TERESA KEENE and STEVEN LAMASTUS, Plaintiffs-Appellants, vs. PATRICK BRENNAN and J. CAROL BRENNAN, Defendants-Appellees.
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IN THE COURT OF APPEALS OF IOWA
No. 9-337 / 08-1324
Filed September 17, 2009
TERESA KEENE and
STEVEN LAMASTUS,
Plaintiffs-Appellants,
vs.
PATRICK BRENNAN and
J. CAROL BRENNAN,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Bremer County, John S. Mackey,
Judge.
Two expelled bar owners contend that a district court‟s award of damages
in their favor inadequately represents their financial interest in the bar.
AFFIRMED.
John Hofmeyer, Oelwein, for appellant.
Lana Luhring of Lair & Luhring, Waverly, for appellee.
Considered by Vaitheswaran, P.J., and Potterfield and Doyle, JJ.
2
VAITHESWARAN, P.J.
The primary issue before us is whether the district court adequately
compensated the plaintiffs for their interest in a bar.
I.
Background Facts and Proceedings
Teresa Keene and Steve Lemastus entered into a joint venture with Carol
and Pat Brennan to operate a bar known as the White Elephant. While Keene
and Lemastus contributed to the purchase price, financed improvements, and
generally ran the daily operations, only the Brennans were listed as owners.
Keene and Lemastus operated the White Elephant for approximately ten
months. In their view, they turned the bar into a fun and profitable venture. In
the view of the Brennans, the White Elephant lived up to its name.1 As a result of
what Carol perceived as a chaotic and unorthodox operation, she changed the
locks and took over the bar.
Keene and Lemastus sued the Brennans for an accounting and a
declaration of their interest in the bar.
They also sought “full and fair
compensation” for that interest. Following trial, the district court found that Keene
contributed $52,000 to the total capital contribution of $123,306, (giving her a
42.17% interest), Lemastus contributed $32,500 (giving him a 26.36% interest),
and the Brennans contributed $38,808 (giving them a 31.47% interest). The
court also found that Keene and Lemastus received compensation for their
services “in the form of the personal expenditures, withdrawals of cash, food and
1
A “white elephant” is variously defined as “something costly to maintain,” “something
with a questionable or at least very limited value,” or “a much publicized or eagerly
anticipated venture that proves to be a spectacular flop.” Encarta World English
Dictionary (2009) (online http://encarta.msn.com).
3
alcohol consumed, and other unaccounted for cash.” The court valued the real
estate at $65,000 and found that Keene and Lemastus did not present any
evidence “regarding the value of business assets, equipment, or the bar‟s going
concern or „goodwill.‟”
Based on these findings and a finding concerning
outstanding debt, the court determined that the bar had net equity of $54,585.40.
Judgment was entered for Keene in the amount of $23,018.66 and for Lemastus
in the amount of $14,388.71. Keene and Lemastus appealed.
II.
Analysis
A. Conversion
Keene and Lemastus‟s first argument is as follows:
Defendants converted Plaintiffs‟ financial investment and other
contributions to Defendants‟ own purposes so Plaintiffs are entitled
to full reimbursement where defendants wrongfully took over the
bar and received the sole benefit of plaintiffs‟ contributions.
The Brennans respond that this argument was not preserved for review, as the
theory of conversion was neither presented to the district court nor addressed in
the court‟s final ruling. We agree with the Brennans.
An appellate court may not decide a case on a ground not raised in the
district court.
DeVoss v. State, 648 N.W.2d 56, 60 (Iowa 2002).
As the
conversion argument was not raised or decided, we conclude it was not
preserved for review.
B. Valuation
Keene and Lemastus next argue:
If not full reimbursement, plaintiffs are entitled to full compensation
for their interest in the bar, and the court erred in not valuing fully
the bar‟s improvements, personal property, and goodwill, at cost
where the bar was taken less than one year after the property‟s
4
improvement and personal
depreciation was minimal.
property
purchases
where
any
Our review of this issue is de novo. Iowa R. App. P. 6.4.
“Ordinarily the burden of proof on an issue is upon the party who would
suffer loss if the issue were not established.”
Iowa R. App. P. 6.14(6)(e).
Therefore, the burden of establishing the bar‟s value was on Keene and
Lemastus. As noted, the district court found that they did not present evidence of
the bar‟s improvements, personal property, and goodwill.
The plaintiffs take
issue with this statement, pointing to two exhibits they proffered on improvements
and repairs to the property.
These exhibits, titled “Improvements,” list remodeling projects performed
in the bar and the cost of each, but do not distinguish between the cost of labor
and the cost of goods. A defense expert stated that “a lot of sorting” would have
to be done to arrive at an accurate improvement figure. Keene and Lemastus did
not call an expert to perform this sorting function. While they correctly assert that
expert testimony was not necessary, they must live with the resulting record.
The district court was free to find the unexplained exhibits less probative than the
testimony of the expert who addressed the merits of those exhibits.
See
Tiemeyer v. McIntosh, 176 N.W.2d 819, 823 (Iowa 1970) (stating expert
testimony may be used to aid the trier of fact, but may also be considered in
conjunction with valuations by other witnesses and in conjunction with the other
evidence). The court effectively found a lack of probative value by not discussing
the substance of these exhibits or a related document detailing purchases from a
restaurant supply store.
5
We turn to the services provided by Keene and Lemastus, a factor not
raised in their statement of the issue above, but argued in their brief. As noted,
the district court found that they received adequate compensation for these
services through their use of bar funds for personal purposes.
Keene and
Lemastus take issue with this finding. They assert that, even if one accepts the
defense expert‟s testimony concerning their cash expenditures, they were
entitled to an additional $22,234.74 in compensation.
On our de novo review, we find conflicting testimony concerning the
number of hours Keene and Lemastus worked at the bar, with Keene and
Lemastus asserting they worked fifty hours per week and Lemastus‟s adult son
testifying that they worked far less.
The district court essentially found the
plaintiffs less credible on this issue when it determined that they “received more
than their fair share of return of capital.” We accept the court‟s finding, as it is
supported by the record, and we concur in its refusal to award damages for their
services.
Keene and Lemastus also challenge the court‟s refusal to assign a value
for “goodwill.” They contend that Keene‟s winning personality and Lemastus‟s
good cooking enhanced the bar‟s goodwill. They note that the bar had gross
earnings of $15,000 per month for two months after they took over its operations
and, although those earnings later declined, the decrease was seasonal.
Goodwill “is nothing more than the probability that the old customers will
resort to the old place.” Norris v. Howard, 41 Iowa 508, 511 (1875). We agree
with the district court that the evidence cited by Keene and Lemastus was
insufficient to permit the calculation of a value for this intangible asset. See In re
6
Marriage of Keener, 728 N.W.2d 188, 195 (Iowa 2007) (“This anecdotal evidence
is simply an insufficient basis upon which to determine fair market value.”).
Accordingly, we affirm the district court‟s refusal to compensate them for this
asset.
C. Defense Expert
Keene and Lemastus next contend that the district court should not have
allowed the defense expert to testify because the Brennans did not timely
disclose him. On this issue, the district court wrote:
The court notes that the scheduling order filed January 4,
2008, did not provide a deadline for disclosure of either party‟s
expert witnesses and further that the same was issued
approximately one month after the scheduling conference held on
December 7, 2007. . . .
It really should come as no surprise and consequently no
prejudice to plaintiffs that defendants would hire an accounting and
appraisal expert to address the issues raised in this action.
Further, plaintiffs have had the same opportunity to hire expert
witnesses throughout the pendency of this proceeding given the
issues presented for determination during the seven-month period
following the date of the scheduling conference conducted herein.
Our review of this ruling is for an abuse of discretion. Milks v. Iowa-Oto Head &
Neck Specialists, P.C., 519 N.W.2d 801, 805 (Iowa 1994).
Iowa Rule of Civil Procedure 1.508(3) requires supplementation of
discovery responses concerning the identity or substance of expert testimony at
least thirty days before trial. It is conceded that the Brennans did not meet this
deadline.
However, their noncompliance does not mandate exclusion of the
expert testimony; the rule explicitly affords the court discretion to determine
whether noncompliance should result in exclusion.
7
The district court explained its rationale for declining to exclude the
testimony, noting that the plaintiffs should have expected an expert in this type of
case. We discern no abuse of discretion in the court‟s ruling on this issue.
D. Weight Afforded Expert Testimony
Keene and Lemastus finally argue that the district court assigned too
much weight to the defense expert‟s testimony. They suggest that he is not
qualified and used only one approach to valuing the real estate.
The ability of a witness to testify as an expert depends upon the topic of
the question being asked of him or her. Hyler v. Garner, 548 N.W.2d 864, 868
(Iowa 1996). “The witness must be qualified to answer the particular question
propounded.”
Id.
Although the defense expert was not a certified general
appraiser, he testified that he was a licensed real estate broker with “the highest
real estate sales license that you can receive” and he had been “a certified
residential real estate appraiser” for seven years. He also stated that he assisted
in over a billion dollars‟ worth of commercial real estate appraisals.
These
qualifications were more than sufficient to allow him to opine on the value of the
real estate.
See Mensink v. Am. Grain, 564 N.W.2d 376, 379 (Iowa 1997)
(stating that a witness does not need to be a specialist in a particular area of
testimony as long as the subject of the witness‟s testimony falls within that
witness‟s general area of expertise).
As for the substance of this expert‟s testimony, it is well established that
triers of fact may assign whatever weight they choose to expert testimony.
Johnson v. Knoxville Cmty. Sch. Dist., 570 N.W.2d 633, 640 (Iowa 1997).
8
The expert readily explained his reasons for only using a single valuation
method and explained that he only valued the real estate rather than the entire
bar operation because he was not allowed to enter the bar. The district court
took these caveats into account in evaluating his testimony. We therefore affirm
the court‟s acceptance of that testimony.
AFFIRMED.
Potterfield, J., concurs. Doyle, J., writes separately.
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DOYLE, J. (writing separately)
I concur, but write separately to address two issues:
the late expert
witness designation and the appendix filed by the parties.
Keene and Lemastus propounded interrogatories to the Brennans on
September 5, 2007.
Interrogatory No. 3 requested, among other things, the
identity of experts the Brennans expected to call as witnesses at trial.
On
October 17, 2007, Keene and Lemastus‟s counsel wrote the Brennans‟ first
counsel requesting answers by a “set date.” On December 21, 2007, Keene and
Lemastus‟s counsel wrote the Brennans‟ new counsel requesting answers by
January 10, 2008. On January 4, 2008, a scheduling order was entered setting a
trial date of June 4, 2008. Inexplicably, although provided for on the form order,
no deadline dates were established for disclosure of expert witnesses.
On January 8, 2008, the Brennans answered the interrogatories.
Interrogatory No. 3 was answered: “None at this time Dr. Paul Magnall has been
approached and asked to act in this capacity.
His response is awaited
anxiously.” Keene and Lemastus‟s counsel followed up with a January 14 letter
to the Brennans‟ counsel claiming many of the interrogatory answers were not
complete. Interrogatory No. 3 was not mentioned in the letter.
The Brennans served supplemental answers on January 29, 2008. The
answer to Interrogatory No. 3 was not supplemented.
Not satisfied with the
completeness of the supplemental answers, Keene and Lemastus filed a motion
to compel discovery on February 15, 2008, requesting the court to order the
Brennans to fully and completely answer the interrogatories. Hearing on the
motion was set for May 12, 2008, but continued upon the request of Keene and
10
Lemastus‟s counsel. Apparently the Brennans‟ expert, Ben Neil, a certified real
estate appraiser, was disclosed to Keene and Lemastus‟s counsel on May 27,
2008, by supplemental answer. The supplemental answer indicates that Neil
examined the property on May 27.2
Hearing on the motion to compel was held May 28, 2008. The hearing
was not reported. Although we are not required to divine what happened at the
hearing, the court‟s ruling makes it apparent that Keene and Lemastus‟s counsel
asked the court to exclude Neil‟s testimony because Neil‟s identity was disclosed
less than thirty days from trial in violation of Iowa Rule of Civil Procedure
1.508(3). We do not know if Keene and Lemastus requested a continuance as
an alternative to exclusion of Neil‟s testimony, nor do we know the reason for the
late disclosure. In its May 29, 2008 order overruling and denying Keene and
Lemastus‟s motion to compel, the district court remarked:
It really should come as no surprise and consequently no prejudice
to [Keene and Lemastus] that [the Brennans] would hire an
accounting and appraisal expert to address the issues raised in this
action. Further, [Keene and Lemastus] have had the same
opportunity to hire expert witnesses throughout the pendency of
this proceeding given the issues presented for determination during
the seven-month period following the date of the scheduling
conference conducted herein.
The court kept the trial date of June 4, 2008, and ordered that the Brennans
“shall make their experts available to [Keene and Lemastus] for deposition prior
to said date of trial, as well as copies of any experts‟ opinions and reports in
preparation for said depositions.” The order was faxed to all counsel sometime
on Thursday, May 29, 2008.
2
On appeal, the Brennans assert Keene and Lemastus were notified when experts
were retained via updates to the Brennans‟ interrogatory answers on May 21, 2008.
11
Ben Neil‟s deposition took place on Monday, June 2, 2008, commencing
at 9:36 a.m. The record does not reflect when Neil‟s list of comparable sales and
his May 30, 2008 report were provided to Keene and Lemastus‟s counsel, but
they were marked as exhibits and referred to in the deposition. Two days later,
Wednesday, June 4, 2008, trial to the court began. The court accepted Neil‟s
deposition into evidence.
In its findings of fact, conclusions of law, decree, and judgment filed
July 17, 2008, the district court found:
The only evidence of the value of the real estate is a “broker price
opinion” rendered by witness Ben Neil who opined that the market
price would be $65,000 for the real estate only with no
consideration being given for furniture, fixtures, or equipment, nor
for the going concern or goodwill of the bar.
The court utilized Neil‟s $65,000 figure in calculating the amount to be returned to
Keene and Lemastus for their capital contribution to the business.
Rule 1.508(3) provides that a party expecting to call an expert witness
must supplement responses to an appropriate inquiry “as soon as practicable,
but in no event less than [thirty] days prior to the beginning of trial except on
leave of court.” Iowa R. Civ. P. 1.508(3) (emphasis added). Noncompliance with
the rule may result in exclusion or limitation of the expert‟s testimony.
The
purpose of the rule is to avoid surprise to the litigants and to allow parties to
formulate their positions on as much evidence as is available. Klein v. Chi. Cent.
& Pac. R.R. Co., 596 N.W.2d 58, 61 (Iowa 1999). Our review of rulings on such
matters is for abuse of discretion. Milks v. Iowa Oto-Head & Neck Specialists,
P.C., 519 N.W.2d 801, 805 (Iowa 1994).
12
In my view, it seems patently unfair that a party, in the midst of last-minute
trial preparations, should be required to bring those efforts to a screeching halt
and switch gears to schedule and prepare for the deposition of an expert just
disclosed on the eve of trial.
This is precisely what the rule is intended to
prevent.
I disagree with the district court‟s conclusion that it should have come as
no surprise to Keene and Lemastus that the Brennans would hire an appraisal
expert to address the issues raised in the action.
To be sure, Keene and
Lemastus could have anticipated that the Brennans might utilize the services of
an expert. In fact, Keene and Lemastus did anticipate that the Brennans might
call expert witnesses. That was the reason for their timely interrogatory. But, the
Brennans‟ first answer was woefully inadequate and certainly gave no clue they
intended on calling an appraiser. It was only on the very eve of trial, after all
discovery deadlines had passed, that the Brennans finally made such a
disclosure. Up until that time, Keene and Lemastus had no reason to expect the
Brennans were going to offer testimony of an appraiser at trial.
Just because use of an expert can be anticipated does not mean opposing
counsel is not entitled to timely disclosure of the expert and the expert‟s
qualifications and opinion.
Keene and Lemastus could have reasonably
assumed the court would enforce the discovery rules, and that the Brennans
would not be allowed to ambush them with a late-disclosed expert. Keene and
Lemastus were justifiably surprised at the Brennans‟ tardy expert disclosure and
no doubt had to scramble at the last minute to prepare for Neil‟s deposition.
Nevertheless, based on the sparse record before us, and particularly the fact that
13
the hearing on Keene and Lemastus‟s motion was unreported, I cannot conclude
the district court abused its discretion in allowing Neil‟s testimony.
Next, I feel compelled to comment on the 750-page appendix filed by the
parties. An appendix that complies with the rules of appellate procedure is of
valuable assistance to us. One that does not is, at best, a source of frustration.
Violations of the Iowa Rules of Appellate Procedure made it difficult to
navigate the parties‟ appendix. Over 200 pages identified in the table of contents
as “Various Pages from the transcript” do not identify the name of each witness
whose testimony is included and the appendix page where each witness‟s
testimony begins. See Iowa R. App. P. 6.15(4).3 Except for the name of one
witness, the names of witnesses whose testimony is included in the appendix are
not indicated at the place in the appendix where the witness‟s testimony begins.
Id.
Adding to the unnecessary bulk of the appendix are duplicate copies of
transcripts, as well as numerous materials not referenced in the parties‟ briefs.
Compliance with the rules is essential in promoting judicial efficiency.
Noncompliance fosters frustration and foils any attempt on our part to achieve
maximum productivity in deciding a high volume of cases.
See Iowa Ct. R.
21.30(1).
3
Since the notice of appeal was filed in August 2008, the revised rules of appellate
procedure effective January 1, 2009, do not apply to this appeal.
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