First Am. Bank v. Fobian Farms, Inc.

906 N.W.2d 736

FIRST AMERICAN BANK and C.J. Land, L.L.C., Appellees,

v.FOBIAN FARMS, INC. ; Hoover Highway Business Park, Inc.; and Gateway, Ltd., Appellants.

No. 16-0624

Supreme Court of Iowa.

Filed January 26, 2018

Gregg A. Geerdes, Iowa City, for appellants.

Mark A. Roberts, Lynn W. Hartman, and Dawn M. Gibson of Simmons Perrine Moyer Bergman P.L.C., Cedar Rapids, for appellees.

WATERMAN, Justice.

In this case, we must determine whether the district court abused its discretion by awarding attorney fees and expenses of $145,427 as a sanction for frivolous court filings in violation of Iowa Rule of Civil Procedure 1.413. The court of appeals affirmed the sanction award after the district court made more specific factual findings on remand following that appellate court's first decision affirming in part the rulings in a quiet-title action. The sanctioned parties took unfair advantage of a scrivener's error platting a commercial development. The opposing parties largely prevailed in protracted litigation to reform the title documents and incurred substantial legal fees opposing frivolous claims and defenses asserted by the sanctioned parties. The prior proceedings resolved the underlying boundary disputes and established that the sanctioned parties violated rule 1.413. All parties agree at this late stage that a sanction in some amount is warranted; we granted the sanctioned parties' application for further review to decide whether the amount awarded was excessive. All parties request that our court determine the final amount of the sanction rather than remanding the case to the district court for a third determination and possible new appeal.

For the reasons explained below, we hold the district court abused its discretion by awarding attorney fees beyond those caused by the violations of rule 1.413 or necessary to deter similar misconduct and by relying on a letter the sanctioned party's president sent to our court after we denied further review of the first appellate decision. We determine that the appropriate sanction is $30,000. We vacate the decision of the court of appeals and modify the district court's sanction award accordingly.

I. Background Facts and Proceedings.

The underlying quiet-title litigation involves a real estate development in Johnson County known as the Gateway Commercial Condominiums. Jerry L. Eyman was president of Gateway, Ltd. (Gateway), the developer. In the original 1999 plat, two units were oriented in an east–west configuration, with unit 2A west of unit 2B. The 1999 plat was amended in 2007 to provide for a north–south configuration of building 2. While the units in all other buildings in the development were aligned alphabetically from north to south, the units of building 2 through a scrivener's error were mistakenly aligned with unit 2A south of unit 2B.

Carl Fobian, president of Fobian Farms, Inc., saw an opportunity. Left uncorrected, the scrivener's error could and did lead to the construction of a building on a site subject to Fobian's mortgage. Fobian had previously extended loans to Eyman and Gateway secured by a mortgage on unsold buildings. Fobian recorded the mortgage on May 16, 2007. Fobian's mortgage was junior to two previously recorded mortgages held by Hills Bank and Trust Company (Hills Bank). In June 2008, Eyman asked Fobian to sign a partial release so C.J. Land, L.L.C. could buy a unit. When Carl Fobian signed the partial release on June 17, 2008, he knew C.J. Land intended to purchase the site to build a restaurant. The partial release, which released unit 2B from the second mortgage, referenced the 1999 plat—not the 2007 plat.

Later that month, C.J. Land recorded a warranty deed from Gateway. First American Bank financed the purchase. C.J. Land specifically negotiated for the southern lot for highway access, yet the deed stated it was for unit 2B, which was identified as the north lot in the 2007 plat. The deed, however, referenced the legal description from the 1999 plat, which showed 2B as the east unit. Both C.J. Land and Eyman believed C.J. Land purchased the south unit of building 2. C.J. Land hired Eyman as the general contractor to build the restaurant there. The restaurant was built one foot over the property line, and a meat smoker and air conditioning units were placed over the line. The restaurant, which cost approximately $1.1 million to construct, was substantially completed by July 31, 2009.

Gateway defaulted on the mortgages secured by the unsold units in the development. Hills Bank commenced a foreclosure action, naming Fobian Farms as a defendant due to its junior mortgage. Fobian Farms purchased the bank's interest and prosecuted the foreclosure action. On July 6, 2010, Fobian Farms through a credit bid purchased the sheriff's deed to the unsold property in the development. The sheriff's deed referenced the 1999 plat without referring to the 2007 plat.

On July 20, Fobian Farms and C.J. Land entered into a lease agreement allowing C.J. Land to use an unsold lot for overflow parking. In return, C.J. Land agreed to maintain and insure the parking lot. Carl Fobian kept quiet about the scrivener's error or his plan to claim ownership of the restaurant site.

One week later, Fobian Farms' attorney sent C.J. Land's attorney a letter stating that Fobian Farms owned the south lot on which the restaurant was built. This was the first time C.J. Land learned of the dispute. Eyman later testified he became aware of the scrivener's error—in which units 2A and 2B were "flipped"—only when Carl Fobian told him in late July.

On July 30, the land surveyors who had prepared and filed the 2007 plat filed an affidavit acknowledging the scrivener's error, explaining, "[T]he north unit of building 2 should be 2 A not 2 B; the south unit of building 2 should be 2 B not 2 A." After the correction of the scrivener's error, First American Bank contacted Fobian Farms to resolve the title defect, but Fobian Farms refused to cooperate.

The next year, Fobian Farms sued the surveyors for disparagement or slander of title challenging the corrective affidavit the surveyors had filed. In September 2011, the surveyors responded to the lawsuit by filing an "explanatory and corrective surveyors' affidavit" to "withdraw, negate, and void the [original] Affidavit ... and return the Unit numbering to the state in which it existed prior to execution and recording of that Affidavit." Based on the surveyors' capitulation, Fobian Farms dismissed its lawsuit against them.

On March 7, 2012, First American Bank and C.J. Land filed this civil action to quiet title and reform the mortgage and deeds, naming as defendants Fobian Farms; Hoover Highway Business Park, Inc. (Hoover);¹ Gateway and Gateway Properties, Ltd.; Gateway Commercial Condominium Owners Association; Jerry Eyman; and Jan Eyman. Fobian Farms filed a counterclaim against C.J. Land alleging interference with a prospective business advantage by building upon land it did not own. Fobian Farms also filed a cross-claim against Jerry Eyman asserting negligent misrepresentation, a cross-claim against Gateway Commercial Condominiums Owners Association alleging interference with a prospective business advantage, and a third-party claim against Hills Bank alleging negligent misrepresentation. C.J. Land and Hills Bank filed motions for summary judgment and for sanctions against the defendants. On January 24, 2013, the district court granted summary judgment dismissing Fobian Farms' counterclaim against C.J. Land and the third-party claim against Hills Bank.

A three-day bench trial commenced on February 5 on the remaining claims. Eyman testified that he intended to sell the south unit to C.J. Land and believed he had done so because he did not realize the amended plat incorrectly labeled unit 2B as the north unit. C.J. Land's president similarly testified that he intended to purchase the south unit and had "no doubt" he had done so when he purchased unit 2B. Eyman also testified that Fobian approached him in June 2011 with Fobian's strategy for obtaining the building on the restaurant site. Fobian indicated that he would forgive a large part of Eyman's debt if Eyman cooperated, but Eyman refused.

Fobian's attorney, James Keele, testified that he and Carl Fobian discovered C.J. Land had built the restaurant before Fobian Farms purchased the mortgages from Hills Bank and completed the sheriff's sale. Keele also testified that he did not inspect the property, explaining that neither he nor Fobian were concerned that someone else had an ownership interest in the property. Fobian testified that he saw C.J. Land constructing the restaurant on the wrong site but said nothing because "[i]t was not [his] business. If they wanted to improve [his] equity, that was none of [his] business."² When asked if he would "ever have taken the place of the first mortgag[ee] if that building wasn't on [his] land," Fobian replied, "Absolutely not."

In a posttrial brief filed in March, First American Bank and C.J. Land requested costs and attorney fees under Iowa Code sections 649.4 and 649.5, without citing Iowa Rule of Civil Procedure 1.413.

On August 28, the district court issued its ruling. The district court found that Eyman had credibly testified about his intention to sell the south unit of building 2, that the surveyors had inadvertently switched the numbering of building 2A and 2B on the 2007 plat, and that Eyman and C.J. Land were unaware of the scrivener's error at the time of the sale. The court also specifically found the testimony of Fobian's attorney, Keele, not credible. The district court quieted title in favor of C.J. Land, subject to First American Bank's mortgage, and ordered reformation of related legal instruments. The district court awarded Fobian Farms $2101 in damages for encroachments by C.J. Land's building.

The district court ordered First American Bank and C.J. Land to "submit a written request specifying the amount of costs and attorney fees they...