Phi Financial Services, Inc. v. Matthew R. Powers ( 2014 )

IN THE COURT OF APPEALS OF IOWA
No. 14-0006
Filed September 17, 2014
PHI FINANCIAL SERVICES, INC.,
Plaintiff-Appellee,
vs.
MATTHEW R. POWERS,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Michael D. Huppert,
Judge.
Borrower Matthew Powers appeals the district court’s determination the
creditor’s lawsuit is not barred by claim preclusion. AFFIRMED.
Matthew J. Hemphill of Bergkamp, Hemphill & McClure, P.C., Adel, for
appellant.
Christopher L. Low and Laurie Heron McCown of Abendroth & Russell,
P.C., Des Moines, for appellee.
Considered by Potterfield, P.J., and Tabor and Mullins, JJ.
2
TABOR, J.
In this contract action, borrower Matthew Powers contends the district
court erred in rejecting his defense of claim preclusion. The claim-preclusion
issue involves two deferred loan payment agreements for farm supplies—one
signed in 2005 and one signed in 2006. Those agreements spurred two lawsuits
filed by his creditor, PHI Financial Services, Inc.
Powers was the sole shareholder and president of Bell-Core, Inc., a North
Dakota corporation. Bell-Core and PHI entered into a 2005 deferred loan
payment agreement for $75,000. PHI set up a line of credit in favor of Bell-Core
for the purchase of seeds, chemicals, and other agricultural items; Powers
successfully argued he did not sign the 2005 contract in his personal capacity. In
contrast, PHI entered a 2006 deferred loan payment agreement for $75,000 with
Bell-Core and Powers individually as a co-borrower.1 Both loan agreements
stated:
The borrower and co-borrower, if any, separately and jointly
agree to be obligated to pay all obligations arising under this
Agreement. Anyone listed as a borrower or co-borrower is
authorized to enter a transaction for an advance to be made on this
Agreement. Any extension of new credit to any of us [the
borrowers], or renewal of this Agreement by all or less than all of
us, will not release any borrower/co-borrower from any duty to pay
it.
....
The credit limit stated is the maximum amount of principal
that can be borrowed and outstanding at any one time under this
Agreement unless the limit is changed by PHI Financial. In
subsequent years, the annual maximum line of credit amount shall
be the amount set forth in the final approval letter that I [borrowers]
receive prior to each crop year from PHI Financial.
1
The deferred loan for the 2006 crop year was paid in full.
3
Two years after the 2006 deferred loan agreement, a PHI December 2008
letter renewed the line of credit and set a borrowing limit of up to $325,000 for the
2009 crop year, with the loan due in full on December 1, 2009. The payment
coupon accompanying the renewal letter was in the names of both Bell-Core and
Powers. Neither Bell-Core nor Powers paid the 2009 loan balance by the due
date. In March 2011, Powers went through the process of dissolving Bell-Core
under North Dakota corporation laws.
I. First Litigation—CL123176.
In September 2011, PHI sued Bell-Core and Powers alleging breach of
the 2005 written contract. In January 2012, PHI sought summary judgment.
Powers resisted and filed an affidavit stating he was not personally a party to the
agreement having signed the 2005 agreement only in his capacity as Bell-Core’s
president. In March 2012, the court granted PHI’s summary judgment motion as
to Bell-Core2 and denied summary judgment as to Powers, ruling PHI “has not
provided the Court with sufficient undisputed proof that [defendant Powers]
should be held personally responsible for the debt sued upon.”
The following events occurred in April 2012. PHI moved to amend its
petition to allege a breach of the 2006 contract as the basis for a judgment
against Powers for the 2009 crop year. Powers resisted, stating in part, PHI
seeks to “base its claims upon an entirely new contract.” His resistance also
stated PHI “submit[s] this new and wholly different contract” and PHI “seeks to
submit a new contract with additional parties allegedly bound to the agreement.”
2
In December 2012, the court filed a judgment entry against Bell-Core in CL123176 for
$228,882.57, plus accrued interest, attorney fees, and costs.
4
The court denied PHI’s motion to amend, stating PHI’s “amended petition would
add an alleged individual liability count against [Powers] which was not alleged in
the original lawsuit” and Powers would be prejudiced if the court allowed PSI to
assert a new claim so late in the proceedings. Powers moved for summary
judgment, contending there were no issues of material fact regarding his claim
that he “is not a party to the contract at issue in this matter and is not personally
bound in any way to PHI.” (Emphasis added.)
PHI filed a motion to reconsider the amendment to its petition. Powers
resisted, stating: “The terms of both agreements may be the same . . . however,
the parties to the agreements are entirely different. Defendant Matthew R.
Powers is clearly not a party to the [2005] agreement.” In July 2012, the court
denied PHI’s motion to reconsider and granted Powers’s motion for summary
judgment.
II. Second Litigation—CL126640—Challenged in this Appeal.
In November 2012, PHI sued Powers, individually, for breach of the 2006
contract and sought to recover the funds it advanced in 2009. Powers answered
and asserted the affirmative defense of claim preclusion. In September 2013,
Powers filed a motion for summary judgment: “PHI claims Powers is liable for
indebtedness for the 2009 agricultural year based upon a 2008 renewal of the
2006 contract.” First, Powers claimed any “indebtedness in 2009 was in the
name of Bell-Core only.” Second, Powers pointed to the initial litigation and
claimed the current action is barred by res judicata.
5
PHI resisted stating the written provisions of the 2006 contract and the
2009 renewal establish Powers’s individual liability for the line of credit PHI
extended. PHI asserted claim preclusion did not apply to a later case “arising
from a completely independent claim” and in the earlier litigation (1) Powers
resisted the amended petition by arguing the 2005 and 2006 agreements were
completely independent agreements, (2) the court denied the motion to amend,
ruling PHI’s “amended petition would add an alleged individual liability count
against [Powers] which was not alleged in the original lawsuit,” and (3) the court
did not consider the merits of PHI’s claim against Powers based on the 2006
contract. See Pavone v. Kirke, 807 N.W.2d 828, 836 (Iowa 2011) (explaining
claim preclusion does not apply “unless the party against whom preclusion is
asserted had a full and fair opportunity to litigate the claim or issue in the first
action”).
After a contested hearing, the district court denied Powers’s motion for
summary judgment. The court quickly dispatched his first claim: “It is clear from
the record . . . the defendant, through his execution of the 2006 agreement,
obligated himself for any amounts borrowed by Bell-Core from [PHI] including
obligations taken out in subsequent years.” The court concluded Powers was not
entitled to summary judgment on the basis he, as a matter of law, did not assume
personal responsibility for the loan from PHI for the 2009 crop year.
As for claim preclusion, the district court noted the general rule “holds that
a valid and final judgment on a claim bars a second action on the adjudicated
claim or any part thereof.” Pavone, 807 N.W.2d at 835. The court stated Powers
6
must successfully prove, among other elements, the “fighting issue” that “the
claim made in the second action could have been fully and fairly adjudicated in
the prior case.” See Braunschweig v. Fahrenkrog, 773 N.W.2d 888, 893 (Iowa
2009). In determining whether the claim could have been fully and fairly
adjudicated in the first case, i.e., “whether both suits involve the same cause of
action,” the district court cited Pavone and aptly considered (1) the protected
right, (2) the alleged wrong, and (3) the relevant evidence. See Pavone, 807
N.W.2d at 837 (“However, we carefully distinguish between two cases involving
the same cause of action—where claim preclusion bars initiation of the second
suit—and two cases involving related causes of action—where claim preclusion
does not bar initiation of the second suit.”).
The district court ruled Powers had not proved the claim in the second
action could have been fully and fairly adjudicated in the initial case. First, the
protected right in the initial case “had at its source the 2005 agreement; the
protected right in the present case stems from an independent agreement, the
contract executed in 2006.” Second, PHI’s “efforts to frame a proper basis for a
claim” that Powers “was personally liable for the 2009 crop year were resisted”
by Powers, who claimed “the proposed amendment was based on a ‘new and
wholly different contract’ rather than the 2005 agreement.” Finally:
The two lawsuits brought by [PHI] against [Powers] arose from
separate and independent agreements. The adjudication in
[Powers’s] favor in the prior lawsuit should not form the basis for a
bar of the second lawsuit, especially when [Powers] successfully
objected to the inclusion of the very claim in the first lawsuit he now
contends was fairly and fully litigated therein.
7
Thereafter, the court entered judgment in favor of PHI and against Powers
for $249,099.34. Powers now appeals.
III. Claim Preclusion
Powers raises one issue on appeal: “The district court committed legal
error when it held the defense of claim preclusion does not apply in the second
lawsuit between the same parties involved in a claim that could have been
litigated in the first case.”
We review the grant or denial of summary judgment for correction of legal
error. Pavone, 807 N.W.2d at 833.
After thoroughly reviewing the record and arguments presented, we agree
with and adopt the district court’s analysis and decision on the issue of claim
preclusion.3 A full opinion would not augment or clarify existing case law.
Accordingly, we affirm by this memorandum opinion. See Iowa Court Rule
21.26(1)(d), (e).
AFFIRMED.
3
Because we approve of the reasons and conclusions in the district court’s opinion
rejecting Powers’s claim-preclusion argument, we need not address PHI’s contention
that judicial estoppel prohibited Powers from taking inconsistent positions in the first and
second litigation.