Opinion
No. 2-403 / 01-1826
Filed January 15, 2003
Appeal from the Iowa District Court for Buchanan County, John Bauercamper, Judge.
The sellers of a home appeal a judgment for fraudulent misrepresentation. AFFIRMED.
Todd Stevenson of Kane, Norby Reddick, P.C., Dubuque, for appellants.
Matthew Petrzelka and Matt Dummermuth of Simmons, Perrine, Albright Ellwood, P.L.C., Cedar Rapids, for appellees.
Considered by Vogel, P.J., and Miller and Vaitheswaran, JJ.
The sellers of a home challenge the sufficiency of the evidence supporting a judgment for fraudulent misrepresentation. We affirm.
I. Background Facts and Proceedings
Harry and Ramona Thomas built a home in Independence. In 1991, they replaced their conventional heating and cooling system with a geothermal system. The Thomases initially experienced some problems with this system which were rectified by Don Lentz Heating and Cooling.
Four years after the geothermal system was installed, the Thomases separated and decided to sell their home. The real estate disclosure form they signed failed to disclose any problems with the heating and cooling system.
The relevant portion of the disclosure form provided:
7. Heating System(s): Any known problems? yes ___ no ___
Any known repairs? yes ___ no ___ Date of repairs ______
8. Central Cooling System(s): Any known problems? yes ___ no ___
Any known repairs? yes ___ no ___ Date of repairs ______
William and Kay Dolan bought the house. They began experiencing problems with the geothermal system. The Dolans called Lentz, who advised them they would likely have to replace the entire system. Ultimately, the Dolans replaced the geothermal system with a conventional heating and cooling system costing $4094.76.
The Dolans sued the Thomases for fraudulent misrepresentation. The district court ruled in their favor and awarded actual damages of $12,495.50 and punitive damages of $5,000. This appeal followed.
II. Sufficiency of the Evidence
A. Liability. The Thomases claim there was insufficient evidence to establish certain key elements of the fraudulent misrepresentation claim. Our review is on error. Benson v. Webster, 593 N.W.2d 126, 129 (Iowa 1999). The district court's findings are binding on us if supported by substantial evidence. Id.
To establish fraudulent representation, a party must show by clear, satisfactory and convincing evidence: 1) a representation, 2) the falsity of the representation, 3) the materiality of the representation, 4) scienter or knowledge that the representation was false, 5) an intent to deceive, 6) justifiable reliance, 7) proximate cause, and 8) damages. Midwest Home Distributor, Inc. v. Domco Indus., Ltd., 585 N.W.2d 735, 738 (Iowa 1998). In the context of a real estate sale, these elements are informed by the disclosure standards set forth in Iowa Code chapter 558A. See Iowa Code § 558A.3 (requiring written disclosure statement); Arthur v. Brick, 565 N.W.2d 623, 625 (Iowa Ct.App. 1997).
The district court found the following essential facts. The Thomases attested on the real estate disclosure form that there were no known problems or repairs associated with the heating and cooling system. The Thomases did not tell the Dolans there were any problems with the system. After the disclosure form was signed but before closing, Don Lentz Heating and Cooling serviced the system in response to a complaint from Ramona Thomas and issued an invoice addressed to the Thomas home stating:
found that the compressor runs but the line to the water heater is very hot. Liquid Line at evap. coil is also frosted. Something is inside system that is restricting expansion valve off and on. Note** We are looking for an expansion valve but manufacturer is out of business. Please let us know what you would like to do.
Following this service call, Don Lentz spoke to Harry Thomas and informed him the system would have to be replaced because he could not locate a replacement part. The Thomases did not amend their disclosure form after receiving this information.
Each of these findings are supported by substantial evidence. Although Harry Thomas denied receiving the cited invoice and further denied speaking to Lentz about replacement of the system, the district court found Lentz's statements to be more credible than Thomas's denials. This credibility determination was within the court's purview and we will not disturb it on appeal. See State Sav. Bank v Allis-Chalmers Corp., 431 N.W.2d 383, 386 (Iowa Ct.App. 1988) (stating scienter and intent elements of fraud claim "are typically resolved on witness credibility, and credibility is best determined by the fact finder.").
B. Actual Damages. The Thomases raise a number of challenges to the district court's award of actual damages, all of which implicate the sufficiency of the evidence supporting the award. We will uphold an award if the record discloses a reasonable basis from which it can be inferred or approximated. See Benson, 593 N.W.2d at 131.
Iowa recognizes two measures of damages for fraud: (1) benefit of the bargain plus consequential damages and (2) out of pocket expenses. Domco, 585 N.W.2d at 739. The district court applied the benefit of the bargain rule, stating:
Under their bargain, [the Dolans] were entitled to a home with an energy efficient geothermal heating and cooling system.
Plaintiffs could not afford the more expensive geothermal system when the repair was made, so they installed a cheaper conventional system. The court concludes the additional cost of operating the conventional system approximates the cost of its installation.
The evidence further substantiates that the geothermal system was quite new when the home was purchased and that such a system holds its value due to its efficient operation and savings on utility costs.
The court's award of $12,495.50 was within $5.00 of what Lentz testified it would cost to replace the geothermal system with a system of equal or better efficiency.
We believe, therefore, that there was a reasonable basis for the award.C. Punitive Damages. The Thomases next contend there was insufficient evidence to support the district court's punitive damage award of $5,000. Where punitive damages are requested, a court must make a finding by a preponderance of clear, convincing, and satisfactory evidence that a defendant willfully and wantonly disregarded the rights or safety of another. Iowa Code § 668A.1(1)(a). If there is evidence bearing on the issue of willful or malicious conduct, we will not disturb the district court's findings. Allis-Chalmers Corp., 431 N.W.2d at 387.
The district court found punitive damages appropriate "because the evidence shows that Harry Thomas acted illegally and maliciously in failing to supplement the disclosure statement as required by Section 558A.3." The court also found "that defendants' conduct was directed specifically at the plaintiffs for the purpose of inducing them to close this real estate transaction."
As there is evidence to support these findings, we decline to overturn the punitive damage award.