Schaefer v. Putnam
| Decision Date | 30 May 2013 |
| Docket Number | No. 3-242 / 11-1437,3-242 / 11-1437 |
| Parties | LARRY D. SCHAEFER and ELAINE M. SCHAEFER, Plaintiffs-Appellants, v. DALE L. PUTNAM, PUTNAM LAW OFFICE; SMP, L.L.C.; and LIBERTY BANK, F.S.B., Defendants-Appellees. |
| Court | Iowa Court of Appeals |
Appeal from the Iowa District Court for Cerro Gordo County, James M. Drew, Judge.
Larry and Elaine Schaefer appeal district court judgments against them, their two sons, and G.R.D. Investments, L.L.C. AFFIRMED.
Peter C. Riley of Tom Riley Law Firm, P.L.C., Cedar Rapids, for appellants.
William W. Graham and Aimee R. Campbell of Graham, Ervanian & Cacciatore, L.L.P., Des Moines, and Dale L. Putnam, Decorah, for appellees, Putnam and Putnam Law Office.
Bernard L. Spaeth, Jr., Kara M. Sinnard, and Thomas H. Burke of Whitfield and Eddy, P.L.C., Des Moines, for appellee, Liberty Bank.
Considered by Vaitheswaran, P.J., and Tabor and Mullins, JJ.
Against a labyrinthine backdrop of property transfers and financing deals, Larry and Elaine Schaefer appeal district court judgments against them, their two sons, and G.R.D. Investments, L.L.C. They raise nine issues on appeal; we only reach the merits of two claims.
First, Larry and Elaine contend the record contained insufficient evidence to sustain a creditor's fraudulent nondisclosure claim. Because the evidence shows the creditor was unaware only Larry and Elaine could bind G.R.D., the district court properly submitted the nondisclosure claim to the jury. Second, Larry challenges the court's award of common law attorney fees to his sons. We agree with the district court's assessment that Larry's conduct toward his sons was so oppressive or conniving that a fee award was appropriate. The district court's rulings that affect only the Schaefer sons or G.R.D. cannot be challenged by Larry and Elaine on appeal. We also decline to address several issues advanced without any supporting authority.
At the center of this dispute are husband and wife, Larry and Elaine Schaefer. Also involved are their sons, Ray and Dean Schaefer; the couple's former attorney, Dale Putnam; G.R.D. Investments, a limited liability company organized in the name of the sons; SMP, a limited liability company set up by Putnam; and creditor Liberty Bank, successor-by-merger to Hancock County Bank & Trust (Liberty).
Before this action, in March 1998, Land O'Lakes, Inc. gained a judgment in an Iowa district court against Larry for $127,125 stemming from a breach of four hedge-to-arrive grain contracts. In January 2001 attorney Putnam advised Larry and Elaine to form a limited liability company and transfer their nonexempt Iowa real estate to the entity to protect their assets from creditor claims— including that of Land O'Lakes. Named G.R.D., the limited liability company's articles of organization, executed by sons Ray and Dean, list Larry and Elaine as managers. Ray and Dean executed an operating agreement for G.R.D. designating them as the initial members and managers, and describing the company's purpose as "[t]he purchase, sale and rental of real estate." That same month Larry and Elaine signed deeds transferring several parcels of real estate to G.R.D., including a video store, farmland, 1108 South Shore, Pascal property, and the Heartland building. The couple retained ownership of their homestead and farm.
On July 23, 2001, Land O'Lakes filed suit in the United States District Court for the Northern District of Iowa, claiming the property transfers to G.R.D. were intended to hinder, delay, and defraud the company. Larry and Elaine settled with Land O'Lakes, agreeing to pay $85,000 to satisfy the judgment.
The couple and their sons later approached William Paulus, a commercial loan officer for Liberty, to obtain financing for G.R.D. Based on conversations among Paulus, Ray, Dean, and Larry, as well as financial statements and G.R.D. organizational documents provided, Paulus approved financing to G.R.D. Between March 2003 and May 2004, Liberty loaned G.R.D. $562,807.21 inprincipal as consideration for seven promissory notes signed by Ray and Dean. The bank secured the promissory notes with mortgages on each parcel of property held by G.R.D. and by obtaining personal guarantees from Ray and Dean. Larry and Elaine used the proceeds from the G.R.D. notes to pay off prior existing indebtedness, liens, and real estate taxes of G.R.D. and their own.
On April 2, 2003, G.R.D. loaned $85,000 to Larry and Elaine in exchange for a mortgage on their homestead and forty acres of agricultural property. The couple used the proceeds to settle with Land O'Lakes in May 2003.
In October 2003, Larry and Elaine filed for Chapter 7 bankruptcy. Putnam sent a letter to Larry, Elaine, Ray, and Dean in November 2005 regarding the amount of money they would need to settle Larry and Elaine's bankruptcy obligations. He estimated it would cost $180,000 to cover their obligations and pay his attorney fees. Putnam proposed:
"[T]here [i]s an entity that would be in a position to make the cash available as needed as set out above. The entity is an LLC known as SMP, LLC (SMP) which is comprised of my wife. Obviously, I have a connection. Also, I will be involved in obtaining the funds for SMP to make the loan . . . . SMP would be willing to enter into an initial note for the approximate amount of $180,000 depending on what you need for the unsecured creditors, secured by Open-End Mortgages up to $250,000.
On June 8, 2006, Larry and Elaine assigned the $85,000 note and mortgage on their homestead property in favor of G.R.D. to SMP. Larry, Elaine, Ray, Dean, and G.R.D. executed additional notes to SMP to repay creditors, which were secured by mortgages on the several parcels of property initially transferred to G.R.D.
Meanwhile, the bankruptcy trustee challenged the couple's real estate transfers to G.R.D. as fraudulent conveyances. On June 7, 2006, the bankruptcy court ruled the real estate transfers to G.R.D. were "void."1 Rather than liquidating the real estate for a cash distribution to the creditors, the trustee accepted a settlement from Larry and Elaine and the court granted the couple's discharge from bankruptcy.
G.R.D. made payments on the Liberty notes from their inception, and Larry and Elaine took over payments from June 2006 until June 2008. Liberty eventually declared defaults on all seven notes.
On September 28, 2008, Larry and Elaine sued multiple parties. They claimed Putnam was negligent in advising them to form G.R.D. and transfer property to the company to stave off creditor claims. They also claimed Putnam breached his duty of loyalty, and because SMP is Putnam's "alter ego" the company should not be considered a separate entity.
The couple alleged because the mortgages between G.R.D. and Liberty were executed by Ray and Dean, rather than Larry and Elaine as managers, the instruments are invalid and accordingly all payments to Liberty should be refunded. Larry and Elaine claimed G.R.D. breached its manager employment contract and that both Liberty and Putnam are liable for acting in concert with G.R.D. In a claim against Ray and Dean, the couple alleged their sons intentionally interfered with G.R.D.'s contractual rights, and that Liberty is alsoliable for acting in concert with Ray and Dean. They also alleged neither son has rights as a member of G.R.D.
The several defendants included counterclaims and cross-claims with their answers. Liberty submitted a counterclaim for fraudulent nondisclosure, among others, seeking actual and punitive damages. Ray, Dean, and G.R.D. counterclaimed for breach of contract, conversion, and breach of fiduciary duty. SMP sought to foreclose its mortgages, and Putnam counterclaimed to recover attorney fees.
The district court bifurcated the proceedings and held a jury trial on February 8, 2011. The jury rejected all of Larry and Elaine's claims against Putnam, awarded Putnam $12,200 in unpaid legal fees, and found in favor of Liberty's counterclaim for fraudulent nondisclosure, awarding $200,000 in punitive damages. The jury found in favor of G.R.D. against Larry and Elaine for breach of contract in the amount of $715,975.50; conversion for $32,000; and breach of fiduciary duty for $200,200. The jury also awarded Ray and Dean $58,360 for their breach of fiduciary duty claim against their parents.
In its June 6, 2011 findings of fact, the court found Liberty was entitled to judgment in rem on all secured property, and judgment on its notes against G.R.D. and its guarantees against Ray and Dean—including interest, late charges, attorney fees, and costs—for a total $1,132,658.22. The court also entered a declaratory judgment finding Ray and Dean are the "members" ofG.R.D., and awarding Ray and Dean $87,868.14 in common law attorney fees against Larry Schaefer.2
We determine whether sufficient evidence exists to justify submitting the claim to the jury, viewing the record in the light most favorable to the nonmoving party. Van Sickle Constr. Co. v. Wachovia Commercial Mortg., Inc., 783 N.W.2d 684, 687 (Iowa 2010). To submit a claim to the jury, each element of the claim must be supported by substantial evidence. Id. Evidence is substantial when a reasonable mind could find it sufficient to support a finding. Id.
Because an award for common law attorney fees is in the court's equitable powers, our review is de novo. Hagge v. Iowa Dept of Revenue & Fin., 539 N.W.2d 148, 151 (Iowa 1995).
Larry and Elaine argue because the court failed to recognize Liberty loan officer Paulus's false testimony, it abused its discretion in awarding the bank attorney fees against theirs sons, Ray and Dean, and G.R.D. The couple also asserts insufficient evidence supports the court's finding that G.R.D. should be obligated to pay a $25,000 note executed between G.R.D. and Liberty, accusingRay of breaching...
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