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The Hansen Company, Inc. v. Rednet Environmental Services, L.L.C.

Court of Appeals of Iowa

October 11, 2017

THE HANSEN COMPANY, INC., Plaintiff-Appellant,
v.
REDNET ENVIRONMENTAL SERVICES, L.L.C., LYNN KNUDSEN, and ROBERT KNUDSEN, Defendants-Appellees. REDNET ENVIRONMENTAL SERVICES, L.L.C., LYNN KNUDSEN, and ROBERT KNUDSEN, Counterclaim Plaintiffs,
v.
THE HANSEN COMPANY, INC., Counterclaim Defendant.

         Appeal from the Iowa District Court for Polk County, Jeffrey D. Farrell, Judge.

         The Hansen Company, Inc. appeals from an adverse jury verdict in this breach-of-contract action. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH DIRECTIONS.

          Martin J. Demoret and Ross W. Johnson of Faegre Baker Daniels L.L.P., Des Moines, and Jeffrey D. Stone of Whitfield & Eddy, P.L.C., Des Moines, for appellant.

          Matthew G. Sease of Kemp and Sease, Des Moines, Todd M. Lantz of the Weinhardt Law Firm, Des Moines, and Jeremy R. Masterson of Masterson & Bottenberg, L.L.P., Waukee, for appellees.

          Heard by Danilson, C.J., and Tabor and McDonald, JJ.

          DANILSON, CHIEF JUDGE.

         The Hansen Company, Inc.[1] appeals from an adverse jury verdict after a five-day trial. The parties had entered into a contract involving a demolition project of the Younkers building located in Des Moines. The jury determined Hansen breached the contract and committed willful and wanton conduct resulting in a verdict for compensatory damages in the amount of $1, 381, 387 and punitive damages of $250, 000. In a nutshell, Hansen contends the claim for punitive damages should have been dismissed, the compensatory verdict should have been set aside because of insufficiency of the evidence, and the damages awarded were not supported by the evidence and were excessive. We affirm on the compensatory-damages verdict and reverse the award of punitive damages.

         I. Background Facts & Proceedings.

         The trial began upon RedNet's[2] breach-of-contract and fraudulent-misrepresentation claims, but RedNet withdrew the fraud claim at the close of its evidence.[3] On appeal, Hansen contends the district court erred in overruling its motions for directed verdict, motion for judgment notwithstanding the verdict, and alternative motion for new trial.

         The parties entered into a stipulation prior to trial that the following facts were true and undisputed:

1.In the spring of 2013 RedNet Environmental Services and the Hansen Company entered into a contract to perform work on the property located at 713 Walnut Street, Des Moines, Iowa.
2.Pursuant to the contract, RedNet Environmental Services was to perform asbestos abatement, lead abatement, PCB/Mercury disposal and demolition on the property.
3. Before RedNet Environmental Services was allowed to perform any of the contracted work on the project, the Hansen Company terminated RedNet Environmental Services' contract on August 23, 2013.

         We adopt the following partial summary of the preliminary facts noted by the district court in its ruling on post-trial motions:

RedNet was a business owned by Robert and Lynn Knudsen that performed demolition and hazardous material abatement work. The Knudsens owned other companies that were interrelated, most prominently, Redstone Painting, which was started in 2006. The Knudsens started RedNet in 2011. Lynn Knudsen was the president of RedNet and Rob Knudsen was vice president. However, Rob Knudsen was the face of the company and actively managed its activities in the field. Lynn primarily performed office work.
Hansen is a general contractor [that] was hired to renovate the former Younkers Building in downtown Des Moines. On April 1, 2013, Hansen issued a request for proposal (RFP) for demolition and hazardous material abatement at the Younkers building. Rob Knudsen was very familiar with the building as he had worked in the building for Hansen for approximately [twenty] years. RedNet had submitted a bid based on an earlier RFP in 2011, but the project did not proceed forward at that time. In April of 2013, RedNet submitted a bid of $3, 330, 100, which did not include pricing on options. Tony Garcia from Hansen informed Mr. Knudsen that RedNet was not the low bidder, but invited an amendment with a breakdown on the work so he could better compare it with other bidders. Following that, Mr. Knudsen informed Mr. Garcia that RedNet would pass on the project.
In mid-June of 2013, Hansen contacted RedNet and asked if it would be willing to submit a new bid. Hansen had learned that the subcontractor would not have to pay Davis-Bacon wages, which was expected to substantially reduce the cost of project. RedNet agreed to submit a new bid in light of the new information. RedNet ultimately presented a bid of $2, 655, 100 that allowed it to keep and sell all scrap pulled from the building. RedNet estimated the scrap as an additional $257, 000 in revenue. This bid was accepted by Hansen. The parties stipulated that a contract was formed at that time, although they dispute some terms of the contract. The parties agreed that work often begins on a project before a final written contract is executed.
RedNet prepared for work on the Younkers project. Work was initially scheduled to start on July 15, 2013. RedNet applied for a permit to remove asbestos from the building and filed notices with other government agencies. RedNet purchased needed supplies. The start date was delayed, but Hansen continued to confer with RedNet while preparing for the project. As an example, the parties met on July 11, 2013, to sort through contract terms, scope of work, schedules, and other matters. As of that meeting, work was expected to begin on August 5, 2013.

(Footnote omitted.)

         However, by late July 2013 circumstances began to arise that gave cause for the instant action. On July 26, 2013, Knudsen sent a letter to the president of Hansen, Craig Faber, regarding discrepancies with the asbestos and lead inspection reports provided by Hansen. The discrepancies, according to Knudsen, could result in widespread exposure to asbestos to other subcontractors and violate many laws and even result in imprisonment. About the same time, and although the parties had worked together in many prior projects, Hansen had become increasingly concerned about the financial viability of RedNet and Knudsen's related companies. Redstone was providing space for RedNet's headquarters but Redstone's landlord filed a forcible entry and detainer action to evict Redstone in mid-July. RedNet had also subcontracted some of the labor on the demolition contract to Redstone, and Hansen received notice that Redstone's workers' compensation policy had been cancelled. On behalf of Hansen, Garcia contacted Knudsen on two occasions expressing concern about RedNet's ability to complete the demolition project and the rumors that the Knudsen companies were near bankruptcy. Knudsen insisted Redstone's problems would not affect RedNet.

         Ultimately, Hansen's bonding company recommended that Hansen obtain a bond from RedNet for the demolition project to protect Hansen in the event RedNet could not complete the project. On August 12, 2013, Garcia notified Knudsen of the recommendation for a bond and gave RedNet until August 21, 2013-later extended to August 23-to procure a bond. Garcia also represented that Hansen would pay for the bond. Lynn Knudsen stated a bond had never been required of RedNet in any other project. Further, the project specifications did not recite a bonding requirement and no other subcontractor employed by Hansen was required to submit a bond. Garcia admitted that at the time the contract was awarded no bond was required. Craig Hansen, owner and chief executive officer of Hansen, acknowledged it was his decision to require a bond of RedNet, and if a bond was not provided, RedNet would not be permitted to work on the project. Nonetheless, Knudsen made efforts to procure a bond.

         Due to RedNet having been recently formed (in 2011) and its financial condition-caused in large part by accounts receivable that were not being paid-RedNet had difficulties obtaining a bond by Hansen's deadline. Although Knudsen located a friend who could arrange for the bond, the efforts were ceased when Knudsen learned on August 26, 2013, Hansen had decided to move on with a new subcontractor. The next day, RedNet closed its business.

         Hansen pled and raised at trial the defense that it was fraudulently induced to enter into the contract by representations made by RedNet or the Knudsens. Jury Instruction No. 20 informed the jury that if the defense of fraudulent inducement was proved, Hansen was entitled to rescind the contract, and RedNet was not entitled to damages.

         The defense of fraudulent inducement was premised upon e-mail communications from the Knudsens after the initial bids in 2013. In a May 2, 2013, 3:11 a.m. e-mail sent by Robert Knudsen to Craig Faber, Knudsen expressed disappointment that RedNet was not selected for the Younkers project. The e-mail also explained how Knudsen's companies were all doing well financially and how RedNet had been sought out to bid on the project, and then later told the Younkers project was "off the table" for RedNet. About a month and a half later, Hansen decided to rebid the project and requested RedNet to submit a new bid without the Davis-Bacon wages. Hansen contends this was essentially a negotiated bid and Hansen had the opportunity to select whomever they desired to employ.

         In a later e-mail by Lynn Knudsen, she expressed that their bank had doubled their line of credit. Hansen claims that what this e-mail failed to disclose was that the line of credit was already "maxed" out. Hansen claimed the financial information in the e-mails was false, and it relied upon the information to decide to accept RedNet's second bid. But Hansen never requested any financial information from RedNet until August 17, 2013. By that date, Hansen had a bid from another company that Hansen had solicited two or more weeks earlier.

         Throughout the time the other company was working on their bid, Hansen made representations to RedNet that suggested everything was proceeding forward, including selecting additional options to the contract and setting the date to begin work. Initially, work was to begin July 15, then it was moved to August 5, then to August 15, then to August 21, and finally, RedNet was told they were off the job on August 26, although RedNet was able to obtain a bond the very next day. During the time between the acceptance of the bid and late August, RedNet did extensive work preparing for the job.

         Hansen also contends that even if it breached the contract, there was no evidence RedNet suffered damages as a result of the breach; RedNet was a new company and its evidence could not support the damages awarded; and punitive damages were not proper because there was no intentional tort. RedNet sought damages for lost profits. Robert Knudsen testified to a breakdown of RedNet's bid based upon the plans, reports, labor cost, and materials. The bid also included an estimated profit of $1, 124, 387, with a total contract price of $2, 655, 100. The profit was calculated into the bid based upon production rates of other jobs and RedNet's profits on past jobs. Past jobs included the Des Moines building, the Fleming building, Quality Manufacturing, and Southridge Mall. In addition, under the contract, RedNet was entitled to sell any scrap from the project, totaling an estimated $257, 000 in additional profits. Hansen argues that due to RedNet's financial condition it could not have finished the job to earn such profits. Because of the loss of the contract, RedNet was forced to close its doors.

         RedNet's claim for punitive damages is based upon the facts surrounding Hansen's termination of the contract. RedNet contends Hansen knew the financial significance of the Younkers project to RedNet; Hansen was aware RedNet turned down another project to purse the Younkers project at Hansen's request; Hansen was aware of RedNet's cash flow problems and the forcible entry and detainer action against one of its related companies, yet still allowed RedNet to prepare to begin work on the project including attending preconstruction meetings; and Hansen unreasonably requested RedNet to obtain a bond although it was not a part of the original agreement, no other subcontractor was required to post a bond, and Hansen knew it would be difficult for RedNet to obtain a bond. RedNet claims in addition to these facts supporting willful and malicious conduct, three specific communications reflect personal spite and ill will. First, on a draft written subcontract agreement, Hansen's project manager (Anderson) wrote that he hoped the Knudsens and their companies "rot in hell." Second, upon terminating RedNet's contract, Faber communicated to RedNet, "[N]ext time don't bite the hand that feeds you." Finally, in an e-mail from Faber to Garcia after RedNet's termination, Faber said Hansen should make similar requests for bond from any replacement subcontractors or else it would "kill [them] if this comes up later."

         II. Preservation of Error.

         RedNet contends three arguments raised on appeal by Hansen were not properly preserved for our review. Ordinarily, we only review issues that have been raised and decided by the district court. See Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002). If an issue raised by a party is not decided, the party must "request a ruling from the district court to preserve error for appeal." Id. at 539. Where a party makes a request and the district court "generally overrules the motion without addressing its specifics, error is preserved." Ellis v. City of Le Mars, No. 11-1239, 2012 WL 1612003, at *5 (Iowa Ct. App. May 9, 2012).

         According to RedNet, the three arguments not preserved are (1) the claim the contract was modified to include the bond requirement, (2) Hansen's claim of lack of causation for damages, and (3) the claim that RedNet failed to mitigate damages. We agree.

         With respect to issues (1) and (3), Hansen neither pled nor sought jury instructions relative to a contract modification or a duty to mitigate damages, and, therefore, has failed to preserve error on those issues. See Tarrell v. Erdmann, 221 N.W.2d 504, 507 (Iowa 1974) (noting jury instructions stand as the law of the case and timely objections must be made to the instructions to preserve error).

         As to issue (2)-causation-Hansen's motion for judgment notwithstanding the verdict included an argument on the sufficiency of the evidence to show causation, but the court never ruled on the issue. Further, "[a] motion for judgment notwithstanding the verdict must stand on grounds raised in the directed verdict motion." Royal Indem. Co. v. Factory Mut. Ins. Co., 786 N.W.2d 839, 845 (Iowa 2010). The issue of causation was not raised by Hansen in its motion for directed ...


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