DANIELS v. LLC (2011)

ORDER

After the filing of our opinion in this appeal on December 30, 2010, petitions for rehearing were filed. With the approval of the entire court, the opinion has been amended the filed opinion by making revisions to pages 16 through 20. Additionally, the motion to file an amicus curiae brief is denied.

With this amendment considered, the petition for rehearing is denied. A copy of the revised material is attached.

Copies to:

Honorable Carla T. Schemmel

Polk County Courthouse

5th & Mulberry Streets

LOCAL

Kermit B. Anderson

1900 Hub Tower

699 Walnut Street

Des Moines, IA 50309

Curt Daniels

45805-170th Avenue

Chariton, IA 50049

Robert Hartwig

8800 NW 62d Avenue

Box 6200

Johnston, IA 50131

Paul Andrew McLaughlin

1370 NW 114th Street, Suite 100

Clive, IA 50325

David L. Wetsch

974-73rd Street, Suite 20

Des Moines, IA 50312-9150

Billy J. Mallory

6701 Westown Parkway, Suite 100

West Des Moines, IA 50266

Source Acquisition Lexis-Nexis

8891 Gander Greek Drive

P.O. Box 8809

Dayton, OH 45401

Iowa State Bar Association

625 E. Court Avenue

Des Moines, IA 50309

West Publishing Company

EDITORIAL DEPARTMENT-D3

610 Opperman Drive

P.O. Box 64526

St. Paul, MN 55164-0526

Although the quote in Buter focused on the price reached at the auction, many courts also separately focus on the fairness of the process of a judicial or sheriff's sale. Courts will invalidate judicial sales if “ ‘there was fraud, unfairness or mistake in the conduct of the sale ․ or ․ the price brought at the sale was so grossly inadequate as to shock the conscience of the court.’ “ In re Food Barn Stores, Inc., 107 F.3d 558, 564 (8th Cir.1997) (emphasis added) (quoting In re Stanley Eng'g Corp., 164 F.2d 316, 318 (3d Cir.1947)). In re Chung King, Inc., 753 F.2d 547, 550-51 (7th Cir.1985), the Seventh Circuit Court of Appeals considered whether a bankruptcy court properly set aside the sale of a debtor's property. The court separately addressed whether the sale could be set aside for either (1) a grossly inadequate sales price or (2) “the basis of compelling equities arising out of fraud, mistake or a like infirmity.' “ Chung King, 753 F.2d at 550-51 (quoting In re Webcor, Inc., 392 F.2d 893, 899 (7th Cir.1968)). There the court found fraud, mistake, or a like infirmity could be the basis to set aside a sale. Id. at 551.

In this context, courts also provide, a sheriff's sale cannot be set aside for irregularity, unfairness, or fraud without a demonstration of prejudice. See Goldberg v. Frick Elec. Co., 770 A.2d 182, 194 (Md.2001) (“[Our sister states] have found that [sheriff's or judicial] sales may be set aside when, there has been some form of misrepresentation or mistake, creating a prejudicial effect.” (Emphasis added)); cf. Farmers Sav. Bank v. Gerhart, 372 N.W.2d 238, 244 (Iowa 1985) (holding in the context of mistake of law or fact, that “relief should be granted only when enforcement of the sale would impose an oppressive burden on the party seeking vacation”).

Therefore, we believe a price obtained at a sheriff's sale that is so grossly inadequate as to amount to unfairness or oppression is not the only basis for a court to set aside the sale. Accordingly, we hold that even without a grossly inadequate price, a court may set aside a sheriff's sale for irregularity, unfairness, or fraud causing a prejudicial effect on the sale.

Daniels contends there was fraud or unfairness in the sheriff's sale because Holtz discouraged Branstad from bidding above $110,000 by claiming there were numerous problems with the stock and by falsely offering to become business partners with Branstad. Branstad testified in a deposition that Holtz told him:

[T]his farm is not going to have a clear title, there is no way it's going to be cleaned up, the title. The shares are convoluted, is what he called it. And that there could be as much as a million dollar lien on it, and that the books had been-he said suspiciously disappeared beforehand.

Branstad testified he didn't think Holtz “could have tried much harder to discourage than what he said. He was as negative as he possibly could [be] on all aspects of the farm.”

Branstad asked for a recess in the bidding at $110,000 because “it made [him] apprehensive or nervous that Mr. Holtz kept saying that this thing has got so many things wrong with it that you don't want to touch it.” Branstad testified that during the recess, Holtz approached him and asked how high he intended to bid, and how much it would cost for Branstad not to bid anymore. Branstad testified that he told Holtz he believed it would be illegal to accept payment in exchange for ceasing to bid, and Holtz said he wasn't offering to do so, he was just asking. Branstad said he would only stop bidding when he ended up owning the farm and Holtz then offered to partner with him. After the sale, Branstad met up with Holtz, and Holtz told him they had broken the law, could not be partners on the corporation, and refused to talk to Branstad any further about the partnership agreement.

Daniels argues Holtz's behavior raises a question of fact regarding whether there was fraud or unfairness in the bidding process that requires the sale to be set aside. A number of courts have held interference with the competitive nature of the bid may require vacation of a judicial sale. As the United States Supreme Court explained,

it is quite uniformly the rule in this country, as in England, that while equity will not set aside a sale for mere inadequacy of price, it will do so if the inadequacy is so great as to shock the conscience or if there are additional circumstances against its fairness, such as chilled bidding.

Gelfert v. Nat'l City Bank of N.Y., 313 U.S. 221, 232, 61 S.Ct. 898, 902, 85 L.Ed. 1299, 1303 (1941) (emphasis added).

In Cocks v. Izard, 74 U.S. 559, 56162, 19 L.Ed. 275, 276 (1868), the United States Supreme Court set aside a judicial sale where a tenant falsely claimed to be bidding on the landlord's behalf and was able to convince others not to bid based on this misrepresentation. The court stated:

The law will not tolerate any influences likely to prevent competition at a judicial sale, and it accords to every debtor the chance for a fair sale and full price; and if he fails to get these, in consequence of the wrongful interference of another party, who has purchased his property, at a price greatly disproportioned to its value, equity will step in and afford redress, either by setting aside the proceedings under the sale, or by holding the purchaser to account.

Cocks, 74 U.S. at 562, 19 L.Ed. at 276.

Mere discussions between bidders or agreements to become partners at a judicial sale are not per se wrongful. Magic City Amusement Co. v. Hastings, 116 R2d 709, 711 (Okla.1941). Bidders are allowed to “make a purchase for their common benefit.” Venner v. Denver Union Water Co., 90 P. 623, 632 (Colo.1907). However, a fraudulent offer of partnership could be considered an attempt to avoid competition and depress the price of the property to be sold. See Venner, 90 P. at 632-33 (“The fact that an agreement to make a joint purchase may indirectly operate to prevent the parties thereto from bidding is not enough to render the transaction unlawful. To have that effect it must appear that the object of the agreement was to avoid competition.”).

Holtz argues Daniels has not raised a genuine issue of material fact regarding fraud, irregularity, or unfairness. He points to Buter, in which this court did not find evidence of fraud or irregularity in a sheriff's sale. Buter, 212 Iowa at 679-80, 237 N.W. at 233. In Buter, however, the plaintiff alleged fraud and collusion between the trustees of the bank and the purchaser in a conclusory fashion. Id. Here, Daniels has presented admissible evidence that a bidder, Branstad, was discouraged from bidding higher based on statements by Holtz regarding problems with the stock and a false offer to become partners. Branstad testified he was concerned about potential tax issues, but that he had no intention of selling the farm if he successfully bought the ICC stock, therefore deferring the tax liability.

Although the bidding resulted in a sale price higher than the Sims appraisal, Daniels has raised a genuine issue of material fact regarding whether the sale was tainted by Holtz's interference and whether Daniels was prejudiced by Holtz's actions. On remand, the fact finder must first find whether there was irregularity, unfairness, or fraud in the sheriff's sale because of Holtz's conduct with Branstad, and if there was, whether the irregularity, unfairness, or fraud caused the corporation to be sold at a lower price. Whether the interference rises to a level necessary to invalidate the sale is a question of fact for the fact finder, which may be influenced by the behavior of Holtz at the sale, whether Holtz truly intended to partner with Branstad, Branstad's willingness to bid higher than $110,000, and whether there was any inequity in the price for which the ICC stock actually sold. See Nat'l Oil & Gas, Inc. v. Gingrich, 716 N.E.2d 491, 496 (Ind.Ct.App.1999) (“In determining whether to set aside a [sheriff's] sale, the trial court will take all relevant circumstances into consideration, including the inadequacy of the price, the effect of any procedural irregularities, inequitable conduct, evidence of mistake or misapprehension, and problems with title.”).

Although the sale was above the appraisal submitted by Sims and agreed to by Shelton and Henrichsen, the evidence presented by Daniels creates a genuine issue of material fact as to whether this particular auction would have resulted in a higher sale price because Branstad was willing to bid higher but was unfairly induced not to bid by a false offer of partnership from Holtz. The appraisals are not the final word on the fair market price of ICC, but an effort to “prevent property going for a song at judicial sales.” See Gelfert, 313 U.S. at 232, 61 S.Ct. at 902, 85 L.Ed. at 1303. If an auction bidder was willing to bid higher and was unfairly discouraged, the fair market value of ICC may have been higher. The price on its face is not grossly inadequate compared to the appraisals, but the question is whether Holtz's improper behavior resulted in a sale price which was unfair compared to what it would have been had Holtz refrained from his alleged interference with Branstad.

C. Motion to Amend Petition. Daniels filed a motion to amend his petition. The proposed amendment includes claims under Iowa Code section 602.10113 for deception and collusion against Nervig and the Brick Law Firm for alleged collusion with Holtz's actions at the sheriff's sale. Daniels also seeks to add a cause of action against Nervig for deception under section 602.10113 for allowing Holtz to falsely testify during the WSH trial. Lastly, Daniels seeks to add claims against Nervig and the Brick Law Firm under the disciplinary rules in the Iowa Code of Professional Responsibility. The district court summarily denied the motion to amend.

Iowa Rule of Civil Procedure 1.402(4) provides:

A party may amend a pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is required and the action has not been placed upon the trial calendar, the party may so amend it at any time within 20 days after it is served. Otherwise, a party may amend a pleading only by leave of court or by written consent of the adverse party. Leave to amend, including leave to amend to conform to the proof, shall be freely given when justice so requires.

Daniels originally filed his petition on February 26, 2007. Defendants responded to the petition by filing motions for partial summary judgment on April 16. On August 10, Daniels filed a motion to amend his petition. Because the motion to amend was filed after the summary judgment motions and more than twenty days after the petition was filed, Daniels requested leave of the district court to amend his petition. The district court denied the motion, finding “no factual support for any of these claims” and that “they fail as a matter of law and fact.”

We reverse a district court's denial of a motion to amend only when a clear abuse of discretion is shown. M-Z Enters., 318 N.W .2d at 411. Nervig and the Brick Law Firm argue the district court did not abuse its discretion in denying the motion to amend with regard to the remaining claims because the factual and legal bases for these additional claims were the same as those contained in the original petition. Therefore, by granting summary judgment to defendants, it was also proper to deny the motion to amend as based on the same flawed arguments.

Daniels has not appealed the district court's grant of summary judgment with regard to the claims related to the previous WSH trial. Proposed cause of action number twenty-two is based on this previous trial. Because the factual underpinnings were dismissed on summary judgment by the district court, we agree the denial of the motion to amend with respect to count twenty-two was not an abuse of discretion.

Counts nineteen, twenty, and twenty-one all allege deception or collusion under Iowa Code section 602.10113. Counts nineteen and twenty are asserted against Nervig and count twenty-one is asserted against the Brick Law Firm, Nervig's law firm. The district court did not abuse its discretion in denying the motion to amend with regard to counts nineteen, twenty, and twenty-one. Daniels appears to base his claims of collusion against Nervig and the Brick Law Firm on Nervig's presence at the sheriff's sale. The complaint, in a conclusory fashion, asserts Nervig knew or had reason to know about Holtz's action. Nervig, however, is not alleged to have gone into the backroom for the discussion between Holtz and Branstad. The district court denied the motion to amend because it found no factual support for the allegations. The district court did not abuse its discretion.

The district court also did not abuse its discretion in denying the motion to amend with respect to counts twenty-three through twenty-seven, all of which assert claims against Nervig and the Brick Law Firm based on alleged violations of the Iowa Code of Professional Responsibility for Lawyers. It is well-established that attorney disciplinary rules do not create a basis for civil liability. Brody v. Ruby, 267 N.W.2d 902, 907-08 (Iowa 1978) (“We hold the Iowa Code of Professional Responsibility for Lawyers furnishes no basis for a private cause of action for negligence ․”); see also Iowa R. Prof'l Conduct 32, pmbl., (“Violation of a rule should not itself give rise to a cause of action against a lawyer nor should it create any presumption in such a case that a legal duty has been breached.”).

IV. Conclusion.

Daniels failed to raise a genuine issue of material fact regarding whether the sheriff's sale should be set aside because his corporation, ICC, failed to receive a just appraisement. Daniels did, however, raise an issue of material fact regarding whether Holtz's actions at the sale chilled the bidding and unfairly or fraudulently caused another bidder to cease bidding and, therefore, may require a court of equity to set aside the sale. We remand for trial on this issue. The district court did not abuse its discretion in denying Daniels's motion to amend the petition.

DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED IN PART; REVERSED IN PART; CASE REMANDED.

MARK S. CADY, Chief Justice.