ROBERT W. PRATT, Chief Judge.
Before the Court is a Motion for Summary Judgment filed by Defendant, Piper Jaffray & Co. Inc. ("Piper"). Clerk's No. 127. Plaintiff, Union County, Iowa ("Union County" or the "County") filed a resistance to the Motion (Clerk's Nos. 133-144),
Union County is a political subdivision of the State of Iowa, with an approximate population of 12,000-13,000 persons between the years 1990 and 2008. Def.'s Statement of Undisputed Material Facts (hereinafter "Def.'s Facts") ¶ 1; Def.'s App. at 1898. The Union County Board of Supervisors (the "County Board") makes decisions for Union County and operates on its behalf. Def.'s Facts ¶ 2 (citing Iowa code § 331.301). The Board consists of five members, elected to staggered four-year terms. Id. ¶ 3. From 1995 to 1998, the Board was comprised of Michael King ("King"), Michael Reasoner ("Reasoner"), Gerald McLain ("McLain"), Robert Brown ("Brown"), and JoAnn Bradley ("Bradley"). Id. ¶¶ 6-9. Bradley served as the County Board Chair in 1995 and 1996, while Reasoner served as the County Board Chair in 1997 and 1998. Id. Additional relevant county officials include Don Krings ("Krings"), Union County Auditor; Tim Kenyon ("Tim Kenyon"), Union County Attorney; and Audrey Paxton ("Paxton"), Union County Assessor. Id.
The City of Creston ("Creston" or the "City") is located in Union County, and had a total approximate population of between 7,500 and 8,000 persons between 1990 and 2008. Def.'s App. at 1899. Creston is the county seat of Union County, and Creston's City Hall is located approximately three blocks away from Union County Courthouse and from the County Board's offices. Def.'s Facts ¶ 5. Arnold "Skip" Kenyon ("Skip Kenyon"), the brother of Tim Kenyon, was the Creston City Attorney during the events giving rise to this case. Id. ¶ 10. Larry Wynn ("Wynn") was Creston's Mayor, and Joe Parker ("Parker") was the City Finance Officer. Id. ¶ 11.
Crestland Cooperative ("Crestland") is an Iowa cooperative association located primarily in Union County, with approximately 2,225 members, all of whom were entitled to receive annual financial reports regarding Crestland.
Piper is a Delaware corporation headquartered in Minneapolis, Minnesota, with an office in Des Moines, Iowa. Id. ¶ 14. Piper is a registered securities broker-dealer and investment banker that serves, among other things, as an underwriter in municipal securities offerings. Id. ¶ 15. Union County notes that Piper also serves as a Financial Advisor to many of its clients and that financial advisory services are among the services offered and provided by Piper. Pl.'s Resp. to Def.'s Facts ¶ 15. Timothy Oswald ("Oswald"), the managing director of Piper's Des Moines office, served as Piper's lead representative in relation to the events underlying the present action. Def.'s Facts ¶ 16.
At the end of the 1995 fiscal year, Crestland's financial statements indicated that Crestland and its wholly-owned subsidiary, C.C.M., Inc. ("CCM") had $443,000 in net gains or profits. Id. ¶ 23. In part due to these successes, Crestland's CEO and General Manager, Crosser, began discussing with Farmland Industries ("Farmland") and local leaders the idea of building a soybean crushing facility, to be known as CF Processing, adjacent to its elevator in Creston. On November 14, 1995, Farmland completed and forwarded to Crestland a feasibility study in relation to the soybean crushing plant project (hereinafter the "Development Project"). Def.'s Facts ¶ 29; Def.'s App. at 162-174. The feasibility study indicated that, to be successful, four factors were critical, namely oil marketing, meal marketing outside niche, efficient plant operations, and real crush margins. Def.'s Facts ¶ 29; Def.'s App. at 174. In regard to the crush margins, the feasibility study indicated that the soybean crushing facility would need a crush margin "average" of between $0.69 and $0.79 per bushel of soybeans to be feasible, and that the 10-year crush margin and 5-year crush margin in Union County had been $0.85 and $0.90, respectively. Def.'s Facts ¶ 29; Def.'s App. at 173-74. The study further projected that the capital cost of the project would be about $15 million, and that Farmland Industries ("Farmland") would join in the venture and make an equity investment of approximately $3 million. Def.'s Facts ¶ 25. Creston was willing to issue tax-exempt Industrial Development Revenue bonds ("IDR Bonds") on behalf of Crestland up to approximately $10 million to assist in financing the project. Id. ¶ 26.
In approximately October 1995, in an effort to undertake the IDR bond issuance, Creston engaged John McKinney and Linda Kniep of Ahlers & Cooney Law Firm ("Ahlers") as "Issuer's counsel."
On March 6, 1996, the Creston News Advertiser printed an article stating that while Creston had approved a $10 million IDR bond issuance, Farmland had not yet decided whether to invest in the project. Def.'s Facts ¶ 38.
Union County did not have a prior relationship with Piper or with Oswald prior to the transactions at issue in this case. Def.'s Facts ¶ 17. Union County had, however, participated in bond offerings, including the issuance of $500,000 in bond debt in 1982 and the refinancing and refunding of such bonds by General Obligation Notes in 1992. Id. ¶ 18. At the time of the 1992 issuance of General Obligation Notes, King, Bradley, Brown, and McLain were all on the County Board; Krings was the County Auditor, and Tim Kenyon was County Attorney. Id. ¶ 20. The 1992 General Obligation Note offering used Ruan Securities Corporation as underwriter, and Ahlers as bond counsel. Id. ¶ 19.
Despite its prior bond offerings, the Development Project was undisputably one of the largest public projects ever to take place in Union County. Id. ¶ 37. One component of the Development Project was that it created a need for improvements to infrastructure and roads surrounding the new plant. Id. ¶ 34. Such improvements could be made by employing Tax Increment Financing ("TIF"),
By the fall of 1996, Farmland had still not committed to investing in the Development Project. Def.'s Facts ¶ 41. Crestland had indicated, though it is not clear to whom, that unless equity funding could be found, there would be no project.
In October 1996, Oswald forwarded to the City, the County (via Krings), and Crestland a new estimated bond debt repayment schedule that assumed the County would issue bonds sufficient to make a $2.02 million cash grant to Crestland and pay for approximately $1.6 million in road improvements. Id. ¶ 65. The calculation contemplated a minimum property assessment valuation of $12 million for the TIF property in order to cover the projected debt service payments for the bonds to be issued.
Id. ¶ 70.
On November 18, 1996, the County Board held the first formal meeting at which the financial role of the County in the Development Project was discussed. Id. ¶ 71. While Crosser and Wynn were in attendance at the meeting, no representative from Piper was in attendance. Id. ¶ 73. At that meeting, King proposed a resolution to approve the Plan of Finance and to have a consulting firm, Simmering-Cory, begin drafting a Development Agreement. Id. ¶ 72. The next day, Bradley forwarded a draft description of the Development Project to Tom Simmering, and advised him that the County Board had authorized him to draw up a TIF plan. Id. ¶ 74. On December 3, 1996,
A County Board meeting was held on December 9, 1996 to discuss the planned County bond issuance and Piper's involvement in it. Id. ¶ 77. Though Oswald had attended various other meetings in relation to the Development Project where County representatives were present, this was the first County Board meeting he attended. Id. According to the County, it was at this meeting that the County decided to retain Piper in connection with its part in the Development Project. Id. ¶ 78. County Board member King testified at deposition that he met Oswald for the first time at this meeting and that the following occurred:
Def.'s App. at 1501. The County asked Oswald to follow-up on this discussion by writing a letter to the County outlining Piper's expected role in the project. Def.'s Facts ¶ 79. Though the minutes of the County Board meeting do not reveal any engagement of Piper at that meeting, King testified at deposition that he left the meeting believing that Piper had been engaged to act as the County's financial advisor. See Pl.'s App. at 269 (King Dep.: Q. "And is it your testimony that you retained [Oswald] that day to be financial advisor and you understood what that term meant?" A. "Yes." ... Q. "Did you have
One day later, on December 10, 1996, Oswald wrote the following letter to John McKinney of Ahlers Law Firm:
Def.'s App. at 221.
On December 12, 1996, Oswald wrote the follow-up letter requested at the Board Meeting, addressed to Union County Attorney Tim Kenyon:
Def.'s App. at 233-34. Tim Kenyon forwarded the letter to the County Board and to McKinney, but neither Tim Kenyon, the Board Members, nor McKinney ever asked any follow-up questions regarding the letter.
On January 31, 1997, a consultation meeting was held regarding the creation of a TIF district, the County's note issuance, and the City's IDR issuance.
In March 1997, the City sponsored a second temporary IDR issue for $4.81 million, for which Piper again prepared a Limited Offering Memorandum. Id. ¶ 92. The Limited Offering Memorandum was disclosed to Ahlers,
On May 5, 1997, Oswald and Crosser attended the County Board meeting and asked the County to make an additional "cash grant" to the Development Project of $2 million, to which the County agreed. Def.'s Facts ¶ 104. At the meeting, the County expressed that they would like to get all relevant materials at least one week in advance so that the documents could be reviewed. Id. ¶ 105. Oswald agreed to aid the County in this regard, and sent a letter to Cory and McKinney on May 5, 1997, wherein he stated that the County had "instructed us to begin the process of authorizing an additional cash grant to CF Processing ... in the amount of $2 million," and additionally requested that full copies of all documents be sent to Tim Kenyon and Don Krings, and that Oswald also receive copies of documents so that he could put them into folders he was preparing for the County to permit them one week's review. Def.'s App. at 263. Oswald did, in fact, make notebooks for each of the County Board members containing proceedings and information for their review. Def.'s Facts ¶ 106. On May 27, 1997, Union County approved an increase in the assessed valuation of the property from $12 million to $19 million, to cover repayment of the increased cash grant from Union County. Id. ¶ 123.
On June 2, 1997, Oswald distributed a "timeschedule" for the "Union County, Iowa Urban Renewal General Obligation Capital Loan Notes," wherein he listed various dates, events, and responsible parties. Def.'s App. at 859. For June 9, 1997, the document listed "Execution of Development Agreement" with Responsible Parties "Board/Devel./Counsel." Id. The same date listed "First draft of official statement available," with Responsible Party "Underwriter." Id. Responsible Parties were further defined as: 1) Counsel or Bond Counsel—Ahlers; 2) Underwriter—Piper; 3) Board—Board of Supervisors of Union County, Iowa; 4) Staff— Primarily Don Krings and Tim Kenyon; and 5) Developer—CF Processing, L.C. and Crestland Cooperative, Creston, Iowa. Id. Consistent with the timetable, on June 9, 1997, Oswald forwarded a draft of the Official Statement to Ahlers and to Krings, who in turn distributed it to the Board Members. Def.'s Facts ¶ 108. The draft official statement included a provision stating that, "Historically, industrial machinery, equipment, and certain computer property has been taxed as real property at 30% of the net acquisition cost...." Id. ¶ 109. While the County denies that this was sufficient to notify them that certain equipment would be fully or partially exempt from taxation, it does not genuinely dispute that Paxton, the County assessor knew that there was a phase-out of taxation for industrial machinery and equipment. See Pl.'s Resp. to Def.'s Facts ¶¶ 109-10.
In July 1997, after reviewing a feasibility study and engineering report, First Bank Systems ("FBS"), Crestland's Bank, agreed to expand Crestland's financing and issue a Letter of Credit ("LOC") for the City's IDR bond issue, subject to various conditions. Def.'s Facts ¶ 111; Def.'s App. at 864-65. On July 17, 1997, Oswald sent a letter to the County Board stating that Crosser had received word from Crestland's bank that "they would guaranty an issue of [IDR] bonds that will be
Mark Cory of Ahlers prepared and negotiated the Development and Minimum Assessment Agreements related to the County's bond issuance and distributed them for comment and discussion to Amy Beattie, Crestland and CF Processing counsel, Frank Pechacek, and the County Attorney.
On October 6, 1997, Piper forwarded to the County a formal written proposal to underwrite Union County's first bond issuance. Def.'s Facts ¶ 127; Def.'s App. at 313-14. On the same date, Tim Kenyon wrote to the County Board to state that he had reviewed "the final set of materials prepared by Mr. McKinney in connection with the Capital Loan Notes. If the Board chooses to go forward, we should closely follow the recommendations of bond counsel." Def.'s Facts ¶ 140. In a second letter to the County Board on the same date, Tim Kenyon wrote that he had "reviewed the final draft of the Development Agreement" and that "[b]ased upon my review and examination of the final draft, I know of no legal objection to the execution of the document. As we have discussed, the final decision to proceed rests with the Union County Board of Supervisors." Id. ¶ 142. At a County Board meeting also held on October 6, 1997, the County Board passed a resolution agreeing to accept Piper's underwriting proposal and further authorizing the parties to negotiate and enter into a Loan Agreement
Thus, Union County, Creston, CF Processing, and Crestland entered into a "Tax Increment Development Agreement" and "Minimum Assessment." Pl.'s Facts ¶ 1; Def.'s App. at 361-81. Under the terms of the Development Agreement, Union County agreed to make "a grant to [CF Processing] in the amount of Four Million Dollars," and to pay up to another $1.5 million for road improvements near the CF Processing plant, in exchange for CF Processing's agreement to pay increased property taxes in an amount that would fully cover Union County's debt service on bonds it was issuing in connection with the financing. Id. ¶¶2-3. Specifically, CF Processing agreed to be assessed at a minimum amount of $19 million.
As agreed, Piper prepared Union County's Official Statements for the 1997 and 1998 issuances of Notes. Id. ¶ 6. Regarding the Official Statement in relation to the 1997 Note issuance, totaling $4.325 million, Piper is listed in Appendix A, under the heading "Consultants," as "Financial Consultant." Def.'s App. at 326. The 1997 Official Statement, however, contains a heading labeled "Underwriting," which provides, in part: "The Notes are being purchased, subject to certain conditions, by Piper Jaffray Inc., (the `Underwriter'). The Underwriter has agreed, subject to certain conditions, to purchase all, but not less than all, of the Notes at an aggregate purchase price of $4,216,875 plus accrued interest to the Closing Date." Id. at 323. Piper maintains that it was erroneously listed as "Financial Consultant" in Appendix A of the 1997 Official Statement, but that the error was duly corrected in relation to the 1998 Note issuance, totaling $1.56 million.
The Development Project, operated by CF Processing, was constructed and completed on schedule and began soy processing operations in the Fall of 1998. Def.'s Facts ¶¶ 182, 184. The infrastructure improvements financed by the 1998 County
Crestland reported a profit at the end of its 1997 fiscal year. Def.'s Facts ¶ 149. At the end of its 1998 fiscal year, Crestland again reported a profit. Id. ¶ 179. On August 31, 1999, however, Crestland's bank refused to finance any of the CF equipment purchase or installation costs, requesting that another lender be found. Id. ¶ 187. In late 1999, believing that April 1999 was the "low point" for fiscal year 1999, Crestland's Bank, U.S. Bancorp Ag Credit did several things: it raised Crestland's interest rate by 50 basis points; reduced its revolving line of credit from $25 million to $15 million; refused to provide Swine USA, another Crestland start-up, with any separate financing; required Crestland to try to sell yet another start-up, Livestock USA; told Crestland to continue efforts to place a new bond through Piper to replenish working capital; and declined to renew a $750,000 LOC listing subsidiary CCC as a beneficiary. Id. ¶ 188; Pl.'s Resp. to Def.'s Facts ¶ 188. The bank's internal reports in 1999 noted that a combination of losses from the start-up of these companies and historically low soybean crushing margins and swine markets led to Crestland's consolidated year to date loss. Def.'s Facts ¶ 189. The bank further noted that historically bad crush margins, weak export markets, and "sobering" declines in farm income (the lowest since the mid 1980s) were a further indicator of potential accounts receivable collection problems for Crestland in future months. Id. In February 2000, Crestland's CPA auditing firm resigned due to a disagreement with Crestland concerning representations to its members about financial performance. Id. ¶ 190. In August 2000, Crestland's senior lender stopped lending to Crestland and Crestland obtained Firstar as a lender. Id. ¶ 191. Also in August 2000, Piper advised Crestland that it must redeem the bonds from the City's IDR bond issue because it had exceeded its $10 million capital improvement limit for keeping those bonds in tax-exempt status. Id. ¶ 192.
On September 26, 2001 Crestland filed for bankruptcy. Id. ¶ 193. In Crestland's filings with the Bankruptcy Court, it stated:
Additional significant factors contributing to the Co-op's financial problems included losses associated with the Debtor's investment in the Swine USA limited partnership before March 2001. Additionally, Crestland's decision to start and maintain an investment in a Do It Best home center business in Creston proved to be an additional financial burden, as that investment never turned a profit. . . . Finally, all of the above financial issues were significantly amplified by an ever expanding rumor mill, starting at approximately the end of February 2001.
Def.'s Facts ¶ 195.
On October 25, 2001, CF Processing also filed for bankruptcy. Id. ¶ 194. At no point prior to its bankruptcy did CF Processing ever indicate to Union County that it had any problem making its tax payments or was in any way suffering a hardship regarding them. Id. ¶ 198. Indeed, prior to its bankruptcy filing, CF Processing had, either on schedule or early, made three years of agreed-upon tax payments, totaling $1,977,661.54. Id. ¶ 197. On November 15, 2001, Union County filed a proof of claim in the CF Processing bankruptcy for $806,030 "yearly assessment on bond issue." Id. ¶ 199. On the same date, Union County filed a proof of claim for $258,346 in taxes (which were unrelated to the taxes due from the CF Processing facility under the Minimum Assessment Agreement) in Crestland's bankruptcy. Id. ¶ 200. In March 2002, the Bankruptcy Court approved the sale of Crestland's real estate to DeBruce Grain for $6.5 million, "free of all liens and encumbrances, except those held by U.S. Bank, First Union, and other secured creditors." Id. ¶ 201.
In November 2002, Union County opposed an attempt by CF Processing to convert its Chapter 11 bankruptcy into a Chapter 7 proceeding, asserting that continued operations of the CF Processing plant were "in the best interests of Union County and the residents and taxpayers of
In July 2003, Union County passed a resolution to modify the Minimum Assessment Agreement and to abate certain back taxes, provided that the parties reach mutually acceptable terms for an Amended Minimum Assessment Agreement and that the County receive all tax payments owed through and including September 2003. Id. ¶ 210; Pl.'s Resp. to Def.'s Facts ¶ 210. In October 2003, Union County entered a Stipulation of Voluntary Settlement of Tax Protest whereby it agreed to assess DeBruce's property at $13,830 and CF Processing's property for the remainder of the $19 million. Def.'s Facts ¶ 211. In December 2003, DeBruce transferred its rights to the property described in the Development Agreement to Creston Bean Processing, LLC via quitclaim deed. Id. ¶ 212. In February 2004, Union County entered into a settlement agreement, agreeing to settle its $2.11 million back tax claim against CF Processing for $500,000 so that CF Processing could be sold to Creston Bean and remain an intact tax-paying entity in Union county. Id. ¶ 213. The County Board approved the agreement on February 4, 2004. Id. ¶ 215. In October 2006, the Bankruptcy Court denied Union County's Motion to Amend, noting:
Def.'s Facts ¶ 216. CF Processing remains operational today and continues to be one of Union County's ten largest taxpayers. Id. ¶ 215.
The term "summary judgment" is something of a misnomer.
Federal Rule of Civil Procedure 56(c) mandates the entry of summary judgment upon motion after there has been adequate time for discovery. Summary judgment can be entered against a party if that party fails to make a showing sufficient to establish the existence of an element essential to its case, and on which that party will bear the burden of proof at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Summary judgment is appropriately granted when the record, viewed in the light most favorable to the nonmoving party and giving that party the benefit of all reasonable inferences, shows that there is no genuine issue of material fact, and that the moving party is therefore entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Harlston v. McDonnell Douglas Corp., 37 F.3d 379, 382 (8th Cir.1994). The Court does not weigh the evidence, nor does it make credibility determinations. The Court only determines whether there are any disputed issues and, if so, whether those issues are both genuine and material. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Wilson v. Myers, 823 F.2d 253, 256 (8th Cir.1987) ("Summary judgment is not designed to weed out dubious claims, but to eliminate those claims with no basis in material fact.") (citing Weight Watchers of Quebec, Ltd. v. Weight Watchers Int'l, Inc., 398 F.Supp. 1047, 1055 (E.D.N.Y.1975)).
In a summary judgment motion, the moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact based on the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any. See Celotex, 477 U.S. at 323, 106 S.Ct. 2548; Anderson, 477 U.S. at 248, 106 S.Ct. 2505. If the moving party has carried its burden, the nonmoving party must then go beyond its original pleadings and designate specific facts showing that there remains a genuine issue of material fact that needs to be resolved by a trial. See Fed.R.Civ.P. 56(e)(2). This additional showing can be by affidavits, depositions, answers to interrogatories, or the admissions on file. Id.; Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548; Anderson, 477 U.S. at 257, 106 S.Ct. 2505. "[T]he mere existence of some alleged factual dispute between the parties will not defeat a motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48, 106 S.Ct. 2505. An issue is "genuine," if the evidence is sufficient to persuade a reasonable jury to return a verdict for the nonmoving party. See id. at 248, 106 S.Ct. 2505. "As to materiality, the substantive law will identify which facts are material.... Factual disputes that are irrelevant or unnecessary will not be counted." Id.
Courts do not treat summary judgment as if it were a paper trial. Therefore, a "district court's role in deciding the motion is not to sift through the evidence, pondering the nuances and inconsistencies, and decide whom to believe." Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994). In a motion for summary judgment, the job of a court is only to decide, based on the evidentiary record that accompanies the moving and resistance filings of the parties, whether there really is any material dispute of fact that still requires a trial. See id. (citing Anderson, 477 U.S. at 249, 106 S.Ct. 2505 and 10A Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 2712 (3d ed. 1998)). It is the
Union County argues that Piper clearly undertook to be the County's financial advisor at the December 9, 1996 meeting, and that the December 12, 1996 letter from Piper to the County emphasized Piper's agreement to undertake this role. According to the County, it thereafter relied on Piper, as its financial advisor to "`recommend areas of concern' on the Development Agreement and otherwise `represent' and protect it with respect to `financial matters' [] and to `raise red flags' about any aspects of the financing that could negatively impact the County." Pl.'s Br. at 10. The County contends that Piper woefully failed in that capacity, and made numerous affirmative misrepresentations to the County, and also failed to disclose certain relevant information.
Specifically, the County contends that Piper affirmatively "misrepresented" the following matters: 1) Piper told the County that an LOC was not available to secure CF Processing and Crestland's debt service obligations under the Development Agreement, when an LOC was, in fact, available; 2) Piper told the County that a mortgage was not available to secure CF Processing and Crestland's debt service obligations under the Development Agreement, when a mortgage was available; 3) Piper represented to the County, "through advising the County to proceed," that Crestland's guarantee of the CF Processing's debt service was adequate protection for the County, even though Piper "was aware of Crestland's weak finances and `lackluster financial performance'"; 4) the County "directed" Piper to secure insurance to guarantee CF Processing and Crestland's debt service obligations, but Piper failed to do so; 5) Piper advised the County to proceed in executing the Development Agreement, despite knowledge by Piper that Crestland had unstable historical financial performance, that there was no insurance behind CF Processing and Crestland's debt service obligations; and that the $19 million assessment was "high"; and 6) Piper advised the County that "I work for you" and disclaimed any conflict on providing financial advice to the County, despite knowing it had conflicts because it also represented CF Processing, Crestland, and the City. Pl.'s Br. at 22-23.
The County further contends that Piper failed to advise the County of the following relevant facts or information: 1) failed to disclose feasibility studies on CF Processing that were in Piper's possession; 2) failed to disclose an appraisal showing that Crestland's property was worth less than $6 million; 3) failed to reveal knowledge by Piper that the $19 million assessment was "high"; 4) failed to recommend an independent feasibility study and appraisal of the CF Processing project for the benefit of the County; 5) failed to disclose that the City of Creston was participating in the financing of IDR bonds and information related thereto; 6) failed to reveal conflicts, such as representation of the City, CF Processing, and Crestland; 7) failed to protect the County's interests by facilitating Crestland in incurring additional debt that competed with the debt owed to the County; 8) failed to advise that Farmland was not providing an equity investment in CF Processing; 9) failed to advise that Piper had rejected an LOC for the City's IDR bond issuance, thereby freeing this source of security for the benefit of the County; and 10) failed to disclose that no insurance had been obtained to protect the County's general obligation in case of default by CF Processing or Crestland. Id. at 23-24.
To sustain its claim for breach of fiduciary duty, the County bears the burden of proving: 1) the existence of a fiduciary relationship; 2) Piper breached a fiduciary duty to the County; 3) Piper's breach of its fiduciary duty to the county was a proximate cause of damage to the County; and 4) the amount of damage. See Iowa Jury Ins. 3200.1.
To establish a claim for breach of contract, Union County must prove the following five elements:
Molo Oil Co. v. River City Ford Truck Sales, Inc., 578 N.W.2d 222, 224 (Iowa 1998) (citing Iowa-Illinois Gas & Elec. Co. v. Black & Veatch, 497 N.W.2d 821, 825 (Iowa 1993)).
"Negligence is generally defined as conduct that falls below the standard established by law for the protection of others against unreasonable risk of harm." Knake v. King, 492 N.W.2d 416, 417 (Iowa 1992). Under Iowa law, the elements for a cause of action for negligence are: 1) the existence of a duty to conform to a standard of conduct for the protection of others; 2) the failure to conform to that standard; 3) proximate causation; and 4) damages. Hartig v. Francois, 562 N.W.2d 427, 429 (Iowa 1997) (citing Marcus v. Young, 538 N.W.2d 285, 288 (Iowa 1995), and W. Page Keeton et al., Prosser & Keeton on the Law of Torts § 30 (5th ed. 1984)).
The Iowa Supreme Court has identified the following factors as requisites to success on a claim of negligent misrepresentation:
Barske v. Rockwell Int'l Corp., 514 N.W.2d 917, 924 (Iowa 1994); see Iowa Civil Jury Inst. 800.1.
The elements for the tort of fraud are similar in many regards to the elements of negligent misrepresentation. A plaintiff seeking to hold a defendant liable for fraud must demonstrate: 1) a representation; 2) that the representation was false; 3) that the representation was material; 4) that the defendant knew the representation was false; 5) that the defendant intended to deceive the plaintiff; 6) that the plaintiff justifiably relied on the representation; and 7) that the representation was a proximate cause of plaintiff's damage. See Smidt v. Porter, 695 N.W.2d 9,
To generate a genuine issue of material fact on any of its five claims, Union County must present evidence that Piper's alleged misrepresentations or omissions proximately caused Union County's damages. Accordingly, since a determination of proximate causation impacts the sustainability of all of Plaintiff's claims, the Court addresses it first. In this case, Piper argues that Plaintiff cannot establish that Piper proximately caused Union county's damages. Specifically, Piper contends that it did everything it was required to do. It "underwrote and helped issue the two County Notes without incident." Def.'s Br. at 35. The County then made a cash grant to the Development Project, the bean plant was built, road improvements were made, CF Processing went into operation and "paid $1.9 million in agreed upon property taxes for three years before its parent, Crestland, filed for bankruptcy in September 2001." Id. According to Piper, even assuming that it owed duties to "advise" the County with regard to the propriety of entering into the Development Agreement, the bankruptcies of Crestland and CF Processing constitute a superseding cause of the County's damages, regardless of any claimed wrongful actions or inactions by Piper. Those bankruptcies were caused by factors entirely unforeseeable and outside the control of Piper, such as changes in agricultural markets, overexpansion, a tightening of credit, and other financial difficulties. Indeed, according to Piper, the premise of Union County's causation argument is "itself illogical" in that "the County's cause of action would still be available if the bean plant had paid its taxes for ten or fifteen years, instead of three, before failing." Def.'s Br. at 37.
The County, on the other hand, argues that it "hired Piper to provide financial advice ... to ensure the protection of the County's general obligation for debt service under the Development Agreement." Pl.'s Br. at 52. "Had Piper done what it promised to do in December 1996, the County would not be facing a $7 million loss." Id. According to the County, the "issue is the fact that Piper denied the County the ability to make a fully-informed decision about putting its general obligation at risk in connection with this transaction." Id. (emphasis omitted). As noted, the County contends that Piper "sat on undisclosed information to the County" that Crestland indicated were key factors in its eventual bankruptcy. The County specifically points out that Piper knew that at least one feasibility study had indicated that "future gross crushing margins will be significantly lower than they are currently," that crushing margins were considered an important factor in CF Processing being a successful venture, and that historically low crushing margins were identified by Crestland as a significant cause of its bankruptcy. Id. at 53-54. The County further contends that, after the execution of the Development Agreement and the note issuances in 1997 and 1998, Piper helped Crestland to rack up additional debt,
"[Q]uestions of ... proximate cause are ordinarily for the jury to decide," though "they may be decided as matters of law in exceptional cases." Scoggins v. Wal-Mart Stores, Inc., 560 N.W.2d 564, 566-67 (Iowa 1997) (citations omitted); see also Hagen v. Texaco Refining & Mktg., Inc., 526 N.W.2d 531, 538 (Iowa 1995) ("[P]roximate cause is a fact question for the jury."). Under Iowa law, causation has two components: 1) "`the defendant's conduct must have in fact caused the plaintiff's damages (generally a factual inquiry)'" and 2) "`the policy of the law must require the defendant to be legally responsible for the injury (generally a legal question).'" Scoggins, 560 N.W.2d at 567 (quoting Gerst v. Marshall, 549 N.W.2d 810, 815 (Iowa 1996)). In conducting the factual inquiry, a court must look to two components: 1) "whether the harm would not have occurred but for the negligence of the defendant, and 2) whether the negligence of the defendant was a substantial factor in bringing about the harm." Id. (citing Gerst, 549 N.W.2d at 817). In evaluating whether a defendant's conduct is a "substantial factor" in bringing about the harmed sustained, courts must look to the "`proximity and foreseeability of the harm flowing from the actor's conduct, although it is not necessary that the actual consequences of a defendant's negligence should have been foreseen.'" Id. (quoting Kelly v. Sinclair Oil Corp., 476 N.W.2d 341, 349 (Iowa 1991)).
In conducting the legal inquiry, the court must determine if "`the policy of the law will extend responsibility to those consequences which have in fact been produced by an actor's conduct.'" Id. (quoting Kelly, 476 N.W.2d at 349). Ordinarily, this question can be answered affirmatively where it can be shown that there is "no other rule of law relieving the actor of liability because of the manner in which his negligence resulted in the harm," id. (quoting Kelly, 476 N.W.2d at 349), and where the resultant harm "result from the risks that made the actor's conduct tortious." Thompson v. Kaczinski, 774 N.W.2d 829, 837 (Iowa 2009).
"To conclude that an event or conduct constitutes a superseding cause, the court must find that `the later-occurring event is such as to break the chain of causal events between the actor's [conduct] and the plaintiff's injury." Id. (quoting Kelly, 476 N.W.2d at 349); see also Reed v. Chrysler Corp., 494 N.W.2d 224, 231 (Iowa 1992) ("Conduct that, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the result complained of and without which the result would not have occurred, is a proximate cause of the event."). "Such a finding prevents a finding of proximate cause even when the actor's conduct is found to be a cause-in-fact of the plaintiff's harm." Hayward, 573 N.W.2d at 32. "When a superseding cause is found, the law considers that cause `to be the effective harm, and relieves the defendant from liability for the earlier negligent act.'" Id. (quoting Sumpter v. City of Moulton, 519 N.W.2d 427, 431 (Iowa Ct.App.1994)). "`In order for an intervening act or force to relieve an individual from liability, the harm must not have been a normal consequence of his acts or have been reasonably foreseeable.'" Id. (quoting Haumersen v. Ford Motor Co., 257 N.W.2d 7, 15 (Iowa 1977)); see also Thompson, 774 N.W.2d at 838 (noting that foreseeability is a "critical" consideration in an analysis of superseding causation and quoting Scoggins, 560 N.W.2d at 568-69 for the proposition that "an injury which could not have been foreseen or reasonably anticipated as the probable result of an act of negligence is not actionable and such an act is either the remote cause, or no cause whatever, of the injury"). "`An intervening force which falls squarely within the scope of the original risk, [however,] will not supersede the defendant's responsibility.'" Hayward, 573 N.W.2d at 32 (quoting Hollingsworth v. Schminkey, 553 N.W.2d 591, 598 (Iowa 1996)).
While the Court has serious doubts as to whether the County will ultimately be able to prove that any alleged action or omission by Piper was the proximate cause of its damages in this case, it nonetheless must agree with the County that, at this stage of the proceedings, the matter is one for a jury. Assuming that the jury could find the other elements of the County's claims satisfied, the simplified causation picture would be that which the County alleges, i.e., Piper owed a duty to the County to advise it with respect to the Development Agreement, Piper failed to properly advise the County, and as a result, the County was not adequately protected in its general obligation liability when CF Processing and Crestland went bankrupt. If a jury determined that Piper did undertake some duty to advise the County with respect to the Development Agreement, then the likely harm that would result from Piper's failure in that duty would be that the County would sustain financial harm in the event that CF Processing and Crestland failed to make tax payments sufficient to cover the County's debt service on its Note issuances. This is sufficient to generate a jury question on the factual inquiry under the proximate cause analysis.
Piper's argument, however, does not directly address the factual inquiry of the analysis; rather, it focuses almost exclusively on the legal inquiry, i.e., Piper argues that the bankruptcies of Crestland and CF Processing were superseding causes of Union County's harm
The Court finds unconvincing Piper's protestation that the County's argument is "itself illogical" because the cause of action would still be available to the County if the bankruptcies had occurred fifteen years after the Note issuances, rather than three years later. The mere fact that a claim could be made after fifteen, or even nineteen years, does not mean that such a claim would be sustainable. This is because the legal component of the proximate causation analysis necessarily evaluates whether a claimed cause "is so remote or attenuated that liability should not be imposed." Sweeney v. City of Bettendorf, 762 N.W.2d 873, 883 (Iowa 2009). If the County were bringing this identical claim, with the variation that CF Processing and Crestland had filed bankruptcy fifteen years after the Note issuance, the Court could say with some confidence that any act or omission by Piper was so remote and attenuated that it could not legally sustain a finding of proximate causation. While the Court cannot opine as to the precise number of years at which it would find causation too attenuated, it does believe that the passage of only three years is not inherently so remote or attenuated as to foreclose proximate causation as a matter of law. Accordingly, the Court finds that the issues of proximate causation and superseding causation must be submitted to a jury for resolution.
The parties dispute whether Piper was acting solely as Union County's underwriter for the issuance of General Obligation Notes or whether Piper was also acting as Union County's financial advisor with regard to the propriety of Union County's involvement in the Development Project generally. Piper steadfastly maintains that it acted only as an underwriter of securities, and that the normal rule, that "underwriters owe no special duty to issuers and the two are considered as contractual counterparties," should be applied in the present case. Def.'s Br. at 15 (citing Robert A. Fippinger, The Securities Law of Public Finance § 8:11.5 at 8-182 (2d ed. Supp. 2009) ("No issuer of municipal securities ... should be under the misunderstanding that an underwriter is an employee or agent of the issuer.")). The County concedes that, as a general matter, underwriters owed no fiduciary duties to the issuer of securities.
While Union County articulates an extensive list of ways in which Piper breached its duty to the County, these alleged breaches are of no significance unless Union County can demonstrate that Piper owed it some duty, fiduciary or otherwise, in the first instance. To that end, Union County contends that a fiduciary relationship, whereby Piper agreed to act as Union County's "financial advisor," was created at the December 9, 1996 County Board meeting, and was reinforced by the followup letter Oswald sent to Union County Attorney on December 12, 1996. With respect to these events, the County points to several portions of the deposition testimony in this case as supportive of the creation of a "financial advisory" relationship that gave rise to fiduciary duties flowing from Piper to the County at the County Board Meeting on December 9, 1996:
Pl.'s App. at 262-70 (King Dep.)
Pl.'s App. at 711-17 (Reasoner Dep.).
Pl.'s App. at 94-98 (Brown Dep.).
Pl.'s App. at 179-184 (Tim Kenyon Dep.).
The County further argues that the December 12, 1996 letter, which the County repeatedly characterizes as an "Engagement Agreement," reinforces the fact that, at the December 9, 1996 Board meeting, Piper agreed to act as the County's financial advisor with respect to the Development Agreement. While the County recognizes that the letter commences by articulating that Piper would be the "underwriter of the proposed debt," it claims that Piper went much further than that, stating that it would "represent the County as requested, in all aspects of completion of the financing"; "assist the County in the creation and completion of a development agreement"; "review the development agreement and recommend areas of concern and suggested strategy"; and "advise and assist in securing a municipal credit rating or credit enhancement insurance, if appropriate." Pl.'s Facts ¶ 27 (citing December 12, 1996 Letter). While the County also recognizes that Piper disclosed that it had been "retained by the Developer to provide financing," the County claims it had no reason to believe this fact was of any concern because Piper twice "disclaimed any conflict in `representing' the County on the `financing.'" Pl.'s Br. at 8.
The Court accepts as true the testimony by Union County's Board Members that, on the basis of their discussion with Oswald at the December 9, 1996 meeting and the language of the December 12, 1996 letter, they believed they were employing Piper as the County's financial advisor. The question before the Court, however, is whether a reasonable jury could conclude from such evidence that Piper and the County had entered into a fiduciary relationship whereby Piper owed fiduciary obligations to the County due to its status as the County's "financial advisor" with respect to the Development Agreement.
A fiduciary relationship will be found to exist between two parties "`when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relationship.'" Kurth v. Van Horn, 380 N.W.2d 693, 695 (Iowa 1986) (quoting Restatement (Second) of Torts § 874, cmt. a, at 300 (1979)). Likewise, a fiduciary relationship may be found in situations where "`confidence is reposed on one side, and domination and influence result on the other. ... Such relationship exists when there is a reposing of faith, confidence and trust, and the placing of reliance by one upon the judgment and advice of another.'" Id. at 695-96 (quoting Black's Law Dictionary 564 (5th ed. 1979)). As stated by the Iowa Supreme Court:
Wilson v. IBP, Inc., 558 N.W.2d 132, 138 (Iowa 1996) (quoting Hoffman v. Nat'l Med. Enters., Inc., 442 N.W.2d 123, 125 (Iowa 1989)). Though some relationships are automatically considered fiduciary in nature, more often the relationship "must be evaluated on the facts and circumstances of each individual case." Id. at 696.
Factors to be considered in determining whether a fiduciary relationship exists include: 1) the acting of one person for another; 2) the having and exercising of influence over one person by another; 3) the reposing of confidence by one person in another; 4) the dominance of one person by another; 5) the inequality of the parties; and 6) the dependence of one person upon another. See id. (citing First Bank of Wakeeney v. Moden, 235 Kan. 260, 681 P.2d 11, 13 (1984) (per curiam)). Under Iowa law, the existence of a fiduciary duty "is `ordinarily' a fact question, but when undisputed facts are insufficient to find a fiduciary relationship exists, the question may be resolved by the trial court as a matter of law." Employers Mut. Cas. Co. v. Collins & Aikman Floorcoverings, Inc., 422 F.3d 776, 780 n. 2 (8th Cir.2005) (applying Iowa law).
Union County makes the following argument in support of its claim that a fiduciary relationship existed between the County and Piper with respect to the Development Agreement:
Pl.'s Resistance Br. at 35-36 (citations omitted).
There is generally no dispute in the record that the County Board members had limited or no experience with general obligation bond offerings, TIF financing, TIF projects, public finance, real estate finance or corporate finance.
In addition to its knowledge of Piper's superior experience in handling financial
The County contends that Oswald committed to act as its financial advisor at the December 9, 1996 meeting when Oswald informed the County Board Members "[i]f you hire me, I work for you." Pl.'s App. at 266. This comment alone is clearly insufficient to establish the existence of a fiduciary relationship. See Employers Mut., 422 F.3d at 780 (finding that a salesman's statement that he would "work on EMC's behalf" to determine the cause of a carpet problem was a legally "insufficient basis upon which to find a fiduciary relationship"). The statement is not tied to the Development Agreement in any way, and does not give any indicia that a relationship of confidence was intended with respect thereto. Indeed, the statement is so amorphous on its face that no reasonable person could rely on it to believe that a fiduciary relationship, rather than an ordinary arms-length transaction, was to be undertaken.
Board Member King went on to testify, however, that Oswald "told us that he would be our financial officer, our financial person, that we did not have to worry about any of the financial. He would take care of all of that, the agreements, the whole nine yards." Pl.'s App. at 267-68. Were this the end of Oswald's representations to the County regarding the scope of the relationship, there would certainly be a jury question on whether a financial advisory relationship had been established between
While Piper contends that the December 12, 1996 letter dispels any reasonable belief by the County that Oswald was acting as its financial advisor, Union County argues that the December 12, 1996 letter supports its claim that Oswald agreed to be the County's financial advisor. From the outset, the Court notes that there are significant problems with the County's argument in this regard. The first problem is that the very first line of the letter expressly states, not that Oswald will be the County's financial advisor, but that Piper "will be assisting the County as the underwriter of the proposed debt." Def.'s App. at 233. As noted previously, it is well-accepted that underwriters generally owe no duty to the issuer of securities. See Fippinger, supra ("[T]he underwriting agreement is drafted to provide that the underwriter is acting as a principal in an arm's-length relationship with the [issuer]. No issuer of municipal securities . . . should be under the misunderstanding that an underwriter is an employee or agent of the issuer.").
The second problem is that Piper additionally states in the letter: "As you are aware, we have been retained by the Developer to provide financing of the proposed project." Def.'s App. at 233. This disclosure arguably undercuts the existence of a fiduciary relationship.
Despite the clearly worded provision disclaiming any responsibility for drafting and negotiating the Development Agreement, and despite the provision stating that Piper would act as the "underwriter of the proposed debt" and expressly limiting Piper's role to the "structuring and sale of securities," Union County nonetheless maintains that, on the second page of the letter, Piper "plainly told the County Board here that it was not representing CF but only the County on the financial aspects of the Development Agreement and `regarding financial matters.'" Pl.'s Br. at 8. The second page of the December 12, 1996 letter provides:
Def.'s App. at 234. The Court finds that the County's interpretation is little more than "selective reading." The plain language states that, while Piper is agreeing not to help the Developer negotiate the Development Agreement, it is only assisting the issuer (the County) with the specific items noted in the first paragraph. Indeed, Piper specifically notes that such items ("provide analysis of the proposed minimum assessment and timing of the minimum assessment, and in calculating the amount to be offered to the developer") "are the only items we would generally advise an insurer regarding," thus again disclaiming an advisory relationship as to any other aspect of the Development Agreement.
Given Piper's statements in the letter that it would be acting as an underwriter and that it would be involved in the overall deal in only limited ways, the County will likely have an uphill battle in proving the existence of any duty owed to it by Piper. The problem for Piper on its Motion for Summary Judgment, however, is that Piper did not only make clear statements about what it would and would not be doing for the County. The existence of a fiduciary relationship is not circumscribed by labels the parties attach to the relationship; rather, its existence depends on the specific facts and circumstances of a case. Here, the County discounts Piper's statement that it would act as "underwriter" and in only a limited capacity, arguing that the facts and circumstances point to a fiduciary relationship. Specifically, the County points out that, after stating it will act as an "underwriter," Piper goes on to state in the bulleted points of the letter that it will perform a variety of financial advisory services, including: 1) "We will attend meeting and represent the County as requested, in all aspects of the completion of the financing;" 2) "assist the
According to the County, Oswald confirmed in these bullet points what the County already believed, i.e., that Piper would advise the County on all aspects of completing the Development Agreement, including the propriety of any such Agreement and ways in which the County could protect itself from harm. After careful review of the letter, the Court finds that while the County has unquestionably undertaken a selective reading of the December 12, 1996 letter, so too has Piper. Piper's repeated assertion that the plain language of the document unquestionably shows that it was disclaiming any financial advisory relationship fails to account for the broader statements it made in the bullet points referenced above, particularly those where Piper states that it will "assist the County in the creation and completion of a development agreement," and "review the development agreement and recommend areas of concern and suggested strategy." Considering the letter as a whole, the Court finds that it at least presents a jury question on whether Piper undertook any duty, fiduciary or otherwise, to advise the County with respect to the Development Agreement, particularly when read in conjunction with Oswald's representations to the County that he would "be [the County's] financial officer, our financial person, that we did not have to worry about any of the financial. He would take care of all of that, the agreements, the whole nine yards." Pl.'s App. at 267-68.
The Court recognizes that "the reposing of confidence in one person by another" is a relevant consideration in examining whether a fiduciary relationship exists, and will accept as true Union County's assertion that it, in fact, "reposed confidence" in Piper (based on Oswald's "I work for you" statement) to advise it regarding the Development Agreement. Indeed, the testimony by the various County Board members cannot be ignored, and each has offered some testimony that they were relying on Piper to advise it on any concerns or risks associated with the Development Agreement, as structured. "[C]ourts have repeatedly cautioned," however, "that `the plaintiff alone, by reposing trust and confidence in the defendant, cannot thereby transform a business relationship into one which is fiduciary in nature.'" Gemini Investors, Inc. v. Ches-Mont Disposal, LLC, 629 F.Supp.2d 163, 168 (D.Mass.2009) (quoting Superior Glass Co. v. First Bristol Cnty. Nat'l Bank, 380 Mass. 829,
In the present case, there is minimal evidence that Piper had "dominance" over Union County or that Piper "ha[d] and exercis[ed] influence" over Union County with respect to the Development Agreement. Union County attempts to demonstrate Piper's influence and dominance in two ways. First, it asserts that Oswald promised to "provide advice to the County on the Development Agreement," relying on King's testimony and the December 9, 1996 letter as support.
Union County additionally cites a letter from Oswald to the County Board dated July 17, 1997. Def.'s App. at 287. In this letter, Oswald notes that Crosser received word from his bank that the bank would guaranty IDR bonds that were to be issued in relation to the Development Project. Id. Oswald notes that he had asked the County to "hold up moving forward with the $4 million cash grant, the development agreement and the proposed bonding until [Crosser] could confirm that this piece of business had been completed," and suggests that "[n]ow that it is moving forward, it is time to pick up your process and move it forward," noting that things were one-month behind schedule from a timeline previously prepared. Id. Oswald further comments that he visited with Crosser "about completing the process with Audrey to allow for approval of the development agreement. I understand that he is working with Audrey in this regard. We should try and have approval of this document as soon as all of the pieces are filled in." Id.
The citations
As with a claim for breach of fiduciary duty, the County must demonstrate that Piper owed it some "duty" to render it advice with respect to the Development Agreement, before it can succeed on its claim for negligence or negligent misrepresentation. See Stotts v. Eveleth, 688 N.W.2d 803, 807 (Iowa 2004) (noting that the question of whether a legal duty exists, as required to prove a claim of negligence, is a legal issue for the court to resolve); Sain v. Cedar Rapids Comm. Sch. Dist., 626 N.W.2d 115, 124 (Iowa 2001) ("As with all negligence actions, an essential element of negligent misrepresentation is that the defendant must owe a duty of care to the plaintiff. . . ."); Jensen v. Sattler, 696 N.W.2d 582, 588 (Iowa 2005) ("Absent a special relationship giving rise to a duty of care, a [claimant] cannot establish negligent misrepresentation.").
With respect to the County's claim of negligence, any duty owed by Piper to the County is necessarily "defined by the relationship between the individuals." Sankey v. Richenberger, 456 N.W.2d 206, 209 (Iowa 1990). In determining whether a legal duty exists, the Court is guided by consideration of three factors: 1) the relationship between the parties; 2) the reasonable foreseeability of the harm to the person who is injured; and 3) public policy considerations. See Leonard v. State, 491 N.W.2d 508, 509-12 (Iowa 1992). Iowa courts additionally look to "legislative enactments, prior judicial decisions, and general legal principles as source for the existence of a duty." Van Essen v. McCormick Enter. Co., 599 N.W.2d 716, 718-19 (Iowa 1999). In this case, the primary duty the County alleges Piper owed it is the alleged fiduciary duty discussed above, i.e., that Piper agreed to act as the County's financial advisor and thereby owed it certain duties of disclosure. The County, however, also argues that Piper owes duties to the County as an underwriter. See Piper's Br. at 45. Specifically, the County asserts that Piper was under an obligation to disclose to the County material information that it possessed, because the Iowa Supreme Court "has recognized disclosure duties in transactional relationships that are not strictly fiduciary in nature but involve disparity of knowledge."
The Iowa cases that the County refers to rely on § 551(2)(b) of the Restatement (Second) of Torts, which provides that "[o]ne party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated . . . matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading." In this case, the County contends that Piper had a duty to disclose information in its possession to prevent various information Piper provided from being misleading, such as: 1) Piper's representation that Oswald "only" represented the County; 2) Piper's representations regarding the availability of an LOC, and 3) "facts basic to the transaction." For the same reasons discussed above, in the context of whether Piper and the County had a fiduciary relationship, the Court finds that these inquiries require a weighing of the evidence such that a jury should properly determine whether Piper owed the County any duties.
With respect to the County's claim of negligent misrepresentation, Plaintiff must show that any purported duty arose from a relationship whereby "information is provided by persons in the business or profession of supplying information to others." Sain, 626 N.W.2d at 124 (citing Hendricks v. Great Plains Supply Co., 609 N.W.2d 486, 492 (Iowa 2000)). Thus, in determining whether a duty of care arises in this case, the Court must "distinguish between those transactions where a defendant is in the business or profession of supplying information to others from those transactions that are arm's length and adversarial." Id. (citing Molo Oil Co., 578 N.W.2d at 227). "The facts to support the tort . . . have traditionally arisen only in the context of commercial transactions." Id. at 125.
The Court determines whether Piper was in the business or profession of supplying information to others as a matter of law. Fry v. Mount, 554 N.W.2d 263, 265 (Iowa 1996). In so doing, the Court evaluates several factors: 1) whether there is a "special relationship" between Piper and Union County; 2) whether Piper was acting in an advisory capacity such that it should have been manifestly aware of the use to which Union County would put the information, and whether Piper intended to supply the information for that purpose; 3) whether Piper had a pecuniary interest; and 4) whether Piper supplied information to Union county gratuitously or incident to other more central functions or services. Sain, 626 N.W.2d at 124. Here, Piper is unquestionably an entity that is in the business or profession of supplying information to others and, indeed, offers financial advice amongst one of its many available services. Whether Piper was engaged in a "financial advisory" role or in an pure arm's length "underwriter" role, however, is not a question the Court can resolve as a matter of law at this point in the proceedings, as discussed extensively supra. Thus, to the extent that Union County can convince a jury that Piper undertook a duty to advise it with respect to the Development Agreement, the Court finds Piper was in the business or profession of supplying information to others as a matter of law. If, however, the jury were to conclude that Piper owed no duty, fiduciary or otherwise, and was acting merely as the County's underwriter, then this element of the
The Complaint in this case alleges that, "pursuant to the [December 12, 1996 letter] and their other representations about the nature and scope of the services to be provided to the County, the Piper Defendants contracted to provide the County with certain counseling and underwriting services regarding the issuance of the Notes." Compl. ¶ 56. The Complaint goes on to allege that the Defendant "breached the [December 12, 1996 letter] (and their other representations to the County about the nature of the representation of the County)," that the County "`performed all of its obligations,' and that the County was damaged by Piper's breach of the [December 12, 1996 letter] and other commitments." Id. ¶¶ 57-59. Piper contends that Plaintiff cannot succeed on its claim for breach of contract because there was no contractual relationship between the parties based on either the December 9, 1996 meeting or the December 12, 1996 letter. The County, on the other hand, contends that its breach of contract claim is "straightforward":
Pl.'s Br. at 37-38.
As previously noted, to succeed on its claim for breach of contract, Plaintiff must first demonstrate the existence of a valid contract. See Molo Oil Co., 578 N.W.2d at 224. "It is fundamental that a valid contract must consist of an offer, acceptance, and consideration." Margeson v. Artis, 776 N.W.2d 652, 655 (Iowa 2009) (citing Taggart v. Drake Univ., 549 N.W.2d 796, 800 (Iowa 1996)). The County does not address any of these fundamental requirements for a contract. Nonetheless, it appears from the above language that the County is making two alternative arguments: 1) that a contract was formed at the December 9, 1996 meeting; or 2) that the December 12, 1996 letter is a contract. Both of these arguments fail as a matter of law.
"All contracts must contain mutual assent." Magnusson Agency v. Pub. Entity Nat'l Co.-Midwest, 560 N.W.2d 20, 26 (Iowa 1997) (citing Anderson v. Douglas & Lomason Co., 540 N.W.2d 277, 285 (Iowa 1995)). "This assent is usually given through an offer and acceptance." Id. "An offer is a `manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.'" Id. (quoting Anderson, 540 N.W.2d at 285); see also Heartland Exp., Inc. v. Terry, 631 N.W.2d 260, 268 (Iowa 2001) ("The test for an offer is whether it induces a reasonable belief in the recipient that the recipient can, by accepting, bind the sender." (citations omitted)). The existence of an "offer" must be determined objectively, not subjectively. Id. "[I]f an offer is indefinite, there is not intent to be bound." Anderson, 540 N.W.2d at 286.
With respect to the County's assertion that a contract was formed at the December 9, 1996 meeting, the County's evidence on this issue is simply the following testimony by Board Member King: "I said who do you work for. And he said, you. If you hire me, I work for you.... Mr. Oswald told us that he would be our financial officer, our financial person, that we did not have to worry about any of the financial." Pl.'s App. at 266-268. According to the County, after this exchange, Piper was "[t]hen retained," and he set to work as evidenced by the letter he sent to Ahlers on December 10, 1996. Pl.'s Br. at 38. Neither an offer nor an acceptance is discernible from this exchange. Even if King asking Oswald who he worked for could be deemed an offer, Oswald's response was merely an answer to an inquiry, not an assent to be bound. Likewise, even if Oswald's statement, "If you hire me, I work for you" could be construed as an offer, there is no evidence at all that the County actually accepted it.
With respect to the December 12, 1996 letter, the County also seemingly contends that it is a contract. Again, however, there is no mutual assent discernible on the record. If the December 12, 1996 letter is construed as an offer to provide services (regardless of the nature of those services), the County has not pointed to any evidence that would support a conclusion that the County actually accepted it. While the County argues that "from all County appearances, [Piper] began to perform its engagement by the County," performance by Piper is of no assistance to the County in proving contract formation. That is, if the December 12, 1996 letter is
Union County's claims of negligent misrepresentation and fraud both require it to demonstrate that Union County actually relied to its detriment on Piper's misrepresentations, and that any such reliance was "justifiable." See Pollmann v. Belle Plaine Livestock Auction, Inc., 567 N.W.2d 405, 409-10 (Iowa 1997) ("The tort of negligent misrepresentation requires proof that the plaintiff justifiably relied on the representation made by the defendant."); Midwest Home Distributor, Inc. v. Domco Indus., 585 N.W.2d 735, 743 (Iowa 1998) ("[J]ustifiable reliance is an essential element of fraudulent misrepresentation."). "`Reliance upon [a defendant's representation] is justifiable if a person acting with reasonable and ordinary prudence and caution would have a right to rely on the representations.'" Pollmann, 567 N.W.2d at 410 (quoting Kaiser Agric. Chems. v. Ottumwa Prod. Credit Ass'n, 428 N.W.2d 681, 683 (Iowa Ct.App.1988)). "Reliance is not justified if the person receiving the information knows or in the exercise of ordinary care should know that the information is false." Pollmann, 567 N.W.2d at 410.
"The justifiable-reliance standard does not mean a plaintiff can blindly rely on a representation." Spreitzer v. Hawkeye State Bank, 779 N.W.2d 726, 737 (Iowa 2009) (citing Lockard v. Carson, 287 N.W.2d 871, 878 (Iowa 1980)). "Instead, the standard requires plaintiffs to utilize their abilities to observe the obvious, and the entire context of the transaction is considered to determine if the justifiable-reliance element is met." Id. (citations omitted). Relevant factors in the consideration include:
Id. (quoting Davidson v. Wilson, 973 F.2d 1391, 1400 (8th Cir.1992)). Another relevant consideration is whether the "oral representation clearly contradicts a written agreement. In such instances, reliance on the oral representation by a plaintiff can be utterly unjustified in the face of a clear written contradiction." Id. (citations omitted).
In this case, the Court agrees with Piper that the County's case is extremely weak. There is substantial evidence in the record that much of the information Piper allegedly failed to disclose was accessible to the County Board Members in other ways, whether through local news media, other attorneys involved in the case, or by virtue of the numerous community meetings held on the Development Project generally. Indeed, the overall impression given by
The justifiable reliance standard is not a general "reasonableness" standard. Indeed, for reliance to be justified, it "does not necessarily need to conform to the standard of a reasonably prudent person, but depends on the qualities and characteristics of the particular plaintiff and the specific surrounding circumstances." Spreitzer, 779 N.W.2d at 737. In this case, the County's inexperience and lack of sophistication with regard to financial transactions such as the one in issue, and the fact that Piper unquestionably had access to relevant information while the County's access and knowledge is the subject of fierce debate, weigh in favor of justifiable reliance. Naturally, the fact that the County arguably had access to much of the claimed relevant information would weigh against a finding that any reliance was justified, along with the facts that the parties had no prior relationship and the fact that Piper did not affirmatively "conceal" any information. Consideration of all of the information the parties have put forth, however, about what County knew or should have known requires determinations of credibility and an extensive weighing of the evidence. Ultimately, it will be the jury's task to consider all of this evidence in determining whether the County justifiably relied on Piper to give it advice, and if it did, whether the County was justified in relying on Piper's silence.
Piper contends that Union County's breach of fiduciary duty and negligent misrepresentation claims are barred by the economic loss doctrine.
The Iowa Supreme Court recently held that the doctrine "provides no bar to the recovery of economic losses caused by a negligent misrepresentation." Van Sickle Const. Co. v. Wachovia Commercial Mortgage, Inc., 783 N.W.2d 684, 693 (Iowa 2010) ("We conclude that the purposes of the economic loss doctrine would not be served by applying it to negligent misrepresentation claims."); see also Burns Philp Inc. v. Cox, Kliewer & Co., P.C., No. 4:99-cv-900033, 2000 WL 33361992, at *7
Piper avers that the record does not support a claim for punitive damages because there is no evidence of intentional conduct. To sustain an award of punitive damages, Union County must prove, by "a preponderance of clear, convincing, and satisfactory evidence," that Piper's conduct constituted "willful and wanton disregard for the rights or safety of another." Iowa Code § 668A.1. Iowa law defines willful and wanton conduct as conduct in which "the actor has intentionally done an act of an unreasonable character in disregard of a known or obvious risk that was so great as to make it highly probable that harm would follow, and which thus is usually accompanied by a conscious indifference to the consequences." Fell v. Kewanee Farm Equip. Co., 457 N.W.2d 911, 919 (Iowa 1990).
The Court is extremely dubious that the record in this case would support a claim for punitive damages. Nonetheless, it is the Court's practice at trial to bifurcate any punitive damages claims from the case-in-chief. Accordingly, the Court will make a final determination on whether the evidence warrants submission of Plaintiff's claim for punitive damages at trial.
While the decision is exceedingly close, the Court finds that summary judgment is not appropriate at this juncture with respect to Union County's claims of breach of fiduciary duty, negligence, negligent misrepresentation, or fraudulent misrepresentation. The Court does find, however, that Union County's contract claim fails as a matter of law. Accordingly, for the reasons stated herein, Piper's Motion for Summary Judgment (Clerk's No. 127) is GRANTED IN PART and DENIED IN PART.
Def.'s Facts ¶ 35.
Pl.'s App. at 515-17.
Def.'s Facts ¶ 147.
Pl.'s App. at 543-44 (Oswald Dep.).
There is further significant evidence that at least some of the information the County claims Piper failed to disclose was also in the knowledge of the County's counsel, Ahlers. See In re Land, 215 B.R. 398, 404 (8th Cir. 1997) ("The rule in Iowa is that knowledge acquired by an agent before the commencement of the relationship of principal and agent is imputable to the principal if the knowledge is present in the mind of the agent while acting for the principal in a transaction to which the information is material.") (citing Curran Hydraulic Corp. v. Nat'l-Ben Franklin Ins. Co. of Ill., 261 N.W.2d 822, 826 (Iowa 1978)); see Def.'s Facts ¶ 28 ("The Ahlers Firm, as Issuer's counsel for the IDR issuance, received and reviewed all of the same correspondence, draft disclosure documents, and financial information Piper Jaffray had access to as underwriter of the IDR issuance."); Pl.'s Resp. to Def.'s Facts ¶ 28 (qualifying the asserted fact to note that attorney Kniep, who testified to receiving a copy of the "limited offering memorandum" would only have reviewed it "with any eye toward ensuring that . . . the bonds were not general obligations of the City of Creston"). The precise role of the various attorneys involved in this transaction, however, is disputed. While the County makes every effort to argue that these attorneys had extremely limited roles, Piper contends that they were extremely involved and that it is clear that they were actually advising the County. While Piper may ultimately be correct in its assertion that any "missing" knowledge of the County is actually imputed to the County because the County's attorneys knew about it, the Court is simply not clear on precisely what the lawyers knew, when they knew it, and whether their information was the same or different than what Piper knew, particularly in the context of the entire Development Project.
Piper makes additional argument about the deficiency of the County's misrepresentation claims, raising for the first time in its Reply brief additional, specific argument about their legal sufficiency. See Def.'s Reply Br. at 11-16. The Court declines to address arguments raised for the first time in a Reply Brief. See United States v. Vincent, 167 F.3d 428, 432 (8th Cir.1999) (arguments raised for first time in reply need not be addressed).
