Car Wash Consultants, Inc. v. N/S Corporation

IN THE COURT OF APPEALS OF IOWA
No. 15-1372
Filed October 12, 2016
CAR WASH CONSULTANTS, INC.,
Plaintiff-Appellant,
vs.
N/S CORPORATION,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Sean W. McPartland,
Judge.
Plaintiff appeals from a judgment entered following a jury trial on
consequential damages for breach of implied warranty. AFFIRMED.
Peter C. Riley of Tom Riley Law Firm, P.L.C., Cedar Rapids, for appellant.
Michael McDonough and Graham R. Carl of Simmons, Perrine, Moyer,
Bergman, P.L.C., Cedar Rapids, for appellee.
Considered by Potterfield, P.J., and Mullins and McDonald, JJ.
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MCDONALD, Judge.
This matter comes before the court a second time. The facts and
circumstances giving rise to this litigation are set forth in our prior opinion and
need not be set forth in full herein. See N/S Corp. v. Car Wash Consultants, Inc.,
No. 11-0174, 2012 WL 1439084, at *1 (Iowa Ct. App. Apr. 25, 2012). In sum,
this litigation concerns a car wash manufactured by N/S Corporation and
distributed and installed by Car Wash Consultants, Inc., (hereinafter “CWC”).
CWC installed the car wash in a facility owned by James Martinez. The car wash
suffered from several defects that caused Martinez’s business to suffer. N/S filed
suit against CWC on an open account, and CWC asserted counterclaims,
including a claim for breach of the implied warranty of merchantability. The jury
found for N/S on its open-account claim and for CWC on its implied-warranty
claim. In the prior appeal, we concluded the district court erred in declining to
instruct the jury it could award consequential damages for breach of the implied
warranty. See id. at *13. We remanded this matter for trial on that issue. The
gist of CWC’s claim for consequential damages is it lost the sale of a second car
wash system to Martinez after Martinez’s bad experience with the car wash at
issue. The jury found CWC failed to prove it suffered consequential damages,
and the district court entered judgment accordingly.
I.
CWC challenges the jury’s verdict, contending the district court erred in
denying its motion for new trial. Our standard of review depends on the grounds
asserted in the motion for new trial. See Olson v. Sumpter, 728 N.W.2d 844, 848
(Iowa 2007). Here, CWC argues the verdict was not supported by substantial
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evidence and failed to administer substantial justice between the parties. “We
review a district court’s ruling on sufficiency of the evidence for correction of
errors at law.” Crow v. Simpson, 871 N.W.2d 98, 105 (Iowa 2015). We review
the verdict to determine whether it is supported by substantial evidence.
“Evidence is substantial if reasonable minds would accept the evidence as
adequate to reach the same findings. In reviewing whether a verdict is supported
by substantial evidence, we view the evidence in the light most favorable to the
verdict, taking into consideration all reasonable inferences the jury may have
made.” Id. (citations omitted). “We review a district court's denial of a new trial
for failure to administer substantial justice for an abuse of discretion.” Id. “We
will find an abuse of discretion only when a district court has exercised its
discretion ‘on grounds clearly untenable or to an extent clearly unreasonable.”
Id. at 108 (citation omitted).
We recently set forth the law regarding consequential damages caused by
breach of the implied warranty of merchantability:
A buyer may recover consequential damages from a breaching
seller pursuant to Iowa Code section 554.2715. Recoverable
consequential economic losses include loss of profits resulting from
failure of the goods to function as warranted, loss of goodwill, loss of
business reputation, and other loss proximately resulting from a
defective product beyond direct economic loss.
The buyer who has accepted goods and then discovers their
defects must show that the seller had reason to know at the time of
contracting of the buyer’s possible losses caused by a breach to
recover consequential damages. The losses must be foreseeable,
and losses are foreseeable if they follow in the ordinary course of
events, but also as a result of special circumstances. Iowa courts
focus on whether the type of damages was foreseeable rather than
whether the specific injury itself was foreseeable.
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Trs. of the Iowa Laborers Dist. Council Health & Welfare Tr. v. Ankeny Cmty.
Sch. Dist., 865 N.W.2d 270, 276–77 (Iowa Ct. App. 2014) (citations and marks
omitted). Here, the jury instruction regarding consequential damages correctly
set forth the law, and neither party challenges the substance of the instruction.
To establish its claim for consequential damages, CWC was required to
prove the breach of the implied warranty was a cause of consequential damages.
See NevadaCare, Inc. v. Dep’t of Human Servs., 783 N.W.2d 459, 468 (Iowa
2010); Primmer v. Langer, No. 13-0930, 2014 WL 4930456, at *5 (Iowa Ct. App.
Oct. 1, 2014); see also Fed. Signal Corp. v. Safety Factors, Inc., 886 P.2d 172,
188 (Wash. 1994) (en banc) (explaining the defective goods must have been the
cause of lost sales). There is no evidence the breach of the implied warranty—
the sale of defective goods—caused CWC consequential damages in the form of
a lost sale to Martinez. The evidence is to the contrary. Martinez purchased
another N/S system but from a different distributor, from which the jury could
have inferred Martinez selected another distributor for some reason other than
dissatisfaction with N/S’s product. CWC actually concedes the issue. In support
of its argument, CWC repeatedly stresses Martinez selected another distributor
because N/S blamed CWC for defective installation of the car wash and
encouraged Martinez to purchase N/S’s product through another distributor.
Even crediting CWC’s theory of the case, CWC only proved it suffered
consequential damages because of N/S’s interference with CWC’s relationship
with Martinez. While N/S’s interference may or may not have been improper, its
interference with CWC’s customer relationship is not a breach of implied
warranty.
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Independently, there are additional reasons to affirm the district court’s
denial of CWC’s challenge to the jury verdict. The jury could have inferred from
the evidence Martinez selected another distributor for its second car wash for a
variety of reasons. See Clancy v. City of Dubuque, No. 10-0004, 2010 WL
3894450, at *9 (Iowa Ct. App. Oct. 6, 2010) (stating we must consider “all
reasonable inferences that could be fairly made by the jury”). The evidence
showed the second distributor presented a better bid than CWC and CWC never
rebid the job. There is also evidence Martinez thought CWC were “morons” and
did not want to deal with them anymore. In addition, CWC’s documentation of
lost profit on any potential sale was lacking. Ultimately, this was a question of
fact for the jury. When the evidence is viewed in the light most favorable to the
verdict, see Wilson v. IBP, Inc., 558 N.W.2d 132, 144 (Iowa 1996) (“We are
obligated to view the evidence in the light most favorable to the jury verdict.”), the
verdict is supported by substantial evidence and administers substantial justice
between the parties. The district court did not err or abuse its discretion in
denying CWC’s motion for new trial.
II.
CWC challenges an evidentiary ruling. CWC contends the district court
erred in allowing N/S to ask questions regarding other litigation between CWC
and another car wash manufacturer. “We review the district court’s
determination of relevancy and admission of relevant evidence for an abuse of
discretion. An abuse of discretion exists when the court exercised its discretion
on grounds or for reasons clearly untenable or to an extent clearly
unreasonable.” Mohammed v. Otoadese, 738 N.W.2d 628, 631–32 (Iowa 2007).
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A ground or reason is untenable when it is not supported by substantial evidence
or when it is based on an erroneous application of the law. See Waits v. United
Fire & Cas. Co., 572 N.W.2d 565, 569 (Iowa 1997).
The general rule is relevant evidence is admissible and irrelevant
evidence is inadmissible. See Iowa R. Evid. 5.402. Relevant evidence is that
having “any tendency to make the existence of any fact that is of consequence to
the determination of the [present] action more probable or less probable.” Iowa
R. Evid. 5.401. Relevancy is contextual, dependent upon the relationship
between the issues raised, the other evidence introduced, and the applicable
law. See Gibson v. Buckley, No. 14-1108, 2015 WL 2394116, at *3 (Iowa Ct.
App. May 20, 2015). N/S sets forth a convoluted explanation of why the other
litigation was relevant to prove spoliation in this case and why the evidence was
useful for impeachment purposes. We reject the claimed bases of relevancy.
See, e.g., United States v. Ealy, No. 1:00CR00104, 2002 WL 1205035, at *4
(W.D. Va. June 3, 2002) (disallowing evidence where the “arguments of
relevancy hinge on a series of convoluted inferences and inject issues collateral
to those in this case”). CWC’s litigation with another manufacturer was wholly
unrelated to the limited, single issue tried in this case—whether N/S’s breach of
an implied warranty resulted in consequential damages to CWC.
We reiterate the supreme court’s admonition regarding the use of prior
litigation:
We note, however, that it is the duty of trial courts, upon timely
objection, to prevent the introduction of evidence regarding
unrelated prior claims. Such evidence can be very distracting and
improperly impugn the merits of the case being tried. Our ruling in
this case should not be read as tacit approval for introducing
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inadmissible evidence on a pinch-of-salt basis. Our standard for
reversal may prove inadequate in the event the trial bar continues
to be successful at introducing inadmissible evidence of prior
unrelated claims. At this time, we rely upon trial judges to resist
creative efforts to inject potentially prejudicial, irrelevant evidence
into the record.
Mohammed, 738 N.W.2d at 633–34.
The lack of relevancy does not end the inquiry. The erroneous admission
of evidence does not require reversal unless a substantial right of the party is
affected. See Iowa R. Evid. 5.103(a). “In other words, the admission of evidence
must be prejudicial to the interest of the complaining party. This requires a
finding that it is probable a different result would have been reached but for the
admission of the evidence or testimony.” Mohammed, 738 N.W.2d at 633.
We conclude CWC failed to establish prejudice. CWC does not argue it
suffered prejudice; instead, it argues this court should overrule Mohammed and
hold prejudice should be presumed. “We are not at liberty to overrule controlling
supreme court precedent.” State v. Beck, 854 N.W.2d 56, 64 (Iowa Ct. App.
2014). In addition, as in Mohammed, the questions were only a small part of a
lengthy trial. Cf. Mohammed, 738 N.W.2d at 633 (“The questioning was brief in
the context of a seven day trial.”). Any prejudicial effect was further minimized
because this was a single-issue trial on damages where the jury was instructed
breach had already been found. The prior litigation had little bearing on the
question of damages. See id.; Mays v. C. Mac Chambers Co., 490 N.W.2d 800,
804 (Iowa 1992) (finding defense counsel’s questions concerning plaintiff’s prior
claims against other persons or companies were improper but not prejudicial).
Thus, the district court did not err by denying a new trial on this ground.
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III.
CWC challenges a jury instruction. CWC contends the district court erred
in submitting a spoliation instruction to the jury relating to CWC’s purported
destruction or failure to produce financial records related to its consequential
damages. A spoliation instruction is justified if the party requesting the
instruction has presented substantial evidence that: (1) the evidence in question
existed; (2) the evidence was in the possession or under the control of the party
charged with the destruction of the evidence; (3) the evidence would have been
admissible at trial; and (4) the party responsible for its destruction did so
intentionally. State v. Hartsfield, 681 N.W.2d 626, 630 (Iowa 2004). We review a
trial court’s refusal to give a spoliation instruction for an abuse of discretion. See
Alcala v. Marriott Int’l, Inc., 880 N.W.2d 699, 707 (Iowa 2016). However, the trial
court does not have discretion to refuse a spoliation instruction when the
defendant has generated a jury question on the spoliation inference. Hartsfield,
681 N.W.2d at 631. Instructional error is not reversible error unless there is
prejudice. State v. Piper, 663 N.W.2d 894, 914 (Iowa 2003), overruled on other
grounds by State v. Hanes, 790 N.W.2d 545, 556 (Iowa 2010).
We conclude the instruction was warranted and, in any event, non-
prejudicial under the facts and circumstances of this case. The record reflects
CWC was on notice to preserve certain financial records to prove its claim for
consequential damages but failed to preserve them. Instead, it produced a
summary of the underlying financial records. After this litigation had been
pending for years, CWC produced some of the requested records five days prior
to trial, precluding N/S from effective examination of the records. More
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important, as set forth above, CWC’s theory of the case related to N/S’s
interference with CWC’s relationship with Martinez rather than proving N/S’s
breach of warranty caused consequential damages. CWC’s claim for
consequential damages for breach of implied warranty was doomed to fail based
on CWC’s theory of the case. Under the circumstances, we conclude CWC was
not prejudiced by the instruction. See Strasser v. Yalamanchi, 783 So.2d 1087,
1094 (Fla. Dist. Ct. App. 2001) (“Simply stated, the evidence presented to the
jury was such that the verdict was not likely affected by the erroneous
instruction.”).
IV.
For the foregoing reasons, we affirm the judgment of the district court.
AFFIRMED.