CAR WASH CONSULTANTS, INC. Plaintiff-Appellee/Cross-Appellant, vs. BELANGER, INC., Defendant-Appellant/Cross-Appellee.
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IN THE COURT OF APPEALS OF IOWA
No. 9-582 / 08-1195
Filed November 12, 2009
CAR WASH CONSULTANTS, INC.
Plaintiff-Appellee/Cross-Appellant,
vs.
BELANGER, INC.,
Defendant-Appellant/Cross-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Patrick R. Grady,
Judge.
A manufacturer of automated car wash equipment appeals the judgment
entered in favor of a distributor of that equipment on a jury verdict. AFFIRMED
IN PART, REVERSED IN PART, AND REMANDED.
Robert M. Hogg and Patrick T. Roby of Elderkin & Pirnie, P.L.C., Cedar
Rapids, for appellant.
Peter C. Riley of Tom Riley Law Firm, P.L.C., Cedar Rapids, for appellee.
Heard by Vaitheswaran, P.J., Mansfield, J., and Miller, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2009).
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MANSFIELD, J.
This dispute between a manufacturer and a reseller of automated car
wash equipment presents a number of interesting issues under Iowa‟s version of
the Uniform Commercial Code.
See Iowa Code ch. 554 (2005).
Upon our
review, we conclude that the district court erred in only one respect: It should not
have submitted the reseller‟s claim for lost profits with respect to a location other
than the one the parties actually contracted for. Accordingly, we affirm in part,
reverse in part, and remand.
I. Facts and Proceedings.
From the evidence presented at trial, a rational juror could find the
following facts: In 2003 James Angstman and Darryl High wanted to open a new
automatic/self-serve car wash facility located at the intersection of C Street SW
and Ely Road on the outskirts of Cedar Rapids. They formed Iowa Wash, L.L.C.,
and looked into various manufacturers of automated car wash systems,
ultimately settling on equipment manufactured by Belanger, Inc. Belanger makes
a complex piece of touchless car washing equipment featuring dual robotic spray
arms.
Belanger sells this equipment under the trademark “Vector.”
One
advantage of the Vector over competitive systems is that the car moves more
quickly through the automated wash process, thereby allowing more customers
to be served in a given time period.
Belanger referred Iowa Wash to Car Wash Consultants, Inc. (CWC), their
local dealer.
Missouri.
CWC had installed several Belanger Vectors at locations in
Kirk Knickerbocker of CWC contacted Angstman.
Thereafter,
3
Knickerbocker informed Belanger that Iowa Wash was a large company looking
at building multiple sites throughout Iowa.
CWC provided Iowa Wash with a written site projection showing annual
gross income and annual gross expenses, explaining, however, that “[i]n no way
does CWC, Inc. profess these Income and Expense Projections to be any type of
guarantee.” Iowa Wash also advised CWC that they were interested in opening
multiple car wash sites in Iowa that would be “cookie cutters.” At one point,
Angstman and High met Knickerbocker at a separate Johnson Avenue location.
Knickerbocker was told that Iowa Wash was in negotiations to buy that site.
Subsequently, in April 2004, Iowa Wash entered into a written contract to
purchase the equipment and supplies for the C Street car wash from CWC. In
addition to a Belanger automatic unit (the Vector), the car wash was to include
three self-service bays.
For these bays, CWC sold Iowa Wash self-service
equipment made by a different manufacturer.
CWC also agreed to perform
certain installation services for the car wash, although a licensed electrician and
a licensed plumber were used when required.
Once the car wash went into operation in the fall of 2004, certain problems
arose. Initially, there were “shuttle jams,” although these were corrected. Later,
the Vector unit would stop for no apparent reason. On one occasion a customer
entered the automated car wash because the “enter” light said he could do so,
but his vehicle bumped into the Vector‟s arms and was damaged. Iowa Wash
4
complained to both Belanger and CWC.1 Finally, Iowa Wash demanded that
Belanger take the automated system back.
Iowa Wash reached a settlement with Belanger, under which Belanger
took its Vector back, paid for electrical and plumbing rework to reinstall a different
manufacturer‟s unit, and also compensated Iowa Wash for downtime during the
removal and reinstallation. Notwithstanding the settlement,2 Belanger takes the
position that its equipment was not defective, but that the problems were due to
faulty wiring, plumbing, and heating onsite in Cedar Rapids—matters in which it
was not involved. Belanger argued that CWC had improperly installed the low
voltage lines close to the high voltage lines, resulting in interference that
adversely affected the operation of the Vector.3
Belanger sold its equipment pursuant to a “Standard Equipment
Warranty.” Under that warranty, Belanger warranted to the original purchaser
that its equipment “shall be free from defects in workmanship and material under
normal use and service for a period of 1 year plus 30 days from the date of
invoice.” According to the document, defective parts are warranted for repair or
replacement for thirteen months, but the labor to repair or replace parts is
warranted for only 120 days. The warranty also provides,
1
Despite this, as of February 2005, Iowa Wash was still looking into a possible Vector
for the Johnson Avenue location. Ultimately, Iowa Wash did open a car wash on
Johnson Avenue, but without the involvement of CWC and without using Belanger
equipment.
2
A Belanger witness testified at trial that this was the only time Belanger had taken a
Vector back. Belanger resold the used unit to a different customer, and it was reported
to be running smoothly.
3
A Belanger technical support representative testified that he visited the location in
February 2005, and that the wiring was the “worst” he had ever seen. He did some
rewiring and was able to run at least ten cars through flawlessly. However, the record
indicates there were some problems even after that date.
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In no event shall Seller be liable for any incidental, special,
consequential or exemplary damages resulting from the furnishing,
performance or use of any goods or services sold pursuant hereto,
whether due to a breach of contract, breach of warranty, the
negligence of Seller or to otherwise; not for loss of business . . . .
Finally, at the bottom, in conspicuous language, the warranty provides, “THIS
LIMITED WARRANTY FOR EQUIPMENT AND REPLACEMENT PARTS IS
EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
WHETHER STATUTORY OR OTHERWISE, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABIILTY OR FITNESS FOR A PARTICULAR
PURPOSE.”
On December 11, 2006, CWC sued Belanger for breach of contract,
breach of express warranties, breach of implied warranties, and negligence.
CWC contends that Belanger‟s shipment of a defective and malfunctioning
Vector unit caused CWC to incur out-of-pocket expenses, and also to lose the
Iowa Wash account, resulting in a significant loss of business.
Belanger
answered and counterclaimed, seeking indemnification from CWC for the costs
of its settlement with Iowa Wash.
Trial took place from February 4 to 8, 2008. The district court granted
Belanger‟s motions for directed verdict on CWC‟s breach of express warranty
and negligence claims, and CWC never requested that its breach of contract
claim be submitted to the jury. However, the district court denied CWC‟s motion
for directed verdict on the implied warranty of merchantability claim. The district
court also granted Belanger‟s motion for directed verdict regarding lost profits in
part, disallowing damages for locations other than C Street and Johnson Avenue.
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After deliberations, the jury found that Belanger breached the implied
warranty of merchantability and awarded CWC $3,465.25 in out-of-pocket losses,
$54,000 in lost profits in connection with servicing the Vector at C Street, and
$52,066.34 in connection with future business at Johnson Avenue. The jury
denied any relief to Belanger on its counterclaim.
Belanger appeals. It argues: (1) there was insufficient evidence that its
equipment was defective and therefore breached the implied warranty of
merchantability; (2) the implied warranty of merchantability did not extend to
CWC, but only to the ultimate customer, Iowa Wash; (3) even if potentially
applicable, the implied warranty of merchantability was disclaimed by Belanger;
(4) the lost profits awards were too remote and speculative and also should have
been foreclosed by Belanger‟s exclusion of consequential damages; and (5) a
new trial should be granted because the verdict as a whole was not supported by
sufficient evidence. CWC cross-appeals, arguing that the district court erred in
not submitting its express warranty claim to the jury. For the reasons set forth
herein, we reject all claims of error except Belanger‟s assertion that the lost
profits claim for the Johnson Avenue location should not have been submitted to
the jury.
II. Analysis.
A. Standard of Review.
We review the district court‟s rulings on a motion for directed verdict for
the correction of errors at law. Iowa R. App. P. 6.4 (2008); Easton v. Howard,
751 N.W.2d 1, 5 (2008); Felderman v. City of Maquoketa, 731 N.W.2d 676, 678
(Iowa 2007).
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In reviewing such rulings, we view the evidence in the light most
favorable to the nonmoving party to determine whether the
evidence generated a fact question. To overcome a motion for
directed verdict, substantial evidence must exist to support each
element of the claim or defense. Substantial evidence exists if
reasonable minds could accept the evidence to reach the same
findings.
Yeates v. Iowa W. Racing Ass’n, 721 N.W.2d 762, 768 (Iowa 2006).
The parties agree that this case is governed by Article 2 of the Uniform
Commercial Code (UCC). See Iowa Code § 554.2101. This article provides that
a merchant seller of goods, such as car wash equipment, makes an implied
warranty of merchantability, unless the warranty is “excluded or modified.” Id. §
554.2314. To be merchantable, the goods must at least “pass without objection
in the trade under the contract description” and be “fit for the ordinary purposes
for which such goods are used.” Id.
B. Scope of Implied Warranty Obligation under the UCC.
According to comment 1 to section 2-314 of the UCC, “the warranty of
merchantability applies to sales for use as well as sales for resale.” See Barney
Mach. Co. v. Cont’l M.D.M., Inc., 434 F.Supp. 596, 600 (W.D. Pa. 1977) (relying
on this comment to hold that a reseller may rely upon the warranty of
merchantability). Hence, we disagree with Belanger‟s contention that the implied
warranty of merchantability may extend only to Iowa Wash as the ultimate
customer and not to the “value added reseller,” CWC.
C. Evidence of Breach of Implied Warranty of Merchantability.
Moreover, CWC presented sufficient evidence that Belanger breached the
implied warranty of merchantability. See Renze Hybrids, Inc. v. Shell Oil Co.,
418 N.W.2d 634, 638 (Iowa 1988) (indicating that the defective nature of the
8
goods may be proved by circumstantial evidence); Van Wyk v. Norden Labs.,
Inc., 345 N.W.2d 81, 87 (Iowa 1984) (same). As noted, even after the Belanger
technical representative arrived in February 2005 and did some rewiring,
problems with the Vector unit remained. Also, it was undisputed at trial that
Belanger ultimately took the Vector back and paid certain compensation to Iowa
Wash. In the absence of a limiting instruction, the jury was entitled to infer that
Belanger took these actions because there was something wrong with its
equipment.
D. Applicability of Warranty Disclaimer.
This brings us to Belanger‟s argument that CWC‟s implied warranty claim
should not have been submitted to the jury anyway because that warranty was
properly disclaimed.
Under Iowa Code section 554.2316(2), “to exclude or
modify the implied warranty of merchantability or any part of it the language must
mention merchantability and in case of a writing must be conspicuous.” Here
Belanger‟s standard equipment warranty provided, in all capital letters, that “THIS
LIMITED WARRANTY FOR EQUIPMENT AND REPLACEMENT PARTS IS
EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
WHETHER STATUTORY OR OTHERWISE, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.” We believe this language meets the requirements of Iowa Code
section 554.2316(2) and normally would be effective to disclaim the implied
warranty of merchantability.
See Iowa Code § 554.1201(2)(j) (defining
“conspicuous”); All-Iowa Contracting Co. v. Linear Dynamics, Inc., 296 F. Supp.
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2d 969, 980 (N.D. Iowa 2003) (enforcing disclaimer of implied warranty of
merchantability).
CWC contends, however, that this disclaimer of warranties was only
effective as to Iowa Wash.
In CWC‟s view, Belanger cannot argue
simultaneously (1) the affirmative warranty contained in the “Standard Equipment
Warranty” extended only to Iowa Wash and (2) the disclaimer therein applied to
both Iowa Wash and CWC.
Although neither party cites any legal authority on this issue, we are aware
of three prior decisions that appear to support CWC‟s position. In Hydra-Mac,
Inc. v. Onan Corp., 450 N.W.2d 913, 917 (Minn. 1990), the Minnesota Supreme
Court decided that a disclaimer of warranties was not enforceable as to an entity
that did not receive the benefits of the limited warranty. In that case Onan sold
allegedly defective engines to Hydra-Mac that were incorporated into skid
loaders. Hydra-Mac, Inc., 450 N.W.2d at 915-16. The engines came with an
express, limited warranty directed to “the original purchaser of goods for use,”
and a disclaimer of all implied warranties. Id. at 916. Hydra-Mac argued that it
was not subject to the disclaimer because it was not the purchaser of the goods
“for use.” Id. The court agreed:
[Onan] further contends that although the limited warranty does not apply
to Hydra-Mac, the rest of the provision, the disclaimer, does. We reject
this contention. The disclaimer language is actually a portion of the limited
warranty provision and appears to be intended to apply only [to] the
ultimate consumer. To claim that the rest of the disclaimer applies to
Hydra-Mac, a party that is not an ultimate user and not covered by the
disclaimer, appears to us to be illogical.
Id. at 917.
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Similarly, in Harbourview Yacht Sales, L.L.C. v. Ocean Yachts, Inc., 500
F. Supp. 2d 462, 466-67 (D.N.J. 2007), which involved a dispute between a yacht
manufacturer and a yacht dealer, the court declined to enforce the
manufacturer‟s warranty disclaimers against the dealer, after concluding that the
manufacturer‟s limited warranty did not extend to the dealer.
And, in JM
McCormick Co., Inc. v. International Truck & Engine Corp., No. 1:05-cv-146-RLYTAB, 2007 WL 2904825, (S.D. Ind. Sept. 28, 2007), the court held that a
manufacturer of plywood for buses could not assert a warranty disclaimer against
its immediate customer, i.e., the bus manufacturer, because the warranty itself
extended only to bus purchasers. As the court explained:
Considering the warranty as a whole and giving effect to each
provision, the court finds that McCormick‟s limited warranty does
not apply to International Truck. As such, McCormick‟s disclaimer
of the implied warranties of merchantability and fitness for a
particular purpose is not effective against International Truck and
does not bar its breach of warranty claims against McCormick.
JM McCormick Co. at *12.
We believe these decisions may be somewhat overstated.
It is not
necessarily “illogical” for a manufacturer‟s warranty disclaimer to apply to an
intermediary, even though the intermediary may not be receiving the benefits of
the manufacturer‟s limited warranty. An entity that is only temporarily taking title
to the goods, and then reselling them, could be regarded as having a better
opportunity to manage its exposure, thus needing fewer legal protections.
Additionally, if CWC‟s reading of this disclaimer were correct, any disappointed
purchaser could simply take an assignment of the reseller‟s rights, thereby
circumventing any disclaimer. As one treatise has said, “When the manufacturer
11
sells the goods to a dealer who resells the goods to the ultimate purchaser, the
dealer cannot sue the manufacturer if the manufacturer includes in the contract a
disclaimer of warranties that satisfies UCC § 2-316.”
3A Lary Lawrence,
Lawrence’s Anderson on the Uniform Commercial Code, § 2-316:155 (3d. Ed.).
Furthermore, the disclaimer language is broad and purports to eliminate
“ANY IMPLIED WARRANTY OF MERCHANTABILITY.” (Emphasis added.)
While the affirmative warranty language is limited by its terms to “the original
purchaser,” the disclaimer is not.
However, we ultimately conclude that in this case, Belanger‟s limited
warranty was open to two reasonable but differing interpretations. The document
begins with the heading, “LIMITED WARRANTY.” One might conclude that all
subsequent language in the document, including the disclaimer, was qualified by
that initial heading and thus applied only to parties that were beneficiaries of the
limited warranty.
Or, one might conclude that the disclaimer, because of its
expansive wording, applied to everyone, including the initial recipient of the
document, CWC.
When a contract is ambiguous and is subject to two
reasonable and differing interpretations, interpretation is generally a question of
fact, and it is not the role of the court of appeals to substitute its own judgment.
See Walsh v. Nelson, 622 N.W.2d 499, 504 (Iowa 2001). Because we cannot
say as a matter of law that Belanger disclaimed the implied warranty of
merchantability as to CWC, we decline to disturb the district court‟s decision to
submit that claim to the jury.4
4
Because we have upheld the district court‟s submission of the implied warranty claim to
the jury, we need not reach the merits of CWC‟s cross-appeal, wherein it contends that
12
E. Lost Profits Award.
Next, Belanger contends the district court erred in denying its lost profits
motion for directed verdict in part, thereby allowing the jury to award CWC lost
profits for both the C Street and the Johnson Avenue sites.
At the outset,
Belanger points out that its “Standard Equipment Warranty” also contains a
separate exclusion of consequential damages: “In no event shall Seller be liable
for any incidental, special, consequential or exemplary damages resulting from
the furnishing, performance or use of any goods or services sold pursuant hereto
. . . .” Such exclusions are enforceable unless they are unconscionable. See
Iowa Code § 554.2719(3) (“Consequential damages may be limited or excluded
unless the limitation or exclusion is unconscionable.”). Lost profits are a form of
consequential damages. Boone Valley. Coop. Processing Ass’n v. French Oil
Mach. Co., 383 F. Supp. 606, 610 (N.D. Iowa 1974) (holding that lost profits are
a form of consequential damages and cannot be recovered when there is a valid
exclusion of consequential damages).
However, this exclusion of consequential damages is subject to the same
dual interpretation as the disclaimer of warranties was.
Standing alone, the
exclusion certainly appears broad enough to eliminate any liability for
consequential damages. However, it is also part of a document that begins with
the heading “LIMITED WARRANTY.” That limited warranty, in turn, benefits only
“the original purchaser,” i.e., Iowa Wash. Accordingly, given the ambiguity as to
whether the consequential damages exclusion applies to all parties in the chain
its express warranty claim also should have gone to the jury. CWC concedes that its
recovery under breach of express warranty would be identical to that under breach of
implied warranty.
13
of title or just Iowa Wash, we find the district court did not err in refusing to grant
Belanger a directed verdict on this ground.
Yet Belanger also maintained below, and maintains here, that the lost
profits were simply too speculative and remote. The jury awarded CWC $54,000
in lost profits in connection with servicing the Vector at C Street and $52,066.34
in lost business at the Johnson Avenue location. Kirk Knickerbocker testified that
at each location he could make about $15,098.56 a year on supplies and labor.
He also testified that CWC would have received a $34,866.32 profit on the sale
of a Vector at Johnson Avenue. CWC‟s theory was that the defect in the Vector
shipped to C Street ruined the Belanger/CWC/Iowa Wash relationship, and
brought about this loss of business.
“In a proper case,” consequential damages may be awarded for a seller‟s
delivery of nonconforming goods that the buyer has accepted. See Iowa Code §
554.2714(3). Consequential damages include “any loss resulting from . . . needs
of which the seller at the time of contracting had reason to know and which could
not reasonably be prevented by cover or otherwise . . . .” Id. § 554.2715(2).5
Limitations on consequential damages under the U.C.C. embrace two concepts:
The damages must be reasonably foreseeable at the time of contracting, and
they must be proved with reasonable certainty. See Shinrone, Inc. v. Tasco, Inc.,
283 N.W.2d 280, 285-86 (Iowa 1979) (noting and discussing both limitations).
5
This section is the Uniform Commercial Code‟s take on the venerable rule of Hadley v.
Baxendale, 156 Eng. Rep. 145 (Court of Exchequer 1854), which generally holds that
consequential damages must have been reasonably foreseeable at the time of
contracting either because they would flow naturally from the breach or because they
had been brought to the other party‟s attention at that time.
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Belanger argues that the lost profits claimed by CWC in this case were
neither reasonably foreseeable at the time of contracting nor proved with
reasonable certainty. Belanger points to Angstman‟s trial testimony that Iowa
Wash was so fed up with CWC there was “no” possibility it would have done
future business with it. Belanger also notes the large volume of evidence that
CWC was responsible for at least some of the problems at the C Street location.
CWC, on the other hand, points to a January 2003 e-mail where it advised
Belanger that Iowa Wash was “very interested in building multiple locations,”
maintaining that this put Belanger on notice of potential lost profits at other
locations. CWC also points out that Knickerbocker actually visited the Johnson
Avenue location with Iowa Wash representatives before shipping the Vector for
C Street (although there is no evidence Belanger knew of this meeting).
Additionally, CWC comments that a jury was entitled to take Angstman‟s
testimony about dissatisfaction with CWC with a grain of salt. By the time of trial,
Belanger had made peace with Angstman‟s company, and a December 2004
survey indicated that Iowa Wash was reasonably pleased with CWC‟s service.
Finally, CWC points out that on February 17, 2005, the day after Belanger‟s
technical representative arrived and performed work, Angstman e-mailed
Belanger to ask about the longevity of the equipment because it was looking at
fifteen-year financing for the next location.
Although every case stands on its own facts, courts often reject “loss of a
customer” theories of consequential damages on the ground that they are too
speculative.
See Lary Lawrence, 3A Lawrence’s Anderson on the Uniform
Commercial Code, § 2-715:97 (3d. Ed.); Harbor Hill Lithographing Corp. v. Dittler
15
Bros., Inc., 348 N.Y.S.2d 920, 924 (N.Y. Sup. Ct. 1973) (holding that buyer was
“not entitled to recover lost profits resulting from the loss of the entire Barnell
account, claimed as a result of this brochure embroglio”).
CWC‟s theory with
respect to Johnson Avenue requires a number of inferential leaps. One would
have to assume that but for the defect in Belanger‟s Vector, whatever it was,
Iowa Wash would have opted for another Vector at the next location and would
have been able to arrange satisfactory financing for it (a consideration apparently
important to it). One would also have to assume that Iowa Wash would have
forgiven the other problems it had with CWC at the C Street location unrelated to
the Vector, such as its overstated financial projections and the unsatisfactory
heating system, and continued to work with it. Kopper Glo Fuel, Inc. v. Island
Lake Coal Co., 436 F.Supp. 91, 99 (E.D. Tenn. 1977) (“The Court finds that
Island Lake had nothing more than a hope that General Motors would continue to
purchase coal from it. Whatever hope existed was diminished in part by
Jackson‟s own conduct. Under these circumstances, the Court finds that Island
Lake did not lose its so-called „contracts‟ as a proximate result of any alleged
breach by Kopper Glo.”).
Moreover, there is no evidence that Belanger was aware of the
contemplated Johnson Avenue location at the time of contracting. CWC can
point only to prior, general communication it had with Belanger, advising it that
Iowa Wash was “very interested in building multiple locations.” This effort by a
sales representative to talk up the importance of a nascent, potential customer is
not sufficient, in our view, to trigger potential consequential damage liability for
other, separate transactions under Iowa Code section 554.2715(2). Thus, while
16
we uphold the full award of damages with respect to the C Street location, we
find the Johnson Avenue damages were too speculative and remote and,
therefore, the issue should not have been submitted to the jury.
The district court viewed whether the Johnson Avenue profits should have
been submitted to the jury as a close question. Following the presentation of the
plaintiff‟s case, the district court commented, “At this point I‟m not going to strike
the claim for future profits at Johnson Avenue, though I may reconsider that.” In
its post-trial written ruling, the district court stated, “The issue of future profits
from the facility on Johnson Avenue is not as clear [as C Street].” Ultimately,
while there is much to be said for the court‟s thorough and thoughtful ruling, we
believe the court may have given undue weight to CWC‟s knowledge of Iowa
Wash‟s future plans, rather than focusing on Belanger‟s knowledge at the time of
contracting, which was the critical consideration under Iowa Code section
554.2715(2).6
III. Conclusion.
For the reasons stated, we affirm the judgment below, except we reverse
the award of $52,066.34 in damages for future business at Johnson Avenue, and
remand for further proceedings consistent herewith.
AFFIRMED IN PART, REVERSED AND REMANDED IN PART.
6
We hold that the district court did not err in denying Belanger‟s motion for new trial.
Aside from the lost profits award for Johnson Avenue, which we are reversing, we
believe the verdict in favor of CWC was supported by substantial evidence and
effectuated substantial justice. Johnson v. Knoxville Cmty. Sch. Dist., 570 N.W.2d 633,
635 (Iowa 1997).
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