Chrysler Financial Co. v. Bergstrom

• Decision Date: 09 September 2005
• Docket Number: No. 04-0582.,04-0582.
• Citation: 703 N.W.2d 415
• Parties: CHRYSLER FINANCIAL COMPANY, Appellee, v. Jon BERGSTROM, Appellant.
• Court: Iowa Supreme Court

703 N.W.2d 415

CHRYSLER FINANCIAL COMPANY, Appellee, v. Jon BERGSTROM, Appellant.

No. 04-0582.

Supreme Court of Iowa.

September 9, 2005.

Ray Johnson of Johnson Law Firm, West Des Moines, for appellant.

Becky J. Petersen and Phil Watson of Phil Watson, P.C., Des Moines, for appellee.

CADY, Justice.

The Iowa Consumer Credit Code provides remedies for Iowa consumers against creditors who violate certain provisions of the Code. See Iowa Code §§ 537.5201-.5203 (2003). This appeal concerns a violation involving filing a lawsuit against a consumer in the wrong venue and the statutory defense that relieves the creditor of liability for the violation if the creditor shows the violation was unintentional and was the result of a bona fide error that occurred even though the creditor had a procedure in place "reasonably adapted to avoid the error." Id. § 537.5201(7). We vacate the decision of the court of appeals and affirm the decision of the district court.

I. Background Facts and Proceedings

Jon Bergstrom leased a vehicle from Chrysler Financial Company in 1997. He subsequently fell behind on his lease payments, and Chrysler gave him notice of his right to cure the default. See id. § 537.5110 (providing for consumer's right to cure default and stating that giving notice of the right to cure default is a prerequisite to suit); id. § 537.5111 (requiring creditor to give consumer notice of right to cure default). Bergstrom did not cure the default within the time he was allowed to cure. See id. (stating consumer has twenty days from receiving notice of the right to cure to pay the delinquency). Thus, Chrysler accelerated the debt, sold the vehicle following repossession, and filed an action against Bergstrom for a deficiency judgment of $7690.46.

Under the consumer credit code, Chrysler was required to bring the action in the county of Bergstrom's residence. Id. § 537.5113. Bergstrom resided just outside Riceville, Iowa, but Riceville was his designated city of residence.

Riceville is located on the border of Howard and Mitchell Counties in northeast Iowa. The western portion of Riceville is in Mitchell County, and the eastern portion of Riceville is in Howard County. Bergstrom lives near the portion of Riceville that lies in Mitchell County. However, Chrysler filed the action in Howard County.

Bergstrom filed a motion for a change of venue to Mitchell County and requested attorney fees and costs for the motion. Chrysler consented to transferring the case to Mitchell County. However, it contested Bergstrom's claim for attorney fees and costs on the basis that it "exercised due diligence in attempting to ascertain the proper venue, the error was harmless and the Defendant was not unduly prejudiced" by the mistake. The district court in Howard County transferred the case to Mitchell County, ordered Chrysler to pay Bergstrom's court costs, and held the issue of attorney fees in abeyance.

After the transfer to Mitchell County, Bergstrom filed an answer to Chrysler's petition, along with a counterclaim. The counterclaim alleged Chrysler violated the consumer credit code by bringing the action in the wrong county. It sought, among other items, statutory damages under Iowa Code section 537.5201.¹ Chrysler replied to Bergstrom's counterclaim, asserting that its violation of the consumer credit code was not intentional and resulted from a bona fide error. On that basis, it claimed it could not be held liable for statutory damages. The case proceeded to a bench trial.

The district court ultimately entered a deficiency judgment for $7690.46 for Chrysler against Bergstrom. However, the focus in this appeal is solely on Bergstrom's counterclaim against Chrysler. In response to the counterclaim, Chrysler presented evidence at trial of the filing practices and procedures of the Des Moines law firm it retained to initiate the action. Karen Brewer, a legal secretary at the firm, testified that she was responsible for preparing cases, including consumer credit cases, for filing. She was instructed that consumer credit cases were required to be filed in the county of the defendant's residence. The firm's procedure for ascertaining the defendant's county of residence was to consult the United States Postal Service (USPS) city-county directory. The directory provided a list of cities in Iowa and, next to each city, listed the county in which the city was located. Brewer had previously compared the listings in the USPS directory with those in a city-county directory she obtained from the Iowa Department of Transportation and found them to be identical. Brewer testified she had used the USPS directory "hundreds" of times to find the defendant's county and had never encountered a problem until this case. In this case, Brewer obtained Bergstrom's address from the Chrysler file, which showed Riceville as the city of his address. She then used the directory to ascertain his county of residence. The directory indicated Riceville was in Howard County.

The district court entered a deficiency judgment for Chrysler in the amount of $7690.46. It also found that the error of filing the lawsuit in the wrong county was unintentional and "constitute[d] a bona fide error pursuant to section 537.5201(7)." The court denied Bergstrom's counterclaim against Chrysler. It did, however, award Bergstrom attorney fees of $525 as costs incurred in changing venue. See Iowa R. Civ. P. 1.806.

Bergstrom filed a timely notice of appeal from the court's judgment denying his counterclaim. He did not appeal from the $7690.46 judgment entered against him by the district court. We transferred the case to the court of appeals. The court of appeals reversed the district court's judgment. It held that Chrysler's "bona fide error defense to the counterclaim should have failed as a matter of law" and remanded the case to the district court to determine the amount of statutory damages and attorney fees. We granted further review.

II. Principles of Review

We review the judgment of a district court following a bench trial in a law action for correction of errors at law. Wolf v. Wolf, 690 N.W.2d 887, 892 (Iowa 2005). The district court's findings of fact have the force of a special verdict and are binding on us if supported by substantial evidence. Nathan Lane Assocs., L.L.P. v. Merchants Wholesale of Iowa, Inc., 698 N.W.2d 136, 138 (Iowa 2005). Evidence is substantial if a reasonable person would accept it as adequate to reach a conclusion. Hansen v. Seabee Corp., 688 N.W.2d 234, 238 (Iowa 2004) (citing Arnevik v. Univ. of Minn. Bd. of Regents, 642 N.W.2d 315, 318 (Iowa 2002)). "`Evidence is not insubstantial merely because we may draw different conclusions from it; the ultimate question is whether it supports the finding actually made, not whether the evidence would support a different finding.'" Fischer v. City of Sioux City, 695 N.W.2d 31, 33-34 (Iowa 2005) (citing Raper v. State, 688 N.W.2d 29, 36 (Iowa 2004)); accord 5 Am.Jur.2d Appellate Review § 666, at 340 (1995). In determining whether substantial evidence exists, we view the evidence in the light most favorable to the district court's judgment. Gacke v. Pork Xtra, L.L.C., 684 N.W.2d 168, 179 (Iowa 2004). If the district court's "findings are ambiguous, they will be construed to uphold, not defeat, the judgment." Johnson v. Kaster, 637 N.W.2d 174, 177 (Iowa 2001) (citing Byers v. Contemporary Indus. Midwest, Inc., 419 N.W.2d 396, 397 (Iowa 1988)). Finally, if a district court fails to make a specific fact finding on an issue, and a party files a rule 1.904(2) motion requesting a finding on the issue, and the district court summarily denies the motion, we will assume the court found against the party on that issue. See Kennedy v. State, 688 N.W.2d 473, 478 (Iowa 2004).²

III. Merits

It is a violation of the consumer credit code to institute an action against a consumer in the wrong county. Iowa Code § 537.5113. Yet, when a violation of the consumer credit code was not intentional and resulted from a bona fide error, a violator may avoid liability to a consumer under a standard established in section 537.5201(7), which is often referred to as the "bona fide error" defense. The section provides:

A person may not be held liable in any action brought under this section for a violation of this chapter if the person shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid the error.

Id. § 537.5201(7).

The application of this standard requires that three questions be answered. See id. First, was the violation unintentional and the result of a bona fide error? Id. Second, if the violation was unintentional and resulted from a bona fide error, did the violator maintain a procedure to avoid the error? Id. Third, if the procedure was in place, was it reasonably adapted to avoid the error? Id.³ The first question is fairly straightforward. The inquiry is simply whether the violator intended to do the act that constituted a violation of the act, not whether the violator intended to violate the law. Cf. 47 C.J.S. Interest & Usury § 499, at 598 (2005) (construing the bona fide error defense in Truth in Lending Act, 15 U.S.C. § 1640(c), which contains language identical to Iowa Code section 537.5201(7)). Thus, in this case, the inquiry is whether Karen Brewer intended to file the lawsuit in the wrong county. "The determination of whether a violation was not intentional and resulted from a bona fide error is one of fact." Id. § 499, at 599. The district court found that she did not intend to file a lawsuit in the wrong county, and there is substantial evidence to support that finding. See Nathan Lane Assocs., L.L.P., 698 N.W.2d at 138 (stating district court's findings are binding on appeal if supported by substantial evidence). Brewer testified at trial that she intended to file the...