Partner,
Appellees,
vs.
KEYSTAR ONE, L.L.C., a Washington Limited Liability Company, KEYSTAR
TWO, L.L.C., a Washington Limited Liability Company, and HOWARD L.
MILLER, LARRY MUELLER, KANWESTGROUP, INC., a Missouri Corporation,
HILLPARK HOMES, INC., f/k/a HOWARD L. MILLER DEVELOPMENT CO., a
Missouri Corporation,
Appellants.
Appeal from the Iowa District Court for Fremont County, Gordon C. Abel,
Judge.
Defendants appeal the district court rulings granting partial summary
judgment, and subsequently, a judgment in favor of plaintiffs on their claims for
slander of title, interference with past and prospective business relations,
conversion, conspiracy, injunction, actual damages, and punitive damages.
AFFIRMED.
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Beverly K. Jones, Tarkio, Missouri, for appellant Howard Miller.
Jon H. Johnson of Johnson & Graeser, P.C., Sidney, for remaining
appellants.
Christopher J. Redmond, Bruce A. Moothart, Jerry D. Rank, and Rance E.
Ames of Husch & Eppenberger, L.L.C., Kansas City, Missouri, for appellees.
Heard by Huitink, P.J., and Hecht and Eisenhauer, JJ.
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Hecht, J.
Defendants appeal from the district court rulings granting partial summary
judgment, and subsequently, a judgment in favor of plaintiffs on their claims for
slander of title, interference with past and prospective business relations,
conversion, conspiracy, injunction, actual damages, and punitive damages. We
affirm.
I. Background Facts and Proceedings.
In 1984, Howard Miller formed Howard L. Miller Hamburg Apartments, Ltd.
for the purpose of investing in real estate and a low-rent, subsidized housing
complex. Miller was the original general partner, and Howard L. Miller
Development Company was the original limited partner. In 1985, Howard L.
Miller Development Company sold its limited partnership interest to Harvey Kline
and Robert Ballard for $106,620.00. Miller continued as the general partner.
Pursuant to the partnership agreement, the partnership acquired real property on
which it built residential housing units in Fremont County, Iowa. This was the
partnership’s sole asset.
Miller developed a number of similar projects in which limited partnership
interests were sold to other investors. Miller eventually experienced financial
difficulties and defaulted on debts owed to Metro North Bank. Thereafter, Metro
North Bank failed and reverted to the Federal Deposit Insurance Corporation,
which sold Miller’s defaulted loans to Larry Mueller.
In June of 1997, in an attempt to reduce his personal liability, Miller
executed a deed purporting to transfer title to the limited partnership’s Hamburg
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real estate to Keystar One, a Washington based limited liability company
controlled by Mueller. The limited partnership obtained no monetary
consideration from Mueller or Keystar One, and neither Ballard nor Kline
received notice of or consented to the transfer. The limited partnership
agreement precluded sale or transfer of property without written consent from
Kline and Ballard. Miller was aware of this requirement, but admitted he did not
notify the limited partners of the conveyance because he knew they would refuse
to consent. Kline’s demand for return of the property and an accounting was
ignored by Mueller and Keystar One.
Because of the transfer of the partnership property, Harvey Kline, as
limited partner, brought suit personally and as representative of the limited
partnership against Keystar One, Mueller, Miller, and other business entities
controlled by Mueller. In his petition, Kline sought actual and punitive damages
for slander of title, interference with existing and prospective business relations,
conversion, conspiracy, injunction, actual damages, and punitive damages. Kline
entered into a “joint litigation agreement” with similarly situated plaintiffs in other
states who were making similar claims against the same defendants.
Kline subsequently obtained a partial summary judgment in which the
district court (1) found it was undisputed that Miller had acted without authority
and in breach of the partnership agreement by transferring the property, and (2)
determined Mueller and Keystar One were on notice of Miller’s lack of authority
to transfer because, although the Hamburg partnership agreement was not
recorded in Iowa, the mortgage document was, and it indicated the property was
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owned by a Missouri limited partnership. Accordingly, the district court ordered
that the purported transfer of the Hamburg real estate was void ab initio, quieted
title in favor of the Hamburg partnership, and concluded Miller and the remaining
defendants had no right to or interest in the property. The partial summary
judgment order also enjoined Miller from acting in any capacity as the general
partner for the apartments, ordered an accounting from Miller to effectuate his
removal as general partner, and ordered the appointment of a temporary general
partner in his stead.
Following additional proceedings and a hearing on damages, the district
court entered a ruling reiterating its earlier findings and making further findings.
Among other things, the court concluded the defendants had intentionally
interfered with the limited partnership’s interests, slandered title to the property,
converted partnership property, and conspired to defraud Kline and the
partnership of the real property and its income stream. The court awarded Kline
$36,081.39 in actual damages for attorney fees and nominal damages of $1.00,
and awarded the Hamburg limited partnership $58,331 in actual damages. It
further awarded the plaintiffs $283,237.17 in punitive damages. Miller, Mueller,
and the other defendants appeal from these rulings.
II. Appeal of Howard Miller.
Miller contends the district court erred (1) in limiting his presentation of
evidence as a discovery sanction, (2) in failing to grant a new trial because of
newly discovered evidence and insufficiency of the evidence to support an award
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of actual and punitive damages, and (3) in quashing his property rights as a
creditor of the limited partnership and the limited partners.
A. Discovery Sanction. As a sanction for failing to timely comply
with discovery, the district court precluded the various defendants, including
Miller, from offering evidence to rebut the plaintiffs’ damages. A district court's
order imposing discovery sanctions will not be disturbed unless the court abused
its discretion. Troendle v. Hanson, 570 N.W.2d 753, 755 (Iowa 1997). An abuse
of discretion consists of a ruling which rests upon clearly untenable or
unreasonable grounds. Id.
Miller contends there was no factual basis to support a sanction against
him pursuant to Iowa Rule of Civil Procedure 1.517(2). We disagree. Plaintiffs
served discovery requests upon the Defendants in October of 1998. The
defendants failed to answer the discovery, and on December 30, 1998 plaintiffs
filed a motion to compel Miller’s responses. On January 19, 1999, the district
court sustained plaintiffs’ motion to compel and ordered compliance by January
21, 1999. Miller failed to comply with the order. We conclude the district court
did not abuse its discretion by precluding Miller from presenting evidence
contradicting plaintiffs’ evidence of damage under the circumstances of this case.
B. Actual Damages. The district court awarded the plaintiffs $58,331,
the amount of gross revenue generated by the apartments after the property was
conveyed to Keystar One. Miller subsequently filed a motion for new trial,
contending, in part, the limited partnership’s gross rents should have been offset
by expenses in calculating damages. On appeal, Miller asserts the damages
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awarded by the district court are excessive and unsupported by substantial
evidence. Our standard of review of a trial court's action on a motion for new trial
is for abuse of discretion. Matthess v. State Farm Mut. Auto Ins. Co., 521
N.W.2d 699, 702 (Iowa 1994).
Miller asserts that by not considering the expenses incurred in operating
the apartments, the actual damages award constitutes an undue windfall to the
plaintiffs. However, there is no evidence in the record substantiating what those
operating costs were. Whether damages awarded are adequate in a particular
case depends on the facts of the situation. Id. The test we must apply is
"whether the verdict fairly and reasonably compensates the injury the party
sustained." Householder v. Town of Clayton, 221 N.W.2d 488, 493 (Iowa 1974).
We conclude the district court’s utilization of gross revenues meets this
test under the circumstances of this case. The evidence of $58,331 in gross
receipts was undisputed. There is no evidence in the record as to what expense
figures Miller argues should have been deducted from the award. Without such
evidence, we find no abuse of discretion in the district court’s ruling on the motion
for new trial on the actual damage issue.
C. Punitive Damages. The district court awarded the plaintiffs punitive
damages in the amount of $282,237.17 and later denied Miller’s motion for new
trial in which he claimed this award was excessive. On appeal Miller contends
the district court erred in denying his request for a new trial. Our review is for an
abuse of discretion. Matthess, 521 N.W.2d at 702.
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Miller first asserts punitive damages were improper because the facts
were insufficient to establish the necessary legal malice. Under Iowa Code
section 668A.1 (1999), in order to receive punitive damages a plaintiff must prove
by a preponderance of clear, convincing, and satisfactory evidence that the
defendant's conduct amounted to a willful and wanton disregard for the rights of
another. Merely objectionable conduct is insufficient to meet the standards of
section 668A.1. Beeman v. Manville Corp. Asbestos Disease Compensation
Fund, 496 N.W.2d 247, 255 (Iowa 1993). To receive punitive damages, a
plaintiff must offer evidence of the defendant's persistent course of conduct to
show that the defendant acted with no care and with disregard to the
consequences of his acts. Id. A breach of contract alone, even if intentional,
generally will not form the basis for punitive damages. Hockenberg Equip. Co. v.
Hockenberg Equip. & Supply Co. of Des Moines, Inc., 510 N.W.2d 153, 156
(Iowa 1993). However, we will uphold an award of punitive damages when
conduct breaching a contract also constitutes an intentional tort, committed
maliciously, that meets the standards of section 668A.1. Id.
We conclude substantial evidence supports the district court’s award of
punitive damages against Miller. Miller was fully aware the partnership
agreement required him to secure the written consent of the limited partners prior
to attempting to transfer the partnership’s property. Miller never informed Ballard
or Kline of his intention, and failed to even request their consent to the transfer.
He admitted he knew neither Ballard nor Kline would have consented to the
transfer. Miller’s conduct was in reckless disregard of the rights of the two limited
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partners under the limited partnership agreement. Moreover, Miller’s actions
were clearly intended to improve his own deteriorating financial situation, to the
clear, admitted detriment of the limited partners. The district court properly
awarded punitive damages against Miller.
Miller additionally asserts the punitive damages award is inappropriate
because the plaintiffs failed to establish a “legally viable claim for actual
damages.” We reject this contention. An award of actual damages is not
necessary to support an award of punitive damages. Hockenberg, 510 N.W.2d
at 156 (citing Pringle Tax Serv., Inc. v. Knoblauch, 282 N.W.2d 151, 154 (Iowa
1979)). A plaintiff need only show that the defendant actually caused plaintiff
some injury to sustain a verdict for nominal compensatory damages and punitive
damages. Pringle, 282 N.W.2d. at 153-54. In this case, plaintiffs clearly proved
they sustained actual damage as a result of Miller’s actions. We have carefully
reviewed all of Miller’s other contentions with respect to the punitive damages
issue and find them to be without merit. Accordingly, we affirm the punitive
damages award against Miller.
D. Newly Discovered Evidence. The district court awarded the plaintiffs
$36,081.39 for attorney fees. In his motion for new trial, Miller provided the court
a “joint litigation agreement” which had been entered into between Kline and the
law firm of Husch & Eppenberger. This agreement created a per share allocation
of the total litigation expenses charged by Husch & Eppenberger in litigating
fourteen lawsuits against the defendants. Miller apparently became aware of this
agreement following trial, and claimed in his motion for new trial that it was
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“newly discovered evidence” the court should consider. He argued the attorney
fee figures presented by Kline to the district court were not really the amount
Miller was responsible for, but rather that he would only incur a portion of those
fees pursuant to the joint litigation agreement. The district court denied the
motion.
We affirm the district court’s ruling on this issue because the joint litigation
agreement cannot be characterized as newly discovered evidence. A party
seeking a new trial on such grounds must demonstrate three things: (1) the
evidence is newly discovered and could not, in the exercise of due diligence,
have been discovered prior to the conclusion of the trial; (2) the evidence is
material and not merely cumulative or impeaching Iowa R. Civ. P. 1.1004(7); and
(3) the evidence will probably change the result if a new trial is granted. Benson
v. Richardson, 537 N.W.2d 748, 762 (Iowa 1995). Miller presented no evidence
in his motion for new trial or on appeal that the joint litigation agreement could not
have been discovered, in the exercise of due diligence, prior to the conclusion of
the trial. Miller makes no claim that he requested plaintiffs to produce information
about the claim for attorney fees before judgment was entered. The district court
therefore properly denied the motion for new trial on this ground.
E. Quashing of Miller’s Property Rights. Miller argues the district court
erred in failing to conclude that, as a creditor of the partnership, he has a right to
the distribution of the partnership assets upon its dissolution. We review this
issue for errors of law. In particular, Miller contends the district court’s order
improperly provided judicial forgiveness of the partnership debt due and owing to
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him. We conclude the court did not err in this respect. Miller’s brief on appeal
does not allege in what manner he was a creditor of the partnership, and there is
no evidence as to the amount or type of debt Miller asserts was improperly
forgiven as a consequence of the district court’s rulings. Without such evidence,
we conclude Miller was not prejudiced by the district court’s rulings and affirm on
this issue.
III. Appeal by Mueller and Related Entities.
A. Failure to allow additional time prior to summary judgment. After
the plaintiffs filed their motion for partial summary judgment the defendants
requested a continuance seeking additional preparation and discovery time
before the hearing. The court denied the motion, concluding the issues
presented in this case were substantially similar to the facts and circumstances
surrounding the other related claims in other jurisdictions, and thus the
defendants had sufficient facts to properly defend against the motion. Mueller
appeals from this denial. When a party opposing a motion for summary
judgment files a motion requesting continuance to permit discovery, our review is
for abuse of discretion. Bitner v. Ottumwa Community School Dist., 549 N.W.2d
295, 302 (Iowa 1996).
We conclude the court did not abuse its discretion in refusing to grant a
continuance. Crucial to this determination is the fact there is no evidence in the
record Mueller was pursuing any discovery at this time of the request. There
were no outstanding discovery requests or depositions scheduled. Nor does
Mueller describe the evidence he believes he would have sought to discover if
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additional time had been granted. Mueller correctly cites Carter v. Jernigan, 227
N.W.2d 131, 135 (Iowa 1975), for the proposition that a party against whom a
summary judgment motion is made should first be allowed to discover the facts if
he desires. However, in Carter, the party seeking extra time was in fact
attempting to obtain defendants' answers to interrogatories and to take
defendants' depositions. Carter, 227 N.W.2d at 134. Defendants here served no
interrogatories or requests for production and failed to notice a single deposition
before the summary judgment ruling was entered. Under these circumstances,
we conclude the court did not abuse its discretion in failing to grant defendants
additional time for discovery.
B. Determination that the deed to Keystar One was void ab initio. In
its summary judgment ruling, the district court concluded the defendants were not
bona fide purchasers without notice, and therefore ordered the transfer void ab
initio. On appeal, Mueller and his business entities contend the court erred
because there exists a genuine issue of material fact as to whether Keystar One
was a bona fide purchaser of the property. We review a district court's ruling on
a motion for summary judgment for correction of errors of law. See American
Family Mut. Ins. Co. v. Allied Mut. Ins. Co., 562 N.W.2d 159, 163 (Iowa 1997).
A land purchaser has the burden to establish the status of bona fide
purchaser. To do so, Keystone must show the purchase was made without
either actual or constructive notice of existing rights in the property. Bartels v.
Hennessey Bros., Inc., 164 N.W.2d 87, 94 (Iowa 1969). “Actual notice depends
upon the purchaser having either (1) actual knowledge of the existing rights, or
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(2) knowledge of sufficient facts to charge the purchaser with a duty to make
inquiry that would reveal the existence of such rights. National Properties Corp.
v. Polk County, 351 N.W.2d 509, 511 (Iowa 1984). Mueller admitted he was told
Miller had lost control of the partnerships and could not sell them. This
conversation provided Mueller with actual knowledge that Miller might not have
authority to transfer the property
The district court’s decision on this issue is also supported by principles of
constructive knowledge. Compliance with the recording statutes affords
constructive notice of existing rights in the property. Sun Valley Iowa Lake Ass’n
v. Anderson, 551 N.W.2d 621, 637-38 (Iowa 1996). A mortgage on file in the
Fremont County Recorder’s office disclosed the subject real estate was owned
by a Missouri partnership. Because Keystar was armed with actual knowledge of
Miller’s admitted “loss of control” of the partnership and constructive knowledge
of the partnership’s nexus with the State of Missouri, knowledge of the
partnership agreement provision requiring the limited partners’ written consent
prior to the conveyance is imputed to Keystar. Had Mueller and Keystar
undertaken a reasonable inquiry they would have discovered Miller lacked the
authority to convey the property without the written consent of Kline and Ballard.
Therefore, the district court properly concluded no genuine issue of material fact
remains and that Keystar lacks the protection of the status of a bona fide
purchaser.
C. Conversion. The district court concluded the defendants Miller,
Keystar and Mueller converted the partnership’s real and personal property.
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Mueller and Keystar now contend a transfer of real estate is not actionable under
the theory of conversion in Iowa. Mueller failed to make this argument in the
district court and has therefore failed to preserve it for our review. See Podraza
v. City of Carter Lake, 524 N.W.2d 198, 203 (Iowa 1994) (stating our function is
to review trial court's consideration of arguments raised before it and not
arguments counsel raises for the first time in this forum).
D. Slander of Title and Conspiracy. The district court concluded Miller,
Keystar, and Mueller slandered the partnership’s title to the real estate when they
recorded the deed. In their brief, the defendants challenge the district court’s
findings on slander of title with the following argument: “[T]here is no evidence
under which a court could find that defendants Mueller, Keystar, and Kanwest
satisfied the five elements for slander of title.” Appellants fail to suggest any
particular in which the evidence is insufficient to sustain the judgment. Because
substantial evidence supports each element of the plaintiffs’ slander of title claim,
we find no error on this issue.
Defendants’ brief devotes the following single sentence to his contention
the court erred in finding the defendants engaged in a civil conspiracy:
Concerning the conspiracy finding by the court, civil conspiracy is
not in itself actionable: rather it is the acts causing injury
undertaken in the furtherance of the conspiracy which gives rise to
the action.
Although the foregoing statement is a correct statement of the law, Robert’s
River Rides, Inc. v. Steamboat Development Corp., 520 N.W.2d 294, 302 (Iowa
1994), it is of no avail to the defendants. After a careful review of the district
court’s ruling, we conclude the court awarded damages to plaintiffs for the
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tortious acts of the defendants in furtherance of a civil conspiracy. Accordingly,
we conclude this assignment of error is without merit.
E. Intentional Interference. The district court held the actions of Miller,
Keystar, and Mueller constituted an intentional interference with existing and
prospective business operations and activities of the partnership and Kline. On
appeal, Mueller and the Keystar defendants contend there is no evidence they
acted with a purpose to financially harm or destroy the plaintiffs. We disagree.
Upon his discovery of Miller’s wrongful conveyance, Kline notified defendants
that Miller lacked authority to transfer ownership of the property and demanded
its reconveyance to the limited partnership. Defendants, who were not good faith
purchasers for value, declined to do so and forced the plaintiffs to incur the
expense of litigation to reclaim the real estate. We find this conduct of the
defendants is substantial evidence from which a reasonable juror could conclude
defendants intended to injure or destroy plaintiffs.
Although the main purpose of the defendants’ actions may have not been
specifically to financially harm Kline, it was certainly a “necessary consequence”
of the conduct or Miller and Mueller. See Nesler v. Fisher & Co., Inc., 452
N.W.2d 191, 197 (Iowa 1990). Accordingly, we conclude the court did not err in
this regard.
F. Actual damages, punitive damages, and attorney fees. Based on
the above discussion regarding the award of actual damages against defendant
Miller, we affirm the court’s award of actual damages against Mueller. We also
reject Mueller’s contention the court should have granted a new trial on the issue
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of attorney fees based on the joint litigation agreement. Based on the reasoning
we applied above, the agreement is not newly discovered evidence warranting a
new trial.
As noted, the court awarded the plaintiffs $36,081.39 representing
attorney fees. Mueller appeals from this award. Our review of this matter is de
novo. Hockenberg, 510 N.W.2d at 158. A party generally has no claim for
attorney fees as damages in the absence of a statutory or written contractual
provision allowing such an award. Suss v. Schammel, 375 N.W.2d 252, 256
(Iowa 1985). Courts have recognized a rare exception to this general rule,
however, "when the losing party has acted in bad faith, vexatiously, wantonly, or
for oppressive reasons." Hockenberg, 510 N.W.2d at 159. An award of common
law attorney fees requires conduct that is intentional and likely to be aggravated
by cruel and tyrannical motives. Id. Such conduct lies far beyond a showing of
mere "lack of care" or "disregard for the rights of another." Id.
We conclude substantial evidence supports the award of attorney fees.
The record shows Miller informed Mueller he was in a limited partnership, and
that Mueller and Keystar took the property without contacting the limited partners,
or even investigating their status in the partnership. Mueller admitted Miller
informed him he had lost control over the partnership and was unable to sell it,
yet he still went ahead with the transfer. Further, Mueller and Keystar One paid
nothing for the property despite the fact Mueller was aware other limited partners,
and not just Miller, held an interest in the property. Mueller and Keystar One
then exercised control over the property and accepted its income even after
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being informed of Miller’s lack of authority to transfer the property. We believe
these factors exhibit more than simply a lack of care, and constitute vexation and
oppression. We therefore affirm the award of attorney fees.
G. Mueller’s Personal Liability. Mueller asserts the district court erred
in finding him personally liable for the acts of Keystar One regarding the
purchase of the Hamburg apartment. In particular, he asserts Iowa law provides
that no member of a limited liability company may be personally liable for the acts
or debts of the company. See Iowa Code § 490A.601. Mueller does not cite in
his brief how this issue was preserved for appellate review. We conclude it has
not been preserved and therefore refuse to consider it.
IV. Conclusion.
We have reviewed all contentions raised by appellants in this appeal.
Those which we do not expressly address in this opinion are either not preserved
for our review or without merit. We affirm.
AFFIRMED.
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