United States District Court, N.D. Iowa, Western Division
REPORT AND RECOMMENDATION
LEONARD T. STRAND, Magistrate Judge.
This case is before me on a motion (Doc. No. 58) by plaintiff Marianne Hanzl for entry of a preliminary deficiency judgment against defendants Gertrud Collier and Robert Collier (the Colliers). The Colliers have filed a resistance (Doc. No. 63) and Hanzl has filed a reply (Doc. No. 68). I conducted a telephonic hearing on January 28, 2014. Michael Jackson appeared for Hanzl and Tod Deck appeared for the Colliers. The matter is now fully submitted with the exception (to be discussed infra ) of an issue concerning Hanzl's potential income tax liability. That issue is reserved for later argument and resolution, as necessary.
I. RELEVANT FACTUAL AND PROCEDURAL BACKGROUND
This case presents factual and procedural circumstances that are somewhat unique. The facts that led to the filing of this lawsuit are detailed in my prior report and recommendation (Doc. No. 42) and Judge O'Brien's prior order (Doc. No. 52) accepting that document. Basically, Hanzl - a resident of Germany - alleged that the Colliers helped her sell her home in Arizona and then helped themselves to the proceeds. Hanzl alleged that they then used those funds to purchase a home in Sioux City (the West Street Property).
Hanzl sued to recover the allegedly-stolen funds. On April 24, 2012, the parties participated in a settlement conference with then-Chief Magistrate Judge Paul A. Zoss. See Doc. No. 32. At the end of the conference, counsel advised Judge Zoss that the matter was settled. Judge Zoss then entered an order (Doc. No. 33) staying the case for seven months to allow the parties time to implement the settlement agreement.
On October 16, 2012, Hanzl filed a motion (Doc. No. 34) to enforce the settlement agreement. The Colliers resisted and I conducted an evidentiary hearing on December 12, 2012. I then filed my report and recommendation which, basically, recommended that Judge O'Brien grant Hanzl's motion. Judge O'Brien adopted my report and recommendation, directing as follows:
1. Based on the settlement agreement reached at the April 24, 2012, settlement conference, Hanzl is entitled to payment in the amount of $262, 500 in full satisfaction of all claims against the defendants in this case.
2. Because the Colliers did not make that payment to Hanzl within 180 days, Hanzl is entitled to a deed to the West Street property to permit her to sell that property (subject to the requirement of good faith and fair dealing). The Colliers shall deliver a fully-executed deed to Hanzl's counsel, conveying marketable title to the West Street property to Hanzl, within fifteen days of this Order. Hanzl shall then undertake reasonable efforts to sell the West Street Property.
3. Within 20 days after closing on her sale of the West Street property, Hanzl shall file a status report that includes a complete itemization of the gross sale price, the transaction-related expenses and the net sale proceeds. If the Colliers object to the transaction on grounds that it is not a good faith, arms-length transaction, they shall file their objections within 20 days after Hanzl files her status report and itemization.
4. Regardless of whether the Colliers file objections to the sale, if the net sale proceeds exceed $262, 500, Hanzl shall pay the excess to the Colliers no later than 20 days after closing on her sale of the West Street property.
5. If the net sale proceeds are less than $262, 500, judgment will be entered against both defendants, jointly and severally, for the amount of the deficiency, unless the court adjusts the amount of the deficiency based on any objections the Colliers file with regard to the sale of the property.
6. Finally, Hanzl's request for an award of attorney fees is denied. See Doc. No. 52 at 12-13.
II. THE SALE
Hanzl filed her status report (Doc. No. 58) on November 14, 2013. According to that report, Hanzl was able to sell the West Street Property for a gross sales price of $275, 000. The report itemizes various transaction-related expenses totaling $51, 431.62, resulting in net proceeds of $223, 568.38. Those expenses include a real estate commission of $16, 000 and over $24, 000 in attorney fees for services provided by Hanzl's counsel, Mr. Jackson. Based on the claimed expenses, the deficiency judgment against the Colliers would be $38, 931.62. However, Hanzl noted that because the federal income tax consequences arising from the sale have not yet been determined, it is possible her net proceeds, after taxes, will be lower because of those consequences. As such, she requests a preliminary finding that the deficiency is $38, 931.62, subject to adjustment prior to entry of final judgment.
The Colliers filed objections (Doc. No. 63) on December 24, 2013. Generally, they take issue with the claimed selling expenses on grounds that Hanzl did not submit supporting documentation. In addition, they complain that Hanzl has no right to recover any amount of attorney fees, contending that this case does not present a situation in which attorney fees may be recovered under Iowa law. They also point out that Hanzl paid a real estate commission of $16, 000 and question why the sale of a single-family home required both a real estate commission and over $24, 000 in transactional attorney fees.
In her reply, supported by Mr. Jackson's affidavit, Hanzl stresses that the efforts of her attorney were crucial, as she lives in Germany and does not speak English. She also states that those efforts were beneficial, as he was able to negotiate a much-higher price for the West Street Property. She notes that the listing agent originally listed the property at $199, 000 and repeatedly encouraged Hanzl to accept offers far below $275, 000. She also argues that the Colliers made the process cumbersome in various ways. For example, while the Colliers were in possession of an appraisal indicating that the West Street Property was worth $282, 000, they refused for a period of time to provide that appraisal to Hanzl's counsel. She contends that this delay, combined with the recommendations provided by the listing agent, made it extremely difficult to negotiate the final sale price of $275, 000. She states that but for the efforts of her attorney, the sale price would have been far less than that amount and the resulting deficiency judgment against the Colliers much higher. Finally, she notes that the amount of attorney fees actually increased since she filed her status report, as her attorney's final invoice concerning the transaction had not been added. She has increased the claimed amount of attorney fees, and thus the claimed selling expenses, by $3, 600.00. This would result in a preliminary deficiency of $42, 531.62.
At the conclusion of the telephonic hearing on January 28, 2014, I requested that Hanzl's counsel file two additional documents (a supplemental affidavit and a HUD-1 statement with one previously-redacted line uncovered). See Doc. No. 70. Those ...