James DeJong, SR v. Sioux Center ( 1999 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
Nos. 97-3900/97-4015
___________
James DeJong, Sr.; James DeJong, Jr.; *
*
Appellees/Cross-Appellants. *
*
v. *
* Appeals from the United States
Sioux Center, Iowa; * District Court for the Northern
* District of Iowa.
Appellants/Cross-Appellees, *
*
*
Cotter & Company, *
*
Objector. ___________
Submitted: November 17, 1998
Filed: February 24, 1999
___________
Before BEAM and LAY, Circuit Judges, and SIPPEL,1 District Judge.
___________
BEAM, Circuit Judge.
James DeJong, Sr. and his son, James DeJong, Jr., leased space and opened a
hardware store in a new city-owned shopping center. Although the DeJongs opened
their store, the rest of the shopping center remained under construction for the next
1
The Honorable Rodney W. Sippel, United States District Judge for the Eastern
and Western Districts of Missouri, sitting by designation.
eight months, resulting in low customer traffic and low sales. The DeJongs lost
money and had to close the store. They subsequently sued the city of Sioux Center
(the City) for their losses. A jury awarded damages for breach of contract and
promissory estoppel. The district court2 granted judgment as a matter of law to the
City on the promissory estoppel claim, but not on the contract claim. The City
appeals, claiming that the district court erred in denying its motion for judgment as
a matter of law on the contract claim, and the DeJongs cross appeal the court's ruling
on the promissory estoppel claim. We affirm.
I. BACKGROUND
We relate the facts in a light most favorable to the jury verdict. See Norton v.
Caremark, Inc., 20 F.3d 330, 334 (8th Cir. 1994). James DeJong, Sr. (James Sr.) had
worked in the real estate industry in Lansing, Illinois, for twenty-seven years. His
son, James DeJong, Jr. (James Jr.) worked in a hardware store throughout high
school, earned a degree in business administration at Dordt College in Sioux Center,
Iowa, then joined his father in the real estate business. In late 1989, the DeJongs
began to explore the possibility of owning and operating a hardware store. They
learned that the DeRuyter hardware store in Sioux Center was for sale. The DeRuyter
building was scheduled to be torn down to make room for the parking area of a new
mall planned by the City3 and Mr. DeRuyter was going to retire. The DeJongs
offered to buy DeRuyter's inventory and hire his store manager when the business
closed.
2
The Honorable Paul A. Zoss, United States Magistrate Judge for the Northern
District of Iowa, presiding pursuant to the parties' consent. See 28 U.S.C. §
636(c)(1).
3
The City of Sioux Center is not only the owner of the mall, but was the general
contractor for the project as well.
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In 1990, the DeJongs held discussions with the City and the realty company
hired to market and negotiate leases for the new mall. They also contacted Cotter &
Company, the company that controls the use of the True Value Hardware name.4 Stan
Steinert, the regional retail support representative for True Value, evaluated the
market in Sioux Center and determined that it would be suitable for a store. He
prepared several reports, essentially projected budgets and business plans. These
business plans indicated that the DeJongs could expect gross sales of $375,000 in
their first year. The plans also indicated the DeJongs would lose approximately
$12,000 the first year of operations, less than $700 the second year, and operate in the
black from that point on.
As the negotiations between the DeJongs, assisted by True Value, and the City
continued, the DeJongs were given a promotional pamphlet stating that the mall
would open in the spring of 1991. The DeJongs were also told that the opening date
had been set for July 1991. The City sent a lease to the DeJongs and to True Value
for their review on behalf of the DeJongs.
In November 1990, the DeJongs learned that DeRuyter had decided not to close
his hardware store and sell the inventory to them, but instead sold the business as a
going concern to the local Co-op which planned to move the store to a different
location and continue operating the hardware business. Because this would result in
more competition than they had initially anticipated, the DeJongs decided to call off
the deal. On November 21, the mayor of Sioux Center called James Sr. in an effort
to get the DeJongs to reconsider. He stated that there was a significant loyalty to
downtown merchants, and that the DeJongs should not be concerned about
competition from the Co-op, which was on the "wrong side of the tracks." The mayor
4
Although the ownership of True Value is similar to a co-op arrangement, the
day-to-day relationship between True Value and individual store owners is essentially
that of franchiser and franchisee.
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further stated that the DeRuyter store's sales had been $575,000 in 1988, and that the
True Value business plans projecting sales of $375,000 were far too conservative,
even with competition from the Co-op. In December, four representatives from the
City flew to Lansing to visit the DeJongs at the home of James Sr. They echoed the
mayor's statements and belief that, if the DeJongs opened a True Value store in the
mall, the sales would easily exceed the $375,000 predicted by True Value. They also
restated that the mall was scheduled to be ready for tenants by July of 1991. The
discussion then turned to the terms of the lease. James Sr. had a son who would begin
his last year of high school in the fall of 1991. Concerned about the impact that
changing schools might have on his son, he asked if the start of the lease could be
postponed until June 1992. The City responded that postponement would be
unacceptable. They had sixty percent of the mall rented and the opening scheduled
for September 1. If the DeJongs could not open as originally planned, the City would
have to lease the space to another party it had lined up.
The DeJongs consulted Steinert of True Value, who stated that, considering the
market demographics, the DeJongs should be able to attain the conservative sales
projection of $375,000 even with competition from the Co-op store. The DeJongs
signed a standard form lease with the City in February 1991. The lease called for an
opening date of "[a]pproximately 1 September 1991." In March, the DeJongs
received a newsletter from the mall's leasing agent. It stated that the mall "will be
built as one unit with expected grand opening scheduled for approximately October
1, 1991."
After selling two homes and his business, James Sr. moved to Sioux Center
with James Jr. and their respective families in late July 1991. On arrival, the DeJongs
discovered that the mall would not be completed on time. Although there were walls
in place, there were no doors or windows in the mall entrances, and the floors were
nothing but dirt. There was no wall or door between the DeJongs' space and the rest
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of the empty mall, the marquee sign was not built, and aside from twenty-four parking
spaces for the hardware store, the parking lot was mostly dirt.
The DeJongs finished the interior of their store and eventually opened on
November 6, 1991. There were no other tenants doing business at the time. There
remained no doors or windows at the mall entrances and no concrete floors in the
corridors. The DeJongs had to construct an entryway and door made of plywood.
They had to hang plastic sheets across the entryway between the store and the interior
of the mall in order to prevent cold wind and dirt from blowing in from the rest of the
mall. The parking lot was unlit as well as unfinished. The buildings that were
supposed to have been razed to make room for the mall parking lot were still
standing, effectively blocking any view of the mall and the DeJongs' store from the
main street in town. These buildings were not demolished until sometime in
December 1991. Construction continued slowly. In May and June of 1992, much of
the front parking area remained unpaved, scaffolding surrounded the marquee being
built, and there were piles of dirt, construction tape and plywood signs along the
roads abutting the mall. The mall's grand opening was finally held on July 16, 1992,
more than nine months after the planned event.
From the time the DeJongs' store opened, customer traffic and sales were far
below expectations. The store lost money every month. In June 1992, the DeJongs
decided to liquidate their inventory and close the store. They had been open for less
than a year, and rather than being on track to lose the projected $12,000, the store had
already lost over $150,000, and James Sr. was deeply in debt.
The DeJongs attribute their business failure and financial losses directly to the
fact that the mall was not complete. They sued the City, claiming damages under
several theories; fraudulent misrepresentation, negligent misrepresentation,
promissory estoppel, and breach of contract. The fraudulent misrepresentation,
promissory estoppel, and contract claims were presented to the jury which found for
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the City on the fraud claim and for the DeJongs on the remaining two claims. The
court granted the City's post-trial motion for judgment as a matter of law on the
promissory estoppel claim, but denied the motion as to the contract claim. The City
appeals, arguing that the court erred when it determined the term "opening date" in
the lease was ambiguous, thus allowing the contract claim to reach the jury, and also
claims that there is insufficient evidence of damages. The DeJongs cross appeal the
court's grant of judgment as a matter of law to the City on the promissory estoppel
claim.
II. DISCUSSION
A. Ambiguity
The initial section of the lease entitled "Basic Lease Information," contains the
essential terms of the contract. It identifies the parties, the mall (known as "The
Centre"), the amount of basic annual rent due during different time periods, the
amount of percentage rent, and common area charges. The term "Rent
Commencement Date" is defined as "Approximately 1 September 1991 or 60 days
after Landlord turns building over to tenant for set up." On the next line is the term
"Opening Date," which is stated to be "Approximately 1 September 1991." The
DeJongs argue that the term "opening date" refers to the opening of the mall, the date
the City committed to completing the mall. The City claims that it had no obligation
to complete the mall by a certain date, and that the term refers only to the opening of
the DeJong's store.
A federal court sitting in diversity jurisdiction applies the law of the forum
state, in this case, Iowa. See First Bank of Marietta v. Hogge, 161 F.3d 506, 510 (8th
Cir. 1998). Whether a term in a contract is ambiguous is a question of law which we
review de novo. See Mohamed v. Unum Life Ins. Co., 129 F.3d 478, 480 (8th Cir.
1997). Under Iowa law, the cardinal rule of contract construction is that the intent of
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the parties controls. The intent may be "determined from the terms of the lease, what
is necessarily implied from the terms, and the circumstances surrounding the
formation and execution of the lease." Dickson v. Hubbell Realty Co., 567 N.W.2d
427, 430 (Iowa 1997). Ambiguity exists when, after the application of rules of
interpretation to the face of the contract, a genuine uncertainty exists concerning
which of two reasonable meanings is proper. See Service Unlimited, Inc. v. Elder,
542 N.W.2d 855, 857 (Iowa Ct. App. 1995). The test for ambiguity is objective:
whether the language is fairly susceptible to two interpretations. See Iowa Fuel &
Minerals, Inc. v. Iowa State Bd. of Regents, 471 N.W.2d 859, 863 (Iowa 1991). In
other words, a contract term is ambiguous if, looking at the contract as a whole, it can
reasonably support more than one meaning.
The district court submitted the issue of interpretation to the jury as part of the
DeJongs' contract claim. The jury found for the DeJongs on the contract claim, i.e.
that the City breached the contract by failing to have the mall complete and open by
approximately September 1, 1991. The court held a hearing on post-trial motions,
during which both parties argued the issue of ambiguity. The court found that the
term was ambiguous as a matter of law and allowed the jury's verdict to stand. See
DeJong v. City of Sioux Center, 980 F. Supp. 1010, 1016 (N.D. Iowa 1997). The
City argues that the district court erred by failing to apply the pertinent rules of
interpretation before concluding the term "opening date" was ambiguous, and that the
rules of interpretation, properly applied, would remove any ambiguity, thus leaving
no issue for the jury.
We agree with the district court's finding that the term "opening date" is
ambiguous. Contrary to the City's assertion, no rule of interpretation effectively
removes the ambiguity. The application of the pertinent rules of interpretation merely
highlights the ambiguity of the term. The first rule of interpretation is to examine the
plain meaning of the term. See Iowa Fuel, 471 N.W.2d at 862-63. By its plain
meaning, "opening date" does not specifically refer to the opening of the mall or the
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opening of the DeJongs' store, and can fairly support either interpretation. Even
considering, as Iowa law allows, the purpose of the lease and the circumstances
surrounding its execution, Dickson, 567 N.W.2d at 430, the ambiguity remains. The
purpose of the lease was to contract for space for a new store in a new mall. There
is ample reason for either interpretation because two "openings" are necessarily
contemplated.
It is well established that contracts should be interpreted as a whole, and
contractual terms should be interpreted in the context in which they are used rather
than in isolation. See Iowa Fuel, 471 N.W.2d at 863. In the same "basic information"
section of the lease where the term "opening date" is defined as "[a]pproximately 1
September 1991," the lease details the timing and calculations for three different
types of payment. The first is the annual rent, based on square footage, which begins
on the "rent commencement date." The others are the percentage rent, and the
common area charges. The DeJongs obligations for these amounts begin with the
opening date. The percentage rent is based on sales volume (a set percent of sales
over a minimum sales figure each year) and necessarily assumes that the tenant must
be open for business in order to have sales. This could be read to infer that "opening
date" indicates the opening of the store, but it is not the necessary conclusion. For the
City's interpretation to prevail, one must assume that a tenant was expected to be open
for business in a largely incomplete mall. There is no indication in the lease that such
a scenario was contemplated by either party. The fact that the opening date triggers
the common area charges is similarly inconclusive. On one hand, a logical inference
is that, prior to the opening of the store, the tenant, because it has no customers, is not
utilizing any of the common areas. On the other hand, if the mall is not open, there
are no completed common areas for the tenant to use, thus no obligation to pay the
charges.
The City argues that a clause in article two of the lease conclusively indicates
that "opening date" means the date the tenant opens for business. The clause reads
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in pertinent part: "Tenant's obligation to pay rent shall . . . commence upon the earlier
of the following dates: (i) . . . (ii) the date on which the tenant shall open . . . for
business." By tying the opening of the store to rent, this does lend some support to
the City's position. However, even in the lease, the common area charges are not
referred to as "rent," and the reference to article two fails to rebut the reasonable
interpretation of the DeJongs based on the use of "opening date" to trigger common
area charges. This argument also begs the question why, if the tenant's opening date
is spelled out so clearly in article two, it was not given similar treatment in the basic
information section of the same standard form document.
Another well-established rule of contract interpretation is that an
"interpretation which gives a reasonable, lawful, and effective meaning to all terms
is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no
effect." Fashion Fabrics of Iowa, Inc. v. Retail Investors Corp., 266 N.W.2d 22, 26
(Iowa 1978). The City argues that if "opening date" is interpreted to mean the
opening of the mall, then the automatic termination clause is rendered superfluous.
The termination clause reads: "In the event that either Premises [defined in the lease
as the DeJongs' space 304] are not ready for occupancy or the Rent Commencement
Date has not occurred within six (6) months following September 1, 1991, this Lease
will automatically become null & void; . . . ." The City's reasoning is flawed. By its
plain language, this clause deals solely with the possibility of the tenant's space not
being ready. Nothing is mentioned about the common areas or the rest of the mall.
This rule of interpretation cited by the City actually better supports the DeJongs'
interpretation. If, as the City argues, the term "opening date" does not mean the
opening of the mall, then under the lease, the city has no obligation to actually build
a mall, merely the single space leased by the DeJongs. This would not only render
superfluous those portions of the lease pertaining to the common areas, but the entire
lease would be unreasonable as well. The lease was negotiated as, and purports to be,
a lease for a space in a mall, with the attendant synergy of retail activity among the
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various tenants. The City cannot claim that its obligations could be met by simply
building the DeJongs' space then abandoning the project.
In summary, the application of the above rules is inconclusive at best, and
demonstrates that the term "opening date" is ambiguous. "If the language is found
to be ambiguous, extraneous evidence is admissible as an aid to interpretation of the
contract." Dickson, 567 N.W.2d at 430. In Iowa, interpretation of contractual terms
is an issue for the court unless it turns on extrinsic evidence or a choice among
reasonable inferences. See Iowa-Illinois Gas & Elec. Co. v. Black & Veatch, 497
N.W.2d 821, 825 (Iowa 1993). Whether the City breached the contract depends on
the term's interpretation, thus the issue was properly presented to the jury. See id.Consequently, the use of extrinsic evidence on the issue was proper. See Kroblin v.
RDR Motels, Inc., 347 N.W.2d 430, 433 (Iowa 1984) ("[E]xtrinsic evidence is
admissible as an aid to interpretation when it sheds light on the situation of the
parties, antecedent negotiations, the attendant circumstances, and the objects they
were striving to attain.").
The jury was instructed that ambiguous terms are construed against the drafter.
This is a standard rule of Iowa contract law. See, e.g., Iowa Fuel, 471 N.W.2d at 863;
Archibald v. Midwest Paper Stock Co., 176 N.W.2d 761, 764 (Iowa 1970). The City
now argues that this familiar rule of contra proferentem should not apply in this case.
For support, the City relies on Kinney v. Capital-Strauss, Inc., 207 N.W.2d 574 (Iowa
1973), which states that ambiguities should not be automatically construed against
the drafter when "the instrument is prepared with the aid and approval, and under
scrutiny of legal counsel for both of the contracting parties." Id. at 577. The
argument has little merit. The DeJongs were presented with a standard form lease,
and although it was reviewed by the DeJongs' attorney and by representatives of True
Value, only five paragraphs of the twenty-page document were crossed out and
names, dates, and amounts were filled in in the basic information section. This
cannot place the contract within the scope of Kinney. Simply because a few
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paragraphs were crossed out and initialed does not mean that the remaining language
was the result of a collaborative effort as in Kinney, where counsel communicated
with each other, creating several drafts before producing the final version of the
contract. See id. at 575.
Since we hold that the lease is ambiguous, the determination of which meaning
is given to that term by the jury is a question of fact, Mohamed, 129 F.3d at 480,
which we review only to determine whether the verdict is supported by substantial
evidence, viewed in the light most favorable to sustaining the verdict. See Norton,
20 F.3d at 337. Given the definition of ambiguity, the proffered interpretations of
both parties were reasonable. Ambiguity allows the consideration of extrinsic
evidence. Based upon the circumstances surrounding the lease, and the prior
representations made by the City concerning the mall's opening date, a jury could
easily understand the term in the lease to be another representation pertaining to the
opening of the mall, an issue at the heart of the agreement. In short, the factual
finding by the jury, that the term "opening date" referred to the opening of the mall,
is supported by substantial evidence and we find no reason to set it aside.
B. Causation
The City also attacks the damage award, claiming that the evidence presented
was insufficient, leaving the jury to speculate as to both causation and amount. The
DeJongs needed to establish several elements to complete the causal chain: (1) that
absent the breach, they would have had sufficient sales to remain in business; (2) the
lack of customer traffic in the mall was due to the fact that the mall remained
incomplete and under construction; (3) the lower than anticipated sales were
substantially caused by lower than anticipated customer traffic in the mall; and (4)
they were forced to close their business and suffered losses because of lower than
anticipated sales.
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Proof of causation is a jury question. See Oak Leaf Country Club, Inc. v.
Wilson, 257 N.W.2d 739, 746 (Iowa 1977). The evidence may be direct or
circumstantial, and if circumstantial, the evidence must be sufficient to make the
plaintiff's asserted theory reasonably probable, not merely possible, and more
probable than any other theory based on the evidence. See id. The plaintiff is not
required to prove his theory of causation by evidence so clear as to exclude every
other possible theory. See Latham v. Des Moines Elec. Light Co., 296 N.W. 372, 375
(Iowa 1941). It is generally for the jury to say whether circumstantial evidence meets
this test. See Oak Leaf, 257 N.W.2d at 746. "If the jury believed plaintiff's experts
and the supporting circumstances in the record, the evidence was sufficient to justify
a finding [in favor of the plaintiff's theory of causation.]" Latham, 296 N.W. at 375.
Viewed in the light most favorable to the verdict, there is substantial evidence
to support the jury's finding that the City's breach was the proximate cause of the
DeJongs' losses. The mall remained unfinished and under construction well into the
summer of 1992, and maintained the appearance of a construction site rather than an
open and inviting retail shopping center. The jury was shown video footage of both
the interior and exterior of the mall as it existed and appeared at various times from
September 1991 through June 1992. The jury also heard testimony regarding the
condition of the mall and the attendant lack of customer traffic from the DeJongs and
others.
The City argues that, because there was no statistical data presented regarding
customer traffic at the mall or the DeJongs' store, and no testimony directly showing
that residents of Sioux Center were unaware that the DeJongs' store was open, the
jury was necessarily forced to speculate as to causation. The City confuses
speculation with reliance on common sense and personal experience. Direct evidence
and statistical data are not required. As explained above, the jury was free to find
circumstantial evidence sufficient to overcome the alternative possible causes for the
DeJongs' failure that the City advanced. Given the evidence presented on the
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condition of the mall, the jury could easily infer that potential customers were either
unaware that the DeJongs' store was open, or if they were aware that the store was
open, they nonetheless preferred to shop in more convenient and inviting
surroundings. Similarly, the relationship between low traffic and low sales, and the
closing of the store due to heavy losses, are easily understood and do not require
statistical information or expert witnesses.
C. Lost Sales
The City also claims that the "new business rule" precludes the jury from
arriving at an amount for damages without speculation. The City's argument is
misplaced. The new business rule generally precludes recovery of the anticipated
profits or revenues of new commercial enterprises because they are deemed too
uncertain and speculative. See, e.g., Harsha v. State Savings Bank, 346 N.W.2d 791,
797 (Iowa 1984). However, the DeJongs do not claim lost profits or lost sales, rather
they claim the amount of their investment that was lost due to unrealized sales.5
There is nothing speculative about the amount of investment lost by the DeJongs.
Testimony by the DeJongs as well as financial statements entered into evidence
establish the amount of the investment lost.
The amount of anticipated profits or sales not realized by the DeJongs is
actually the first element of the causal chain—that but for the breach, the DeJongs
would have enjoyed sufficient sales to remain open. The City has offered no cases
in Iowa or any other state where the new business rule has been expressly applied to
prevent a plaintiff from establishing an element of causation, as opposed to the
quantity of damages, and we decline to expand its application. We believe that the
5
This is an acceptable measure for damages in Iowa when the facts support it.
See Farm-Fuel Products Corp. v. Grain Processing Corp., 429 N.W.2d 153, 160 (Iowa
1988).
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Iowa Supreme Court, given the facts of this case, would likewise find the new
business rule inapplicable for two reasons. First, because the evidentiary standards
for damages and causation are different. Damages must be established to a
reasonable certainty, thus the rule that new businesses without any history or track
record have no ability to establish what their sales would have been. See Harsha, 346
N.W.2d at 797. Causation, on the other hand, entails a less rigorous standard, and
must simply be established as more probable than any other theory advanced and
supported by the evidence. See Oak Leaf, 257 N.W.2d at 746.
Second, assuming arguendo that the establishment of anticipated revenues of
a new enterprise as a causal element is subject to the application of the new business
rule, as the City suggests, the evidence presented would defeat the rule under Iowa
law. As a general rule, anticipated profits from new businesses are not recoverable
because they are too uncertain and speculative, however, "if factual data [is]
presented which furnish[es] a basis for compilation of probable loss of profits,
evidence of future profits should be admitted and its weight, if any, should be left to
the jury." Harsha, 346 N.W.2d at 798. In Harsha, the plaintiff was allowed to
establish, through expert testimony, the lost profits suffered by a start-up feed lot
when a bank reneged on a promise to loan money. The expert explained that, in
forming his opinion, he considered the market, other similar operations, actions of the
bank, newness of the business, effect of property management, and work habits. He
pointed out that there was guidance available if management skills were lacking. The
court held that "[i]n this case we have projections of profitability based on experience
in the industry; the expert's consideration of the projections and his own experience
with new business; the willingness of Harsha to put in the time and effort needed."
Id. at 798-99.
This case is analogous to Harsha. Steinert, the retail representative for True
Value, testified at length. His sale projections were based on market research, the
demographics of Sioux Center, his personal experience, and the experience of all the
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other True Value stores in the region, data from the National Association of Hardware
Retailers, as well as the existence of the Co-op as a competitor. As franchisees, the
DeJongs had assistance and guidance available to make up for any lack of
management experience, and the DeJongs' store was part of an established and
successful chain of hardware stores utilizing proven purchasing, merchandising, and
advertising programs provided by True Value. This basis for Steinert's revenue
forecast is sufficient to provide a measure of reasonable certainty in lieu of an actual
track record and to overcome the bar of the new business rule. Accord No Ka Oi
Corp., v. National 60 Minute Tune, Inc., 863 P.2d 79, 82-84 (Wash. Ct. App. 1993)
(nature of nationwide franchise dispels the original rationale for the new business
rule).
D. Promissory Estoppel
The DeJongs appeal the district court's grant of judgment as a matter of law to
the City on the promissory estoppel claim. We agree with the district court that,
under Iowa law, the existence of a valid integrated contract between the parties
precludes a claim of promissory estoppel to essentially inject terms or conditions into
the contract. We can add nothing to the district court's well-reasoned discussion on
this issue. See DeJong, 980 F. Supp. at 1013-14.
III. CONCLUSION
For the above reasons, the order of the district court is affirmed.
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A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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