Midwest Home Distributor, Inc. v. Domco Industries Ltd.

• Decision Date: 23 September 1998
• Docket Number: No. 96-1731,96-1731
• Citation: 585 N.W.2d 735
• Parties: MIDWEST HOME DISTRIBUTOR, INC. d/b/a Midwest Carpets, Inc., Appellee, v. DOMCO INDUSTRIES LTD., Appellant.
• Court: Iowa Supreme Court

Page 735

585 N.W.2d 735

MIDWEST HOME DISTRIBUTOR, INC. d/b/a Midwest Carpets, Inc., Appellee, v. DOMCO INDUSTRIES LTD., Appellant.

No. 96-1731.

Supreme Court of Iowa.

Sept. 23, 1998.

Rehearing Denied Nov. 9, 1998.

Stephen J. Holtman and David A. Hacker of Simmons, Perrine, Albright & Ellwood, P.L.C., Cedar Rapids, for appellant.

Robert D. Houghton, Connie Alt, and Nancy J. Penner of Shuttleworth & Ingersoll, P.C., Cedar Rapids, for appellee.

Considered by HARRIS, P.J., and LARSON, LAVORATO, SNELL, and ANDREASEN, JJ.

LAVORATO, Justice.

A floor covering distributor sued a floor covering manufacturer for damages arising out of a distributor relationship between the two. The jury awarded the distributor compensatory damages on multiple theories of recovery and punitive damages. The theories included promissory estoppel, breach of fiduciary relationship, fraudulent misrepresentation, and fraudulent concealment. In its appeal, the manufacturer raises numerous issues. The decisive issues, however, are whether sufficient evidence supports the recovery for fraudulent misrepresentation and punitive damages, whether an instruction on one of the elements of the misrepresentation claim was supported by the evidence, and whether several evidentiary rulings were correct. We affirm.

I. Facts.

We state the facts in the light most favorable to the jury verdict. Midwest Home Distributor, Inc. is a floor covering distributor operating in Cedar Rapids. Domco Industries Ltd. is a Canadian company and manufactures vinyl floor covering. In October 1988 Midwest became a Domco distributor following a number of discussions between Gary Skogman of Midwest and Tom Ward of Domco.

At the time, Domco was trying to establish a presence in the U.S. market, a market dominated by several U.S. floor covering manufacturers. Midwest had a dealer network covering Iowa and was seeking a vinyl line.

During his discussions with Ward, Skogman sought a long-term distributorship in which Midwest would be the only stocking distributor in the state. A stocking distributor has certain advantages over other dealers in the territory. For example, a stocking distributor can offer manufacturer rebates to dealers in its territory. Neighboring distributors can sell in the stocking distributor's territory but cannot offer rebates and are at a freight disadvantage.

Domco represented to Midwest that it was growing and increasing its market share in the United States. In addition, Domco represented to Midwest that Midwest would be the only stocking distributor of Domco's product in Iowa. Based on these representations, Midwest became a Domco distributor in October 1988. In doing so, Midwest gave up opportunities to pursue other vinyl lines and invested substantial finances, time, and human resources in promoting Domco's product.

Throughout 1989 Midwest concentrated on developing dealers for Domco's product in western Iowa. During this time Frank Smith succeeded Ward, and Richard Abramowicz was Domco's vice president for U.S. sales. During 1989 both men reassured Midwest of its status as a sole stocking distributor. Despite these assurances, Smith began secretly pursuing a distributorship with Onthank Company in Des Moines as early as March of 1989.

In December 1989 Smith and Abramowicz came to Cedar Rapids and presented Skogman with projected sales figures based on Midwest having all the Domco sales in Iowa. The two concealed from Skogman the fact that Domco would soon add Onthank as another stocking distributor in Iowa. This would mean that Onthank would capture a large share of these sales. Following their meeting with Skogman, Smith and Abramowicz proceeded directly to Onthank to finalize its deal with that company.

Skogman learned of Onthank's appointment in January 1990. Skogman immediately protested the appointment to Jack Lee, a Domco vice president. Lee assured Skogman that Onthank's appointment would not harm Midwest's projected profits because (1) Domco would restrict Onthank's territory to fifty miles around Des Moines and (2) Domco was growing and increasing its market share in the United States.

Actually, Domco was not growing. In addition Onthank's written agreement with Domco, which was reached at the same time Lee was placating Skogman, provided that Domco would support Onthank outside a fifty-mile radius around Des Moines.

Skogman again complained to Lee, this time by letter. Lee did not respond.

In early January 1991, Onthank realized that the state could only support one stocking distributor. Onthank began pressuring Domco to terminate Midwest's distributorship so that Onthank would be the only stocking distributor in Iowa. After a series of letters, meetings, and telephone conversations during which Onthank and Domco discussed and agreed that Domco would terminate Midwest's distributorship, Domco did so effective August 1993.

II. Proceedings.

Midwest sued Domco, alleging breach of contract, promissory estoppel, breach of fiduciary relationship, fraudulent misrepresentation, and fraudulent concealment. Midwest also sought punitive damages. The district court submitted all of these theories to the jury. The jury rejected the breach of contract theory but found for Midwest on the remaining theories. The jury awarded Midwest $400,000 in compensatory damages and $750,000 in punitive damages. In an answer to a special interrogatory, the jury assigned the punitive damages to "fraud."

The district court overruled Domco's motions for judgment notwithstanding the verdict (JNOV) and new trial regarding the verdicts for compensatory and punitive damages.

On appeal, Domco raises numerous issues. We need only consider whether the district court erred in (1) overruling Domco's motion for JNOV challenging the sufficiency of the evidence as to the fraudulent misrepresentation and punitive damages claims, (2) overruling Domco's motion for new trial because of an instruction on the justifiable reliance element of the fraudulent misrepresentation claim, and (3) overruling Domco's objections to the admissibility of testimony from former Domco distributors and a former Domco employee.

III. Scope of Review.

We review district court rulings on motions for JNOV for the correction of errors at law. Iowa R.App. P. 4; Magnusson Agency v. Public Entity Nat'l Company-Midwest, 560 N.W.2d 20, 25 (Iowa 1997). We view the evidence in the light most favorable to the party against whom the motion was made, taking into consideration every legitimate inference that may fairly and reasonably be made. Iowa R.App. P. 14(f)(2); Magnusson, 560 N.W.2d at 25. The motion must stand or fall on the grounds raised in the motion for directed verdict. Magnusson, 560 N.W.2d at 25.

We inquire whether sufficient evidence exists to justify submitting the case to the jury. Id. When substantial evidence to support each element of the plaintiff's claim does not exist, the motion should be granted. Id.

We review district court rulings on motions for new trials for abuse of discretion. Id. at 30; Iowa R.App. P. 14(f)(3). A new trial may be ordered when sufficient evidence does not support the jury verdict and the verdict fails to effectuate substantial justice. Magnusson, 560 N.W.2d at 30.

Evidence is substantial if reasonable minds would find the evidence presented adequate to reach the same findings. Id. at 25.

Generally, we review evidentiary rulings concerning relevancy and materiality for abuse of discretion. See Sanford v. Meadow Gold Dairies, Inc., 534 N.W.2d 410, 412 (Iowa 1995).

IV. Sufficiency of the Evidence.

A. The fraudulent misrepresentation claim. To establish its fraudulent misrepresentation claim, Midwest had to prove all of the following elements: (1) Domco made a representation to Midwest; (2) the representation was false; (3) the representation was material; (4) Domco knew the representation was false; (5) Domco intended to deceive Midwest; (6) Midwest acted in reliance on the truth of the representation and was justified in relying on the representation; (7) the representation was a proximate cause of Midwest's damages; and (8) the amount of damage. See Magnusson, 560 N.W.2d at 27-28. Midwest had to prove each of these elements by a preponderance of clear, satisfactory, and convincing evidence. See id.

Domco raises a sufficiency of the evidence challenge only as to the elements of causation and damages and therefore concedes the evidence is sufficient as to the other elements.

The jury answered several special interrogatories finding that Domco made the following intentional misrepresentations:

1. [A]fter October 1988 ... Midwest would be the only stocking distributor of Domco product in Iowa.

2. [O]n or about December 1989, [Domco agents] made projections to Midwest based on Midwest having all the Domco sales from the state of Iowa.

3. [I]n January 1990 [Domco agents] made a representation to Midwest that Midwest could reach projected sales levels even with Onthank's presence in Des Moines because Domco U.S. was growing and/or increasing its market share in the U.S.

4. [I]n January 1990 [Domco agents] made a representation to Midwest that Midwest could reach projected sales levels even with Onthank's presence in Des Moines because Onthank's territory would be limited to an area 50 miles around Des Moines.

5. [B]eginning in 1988 [Domco] represented that Domco was growing and increasing its market share in the U.S.

Domco argues here, as it did in the district court, that the record lacks substantial evidence its misrepresentations caused any damage to Midwest. Simply put, Domco asserts the record contains no substantial evidence that Midwest would have been better off had Domco been brutally frank and told Midwest the entire truth. In support of this assertion, Domco points out that Midwest had no more profitable business relationships in the offing and in fact made profit all during the time Domco was lying to it.

Midwest responds that the...