ERIC REYNOLDS AND MARY REYNOLDS, d/b/a AMANA COLONY RV SERVICE & REPAIR, Plaintiffs-Appellants, vs. SOLON STATE BANK, Defendant-Appellee, and AMANA SOCIETY, INC., Defendant.
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IN THE COURT OF APPEALS OF IOWA
No. 7-847 / 07-0085
Filed December 28, 2007
ERIC REYNOLDS AND MARY REYNOLDS,
d/b/a AMANA COLONY RV SERVICE & REPAIR,
Plaintiffs-Appellants,
vs.
SOLON STATE BANK,
Defendant-Appellee,
and AMANA SOCIETY, INC.,
Defendant.
________________________________________________________________
Appeal from the Iowa District Court for Johnson County, Marsha M.
Beckelman, Judge.
Plaintiffs appeal the jury’s verdict on their claim of negligence, and the
district court’s grant of a directed verdict on their claims of fraudulent
misrepresentation, fraudulent nondisclosure, and breach of fiduciary duty.
AFFIRMED.
Edward M. Blando and James W. Affeldt of Elderkin & Pirnie, P.L.C.,
Cedar Rapids, for appellants.
H. Raymond Terpstra II and Gregory J. Epping of Terpstra, Epping &
Willett, Cedar Rapids, for appellee.
Heard by Vogel, P.J., and Mahan, J. and Robinson, S.J.* Baker, J. takes
no part.
*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2007).
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ROBINSON, S.J.
I.
Background Facts & Proceedings
Eric and Mary Reynolds operated a recreational vehicle (RV) repair
service. In 1999 they proposed to open a RV repair center near an Amana
Colony RV park. Amana Society, Inc. agreed. The Amana Society picked the
location for the RV repair center building and built the building to the Reynolds’
specifications.
The Amana Society and the Reynolds entered into a lease
agreement for the building, with an option to purchase.
The Reynolds financed the project with a loan for $88,100 from Solon
State Bank. The loan was guaranteed by the Small Business Association (SBA).
The SBA agreement required that if “any portion of the collateral is located in a
special flood hazard zone, Lender must require Borrower to obtain Federal flood
insurance, or other appropriate special hazard insurance . . . .” At the time of the
SBA loan, in June 1999, the site for the building had not been finally determined.
Moreover, the Reynolds did not have an ownership interest in the building, and it
was not used for collateral. The Reynolds’ residence in Oxford, Iowa, was used
for collateral.
The Solon State Bank obtained a statement that the Oxford
residence was not in a flood zone. 1
In 2001, the Reynolds decided to exercise their option to purchase the
building. In December 2001, George Davis of Appraisal Resources Company
performed an appraisal on the building and valued it at $300,000. The appraisal
report noted, “Subject is located partially in a flood plane area. There is a creek
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A representative of Solon State Bank admitted a flood zone determination should
have been done on the building, not because the building was collateral, but because
tools and equipment which were collateral were used in the building.
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that borders the east side of the site.” None of the parties apparently noticed this
statement. The Reynolds obtained a loan for $146,637 from Solon State Bank to
purchase the property in April 2002.
The Reynolds had problems servicing all of their debts. They borrowed
$6000, and then an additional $2200 from the Solon State Bank late in 2002. In
2003, they began looking for financing for a proposed new business called EMR
Innovations, which would design, produce, and sell after-market RV products.
The Reynolds were unable to obtain additional financing from Solon State Bank.
They negotiated with Corridor Management Company, a venture capital firm, but
no agreement was reached.
The Reynolds then approached Roger Hoffman, senior vice-president for
State Central Bank of Keokuk.
Hoffman met them at the RV repair center
building in September 2004 to discuss their new business proposal. Hoffman
noticed the creek immediately outside the back of the building, and asked how
much they paid for flood insurance. This brought the issue of the flood plain to
the Reynolds’ attention.
Mary Reynolds contacted Steven Berner of Solon State Bank concerning
the question about flood insurance. Solon State Bank received a statement from
First American Flood Data Services on October 11, 2004, that the building was
not in a flood zone. The next day, however, on October 12, 2004, they received
a revised statement that the building was in a special flood hazard area. Federal
flood insurance was not available because the Amana Society did not participate
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in the Federal Flood Insurance Program. Due to the issue of flood insurance,
State Central Bank did not agree to lend funds to the Reynolds.
In November 2004, the Reynolds learned that prior to the construction of
the building, the Amana Society should have obtained a permit from the Iowa
Department of Natural Resources because the property was in a flood plain. The
building was about 0.1 feet below the 100-year flood plain mark.
On March 11, 2005, the Reynolds filed suit against Solon State Bank and
the Amana Society, claiming they were damaged because the defendants failed
to advise them earlier that the property was in a flood zone. Eventually the
Reynolds entered into a settlement agreement with the Amana Society. As part
of the agreement the Reynolds sold the building back to the Amana Society. The
Reynolds used the settlement proceeds to pay their loans to Solon State Bank.
The district court granted Solon State Bank’s motion for summary
judgment on the issues of interference with prospective contractual relationship,
breach of good faith and fair dealing, violation of federal banking regulations, and
interference with an existing contract. The case proceeded to a jury trial on the
issues of negligence, breach of fiduciary duty, negligent misrepresentation
(including fraudulent nondisclosure), and fraudulent misrepresentation.
By the agreement of the parties, Solon State Bank made its motion for
directed verdict at the close of all the evidence. The district court granted a
directed verdict on the issues of breach of fiduciary duty, fraudulent
misrepresentation, and fraudulent nondisclosure, finding there was insufficient
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evidence to support these issues.
The court also determined the issue of
punitive damages would not be submitted to the jury.
The district court drafted jury instructions on the claims of negligence and
negligent misrepresentation. The Reynolds objected to the court’s failure to give
their requested jury instruction No. 13, which was a listing of federal statutes and
regulations relating to the loans guaranteed by the SBA and regulated by the
Federal Deposit Insurance Corporation (FDIC).
The court overruled the
objection.
The jury returned a verdict finding Solon State Bank was at fault, but its
fault was not a proximate cause of the Reynolds’ damages. The jury found the
Amana Society was at fault, and its fault was the proximate cause of plaintiffs’
damages. The jury assessed fault 100% to the Amana Society. The district
court denied plaintiffs’ motion for a new trial. The Reynolds now appeal.
II.
Standard of Review
This case was tried at law, and our review is for the correction of errors at
law. Iowa R. App. P. 6.4. In law actions, findings of fact are binding upon the
appellate court if supported by substantial evidence. Iowa R. App. P. 6.14(6)(a).
III.
Jury Instructions
The Reynolds contend the district court should have submitted their
proposed instruction No. 13 to the jury. We review jury instructions to decide if
they are a correct statement of the law and are supported by substantial
evidence. Bride v. Heckart, 556 N.W.2d 449, 452 (Iowa 1996). Evidence is
substantial when a reasonable mind would accept it as adequate to reach a
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conclusion. Id. If a court errs in admitting or refusing to submit an instruction, we
will reverse only if the error has caused prejudice. Kessler v. Wal-Mart Stores,
Inc., 587 N.W.2d 804, 806 (Iowa Ct. App. 1998).
Generally, a court should give a requested instruction if it correctly states
the law applicable to the facts of the case and if the concept is not found in the
other instructions. Olson v. Prosoco, Inc., 522 N.W.2d 284, 287 (Iowa 1994).
However, “[i]nstructions should not marshal the evidence or give undue
prominence to any particular aspect of a case.”
Stover v. Lakeland Square
Owners Ass’n, 434 N.W.2d 866, 868 (Iowa 1989). Jury instructions should not
“give undue emphasis to any particular theory, defense, stipulation, burden of
proof, or piece of evidence.” Olson, 522 N.W.2d at 287. As long as the issues
involved in a case are adequately covered, the court may choose its own
language, and parties are not entitled to any particular instruction. Hutchinson v.
Broadlawns Med. Ctr., 459 N.W.2d 273, 275 (Iowa 1990).
Jury Instruction No. 15 provided:
The plaintiffs claim the defendant was at fault in one or more
of the following particular(s):
a. In failing to obtain a flood plain determination for
the location where the equipment would be placed in
connection with the June 15, 1999, SBA loan;
b. In failing, contrary to FDIC regulations, to give
notice to plaintiffs or failing to arrange for the Amana Society
to give notice that the building was located in a flood plain for
which no federal flood plain insurance was available
because Iowa County did not participate in the National
Flood Insurance Program prior to execution of the April 30,
2002, building purchase loan.
The Reynolds claim the instruction is insufficient because it did not instruct
the jury that Solon State Bank was required to give them notice advising whether
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flood insurance was available on the collateral securing the loan, or warn them
the property was in a flood zone. We conclude the instruction given by the court
adequately covered these concepts.
The Reynolds’ proposed instruction
contained the same concepts, but in more technical and less understandable
language. The Reynolds’ proposed instruction would have unduly emphasized
their theory of the case, and furthermore, the court was free to choose the
language of the instructions. The court’s instruction was a clear, plain English
statement of plaintiffs’ claim of negligence.
We conclude the district court did not err in rejecting plaintiffs’ proposed
jury instruction No. 13.
IV.
Directed Verdict
Our standard of review on appeal from the grant of a motion for directed
verdict is for correction of errors at law. Mensink v. American Grain, 564 N.W.2d
376, 379 (Iowa 1997). The court should review the evidence in the light most
favorable to the nonmoving party to determine whether a fact issue was
generated.
Dettman v. Kruckenberg, 613 N.W.2d 238, 250-51 (Iowa 2000).
Where substantial evidence does not exist to support each element of a plaintiff’s
claim, the court may sustain the motion. Olson v. Nieman’s Ltd., 579 N.W.2d
299, 313 (Iowa 1998).
A.
Fiduciary Duty
The Reynolds claim they were in a fiduciary relationship with Solon State
Bank. They state they placed full trust and confidence in Steven Berner from the
Bank, and relied upon him for business decisions. The Reynolds contend Solon
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State Bank breached its fiduciary duty to them by failing to inform them that the
RV repair center building was in a flood zone.
“A fiduciary relationship exists between two persons when one of them is
under a duty to act for or to give advice for the benefit of another upon matters
within the scope of the relation.” Kurth v. Van Horn, 380 N.W.2d 693, 695 (Iowa
1986) (citing Restatement (Second) of Torts § 874, cmt. a, at 300 (1979)). The
relationship between a customer and a bank does not automatically create a
fiduciary relationship. Engstrand v. West Des Moines State Bank, 516 N.W.2d
797, 799 (Iowa 1994).
For a fiduciary relationship to exist there must be
evidence of “domination and influence” and “a reposing of faith, confidence and
trust, and the placing of reliance by one upon the judgment and advice of the
other.” Weltzin v. Cobank ACB, 633 N.W.2d 290, 294 (Iowa 2001) (citations
omitted).
In Irons v. Community State Bank, 461 N.W.2d 849, 852-53 (Iowa Ct. App.
1990), we stated:
The Irons apparently feel because they reposed some trust
in the bank, a fiduciary relationship was created. However, not only
does the record fail to show a fiduciary relationship based on the
facts, but also there is no evidence the bank ever assented to or
was aware of the fiduciary relationship. The various conversations
Craig Irons had with bank officers concerning loan repayments,
price and sale or crops, and other matters certainly do not raise the
relationship to the special and elevated rank of fiduciary.
(Citation omitted). In ruling on the motion for directed verdict, the district court
stated, “I don’t believe there is a shred of evidence here that the bank had
knowledge that the Plaintiffs were relying upon them for advice in the manner
that’s been asserted.”
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We determine the district court did not err in its conclusion. There was no
evidence Solon State Bank was aware the Reynolds were relying on the Bank for
advice.
Furthermore, the evidence shows the Reynolds consulted with Joni
Thornton of the Institute for Social and Economic Development for business
advice, and had also consulted with Jerry Trudo of the Iowa Business Growth
Company concerning their business plan. There was no evidence of “domination
and influence” over the Reynolds’ business decisions by Solon State Bank. See
Kurth, 380 N.W.2d at 695.
We conclude the district court did not err by granting a directed verdict for
Solon State Bank on the issue of breach of fiduciary duty.
B.
Fraudulent Misrepresentation
The elements of fraudulent misrepresentation are: (1) representation; (2)
falsity; (3) materiality; (4) scienter; (5) intent to deceive; (6) justifiable reliance;
and (7) resulting injury. Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 391
(Iowa 2001). Reliance is considered justifiable if a person acting with reasonable
and ordinary prudence and caution would have a right to rely on the
representations.
Kaiser Agric. Chems. v. Ottumwa Prod. Credit Ass’n, 428
N.W.2d 681, 683 (Iowa Ct. App. 1988). A party must prove a claim of fraudulent
misrepresentation by clear, satisfactory, and convincing evidence.
Smidt v.
Porter, 695 N.W.2d 9, 22 (Iowa 2005).
The Reynolds claim Berner told them all conditions for the 1999 SBA loan
had been complied with, and also all conditions for the 2002 loan. They also
claim Berner told them the property was not in a flood zone. The Reynolds claim
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these statements were false, and were made with the intent that the Reynolds
rely upon them. They state that if they had known the true facts they would not
have borrowed money in 1999 or 2002, and would not have purchased the
building.
The plaintiffs failed to establish by clear, satisfactory, and convincing
evidence the element of scienter, that Solon State Bank knew the statements
were false. At the time the SBA loan closed on June 15, 1999, Solon State Bank
did not know the location of the building, because the site had not been finalized.
Therefore, Solon State Bank could not have had knowledge the building was in a
flood zone. Furthermore, there was insufficient evidence the Bank had an intent
to deceive the plaintiffs.
There was no evidence the Bank made intentional
misrepresentations to the Reynolds.
We conclude the district court did not err in granting a directed verdict to
Solon State Bank on the issue of fraudulent misrepresentation.
C.
Fraudulent Nondisclosure
The tort of fraudulent nondisclosure may arise if a party fails to disclose
material information and the party had a duty to communicate that information.
Wright v. Brooke Group Ltd., 652 N.W.2d 159, 174 (Iowa 2002). Fraudulent
nondisclosure may occur “when one with superior knowledge dealing with
inexperienced persons who rely on him or her, purposely suppresses the truth
respecting a material fact involved in the transaction.” Kunkel Water & Elec., Inc.
v. City of Prescott, 347 N.W.2d 648, 653 (Iowa 1984). A duty of disclosure may
arise “from a relation of trust, a relation of confidence, inequality of condition and
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knowledge, or other circumstances as show by a particular fact situation.” Irons,
461 N.W.2d at 854.
In discussing fraudulent nondisclosure, the supreme court has stated:
In other words, there must be a concealment – that is, the party
sought to be charged must have had knowledge of the facts which,
it is asserted, he allowed to remain undisclosed – and the silence
must, under the conditions existing, amount to fraud, because it is
an affirmation that a state of things exists which does not, and
because the uninformed party is deprived to the same extent that
he would have been by positive assertion.
Wilden Clinic Inc. v. City of Des Moines, 229 N.W.2d 286, 293 (Iowa 1975) (citing
37 Am. Jur. 2d Fraud & Deceit § 145 (1968)).
In discussing the issue of fraudulent misrepresentation, we find there was
insufficient evidence Solon State Bank knew the building was in a flood zone,
and either misrepresented this fact or failed to disclose this fact to plaintiffs. In
addition, there is insufficient evidence Solon State Bank acted with an intent to
deceive the Reynolds. Based on the same reasoning as the issue of fraudulent
misrepresentation, we determine there is insufficient evidence of fraudulent
nondisclosure.
We conclude the district court did not err in granting a directed verdict to
Solon State Bank on the issue of fraudulent nondisclosure.
After considering all issues raised in this appeal, we affirm the decision of
the district court.
AFFIRMED.
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