Hok Sport, Inc. v. Fc Des Moines, L.C.

• Decision Date: 10 August 2007
• Docket Number: No. 06-2433.,06-2433.
• Parties: HOK SPORT, INC., case filed as HOK Sport, Inc., now known as Sport Venue Event, Appellee, v. FC DES MOINES, L.C., doing business as Des Moines Menace Soccer Club; The Stadium Foundation; Kyle Krause, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

495 F.3d 927

HOK SPORT, INC., case filed as HOK Sport, Inc., now known as Sport Venue Event, Appellee, v. FC DES MOINES, L.C., doing business as Des Moines Menace Soccer Club; The Stadium Foundation; Kyle Krause, Appellants.

No. 06-2433.

United States Court of Appeals, Eighth Circuit.

Submitted: March 15, 2007.

Filed: August 10, 2007.

Rehearing and Rehearing En Banc Denied September 17, 2007.

Counsel who presented argument on behalf of the appellant was Gretchen R. Jensen, West Des Moines, Iowa. Also appearing on the brief for appellant were Jeffrey L. Godoman and Marcy A. O'Brien, also of West Des Moines, Iowa.

Counsel who presented argument on behalf of the appellee was David Shinkle, Des Moines, Iowa.

Before RILEY, BOWMAN, and ARNOLD, Circuit Judges.

RILEY, Circuit Judge.

After a ten-day trial, the jury returned a verdict in favor of HOK Sport, Inc. (HOK Sport) and against FC Des Moines, L.C., doing business as Des Moines Menace Soccer Club (The Menace), The Stadium Foundation (TSF), and Kyle Krause (Krause) (collectively, the defendants) in the amount of $436,800. The district court¹ entered judgment in accordance with the verdict. The defendants appeal. We affirm.

I. BACKGROUND

A. Factual Background

HOK Sport is a subsidiary of Hellmuth, Obata + Kassabaum, Inc., the largest architectural firm in the United States. HOK Sport has designed stadiums for twenty-four Major League Baseball and thirty National Football League franchises, as well as soccer, minor league baseball, and collegiate stadiums.

Krause is the president and chief executive officer of Kum & Go, L.C. (Kum & Go), a chain of convenience stores located throughout the Midwest. Krause owns approximately 90% of FC Des Moines, which owns The Menace. The Menace is a minor league soccer club located in Urbandale, Iowa, a suburb of Des Moines, Iowa. Krause, as the owner of The Menace, wanted a new soccer stadium built in Urbandale to increase the market value and prestige of The Menace. Upon completion of the stadium, the City of Urbandale would have owned the stadium and received a nominal rent payment. Calcio, a for-profit entity owned by Krause, would have operated the stadium as a for-profit business. Under this arrangement, The Menace, as a tenant of the stadium, would have paid rent to Calcio.

On November 8, 2001, Krause created TSF, a nonprofit corporation. According to TSF's Articles of Incorporation, TSF was to "be operated exclusively for the benefit of . . . the City of Urbandale, Iowa . . . by constructing and maintaining a stadium." TSF raised funds to build the stadium from both public and private sources, including a $2 million donation from Krause that was contingent upon construction of the stadium.

Krause was TSF's president, sole officer, and only member of its board of directors. Under Krause's supervision, TSF filed articles of incorporation with the Secretary of State and drafted bylaws. Krause, however, did not always treat TSF and The Menace as separate entities. For example, TSF lacked a bank account from November 8, 2001 until March 2002, and in the interim, TSF's deposits were credited to The Menace's bank account. TSF was incorporated without any capital despite accounting entries showing TSF owed $78,000² to The Menace for services rendered before TSF was incorporated. Krause requested employees of The Menace and Kum & Go work as volunteers for TSF. These volunteers provided accounting and other services to TSF. The only person ever to be a full-time employee of TSF was Sharon Krause, Krause's wife. TSF never held a board meeting.

On September 7, 2000, The Menace sent out a Request for Proposals for Architectural Services (RFP). The Menace selected and contracted with HOK Sport as the architect for the stadium. The RFP indicated the stadium's initial seating capacity would be between 5,000 and 7,000 and the estimated cost of construction would be between $13.3 and $15.4 million. The location for the new stadium was N.W. 142nd Street and Aurora Avenue in Urbandale. The RFP set the completion date as the spring of 2002; however, Krause later moved the completion date to the spring of 2003. To accommodate this construction schedule, HOK Sport treated the project as a fast-track project, in which subsequent design phases may be started even though a previous one had not yet been completed.

On November 7 and 21, 2001, HOK Sport mailed letter agreements to TSF regarding the performance of architectural services for the stadium. On December 4, 2001, Krause, on behalf of TSF, signed the letter agreement dated November 21, 2001. The letter agreement provided HOK Sport would provide architectural services for the stadium, including planning analysis, programming, conceptual design, and cost estimates. The letter agreement contained a future services clause, which provided:

It is anticipated that upon conclusion of the Conceptual Design Services the project will be defined with sufficient detail and parameters to proceed with basic design services from Schematic Design through Construction Administration as identified in [the American Institute of Architects (AIA)] B 141 Agreements. This letter agreement will act as a letter of intent to the effect that HOK Sport will be retained by the Owner to continue providing design services for this project through completion of construction. The professional services fees payable to HOK Sport and its consultants shall range from 8.0% of a $10,600,000 construction cost to 8.5% of a $8,000,000 construction cost.

Pursuant to the future services clause, in February 2002, HOK Sport mailed a contract based on AIA B141 CM³ to TSF. TSF never signed or agreed to the proffered contract.

HOK Sport started programming and conceptual design work for the stadium in November 2001. Generally, the programming and conceptual design work includes some design work, site planning, and drawings with limited detail. On December 10, 2001, HOK Sport submitted a $30,000 invoice to The Menace for services rendered before December 1, 2001. On January 3, 2002, The Menace paid HOK Sport the $30,000. HOK Sport completed the programming and conceptual design work in late January or early February 2002. On April 5, 2002, HOK Sport submitted a second $30,000 invoice for services rendered through January 30, 2002.

HOK Sport also simultaneously performed schematic design work. By March 29, 2002, HOK Sport had generally completed the preliminary schematic design work, and, on April 9, 2002, HOK Sport billed TSF $142,416 for the work. Shortly thereafter, TSF paid $172,416 to HOK Sport for both the second invoice for the programming and conceptual design work and the schematic design work. Before writing the $172,416 check, TSF had $9,300.26 in its newly opened bank account. To cover the balance of the check, Krause ordered Kum & Go to deposit $190,000 in TSF's bank account.

HOK Sport completed the design development phase on June 26, 2002. Design development includes designing the mechanical, electrical, and structural systems in greater detail. In the pre-construction phase, Weitz Company (Weitz), the construction manager, developed cost estimates and schedules, as well as reviewed plans and specifications. On July 17, 2002, based on HOK Sport's design development plans, Weitz submitted a cost estimate of $19,661,358 for the stadium. The $19,661,358 estimate exceeded the construction budget, which then was between approximately $8 and $14 million. In response, Krause ordered HOK Sport to delay the design and construction work and to begin value engineering, that is, cutting features to reduce the cost of the project. Accordingly, HOK Sport stopped work. The construction documents were approximately 75% complete when HOK Sport stopped work.

On April 29, 2003, the City of Urbandale decided not to move forward with the stadium. As a result, Krause presented the stadium project to other cities in Iowa, including Des Moines, West Des Moines, Waukee, Grimes, Carlisle, Altoona, and Johnston. During presentations to these cities, Krause represented he was acting on behalf of TSF and used materials prepared by HOK Sport. HOK Sport submitted an invoice to The Menace for $710,377.58 for services rendered through July 31, 2002. TSF never paid the invoice because the cost estimate exceeded the project budget.

B. Procedural Background

HOK Sport filed a complaint, bringing four causes of action: (1) breach of contract against TSF and The Menace; (2) unjust enrichment against TSF and The Menace; (3) quantum meruit against TSF and The Menace; and (4) civil fraud against TSF, The Menace, and Krause. HOK Sport also sought to hold Krause personally liable by disregarding TSF's and The Menace's corporate form. TSF brought counterclaims against HOK Sport for (1) breach of contract and (2) negligent misrepresentation.

The Menace filed a motion for summary judgment, arguing The Menace was not a proper party to the dispute. The district court denied The Menace's motion. The dispute proceeded to trial. At the conclusion of the evidence, HOK Sport and the defendants filed motions for judgment as a matter of law; however, The Menace never argued it was not a proper party to the dispute. The district court denied the motions. The jury returned a verdict, finding (1) HOK Sport had not proven its breach of contract claim against TSF and The Menace; (2) HOK Sport had proven its breach of implied contract and unjust enrichment claims against TSF and The Menace; (3) HOK Sport had not proven its fraudulent misrepresentation claim against TSF, The Menace, and Krause; (4) HOK Sport had proven Krause should be held personally liable for the damages award against TSF, but HOK Sport had not proven Krause should be held personally liable for the damages award against The Menace. The jury also found TSF had not proven either its breach of contract counterclaim or its negligent misrepresentation counterclaim. The jury awarded HOK Sport...