Haupt v. Miller, 92-1790

• Decision Date: 20 April 1994
• Docket Number: No. 92-1790,92-1790
• Citation: 514 N.W.2d 905
• Parties: Esther L. HAUPT, Executor of the Estate of Taldine Thies, Appellant, v. Richard E. MILLER, William A. Dickey, William Hurd and Donald E. Ruigh, Appellees.
• Court: Iowa Supreme Court

Page 905

514 N.W.2d 905

Esther L. HAUPT, Executor of the Estate of Taldine Thies, Appellant, v. Richard E. MILLER, William A. Dickey, William Hurd and Donald E. Ruigh, Appellees.

No. 92-1790.

Supreme Court of Iowa.

April 20, 1994.

Rehearing Denied May 25, 1994.

David L. Charles and J. Russell Hixson of Gamble & Davis, P.C., Des Moines, for appellant.

John P. Whitesell of the Whitesell Law Office, Iowa Falls, for appellees Richard Miller and Donald Ruigh.

John F. Lorentzen and Thomas M. Zurek of Nyemaster, Goode, McLaughlin, Voigts, West, Hansell & O'Brien, P.C., Des Moines, for appellee William Hurd.

Jerold B. Oliver and G. Stephen Walters of Jordan, Oliver & Walters, Winterset, for appellee William A. Dickey.

Considered en banc.

SNELL, Justice.

I. This appeal centers around the petition of Esther Haupt (Haupt), executor of the estate of Taldine Thies, who alleged several causes of action in tort against Richard Miller (Miller), William Dickey (Dickey), William Hurd (Hurd), and Donald Ruigh (Ruigh), former officers and directors of Citizens State Bank (CSB). The tort claims all arise out of a loan guarantee transaction between Taldine Thies (Taldine) and CSB, the bank for which each defendant formerly worked. The district court granted defendants' motions to dismiss Haupt's claims of negligent breach of contract asserted against Ruigh, Dickey, and Hurd. The district court also dismissed Haupt's claims of negligent misrepresentation asserted against Ruigh and Miller. Haupt's appeal to this court raises issues of first impression regarding the liability of corporate officers and directors for representations made in the course of their banking business. We reverse and remand.

II. Appellate review of rulings on motions to dismiss is limited. Berger v. General United Group, Inc., 268 N.W.2d 630, 634 (Iowa 1978). This court cannot sustain a motion to dismiss on grounds not asserted in the district court. Jones v. Madison County, 492 N.W.2d 690, 693-94 (Iowa 1992). In a motion to dismiss the movant "admits the well-pleaded facts in the pleading assailed for the purpose of testing their legal sufficiency." Id. Thus, our decision to overrule or sustain a motion to dismiss must rest on legal grounds. In light of our standard of review in this case, we accept as true the allegations set forth in Haupt's petition. See Board of Supervisors v. Standard Appliance Co., 249 Iowa 438, 440, 87 N.W.2d 459, 460-61 (1958).

III. In August 1977 Franklin Thies (Franklin) owed CSB $90,000. Franklin arranged to borrow funds from the Farmers Home Administration (FmHA) to repay his debt to CSB. Securing the FmHA loan would take a number of months. Realizing this, Ruigh, then the vice president of CSB, requested Taldine Thies, Franklin's mother, to execute a written guarantee of Franklin's $90,000 debt. Prior to completing the transaction, Ruigh orally assured Taldine that she was guaranteeing only $90,000 worth of debt. However, this limit was not written into the guarantee document which stated that the guarantee had no dollar limit. Ruigh also promised Taldine prior to executing the guarantee, that the written guarantee instrument would be returned to her or destroyed when Franklin's $90,000 debt was paid.

In February 1978 Franklin received the FmHA loan. He paid off the $90,000 debt to CSB shortly thereafter. The written guarantee was neither returned to Taldine nor destroyed. On April 17, 1986, Taldine died. On July 16, 1986, CSB's president, defendant Miller, told Haupt that CSB was filing a claim in probate in Taldine's estate in the amount of $414,042.18. Miller relayed this information to Haupt for the purpose of assisting Haupt in the distribution of the estate's assets. CSB then filed the claim based on the written guarantee executed by Taldine. On July 31, 1986, CSB was declared insolvent. The Federal Deposit Insurance Corporation (FDIC) purchased the Thies guarantee to CSB. On November 21, 1990, this court affirmed a district court order sustaining the FDIC's motion for summary judgment against Taldine's estate in the amount of $414,042.18. See In re Estate of Thies, 463 N.W.2d 40 (Iowa 1990).

In this sequel to the above-cited case, Haupt sued the CSB officers involved in the above-described guarantee transaction. Haupt sued Ruigh, Hurd, and Dickey on a theory of negligent breach of contract. Haupt also sued Ruigh and Miller for negligent misrepresentation. Further, Haupt sued Ruigh for fraudulent misrepresentation. The defendants all filed motions to dismiss the claims filed against them. The district court dismissed all the claims except the claim for fraudulent misrepresentation against Ruigh.

Ruigh filed a second motion to dismiss on the ground that Haupt's claim for fraudulent misrepresentation was time barred under Iowa Code section 614.4. The district court denied this motion. Haupt filed a motion for interlocutory appeal of the district court's decisions to dismiss her claims based on negligence. We denied this motion. Before taking her appeal to this court on her negligence claims, Haupt dismissed without prejudice her claim for fraudulent misrepresentation against Ruigh.

IV. General Negligence Principles.

As a general rule, corporate officers are individually liable to third parties for their torts, even when occurring while they act in their official corporate capacity. Grefe v. Ross, 231 N.W.2d 863, 868 (Iowa 1975); Luther v. National Inv. Co., 222 Iowa 305, 308-09, 268 N.W. 589, 590 (1936); Stambaugh v. Haffa, 217 Iowa 1161, 1163, 253 N.W. 137, 138 (1934). Our court has upheld the imposition of personal liability against corporate officers in cases involving instances of fraud, or actions for the wrongful conversion of personal property. See Briggs Transp. Co. v. Starr Sales Co., 262 N.W.2d 805, 808-09 (Iowa 1978); Grefe, 231 N.W.2d at 868; Luther, 222 Iowa at 308-09, 268 N.W. at 590; Stambaugh, 217 Iowa at 1163, 253 N.W. at 138. However, there exists a relative dearth of Iowa case law regarding the extent to which corporate officers are personally liable for their tortious acts.

Haupt contends all of the defendants in this case are individually liable for the torts alleged in her petition regardless of whether they acted within or without the scope of their employment. Defendants contend they are not liable for negligent torts occurring within the scope of their employment. Absent fraud, defendants argue, corporate officers cannot be held individually liable in tort for actions occurring while acting on behalf of a corporate entity. The district court held that only where evidence of fraud exists may individual liability be imposed against corporate officers or directors.

At the outset, it is important to define the precise issue before us. Haupt is not asking this court to "pierce the corporate veil." That doctrine is primarily used to impose personal liability upon the owners, directors, or officers of the corporation attempting to use the corporate entity as an "intermediary to perpetrate fraud or promote injustice." Briggs Transp., 262 N.W.2d at 810. Nor is our analysis in Unertl v. Bezanson applicable to our analysis of this case. Unertl v. Bezanson, 414 N.W.2d 321 (Iowa 1987). In Unertl we said:

The rule generally followed by the authorities is that a creditor of a corporation may not maintain a personal action at law against its officers or directors who have, by their mismanagement or negligence, committed a wrong against the corporation to the consequent damage of the creditor.

Unertl, 414 N.W.2d at 324.

Taldine Thies was not a creditor of CSB. Moreover, Haupt is not alleging injury caused by the commission of a wrong by an officer against CSB. Rather, Haupt alleges the defendants committed a wrong against Taldine Thies, causing her direct loss. The rights of creditors to recover against corporate officers for torts committed by corporate officers against the corporation is a much different legal question than that presented by Haupt in her appeal. See 3A William M. Fletcher, Cyclopedia of the Law of Private Corporations § 1134, at 265 (1986) [hereinafter Fletcher]; see also Frances T. v. Village Green Owners Ass'n, 42 Cal.3d 490, 229 Cal.Rptr. 456, 723 P.2d 573, 581 (1986).

Other jurisdictions have decided that corporate officers can be held personally liable for their negligent acts. See Fletcher § 1137, at 276, § 1161, at 370. Many courts, however, posit the existence of liability on a finding of misfeasance or malfeasance, but distinguish nonfeasance of duty. See e.g., Galie v. RAM Assocs. Management Servs., Inc., 757 P.2d 176, 177 (Colo.App.1988) (positing liability on finding of misfeasance); Mathis v. Yondata Corp., 125 Misc.2d 383, 480 N.Y.S.2d 173, 176 (N.Y.Sup.Ct.1984). See generally Fletcher § 1161, at 370. The trend among courts is to discard such distinctions, in favor of utilizing a general negligence standard as the test for imposing individual liability against corporate officers for negligent acts committed against third parties. See Cherry v. Ward, 204 Ga.App. 833, 420 S.E.2d 763, 765 (1992); Berry v. Aetna Casualty & Sur. Co., 240 So.2d 243, 247 (La.App.1970). See generally Fletcher § 1171, at 370-71; see also Pirtle's Adm'x v. Hargis Bank & Trust Co., 241 Ky. 455, 44 S.W.2d 541, 546 (1931); Hoeverman v. Feldman, 220 Wis. 557, 265 N.W. 580, 582 (1936).

In 1921 our court noted that status as an agent does not insulate an agent from liability for wrongful acts. E.H. Emery & Co. v. American Refrigerator Transit Co., 193 Iowa 93, 97, 184 N.W. 750, 751 (1921). We said:

The question of the liability of an agent to a third person for negligence has been frequently before the courts, and there is much confusion and lack of uniformity in the authorities. Cases have frequently arisen where the duty which the agent owed to the public, rather than to an individual, was involved, and liability determined because of such duty. In a general way, it may be said that an...