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First American Bank v. Fobian Farms, Inc.

Supreme Court of Iowa

January 26, 2018


         On review from the Iowa Court of Appeals.

         Appeal from the Iowa District Court for Johnson County, Ian K. Thornhill, Judge.

         Defendants seek further review of court of appeals decision affirming district court's ruling on remand imposing sanctions under Iowa Rule of Civil Procedure 1.413. DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED AS MODIFIED, WRIT SUSTAINED, AND CASE REMANDED.

          Gregg A. Geerdes, Iowa City, for appellants.

          Mark A. Roberts, Lynn W. Hartman, and Dawn M. Gibson of Simmons Perrine Moyer Bergman P.L.C., Cedar Rapids, for appellees.


         In this case, we must determine whether the district court abused its discretion by awarding attorney fees and expenses of $145, 427 as a sanction for frivolous court filings in violation of Iowa Rule of Civil Procedure 1.413. The court of appeals affirmed the sanction award after the district court made more specific factual findings on remand following that appellate court's first decision affirming in part the rulings in a quiet-title action. The sanctioned parties took unfair advantage of a scrivener's error platting a commercial development. The opposing parties largely prevailed in protracted litigation to reform the title documents and incurred substantial legal fees opposing frivolous claims and defenses asserted by the sanctioned parties. The prior proceedings resolved the underlying boundary disputes and established that the sanctioned parties violated rule 1.413. All parties agree at this late stage that a sanction in some amount is warranted; we granted the sanctioned parties' application for further review to decide whether the amount awarded was excessive. All parties request that our court determine the final amount of the sanction rather than remanding the case to the district court for a third determination and possible new appeal.

         For the reasons explained below, we hold the district court abused its discretion by awarding attorney fees beyond those caused by the violations of rule 1.413 or necessary to deter similar misconduct and by relying on a letter the sanctioned party's president sent to our court after we denied further review of the first appellate decision. We determine that the appropriate sanction is $30, 000. We vacate the decision of the court of appeals and modify the district court's sanction award accordingly.

         I. Background Facts and Proceedings.

         The underlying quiet-title litigation involves a real estate development in Johnson County known as the Gateway Commercial Condominiums. Jerry L. Eyman was president of Gateway, Ltd. (Gateway), the developer. In the original 1999 plat, two units were oriented in an east-west configuration, with unit 2A west of unit 2B. The 1999 plat was amended in 2007 to provide for a north-south configuration of building 2. While the units in all other buildings in the development were aligned alphabetically from north to south, the units of building 2 through a scrivener's error were mistakenly aligned with unit 2A south of unit 2B.

         Carl Fobian, president of Fobian Farms, Inc., saw an opportunity. Left uncorrected, the scrivener's error could and did lead to the construction of a building on a site subject to Fobian's mortgage. Fobian had previously extended loans to Eyman and Gateway secured by a mortgage on unsold buildings. Fobian recorded the mortgage on May 16, 2007. Fobian's mortgage was junior to two previously recorded mortgages held by Hills Bank and Trust Company (Hills Bank). In June 2008, Eyman asked Fobian to sign a partial release so C.J. Land, L.L.C. could buy a unit. When Carl Fobian signed the partial release on June 17, 2008, he knew C.J. Land intended to purchase the site to build a restaurant. The partial release, which released unit 2B from the second mortgage, referenced the 1999 plat-not the 2007 plat.

         Later that month, C.J. Land recorded a warranty deed from Gateway. First American Bank financed the purchase. C.J. Land specifically negotiated for the southern lot for highway access, yet the deed stated it was for unit 2B, which was identified as the north lot in the 2007 plat. The deed, however, referenced the legal description from the 1999 plat, which showed 2B as the east unit. Both C.J. Land and Eyman believed C.J. Land purchased the south unit of building 2. C.J. Land hired Eyman as the general contractor to build the restaurant there. The restaurant was built one foot over the property line, and a meat smoker and air conditioning units were placed over the line. The restaurant, which cost approximately $1.1 million to construct, was substantially completed by July 31, 2009.

         Gateway defaulted on the mortgages secured by the unsold units in the development. Hills Bank commenced a foreclosure action, naming Fobian Farms as a defendant due to its junior mortgage. Fobian Farms purchased the bank's interest and prosecuted the foreclosure action. On July 6, 2010, Fobian Farms through a credit bid purchased the sheriff's deed to the unsold property in the development. The sheriff's deed referenced the 1999 plat without referring to the 2007 plat.

         On July 20, Fobian Farms and C.J. Land entered into a lease agreement allowing C.J. Land to use an unsold lot for overflow parking. In return, C.J. Land agreed to maintain and insure the parking lot. Carl Fobian kept quiet about the scrivener's error or his plan to claim ownership of the restaurant site.

         One week later, Fobian Farms' attorney sent C.J. Land's attorney a letter stating that Fobian Farms owned the south lot on which the restaurant was built. This was the first time C.J. Land learned of the dispute. Eyman later testified he became aware of the scrivener's error- in which units 2A and 2B were "flipped"-only when Carl Fobian told him in late July.

         On July 30, the land surveyors who had prepared and filed the 2007 plat filed an affidavit acknowledging the scrivener's error, explaining, "[T]he north unit of building 2 should be 2A not 2B; the south unit of building 2 should be 2B not 2A." After the correction of the scrivener's error, First American Bank contacted Fobian Farms to resolve the title defect, but Fobian Farms refused to cooperate.

         The next year, Fobian Farms sued the surveyors for disparagement or slander of title challenging the corrective affidavit the surveyors had filed. In September 2011, the surveyors responded to the lawsuit by filing an "explanatory and corrective surveyors' affidavit" to "withdraw, negate, and void the [original] Affidavit . . . and return the Unit numbering to the state in which it existed prior to execution and recording of that Affidavit." Based on the surveyors' capitulation, Fobian Farms dismissed its lawsuit against them.

         On March 7, 2012, First American Bank and C.J. Land filed this civil action to quiet title and reform the mortgage and deeds, naming as defendants Fobian Farms; Hoover Highway Business Park, Inc. (Hoover);[1] Gateway and Gateway Properties, Ltd.; Gateway Commercial Condominium Owners Association; Jerry Eyman; and Jan Eyman. Fobian Farms filed a counterclaim against C.J. Land alleging interference with a prospective business advantage by building upon land it did not own. Fobian Farms also filed a cross-claim against Jerry Eyman asserting negligent misrepresentation, a cross-claim against Gateway Commercial Condominiums Owners Association alleging interference with a prospective business advantage, and a third-party claim against Hills Bank alleging negligent misrepresentation. C.J. Land and Hills Bank filed motions for summary judgment and for sanctions against the defendants. On January 24, 2013, the district court granted summary judgment dismissing Fobian Farms' counterclaim against C.J. Land and the third-party claim against Hills Bank.

         A three-day bench trial commenced on February 5 on the remaining claims. Eyman testified that he intended to sell the south unit to C.J. Land and believed he had done so because he did not realize the amended plat incorrectly labeled unit 2B as the north unit. C.J. Land's president similarly testified that he intended to purchase the south unit and had "no doubt" he had done so when he purchased unit 2B. Eyman also testified that Fobian approached him in June 2011 with Fobian's strategy for obtaining the building on the restaurant site. Fobian indicated that he would forgive a large part of Eyman's debt if Eyman cooperated, but Eyman refused.

         Fobian's attorney, James Keele, testified that he and Carl Fobian discovered C.J. Land had built the restaurant before Fobian Farms purchased the mortgages from Hills Bank and completed the sheriff's sale. Keele also testified that he did not inspect the property, explaining that neither he nor Fobian were concerned that someone else had an ownership interest in the property. Fobian testified that he saw C.J. Land constructing the restaurant on the wrong site but said nothing because "[i]t was not [his] business. If they wanted to improve [his] equity, that was none of [his] business."[2] When asked if he would "ever have taken the place of the first mortgag[ee] if that building wasn't on [his] land, " Fobian replied, "Absolutely not."

         In a posttrial brief filed in March, First American Bank and C.J. Land requested costs and attorney fees under Iowa Code sections 649.4 and 649.5, without citing Iowa Rule of Civil Procedure 1.413.

         On August 28, the district court issued its ruling. The district court found that Eyman had credibly testified about his intention to sell the south unit of building 2, that the surveyors had inadvertently switched the numbering of building 2A and 2B on the 2007 plat, and that Eyman and C.J. Land were unaware of the scrivener's error at the time of the sale. The court also specifically found the testimony of Fobian's attorney, Keele, not credible. The district court quieted title in favor of C.J. Land, subject to First American Bank's mortgage, and ordered reformation of related legal instruments. The district court awarded Fobian Farms $2101 in damages for encroachments by C.J. Land's building.

         The district court ordered First American Bank and C.J. Land to "submit a written request specifying the amount of costs and attorney fees they seek in conjunction with the claims they have successfully stated in this matter." Motions to enlarge and amend were filed, and First American Bank and C.J. Land also filed an application for attorney fees and expenses, this time citing both Iowa Code section 649.5 and Iowa Rule of Civil Procedure 1.413. First American Bank and C.J. Land requested $135, 917 in attorney fees, $7094.53 in expenses, and $2636.44 in expert expenses. This request was supported by affidavits and the law firm's billing records, which show those parties incurred approximately $21, 000 in fees before Fobian Farms filed its answer, counterclaim, cross-claims, and third-party claim. The records also show they incurred approximately $11, 300 in fees responding to Fobian Farms' counterclaim against C.J. Land and third-party claim against Hills Bank, which were dismissed by summary judgment on January 24, 2013.

         In a February 11, 2014 ruling, the district court assessed attorney fees and expenses against Fobian Farms. While noting that Iowa Code section 649.5 limited the award of attorney fees to forty dollars, [3] the court concluded that Iowa Rule of Civil Procedure 1.413 provided another basis for awarding attorney fees as a sanction:

The Court's Trial Ruling supports a finding that the actions taken by the Fobian Parties in defending against Plaintiffs' claim and in filing their own claims were frivolous and used for an improper purpose. It is clear to the Court . . . that the actions of the Fobian Parties in defending against Plaintiffs' claims and asserting the Fobian Parties' own claims were of the type that Rule 1.413 was intended to address. Based on the Court's assessment of the testimony offered at trial, there is a high likelihood that the Fobian Defendants saw the mistake in the property descriptions as an opportunity to get a free restaurant. Rather than work with Plaintiffs to rectify the mistake before this litigation was filed, the Fobian Defendants instead chose to pursue improper claims that delayed this process and wasted the resources and time of the parties, and required the use of extensive resources by the Court to resolve the issues presented by this action. As applied to the Fobian Defendants, Rule 1.413 provides a basis for recovery of attorney fees by Plaintiff under these facts.

         The district court determined that all fees requested by the plaintiffs were reasonable and concluded the plaintiffs were entitled to $135, 696 in attorney fees, $7095 in expenses, and $2636 in expert expenses for a total sanction of $145, 427. The court set off taxes owed by C.J. Land to Fobian Farms of $36, 643, for a net award of $108, 784. Fobian Farms appealed, and we transferred the case to the court of appeals.

         On appeal, Fobian Farms argued the district court erred in assessing any sanctions and, alternatively, that any sanctions "should have been assessed against Fobian Farms' trial counsel only." First American Bank and C.J. Land, however, argued that sanctions were properly assessed against the Fobian parties.

         In its June 10, 2015 decision, the court of appeals affirmed the district court's reformation ruling quieting title and its award in favor of Fobian Farms for encroachment. The court of appeals quoted the district court's finding that

[t]he Fobian Parties either knew that C.J. Land began constructing the restaurant on a parcel owned by Fobian Parties and said nothing, or later discovered the mistake and [sought] what would amount to a free restaurant. It is undisputed that Mr. Fobian saw the restaurant construction and made no objection during the construction. At best, Mr. Fobian's conduct could be characterized as inequitable and unfair, and his failure to act at the time the restaurant was being constructed estops him and his business entities from complaining about any resulting encroachment.

         The court of appeals also affirmed the district court's determination that Fobian Farms violated rule 1.413(1), noting that "Fobian bullied the surveyors [who had corrected the scrivener's error] with litigation until they recanted their affidavit" and "asked Eyman to help him with his improper plan of claiming ownership of the restaurant" in exchange for a reduction in Eyman's outstanding debt, while attempting to "make someone pay" for the scrivener's error. But the court of appeals concluded the district court failed to make specific findings to support the amount of the sanctions or its allocation.[4] The court of appeals explained that

[s]ome time would have been expended on this suit notwithstanding the actions of Fobian, and there is no explanation of how much approximated time was expended by the plaintiffs' counsel to address any unwarranted claim or pretrial proceedings, or any needless extension of the time in trial.

         Accordingly, the court of appeals remanded the case "to the district court to make the required specific findings and reconsider the amount of sanctions awarded."

         Fobian Farms filed an application for further review on four issues, including

[w]hether a titleholder who is in the business of selling real estate should be subject to sanctions under Iowa Rule of Civil Procedure 1.413 if he asserts a counterclaim for interference with prospective business advantage against a nontitleholder who has constructed a building and otherwise encroached on the counterclaimant's real property.

         We denied further review on July 31, 2015.

         In August, Carl Fobian sent a letter to our court, purportedly to request advice on "where to turn for real justice and a rapid conclusion." His letter stated,

I have three separate issues concerning Johnson County, the State, and our court operation or lack of it. This concerns an action we should never have been allowed to be named in as "defendants". We have lost in a bench court, an appeals court rubber-stamped it, and the Supreme Court has denied the review of the case or suggests any solution. We expected a decision on legal terms we did not get and asked it to be reviewed on this basis by the Supreme Court. They have refused.
. . . .
Can a determination by a lower court be allowed to stand on totally false facts, easily disapproved by available recorded data, then the Supreme Court denying it to be heard? Can a surveyed document, since recorded, approved by all seven offices in the county, after being requested and presented by the then owner and developer of same when thus recorded, then being used and accepted as security on a properly recorded mortgage be ignored and disposed of by a judge? I can't believe it can. The judge used false facts of record stating we owned property when we were only mortgage owners at that time and that we were obtaining "free property" that our money had financed and was our security on this mortgaged property. He simply did not understand real estate law and our attorney had his mind elsewhere on his own troubles.
. . . .
Can a court get by with, as it seems to me, assisting a person in creating a scam, using a shell-game, replacing, moving, removing, and selling recorded mortgaged property, not released, encroaching, ruining the value there of?
. . . .
Is this America? We positively did nothing wrong, yet we now face the loss of money we borrowed, loaned out, lawyer fees, receiving no damage awarded for a ruined lot, a life destroyed all with the assistance of the court.

C.J. Land and First American Bank filed a motion to strike the filing of the letter. On December 18, we granted the motion to strike and directed the clerk to issue procedendo.

         On January 15, 2016, the district court directed the parties to submit briefs addressing the issues of the minimum sanction needed to deter and Fobian Farms' ability to pay the award previously ordered. In March, the district court entered its ruling on remand, which reinstated the full amount of the sanctions originally awarded before the first appeal. This ruling relied in part on Carl Fobian's letter to our court to justify the amount awarded. Fobian Farms timely appealed the ruling on remand, and we again transferred the case to the court of appeals, which treated the appeal as a writ of certiorari, found no abuse of discretion, and annulled the writ. Fobian Farms applied for further review, which we granted.

         II. Standard of Review.

         We treat this appeal as a petition for writ of certiorari. Everly v. Knoxville Cmty. Sch. Dist., 774 N.W.2d 488, 492 (Iowa 2009) ("The proper means to review a district court's order imposing sanctions is by writ of certiorari."); see Iowa R. App. P. 6.108. "We review a district court's order imposing sanctions under our rules of civil procedure for an abuse of discretion." Rowedder v. Anderson, 814 N.W.2d 585, 589 (Iowa 2012). A district court abuses its discretion when it "exercises its discretion on grounds or for reasons clearly untenable or to an extent clearly unreasonable." Id. (quoting Schettler v. Iowa Dist. Ct., 509 N.W.2d 459, 464 (Iowa 1993)). "An erroneous application of the law is clearly untenable." Id.

         III. ...

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