St. Malachy Roman Catholic Congregation of Geneseo, Illinois Steve Bristol Conni Bristol and Kewanee Area United Way v. Donna K. Ingram, as of the Estate of James Ingram, and Robert W. Baird & Co., Inc. , 2013 Iowa Sup. LEXIS 133 ( 2013 )

IN THE SUPREME COURT OF IOWA
No. 12–1817
Filed December 27, 2013
ST. MALACHY ROMAN CATHOLIC CONGREGATION OF GENESEO,
ILLINOIS; STEVE BRISTOL; CONNI BRISTOL; and KEWANEE AREA
UNITED WAY,
Appellants,
vs.
DONNA K. INGRAM, as Executor of the ESTATE OF JAMES INGRAM,
and ROBERT W. BAIRD & CO., INC.,
Appellees,
and
MARIE R. TARBOX and GOSMA, TARBOX & ASSOCIATES, P.L.C.,
Appellants.
Appeal from the Iowa District Court for Scott County, Thomas G.
Reidel, Judge.
Alleged beneficiaries of a decedent’s estate plan appeal from a
district court order granting summary judgment to the estate of the
decedent’s financial advisor and the firm employing that advisor.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Peter C. Riley of Tom Riley Law Firm, P.L.C., Cedar Rapids, for
appellants St. Malachy Roman Catholic Congregation of Geneseo, Illinois;
Steve Bristol; Conni Bristol; and Kewanee Area United Way.
2
Kevin J. Visser and Lisa A. Stephenson of Simmons Perrine Moyer
Bergman PLC, Cedar Rapids, for appellants Marie R. Tarbox and Gosma,
Tarbox & Associates, P.L.C.
William T. McCartan of Bradley & Riley PC, Cedar Rapids, for
appellee Robert W. Baird & Co., Inc.
Gregory M. Lederer and Megan R. Dimitt of Lederer Weston Craig
PLC, Cedar Rapids, for appellee Donna K. Ingram, executor of the estate
of James Ingram.
3
MANSFIELD, Justice.
I. Introduction.
This case requires us to decide whether a financial advisor to an
individual can be sued by identified beneficiaries of the individual’s
signed written estate plan when, due to the advisor’s allegedly negligent
performance of his duties, those beneficiaries do not receive what they
were supposed to get under the plan. We conclude the rationale of
Schreiner v. Scoville, 410 N.W.2d 679, 682 (Iowa 1987), which held that
attorneys could be sued in these circumstances, extends to nonattorneys
acting within the scope of their agency. Accordingly, we reverse the
summary judgment below in part and remand for further proceedings.
Specifically, we find that plaintiff Steve Bristol was owed a duty by
the decedent’s financial advisor and has raised a genuine issue of
material fact as to whether the financial advisor’s negligent performance
of his agency responsibilities caused Bristol not to receive a specific
devise set forth in the decedent’s will. Accordingly, we reverse the
judgment that was entered against Bristol and his spouse. However, as
to plaintiffs St. Malachy Roman Catholic Congregation of Geneseo,
Illinois, and Kewanee Area United Way, we find their damages are too
speculative and affirm the judgments against them on this alternative
ground.
II. Facts and Procedural Background.
This controversy centers on the estate planning of Alvin Engels,
who died in February 2006 at the age of eighty. Engels was never
married and had no children.
Beginning as early as 1993, Engels retained James “Jay” Ingram of
Piper Jaffray as a securities registered representative. At some point,
Engels apparently began speaking with Ingram about estate planning.
4
On September 24, 1999, Engels executed a revocable trust agreement
that appointed Engels and Loretta Wongstrom the cotrustees of the
Alvin F. Engels Revocable Trust. Engels also created the Engels
Charitable Foundation, a not-for-profit corporation, of which Engels,
Ingram, and Wongstrom were appointed directors.1 The Revocable Trust
and Charitable Foundation paperwork was drafted by attorney Jerry
Pepping, while Ingram handled the transfer of Engels’s assets—including
his home, checking accounts, Piper account, series H and HH bonds, a
promissory note, and a variable annuity—to the Revocable Trust.
The Revocable Trust agreement provided that, upon Engels’s
death, the Revocable Trust assets would be disbursed to two new trusts:
Trust A and Trust B. Trust A would be funded only to the extent
necessary to minimize federal estate taxes. The contents of Trust A were
to be distributed to the Charitable Foundation, except for $15,000, which
would go to St. Malachy Roman Catholic Congregation (St. Malachy’s).
Trust B would receive the remaining assets, which would be used for the
benefit of Katherine, Andrea, and Andrew Bristol and Jerri McLane, Lynn
McLane, and James Kleinau.2
It is clear that Ingram was involved, to some degree, in the
planning for Engels’s estate during this time, including the Revocable
Trust. Pepping sent drafts of the Revocable Trust agreement and a draft
of Engels’s last will and testament to Engels, Ingram, and Wongstrom.
Ingram was also named as executor of Engels’s will in an October 1,
2001 codicil and, on the same day, was named as the successor trustee
1We will refer to the Alvin F. Engels Revocable Trust and the Engels Charitable
Foundation as “the Revocable Trust” and “the Charitable Foundation,” respectively.
2TheBristol family were neighbors of Engels. Jerri McLane, Lynn McLane, and
James Kleinau were nieces and a nephew of Engels.
5
of the Revocable Trust. Less than a year later, Ingram was appointed
Engels’s attorney-in-fact for healthcare decisions.
In approximately November 1999, Ingram left Piper Jaffray for
Robert W. Baird & Co. He took the Engels account with him.
In 2003, Engels apparently decided to alter his estate plan. On
October 1, 2003, Engels executed five documents: (1) a durable power of
attorney appointing Jerri McLane as attorney-in-fact for healthcare
decisions, (2) a living will, (3) a durable financial power of attorney
appointing Ingram attorney-in-fact for Engels’s financial affairs, (4) a new
last will and testament, and (5) a charitable trust agreement creating the
Alvin F. Engels Charitable Trust.3
These documents were drafted by attorney Marie Tarbox of the law
firm Gosma, Tarbox & Associates. Ingram signed the Charitable Trust
agreement, Ingram’s wife witnessed three of the documents, and each
document, with the exception of the living will, was also notarized by
Ingram’s assistant, Mardee Trapkus.
The Will provided that Steve Bristol would receive Engels’s
residence located in Geneseo, Illinois.4 In addition, the Will made
specific bequests of $75,000 to Jerri McLane, $25,000 to Lynn McLane,
and $25,000 to James Kleinau. However, the entire residue of the estate
after these bequests was to be paid to the Charitable Trust. The Will
named Jerri McLane as executor and Ingram as successor executor in
the event McLane could not serve.
3We will refer to the 2003 last will and testament and the 2003 Alvin F. Engels
Charitable Trust as “the Will” and “the Charitable Trust,” respectively.
4As noted, Steve Bristol was Engels’s neighbor in Geneseo.
6
The Charitable Trust provided in article 3 as follows:
On the death of the Grantor [Engels], the Trustee shall
distribute the net income and so much of the Trust principal
as the Trustee may determine among St. Malachy’s Catholic
Church, Geneseo, Illinois, and the United Way and the
American Red Cross, with direction that distributions to the
latter two organization[s] shall be used for the benefit of
residents of Henry County, Illinois, and to such other
501(c)(3) organizations benefitting Henry County, Illinois as
may apply for distributions and which the Trustee, in its sole
discretion, determines appropriate in any given year.
The Grantor recognizes that he is placing a good deal
of discretionary power in the Trustee, and is confident that
the Trustee will exercise its discretionary power in a manner
that will best meet[] the needs of the charitable organizations
named herein, Geneseo, Illinois and Henry County, Illinois
over the years.
In article 5, Ingram and Jerri McLane were designated to serve as
cotrustees of the Charitable Trust upon Engels’s death. The Charitable
Trust also provided:
If either of the named Trustees is unable or unwilling to
serve as a Trustee, the Trust assets shall be distributed to
the Geneseo Is For Tomorrow (“GIFT”) Community
Foundation with the remaining Trustee to serve in assisting
the GIFT Board of Directors in determining distributions
from the Trust in a manner consistent with those set forth in
Article 3, hereof.
As with the 1999 estate planning documents, the record reflects
that Ingram was heavily involved in the development of the 2003 Will
and Charitable Trust. Tarbox testified she had a referral relationship
with Ingram and received four to six referrals from him annually
between 1998 and 2002. In each referral, Tarbox testified Ingram
typically provided her with
background information about the client in the sense of
what their asset value was, if there was a trust in existence,
information about the family, information about things that
may be of particular concern to that client, and if there had
7
been [specific] things that he had discussed with the
client. . . .
Engels was one of these referrals. Tarbox said she had three or four
conversations with Ingram in which he outlined Engels’s estate plan
before she ever met with Engels.
According to Tarbox, during her meeting with Engels, Mardee
Trapkus—Ingram’s assistant—was also present. Tarbox stated Ingram
had told her in advance which charities Engels wanted to benefit.
Despite Ingram’s history of disclosing a client’s existing trusts, Ingram
made no mention of the existence of Engels’s Revocable Trust. Tarbox
indicated she did not become aware of the existence of the Revocable
Trust or the Charitable Foundation until after Engels’s death. She
admitted she never asked Engels how his assets were titled.
Following the discussions with Ingram and her meeting with
Engels, Tarbox concluded Engels’s intent was to leave his home to
neighbor Steve Bristol, $25,000 each to niece Lynn McLane and nephew
James Kleinau, $75,000 to niece Jerri McLane, and the remainder of his
assets to charity through the Charitable Trust. That meeting was the
only time Tarbox ever spoke directly with Engels. She summarized her
conclusions in a September 25, 2003 letter to Engels, copied to Ingram,
which read in part as follows:
Briefly, you indicated that you wanted Steve Bristol to
receive your residence and that your niece Jerri McLane
should receive $75,000. Your niece and nephew Lynn
McLane and James Kleinau are to receive $25,000 each.
After those distributions, the balance of your assets are to be
held and distributed to charities and Jay [Ingram] and Jerri
[McLane] may decide.
With the letter, she enclosed draft documents, including versions of the
Will and Charitable Trust agreement. She later testified it was her
8
intention that Engels would review the documents and return to her
office to execute them if they were acceptable.
According to Tarbox, rather than returning to Tarbox’s office,
Engels executed the documents and merely had copies delivered to
Tarbox. Tarbox was angry that Engels had executed the documents
outside of her office. Apparently, Tarbox and Engels patched things up
because Tarbox continued to do work for Engels.5
Meanwhile, the record indicates that Ingram made several efforts
to get Engels to transfer his assets into his Charitable Trust during his
lifetime. On January 23, 2004, Ingram’s assistant Trapkus sent Engels a
letter that stated,
I have enclosed a form that needs to be signed so that Marie
Tarbox can change the ownership of your house into the
[Charitable] Trust that you have created.
Please sign by the red arrow and return to me in the
envelope I have enclosed. I will notarize your signature for
you.
Nineteen days later, on February 11, 2004, Tarbox’s office sent a
quitclaim deed to the recorder’s office. The quitclaim deed stated
“Alvin F. Engels” was conveying the home in Geneseo to the “Alvin F.
Engels Charitable Trust Agreement.” The deed was recorded on
February 23, 2004. However, apparently unbeknownst to Tarbox, at the
time the home was titled in the name of the Revocable Trust, not in
Engels’s name, so the deed was ineffective.
Approximately one year later, in February 2005, Ingram sent
another letter to Engels regarding the Charitable Trust. In it he stated:
5Tarbox’s client ledger shows she billed Engels $850 for the estate planning
services from September 19–25, 2003. Her records indicate that on November 21,
2003, Engels paid her $425 for those services.
9
Mardee [Trapkus] indicated that you have some issues with
Marie [Tarbox]. It’s important to make choices according to
what you want. (It’s your money and you can control where
it goes.) I’ve enclosed transfer forms that are necessary to
move your assets into the [C]haritable [T]rust.
Enclosed are forms necessary to transfer your assets into the
[C]haritable [T]rust.
Tarbox testified she was unaware of Ingram’s attempts to transfer
Engels’s property into the Charitable Trust. Had she been asked about
the transfers, she claims she would have told Ingram or Engels the
transfers were “inappropriate” because Engels would lose the benefit of
those assets during his life. Yet, it is not disputed that Tarbox’s office
sent the quitclaim deed for Engels’s home to the recorder’s office in
February 2004. The successful transfer of the home to the Charitable
Trust would have resulted in the need for Engels either to sell the home
or to make rent payments in order to continue living there. While Tarbox
did not deny preparing the quitclaim deed and admits she would have
known of its existence because she signed the check to the recorder’s
office, she stated she had no recollection of preparing it and was
uncertain if the request for the deed would have come from Ingram or
Engels. She indicated she would have told Ingram or Engels about the
implications of transferring the home when asked to prepare the deed.6
Several months later, in August 2005, Ingram again wrote Engels
urging him to fund the Charitable Trust by transferring his brokerage
account assets into it. Ingram noted the annual income on Engels’s
account amounted to $20,000 and “[t]he annual gifting of $20,000+ to
worthwhile charities, organizations and scholarships will make a
6Tarbox
also did not explain why she would have arranged for the transfer of the
home to the Charitable Trust when Bristol was to receive the home under the 2003
estate plan.
10
substantial impact on the lives of many people in the future.” Ingram
added, “We really need to get the [C]haritable [T]rust funded, so please
return the enclosed forms to your attorney when you make your
changes.”
On January 6, 2006, Ingram’s office called Tarbox to let her know
that Engels wanted to change the designated individual on his healthcare
power of attorney. Tarbox drafted the necessary forms and sent them to
the new designee.
At this time, Engels’s health was deteriorating. Ingram sent a
letter to Central Trust and Savings Bank indicating Tarbox had
“requested that [Ingram] assist [Engels] in compliance with his Durable
Financial Power of Attorney dated October 1, 2003.” He asked the bank
to “honor [Ingram’s] signature on [Engels]’s personal checks until further
notice.” Engels died on February 12, 2006.
On February 15, 2006, Tarbox sent a letter to Ingram offering “a
short review of Mr. Engels’[s] estate plan documents.” In it, she went
over the terms of the Will and the Charitable Trust. Tarbox testified she
first became aware of the Revocable Trust after Engels’s estate was
opened and Ingram provided the Revocable Trust documents to her.
In a handwritten, one-page document that Ingram created after
Engels’s death entitled “Alvin Engels Estate,” Ingram listed the monetary
bequests to the nieces and nephew under the Will and additionally noted
the house was to “deed out quickly to Bristol.”
However, Engels’s assets were still titled in the Revocable Trust.
As a result, the provisions of the Revocable Trust controlled the
distribution of his assets, and there were no assets to be probated under
the Will. This meant there was no residuary to fund the Charitable
Trust.
11
It is not clear when Ingram became aware that Engels’s assets
would pass according to the Revocable Trust rather than the Will.
Regardless, he clearly knew this by August 15, 2006, when he sent the
following letter to the priest of St. Malachy’s:
Hi Father—
Please accept this as a donation to help cover the cost
of the funeral luncheon for [Engels].
[Engels]’s intentions were to remember St. Malachy’s
in a significant manner, but his last will was declared invalid
and his entire estate will be given to his relatives.
It’s unfortunate.
Approximately a year later, in August 2007, the counsel for
St. Malachy’s sent a letter to Ingram asking him to
investigate and initiate an attorney’s malpractice suit
[against] Marie Tarbox and Gosma, Tarbox & Associates,
P.L.C. for negligence in preparing the Last Will & Testament
of Mr. Engels and for not revoking his revocable living trust
and re-titling his assets to carry out his last wishes.
St. Malachy’s asserted Ingram, as a trustee of the Charitable Trust, had
a fiduciary duty to the beneficiaries of the Charitable Trust—
St. Malachy’s, the United Way, and the American Red Cross.
Ingram did not bring a claim against Tarbox or her law firm, but
instead responded through counsel on September 5, 2007. The letter
stated:
Ingram followed his fiduciary duties by prudently investing
the assets of the 1999 Revocable Trust as well as by making
distributions of Trust proceeds in accordance with the terms
of the governing trust documents. As such, we believe that
any malpractice action should be brought by the
beneficiaries.
On January 27, 2011, St. Malachy’s, Steve Bristol, and his wife
Conni Bristol filed a petition naming Tarbox, Tarbox’s law firm, Ingram,
12
Ingram’s employer Baird, the American National Red Cross, the
American Red Cross of the Quad Cities Area, and the Kewanee Area
United Way as defendants. The plaintiffs alleged negligence by Tarbox
and Ingram and their respective firms. On March 7, 2011, shortly after
the petition was filed, Ingram died. His wife, Donna Ingram, as executor
of Ingram’s estate, was substituted as a defendant on April 5, 2011.7
The Red Cross entities have never appeared in the litigation.
United Way answered and filed cross-claims against Tarbox and her firm,
and against Ingram and his firm, and therefore was realigned as a
plaintiff.
Ingram and Baird initially moved to have the claims against them
dismissed for failure to state a claim. They maintained they owed no
duties to the beneficiaries of the Charitable Trust or the Will and that the
plaintiffs’ claims were barred by the economic loss doctrine. The district
court denied the motion.
Baird then moved for summary judgment on July 20, 2012. Baird
argued no duty to the plaintiffs existed, any duty owed was discharged
by Ingram’s act of supplying the necessary documents to transfer
Engels’s assets to the Charitable Trust, the claims were barred by the
economic loss doctrine, St. Malachy’s and the United Way lacked
standing to bring claims, and the damages allegedly sustained were too
speculative. Ingram joined Baird’s motion for summary judgment.
St. Malachy’s and the Bristols resisted the motion. They
maintained that Ingram’s “intimate role as a financial advisor for Alvin
Engels,” Ingram’s close relationship with Tarbox in connection with
7We will use “Ingram” hereafter to refer interchangeably to Jay Ingram and his
estate.
13
Engels’s estate planning, and Ingram’s knowledge of Engels’s desire to
benefit the plaintiffs created a duty to the specifically identifiable
beneficiaries of the Will and Charitable Trust. They also argued that if
the court found St. Malachy’s and the Bristols lacked standing, the
Charitable Trust should be substituted as a party.
Tarbox and her law firm also filed a brief resisting the plaintiffs’
suggestion that the Charitable Trust should be substituted or joined as a
party in the case.
The district court issued its ruling on the motion for summary
judgment on September 10, 2012. In it, the court addressed only Baird
and Ingram’s arguments related to duty. The court determined neither
Ingram nor Baird owed any duty to the beneficiaries of the Will or the
Charitable Trust to advise Tarbox or Engels that Engels’s assets were
held in a Revocable Trust and needed to be moved out of that trust. The
court explained, “The Court agrees with Baird’s assertion that judicial
creation of a duty to beneficiaries of a client’s estate or trust would lead
to divided loyalties of securities registered representatives.” It added,
“The Court simply cannot and should not create a duty for a securities
registered representative that would, in any manner, require or
encourage that individual to practice law without a license.”
Because the court found no duty existed, it concluded it was
“unnecessary for the Court to address the remaining contentions set
forth in the brief” submitted by Baird and joined by Ingram. The court
granted the motion for summary judgment and dismissed the claims
against Ingram and Baird.
St. Malachy’s, the Bristols, and United Way, joined by Tarbox,
submitted an application for interlocutory appeal. We treated Tarbox’s
14
joinder as a separate application for interlocutory appeal and granted
both applications.
III. Standard of Review.
Summary judgment is appropriate if
the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of
law.
Iowa R. Civ. P. 1.981(3). The district court’s ruling on a motion for
summary judgment is reviewed for correction of errors of law. Pitts v.
Farm Bureau Life Ins. Co., 818 N.W.2d 91, 96 (Iowa 2012).
IV. Analysis.
A. Duty. The plaintiffs allege Ingram and Baird acted negligently
in the course of their dealings with Engels and that this negligence
harmed them. “Generally, [a]n actionable claim of negligence requires
the existence of a duty to conform to a standard of conduct to protect
others, a failure to conform to that standard, proximate cause, and
damages.” Id. at 98 (internal quotation marks omitted).
“The issue of whether a particular duty arises out of parties’
relationships is always a matter of law for the court to decide.” Dettmann
v. Kruckenberg, 613 N.W.2d 238, 251 (Iowa 2000) (internal quotation
marks omitted). Historically, we have considered three factors when
determining whether a duty exists: “(1) the relationship between the
parties, (2) reasonable foreseeability of harm to the person who is
injured, and (3) public policy considerations.” Thompson v. Kaczinski,
774 N.W.2d 829, 834 (Iowa 2009) (internal quotation marks omitted). In
Thompson, we held foreseeability can no longer form the sole basis for a
court’s no-duty determination. Id. at 835; see also Pitts, 818 N.W.2d at
15
98 (“In Thompson, we . . . , in general, rejected the use of foreseeability
when determining, as a matter of law, that one party did not owe a duty
to another.”). However, we later noted the Thompson duty analysis is not
dispositive in cases like the present one that are “based on agency
principles and involve[] economic loss.” See Langwith v. Am. Nat’l Gen.
Ins. Co., 793 N.W.2d 215, 221 n.3 (Iowa 2010), superseded by statute,
2011 Iowa Acts ch. 70, § 45 (codified at Iowa Code § 522B.11(7) (Supp.
2011)); see also Pitts, 818 N.W.2d at 99 (“Since this is a case based on
agency principles and involving economic harm, we will not rely on the
concept of duty embodied in Thompson . . . .”).
As a registered representative, Ingram was clearly Engels’s agent in
certain respects. See Restatement (Third) of Agency Intro., at 9 (2006)
(noting that “[s]ecurities brokers . . . are the subject of statutory and
administrative regulation, but the common law of agency otherwise
governs relationships between and among the agent, the principal, and
third parties to transactions”). “As a general matter, a stockbroker is an
agent of his client.” Thompson ex rel. Thorpe Family Charitable
Remainder Unitrust v. Federico, 324 F. Supp. 2d 1152, 1166 (D. Or.
2004); see also O’Malley v. Boris, 742 A.2d 845, 849 (Del. 1999) (stating
that “[t]he broker, as agent, has a duty to carry out the customer’s
instructions promptly and accurately”); Hand v. Dean Witter Reynolds
Inc., 889 S.W.2d 483, 492–93 (Tex. App. 1994) (“The relationship
between a broker and its customer is that of principal and agent.”).
To the extent Ingram was acting as Engels’s agent, Ingram owed a
duty to Engels subject to the parties’ agreement:
Subject to any agreement with the principal, an agent
has a duty to the principal to act with the care, competence,
and diligence normally exercised by agents in similar
circumstances. Special skills or knowledge possessed by an
16
agent are circumstances to be taken into account in
determining whether the agent acted with due care and
diligence. If an agent claims to possess special skills or
knowledge, the agent has a duty to the principal to act with
the care, competence, and diligence normally exercised by
agents with such skills or knowledge.
Restatement (Third) of Agency § 8.08, at 343.
“Whether the agency exists and its extent are questions of fact.”
Fowler v. Berry Seed Co., 248 Iowa 1158, 1165, 84 N.W.2d 412, 416
(1957); see also Peak v. Adams, 799 N.W.2d 535, 546 (Iowa 2011)
(“Agency is generally a question of fact.”); Mayrath v. Helgeson, 258 Iowa
543, 547, 139 N.W.2d 303, 305–06 (1966) (“[U]sually the nature and
extent of the authority of an agent, and whether his acts or contracts are
within the scope of his authority, are questions of fact . . . .”). While the
existence of some agency relationship is not contested by the parties, the
scope of that relationship is. Ingram and Baird argue Ingram was merely
a securities registered representative—only able to “give incidental advice
to retail investors who buy and sell securities.” They claim Ingram never
acted in the role of an estate planner or financial planner for Engels.
The plaintiffs allege Ingram’s relationship with Engels far exceeded
the scope of the typical relationship between a securities registered
representative and his or her client. They argue Ingram was intimately
involved with Engels’s estate planning and, in fact, gave estate planning
advice.
We believe the summary judgment record supports a conclusion
that Ingram did far more than just recommend financial investments.
Ingram worked with Engels’s previous attorney when the Revocable Trust
and the Charitable Foundation were established. He became a director
of the Charitable Foundation. He was Engels’s designated successor as
17
the trustee of the Revocable Trust. He was the executor of Engels’s
original will.
Ingram and Engels discussed the terms of Engels’s new will and
Charitable Trust before they were drafted. According to Tarbox, Ingram
spoke with Tarbox three or four times and “outlin[ed] a plan” for Engels’s
estate before Engels had his first and only meeting with Tarbox. Ingram
communicated to Tarbox the parties whom Engels wished to benefit
under the Will and Charitable Trust. Ingram was to be the executor of
the Will if Jerri McLane could not serve. Ingram was named cotrustee of
the Charitable Trust. Ingram repeatedly wrote Engels providing forms for
him to transfer the ownership of his assets to the Charitable Trust. As
Ingram said to Engels, “We really need to get the [C]haritable [T]rust
funded.”
Even though Ingram was not licensed to provide legal services, he
had a general legal duty to exercise care in whatever services he did
provide as Engels’s agent. See Restatement (Third) of Agency § 8.08, at
343 (“If an agent claims to possess special skills or knowledge, the agent
has a duty to the principal to act with the care, competence, and
diligence normally exercised by agents with such skills or knowledge.”).
If an agent undertakes to perform services as a
practitioner of a trade or profession, the agent “is required to
exercise the skill and knowledge normally possessed by
members of that profession or trade in good standing in
similar communities” unless the agent represents that the
agent possesses greater or lesser skill.
Id. cmt. c, at 346 (citing Restatement (Second) of Torts § 299A, at 73
(1965)).
A reasonable fact finder could conclude that Ingram was acting on
Engels’s behalf in developing and implementing an estate plan. Even if
Ingram fell short of actually performing legal services, a fact finder could
18
certainly determine that Ingram was serving as Engels’s go-between or
intermediary with Tarbox. If Ingram failed to perform these services with
due care, he could potentially be liable to Engels or his estate. See
Collegiate Mfg. Co. v. McDowell’s Agency, Inc., 200 N.W.2d 854, 857 (Iowa
1972) (“Generally an agent owes his principal the use of such skill as is
required to accomplish the object of his employment. If he fails to
exercise reasonable care, diligence, and judgment in this task, he is
liable to his principal for any loss or damage occasioned thereby.”);
Restatement (Second) of Torts § 874, at 300 (1979) (“One standing in a
fiduciary relation with another is subject to liability to the other for harm
resulting from a breach of duty imposed by the relation.”).
But, of course, neither Engels nor his estate is bringing this action.
The plaintiffs, rather, are putative beneficiaries of the Will and the
Charitable Trust. Yet, we have previously recognized that “a lawyer owes
a duty of care to the direct, intended, and specifically identifiable
beneficiaries of the testator as expressed in the testator’s testamentary
instruments.” Schreiner, 410 N.W.2d at 682. In Schreiner, a lawyer
drafted a will and a codicil that devised a one-half interest in certain real
estate to Schreiner. Id. at 680. Later, in the course of representing the
same client, the attorney brought an action for partition by sale of the
same piece of real estate. Id. As a result of the partition sale, the client
received cash. Id. When the client later died, Schreiner’s interest was
found to have adeemed because the testator no longer owned the real
property. Id. The money from the sale did not go to Schreiner, but
passed to the testator’s family through a residuary clause in the codicil
to the will. Id. Schreiner brought an action for professional negligence
against the attorney, who in turn argued that he owed no legal duty to
Schreiner. Id. at 681.
19
While we recognized that an attorney traditionally was considered
to owe a duty of care only to his or her client, we noted the trend in other
states had been “to allow some relaxation of the privity standard in
severely limited situations.” Id. Consistent with that trend, we found a
duty could be owed to “direct, intended, and specifically identifiable
beneficiaries of the testator as expressed in the testator’s testamentary
instruments.” Id. at 682. We further confined the duty by stating an
action
ordinarily will arise only when as a direct result of the
lawyer’s professional negligence the testator’s intent as
expressed in the testamentary instruments is frustrated in
whole or in part and the beneficiary’s interest in the estate is
either lost, diminished, or unrealized.
If the testator’s intent, as expressed in the
testamentary instruments, is fully implemented, no further
challenge will be allowed.
Id. at 683 (citations omitted).
Under the facts of the Schreiner case, we determined the lawyer
was “actively involved in [the will, codicil, and sale of the property] and
[was] fully aware of [the client’s] intent to leave Schreiner an interest in
the property.” Id. However, the lawyer never explained to the client
“what effect the sale would have on her testamentary intent or redrafted
her codicil to insure Schreiner would receive a portion of the proceeds
from the partition sale,” and as a result, nothing passed to Schreiner
under the will. Id. While we stated that “in most cases, the post-will
disposition of property will give rise to no cause of action” because “[n]o
lawyer reasonably can be expected to keep track of the provisions in the
wills of his or her clients, nor the effect on those instruments caused by
changes in the clients’ affairs,” we determined Schreiner had alleged
sufficient facts to avoid dismissal. Id.
20
We also emphasized that allowing a cause of action in these
circumstances made sense because “the testator’s estate generally will
have little incentive to challenge the lawyer’s action.” Id. at 682. In
effect, we allowed the intended beneficiary of the testator’s written
instrument to step into the testator’s shoes. See Restatement (Third) of
the Law Governing Lawyers § 51 Reporter’s Note cmt. f, at 370 (2000)
(citing Schreiner as an example of “[a] nonclient enforcing duties of a
lawyer to a client”).
The duty we imposed in Schreiner was extended in Holsapple v.
McGrath to include the specifically identifiable beneficiaries of
nontestamentary instruments. 521 N.W.2d 711, 713–14 (Iowa 1994).
The Holsapple plaintiffs filed suit against an attorney after a quitclaim
deed drafted by the attorney was found to be defective because it had not
been properly notarized. Id. at 712. Under the quitclaim deed, the
Holsapples were to receive certain farmland. Id. The grantor–decedent
had discussed with her attorney her intent to give the land to the
Holsapples and signed the quitclaim deed before her death. Id. We
applied the reasoning from Schreiner and found the Holsapples, despite
their lack of an attorney–client relationship with the attorney in question,
could recover if they established they were “specifically identified, by the
donor, as an object of the grantor’s intent” and “the expectancy was lost
or diminished as a result of professional negligence.” Id. at 714. Again,
the plaintiff would have to show that the client “attempted to put the
donative wishes into effect and failed to do so only because of the
intervening negligence of a lawyer.” Id. at 713.
We again relied on the Schreiner decision in Pitts, where we found a
life insurance agent owed a duty under certain circumstances to the
intended beneficiary of a life insurance policy. Pitts, 818 N.W.2d at 101–
21
06. In that case, a widow filed an action against her late husband’s
insurance agent, claiming the agent negligently failed to cause her to be
named the sole beneficiary of her husband’s life insurance policy. Id. at
95–96. The husband’s daughter from a prior marriage had been a partial
beneficiary of the policy, but the child support obligation had expired a
few years before the husband’s death. Id. at 95. In answering the
question of whether the agent owed a duty to the widow, we indicated
“any duty . . . owed . . . would arise out of [the] agency relationship as
insurance agent, insured and intended beneficiary.” Id. at 99.
We first looked at the widow’s claim that the relationship of an
insurance agent to a beneficiary of a life insurance policy was analogous
to the relationship between an attorney and the beneficiary of a
testamentary instrument as found in Schreiner. Id. at 101. In
concluding they were comparable, we noted other jurisdictions had
accepted the analogy and indicated that “[l]ike a testamentary
instrument, the main purpose of the [insurance agent]’s transaction with
the insured is to benefit the intended beneficiary.” Id. at 101–02. We
also observed that damage to an intended beneficiary was foreseeable,
and if the beneficiary could not bring a claim, “the very purpose for
which the insurance agent was employed would be frustrated.” Id. at
102. Ultimately, we held an insurer owes a duty to the beneficiary if the
beneficiary can “show that he or she was the ‘direct, intended, and
specifically identifiable beneficiar[y]’ of the policy as well as the other
elements of negligence.” Id. at 106 (quoting Schreiner, 410 N.W.2d at
682). We stated, however, that the beneficiary must “point to evidence in
the written instrument itself that identifies her as the intended
beneficiary of the entire policy.” Id. at 109.
22
The present question is whether a financial planner should be
treated similarly to an attorney or an insurance agent. That is, if a
written instrument executed by the deceased principal specifically
identifies the plaintiff as an intended beneficiary, but due to the agent’s
negligence the decedent’s plan as set forth in the instrument is defeated,
can the beneficiary sue? We see no reason to treat one kind of agent
differently from another, so long as the plaintiffs are “direct, intended,
and specifically identifiable beneficiaries.” Schreiner, 410 N.W.2d at 682.
Logic and fairness support this result. Both Tarbox and Ingram
were involved with Engels’s estate plan, but their respective roles are
disputed. As we have discussed above, within the scope of their
respective agencies, both Tarbox and Ingram generally owed duties of
due care. See F.W. Myers & Co. v. Hunter Farms, 319 N.W.2d 186, 188
(Iowa 1982) (stating that if an agent “fails to exercise reasonable care,
diligence, and judgment under the circumstances, he is liable to his
principal for any loss or damage resulting”). It seems appropriate to
allow the fact finder to sort out the parties’ (including Engels’s) respective
shares of responsibility.
Baird acknowledged at oral argument that this would be a different
case if Ingram had been licensed as an attorney or a certified public
accountant. To some extent, this concession undermines Ingram and
Baird’s position, because the lack of a professional license is not
generally viewed as a stop sign for legal liability. See Sande L. Buhai, Act
Like a Lawyer, Be Judged Like a Lawyer: The Standard of Care for the
Unlicensed Practice of Law, 2007 Utah L. Rev. 87, 88 (noting that “[a]
majority of courts have held that one who provides legal services,
regardless of whether licensed or authorized, should be held to the
standard of care applicable to attorneys providing those same services”);
23
see also Buscemi v. Intachai, 730 So. 2d 329, 330 (Fla. Dist. Ct. App.
1999) (affirming a negligence award against a financial planner and
stating that “[a]ppellant overlooks the fact that whether a lawyer or not, if
he undertakes to give legal advice, he is subject to a standard of due
care”).
Under the Will, plaintiff Steve Bristol was clearly a direct, intended,
and specifically identifiable beneficiary. The Will provided that Bristol
would receive Engels’s house. This game plan was confirmed by Tarbox’s
contemporaneous September 2003 letter to Engels, as well as by
Ingram’s handwritten summary prepared shortly after Engels’s death in
February 2006. A reasonable fact finder could determine that Bristol’s
inheritance was defeated because Ingram did not tell Tarbox the home
was already titled in the Revocable Trust.
We do not prejudge the outcome of this case. The ultimate
question is whether Ingram or Tarbox breached a duty to Engels, thereby
causing Bristol to lose his specifically identified inheritance. There are
potential issues of fact as to what Engels, Ingram, and Tarbox said to
each other, as to the scope of Ingram’s agency and whether it included
the communication of information to Tarbox, and as to whether Tarbox
had an independent obligation to ascertain the ownership of house.8
Moreover, an agent’s duties may be affected by an agreement
between the agent and the principal. See Collegiate Mfg. Co., 200 N.W.2d
at 857 (“This general rule may be altered, either to limit or enlarge the
ordinary duties, by agreement of the parties.”); see also F.W. Myers &
Co., 319 N.W.2d at 188 (“[u]nless otherwise agreed” (internal quotation
8We also do not address whether Baird is liable for Ingram’s actions under
respondeat superior, a matter that is not before us.
24
marks omitted)); Restatement (Third) of Agency § 8.08, at 343 (“Subject
to any agreement with the principal . . . .”). In Pitts, we pointed out that
“the agency agreement had not been modified”; hence, the insurance
agent owed “the use of such skill as is required to accomplish the object
of his employment.” Pitts, 818 N.W.2d at 100 (internal quotation marks
omitted). As in Pitts, no such agreement is before us. See id.
For the foregoing reasons, we hold that when an agent negligently
performs his or her duties to a principal, and as a result of that
negligence a direct, intended, and specifically identifiable beneficiary of a
written instrument executed by the principal does not receive the
benefits set forth in the written instrument, the beneficiary is owed a
duty by the agent and may have a cause of action against him or her.
We conclude, therefore, that the district court should not have
entered summary judgment against Bristol based on the absence of a
legal duty. For reasons that we discuss below, however, it is
unnecessary for us to decide whether St. Malachy’s or the United Way
were also direct, intended, and specifically identifiable beneficiaries that
were owed a similar duty by Ingram and Baird.
B. Economic Loss. Ingram and Baird argue, alternatively, that
the damages sought by all plaintiffs in the case, including Bristol, are
“merely for money damages against a non-professional” and are barred
by the economic loss doctrine.9
9Because the district court granted summary judgment to Ingram and Baird
based on the absence of a legal duty, it did not need to reach their alternative
arguments that summary judgment should be granted based on the economic loss rule,
lack of standing, and speculative damages.
However, these arguments were raised below and are reiterated in Ingram and
Baird’s briefing to this court. It is well-settled that we may affirm a district court ruling
on an alternative ground provided the ground was urged in that court. See Bagelmann
25
“As a general proposition, the economic loss rule bars recovery in
negligence when the plaintiff has suffered only economic loss.” Annett
Holdings, Inc. v. Kum & Go, L.C., 801 N.W.2d 499, 503 (Iowa 2011). In
part, this rule is intended to prevent the “tortification of contract law.”
Id. It is also intended to encourage parties to enter into contracts and to
protect parties from being responsible for remote economic losses. Id. at
503–04.
However, we have also stated the economic loss doctrine is subject
to qualifications:
For example, purely economic losses are recoverable in
actions asserting claims of professional negligence against
attorneys and accountants. Also, negligent
misrepresentation claims fall outside the scope of the
economic loss rule. In addition, when the duty of care arises
out of a principal-agent relationship, economic losses may be
recoverable.
Id. at 504 (citations omitted).
Here, any duty owed to Bristol arises out of the principal–agent
relationship between Ingram and Engels. Unless Ingram breached a
duty to Engels as Engels’s agent, Bristol can have no claim against
Ingram. Therefore, Bristol’s claims fall under the third recognized
exception: losses arising out of a principal–agent relationship. Id. As a
result, the economic loss rule does not apply.
C. Damages. The defendants argue that even if a duty was owed
to the plaintiffs and the economic loss rule does not apply, St. Malachy’s
and United Way lack standing, and their claimed damages are too
_______________________
v. First Nat’l Bank, 823 N.W.2d 18, 32 (Iowa 2012); DeVoss v. State, 648 N.W.2d 56, 61
(Iowa 2002).
26
speculative.10 We will focus our discussion only on the question of
damages. The defendants maintain that the amount of any gift to either
of these entities was in the full control and discretion of the Charitable
Trust’s trustees and, therefore, a matter of guesswork. They contend
that St. Malachy’s and United Way could have received little or nothing,
and there is no reasonable way to estimate what they would have
received.
“As a general rule, the party seeking damages bears the burden of
proving them; if the record is uncertain and speculative as to whether a
party has sustained damages, the factfinder must deny recovery.” Data
Documents, Inc. v. Pottawattamie Cnty., 604 N.W.2d 611, 616 (Iowa
2000). “There is a distinction between proof of the fact that damages
have been sustained and proof of the amount of those damages.” Pavone
v. Kirke, 801 N.W.2d 477, 495 (Iowa 2011) (quoting Olson v. Nieman’s,
Ltd., 579 N.W.2d 299, 309 (Iowa 1998)). “[I]f the uncertainty merely lies
in the amount of damages sustained, recovery may be had if there is
proof of a reasonable basis from which the amount can be inferred or
approximated.” Id. (citation and internal quotation marks omitted).
“Thus, some speculation on the amount of damages sustained is
acceptable,” but a plaintiff cannot recover overly speculative damages.
Id.
The terms of the Charitable Trust provided:
On the death of the Grantor [Engels], the Trustee shall
distribute the net income and so much of the Trust principal
as the Trustee may determine among St. Malachy’s Catholic
Church, Geneseo, Illinois, and the United Way and the
10The defendants raise lack of standing and speculative damages only as to
St. Malachy’s and United Way, not as to the Bristols. Engels’s home was specifically
devised to Steve Bristol in the Will.
27
American Red Cross, with direction that distributions to the
latter two organization[s] shall be used for the benefit of
residents of Henry County, Illinois, and to such other
501(c)(3) organizations benefitting Henry County, Illinois as
may apply for distributions and which the Trustee, in its sole
discretion, determines appropriate in any given year.
The Grantor recognizes that he is placing a good deal
of discretionary power in the Trustee, and is confident that
the Trustee will exercise its discretionary power in a manner
that will best meet[] the needs of the charitable organizations
named herein, Geneseo, Illinois and Henry County, Illinois
over the years.
Moreover, if either of the trustees—Ingram or Jerri McLane—died
or became unable to serve, the Trust assets would go to the Geneseo Is
For Tomorrow (GIFT) Community Foundation, with the remaining trustee
“to serve in assisting the GIFT Board of Directors in determining
distributions from the Trust in a manner consistent with [the above].”
Ingram, as we know, died in 2011, so at that point, the Trust assets
would have gone to GIFT with Engels’s niece McLane “to serve in
assisting” GIFT. The decision maker would have been the GIFT Board,
with only input from McLane.
We believe the essentially unbridled discretion of the trustees or
GIFT to select charitable recipients within a particular geographic area
makes the fact and amount of damages too speculative for either
St. Malachy’s or United Way to recover. See Giambrone v. Bank of N.Y.,
677 N.Y.S.2d 608, 610 (App. Div. 1998) (“[T]his claim and the plaintiff’s
claim of fraud against the Adamo defendants must fail because the
damages sought are speculative and incapable of being proven since they
are based on the terms of the single-life trust, which provided that the
plaintiff’s right to income was at the sole discretion of the trustees.”);
Pietz v. Toledo Trust Co., 577 N.E.2d 1118, 1122 (Ohio Ct. App. 1989)
(finding damages too speculative when sons would not receive benefit
28
under the trust until the mother’s death, and mother could use and
exhaust assets before that time, potentially leaving them nothing).
We have rejected damage claims in the past when they were too
speculative. In one case, we upheld a district court ruling barring
anesthesiologists from recovering damages after the expiration date of a
contract even though the contract provided it “shall” renew unless
terminated by either party. Tredrea v. Anesthesia & Analgesia, P.C., 584
N.W.2d 276, 288 (Iowa 1998); see also Data Documents, Inc., 604 N.W.2d
at 617 (finding that damages were too speculative where the plaintiff
established only the unpaid contract price but did not present proof on
the market price of the goods it had produced or the expenses saved from
the defendant’s breach); Sun Valley Iowa Lake Ass’n v. Anderson, 551
N.W.2d 621, 641 (Iowa 1996) (finding damages too speculative when the
plaintiff “produced scant evidence to establish the reduction in value” of
the property in question); Mood v. Van Wechel, 402 N.W.2d 752, 758
(Iowa 1987) (finding insufficient evidence to support a claim for damages
where there was no showing of the value of the damaged crops); Schiltz v.
Teledirect Int’l, Inc., 524 N.W.2d 671, 674–75 (Iowa Ct. App. 1994)
(finding that the landlord’s claim of damages against a tenant for unpaid
electrical charges was too speculative when the lease required the tenant
to compensate the landlord for certain electrical use but “[i]nsufficient
evidence was provided from which the trial court could adequately
determine the amount of electricity expenses which [the defendant]
should pay”). Here, whether or not St. Malachy’s and United Way would
have received anything and in what amounts was completely up to the
discretion of the trustees.
St. Malachy’s only response is to refer us to Ingram’s August 2006
letter to the church, which enclosed a donation to cover the cost of the
29
Engels’s funeral lunch.11 The letter did say that Engels’s “intentions
were to remember St. Malachy’s in a significant manner.” But,
“significant” is not exactly a term of precision, and more importantly,
nothing would have constrained the trustees of the Charitable Trust or
GIFT from bestowing the Charitable Trust assets on other charities to the
exclusion of St. Malachy’s. The Charitable Trust document itself
provides that “[t]he Grantor recognizes that he is placing a good deal of
discretionary power in the Trustee[s].”
In short, we believe the evidence here is insufficient to establish
either the fact of damage or a reasonable basis from which damages can
be inferred or approximated. See Pavone, 801 N.W.2d at 495. We note
that none of the parties have cited comment f to Restatement (Second) of
Torts section 912 (“Certainty”), which gives the example of a person who
is in a class of beneficiaries, one of whom would have
received a gift but for the wrongful conduct and there is no
evidence to indicate which one would have been the
recipient. In these cases the injured person, in order to
recover, has the burden of proving that the gift would have
been made to one of the class; having satisfied this burden,
he is then entitled to receive an amount commensurate for
the chance that he had of receiving the gift.
Restatement (Second) of Torts § 912 cmt f, at 486. Comment f thus
appears to allow one out of a “class of beneficiaries” to recover a
percentage of the whole based on “the chance . . . of receiving the gift.”
See id. The problem with applying comment f here, however, is that
there is no confined “class of beneficiaries.” See id. Potentially, the
income and principal of the Charitable Trust could have been distributed
to any number of “501(c)(3) organizations benefitting Henry County,
11United Way does not respond to Baird and Ingram’s argument that the
damages it seeks are too speculative.
30
Illinois as may apply for distributions.” Thus, there is no reasonable
basis for awarding damages in favor of St. Malachy’s or United Way
without requiring the fact finder to speculate as to the trustees’ or GIFT’s
future discretionary actions.
V. Conclusion.
For the foregoing reasons, we reverse the summary judgment
entered for defendants Ingram and Baird on the claims of plaintiffs Steve
and Conni Bristol but affirm the summary judgment entered against
plaintiffs St. Malachy’s and United Way. We remand for further
proceedings consistent with this opinion.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
All justices concur except Waterman, J., who takes no part.