In the Court of Appeals of Iowa s23

IN THE COURT OF APPEALS OF IOWA

No. 6-056 / 04-1628 Filed March 29, 2006

CONDON AUTO SALES and SERVICE, INC., and CONDON FORD, INC., Plaintiffs-Appellees, vs.

SIOUXLAND AUTO AUCTION, INC., An Iowa Corporation, ACERO GROUP, INC., An Iowa Corporation, JOSE ACERO, Individually, and TERESA ACERO, Individually, Defendants-Appellants,

JERRY MAGEE and JOEL MAGEE, d/b/a ADVANTAGE AUTO DETAILING, a/k/a ABC CARS, MIKE RAGER, TMG, an unknown entity, and JAMES MCDANIEL, Defendants. ______

Appeal from the Iowa District Court for Woodbury County, Jeffrey A.

Neary, Judge.

The defendants appeal from the jury verdict which found them liable for damages to the plaintiffs based on fraud and civil conspiracy. AFFIRMED.

John D. Mayne of Mayne & Madsen, Sioux City, for appellants.

David L. Reinschmidt and Colby M. Lessmann of Munger, Reinschmidt &

Denne, L.L.P., Sioux City, for appellees. 2

Heard by Sackett, C.J., and Vogel and Mahan, JJ.

VOGEL, J.

The defendants appeal from the jury verdict which found them liable for damages to the plaintiffs based on fraud and civil conspiracy. We affirm.

I. Background Facts and Proceedings.

Steve Condon is the vice president of Condon Auto Sales and Service,

Inc. (Condon Auto), a company which has been an auto dealership since 1988.

In 2000, Condon Auto hired James McDaniel as its used car manager with authority to sell Condon Auto vehicles. Jose Acero is the president of Siouxland

Auto Auction, Inc. (Siouxland), a company which is in the business of conducting automobile auctions. Siouxland employed Mike Rager for several years as its officer manager.

When Condon Auto received high-mileage vehicles as trade-ins that it did not wish to sell on its lot, it would sell the vehicles through an auction. In 1988,

Condon Auto began sending autos to Siouxland to sell through its auctions. As was its standard practice, Siouxland would auction off Condon Auto vehicles at or above the reserve price, deduct its auction fee and remit a check to Condon

Auto for the net auction price. Condon Auto would then send Siouxland the executed title to the vehicle, to be completed as to purchaser by Siouxland. Title would run from Condon Auto directly to the eventual purchaser of its vehicles.

For some years, Siouxland and Condon Auto had a trusted relationship. All that began to change in about June or July 2000.

At that time Modern Auto Sales purchased two Condon autos at a

Siouxland auction. Doug Wagner, Modern Auto Sales owner, then contacted 3

Steve Condon to see if he could purchase vehicles directly from Condon Auto.

As a result of that conversation, Condon discovered that the vehicles’ title work indicated Siouxland had first purchased them and then had re-sold them to the eventual purchasers. According to Condon, this raised concerns because the vehicles should have been run through Siouxland’s auction, not purchased by

Siouxland and resold at the action. In later comparing Modern Auto’s invoices with Condon Auto’s checks from Siouxland Auto, Condon discovered the sale and purchase prices did not match. His suspicions aroused, Condon contacted

Jose Acero wishing to discuss the matter. Acero told Condon, in the presence of

James McDaniel, that he would ask Mike Rager about the deals, however, he was unable to reach him. McDaniel also disavowed any knowledge of the differences in invoice prices.

After investigating his records further, Condon discovered what he believed to be 152 questionable vehicle transactions with Siouxland, spanning a period of time from July 24, 2001, through July 2002. Of those, thirteen were purchased directly from Condon Auto by Siouxland, 130 were purchased by

“TMG,” while nine were sold at auction. TMG was a business name used by

Rager when he purchased vehicles under Siouxland’s dealer license. The first two groupings of vehicles were purchased directly from Condon’s used car manager McDaniel by either TMG or Siouxland. Siouxland then sold them to third parties. Both transactions were reflected on different invoices. Of the third grouping, the vehicles were sold at auction but the invoices reflected that Condon

Auto was not paid the full price. 4

Condon eventually contacted the Iowa Department of Transportation

(DOT) to request its assistance in investigating the matter. DOT investigator

Darwin Huls assisted in retrieving 72 vehicle records and titles from various courthouses in Iowa. His investigation further revealed that all Condon autos sold by Siouxland were done so through a “C lane,” which was reserved specially for sale of Condon autos.

In December of 2002, Condon Auto filed a lawsuit against Siouxland Auto,

Jose Acero, Teresa Acero, Mike Rager, TMG, and James McDaniel.1 The petition alleged fraud and civil conspiracy. Jose and Teresa Acero responded by filing a counterclaim alleging abuse of process and defamation based on the plaintiff’s choice to publish notice of the lawsuit in the Sioux City Journal. The counterclaim was later dismissed on summary judgment. In addition, the claims against Teresa Acero were dismissed following her motion for directed verdict.

Following a trial, the jury returned a verdict against both Siouxland and Jose

Acero on the fraud and civil conspiracy counts. The jury awarded the plaintiffs compensatory damages of $90,201 based on the difference in the sales price of

143 vehicles, $3300 based on the shortage of the sale price on nine vehicles, and $7575 based on the improper payment of auction fees. It further assessed punitive damages in the amount of $100,000 against Siouxland, $75,000 against

Jose Acero, and $75,000 against Mike Rager. Siouxland and Acero appeal from this verdict, asserting three areas of district court error: insufficient evidence to

1 Claims against other named defendants were resolved prior to trial and are not part of this appeal. Default judgment was entered against McDaniel. Judgment was also entered against Mike Rager and TMG but neither are part of this appeal. 5 support the compensatory damages award, faulty jury instructions, and the dismissal of the Aceros’ counterclaim.

II. Compensatory Damages.

In its verdict, the jury awarded Condon damages representing the difference between the net amounts received by Condon following the assumed auction sale and the amounts actually received by either Siouxland or TMG when the autos were actually sold to their eventual purchasers. In their appeal, the defendants generally assert the evidence was insufficient to support submitting the claim to the jury, and subsequently should have been the basis for sustaining their motion for new trial. They specifically argue the speculative nature of the financial evidence.

We review a trial court's ruling on a motion for directed verdict for the correction of errors of law. Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d

468, 473 (Iowa 2005). We consider the evidence in the light most favorable to the non-moving party. Rife v. D.T. Corner, Inc., 641 N.W .2d 761, 766 (Iowa

2002). If reasonable minds could reach different conclusions based upon the evidence presented, the issue must be submitted to the jury for determination.

Id. We review the denial of a motion for a new trial for abuse of discretion.

Seastrom v. Farm Bureau Life Ins. Co., 601 N.W.2d 339, 345 (Iowa 1999). If the jury verdict is not supported by sufficient evidence and fails to effectuate substantial justice, a new trial may be ordered. Seastrom, Id. at 346.

A claim for contract damages must fail if the proof of such damages is speculative and uncertain. Patterson v. Patterson, 189 N.W.2d 601, 605 (Iowa 6

1971). Where it is asserted that “uncertainty lies only in the amount of damages, recovery may be had if there is a reasonable basis in the evidence from which the amount can be inferred or approximated.” Montgomery Prop. Corp. v.

Economy Forms Corp., 305 N.W.2d 470, 478 (Iowa 1981). “Thus, some speculation is acceptable.” Olson v. Nieman’s Ltd., 579 N.W.2d 299, 309 (Iowa

1998). “While it may be hard to ascertain . . . a loss with preciseness and certainty, the wronged party should not be penalized because of that difficulty.”

Bangert v. Osceola County, 456 N.W.2d 183, 190 (Iowa 1990).

Siouxland and Acero maintain the plaintiffs’ recovery is limited to its

“benefit of the bargain” and that the damages awarded by the jury exceed this amount. See Midwest Home Distrib., Inc. v. Domco Indus., Ltd., 585 N.W.2d

735, 739 (Iowa 1998) (recognizing benefit of the bargain as a measure of damages for fraud). The benefit of the bargain rule has also been referred to as the injured party's “expectation interest.” Midland Mut. Life Ins. Co. v. Mercy

Clinics, Inc., 579 N.W.2d 823, 831 (Iowa 1998). “Under this theory of damages, the nonbreaching party’s recovery is limited to the loss he has actually suffered by reason of the breach; he is not entitled to be placed in a better position than he would have been in if the contract had not been broken.” Id.

Steve Condon testified about the dual invoices for the autos sold by

Condon Auto through Siouxland. The first, or “seller’s invoice,” showed a sale from Condon Auto to either Siouxland or TMG. The second, or “buyer’s invoice,” reflected the sale price from Siouxland or TMG to the eventual purchasers.

Condon had not consented to its autos being first purchased by the auction and later resold as it was denied the benefit of receiving the highest bid price at 7 auction. Accordingly, Condon had the reasonable expectation that, absent the fraud, it would have received the price paid by the eventual purchaser at auction, minus certain expected auction fees. The simple measure of damages used was the difference between the amount Condon received and what the vehicles actually sold for following the auction. The plaintiffs introduced an overwhelming amount of testimonial and documentary evidence supporting their claims. The

DOT, through the work of Darwin Huls, produced titles and sales records for seventy-two of the subject vehicles. Kevin Welte, treasurer for Condon Autos’ parent company, compiled reports detailing the comparative prices of the double sales over the course of time of the suspicious sales. Upon our review of the record, we conclude the jury had a reasonable basis for its calculation of damages. We believe the damages were both far from speculative and capable of a very precise calculation.

Furthermore, the award does not “shock the conscience,” appear flagrantly excessive,” or raise a presumption that it was the result of passion or prejudice. See Estate of Long v. Broadlawns Med. Ctr., 656 N.W.2d 71, 91 (Iowa

2002). Any argument that Condon should only receive the price had the autos been sold in an “as-is” condition is meritless. While Condon may have contemplated its vehicles would have been auctioned in an as-is condition, the defendants, who later sold the autos with a limited type of warranty, thus arguably increasing the sale price, should not receive a windfall for their fraudulent activities. We would also remark that the defendants’ claim that the price received based on the limited warranty was higher than would have been garnered in an as-is sale is speculative. While perhaps appealing logically, there 8 was simply a dearth of evidence in the record that would support this position.

Accordingly, based on the record evidence, the award did not exceed the plaintiffs’ “expectation interests.”

III. Jury Instructions.

Alleged errors in jury instructions are reviewed for correction of errors at law. Sleeth v. Louvar, 659 N.W.2d 210, 213 (Iowa 2003). Error in giving or refusing to give a particular jury instruction does not merit reversal unless it results in prejudice to the party. Herbst v. State, 616 N.W.2d 582, 585 (Iowa

2000). Parties are entitled to have their legal theories submitted to a jury if they are supported by the pleadings and substantial evidence in the record. Beyer v.

Todd, 601 N.W.2d 35, 38 (Iowa 1999).

Instruction No. 28—Damages. This instruction provided, in relevant part:

If you find the Plaintiffs are entitled to recover damages, you shall consider the following items: 1. The difference, if any, between the amount Plaintiffs received for the sale of the 143 vehicles prior to the auction and the amount, if any, you find the Plaintiffs would have received if they had not been sold prior to the auction.

We find no error in the giving of this instruction. As discussed in the previous division of this opinion, we conclude substantial evidence supports the jury’s award of damage. Siouxland and Acero were not entitled to set off against any recovery the difference between what it received from the eventual purchasers based on the limited warranty provided and the price the cars would have sold for premised on an “as-is” basis. Furthermore, we believe the method 9 of computing those damages, as laid out in instruction 28, accurately states the law on the recovery of damages.

Instructions 11, 12, 13, 15, & 19—Fraud.

Several of the jury instructions Siouxland objects to incorporate similar arguments and rely on common facts in evidence. As Condon Auto alleged fraud in its petition, it needed to prove (1) materiality, (2) falsity, (3) representation, (4) scienter, (5) intent to deceive, (6) justifiable reliance, and (7) resulting injury and damage. Sinnard v. Roach, 414 N.W.2d 100, 105 (Iowa 1987). The first three elements are often treated as a single element and are referred to as “fraudulent misrepresentation”. Id. at 105.

Jury instructions 11 and 12 instruct the jury on the requisites for recovery under the claim for fraudulent non-disclosure.2 In pertinent part, they require a finding “by a preponderance of clear, satisfactory, and convincing evidence” that

[s]pecial circumstances existed which gave rise to a duty of disclosure between Plaintiffs and the Defendant. Siouxland Auto Auction was in the business of providing auction services to the Plaintiffs whereby the auction would sell vehicles at auction to the highest bidder.

Siouxland and Acero first claim that the “special circumstance” necessary for a finding of fraudulent nondisclosure was not presented in this case. They further maintain the instructions contain undue comments on the plaintiffs’ theory as to

2 The court instructed the jury on two distinct theories of fraud: both fraudulent nondisclosure and fraudulent misrepresentation. The jury was not asked in its verdict forms to indicate which type of fraud it found to have occurred. Rather, the form simply asked the jury whether or not Siouxland and Acero had committed fraud against the plaintiffs. Iowa Rule of Civil Procedure 1.933 authorizes but does not require special verdicts on separate theories of recovery. 10

“the relationship of the parties which was inconsistent with the uncontradicted evidence.” We disagree on both accounts.

Under Iowa law, the failure to disclose material information can constitute fraud if the concealment is made “by a party under a duty to communicate the concealed fact.” Cornell v. Wunschel, 408 N.W.2d 369, 374 (Iowa 1987). The representation must “relate to a material matter known to the party . . . which it is his legal duty to communicate to the other contracting party whether the duty arises from a relation of trust, from confidence, from inequality of condition and knowledge, or other attendant circumstances.” Wilden Clinic, Inc. v. City of Des

Moines, 229 N.W.2d 286, 293 (Iowa 1975). Our supreme court has held that an actionable misrepresentation may occur “when one with superior knowledge, dealing with inexperienced persons who rely on him or her, purposely suppresses the truth respecting a material fact involved in the transaction.”

Kunkle Water & Elec., Inc. v. City of Prescott, 347 N.W.2d 648, 653 (Iowa 1984).

Taking into consideration these standards, we conclude the district court in this case correctly included the challenged jury instruction which included the relationship between the parties. Condon and Condon Auto were not in the business of automobile auctions, and they were not aware of the recent practices of the defendants which had changed from its previous trusted relationship.

Siouxland and Acero took advantage of the circumstances between the two businesses, Siouxland’s officer manager, Rager, and Condon Auto’s used car manager, McDaniel, and failed to disclose the profit being made at Condon

Auto’s expense. Thus, we conclude substantial evidence supports a finding that 11 the type of “special circumstance,” as contemplated in the instruction, was present here.

Defendants also argue the inclusion of the words “intended scheme” within Instruction 11 was an “undue comment” on Condon’s theory of the case.

However, our review of the transcript discloses several instances of defense counsel using the term “scheme” in his questioning of witnesses. We can find no prejudice when counsel uses the same terminology as the court used in its instruction. See Wells v. Enterprise Rent-a-Car Midwest, 690 N.W.2d 33, 36

(Iowa 2004) (holding error in giving particular jury instruction does not merit reversal unless it results in prejudice to the party).

The defendants next argue that Instruction 19 was erroneous in that it

“permitted the jury to find a conspiracy to commit fraudulent nondisclosure.”

Their objections to this instruction were based on the same objections urged with regard to Instructions 11 and 12. As we have rejected those objections, we reject the defendants’ objection to Instruction 19 as well.

Instruction 15 provided that “concerning proposition No. 4 of Instruction

Nos. 9 & 10, the Defendant knew the representation was false if . . . the

Defendant’s special relationship of trust and confidence with the plaintiffs made it the Defendant’s duty to know whether the representation was true or false.” The defendants argue that this instruction improperly took from the jury the question of whether a relationship of trust actually existed. We agree with Condon that because this entailed the determination of whether a duty existed, the question was properly for the court to make. See Stotts v. Eveleth, 688 N.W.2d 803, 807

(Iowa 2004) (noting the existence of a duty is a legal issue for the court). 12

Instruction 13 informed the jury that silence could be considered a representation if “the defendant fails to disclose the information which the defendant has a duty to disclose and which the Plaintiffs have reason to believe will be disclosed.” Siouxland and Acero assert this instruction was unduly confusing because it fails to instruct as to under what circumstances such a duty would arise. We note this instruction was based on Uniform Jury Instruction

810.3. We are reluctant to disapprove uniform jury instructions. State v.

Weaver, 405 N.W.2d 852, 855 (Iowa 1987). Furthermore, a representation need not be an affirmative misstatement; the concealment of or failure to disclose a material fact can constitute fraud. Sinnard, 414 N.W.2d at 104. The facts admitted into evidence fully support the theory presented in the instruction.

There was testimony from other area car dealers that Siouxland’s transactions with Condon Auto were not standard for the business. Siouxland failed to inform

Condon of the direct purchases made with subsequent auction sale. To cover up their transactions, Siouxland took the affirmative step of charging Condon Auto auction fees, when the auction took place after the intermediary sale to Siouxland or TMG had already occurred. See Wilden Clinic, Inc. v. City of Des Moines, 229

N.W.2d 286, 293 (Iowa 1975) (noting that in order for silence to constitute actionable fraud, there must be a “concealment” of an existing condition “which the party charged is under a duty to disclose”). There was no disclosure made to

Condon Auto; indeed there were steps taken by Siouxland to prevent Condon

Auto from discovering the nature of the transactions. We therefore affirm the decision of the district court as to Instructions 11, 12, 13, 15, and 19. 13

Instruction 5—Burden of Proof This instruction provided the burden of proof placed on the plaintiffs to prove their claims. In particular, they instructed that whenever the plaintiffs must prove something “they must do so by a preponderance of clear, satisfactory, and convincing evidence . . . .”3

While the general presumption in Iowa is that in civil cases the burden of proof is a preponderance of the evidence, an exception to this rule has long been recognized in the area of civil fraud. State ex rel. Miller v. Rahmani, 472 N.W.2d

254, 257 (Iowa 1991). The clear, satisfactory, and convincing evidence burden, which is required in a fraud case, is higher than the typical preponderance of the evidence and less than the beyond a reasonable doubt standard. Id. The burden of proof in fraud cases is qualitatively, rather than quantitatively, distinguishable from a mere preponderance of the evidence. Id.

The instruction given was a combination of Uniform Instruction 100.3

(Preponderance of Evidence) and 100.19 (Clear, Convincing and Satisfactory

3 Instruction No. 5 provides: Whenever the plaintiffs must prove something, they must do so by a “preponderance of clear, satisfactory, and convincing evidence” unless I instruct you differently. To prove something by a “preponderance of the evidence” means to prove that something is more likely true than not true. In other words, a preponderance of the evidence in the case means such evidence as, when considered and compared with that opposed to it, has more convincing force, and produces in your minds a belief that what is sought to be proved is more likely true than not true. The “preponderance of the evidence” does not depend upon the number of witnesses testifying or the number of exhibits presented by one side or the other. In determining whether any fact in issue has been proved by the “preponderance of the evidence,” you may, unless otherwise instructed, consider the testimony of all witnesses, regardless of who may have called them and all exhibits received into evidence, regardless of who may have produced them. Evidence is clear, convincing, and satisfactory if there is no serious or substantial uncertainty about the conclusion to be drawn from it. 14

Evidence.) We conclude Instruction 5 adequately states the plaintiffs’ enhanced burden of proof in a fraud case, and that the district court therefore did not err in giving it.

IV. The Aceros’ Counterclaim.

After the plaintiffs filed their petition on December 2, 2002, they unsuccessfully attempted to serve Jose and Teresa Acero on three separate occasions. At some point, the process server learned that the Aceros would be in Mexico until March of 2003. On December 17, 2002, Siouxland was personally served with the petition and original notice. On December 18, Condon filed an affidavit stating that personal service could not be effected upon the

Aceros. He acknowledged that the Aceros resided in South Sioux City,

Nebraska, but asserted that Jose Acero was the president and registered agent of defendant, Siouxland. Condon also informed the court that pursuant to Iowa

Rules of Civil Procedure 1.310 and 1.313, he would attempt service of process by publication of notice on the Aceros. Accordingly, commencing on December

24 and continuing for three successive weeks, notice was published in the Sioux

City Journal.

The Aceros subsequently filed an answer in which they asserted counterclaims for abuse of process and defamation based on the published notice. In particular, they maintained that because notice by publication is ineffective to obtain in personam jurisdiction, as here, when only a money judgment is sought, see Iowa R. Civ. P. 1.975, the published notice was “used for a reason other than that for which it was intended.” In granting the plaintiffs’ motion for summary judgment on this issue, the district court concluded it was 15 reasonable for plaintiffs to use notice by publication “because it believed the

Aceros had departed the state with the intent to avoid service and that they remained concealed to continue to avoid service.”4

We review the district court’s grant of summary judgment for errors at law.

Bailey v. Batchelder, 576 N.W.2d 334, 336 (Iowa 1998). We inquire whether the defendants demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. Rants v.

Vilsack, 684 N.W.2d 193, 199 (Iowa 2004).

There are three elements in an abuse-of-process claim: (1) the use of a legal process, (2) its use in an improper or unauthorized manner, and (3) resulting damages. Fuller v. Local Union No. 106 of United Bhd. of Carpenters &

Joiners of Am., 567 N.W.2d 419, 421-22 (Iowa 1997). Abuse of process claims routinely fail under the high burden our supreme court requires for the second element. Id. at 422.

Here, we conclude the Aceros’ proof fails on that second prong. First, notice by publication is clearly allowed by our rules of civil procedure under certain circumstances. See Iowa R. Civ. P. 1.310. Furthermore, an ulterior motive does not alone satisfy the requirement for an action in abuse of process.

4 The plaintiffs’ affidavit of service does not allege the Aceros were avoiding service of process, but merely that they are “presently out of the country in Mexico for the next several months.” Eight months later, the plaintiffs’ memorandum in support of the motion for summary judgment states the Aceros, “had been avoiding service of process.” On appeal, the plaintiffs assert in their brief, that “at the time Condons published the original notice, they were not contending that Aceros were avoiding service, but rather, they were in Mexico until March.” However the brief also states, “Plaintiffs reasonably believed that Defendants were avoiding service by staying in Mexico, hiring an attorney to represent their companies in the lawsuit, and having their attorney refuse to accept service on behalf of the defendants as individuals.” Regardless of these apparent inconsistencies, all of the facts were presented to the district court. 16

Grell v. Poulsen, 389 N.W.2d 661, 663 (Iowa 1986). The Aceros presented no evidence that Condon used the legal process “primarily for an impermissible or illegal motive.” Id. at 663. The record reflects that service was made on both

Siouxland Auto Auction, Inc. and Acero Group, Inc. but could not be made personally on Jose Acero and Teresa Acero. In finding service by publication reasonable, the district court inferred that Aceros knew of the attempts to serve them and were avoiding service. The district court, finding no improper motive, granted summary judgment. We affirm.

On the defamation claims, Iowa recognizes an absolute immunity from liability for defamation that takes place in a judicial proceeding. Spencer v.

Spencer, 479 N.W.2d 293, 295 (Iowa 1991). The privilege attaches if (1) the statements are made preliminary to, or in the institution of, or during the course and as a part of a judicial proceeding, and (2) the content of the statement is reasonably pertinent or has some relation to the judicial proceeding. Id. at 295.

Because the service of notice is pertinent to the judicial proceeding, we affirm the district court’s dismissal of this claim on summary judgment.

AFFIRMED.