Schaller Telephone Co. v. Golden Sky Systems, Inc.

• Decision Date: 31 July 2002
• Docket Number: No. 01-2038.,01-2038.
• Citation: 298 F.3d 736
• Parties: SCHALLER TELEPHONE COMPANY, Appellant, v. GOLDEN SKY SYSTEMS, INC., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

298 F.3d 736

SCHALLER TELEPHONE COMPANY, Appellant, v. GOLDEN SKY SYSTEMS, INC., Appellee.

No. 01-2038.

United States Court of Appeals, Eighth Circuit.

Submitted: February 13, 2002.

Filed: July 31, 2002.

Rehearing and Rehearing En Banc Denied: September 4, 2002.

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Jeff W. Wright, argued, Sioux City, IA (Alan Fredregill, on the brief), for appellant.

William D. Beil, argued, Kansas City, MO (David J. Rempel, on the brief), for appellee.

Before WOLLMAN, RICHARD S. ARNOLD, and BYE, Circuit Judges.

WOLLMAN, Circuit Judge.

This case deals with the aftermath of failed negotiations between Schaller Telephone Co. (Schaller) and Golden Sky Systems, Inc. (Golden Sky) for the sale of Schaller's rights to provide DirecTV satellite television services in four northwest Iowa counties. Schaller sued Golden Sky for fraudulent nondisclosure, breach of contract, and fraudulent misrepresentation. Golden Sky counterclaimed for unjust enrichment. The district court¹ dismissed Schaller's fraudulent nondisclosure claim and granted summary judgment to Golden Sky on Schaller's breach of contract and fraudulent misrepresentation claims and on Golden Sky's counterclaim. Schaller has appealed from those rulings. We affirm.²

I.

Golden Sky first expressed interest in purchasing Schaller's DirecTV service rights in the fall of 1998. After preliminary discussions, Golden Sky sent a formal letter of interest to Schaller on March 9, 1999. Golden Sky's chief rival, Pegasus Communications Corporation (Pegasus), made a better offer shortly thereafter. Golden Sky responded with an even better offer in a second letter of interest on May 26, 1999, in which it conditionally offered to purchase Schaller's rights for $2,700 per subscriber for a minimum of 4,100 subscribers. In the negotiations that followed the price per subscriber remained the same.

For the next several months, Golden Sky and Schaller negotiated over the proposed transaction. Representatives of each company met several times, spoke several times by telephone, and exchanged numerous drafts of proposed asset purchase agreements and other documents. Ultimately, on September 23, 1999, Golden Sky's counsel sent a letter to Schaller stating that Golden Sky had determined not to go through with the transaction.

The contents of the various contacts between the parties form the basis for this lawsuit. Schaller argues first that Golden Sky fraudulently failed to disclose important facts to Schaller. Second, Schaller claims that the parties formed an oral contract. Finally, Schaller claims that Golden Sky fraudulently misrepresented certain facts.

II.

Schaller's first claim is that Golden Sky failed to disclose material facts to Schaller, specifically, that Golden Sky failed to disclose that it was unable to acquire financing for the transaction. The district court dismissed this claim under Fed.R.Civ.P. 12(b)(6), concluding that Schaller had not alleged any facts that would demonstrate a special relationship between the parties that would have imposed upon Golden Sky the duty to disclose that information to Schaller.

We review de novo a district court's grant of a motion to dismiss for failure to state a claim. Kohl v. Casson, 5 F.3d 1141, 1148 (8th Cir.1993). A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can not prove any set of facts in support of his claim that would entitle him to relief. Id. When analyzing the adequacy of a complaint's allegations under Fed.R.Civ.P. 12(b)(6), we must accept as true all of the complaint's factual allegations and view them in the light most favorable to the plaintiff. Id.

Iowa law recognizes a cause of action for fraudulent misrepresentation based on nondisclosure of material facts. Sinnard v. Roach, 414 N.W.2d 100, 105 (Iowa 1987). To be actionable under Iowa law, a misrepresentation must "relate to a material matter known to the party ... which it is his legal duty to communicate to the other contracting party whether the duty arises from a relation of trust, from confidence, from inequality of condition and knowledge, or other attendant circumstances." Id. (quoting Wilden Clinic Inc. v. City of Des Moines, 229 N.W.2d 286, 293 (Iowa 1975)).

The Iowa Supreme Court has stated that "[t]here is no specific test for determining when a duty to reveal arises in fraud cases. However, ... `[a] misrepresentation 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.'" Clark v. McDaniel, 546 N.W.2d 590, 592 (Iowa 1996) (internal citation omitted) (quoting Kunkle Water & Elec., Inc. v. City of Prescott, 347 N.W.2d 648, 653 (Iowa 1984)).

The district court dismissed the fraudulent nondisclosure claim because it found that Schaller pled no facts which would give rise to a relationship between the parties that created a duty to disclose facts. Citing section § 551(2)(a) of the Restatement (Second) of Torts, the district court found that Schaller and Golden Sky were sophisticated business entities engaging in arm's length negotiations and determined that Iowa law does not impose a duty to disclose in such a situation. Schaller does not dispute these rulings as such but instead contends on appeal that the district court incorrectly limited its analysis to one theory of a relationship between the parties. Schaller claims that the district court should have considered three alternative standards under which Golden Sky would have had a duty to disclose: 1) inequality of condition and knowledge between the parties, 2) facts basic to the transaction relied on by the other party as described in Restatement § 551(2)(e), and 3) new knowledge acquired by Golden Sky that made its prior representations false as described in Restatement § 551(2)(c).

First, Schaller argues that an inequality of condition and knowledge between the parties as to Golden Sky's financial condition created a duty to disclose facts regarding that condition. Schaller, however, did not plead that this inequality created a special relationship between the parties, nor did it argue so to the district court. Schaller's complaint lists only the following bases for a special relationship between the parties:

Golden Sky's superior knowledge of the procedure for the acquisition or sale of the rights to supply DIRECTV satellite television services, Schaller's sharing of confidential information regarding Schaller's business and financial circumstances in order to consummate a sale of Schaller's satellite television rights ..., Schaller's forbearance from further pursuing and securing a profitable contract for the sale of Schaller's properties to Golden Sky's competitors, and Schaller's expenditure of substantial sums at Golden Sky's request to increase Schaller's subscriber base.

Schaller's memorandum of law in response to Golden Sky's motion to dismiss repeats only these reasons for a special relationship. Nowhere did Schaller argue anything regarding inequality of condition and knowledge to the district court. We will not hear issues first raised on appeal, Cronquist v. City of Minneapolis, 237 F.3d 920, 925 (8th Cir.2001), and so we decline to consider this argument.

In any event this argument fails on the merits. Schaller has never alleged any facts other than those that exist in a typical arm's length business deal. The cases it relies on all involve parties who rely on specific, technical expertise of the other party or other specialized information provided by a party. See, e.g., Clark, 546 N.W.2d at 592-93 (seller of car liable for failing to disclose that car was composed of the front of one car and the back of another "clipped" together); Kunkle, 347 N.W.2d at 653 (plumber held liable to city for failing to disclose when asked about needed repairs on its water system that the entire system would likely need to be replaced); Peoples Bank & Trust Co. v. Lala, 392 N.W.2d 179, 188 (Iowa App.1986) (bank in special relationship with mortgagor of homestead). Schaller cites to no Iowa case holding that a sophisticated business entity has a duty to disclose facts regarding its financial condition to another business entity as part of an arm's length negotiation. Cf. Sinnard, 414 N.W.2d at 106-07 (bank officer owed no duty of disclosure to plaintiff who pledged personal property as collateral for a loan to a corporation regarding the debts of a corporation where the plaintiff was the secretary of that corporation); Wilden, 229 N.W.2d at 293 (city cannot be held liable for failing to disclose to plaintiff that it was the sole bidder on a parcel of land).

We also note that Schaller bases the arguments it raises throughout its appeal on publicly filed information regarding Golden Sky. This information was available to Schaller at all times, and we do not believe that Iowa law recognizes a cause of action based upon nondisclosure where the information in question was not "peculiarly" within the knowledge of Golden Sky. See Sinnard, 414 N.W.2d at 107.

Second, Schaller claims that Golden Sky had a duty to disclose under Restatement (Second) of Torts § 551(2)(e), which provides that a party must disclose

facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of the facts.

Schaller did not specifically cite to this standard or use similar language in its complaint or its memorandum of law in opposition to Golden Sky's motion to dismiss. It did, however, in its memorandum of law quote a district court case in which the court discussed the standards under § 551(2)(e), Jones Distributing Co., Inc. v. White Consolidated Industries, Inc....