Schwickerath v. Anderson
| Decision Date | 07 December 2022 |
| Docket Number | 21-1465 |
| Parties | KAREN SCHWICKERATH, Plaintiff-Appellee, v. PATRICK RYAN ANDERSON, JULIA STACEY ANDERSON, PATRICK R. ANDERSON, ATTORNEY AT LAW, IOWA PROPERTY HOLDING, LLC, EQUITY-VESTORS, LLC, IOWA PROPERTY HOLDING CO-OP, INC., IOWA PROPERTY MANAGEMENT AND MAINTENANCE, LLC, Defendants-Appellants. |
| Court | Iowa Court of Appeals |
Appeal from the Iowa District Court for Polk County, Lawrence P McLellan, Judge.
An attorney and his business entities appeal a judgment for a former client on her claims for fraud, negligent misrepresentation, and legal malpractice.
Matthew M. Boles, Christopher Stewart, and Adam C. Witosky of Gribble, Boles, Stewart &Witosky Law, Des Moines, for appellants.
Shayla McCormally and Sophie Wanek of McCormally &Cosgrove P.L.L.C., Des Moines, for appellees.
Heard by Bower, C.J., and Greer and Badding, JJ.
"A lawyer with his briefcase can steal more than a hundred men with guns." Mario Puzo, The Godfather 51 (Putnam Publishing Group 1969).
Bragging that he had a "system that should be marketed because it combines high rates of return with safety that only an attorney would think of," attorney Patrick Anderson swindled his client, Karen "Kara" Schwickerath, out of $550,000.00 in a series of five contracts. When that boast proved to be false, Schwickerath sued Anderson, his wife Julia, and his various business entities. After a three-day bench trial, the district court entered judgment in Schwickerath's favor for $755,371.06 in compensatory damages and $200,000.00 in punitive damages, plus $52,729.50 in attorney fees. Anderson and his companies appeal.[1]
Anderson and Julia moved to Iowa in 1998 from California. Anderson is licensed to practice law in both states. He also served as a pastor of a church for almost two decades. After being laid off as general counsel for a machine company in 2015, Anderson opened a solo law practice. He billed himself as experienced in "investments and estate planning" on his firm's website.
Anderson and Schwickerath met in 2016, when he went to Schwickerath's house to purchase some landscape blocks from her. The pair began chatting about Schwickerath's house, which she was renovating. She told Anderson that after "semi-retiring" from construction, "it was kind of a dream . . . to buy an old house and renovate it." She was able to do this because her father had passed away the year before and left her $1,000,000.00. During this conversation, Schwickerath learned Anderson was an attorney and knowledgeable about real estate investments.
Armed with that knowledge, Schwickerath contacted Anderson in January 2017 for his help in closing on a rental house she had purchased. Anderson agreed to represent her, cutting his normal fee in half. In an email to her with some questions about the closing, Anderson wrote:
I have a business question for you though: I help arrange real estate type loans and receive very high interest rates for my private lenders. Do you know of anyone interested in participating? These are highly secured and set up so that the money is easily retrieved in the event of default.
When Schwickerath expressed interest, Anderson responded:
While coordinating that meeting, Schwickerath asked for Anderson's advice on her rental homes and whether she should create a new limited liability company for them. Anderson agreed that she should and offered to help her "with the LLC drafting and filing." Going back to his investment proposal, Anderson said in that same email: "Also, I can help you set things up so that you are not a target for suit and have more liquidity for future investment opportunities when they arise." And in response to Schwickerath's inquiries about his legal fees, Anderson told her:
"So long as we are working on investments, you are on the 'family plan' for legal fees (which means I will work for lunches)." Over the next couple of months, Anderson directed Schwickerath to blank templates she could use to set up her new companies, drafted deeds transferring her properties into those companies, and wrote a letter to a subcontractor she was having issues with.
In the midst of these legal services, Anderson proposed his first investment opportunity to Schwickerath-a loan from her of $50,000.00 to his company, Iowa Holding Property, LLC. He explained to her that the loan was to help a third party with bad credit buy a house. The contract, dated February 4, 2017, was drafted by Anderson on his firm's letterhead, as were all the contracts that followed, and recited:
Kara was to be paid interest at ten percent annually with monthly principal and interest payments due from Iowa Property Holding. The bottom of the agreement stated: "Kara understands that Patrick R. Anderson is an attorney, and that he has an interest in Iowa Property Holding LLC."[2]
Schwickerath wrote a check to Iowa Property Holding for $50,000.00, which Anderson deposited into the company's bank account. But Anderson later told Schwickerath the purchase did not go through because "the person he was trying to help out didn't follow his rules." Rather than returning Schwickerath's money to her, Anderson proposed a second investment, this time for twice as much.
The second contract was entered into on May 15, 2017, as an amendment to the first. In it, Schwickerath agreed to lend Iowa Property Holding an additional $110,000.00 "in order to own and operate and or renovate real property in Waterloo, Iowa," specifically apartment buildings on Langley Road. The contract provided that Schwickerath would hold an interest in Iowa Property Holding up to $160,000.00 until the debt was satisfied. She was to again receive ten percent interest annually but with interest only payments of $1,333.34 each month and a balloon payment due in three years. On the same day, the parties entered into an addendum to the second contract, which provided that Schwickerath would receive an $8100.00 "appreciation bonus."
Schwickerath paid Anderson $110,000.00 in three separate checks. Those checks were made out to Anderson personally but again deposited into his Iowa Property Holding account. Schwickerath didn't "know at that point in time if [Anderson] owned" the Waterloo property already, although she "assumed he did." But she said Anderson "always" told her in their conversations that she "was secured." She didn't think there was much risk of losing her money because Anderson
Following these three contracts, Schwickerath asked Anderson to send her his tax returns. He instead gave her a document titled, "Patrick Anderson Assets and Liabilities Schedule Revised July 2017." In this document, which Anderson walked through with Schwickerath, he represented that he had $348,000.00 due in fees for his law firm. He also listed three apartment buildings as assets-the Langley Road apartments in Waterloo, which he valued at $2,400,000.00, against which a debt of $1,920,000.00 was owed; and two buildings in Nevada, valued together at $1,775,000.00, against which debts of $1,082,000.00 were owed. There was no indication from this document that the apartment buildings Anderson listed as assets were owned by anyone other than him or Iowa Property Holding.
Schwickerath was reassured her money was safe after seeing Anderson's statement of assets and liabilities. Around the same time, she also began receiving $1333.34 in monthly payments from Anderson on the second contract. So when Anderson proposed a third investment opportunity to Schwickerath in August 2017, she said yes.
Unlike the first two, this one was for a start-up business called "Blade Pros"-a traveling scissor-sharpening operation for hairdressers and barbers. In a proposal for the business, Anderson explained that Nicholas Milhous, the son "of a long time friend and client," came up with the idea, which Anderson determined was "a very interesting business worth pursuing" after doing his "own research on the market and equipment and marketing." He told Schwickerath that He proposed that Schwickerath loan $140,000.00 to Iowa Property Holding "at 20% interest" over a six-month period, with the loan "to be repaid after two years." In an email preceding the proposal, Anderson told Schwickerath:
The contract for this investment, dated August 17, 2017 reflected Anderson's proposal, except that Schwickerath was given "an interest in Iowa Property Holding LLC up to" $140,000.00 rather than a specific interest in the Nevada apartments. Holding up her end of the deal, Schwickerath gave Anderson checks between September 2017 and March 2018 that totaled the $140,000.00...
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