Todd's Ltd v. Nairne
| Decision Date | 13 September 2000 |
| Docket Number | 99-480 |
| Parties | NOTICE! No decision has been made on publication of this opinion. The opinion is subject to modification or correction by the court and is not final until the time for rehearing or further review has passed. An unpublished opinion of the court of appeals MAY NOT BE CITED by a court or by a party in any other action. The official published opinions of the Iowa Court of Appeals are those published in the North Western Reporter published by West Group. TODD'S LTD., Plaintiff-Appellee/Cross-Appellant, vs. SCOTT NAIRNE, Defendant, PENGUIN NATURAL FOODS, INC., Defendant-Appellant/Cross-Appellee. PENGUIN NATURAL FOODS, INC., Third-Party Plaintiff-Appellant/Cross-Appellee, vs. ALAN NEIDERMEIER, Third-Party Defendant-Appellee./ 99-480 IN THE COURT OF APPEALS OF IOWA Filed |
| Court | Court of Appeals of Iowa |
Appeal from the Iowa District Court for Polk County, D. J. Stovall, Judge.
Penguin Natural Foods, Inc., appeals, and Todd's Ltd. cross-appeals, from the district court's entry of judgment in a contract action. AFFIRMED IN PART; REVERSED IN PART; REMANDED WITH DIRECTIONS.
Mark A. Schadrack of the Law Office of Mark A. Schadrack, Laguna Niguel, California, and David Swinton of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, P.C., Des Moines, for appellant.
Jason D. Walke and Matthew D. Gardner of Sullivan & Ward, P.C., Des Moines, for appellee.
Considered by Streit, P.J., and Zimmer and Hecht, JJ.
Penguin Natural Foods, Inc., appeals from the district court's entry of judgment in favor of Todd's Ltd. in a contract action. Penguin argues the trial court erred by: (1) awarding Penguin no interest and Todd's twenty-four percent interest on the judgment; (2) permitting Todd's to recover the cost of reopening and repackaging defectively packaged grain pouches; (3) granting a directed verdict to Todd's president on the fraud claim; and (4) taxing court costs to Penguin. In its cross-appeal, Todd's contends the trial court erred by: (1) finding Todd's committed fraud by failing to disclose the true price of a machine it sold to Penguin; and (2) awarding damages to Penguin for the cost of moving its products from Todd's to another location. We affirm in part, reverse in part and remand with directions.
The trial court found the following facts: Todd's Ltd. ("Todd's") is an Iowa corporation which sells food-processing equipment and packages food products for other companies. Alan Neidermeier is the sole officer and one of the owners of Todd's. Penguin Natural Foods ("Penguin") is a California corporation and creates and markets various "cook-and-serve" rice and grain products. Scott Nairne is an officer and part owner of Penguin.
Beginning in April of 1994, Todd's and Penguin entered into a business relationship. Penguin, through third-party vendors of its choosing, would supply Todd's food and packaging materials. From May of 1994 until September of 1995, Todd's packaged rice and grain products for Penguin. The individual packaged units generally consisted of a carton, a rice or grain pouch and a seasoning pouch. After packaging was complete, the products were sent to various Penguin customers for retail sale to consumers.
Initially, Todd's packaged the cartons by hand. However, in August of 1994 to automate packing, Neidermeier encouraged Penguin to purchase a cartoning machine for Todd's use known as a Nordale, sold by Frain Industries, Inc. ("Frain") for $42,650. Todd's and Penguin then orally agreed for Todd's to pay for the Nordale through credits issued to Penguin. Penguin would receive a two-and-one-half-cent credit for each carton processed on the Nordale. By the end of the two companies' relationship, Penguin had accumulated credits in the amount of $22,268.79. Penguin bought back the Nordale from Todd's at the end of the business relationship by paying Todd's the amount of the credits.
Unbeknownst to Penguin, Todd's had received a commission from Frain when the Nordale was originally purchased in August of 1994. The commission took the form of a credit worth $7,700 which could be utilized by Todd's to purchase additional machinery from Frain. Todd's either used this equipment in its business or sold it to others. However, Neidermeier sent Penguin an inflated invoice prepared by Frain that included the undisclosed commission in the price of the Nordale. Neidermeier told Nairne the inflated $42,650 was a 'great price.' Penguin did not find out about this commission until discovery during the pending action.
During the course of this relationship, Penguin maintained an open account with Todd's. Todd's would bill Penguin by faxing and mailing an invoice any time finished goods were shipped from Todd's facilities in Des Moines, Iowa. Penguin paid all of the invoices in full, except for the last four.1 Payment was due ten days after Penguin received the invoices. All invoices stated that any amounts not paid in thirty days would accrue finance charges of two percent per month or twenty-four percent per year.
In August of 1995, Penguin became aware of various quality control problems with a shipment from Todd's to one of Penguin's largest customers. Around that same time, Penguin also became concerned Todd's was permitting Penguin's inventory to become infested. Penguin wanted grain pouches flushed with nitrogen to minimize this possibility. By July 1995, the grain bags were being flushed, samples were sent to Penguin, and they were tested by a Texas company, RiceTec. The tests revealed a high level of oxygen in the samples, indicating Todd's was not properly flushing the bags. As a result of Penguin's concerns, Todd's reopened numerous grain pouches and they were ultimately repackaged by RiceTec. Also, a Penguin representative visited Todd's warehouse in late August of 1995 and discovered a shipment of Italian rice had become infested.
Disputes about Todd's services continued and Penguin made a decision to withdraw its business. Penguin's remaining inventory was shipped to Texas and California. There were problems with this inventory: a 500-pound bag of vegetables was spoiled; several boxes of spice and vegetable blends were unusable; materials were crushed; and numerous grain pouches had to be repackaged as a result of leaks and other difficulties. In a letter dated September 17, 1995, Nairne acknowledged receipt of the final invoices from Todd's. However, those invoices were not paid by Penguin.
In October of 1996, Todd's sued Penguin and Nairne to recover the amounts due on the four invoices. Todd's asserted claims of breach of contract, conversion and slander. The slander claim was later dismissed voluntarily by Todd's. Penguin counterclaimed for damages sustained as a result of Todd's failure to properly package some of Penguin's products, Todd's excessive waste during the packaging process, and its nondisclosure of the commission received from Frain in the Nordale purchase. Penguin alleged breach of contract, breach of implied warranty, negligent misrepresentation, fraudulent misrepresentation, negligence, fraud and breach of fiduciary duty. Penguin also filed a third-party petition against Neidermeier, claiming negligent misrepresentation, fraudulent misrepresentation, fraud and breach of fiduciary duty. The case proceeded to a bench trial on August 24, 1998, and ended August 27, 1998.
On November 20, 1998, the trial court issued its findings of fact, conclusions of law and judgment entry. The court concluded Todd's should recover the full amount of the four invoices ($34,215.51), plus a finance charge (pursuant to the language on the invoices) at a rate of twenty-four percent per annum for approximately three years, for a total judgment of $57,552.27. It awarded no damages on the conversion claim. The court found Penguin also sustained damages including the costs of cleaning infested rice, replacing spoiled or infested vegetables, retaining a company to monitor the quality of products shipped from Todd's, and relocating its inventory from Todd's warehouse. The court also found Penguin established fraud by Todd's surrounding the purchase of the Nordale, resulting in Penguin having paid an additional $7,700 as a result of the undisclosed commission. However, the court directed a verdict on the fraud claim against Neidermeier, finding that he did not act in an individual capacity but only as Todd's agent. The total awarded to Penguin was $34,990.17. The court did not award Penguin interest on this amount. The court then offset Penguin's recovery from Todd's judgment. After the offset, judgment was entered against Penguin in the amount of $24,562.10 plus court costs.
Both parties filed motions pursuant to Iowa Rule of Civil Procedure 179(b). In its motion, Penguin argued: the twenty-four percent interest rate was inappropriate; Penguin should have been awarded interest on its claims; Penguin should have prevailed on its fraud claim against Neidermeier; and the evidence sufficiently established the amount of Penguin's loss for spoiled vegetables. The trial court rejected the first three arguments but agreed that Penguin had established the value of the vegetable loss at $2,000. The court modified the judgment in favor of Todd's down to $22,562.10.
Todd's and Penguin now appeal. Penguin argues the trial court erred by: (1) awarding Penguin no interest and Todd's twenty-four percent interest; (2) permitting Todd's to recover the cost of reopening and repackaging defectively packaged grain pouches; (3) granting a directed verdict to Neidermeier on the fraud claim against him individually; and (4) taxing court costs to Penguin. In its cross-appeal, Todd's contends the trial court erred by: (1) finding Todd's committed fraud by failing to disclose the true price of the Nordale; and (2) awarding damages to Penguin for the cost of moving its products from Todd's to another location.
I. Scope of Review. This breach of contract case was a law action tried to the court. We review for...
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