Westco Agronomy Co., LLC. v. Wollesen

         Appeal from the Iowa District Court for Story County, Michael J. Moon, Judge.

         In this appeal and cross-appeal, both sides raise a number of challenges to the jury verdict and the court's rulings denying a new trial and granting summary judgment. AFFIRMED ON APPEAL; AFFIRMED IN PART, REVERSED IN PART, AND REMANDED ON CROSS-APPEAL.

          John F. Lorentzen, Thomas H. Walton, and Ryan W. Leemkuil of Nyemaster Goode, P.C., Des Moines, and John A. Gerken of Wilcox, Gerken, Schwarzkopf, Copeland & Williams, P.C., Jefferson, for appellants.

          Joel D. Vos and John C. Gray of Heidman Law Firm, L.L.P., Sioux City, and Samuel L. Blatnick of Kutak Rock, LLP, Kansas City, Missouri, for appellees.

          John P. Passarelli and Meredith A. Webster of Kutak Rock, LLP, Kansas City, Missouri, pro hac vice.

          Heard by Vogel, P.J., and Vaitheswaran and McDonald, JJ.

          VAITHESWARAN, Judge.

         A supplier of agricultural products sued a customer for damages after finding the customer's account contained insufficient funds to pay for a delivery. The customer filed counterclaims against the supplier's parent company. A jury awarded damages on the claims and counterclaims. Both sides raise a number of challenges to the jury verdict and the court's rulings denying a new trial and granting partial summary judgment.

         I. Background Facts and Proceedings

         West Central Cooperative is an Iowa agricultural cooperative. Westco Agronomy Company, L.L.C. is a wholly-owned subsidiary of West Central formed to "streamline the delivery of agronomy products-fertilizer, seed, chemicals-to the farmers." We will refer to both as "Westco" unless otherwise indicated.

         Chad Hartzler was hired by Westco as the seed department manager. Part of his job was to increase seed sales. One of Westco's customers was Iowa Plains Farms, owned by William, Kristi, and John Wollesen. We will refer to the company and its owners as IPF unless otherwise indicated.

         IPF purchased seed and fertilizer from Westco and paid Hartzler directly, purportedly to receive better pricing. Between 2005 and 2010, Hartzler charged IPF more than $6 million. He retained $487, 315 in "commission."

         IPF believed its payments to Hartzler were prepayments for future products and Westco's documentation confirmed its belief. In actuality, Hartzler booked the prepayments as payments for currently purchased products. He charged IPF prices that were below Westco's cost but recorded higher prices in Westco's accounting system. The result was a gradually-accruing deficit which, by 2010, had reached $2.1 million. Hartzler convinced IPF to write three checks totaling approximately that amount. IPF believed the checks represented prepayments for the 2011 crop year. Hartzler applied the payments to the deficit.

         The following spring, matters came to a head. By this time, Hartzler had resigned, and Westco told IPF it would not release any more products due to "internal issues."

         Westco sued the Wollesens, IPF, and Hartzler, raising claims of commercial bribery, theft, conversion, breach of fiduciary duty, breach of duty of loyalty, ongoing unlawful conduct under Iowa Code chapter 706A (2011), unjust enrichment, foreclosure of an agricultural lien, and breach of contract. Westco sought compensatory and punitive damages and requested a jury trial. IPF asserted counterclaims and filed a third-party petition against Westco's parent company, West Central, raising claims of breach of contract, fraud, negligent retention, breach of fiduciary duty, conversion, ongoing unlawful conduct (knowing receipt of proceeds) under section 706A.2(1)(a), ongoing unlawful conduct (negligent empowerment) under section 706A.2(5)(b)(4), wrongful attachment, and lost agricultural profits. Hartzler pled guilty to federal wire fraud and did not mount a defense in this litigation.

         The district court granted IPF's motion for summary judgment on all but three of Westco's claims. Westco voluntarily dismissed its breach-of-contract claim, leaving only its claims for breach of fiduciary duty and ongoing unlawful conduct for trial.

         The district court also granted Westco's motion for summary judgment on IPF's claims for negligent retention, conversion, ongoing unlawful conduct (negligent empowerment) under section 706A.2(5)(b)(4), wrongful attachment, and lost agricultural profits. With regard to the negligent empowerment claim, the district court found the burden of proof language in section 706A.2(5)(b)(4) unconstitutional. The following counterclaims remained for trial: (1) breach of contract, (2) fraudulent misrepresentation, and (3) ongoing unlawful conduct (knowing receipt of proceeds) under section 706A.2(1)(a).

         Westco moved for equitable issues to be tried in equity. Westco also filed a motion for leave to file a third amended petition. The district court denied the motions. Before jury selection and again at the close of evidence, Westco renewed its motion to try equitable issues by equitable proceedings. The district court again denied the motion.

         The matter proceeded to trial on Westco's two claims and IPF's three counterclaims. The jury awarded Westco $485, 315 in damages from Hartzler- an amount equal to the "commission" Hartzler received from IPF. The jury awarded IPF $576, 189 in damages from West Central-an amount equal to the cost of replacement product after Westco failed to deliver product in 2011.

         Westco renewed its motion for directed verdict and moved for judgment notwithstanding the verdict and for new trial. IPF filed a motion for additur and for new trial. The district court denied the motions.

         On appeal, Westco contends (A) its equitable claims should have been tried by equitable proceedings, (B) the jury rendered inconsistent verdicts, and (C) the district court erred in denying its motion for judgment notwithstanding the verdict. On cross-appeal, IPF contends (A) it is entitled to a new trial on its ongoing criminal conduct (knowing receipt of proceeds) claim, (B) the district court erred in granting summary judgment in favor of West Central on its ongoing criminal conduct (negligent empowerment) claim, and (C) the district court erred in denying IPF's motion for additur.

         II. Westco's Appeal

         A. New Trial by Equitable Proceedings

         "[T]here is no right to a jury trial generally in cases brought in equity." Weltzin v. Nail, 618 N.W.2d 293, 296 (Iowa 2000). Westco characterizes its claims that survived summary judgment as equitable and argues they should have been tried to the district court rather than the jury. Error was preserved on this issue and we proceed to the merits of the court's ruling, reviewing it for an abuse of discretion. See Morningstar v. Myers, 255 N.W.2d 159, 161 (Iowa 1977) (stating, when both legal and equitable issues are presented, the order of which is tried first "is a matter which lies within the trial court's discretion and ordinarily is to be decided on considerations of efficiency, conservation of judicial time and avoidance of multiple trials").

         The district court concluded Westco pled its breach-of-fiduciary-duty and ongoing-unlawful-conduct claims as legal claims:

The ongoing criminal conduct count has been pled in tort and likewise seeks the legal remedies of damages, both compensatory and [treble] damages under the provisions of Iowa Code section 706A.3(12)(b)(3). The breach of fiduciary duty claim has been pled as a legal action. As noted by the Iowa Supreme Court in Weltzin v. Nail, 618 N.W. 293, 299 (Iowa 2000):

A breach of fiduciary duty claim is not an individual tort in its own right at common law . . . it is usually brought at law, bootstrapped by a tort like negligence or fraudulent misrepresentation (citations omitted).

(Footnote omitted.) The district court also indicated the motion to try the claims by equitable proceedings was an untimely effort "to resurrect" equitable claims that were previously dismissed. We discern no abuse ...