VAN SICKLE CONSTRUCTION COMPANY and MATTHEW J. VAN SICKLE vs. WACHOVIA COMMERCIAL MORTGAGE, INC., f/k/a THE MONEY STORE COMMERCIAL MORTGAGE, INC.
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IN THE SUPREME COURT OF IOWA
No. 07–1602
Filed June 25, 2010
VAN SICKLE CONSTRUCTION COMPANY
and MATTHEW J. VAN SICKLE,
Appellees,
vs.
WACHOVIA COMMERCIAL MORTGAGE, INC.,
f/k/a THE MONEY STORE COMMERCIAL
MORTGAGE, INC.,
Appellant.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Clarke County, David L.
Christensen, Judge.
In an action for fraudulent and negligent misrepresentation,
plaintiff argues on further review that the district court correctly denied
the defendant’s motion for judgment notwithstanding the verdict.
DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT
JUDGMENT AFFIRMED IN PART AND REVERSED IN PART.
John T. Clendenin and Brad C. Epperly of Nyemaster, Goode,
West, Hansell & O’Brien, P.C., Des Moines, for appellant Wachovia.
Theodore F. Sporer of Sporer & Flanagan, P.C., Des Moines, for
appellees.
2
HECHT, Justice.
After purchasing two vehicles from a bank at a public auction,
Matthew Van Sickle did not receive title to the vehicles for several
months.
He sued the bank, alleging fraudulent and negligent
misrepresentation and seeking compensatory and punitive damages.
After a jury verdict in favor of Van Sickle on both counts, the bank
appealed. The court of appeals reversed, and we granted Van Sickle’s
application for further review.
I. Factual and Procedural Background.
In 2003, Wachovia Commercial Mortgage foreclosed a mortgage
against commercial real estate owned by Ivan and Jeanne Van Loon.
After a sheriff’s sale of the property left a significant deficiency judgment,
Wachovia levied on certain personal property owned by the Van Loons,
including two vehicles, a 1980 Peterbilt tractor and a 1989 International
semi-tractor. On April 7, 2005, just days before the scheduled sheriff’s
sale of the Van Loons’ personal property, Wachovia and the Van Loons
agreed to conduct a public auction instead of the sheriff’s sale.
On
April 11, Kelly Daugherty, as an agent of Wachovia, conducted the
auction.
Daugherty announced at the sale that the auction company
would “guarantee the titles,” meaning the buyers’ funds would not be
dispersed to Wachovia until the auction company had the titles in its
possession and was able to transfer them to the buyers.
Matthew Van Sickle purchased the Peterbilt tractor and the
International semi-tractor at the auction. When he asked, he was told
that he would receive the title to the vehicles after his check cleared, but
no specific timeframe was discussed. Van Sickle assumed he would have
the titles within a few weeks to a month after the auction.
He took
3
possession of the trucks and began making repairs to them, using parts
from two other trucks he owned, rendering the other trucks unusable.
In the weeks after the sale, Daugherty sought from the county
treasurer’s office duplicate titles to the vehicles sold at the auction but
was told he lacked the authority to obtain them because the auction had
not proceeded as a sheriff’s sale.
Wachovia of the complication.
Daugherty informed counsel for
On May 27, 2005, Wachovia’s counsel
contacted the Van Loons’ attorney and requested the titles be transferred
but received no response. Wachovia then provided the treasurer’s office
with copies of the sheriff’s levy and the court order for the auction. The
treasurer transferred the title to the Peterbilt, and Wachovia forwarded it
to Van Sickle in July 2005. The treasurer declined to transfer the title to
the International, however, as the title to it and several other vehicles
had been transferred by Ivan Van Loon to another recently-formed
corporation after the sheriff had levied on them but before the auction
had taken place.
On July 6, counsel for Wachovia filed a motion requesting a
contempt order against Van Loon. After the contempt order was issued
on July 21, 2005, Wachovia received the title certificate for the
International. However, Wachovia still was unable to transfer the title to
Van Sickle as the certificate had not been signed by Van Loon.
After
another unsuccessful demand to Van Loons’ counsel, Wachovia filed a
motion for a court order effecting the transfer of title. The motion was
granted on August 25, 2005, and almost five months after the sale, Van
Sickle finally received title to the International.
Van Sickle sued Wachovia, alleging fraudulent and negligent
misrepresentation and claiming damages for economic losses. He also
sought punitive damages.
After a jury trial, Wachovia moved for a
4
directed verdict, alleging Van Sickle’s claim amounted to nothing more
than a breach of contract claim—that he had not established the
elements of fraudulent misrepresentation and that Van Sickle’s claims
for both fraudulent and negligent misrepresentation were barred by the
economic loss doctrine. The district court overruled the motion, and the
jury returned a verdict in favor of Van Sickle on both the fraudulent
misrepresentation
and
the
negligent
misrepresentation
theories,
awarding actual damages of $27,000 and punitive damages of $250,000.
Wachovia’s motion for judgment notwithstanding the verdict was denied.
On
appeal,
Wachovia
asserted
the
district
court
erred
in
submitting the fraudulent misrepresentation claim to the jury because
Van Sickle failed to present substantial evidence of a misrepresentation
and intent to deceive. Wachovia also contended the district court erred
in submitting to the jury the question of punitive damages. Wachovia
further argued on appeal that the district court should not have
submitted the negligent misrepresentation claim to the jury because
Wachovia was not in the business of supplying information to others and
because the loss claimed by Van Sickle was a purely economic loss. We
transferred the case to the court of appeals, which reversed the district
court, concluding Van Sickle failed to produce substantial evidence of
fraudulent
misrepresentation
and
Van
Sickle’s
negligent
misrepresentation claim was barred by the economic loss doctrine. We
granted Van Sickle’s application for further review.
II. Scope of Review.
A motion for judgment notwithstanding the verdict is intended to
allow the district court to correct any error in denying a motion for
directed verdict.
Easton v. Howard, 751 N.W.2d 1, 4 (Iowa 2008).
Accordingly, the motion for judgment notwithstanding the verdict must
5
rely on the matters raised in a previous motion for directed verdict. Id. at
4–5. We review the denial of a motion for judgment notwithstanding the
verdict for correction of errors at law. Channon v. United Parcel Serv.,
Inc., 629 N.W.2d 835, 859 (Iowa 2001). Our role is to decide whether
there was sufficient evidence to justify submitting the case to the jury
when viewing the evidence in the light most favorable to the nonmoving
party. Id. Each element of the plaintiff’s claim must be supported by
substantial evidence to warrant submission to the jury.
Magnusson
Agency v. Pub. Entity Nat’l Co.-Midwest, 560 N.W.2d 20, 25 (Iowa 1997).
Evidence is substantial if a reasonable mind would find it adequate to
support a finding. Id. We must take into consideration all reasonable
inferences that could fairly be made by the jury. Id. “Simply put, we
ask, was there sufficient evidence to generate a jury question?” Johnson
v. Dodgen, 451 N.W.2d 168, 171 (Iowa 1990).
III. Discussion.
A. Fraudulent Misrepresentation.
To establish a claim for
fraudulent misrepresentation, Van Sickle has the burden of proving each
of the following elements: “(1) representation, (2) falsity, (3) materiality,
(4) scienter, (5) intent to deceive, (6) reliance, and (7) resulting injury and
damage.” Lloyd v. Drake Univ., 686 N.W.2d 225, 233 (Iowa 2004). These
elements must be established by “a preponderance of clear, satisfactory,
and convincing proof.” Id. Wachovia contends Van Sickle has failed to
prove several of these elements.
First, Wachovia argues that Van Sickle failed to prove Wachovia
made the representation attributed to it in Van Sickle’s petition.
The
petition alleged Wachovia falsely “represented to [Van Sickle] that it had
title to the vehicles in issue.” However, the trial transcript reveals that
neither
Wachovia,
nor
Daugherty
as
its
agent,
made
such
a
6
representation.
Van Sickle himself testified that no one told him that
Wachovia actually had the titles to the vehicles. Instead, he testified that
“it was represented to me that once my check cleared, I would have my
titles,” so it was “an assumption” on his part that Wachovia had
possession of the titles at the time of the auction.
Van Sickle cites Iowa Code section 321.45(3) (2007) contending
that because Iowa law requires every seller of a motor vehicle to transfer
title, every person offering to sell a vehicle in this state implicitly
represents that he or she has title to the vehicle. While we agree that a
seller must normally transfer the title of a vehicle to a buyer, we find Van
Sickle’s argument overstated.
See Iowa Code § 321.45(3) (“Upon the
transfer of any registered vehicle, the owner, except as otherwise
provided in this chapter, shall endorse an assignment and warranty of
title upon the certificate of title for such vehicle . . . .”).
We think a
seller’s implied representation, particularly in an auction situation such
as the one at issue here, is that the seller has a legal right to transfer the
titles at issue and will effect the transfer in a reasonable time. Cf. Fausel
v. JRJ Enters., Inc., 603 N.W.2d 612, 619 (Iowa 1999) (“When a contract
fails to specify time for performance, the parties must perform within a
reasonable time.”); U.C.C. § 1–204(3) (2004) (“An action is taken
‘seasonably’ when it is taken at or within the time agreed or if no time is
agreed at or within a reasonable time.”).
Assuming without deciding that Wachovia, explicitly or implicitly,
represented it would deliver titles to the vehicles within a commercially
reasonable time after Van Sickle’s check cleared but failed to do so, it
was Van Sickle’s burden to also establish scienter and intent to deceive—
specifically that Wachovia knew the representation was false when it was
made and that Wachovia intended to deceive Van Sickle. See Lloyd, 686
7
N.W.2d at 233.
Scienter and intent to deceive are closely related
elements of the tort, and the same general analysis applies for each.
Magnusson, 560 N.W.2d at 28. “Scienter and intent to deceive may be
shown when the speaker has actual knowledge of the falsity of his
representations or speaks in reckless disregard of whether those
representations are true or false.”
N.W.2d 335, 338 (Iowa 1992).
Garren v. First Realty, Ltd., 481
The fact that the titles were not
transferred to Van Sickle within a commercially reasonable time after the
auction is not, standing alone, sufficient to support a finding that
Wachovia did not intend to do so when the representation was made.
See Robinson v. Perpetual Servs. Corp., 412 N.W.2d 562, 565 (Iowa 1987).
Our review of the trial transcript reveals no evidence of Wachovia’s
actual knowledge of the falsity of any representation as to its ability to
transfer
the
titles
within
a
commercially
reasonable
time
after
Van Sickle’s check cleared. Although Van Loon had transferred the title
to the International to another entity before the auction, the record is
void of evidence Wachovia knew this fact until several weeks after the
sale. Rather, the April 11 auction was preceded by a court order signed
on April 7 approving the sale of the vehicles—an order to which Van Loon
agreed. 1 Given Van Loon’s apparent approval of the auction sale in such
close temporal proximity to the April 11 auction, and given the absence
of evidence tending to prove Wachovia had reason to foresee Van Loon’s
lack of cooperation and obstructive actions, we conclude Van Sickle did
1In
addition, on March 14, four days after title to the International had in fact
been transferred to the newly-formed corporation, counsel for Van Loon faxed to
Wachovia’s counsel a document identifying the vehicles owned by the Van Loons and
subject to the auction sale. This list included the International as a vehicle titled
“under Ivan Van Loon’s” name.
8
not establish Wachovia actually knew it was making any false
representations at the time of the auction.
However, Van Sickle argues that Wachovia recklessly disregarded
the truth by “falsely stat[ing] or impl[ying] that [its] representations were
based on personal knowledge or investigation.” Magnusson, 560 N.W.2d
at 28 (“[A] false statement innocently but mistakenly made will not
establish intent to defraud unless the statement was recklessly
asserted.”).
To establish Wachovia’s recklessness, Van Sickle relies on the fact
that before the auction, Wachovia did not obtain nor seek to obtain the
title certificates from Van Loon.
However, we conclude Wachovia’s
actions, both before and after the auction, provide no support for a
finding that Wachovia acted in reckless disregard for the truth of the
representation that Wachovia could transfer title to the vehicles within a
commercially reasonable time after the auction. Prior to April 7, 2005,
Wachovia expected to proceed with a sheriff’s sale of the Van Loons’
personal property on April 11.
As we have noted, Wachovia and
Van Loon agreed on April 7 to cancel the sheriff’s sale and conduct a
public auction. The district court entered an order consistent with the
agreement. Thus, with only four days to make new arrangements for the
auction, Wachovia’s omission to obtain the title certificates falls short, as
a matter of law, of recklessness, particularly in the face of Van Loon’s
consent to the sale and the district court’s order authorizing the auction.
Further, after the sale, when Van Loon’s scheme to avoid the judgment
lien became known to Wachovia, Wachovia exerted substantial efforts to
secure transfer of the titles.
When the treasurer’s office refused to
transfer the titles to the vehicles at Daugherty’s request, Wachovia
provided the treasurer with the sheriff’s levy and the district court order
9
directing the sale be completed by public auction and obtained the title
to the Peterbilt. At that point, however, Van Loon’s scheme regarding the
International was first revealed to Wachovia.
Upon learning of the
scheme, counsel for Wachovia promptly requested that Van Loon transfer
the title to the International, but received no response. Wachovia then
filed a motion seeking a contempt order against Van Loon for his failure
to comply with the April 7, 2005 order. After a hearing, Van Loon was
found in contempt.
Van Loon continued to refuse to execute the
certificate of title to effect a transfer of the International title to
Van Sickle.
When these measures to complete the transaction with
Van Loon were unavailing, Wachovia requested and the district court
issued an order directing the county treasurer to transfer the title.
We find no evidence supporting an inference that Wachovia
recklessly disregarded the truth of any statement or inference that it
would make timely delivery of the titles to Van Sickle.
Accordingly,
Wachovia’s motions for directed verdict and judgment notwithstanding
the verdict on the fraudulent misrepresentation claim should have been
granted.
B. Punitive Damages. Wachovia also contends it was entitled to
a directed verdict on Van Sickle’s punitive damage claim. We agree, as
the punitive damage claim fails with the fraudulent misrepresentation
claim. Van Sickle failed to produce clear, convincing, and satisfactory
evidence supporting a finding that Wachovia willfully and wantonly
disregarded Van Sickle’s rights. Iowa Code § 668A.1(1)(a) (2003). Willful
and wanton conduct involves an intentional, unreasonable act “ ‘ “in
disregard of a known or obvious risk that was so great as to make it
highly probable that harm would follow.” ’ ” Cawthorn v. Catholic Health
Initiatives Corp., 743 N.W.2d 525, 529 (Iowa 2007) (quoting Kiesan v.
10
Bantz, 686 N.W.2d 164, 173 (Iowa 2004)).
Such an act is “ ‘ “usually
accompanied by a conscious indifference to the consequences.” ’ ” Id.
More than negligent conduct is required to support a punitive damage
award.
Id.
It was Van Sickle’s burden to prove Wachovia acted with
actual or legal malice.
Id.
Actual malice may be shown by personal
spite, hatred, or ill will. “ ‘ “[L]egal malice may be shown by wrongful
conduct committed with a willful or reckless disregard of the rights of
another.” ’ ” Id. (quoting Wolf v. Wolf, 690 N.W.2d 887, 893 (Iowa 2005)).
As described above, the record does not contain substantial
evidence of reckless behavior before or after the sale on the part of
Wachovia. Although Wachovia could conceivably have been more careful
to obtain possession, or ensure it could obtain possession, of the title
certificates before the auction sale, a reasonable fact finder could not on
this record find it acted recklessly.
After the auction sale, Wachovia
sought Van Loon’s voluntary cooperation to effect the transfer of the
titles to Van Sickle.
When the anticipated cooperation was not
forthcoming, Wachovia contacted the county treasurer’s office, obtained
a contempt order, and ultimately secured a court order directing the
county treasurer to transfer title. Finding no factual basis in the record
supporting a finding of willful and wanton conduct in reckless disregard
of Van Sickle’s rights, we conclude the issue of punitive damages should
not have been submitted to the jury.
C. Negligent
Doctrine.
In
its
Misrepresentation
motion
for
and
directed
the
verdict
Economic
and
Loss
judgment
notwithstanding the verdict, Wachovia asserted Van Sickle’s negligent
11
misrepresentation claim was barred by the economic loss doctrine
because Van Sickle claimed only economic damages. 2
We think it best to begin our analysis of this issue by reviewing the
development of the tort of negligent misrepresentation in our case law.
Generally, if a negligent misrepresentation results in personal or property
damage, courts treat it the same as other negligence claims.
Sain v.
Cedar Rapids Cmty. Sch. Dist., 626 N.W.2d 115, 123 (Iowa 2001).
However, when the negligent misrepresentation only interferes with
intangible economic interests, courts have developed more restrictive
rules of recovery.
Id.
The restrictions on recovery have been deemed
necessary “because of the extent to which misinformation may be, and
may be expected to be, circulated, and the magnitude of losses which
may follow from reliance upon it.” Restatement (Second) of Torts § 552
cmt. a, at 127 (1977). Thus, the tort of negligent misrepresentation as
described in the Restatement (Second) is narrowly circumscribed:
(1) One who, in the course of his business, profession or
employment, or in any other transaction in which he has a
pecuniary interest, supplies false information for the
guidance of others in their business transactions, is subject
to liability for pecuniary loss caused to them by their
justifiable reliance upon the information, if he fails to
exercise reasonable care or competence in obtaining or
communicating the information.
(2) Except as stated in Subsection (3), the liability stated in
Subsection (1) is limited to loss suffered
2On
appeal, Wachovia also contends the district court erred in submitting the
negligent misrepresentation claim to the jury because Wachovia is not in the business
or profession of supplying information to others. See Sain v. Cedar Rapids Cmty. Sch.
Dist., 626 N.W.2d 115, 124 (Iowa 2001) (noting that, in Iowa, the duty of care only
arises in a negligent misrepresentation case when information is provided by someone
in the business or profession of supplying information to others). However, because
Wachovia did not present this argument to the district court, Wachovia cannot now
assert it on appeal. See Pollman v. Belle Plaine Livestock Auction, Inc., 567 N.W.2d 405,
410 (Iowa 1997).
12
(a) by the person or one of a limited group of persons
for whose benefit and guidance he intends to supply the
information or knows that the recipient intends to supply it;
and
(b) through reliance upon it in a transaction that he
intends the information to influence or knows that the
recipient so intends or in a substantially similar transaction.
(3) The liability of one who is under a public duty to give the
information extends to loss suffered by any of the class of
persons for whose benefit the duty is created, in any of the
transactions in which it is intended to protect them.
Id. § 552, at 126–27.
We first recognized the tort of negligent misrepresentation in Ryan
v. Kanne, 170 N.W.2d 395 (Iowa 1969). Relying on Restatement (Second)
section 552, we concluded an accountant was liable to a third party who
reasonably relied upon financial statements prepared by the accountant
who knew the information would be relied upon by the third party.
Ryan, 170 N.W.2d at 403. We determined the appropriate measure of
damages in that case should be “[t]he amount necessary to place [the
third party] in the position it would have been had the [financial
statements] been correct.” Id. at 407.
In Larsen v. United Federal Savings & Loan Ass’n of Des Moines,
300 N.W.2d 281 (Iowa 1981), we again applied section 552 and allowed a
claim by a homebuyer against a bank whose employee negligently
prepared an appraisal which was relied upon by the homebuyer. Larsen,
300 N.W.2d at 286. Damages were contested, and we determined the
damages were properly calculated as the difference between the value of
the house without the defects and the value of the house with the
defects. Id. at 288.
In Meier v. Alfa-Laval, Inc., 454 N.W.2d 576 (Iowa 1990), we
concluded the tort of negligent misrepresentation did not lie when a
manufacturer and dealer of a milking machine system was sued by dairy
13
farmers who purchased defective milking equipment. Meier, 454 N.W.2d
at 581. We narrowed the scope of the tort to claims stated against those
“in the business of supplying information to others.”
Id. at 582.
We
reasoned that contract and warranty law provides more appropriate
remedies for misstatements made during the sale of merchandise. Id. at
581.
We consistently applied this limitation in subsequent negligent
misrepresentation cases.
See Sain, 626 N.W.2d at 124; Hendricks v.
Great Plains Supply Co., 609 N.W.2d 486, 492 (Iowa 2000); Molo Oil Co. v.
River City Ford Truck Sales, Inc., 578 N.W.2d 222, 227 (Iowa 1998); Fry v.
Mount, 554 N.W.2d 263, 265–66 (Iowa 1996); Freeman v. Ernst & Young,
516 N.W.2d 835, 838 (Iowa 1994); Haupt v. Miller, 514 N.W.2d 905, 910
(Iowa 1994).
This narrowing of the universe of potential defendants
liable for negligent misrepresentations promotes fairness by ensuring
that those liable are only those who supply information in an advisory
capacity and are “manifestly aware” of how the information will be used
and “intend[] to supply it for that purpose.” Sain, 626 N.W.2d at 124–25.
The restriction also ensures that those liable are “in a position to weigh
the use for the information against the magnitude and probability of the
loss that might attend the use of the information if it is incorrect.” 3 Id. at
125.
The discussion of liability and damages in our caselaw 4 reveals
that negligent misrepresentation has always been understood as an
3The
foregoing review of the authorities limiting the universe of the parties liable
for negligent misrepresentation prompts the question whether Wachovia was in the
business of supplying information of the type provided at the auction. As Wachovia did
not contest this point in its directed verdict motion and its posttrial motion, we assume
for purposes of this appeal that it was in the business of supplying such information.
4Although
we have not previously been asked to decide whether the economic
loss doctrine applies in negligent misrepresentation cases, we note our opinions have
made reference to the types of damages sought in such cases. Consistent with the
Restatement (Second) formulation allowing the recovery of pecuniary losses, plaintiffs in
14
economic tort allowing for the recovery of purely economic losses. This
understanding is confirmed by the express language of Restatement
(Second) section 552 addressing the types of damages that may be
recovered for the tort.
A person who negligently supplies false
information is liable for “pecuniary loss caused to [others] by their
justifiable reliance upon the information.” Restatement (Second) of Torts
§ 552(1), at 126. Section 552B further details the damages recoverable
in a negligent misrepresentation claim.
(1) The
damages
recoverable
for
a
negligent
misrepresentation are those necessary to compensate the
plaintiff for the pecuniary loss to him of which the
misrepresentation is a legal cause, including
(a) the difference in value of what he has received in
the transaction and its purchase price or other value given
for it; and
(b) pecuniary
loss
suffered
otherwise
as
a
consequence of the plaintiff’s reliance upon the
misrepresentation.
(2) the
damages
recoverable
for
a
negligent
misrepresentation do not include the benefit of the plaintiff’s
contract with the defendant.
Id. § 552B, at 140.
__________________________
Iowa cases have routinely sought recovery of purely economic damages in negligent
misrepresentation cases. See Pollman, 567 N.W.2d at 411 (noting the damages
recoverable for negligent misrepresentation were the same as damages recoverable for
breach of contract in a case in which no physical harm was alleged); Larsen, 300
N.W.2d at 283 (homebuyers sought damages for excessive price paid for a home
because of defendant’s negligently prepared appraisal); Ryan, 170 N.W.2d at 407
(noting that lumber yard relying on misrepresentations in a financial statement was
entitled to damages sufficient to put it in the place it would have been had the
statement been correct); McCracken v. Edward D. Jones & Co., 445 N.W.2d 375, 377
(Iowa Ct. App. 1989) (plaintiff alleged negligent misrepresentation and sought damages
to compensate her for money lost when she invested in various companies pursuant to
advice from defendant); Kaiser Agric. Chems. v. Ottumwa Prod. Credit Ass’n, 428 N.W.2d
681, 682 (Iowa Ct. App. 1988) (credit seller of fertilizer and seed sought compensation
from production credit association for losses caused by extending credit to farmer who
was financially unstable based on negligent advice of defendant).
15
Although our cases reveal that economic losses have been awarded
by Iowa courts for negligent misrepresentation, the question of whether
the economic loss doctrine applies in such cases has never been squarely
presented for our decision. A review of the purposes of the economic loss
doctrine and the situations in which it has been applied convinces us
that it provides no bar to the recovery of economic losses caused by a
negligent misrepresentation.
The economic loss doctrine has been characterized as “a generally
recognized principle of law that plaintiffs cannot recover in tort when
they have suffered only economic harm.” 5
Richards v. Midland Brick
Sales Co., 551 N.W.2d 649, 650 (Iowa Ct. App. 1996). The rationale for
this limitation on recovery is that “[p]urely economic losses usually result
from the breach of a contract and should ordinarily be compensable in
contract actions, not tort actions.”
Id. at 651.
Accordingly, “we
ultimately look to the policies behind tort law and contract law to
determine whether a loss is compensable in tort or in contract.” Id.
We first applied the doctrine in Iowa to bar recovery on a
negligence claim against a bridge contractor for purely economic
damages suffered by business owners when a defective bridge was
temporarily closed for repairs.
Neb. Innkeepers, Inc. v. Pittsburgh-Des
Moines Corp., 345 N.W.2d 124, 128–29 (Iowa 1984). In later cases, we
determined the doctrine applied to preclude a plaintiff’s recovery of
economic damages under strict liability theory.
5We
See Tomka v. Hoechst
acknowledge that there are exceptions to this principle. For example,
purely economic losses are recoverable in actions asserting claims of professional
negligence against attorneys and accountants. See, e.g., Kemin Indus., Inc. v. KPMG
Peat Marwick LLP, 578 N.W.2d 212, 219–20 (Iowa 1998) (discussing extent to which
damages for the loss of an account receivable were recoverable in a tort action against
an accounting firm); Holsapple v. McGrath, 521 N.W.2d 711, 713–14 (Iowa 1994)
(recognizing negligence claim against an attorney for the loss of a testamentary benefit).
16
Celanese Corp., 528 N.W.2d 103, 107 (Iowa 1995) (claim by an operator
of a custom cattle feeding operation asserting various tort theories
against manufacturer of synthetic growth hormone which did not
perform as promised); Nelson v. Todd’s Ltd., 426 N.W.2d 120, 123 (Iowa
1988) (claim by a butcher against a manufacturer of a defective meat
curing agent).
Most recently, we concluded the doctrine applied to
preclude recovery on several negligence theories alleged by a homebuyer
against the seller for damages the buyer incurred to repair defective
structural problems. Determan v. Johnson, 613 N.W.2d 259, 264 (Iowa
2000).
We concluded the buyer’s claim was “based on her unfulfilled
expectations with respect to the quality of the home she purchased.
Accordingly, her remedy lies in contract law, not tort law.” Id. at 263.
The economic loss doctrine was conceived to prevent litigants with
contract claims from litigating them inappropriately as tort claims. We
see no reason to apply the rule to bar a recovery of economic losses for
the tort of negligent misrepresentation that is, and always has been, an
economic tort allowing for recovery of purely economic damages.
Restatement (Second) of Torts § 552B, at 140.
Application of the
economic loss doctrine in negligent misrepresentation cases would
essentially eliminate the tort.
Other courts addressing this issue have concluded negligent
misrepresentation claims are not barred by the economic loss doctrine.
The
Pennsylvania
Supreme
Court
adopted
the
tort
of
negligent
misrepresentation as defined in section 552 in a case involving a claim
against an architect who supplied inaccurate information.
Bilt-Rite
Contractors, Inc. v. The Architectural Studio, 866 A.2d 270, 287 (Pa.
2005). In concluding that the economic loss doctrine did not preclude a
recovery in tort, the court reasoned:
17
Indeed, to apply the economic loss doctrine in the context of
a Section 552 claim would be nonsensical: it would allow a
party to pursue an action only to hold that, once the
elements of the cause of action are shown, the party is
unable to recover for its losses. Thus, we hold that the
economic loss doctrine does not apply to claims of negligent
misrepresentation sounding under Section 552.
Id. at 288.
The Supreme Court of Hawaii also concluded the economic loss
doctrine does not bar claims of negligent misrepresentation based on
section 552.
State by Bronster v. U.S. Steel Corp., 919 P.2d 294, 307
(Haw. 1996). The court determined that while the economic loss doctrine
served an important function in the products liability arena, it was
inapplicable to negligent misrepresentation claims. Id. at 302. The court
noted that section 552(1) “expressly states that liability will attach ‘for
pecuniary loss caused . . . by [plaintiff’s] justifiable reliance upon the
information[.]’ ” Id. at 304 (alterations in original) (quoting Restatement
(Second) of Torts § 552(1), at 126); see also Presnell Constr. Managers,
Inc. v. EH Constr., L.L.C., 134 S.W.3d 575, 582 (Ky. 2004) (concluding
that by adopting Restatement (Second) section 552, “we agree that the
tort of negligent representation defines an independent duty for which
recovery in tort for economic loss is available”); Nota Constr. Corp. v.
Keyes Assocs., Inc., 694 N.E.2d 401, 405 (Mass. App. Ct. 1998) (noting
an exception to the economic loss doctrine exists for negligent
misrepresentation claims based on Restatement (Second) section 552);
Terracon Consultants W., Inc. v. Mandalay Resort Group, 206 P.3d 81, 88
(Nev. 2009) (recognizing that the economic loss doctrine does not apply to
negligent misrepresentation cases because “without such liability the law
would not exert significant financial pressures to avoid such negligence”).
We conclude the purposes of the economic loss doctrine would not
be
served
by
applying
it
to
negligent
misrepresentation
claims.
18
Furthermore, application of the doctrine in such cases would contravene
the plain language of section 552 and virtually eliminate the tort as
recognized in Iowa.
This we are not inclined to do.
Accordingly, we
conclude the district court properly denied Wachovia’s motion for
judgment notwithstanding the verdict on this ground.
IV. Conclusion.
We conclude the district court erred in denying Wachovia’s motion
for
judgment
notwithstanding
the
verdict
on
the
fraudulent
misrepresentation claim and the award of punitive damages. However,
the district correctly denied Wachovia’s motion as to the application of
the economic loss doctrine, and the jury verdict on the negligent
misrepresentation claim and resulting judgment for actual damages for
that tort are affirmed. Accordingly, we affirm in part and reverse in part
the district court’s decision. The costs of appeal shall be assessed fifty
percent to appellant and fifty percent to appellees.
DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT DECISION AFFIRMED IN PART AND REVERSED IN PART.
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