Beeck v. Aquaslide 'N' Dive Corp.

• Citation: 350 N.W.2d 149
• Decision Date: 16 May 1984
• Docket Number: No. 2-68891,2-68891
• Parties: Jerry A. BEECK and Judy A. Beeck, Appellees, v. AQUASLIDE 'N' DIVE CORPORATION, Appellant, v. EMPLOYERS MUTUAL CASUALTY COMPANY, Illinois-Iowa Claim Service Inc., and Vincent E. O'Toole, Appellees.
• Court: United States State Supreme Court of Iowa

Page 149

350 N.W.2d 149

Jerry A. BEECK and Judy A. Beeck, Appellees, v. AQUASLIDE 'N' DIVE CORPORATION, Appellant, v. EMPLOYERS MUTUAL CASUALTY COMPANY, Illinois-Iowa Claim Service Inc., and Vincent E. O'Toole, Appellees.

No. 2-68891.

Supreme Court of Iowa.

May 16, 1984.

Rehearing Denied June 8, 1984.

E. Eugene Davis and David J. Grace of Davis, Grace, Harvey, Horvath, Gonnerman & Rouwenhorst, Des Moines, for appellant.

John A. McClintock and David L. Brown of Hansen, McClintock & Riley, Des Moines, for appellees Beeck.

A. Roger Witke and John D. Cleavenger of Whitfield, Musgrave, Selvy, Kelly & Eddy, Des Moines, for appellee Employers Mutual.

William M. Tucker and Richard M. Tucker of Phelan, Tucker, Boyle & Mullen, Iowa City, for appellees Illinois-Iowa and O'Toole.

Considered by REYNOLDSON, C.J., and UHLENHOPP, HARRIS, LARSON, and CARTER, JJ.

UHLENHOPP, Justice.

The issues in this appeal stem from a representation by defendant Aquaslide 'n' Dive Corporation that it manufactured a water slide on which plaintiff Jerry A. Beeck was seriously injured. The representation turned out to be false--Aquaslide did not manufacture the slide. As a result, Beeck and his former wife Judy Beeck Bruinsma claim they lost valid causes of action against the actual manufacturer because the time to sue that entity had expired under the applicable statute of limitations by the time they learned the truth.

Beeck's injury occurred on July 15, 1972, while he was attending a social event sponsored by his employer at Kimberly Village in Davenport, Iowa. He fractured his neck when he went down a slide into a swimming pool. He has since been a quadriplegic.

The Beecks filed an action in federal court alleging that Aquaslide designed and manufactured the slide involved in the occurrence. After investigation by insurance companies, Aquaslide stated in its answer to the Beecks' complaint and again in answers to interrogatories filed on June 4, 1974, that it manufactured the slide. The time for a suit would expire on a personal injury claim on July 15, 1974. Iowa Code § 614.1(2) (1973). In February 1975, Aquaslide president Carl R. Meyer discovered that the slide had not been manufactured by Aquaslide.

Aquaslide requested and was granted permission to amend its answer in the federal court action to deny manufacture of the slide. Beeck v. Aquaslide 'n' Dive Corp., 67 F.R.D. 411 (S.D.Iowa 1975), aff'd, 562 F.2d 537 (8th Cir.1977). A separate trial was held on the issue of the identity of the manufacturer, and a jury found that Aquaslide did not manufacture the slide. The federal court then dismissed the action against Aquaslide on motion for summary judgment.

While an appeal of that action was pending in the federal court of appeals, the Beecks brought the present action in the Iowa district court against several parties, including Aquaslide, alleging theories of fraud and misrepresentation based on Aquaslide's assertion that it had manufactured the slide. They bottomed this action on the theory that they would have recovered their damages from the true manufacturer if they had sued it in time, and that Aquaslide's misrepresentation prevented such a suit. Each of the defendants in this action moved for summary judgment, which the Iowa district court granted. The Beecks then appealed to this court. We affirmed the summary judgment except as to Aquaslide, which we kept in the case. We concluded that the Beecks had "at least generated an issue of fact on whether Meyer on behalf of Aquaslide recklessly misrepresented to them that the slide was an Aquaslide." Beeck v. Kapalis, 302 N.W.2d 90, 96 (Iowa 1981).

On remand of the Iowa court action, the case was tried on the merits to the court. The court found for the Beecks and entered judgment in the sum of $3,116,317.87 for Jerry and $65,000 for Judy, plus interest and costs. The court also dismissed a cross-claim by Aquaslide for contribution. Aquaslide appealed to this court, raising several issues, and the Beecks cross-appealed.

I. Scope of review. On review we determine the sufficiency of the evidence introduced in the light most favorable to the court's findings, whether or not the evidence was contradicted. The trial court's findings of fact are binding if supported by substantial evidence. A finding of fact is supported by substantial evidence if the finding may reasonably be inferred from the evidence. Grefe v. Ross, 231 N.W.2d 863, 865 (Iowa 1975).

Some of the questions in the present appeal were decided in our previous opinion. The law of the case requires that we not reopen issues that have been decided, unless evidence subsequently introduced is substantially different. United States v. Unger, 700 F.2d 445, 450 (8th Cir.), cert. denied, --- U.S. ----, 104 S.Ct. 339, 78 L.Ed.2d 308 (1983).

We turn to the issues which the parties present.

II. Liability for reckless misrepresentation. In our previous opinion, we held that for summary judgment purposes the Beecks generated an issue against Aquaslide based on reckless misrepresentation as a form of fraud. Beeck, 302 N.W.2d at 96. In doing so we necessarily decided as a legal proposition that a party making reckless misrepresentations during litigation is not immune from civil liability for damages. See id. at 94 (citing Slotkin v. Citizens Casualty Co., 614 F.2d 301 (2nd Cir.1979), cert. denied, 449 U.S. 981, 101 S.Ct. 395, 66 L.Ed.2d 243 (1980)). That legal proposition is thus binding in the present appeal.

To establish their present cause of action, the Beecks had to prove each element of fraud by the applicable standard of proof: a preponderance of clear, satisfactory, and convincing evidence. Grefe, 231 N.W.2d at 864; Hall v. Wright, 261 Iowa 758, 767, 156 N.W.2d 661, 666 (1968). They had to prove the following elements of fraud: "(1) a material misrepresentation, (2) made knowingly (scienter), (3) with intent to induce the plaintiff to act or refrain from acting, (4) upon which the plaintiff justifiably relies, (5) with damages." Beeck, 302 N.W.2d at 94; Hall, 261 Iowa at 766, 156 N.W.2d at 666.

A. The elements of materiality and misrepresentation are not contested. Aquaslide's answers to the Beecks' complaint and interrogatories in the federal case were material representations that a federal jury found to be false.

B. Scienter and intent to deceive are closely related and "are shown not only when the speaker has actual knowledge of the falsity of his representations but also when he speaks in reckless disregard of whether his representations are true or false." Grefe, supra, 231 N.W.2d at 867; Sedco International, S.A. v. Cory, 522 F.Supp. 254, 324 (S.D.Iowa 1981), aff'd, 683 F.2d 1201 (8th Cir.), cert. denied, 459 U.S. 1017, 103 S.Ct. 379, 74 L.Ed.2d 512 (1982). The requirement of scienter is met "when the evidence shows [the] representations were made in reckless disregard of their truth or falsity." B & B Asphalt v. T.S. McShane Co., 242 N.W.2d 279, 284 (Iowa 1976). "A false statement innocently but mistakenly made will not establish intent to defraud, but, when recklessly asserted, it will imply an intent to defraud." Grefe, supra, 231 N.W.2d at 867 (citing Hall, 261 Iowa at 768-72, 156 N.W.2d at 667-69)); see W. Prosser, Law of Torts § 107, at 701 (4th ed. 1971).

The trial court found that the conduct of Meyer was sufficiently reckless to permit the implication of the elements of scienter and intent. The finding was based on the following evidence.

Meyer was a pioneer in the water slide business and his company accounted for nearly ninety percent of all water slide sales. In an apparent effort to make inroads into Meyer's dominance, competitors resorted to various tactics. Many closely copied Aquaslide products. One company, S.R. Smith & Company, hired Aquaslide's former mold-maker and began production of slides that were all but indistinquishable from Aquaslides. As a result, identification of a particular manufacturer's slide without specialized knowledge became difficult.

The identification problem was exacerbated by salesmen. They frequently used Aquaslide literature to demonstrate available slides but then sold another manufacturer's slide, or they purportedly sold Aquaslide equipment and then, unknown to the customer, delivered another manufacturer's slide. Meyer testified he was harassed continually by these tactics. As to this subject Meyer testified:

Q. Well, have you ever had anybody send any slides down to you that reportedly were sold as Aquaslides, and you checked them out, and they weren't.

A. They returned slides to us time and time again, packaged in our own cardboard, and we would pick them up under our warranty program, return them to Brownsville [Texas], open the carton, and be an S.R. Smith in there, or be somebody else's slide, and it was not of our manufacture. We had labels marked on those so we knew who the dealers were that were doing this, and/or distributors. Then we will take the slide, and take it out of our carton, and then ship it back to them the next time they placed an order, and we would not honor any credit for warranty under this type of arrangement. Charged them the freight sometimes back, both ways for doing it.

The problem of misidentification became so acute that Meyer found himself being sued for injuries on water slides that he did not manufacture. This happened "periodically" and required Meyer to take steps "to convince [the litigants] through literature or writing that it wasn't our slide...." In order to safeguard against such unjustified lawsuits Meyer ordered that in each instance in which an Aquaslide was said to be involved, photographs from particular angles were to be taken and sent to him. From properly taken photographs, Meyer said he could identify one of his slides.

As to the accident involving Beeck, however, Meyer did not make use of his specialized knowledge. He did not order photographs of the slide and he did not explain to...