Hallett Construction Company Vs. Francis A. Meister, Irene M. Meister, Michael F. Meister, And Thomas J. Meister ( 2006 )


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  •                     IN THE SUPREME COURT OF IOWA
    No. 135 / 04-0525
    Filed May 5, 2006
    HALLETT CONSTRUCTION COMPANY,
    Appellee,
    vs.
    FRANCIS A. MEISTER, IRENE M. MEISTER,
    MICHAEL F. MEISTER, AND THOMAS J. MEISTER,
    Appellants.
    On review from the Iowa Court of Appeals.
    Appeal from the Iowa District Court for Sac County, Gary L.
    McMinimee, Judge.
    Mining company holding sand and gravel rights in property seeks
    further review of court of appeals decision reversing district court’s
    summary judgment ruling holding property owners’ claims were time
    barred.   DECISION OF COURT OF APPEALS VACATED.               DISTRICT
    COURT JUDGMENT AFFIRMED IN PART AND REVERSED IN PART.
    CASE REMANDED.
    Thaddeus Cosgrove of Cosgrove Law Firm, Holstein, and Joseph J.
    Heidenreich of Dresselhuis & Heidenreich, Odebolt, for appellants.
    David P. Jennett, Storm Lake, for appellee.
    2
    TERNUS, Justice.
    This case involves a dispute over the sand and gravel rights in real
    property owned by the appellants, Francis Meister, Irene Meister, Michael
    Meister, and Thomas Meister. The Meisters sought to evict the appellee,
    Hallett Construction Company, from the property and also claimed damages
    for holding over, breach of contract, and fraud. The district court granted
    Hallett’s summary judgment motion, ruling the Meisters’ claims were barred
    by the applicable statutes of limitation.
    The Meisters’ appeal was transferred to the Iowa Court of Appeals.
    That court reversed the district court, holding there was a factual dispute as
    to when the Meisters’ claims accrued. This court granted Hallett’s request
    for further review. Upon consideration of the record and the arguments of
    the parties, we think the district court correctly dismissed the Meisters’
    fraud claim on statute-of-limitations grounds, but incorrectly ruled the
    remaining claims were time barred. Accordingly, we vacate the court of
    appeals decision, affirm in part and reverse in part the judgment of the
    district court, and remand this case for further proceedings consistent with
    this opinion.
    I. Background Facts and Proceedings.
    Because this case comes before us on a summary judgment ruling,
    we view the facts in a light most favorable to the Meisters, the parties
    opposing summary judgment. See Crippen v. City of Cedar Rapids, 
    618 N.W.2d 562
    , 565 (Iowa 2000).
    Michael and Thomas Meister are the sons of Francis and Irene
    Meister. Together they own ninety acres of real estate in Sac County. In
    1987, the Meisters and Hallett negotiated a lease for the sand and gravel
    rights to this property. A proposed ten-year lease was presented to the
    Meisters at a meeting in Hallett’s offices on July 7, 1987. The Meisters
    3
    objected to paragraph 11 in this pre-printed form that would allow Hallett to
    renew the lease “for an additional period of 10 years from the date of its
    termination.” Hallett agreed to remove this provision, and it did so by
    striking the number “10” with x’s and typing “0” in its place. After this
    change, the Meisters signed two copies of the lease. They were given one
    copy, which Irene placed in a file at her home. The Hallett representatives
    took the other copy to be signed by company officers.
    On August 4, 1987, a Hallett representative visited the Meisters’ farm
    with a copy of the lease that had been signed by Hallett’s officers. The
    representative said it was necessary for the Meisters to initial each page; so
    the Meisters and the Hallett representative initialed each page, with the
    exception of the signature page. Unknown to the Meisters, this copy of the
    lease contained the original provision giving Hallett an option to renew.
    Without any notice from Hallett that the lease again contained an option to
    renew, the Meisters assumed they were signing the lease as it had been
    modified on July 7. Irene was given a copy of the initialed lease [lease 2],
    and she placed it in a separate file in her home.
    In 1996, the Meisters, who believed Hallett was not paying them for
    sand it had taken off the property, contacted an attorney about this issue
    and also about the termination of the lease at the conclusion of the ten-year
    term. After reviewing lease 2, the lawyer informed Michael Meister that the
    lease contained a ten-year option to renew. Although the Meisters believed
    they had not agreed to an option to renew, they concluded their recollection
    was mistaken, and so they continued to perform under the lease. On
    May 15, 1998, pursuant to paragraph 11 of lease 2, Hallett exercised its
    option to renew the lease until July 7, 2008.
    Sometime in 2001, the Meisters came across the original lease signed
    on July 7, 1987, and realized their recollection that the renewal provision
    4
    had been eliminated was correct. Meanwhile, disagreements over payment
    for materials being removed by Hallett continued, and on December 18,
    2002, the Meisters served Hallett with a termination of tenancy pursuant to
    Iowa Code section 562.4 (2001).1 The Meisters asserted Hallett had failed to
    pay for materials removed from their land and demanded that Hallett vacate
    the premises.
    Hallett then filed this action on March 18, 2003, seeking a declaratory
    judgment establishing its rights in the property pursuant to lease 2. In
    addition, Hallett sought damages based on interference with contractual
    relationships, oral and written defamation, and breach of implied and
    express covenants of the lease. The Meisters filed a counterclaim in four
    counts on April 3, 2003. In count I, they claimed there was no valid written
    contract and an at-will tenancy existed; they sought to recover the real
    property. In count II, the Meisters sought damages based on Hallett’s
    alleged intentional and unlawful holding over. In count III, the Meisters
    claimed Hallett had failed to pay the agreed-upon rents and royalties. And
    in count IV, they asked for damages based on Hallett’s alleged fraud in
    altering the lease.
    Hallett moved for summary judgment on the Meisters’ counterclaims,
    arguing they were barred by the five-year statute of limitations for fraud and
    unwritten contracts. See Iowa Code § 614.1(4). Applying the discovery
    rule, the district court held the undisputed facts established as a matter of
    law that the Meisters’ claims accrued no later than 1996, when they learned
    the lease contained an option to renew. The court concluded that because
    the Meisters’ claims against Hallett were filed in 2003, more than five years
    after they accrued, those claims were barred by the statute of limitations.
    1 Section 562.4 requires “thirty days’ notice in writing” of a property owner’s intent
    to terminate a tenancy at will.
    5
    Upon receiving this favorable summary judgment ruling, Hallett dismissed
    without prejudice its requests for declaratory relief and damages.
    On the Meisters’ appeal, the court of appeals held count I was
    governed by the ten-year statute of limitations for actions to recover
    possession of real property. See 
    id. § 614.1(5).
    Noting the Meisters had not
    demanded that Hallett relinquish the land until December 2002, the court
    held there had been no showing that Hallett’s occupancy of the land had
    been other than permissive within the ten years prior to suit being filed.
    Therefore, it held, the statute of limitations had not run on the claim stated
    in count I. Although the court of appeals agreed with the district court that
    the remaining claims were governed by the five-year statute of limitations,
    the appellate court held there had been no showing these claims accrued
    more than five years before suit was brought.          We granted Hallett’s
    application for further review.
    II. Scope of Review.
    We review summary judgment rulings for correction of errors of law.
    
    Crippen, 618 N.W.2d at 565
    . “To obtain a grant of summary judgment on
    some issue in an action, the moving party must affirmatively establish the
    existence of undisputed facts entitling that party to a particular result
    under controlling law.”    Interstate Power Co. v. Ins. Co. of N. Am., 
    603 N.W.2d 751
    , 756 (Iowa 1999). In determining whether summary judgment
    is appropriate, the court considers the pleadings, depositions, answers to
    interrogatories, and admissions on file, together with any affidavits. Christy
    v. Miulli, 
    692 N.W.2d 694
    , 699 (Iowa 2005).
    III. Fraud Claim.
    Since many of the parties’ arguments rely on a resolution of the
    timeliness of the Meisters’ fraud claim, count IV, we begin with that issue.
    6
    The parties disagree on the appropriate limitations period to apply and on
    when the Meisters’ fraud claim accrued.
    A. Applicable statute of limitations. The Meisters argue the ten-year
    statute of limitations provided for written contracts is the applicable
    limitations period for count IV. See Iowa Code § 614.1(5) (providing actions
    “founded on written contracts” must be brought “within ten years”). Hallett
    contends the five-year statute of limitations for fraud applies. See 
    id. § 614.1(4)
    (providing actions “for relief on the ground of fraud in cases
    heretofore solely cognizable in a court of chancery” must be brought “within
    five years”). In resolving this dispute, we look beyond the label placed on
    the claim by the parties and instead focus on “the actual nature of the
    action” to determine the applicable limitations period.        Bob McKiness
    Excavating & Grading, Inc. v. Morton Bldgs., Inc., 
    507 N.W.2d 405
    , 411 (Iowa
    1993); accord Sandbulte v. Farm Bureau Mut. Ins. Co., 
    343 N.W.2d 457
    , 462
    (Iowa 1984) (“It is the nature of the right sued upon and not the elements of
    relief requested that governs the selection of the appropriate statutory
    period for the basic right.”).
    The Meisters alleged in count IV that by reason of Hallett’s “material
    alteration” of the lease without their knowledge or consent, “there [is] no
    valid contract.” They further alleged that the acts of Hallett’s representative
    were “false, deceitful and fraudulent” and the Meisters “relied upon the false
    and fraudulent representation” made by Hallett’s representative.           The
    Meisters sought compensatory and punitive damages.
    We think the actual nature of this claim is one of fraud and not of
    breach of a written contract. As we have noted in the past, a claim is not
    founded on a written contract “ ‘merely because [the claim] is in some way
    remotely or indirectly connected with [a written] instrument or because the
    instrument would be a link in the chain of evidence establishing the cause
    7
    of action.’ ” Matherly v. Hanson, 
    359 N.W.2d 450
    , 455 (Iowa 1984) (citation
    omitted). Here, the lease is merely part of the context within which Hallett’s
    alleged fraud occurred. The Meisters do not seek damages for breach of the
    written   contract;   they   seek   damages     for   the   alleged    fraudulent
    representation made by Hallett. Clearly the core of the claim made in count
    IV is fraud. Therefore, the applicable statute of limitations is the five-year
    period for fraud actions contained in Iowa Code section 614.1(4).
    B. Accrual of fraud claim. The five-year limitations period of section
    614.1(4) begins to run upon accrual of the claim. See Iowa Code § 614.1(4).
    “Generally, a claim accrues when ‘the wrongful act produces injury to the
    claimant.’ ” K & W Elec., Inc. v. State, ___ N.W.2d ___, ___ (Iowa 2006)
    (citation omitted). The court of appeals held the Meisters were not damaged
    by Hallett’s fraud until the option to renew was exercised in May 1998.
    Therefore, it reasoned, the fraud claim—filed in April 2003—was
    commenced within five years of its accrual.
    We disagree. Although the Meisters complained only of the damage
    caused to them by the actual renewal of the lease, the option to renew was a
    contractual right claimed by Hallett since 1987 and was a burden on the
    property as of that date. See Jensen v. Sheker, 
    231 Iowa 240
    , 249, 
    1 N.W.2d 262
    , 268 (1941) (“ ‘The right to operate a mine and carry on the
    business of mining therein is property . . . . It is a right as distinct and real
    as the ownership of the fee itself.’ ”     (Citation omitted.)).      In fact, the
    applicable measure of damages is the difference in value of the Meisters’
    rights at the time of transfer, not at some later date. See B & B Asphalt Co.
    v. T.S. McShane Co., 
    242 N.W.2d 279
    , 285 (Iowa 1976) (“When the fraud
    occurs in the sale of personal property, the usual measure of that loss is the
    difference between the actual value of the property at the time of the
    transaction and the value it would have had if the representations had been
    8
    true, the loss of benefit of the bargain.”); Likes v. Baer, 
    8 Iowa 368
    , 370
    (1859) (holding true measure of plaintiff’s damage is the “difference between
    the actual value of the land and what it would have been worth, had it
    answered the description given of it by the defendant”). Thus, as of the date
    lease 2 was signed, the Meisters’ retained rights were diminished, and
    therefore, they sustained damage at that time. See Gollon v. Jackson Milling
    Co., 
    273 N.W. 59
    , 61 (Wis. 1937) (holding property owner was damaged
    when deed granting greater rights than owner intended was delivered, not
    at later date when greater right was exercised by grantee). Consequently,
    the fraud claim accrued in 1987.
    The Meisters claim that even if they were damaged in 1987, they did
    not discover Hallett’s fraud until 2001 when they discovered their copy of
    the original lease. The discovery rule tolls the statute of limitations until
    the plaintiff has discovered “ ‘ “the fact of the injury and its cause” ’ ” or by
    the exercise of reasonable diligence should have discovered these facts.
    K & W Elec., Inc., ___ N.W.2d at ___ (citation omitted); see also Nixon v. State,
    
    704 N.W.2d 643
    , 646 (Iowa 2005) (applying discovery rule to claim of
    fraudulent misrepresentation). Once a claimant learns information that
    would inform a reasonable person of the need to investigate, the claimant
    “ ‘is on inquiry notice of all facts that would have been disclosed by a
    reasonably diligent investigation.’ ” K & W Elec., Inc., ___ N.W.2d at ___
    (citation omitted). A claimant can be on inquiry notice without knowing
    “the details of the evidence by which to prove the cause of action.” Vachon
    v. State, 
    514 N.W.2d 442
    , 446 (Iowa 1994).
    It is undisputed the Meisters knew in 1987 they had signed a lease
    without the option to renew. In 1996, they learned the lease signed by all
    the parties contained the renewal provision to which they had objected. At
    that point, they had actual knowledge of their injury—their property was
    9
    arguably burdened by a lease that could be renewed for ten years—and they
    were clearly on inquiry notice of the cause of that injury—Hallett’s alteration
    of the original lease.   Though the Meisters may have questioned their
    collective memory and not realized they possessed evidence to establish
    Hallett’s alleged fraud, they certainly had enough information in 1996 to
    alert them of the need to investigate. Had the Meisters exercised reasonable
    diligence to investigate the facts at that time, they would have discovered
    the original lease in their own files. Because the Meisters were on inquiry
    notice in 1996, they discovered their fraud claim then, and accordingly, the
    five-year statute of limitations began to run at that time. The district court
    correctly held the fraud claim asserted in this action, filed more than five
    years later, is time barred as a matter of law.
    C.   Estoppel by fraudulent concealment.      The Meisters also claim
    Hallett is estopped from relying on the statute of limitations due to its
    fraudulent concealment of the Meisters’ fraud claim.         The doctrine of
    fraudulent concealment requires proof of “some affirmative act to conceal
    the . . . cause of action independent of and subsequent to the liability-
    producing conduct.” 
    Christy, 692 N.W.2d at 702
    . The Meisters have not
    pointed to any evidence of false or misleading conduct by Hallett, other than
    the alleged fraud itself, that dissuaded them from investigating a possible
    claim or that caused them to refrain from filing suit. Due to the absence of
    supporting evidence, their assertion of fraudulent concealment is
    insufficient to prevent summary judgment on the basis of the statute of
    limitations.
    IV. Claim to Recover Real Property.
    A. Applicable statute of limitations. In count I, the Meisters sought to
    recover their real property, alleging there was no valid written contract and
    an at-will tenancy existed. They contend this claim is subject to the ten-
    10
    year statute of limitations “for the recovery of real property.” See Iowa Code
    § 614.1(5). Hallett argues that because fraud is the basis for the Meisters’
    claim there was no contract, resulting in a tenancy at will, and because the
    fraud claim is time barred, the Meisters’ claim to recover their real property
    is also necessarily time barred.
    Looking to the nature of the claim asserted in count I, we think the
    ten-year statute of limitations “for the recovery of real property” applies.
    See 
    id. This court
    has said, “If the purpose and object of the action is the
    recovery of real property, it is entirely immaterial on what ground the relief
    is sought.” Tilton v. Bader, 
    181 Iowa 473
    , 480-81, 
    164 N.W. 871
    , 874
    (1917). We held in Tilton that “[t]he mere fact that a litigant alleges and
    must prove fraud in order to establish his title does not render the action
    other than one for the recovery of real property.” 
    Id. at 478,
    164 N.W. at
    873. In such cases, “evidence of fraud is merely incidental to the relief
    granted.” 
    Id. That is
    the case here.       The relief sought is the recovery of real
    property; evidence of fraud is simply part of the proof that no valid contract
    transferring an interest in the property exists. Therefore, the claim stated
    in count I is governed by a ten-year limitations period.
    We do not agree with Hallett’s contention that because an
    independent claim for damages based on fraud is time barred, the Meisters
    may not use Hallett’s alleged fraud to establish that Hallett’s tenancy was at
    will. If that were the case, any claim for recovery of real property that had
    some component of fraud would be unprovable after five years, a result
    contrary to our test for determining the applicable statute of limitations. In
    other words, although the Meisters cannot sue for compensatory damages
    resulting from Hallett’s alleged alteration of the lease because the five-year
    statute of limitations for fraud expired before they filed their claims, they
    11
    may seek to recover possession of their property under the ten-year statute
    of limitations for recovery of real property, provided this claim accrued
    within ten years of their claim being filed in 2003.
    B. Accrual of claim. The Meisters argue the statute of limitations did
    not commence to run on their claim to recover their property until
    December 18, 2002, when they terminated Hallett’s permissive, at-will
    tenancy. Hallett, focusing on the fraud aspects of this claim, asserts the
    claim accrued at the time lease 2 was executed. We think the Meisters have
    the better argument.
    This court has noted the doctrine of adverse possession, which
    requires a ten-year period of possession adverse to the owner, “is based on
    the ten-year statute of limitations for recovery of real property.” Carpenter
    v. Ruperto, 
    315 N.W.2d 782
    , 784 (Iowa 1982). Here, until the occupancy by
    Hallett became adverse rather than permissive, the Meisters had no claim
    for the recovery of the property: it was not being held adversely to them. A
    claim clearly arose, however, when they terminated the tenancy in 2002,
    and Hallett refused to vacate the property. Thus, the Meisters’ claim for
    recovery of real property accrued on December 18, 2002. Consequently, the
    present suit, filed within ten years of this date, is timely. The district court
    erred in granting Hallett summary judgment on count I based on the
    statute of limitations.
    V. Holding-Over Claim.
    A. Applicable statute of limitations. In count II, the Meisters seek
    damages resulting from Hallett’s holding over after termination of its
    tenancy. The court of appeals concluded this claim was either “founded on
    [an] unwritten contract,” or “not otherwise provided for,” and therefore, was
    subject to a five-year limitations period. Iowa Code § 614.1(4) (providing for
    five-year statute of limitations for claims “founded on [an] unwritten
    12
    contract” or “not otherwise provided for”). We agree the five-year statute of
    limitations applies, and consequently, this claim is barred if it accrued more
    than five years prior to this action being filed in April 2003.
    B. Accrual of claim. The Meisters’ holding-over claim is explicitly tied
    to their claim for recovery of real property. Hallett cannot be deemed to be
    holding over until there has been a demand by the Meisters to relinquish
    the property. The undisputed facts show the Meisters did not demand that
    Hallett vacate the property until 2002, within five years of the filing of this
    lawsuit in 2003.    Therefore, the Meisters filed their holding-over claim
    within the statute of limitations. The district court erred in ruling to the
    contrary.
    VI. Claim for Unpaid Rents and Royalties.
    A. Applicable statute of limitations. In count III, the Meisters allege
    there was no valid written contract between the parties, but there was an
    agreement for an at-will tenancy. They further allege Hallett “agreed to pay
    certain sums in consideration as rentals and royalties.” This claim falls
    within the five-year statute of limitations for those “founded on unwritten
    contract.” 
    Id. B. Accrual
    of claim. Hallett has made no showing of undisputed facts
    establishing the alleged failure to pay rent and royalties occurred more than
    five years prior to suit being filed in 2003. See Interstate Power 
    Co., 603 N.W.2d at 756
    (stating “the moving party must affirmatively establish the
    existence of undisputed facts entitling that party to a particular result
    under controlling law”). Therefore, it has failed to demonstrate this claim is
    barred by the statute of limitations as a matter of law. (Of course, any
    recovery under this count would necessarily be limited to sums payable in
    the five-year period preceding April 3, 2003.) The district court erred in
    granting summary judgment to Hallett on count III.
    13
    VII. Summary and Disposition.
    The Meisters’ fraud claim is barred by the five-year statute of
    limitations applicable to fraud actions and was properly dismissed by the
    district court.   Although we affirm that aspect of the district court’s
    judgment, we reverse the balance of its judgment dismissing the other
    claims filed by the Meisters. Hallett has not demonstrated these claims are
    barred by the governing statutes of limitations. Therefore, the district court
    erred in granting summary judgment to Hallett on the Meisters’ claims for
    recovery of real property, holding over, and failure to pay rents and
    royalties. The case is remanded for reinstatement of these three claims and
    for further proceedings on them.
    DECISION OF COURT OF APPEALS VACATED. DISTRICT COURT
    JUDGMENT AFFIRMED IN PART AND REVERSED IN PART.                        CASE
    REMANDED.