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Defendant's Attorney: Peter R. Lapointe, Kevin J. Driscoll and Andrew T. Patton

Description: Waterloo, Iowa civil litigation lawyers represented Plaintiff, which sued Defendant on court imposed sanction matter.


Dutton, Daniels, Hines, Kalkhoff, Cook & Swanson, P.L.C. (law firm) seeks certiorari review of a district court order imposing monetary sanctions. We find the district court did not abuse its discretion in concluding a sanction was appropriate. But we do not agree with all of the grounds on which the district court based its decision to sanction. So we remand with instructions to reconsider the amount of the sanction.

I. Background Facts and Prior Proceedings

This case arises from the law firm's representation of Tracy Even. Even always had an interest in the mini-storage business. So he kept an eye on a property near his house that he thought would be a good location to build storage units. On June 16, 2017, Even entered a purchase agreement to buy the property for $68,000. The purchase agreement said Even was buying the property "SUBJECT . . . TO EXISTING EASEMENTS, IF ANY." The agreement also said that

[a]t the time of the final payment hereunder, the [s]eller shall convey the premises to the [b]uyer by warranty deed and shall furnish the [b]uyer an abstract of title . . . . Within a reasonable time after the execution of this agreement, such abstract . . . shall be submitted to the [b]uyer for examination. Buyer or [b]uyer's attorney shall either approve the title or point out specific objections. After all valid objections have been satisfied or provided for, [s]eller shall have no obligation to pay for further abstracting excepting any made necessary by his own affairs.

Two days later, on June 18, the sellers signed the purchase agreement. The sellers then contacted Title Services Company, Inc. (TSC). The sellers asked TSC to prepare an updated abstract for the property and send it to attorney Eric

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Johnson. Johnson was representing Even for purposes of the purchase of the property.[1]

Johnson received TSC's abstract on June 28. The abstract showed no easements on the property. Johnson then prepared a title opinion based on TSC's abstract. Like the abstract, Johnson's title opinion showed there were no easements on the property. Johnson provided the title opinion to Even on June 28.

A couple weeks later, the sale closed. On July 13, Even paid the agreed-upon purchase price of $68,000. On July 14, the sellers conveyed the property to Even and his wife.

On August 22-more than a month after the sale closed-Even formed All Purpose Storage, LLC (APS) for the purpose of operating a mini-storage business on the property. The certificate of organization identified Even as the only initial member of APS.

As Even prepared to begin building the mini-storage units, he discovered that there was a sewer easement on the property. This was confirmed in a May 2018 letter from Black Hawk County Abstract & Title. The letter explained that the sewer easement-which had not been identified in TSC's abstract-was granted in 1980.

Even after he learned of the easement, though, Even did not consider selling the property and building elsewhere because he still liked the location.

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Instead, Even began construction of storage units on the property. The first units were constructed in the late summer and early fall of 2018.

That October, Even and his spouse transferred the property to APS via quitclaim deed. APS leases the storage units to tenants.

In December 2019, Even brought a negligence suit against TSC based on its failure to identify the easement in its abstract. The law firm at issue in this case represented Even in his negligence suit against TSC. Two of the law firm's members were named on Even's petition and his subsequent filings. One of the law firm's members signed Even's petition. The first paragraph of the petition stated that Even "is the owner of" the property. The petition requested "compensatory damages for the loss of the use of his property."

On or about January 9, 2020, the petition was served on TSC. On February 14, TSC's counsel emailed a letter to the law firm. The letter warned that Even's petition "violates the provisions of Iowa Rule of Civil Procedure 1.413(1) because," among other things, "it is not well grounded in fact." As one particular, the letter noted, "Tracy Even is not the owner of the property, but instead the current owner is All Purpose Storage, LLC."

On February 17, TSC filed its answer. On February 18, Even filed a "Motion for Joinder of Party Plaintiff." The motion asked permission to join "All Purpose Storage, LLC" as a plaintiff. The motion explained: "Tracy Even and wife Anne are the owners of All Purpose Storage, LLC and have an interest in the action against the Defendant." On February 19, the court entered an order granting the motion. No amended petition was filed.

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On November 10, TSC's counsel took Even's deposition. For reasons that will be explained, the following excerpt from Even's testimony is significant here:

Q. Let me ask you this: If you'd have known about the easement before you bought it, would you still have bought it anyway? A. Circumstances would have had to change.

Q. Tell me what you mean by that. A. Prices.

Q. Which prices? Price of the property?

A. Yes.

Q. I don't want to put words in your mouth. You tell me what you mean by that.

A. I would have never paid 68,000 for it.

Q. You would have paid less.

A. Yes.

Q. And so lawyers like to summarize. If you knew there was an easement before you bought it, you still would have been interested in buying it but not for what they were asking.

A. Yes.

Q. Because this was the desired location and the part of town that you thought was best suited for what you wanted to do with the mini-storage units.

A. Yes.

Q. Mr. Even, we were talking earlier about the fact that you would have still bought the property even if you knew of the easement, but you wouldn't have paid what you did for it. Do you have in mind what you would have been willing to pay if you knew the easement was there?

A. No, I don't. I would have obviously sat down with my wife and discussed it.

In December, the law firm designated experts on behalf of Even and APS. One of those experts was Steven Duggan, a certified public accountant. Duggan provided the law firm with a report dated February 16, 2021. It began by stating: "We have been retained by your firm as an expert witness on behalf of plaintiff Tracy Even . . . . In my role as expert witness, I have been asked to provide an estimate of the lost revenue suffered by the plaintiff as a result of the alleged negligence of the defendant." More specifically, Duggan had calculated the profits that could have been reaped by renting additional storage units that could have been built on the property if the sewer easement didn't exist. All told, the report stated, "[t]he total estimated present value of the plaintiff's loss is $476,077 over a 39-year period."

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On February 19, TSC moved for summary judgment. Among other things, TSC argued that-because Even did not own the property-Even could not recover lost profits from inability to use the property. TSC also noted that, in his deposition, Even "admit[ted] he would have purchased the [p]roperty, even if he were aware of the [e]asement."

On March 8, the law firm filed a resistance to TSC's summary judgment motion. In support of the resistance, the law firm filed Duggan's report. In its brief, the law firm claimed Duggan's report was a calculation of Even's damages. The law firm argued that Even's transfer of the property to APS did not prevent him from recovering those damages because "Even is entitled to receive distributions" from APS, which the law firm referred to as "his LLC."

On May 11, the district court entered an order granting TSC's motion. On May 25, plaintiffs filed a notice of appeal. That appeal is addressed in a separate opinion that will be filed today. See Even v. Title Services Corp., No. 21-0727, 2022 WL ____ (Iowa Ct. App. June 29, 2022).

On June 14, TSC filed a motion for attorney fees and expenses. TSC alleged that several of the law firm's filings had violated Iowa Rule of Civil Procedure 1.413(1). Among other things, TSC noted (1) the petition improperly identified Even as the owner of the property; (2) Duggan's report improperly identified Even as the owner of the property; and (3) plaintiffs' summary judgment resistance both improperly claimed "Even could recover lost profits as a member of" APS and improperly claimed Even could establish causation even after "Even testified he would have purchased the property even if he had known of the easement."

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The law firm filed a resistance to TSC's motion. They claimed no violations had occurred and, in any event, TSC's motion was untimely.

On September 1, the district court entered an order on TSC's motion. The court found the motion was timely. The court also found that the law firm violated rule 1.413 by (1) filing the petition; (2) resisting TSC's summary judgment motion; and (3) as one particular, filing Duggan's report in support of the resistance to TSC's summary judgment motion. Here are some of the court's findings concerning the petition:

Defendant alleges that plaintiffs' petition was not well grounded in fact because it stated that Mr. Even owned the property in question, when in fact, [APS] owned it. Had plaintiffs' attorneys conducted even slight inquiry they would have known that Mr. Even did not own the property. As the first filing party, plaintiffs' attorneys had plenty of time and ability to inquire, the issue of legal ownership is not complex, the information was known by Mr. Even, the property had been owned by [APS] for two years before the filing, and even if Mr. Even poorly described the property's ownership, plaintiffs' attorneys needed not rely solely on Mr. Even for this information. Therefore, the petition was, at least partially, not well grounded in fact.

The court also found that-in light of Even's deposition testimony as to how he would have proceeded if he had known of the easement before purchasing the property-the law firm violated rule 1.413 by filing Duggan's report in resistance to summary judgment. Here are some of the court's relevant findings:

[C]ertifying a document that states Mr. Even himself has a plausible negligence claim, after the depositions were taken in which Mr. Even admits he would have purchased the property even if he'd known about the easement, is not well grounded in law, nor does it make a good faith argument for the extension, modification, or reversal of existing law. Therefore, certifying this expert report was not an act well grounded in existing law, and as such violates rule 1.413.

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Along similar lines, the court also found plaintiffs' summary judgment resistance violated rule 1.413 by asserting that Even had a plausible claim that TSC's negligence caused damage to Even. The court explained:

Defendant states that there is no viable legal argument on causation because Mr. Even admitted in his deposition that he would have purchased the property even if he had known about the easement. In the order granting summary judgment, the court stated that it is clear that defendant's negligence in failing to find or disclose the easement was not the cause of plaintiffs' damages because of Mr. Even's admission.

While claims against abstractors for similar omissions have been recognized by Iowa courts, it has shown essential that the plaintiff reasonably relied on the abstract.

Although Mr. Even states he relied on the abstract, it does not follow that he did so. Plaintiffs' claim is that the absence of the easement on the abstract caused damages, however Mr. Even's admission that he would have bought it anyway logically shows that if the abstract had shown the easement, it would not have changed the outcome. Because violations of rule 1.413 are judged at the time of filing, anything plaintiffs filed after the deposition of Mr. Even that asserted a claim that defendant acted negligently with respect to Mr. Even himself was not well grounded in basic negligence law. Therefore, plaintiffs' resistance, and the certification of Mr. Duggan's report, are violations of [rule] 1.413.

(Internal citations omitted.)

The court also found that plaintiffs' summary judgment resistance violated rule 1.413 by asserting that-although Even had transferred the property to APS- Even could still recover lost profits. The court explained:

Defendant claims there is no viable legal argument that Mr. Even is eligible to recover lost profits pursuant to his being a member of [APS]. Plaintiffs state that, as a member of the corporation, Mr. Even is entitled to receive distributions; therefore, he should be entitled to recover lost profits even though he does not own the property. The motion for summary judgment noted that where an individual conveys their entire interest in a real estate parcel to an LLC in which it is a member it does not retain any rights in that property. Therefore, Mr. Even cannot claim lost profits based on inability to use the property that he does not own or lease.

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Additionally, while an LLC may distribute profits to its members, it is not obligated to do so. Any profits, for example, may be fully reinvested into the LLC. Simply because Mr. Even may be highly likely, as a managing member of the LLC, to distribute profits to himself, does not mean he is "entitled" to said expected profits. Plaintiffs do not argue that they are pursuing an extension or modification of partnership law in asserting this claim. It seems that through reasonable inquiry plaintiffs would have chosen not to pursue this argument because it is not well grounded in existing law, and as such, violates rule 1.413.

The court summarized its findings as follows:

In reviewing the reading, inquiry, and purpose duties, the plaintiffs have violated rule 1.413 by filing their petition with a basic and relevant factual inaccuracy, certifying and filing the Mr. Duggan's expert report, which states Mr. Even himself, has a plausible negligence claim, and by including in their [summary judgment] resistance a claim that Mr. Even himself had a plausible negligence claim. Having concluded that plaintiffs' attorneys violated rule 1.413, sanctions must be imposed. Iowa R. Civ. P. 1.413.

Next the court considered what specific sanction would be appropriate.

After a detailed analysis, the court concluded the law firm should be sanctioned $10,000.

The law firm then filed a petition for certiorari review. Our supreme court granted the writ and transferred the case to our court.

II. Standard of Review

"We review a district court's decision on whether to impose sanctions for an abuse of discretion." Barnhill v. Iowa Dist. Ct., 765 N.W.2d 267, 272 (Iowa 2009). Even so, "we will correct erroneous application of the law." Id. "The district court's findings of fact, however, are binding on us if supported by substantial evidence." Id.
Dutton, Daniels, Hines, Kalkhoff, Cook & Swanson, P.L.C. v. Iowa District Court for Black Hawk Cnty. (Iowa App. 2022)

Outcome: WRIT SUSTAINED AND CASE REMANDED.

Plaintiff's Experts:

Defendant's Experts:

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