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Deshaw v. Farmers Savings Bank

Court of Appeals of Iowa

December 6, 2017

MARTY DESHAW, Plaintiff-Appellee,
FARMERS SAVINGS BANK and MARK E. WHITE, Defendants-Appellants.

         Appeal from the Iowa District Court for Clayton County, John J. Bauercamper, Judge.

         A bank and its president appeal a jury verdict in favor of a borrower for fraudulent misrepresentation and nondisclosure. AFFIRMED.

          D. Flint Drake and Samuel M. Degree of Drake Law Firm, P.C., Dubuque, for appellants.

          Peter C. Riley of Tom Riley Law Firm, P.L.C., Cedar Rapids, for appellee.

          Considered by Vaitheswaran, P.J., and Tabor and Mullins, JJ.

          TABOR, Judge.

         Farmers Savings Bank and its president, Mark White, appeal a jury verdict in favor of borrower Marty DeShaw in his action for fraudulent misrepresentation and nondisclosure. The jury decided White was complicit with bank customer Jeff Rohner[1] in deceiving DeShaw into mortgaging his home as security for a promissory note to cover Rohner's debt to the bank on his farmland. The bank asserted a claim against DeShaw on the balance due on the note, seeking to foreclose the mortgage. DeShaw denied the claim and successfully asserted the bank's fraud as a defense.

         On appeal, White and the bank[2] pose three questions: (1) Did DeShaw prove Rohner's fraudulent intent? (2) Did DeShaw prove White knew of Rohner's fraudulent intent? and (3) Did DeShaw prove White fraudulently failed to disclose material information to induce DeShaw to enter the loan transaction in September 2011? Despite conflicting testimony about the circumstances of this transaction, it was within the jury's prerogative to credit DeShaw's version of events. We find substantial evidence supports the jury's verdict and affirm.

         I. Facts and Prior Proceedings

         A detailed rendition of the facts is critical to addressing the issues on appeal. We start by introducing White, Rohner, and DeShaw.

         For nearly three decades, White has served as president of Farmers Savings Bank, which started in Colesburg but expanded to several nearby communities in northeast Iowa. In White's words: "If you don't get bigger you get gobbled up." White graduated from Loras College with a degree in finance. He gained additional coursework in agricultural credit and commercial lending. White had a long-time banking relationship with Rohner, a local businessman.

         Fifty-seven-year-old Rohner owned and operated Rohner Refrigeration, Plumbing, Heating and Air Conditioning, a fledgling enterprise. Rohner borrowed money for the new business from White in 2009. The bank also held the 2007 note and $90, 462 mortgage on the property at issue in this case-a fifty-two acre farm that was mostly recreational timber and generated an annual income of only $2500. The farm was originally much larger, but Rohner sold parcels of tillable land to pay his debts to the bank and "was down to the last fifty-two acres." In addition to his farm debt, Rohner had a loan on his house and "a couple of commercial vehicle loans also on the HVAC business." Rohner "struggled" to make his quarterly payments on the farm in 2008 and 2009. Before the quarterly payments were due, White advanced Rohner two smaller loans-$6500 on April 14, 2009, and $9000 on March 15, 2010, which were secured by equity in the farm-noting Rohner needed "a little operating money" for his business. During his financial struggles, Rohner befriended DeShaw.

         DeShaw attended high school with Rohner's son; they hunted and rode four wheelers in Rohner's timber. After high school, DeShaw worked in manufacturing before taking four years to care for his grandmother, who suffered from dementia. When she died, he returned to manufacturing work. When he started receiving unemployment in 2009, DeShaw worked as an unpaid intern for Rohner to learn the HVAC trade. DeShaw owned two houses. His residence on Colesburg Road was debt free; he paid his grandmother half the value and inherited the other half from her estate. DeShaw had lived there for seventeen years. DeShaw also rented out a house in Guttenberg purchased with a Fidelity Bank loan and mortgage.

         Delivery of Colesburg Road Abstract to White.

         Key trial testimony focused on DeShaw's home on Colesburg Road. Witnesses offered the jury diametrically opposed reasons why DeShaw delivered the home's abstract to the bank in February 2011.

         White's testimony. White characterized Rohner as "a chronic past due" customer. The banker's comment sheet memorialized Rohner's frequent requests for extensions on existing loans, as well as new, smaller loans to increase his cash flow. If any debtor was more than thirty days past due when the bank created its quarterly reports, the loan was dubbed "troubled debt." White explained, "[M]y board frowns on troubled debt."

         In December 2010, White's patience with Rohner's debt level and payment struggles ran out. The banker urged Rohner to sell the last portion of his farm- the timber. But Rohner replied: "This is a family farm. This is all I have left." Rohner proposed: "If I can find an investor to pay it down, if I find a plan, will you listen?" White agreed to listen.

         According to White, during a January 8, 2011 meeting at the bank, Rohner and DeShaw presented him with a plan for DeShaw to invest in Rohner's farm.[3] White recalled that Rohner walked in, introduced DeShaw as his employee, and reminded White of his agreement to listen if Rohner found an investor. White said Rohner convinced DeShaw the farm was worth between $175, 000 and $200, 000 and the bank was not being fair to Rohner in seeking a deed for $130, 000. Rohner proposed the farm be sold for $160, 000, that DeShaw "would come up with $80, 000" and pay Rohner's $130, 000 obligation down to $50, 000, then Rohner would reimburse that $50, 000 to the bank in monthly payments over twenty years.

         White thought Rohner's proposal was workable and asked DeShaw if he had $80, 000. DeShaw replied he did not, so White allegedly told DeShaw, "I need the financial application. I need to know what I'm working with." White helped DeShaw fill out a loan application by asking him questions about his assets and liabilities and recording his answers on the form. After DeShaw approved White's compilation of his assets and liabilities on the loan application, White dated it January 8, 2011, and DeShaw signed it.

         White told DeShaw he could have the same deal as Rohner: "[Rohner] borrows 50, you borrow 50, you have to cough up $30, 000." White also told DeShaw, he wanted a first mortgage on the Colesburg house and a second mortgage on the Guttenberg house "so I have enough collateral." According to White's testimony, DeShaw agreed to "the first but I won't give you a second. If this doesn't work out, I am not going to be homeless." White understood DeShaw would give him a mortgage on his Colesburg Road house and would deliver that abstract to the bank, which DeShaw did in February 2011.

         White claimed as the meeting continued, he "went to the assessor's card" to see what the Colesburg Road property was worth, which was $57, 000.[4] White allegedly told DeShaw that the Colesburg Road property "has got to appraise for at least $50, 000, or this deal isn't going to go through." White required Rohner's proposal be reduced to writing and volunteered the name of an attorney, Kim Lange, who could "put the contract together for the sale between the two of you." According to White, Rohner and DeShaw agreed, and White contacted Lange.

         White pulled DeShaw's credit report at 11:05 a.m., January 8, 2011, learning he had a good score. White believed he ran it "immediately following the meeting." White told the jury, "I have to have an application, either verbal or in writing, to pull a credit report, " but "it's best to have a written application."

         DeShaw's testimony. DeShaw aspired to run his own HVAC company. His sister and cousin testified DeShaw learned in 2010 that such a business might be for sale in Elkader. DeShaw testified Rohner said he talked to White about loaning DeShaw money to buy the Elkader business and White indicated his willingness to do so if DeShaw had collateral.[5] From that conversation with Rohner, DeShaw understood he should deliver an abstract to the bank. DeShaw discussed purchasing the HVAC business with Rohner because DeShaw did not have the necessary licenses to operate the business and Rohner did. DeShaw proposed buying the Elkader business and combining it "with Rohner Refrigeration and operat[ing] under his license."

         In early February 2011, DeShaw dropped off the abstract for his Colesburg Road home at the Elkport/Garber bank branch to obtain a loan to buy the Elkader HVAC business. DeShaw entered the bank and told a teller, "Mark White is expecting this." DeShaw did not discuss buying an interest in Rohner's farm with the teller. White did not work in that branch and was not present.

         DeShaw also testified Rohner "had periodically discussed" DeShaw buying a half interest in Rohner's farm "and that is when they come up with the contract for me purchasing half, where $30, 000 would come out of my Guttenberg [rental] house." (Emphasis added.) DeShaw was willing to provide a mortgage on his Guttenberg rental to purchase half of the farm but was not sure when he actually saw the sale contract-Rohner "didn't bring it out then. He waited. I don't know why." It is undisputed attorney Lange prepared the real estate contract and faxed it to White on February 11, 2011.[6]

         Title Issue on Colesburg Road Abstract.

         White also asked Lange to provide a title opinion on DeShaw's Colesburg Road property. On February 24, 2011, her preliminary opinion stated "marketable title" was vested in DeShaw "by virtue of a warranty deed dated April 22, 1998" and by virtue of the joint tenant's death as proven by the July 24, 2007 filing from the estate of DeShaw's grandmother. To provide clear title, Lange required White to "[o]btain an affidavit of the surviving joint tenant prior to closing."

         DeShaw did not know Lange before February 24 and asserted he had not told White the bank "could have a lien or a mortgage on [his] Colesburg house in connection with buying an interest in [Rohner's] farm." Rohner disagreed, stating DeShaw knew he would have a mortgage on his Colesburg Road house.

         DeShaw Loan in March 2011.

         As with the reasons for DeShaw's delivery of the Colesburg Road abstract to the bank, the jury heard diametrically opposed testimony on why DeShaw obtained a small loan in March 2011.

         White's testimony. On March 4, 2011, White ran a second credit report on DeShaw, again observing a "very good" score. This report contained a "loan application date" of March 30, 2011, even though White testified to a conversation with Rohner two weeks earlier. On cross-examination, White stated: "Why we ran it in early March, I'm not sure." "I had to have it thirty days prior to making the loan" to DeShaw.

         In mid-March, White pressured Rohner to pay before the upcoming quarterly report: "[I]f you don't have it, we're done and I'm foreclosing." Rohner said he would talk to DeShaw. White recalled hearing back from DeShaw, who confirmed he wanted to continue with the farm deal. White said he told DeShaw he needed "a payment by March 30th" or the bank would be "forcing the issue." "So [DeShaw] walked in on March 30th, signed a note for $3500, and took care of the problem." Rohner's debt for the farm remained at $130, 000, and because it was worth at least $160, 000, White believed it was "still a good deal for them." White claimed DeShaw took out the loan in March 2011 "to hold the status quo" on the farm so he could still do the $80, 000 deal. White first entered a comment on DeShaw's loan sheet on March 30, 2011.

         But White's testimony was at odds with his March 30, 2011 comment sheet placed in Rohner's loan file:

[Rohner] just can't afford the debt on the farm and must sell. [Rohner] has found a buyer (Marty DeShaw), but can't sell until judgments are cleared up. They had it worked out that [DeShaw] would buy on contract, but with the huge medical judgments, can't. At this point we are stepping in. Asked if [Rohner] would give us a deed in lieu and he said yes if we sell to [DeShaw]. We said that is agreeable as long as [DeShaw] is the highest bidder. [DeShaw] is willing to pay a minimum of $140, 000 and will probably go to $150, 000. He has two properties clear or almost clear for the down payment. Proceeding with attorney John Freund to get [the farm] into [the bank's] name.

         White testified, despite his comments, he did not have "absolute certainty" judgment liens existed against the farm. At trial, White asserted he did not know the February 2011 sales contract was not feasible until the abstracting company's May 2011 lien search. But on cross-examination White admitted:

Q. And the comment sheets are things that you keep as a part of the recordkeeping that the regulatory authorities and bank examiners will look at when they come in and evaluate your loan portfolio; correct?
A. Yes.
Q. And so you try to be as accurate as possible when you make comments in the comment sheet; correct?
A. [Rohner] told us that they are out there, and we were hoping they weren't, but-
Q. Is there anything in your entry . . . that says anything about possible or potential judgments?
A. No.

         Rohner's testimony also casts doubt on White's asserted belief the February 2011 contract was viable when DeShaw took out the March 2011 loan. Rohner testified, before the bank's May 2011 lien search, he knew he had been sued and that judgments had been entered against the farm for medical bills, attorney fees, and unpaid business bills.

         White claimed he knew the Colesburg Road property was free and clear based on (1) Lange's preliminary title opinion and (2) DeShaw's January 8, 2011 loan application. But White's evasive responses when asked about his March 2011 characterization of the Guttenberg rental property as "almost clear" bolsters DeShaw's claim he signed the loan application at the same time he signed the loan documents-September 2011 and not January 2011:

Q. You're saying your state of mind was the Guttenberg house was almost free and clear; correct?
A. There was debt against it. [DeShaw] had already told me that he will not give me that house.
Q. Your words were, "He has two properties clear or almost clear for the down payment." That's what you wrote in the comment sheet that the regulators look at; right?
A. Yeah, but he wasn't going to give me both of them.
Q. Do you consider a $45, 000 mortgage on an $80, 000 property almost clear? Really?
A. He wasn't going to give it to me anyhow. [DeShaw] had already made it very clear. He didn't give me the abstract. I was not going to get that [Guttenberg] house.
Q. My question is: Do you want the jury to believe that you think a $45, 000 mortgage on an $80, 000 property is almost clear? It's a yes or no question, sir.
A. It's an opinion.

         Further, White hedged in his testimony concerning the signing date of the loan application:

[Deshaw] testified that at some point he gave me this information. This was recognizable to him . . . . My recollection is, I'm 99% sure, he signed it in January [2011]. [DeShaw]'s recollection is he signed it in September [2011]. Banking law requires that I have a signed application at time of closing. So whether he signed it in January or he signed it in September at that closing, it really makes no difference . . . . The big thing is it had to be signed prior to the closing [of DeShaw's loan for $152, 800] in September [2011].

         DeShaw's testimony. DeShaw testified to a different path leading up to his March 2011 loan for $3500. Rohner told DeShaw he was waiting for earnings from a job and "had to pay up the interest on his loans, and that if I borrowed the money, [Rohner] would pay me back right away." DeShaw agreed to help, and on March 30, signed a three-month personal note with the bank. DeShaw believed, "within a matter of a month or two, " Rohner had repaid this loan. But the bank's records show otherwise.

         March 2011 loan documents. Although DeShaw did not receive the loan proceeds, the bank's "disbursement request and authorization form" stated the note's proceeds were paid directly to him. A related bank debit, dated March 28, 2011-two days before DeShaw signed the note-showed a $3473.00 transfer from DeShaw's account was applied to two different loans. A handwritten note on the debit states: "The money was paid on interest on both of Jeff Rohner's loans." But the application of the loan's proceeds to Rohner's loans is not listed on DeShaw's comment sheet. White's notes on Rohner's comment sheet stated the bank agreed to give Rohner "one more extension." White testified "the two [Rohner loans] that [DeShaw] took care of were the larger loans." On cross-examination, White admitted the loan's $1974.20 in closing costs assigned to DeShaw included $50 charged by attorney Lange to prepare the February 2011 sales contract for $80, 000 that White asked her to draft.

         The bank processed the debit on March 30, the same day DeShaw signed the note. But White had already extended Rohner's loans on March 28, 2011, "to allow more time for this farm transaction to work itself out." On cross-examination, White blamed the bank's computer systems for the differing dates on the documents, stating he "had to backdate" so Rohner's loans would not be listed as "bad debt" in the March quarterly report[7] and the bank gained no advantage in using the differing dates. But White's explanation shows his willingness to backdate official bank documents.

         White's Lien Search on the Farm.

         White requested a formal lien search on the farm. On May 13, 2011, the report showed the farm was subject to four creditors' judgments of about $25, 000 and to unpaid real estate taxes. White claimed he did the lien search to protect DeShaw, who would have assumed Rohner's liens under the February 2011 contract for $80, 000. White claimed he then "advised [DeShaw] against buying or entering into the [February 2011] contract agreement" because the lien search "pretty much throws [the February 2011 contract] out."[8] White also "talked to [Rohner] and said [the contract for $80, 000] is not going to work. We have to have a deed in lieu of foreclosure." White did not note these discussions on the loan comment sheets for either Rohner or DeShaw. On cross-examination, White admitted that one purpose for the lien search was to provide the bank's attorney, Freund, with the report so he would know who to serve with the voluntary-foreclosure documents.

         White claimed DeShaw "still felt, 130, 140, 150, is still a good deal for him. So they told me to proceed on, we were going to do a deed in lieu, the bank would own it, the bank would sell" the farm to DeShaw. The "big thing" for White was getting the farm in the bank's name so White "could control the destiny, whether I call a realtor or I work something out" with DeShaw.

         DeShaw did not see White's lien report but found out about the farm's liens "sometime in the spring of 2011" and was no longer interested in a contract to purchase for $80, 000. DeShaw knew if he bought part of the farm, "the judgments would still be on the property, and they would affect me." According to DeShaw, when the $80, 000 contract was dropped, Rohner then approached him with a "solution that would allow [Rohner] to get around" the judgment liens.

DeShaw testified:
[Rohner] said he had discussed it with Mark White, and they came up with the idea of [Rohner] to sign in lieu of foreclosure note, the bank would take it back, and that would dismiss any judgments against it. Then I would buy it out. It would be in my name no more than three months. [Rohner] would file bankruptcy and take it back [free and clear].

(Emphasis added.) DeShaw discussed this plan only with Rohner, not with White or anyone else at the bank. Rohner, who had taken bankruptcy and had executed a reaffirmation agreement with the bank in the past, understood if he gave the property back to the bank, "took bankruptcy, those judgments would be extinguished if [he] then took the property back." According to Rohner, before his voluntary foreclosure in May 2011, he had "some discussions" with DeShaw about "buying the farm or an interest in the farm." But he and DeShaw had "a lot of discussion about it after [Rohner] signed the voluntary foreclosure."

         At this point, DeShaw was still considering buying the HVAC business, but when he broached the subject with Rohner, he "would talk me out of it again, and we would just go back and forth on it." DeShaw ultimately decided he was willing to help Rohner and take temporary title to the farm because he "felt sorry for him. It was in his family . . . it was breaking his heart" and "he wanted to keep it. And it was financially beyond me to buy and keep. And [Rohner] found a way where he could clear his debts, and he would take it back." DeShaw was not aware Rohner had filed for bankruptcy twice before 2011.

         Rohner's Voluntary Foreclosure-May 2011.

         White explained the steps he took for the voluntary foreclosure as "we identify the debt against the farm and debt against the house and debt against the commercial business. I sent all the paperwork to attorney Freund" and "gave instructions" to get the farm out of Rohner's name and extinguish the judgment liens.[9] On May 23, 2011, Rohner executed a deed and agreement of voluntary foreclosure in favor of the bank. Rohner knew his debt secured by the farm was paid off, the judgment liens were extinguished, and his unsatisfied debt was $115, 100. In sum, Rohner extinguished around $119, 800 of his $234, 937 debt with the bank.

         On June 1, 2011, attorney Freund, on behalf of the bank, served notices on the four lienholders by certified mail. See Iowa Code § 654.18(3) (2011) (giving lienholders thirty days to redeem). Also on June 1, White wrote on Rohner's comment sheet: "Notices sent, would like to close [with DeShaw] in June but the thirty days won't be up, will have resolved by early July, hoping."

         Bank Owns the Farm.

         When the lienholders took no action, the bank recorded its deed and the voluntary foreclosure agreement on June 23, 2011. But the sale to DeShaw did not close in early July. White needed to have the property appraised and also needed to clear up the title issue. White continued discussions with DeShaw and asserted whether to go forward was up to DeShaw. "I wanted 130 out of it, whether [DeShaw] took it over or I sold it to someone else. I didn't really care."

         DeShaw acknowledges he had phone conversations with White before closing his September 2011 loan with the bank. But DeShaw claims he told White he was "not willing to give a mortgage" on the Colesburg Road property in connection with the farm deal. At trial, DeShaw explained why he was willing to provide a mortgage on his home to further his purchase of the Elkader HVAC business but not for a loan on the farm: "Because the business would be for myself, and dealing with someone else, just on the faith that they were going to make the payments, I was not willing to put the only house I had free and clear up for collateral."

         Appraisals. White explained: "If you're taking a mortgage, you have to have an appraisal." On July 1, 2011, White ordered an appraisal on the Colesburg Road home, telling the appraiser DeShaw was "refinancing (down payment loan)" and the valuation would be used for a mortgage. On the same date, White ordered an appraisal of the farm, stating DeShaw was purchasing the farm for $150, 000 but "there is no purchase agreement at this time."

         At the end of August 2011, the completed appraisals valued the Colesburg Road home at $82, 000 and valued "the market cash value of the [timber] being purchased by Marty DeShaw" at $153, 737. White then proceeded on the loan, "[w]e ordered the deed packages and eventually prepared the closing docs for the loans in September." On behalf of the bank, White signed and notarized a deed transferring the farm from the bank to DeShaw on September 11, nine days before the transaction closed. White explained he probably received the deed package on September 11 and "just took care of business and signed it." White told the jury the loan closing was delayed due to Lange's title objection.

         Title Objection. White testified he asked DeShaw for help in clearing title to the Colesburg Road house and DeShaw then "talked to his attorneys, " who e-mailed or faxed an affidavit to White. White then "forwarded it on" to Lange, and Lange cleared title on the afternoon of September 19, 2011.

         But on cross-examination, White admitted: (1) the document he presented as a newly prepared affidavit was a December 2008 affidavit from DeShaw's sister, not DeShaw; (2) this 2008 affidavit would have been in the abstract before Lange's February 2011 preliminary title opinion; and (3) Lange cleared title to the Colesburg Road house based on her examination of the 2007 "Report and Inventory" of the estate recorded in the county clerk's office. Also on cross-examination, DeShaw's counsel pointed out Lange's original requirement asked White to obtain an affidavit of the ...

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