Schwickerath v. Anderson

IN THE COURT OF APPEALS OF IOWA
No. 21-1465
Filed December 7, 2022
KAREN SCHWICKERATH,
Plaintiff-Appellee,
vs.
PATRICK RYAN ANDERSON, JULIA STACEY ANDERSON, PATRICK R.
ANDERSON, ATTORNEY AT LAW, IOWA PROPERTY HOLDING, LLC,
EQUITY-VESTORS, LLC, IOWA PROPERTY HOLDING CO-OP, INC., IOWA
PROPERTY MANAGEMENT AND MAINTENANCE, LLC,
Defendants-Appellants.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Lawrence P. McLellan,
Judge.
An attorney and his business entities appeal a judgment for a former client
on her claims for fraud, negligent misrepresentation, and legal malpractice.
AFFIRMED.
Matthew M. Boles, Christopher Stewart, and Adam C. Witosky of Gribble,
Boles, Stewart & Witosky Law, Des Moines, for appellants.
Shayla McCormally and Sophie Wanek of McCormally & Cosgrove,
P.L.L.C., Des Moines, for appellees.
Heard by Bower, C.J., and Greer and Badding, JJ.
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BADDING, Judge.
“A lawyer with his briefcase can steal more than a hundred men with guns.”
Mario Puzo, The Godfather 51 (Putnam Publishing Group 1969).
Bragging that he had a “system that should be marketed because it
combines high rates of return with safety that only an attorney would think of,”
attorney Patrick Anderson swindled his client, Karen “Kara” Schwickerath, out of
$550,000.00 in a series of five contracts. When that boast proved to be false,
Schwickerath sued Anderson, his wife Julia, and his various business entities.
After a three-day bench trial, the district court entered judgment in Schwickerath’s
favor for $755,371.06 in compensatory damages and $200,000.00 in punitive
damages, plus $52,729.50 in attorney fees. Anderson and his companies appeal.1
I. Background Facts and Proceedings
Anderson and Julia moved to Iowa in 1998 from California. Anderson is
licensed to practice law in both states. He also served as a pastor of a church for
almost two decades. After being laid off as general counsel for a machine
company in 2015, Anderson opened a solo law practice. He billed himself as
experienced in “investments and estate planning” on his firm’s website.
Anderson and Schwickerath met in 2016, when he went to Schwickerath’s
house to purchase some landscape blocks from her. The pair began chatting
1 The district court dismissed all of Schwickerath’s claims against Julia and
declined to enter judgment against one of Anderson’s companies—Iowa Property
Management & Maintenance, LLC—because the parties agreed that company
“own[ed] no assets and was never involved in any of the transactions involved in
the dispute.” So the parties to this appeal are limited to Anderson, his law practice,
and his companies: Iowa Property Holding, LLC; Equity-Vestors, LLC; and Iowa
Property Holding Co-Op, Inc.
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about Schwickerath’s house, which she was renovating. She told Anderson that
after “semi-retiring” from construction, “it was kind of a dream . . . to buy an old
house and renovate it.” She was able to do this because her father had passed
away the year before and left her $1,000,000.00. During this conversation,
Schwickerath learned Anderson was an attorney and knowledgeable about real
estate investments.
Armed with that knowledge, Schwickerath contacted Anderson in January
2017 for his help in closing on a rental house she had purchased. Anderson
agreed to represent her, cutting his normal fee in half. In an email to her with some
questions about the closing, Anderson wrote:
I have a business question for you though: I help arrange real estate
type loans and receive very high interest rates for my private lenders.
Do you know of anyone interested in participating? These are highly
secured and set up so that the money is easily retrieved in the event
of default.
When Schwickerath expressed interest, Anderson responded: “I can give you the
details on the loans when we meet. I have a system that probably should be
marketed because it combines high rates of return with safety that only an attorney
would think of. (Not boasting ☺).”
While coordinating that meeting, Schwickerath asked for Anderson’s advice
on her rental homes and whether she should create a new limited liability company
for them. Anderson agreed that she should and offered to help her “with the LLC
drafting and filing.” Going back to his investment proposal, Anderson said in that
same email: “Also, I can help you set things up so that you are not a target for suit
and have more liquidity for future investment opportunities when they arise.” And
in response to Schwickerath’s inquiries about his legal fees, Anderson told her:
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“So long as we are working on investments, you are on the ‘family plan’ for legal
fees (which means I will work for lunches).” Over the next couple of months,
Anderson directed Schwickerath to blank templates she could use to set up her
new companies, drafted deeds transferring her properties into those companies,
and wrote a letter to a subcontractor she was having issues with.
In the midst of these legal services, Anderson proposed his first investment
opportunity to Schwickerath—a loan from her of $50,000.00 to his company, Iowa
Holding Property, LLC. He explained to her that the loan was to help a third party
with bad credit buy a house. The contract, dated February 4, 2017, was drafted
by Anderson on his firm’s letterhead, as were all the contracts that followed, and
recited:
Kara desires to lend Fifty Thousand ($50,000) Dollars to Iowa
Property Holding LLC in order to acquire a Monroe County Iowa
residence. . . .
Kara shall hold an Interest in said residence and Iowa
Property Holding LLC up to Fifty Thousand ($50,0000.) Dollars until
such debt is paid in full.
Iowa Property Holding LLC shall hold said residence for the
benefit of Kara . . . .
Kara was to be paid interest at ten percent annually with monthly principal and
interest payments due from Iowa Property Holding. The bottom of the agreement
stated: “Kara understands that Patrick R. Anderson is an attorney, and that he has
an interest in Iowa Property Holding LLC.”2
Schwickerath wrote a check to Iowa Property Holding for $50,000.00, which
Anderson deposited into the company’s bank account. But Anderson later told
2All of the contracts that followed, except an addendum to the second one and the
parties’ final contract, contained this same statement.
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Schwickerath the purchase did not go through because “the person he was trying
to help out didn’t follow his rules.” Rather than returning Schwickerath’s money to
her, Anderson proposed a second investment, this time for twice as much.
The second contract was entered into on May 15, 2017, as an amendment
to the first. In it, Schwickerath agreed to lend Iowa Property Holding an additional
$110,000.00 “in order to own and operate and or renovate real property in
Waterloo, Iowa,” specifically apartment buildings on Langley Road. The contract
provided that Schwickerath would hold an interest in Iowa Property Holding up to
$160,000.00 until the debt was satisfied. She was to again receive ten percent
interest annually but with interest only payments of $1,333.34 each month and a
balloon payment due in three years. On the same day, the parties entered into an
addendum to the second contract, which provided that Schwickerath would receive
an $8100.00 “appreciation bonus.”
Schwickerath paid Anderson $110,000.00 in three separate checks. Those
checks were made out to Anderson personally but again deposited into his Iowa
Property Holding account. Schwickerath didn’t “know at that point in time if
[Anderson] owned” the Waterloo property already, although she “assumed he did.”
But she said Anderson “always” told her in their conversations that she “was
secured.” She didn’t think there was much risk of losing her money because
Anderson “is an attorney. He specializes in estate planning and investments, and
he’d been in investments all his life as far as building homes and stuff, so he knew
what he was doing.”
Following these three contracts, Schwickerath asked Anderson to send her
his tax returns. He instead gave her a document titled, “Patrick Anderson Assets
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and Liabilities Schedule Revised July 2017.” In this document, which Anderson
walked through with Schwickerath, he represented that he had $348,000.00 due
in fees for his law firm. He also listed three apartment buildings as assets—the
Langley Road apartments in Waterloo, which he valued at $2,400,000.00, against
which a debt of $1,920,000.00 was owed; and two buildings in Nevada, valued
together at $1,775,000.00, against which debts of $1,082,000.00 were owed.
There was no indication from this document that the apartment buildings Anderson
listed as assets were owned by anyone other than him or Iowa Property Holding.
Schwickerath was reassured her money was safe after seeing Anderson’s
statement of assets and liabilities. Around the same time, she also began
receiving $1333.34 in monthly payments from Anderson on the second contract.
So when Anderson proposed a third investment opportunity to Schwickerath in
August 2017, she said yes.
Unlike the first two, this one was for a start-up business called “Blade
Pros”—a traveling scissor-sharpening operation for hairdressers and barbers. In
a proposal for the business, Anderson explained that Nicholas Milhous, the son “of
a long time friend and client,” came up with the idea, which Anderson determined
was “a very interesting business worth pursuing” after doing his “own research on
the market and equipment and marketing.” He told Schwickerath that “because
this is a new business start up, I will guarantee the loan against my Nevada
Apartments. That way, no matter what happens with the business, your funds are
secure.” He proposed that Schwickerath loan $140,000.00 to Iowa Property
Holding “at 20% interest” over a six-month period, with the loan “to be repaid after
two years.” In an email preceding the proposal, Anderson told Schwickerath: “The
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way I’m protecting you (my client) is I’m guaranteeing repayment through my
apartments. In other words, if they belly flop for any reason, when I refi my
buildings, you are repaid with interest.”
The contract for this investment, dated August 17, 2017, reflected
Anderson’s proposal, except that Schwickerath was given “an interest in Iowa
Property Holding LLC up to” $140,000.00 rather than a specific interest in the
Nevada apartments. Holding up her end of the deal, Schwickerath gave Anderson
checks between September 2017 and March 2018 that totaled the $140,000.00
she agreed to lend. Those checks were again made out to Anderson or Iowa
Property Holding and deposited into the Iowa Property Holding account. The
business, however, never turned a profit. Its brainchild, Milhous, testified Blade
Pros did not have a physical location, business plan, budget, books, employees,
vehicles, or equipment beyond a scissor-sharpening machine. For ten months,
Milhous said he traveled to some salons and “sharpened a few” scissors. Yet each
month, he received about $4000.00–$5000.00 from Anderson, mostly in cash.
When Schwickerath asked Anderson in October 2017 “how the scissor business
is working,” he told her: “They have been to over 69 salons so far and have
scheduled many appointments as well as sharpened lots of scissors.”
Soon after Schwickerath’s last payment on the Blade Pros contract in March
2018, Anderson made his final investment pitch to her. He told Schwickerath that
he wanted to convert some of his apartment buildings into condos. In a contract
dated April 19, 2018, and labeled as an addendum to the prior contracts,
Schwickerath agreed to lend “an additional Three Hundred Thousand ($300,000)
Dollars to Iowa Property Holding, LLC (Borrower) at 10% interest only, with a
8
bonus to be paid out according to the terms of the agreement dated 5/15/17.” The
contract provided:
In order to further protect the interests of the lender, borrower
shall grant to lender an interest in the accounts receivables, that is
the rental income, from the properties held by the following
companies: Iowa Property Holding Co-op, Inc, and Equity-Vestors,
LLC. In the event of default by borrower, lender shall have the right
to attach her interest in said accounts receivables in order to continue
to receive her interest payments.
Before this contract, Schwickerath had never heard of Iowa Property
Holding Co-Op, Inc. or Equity-Vestors, LLC. She thought that all of the apartment
buildings were owned by “Patrick and Julia, the Iowa Property Holding.”
Schwickerath testified that she “never noticed the difference” between Iowa
Property Holding, LLC and Iowa Property Holding Co-Op, Inc. when she looked at
the agreement. Turns out, none of the apartment buildings were owned by Iowa
Property Holding, which Anderson later described as just a “utility LLC” with no
assets. When he purchased the Waterloo apartments, Anderson put them in the
name of Equity-Vestors. And the Nevada apartments were owned by the Co-op.
Unaware that her money was supposedly secured by an interest in a
company that didn’t own anything, Schwickerath transferred a total of $250,000.00
to Anderson from April until November 2018, when she ran out of money. After
she told Anderson that she did not have the last $50,000.00, he suggested that
she “could find the money elsewhere, take out a mortgage on [her] house” or
borrow money from a friend. Feeling nervous, Schwickerath reached out to the
attorney who had helped settle her father’s trust. That attorney had questions for
Anderson about Schwickerath’s investments with him, telling Schwickerath what
Anderson had done “was inappropriate.” Schwickerath forwarded the questions
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to Anderson, and the two met in person to discuss. Anderson assured
Schwickerath her investments were secure, showing her an “investment summary”
that stated there was $1,934,000.00 in total equity between the Waterloo and
Nevada apartment buildings, though he again failed to disclose they were not
owned by Iowa Property Holding. Anderson continued to press Schwickerath for
more money after that meeting, while avoiding a meeting with Schwickerath’s trust
attorney.
At the end of February 2019, Anderson gave Schwickerath a document
labeled, “Status Report and Game Plan Proposal for Moving Forward.” In that
document, he proposed selling the converted condo units in Waterloo to repay her
loan by March 1, 2020, with interest. The document closed with the following
pitch—“Here’s what I propose: I would like to borrow the last $50,000 of our
agreement. Then allow interest to accrue on the principal for one year, so that the
total repayment by March 1, 2020 would be $660,000.” Schwickerath did not give
Anderson any more money, and he stopped paying her on the contracts.
In the months that followed, Schwickerath texted and emailed Anderson but
got no response. In May 2019, she emailed him that:
I considered you a trusted friend and now I feel like I’ve been
duped. You have not made time to meet with my attorney and myself
as you said you would. This isn’t in regards to a couple hundred
dollars, it’s hundreds of thousands! My whole life is at your mercy
and it seems you have chosen to just ignore me.
I thought, or you led me to believe, that you would do whatever
is needed to secure my money.
If you can’t find time to meet with us and work this out I will
have to begin some kind of legal action.
Rather than responding to this email himself, Anderson had his wife, Julia,
reply. She told Schwickerath that she was “looking over [her] account” and noticed
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it was “missing a waiver for independent counsel page or in lieu of that a reference
of independent counsel.” When Schwickerath asked what she meant, Julia
replied:
I need a release for your file that states either that you had
independent counsel or that you wa[i]ved independent counsel. At
the beginning of making private loans I[’]m aware that you were
advised to secure independent counsel but it is of course your right
to waive receiving independent counsel, it’s like a second opinion, is
that more clear?
Schwickerath testified that Anderson never mentioned independent
counsel, or a potential conflict of interest, throughout their five contracts. It was
not until their lending relationship was unraveling, after Schwickerath had entered
into all of the contracts, that Anderson told her: “Looking back, I was supposed to
stop everything until you had the deal reviewed by independent counsel—that was
my mistake. I could lose my license for that mistake.” In that same document,
Anderson said that while he did not fault her trust attorney for asking questions,
“most lawyers are deal killers and not deal makers.”
When Schwickerath responded to Julia’s email that she would not be
waiving counsel, Julia made one last attempt to stave off legal action, proposing:
Here is my proposal to secure your loan.
I will refinance or sell one of my other properties and use that
money to pay down the mortgage of another property that is enough
value to be equal to your loan with plenty of room for equity, I will
then place your loan against that property and put that property in
your name thereby making you owner and boosting your net value
and securing your money with real property. . . .
Schwickerath, however, already believed her investments were secured by her
interest in Iowa Property Holding.
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In reality, Iowa Property Holding was a catch-all business for Anderson’s
real estate ventures and law practice. The only asset in Iowa Property Holding’s
name seemed to be the bank account where Anderson deposited Schwickerath’s
money. Money from his law practice also went into that account, along with
occasional rent from tenants at the Waterloo and Nevada apartment buildings.
From there, Anderson funneled money to his other companies—the Co-op and
Equity Vestors—which were the true owners of the apartments Schwickerath
purportedly helped finance. Anderson did not segregate Schwickerath’s money in
that account, which he and Julia used to pay for personal expenses like cruises,
jewelry, skin care, clothes, and gym memberships for their family, along with
expenses for Anderson’s law firm.
On May 8, 2020, Schwickerath filed a petition against Anderson, his law
practice, Iowa Property Holding, the Co-op, and Equity-Vestors for breach of
contract, breach of oral promises, promissory estoppel, fraud, negligent
misrepresentation, conversion, and legal malpractice. The next year, she added
a claim to pierce the corporate veil. Anderson denied Schwickerath’s claims and
raised defenses of failure to mitigate and off-set.
A bench trial was held in May 2021. In September, the district court entered
judgment in Schwickerath’s favor for $755,371.06 in compensatory damages and
$200,000.00 in punitive damages. The court dismissed Schwickerath’s conversion
claim but found she proved her claims for breach of contract, breach of oral
promises, and promissory estoppel against Anderson, Iowa Property Holding,
Equity-Vestors, and the Co-Op. The court found the same defendants, plus
Anderson’s law practice, were also liable on Schwickerath’s fraud claim, while just
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Anderson and his law practice were liable for the negligent misrepresentation and
legal malpractice claims. Finally, the court granted Schwickerath’s request for
common law attorney fees and directed her to “submit an application for attorney
fees and costs.” A later ruling, entered after the notice of appeal was filed, set
those fees at $52,729.50.
On appeal, Anderson and his various business entities (collectively
Anderson) claim the district court erred in finding Schwickerath proved her claims
for fraud, negligent misrepresentation, and legal malpractice. Anderson also
challenges the court’s awards of compensatory damages, punitive damages, and
attorney fees.
II. Standards of Review
We review the district court’s ruling on Schwickerath’s fraud, negligent
misrepresentation, and legal malpractice claims for the correction of errors at law.
Chrysler Fin. Co. v. Bergstrom, 703 N.W.2d 415, 418 (Iowa 2005). The court’s
findings of fact are binding on us if supported by substantial evidence. Id.We also review an award of punitive damages for the correction of errors at
law, though our review of the excessiveness of those damages is de novo. Wolf
v. Wolf, 690 N.W.2d 887, 893–94 (Iowa 2005). Our review of an award of common-
law attorney fees is de novo. Id. at 887.
III. Analysis
A. Fraudulent Misrepresentation
Anderson claims the initial question for this court “is whether a merit ruling
should have been reached” on Schwickerath’s fraud claim. Quoting Whalen v.
Connelly, he argues that “[w]hen a person with knowledge of a potential fraud
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enters into a new agreement concerning the same subject matter, he waives his
claim to fraud in the original transaction.” 545 N.W.2d 284, 294 (Iowa 1996) (citing
37 C.J.S. Fraud § 69 (1943)). In support of this argument, he cites Schwickerath’s
testimony at trial that she knew Iowa Property Holding owned nothing when she
signed the contracts and points to the reference in the last contract to the Co-Op
and Equity-Vestors. But this waiver claim was neither raised in nor decided by the
district court, so we find that error was not preserved. See Est. of Cawiezell v.
Coronelli, 958 N.W.2d 842, 848 (Iowa 2021) (“In order for error to be preserved,
the issue must be both raised and decided by the district court.” (citation omitted));
Top of Iowa Co-op v. Sime Farms, Inc., 608 N.W.2d 454, 470 (Iowa 2000) (noting
we can consider whether error was preserved “despite the opposing party’s
omission in not raising the issue at trial or on appeal”).
Anderson next argues that he “made no material misrepresentations on
which [Schwickerath] could justifiably rely.” See Cornell v. Wunschel, 408
N.W.2d 369, 374 (Iowa 1987) (setting out the elements for a fraudulent
misrepresentation claim). The district court found otherwise, ruling:
[T]here is no question Anderson personally and on behalf of his
corporate entities made intentional misrepresentations to
Schwickerath regarding the purpose of the money she was lending
to him. He misrepresented which entities owned the property she
was investing in, and he misrepresented the financial viability of
himself and his corporate entities. He purposefully engaged in these
misrepresentations to deceive Schwickerath by having her believe
these investments were default proof.
Upon viewing the evidence in the light most favorable to the district court’s
judgment, we conclude these findings are supported by substantial evidence. See
Chrysler, 703 N.W.2d at 418.
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Starting with Anderson’s misrepresentations, he focuses on those related
to the purpose of the contracts and his assets. As to the former, Anderson argues
there was no misrepresentation because Schwickerath’s funds were used as set
out in each contract. But that’s not what the record shows. All of Schwickerath’s
funds were deposited into the Iowa Property Holding’s bank account and
commingled with other money there. For instance, she paid Iowa Property Holding
$50,000.00 on February 8, 2017, under the first contract. Anderson did not use
that money to “acquire a Monroe County Iowa residence,” as the contract stated.
He instead deposited the money into Iowa Property Holding’s bank account, which
he then used to pay personal expenses, like music lessons for his children.
Anderson did the same with each of the rest of the payments Schwickerath made,
depositing them into Iowa Property Holding’s bank account and using them
indiscriminately from there.
As for Anderson’s assets, he notes that Schwickerath did not have his asset
and liabilities schedule until after she had entered into the first two contracts. But
there were three more contracts that followed, with an additional $390,000.00 in
payments from Schwickerath. Anderson zeroes in on the values he placed on his
assets in that schedule, arguing they were statements of opinion close to actual
values. That was not true, however, for Anderson’s law firm fees, which the
schedule listed as $348,000.00. But his 2017 tax returns listed only $14,898.00 in
gross receipts for his firm. Anderson could not explain this large discrepancy at
trial. And Anderson’s argument also does not account for his misrepresentation
about the ownership of his assets. Nowhere on that schedule does Anderson
disclose that the apartment buildings, against which Schwickerath thought her debt
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was secured, were owned by anyone other than himself or Iowa Property Holding.
He also does not address his repeated representations that Schwickerath’s money
was secure, when it clearly was not.
Yet Anderson argues that Schwickerath’s reliance on his representations of
Iowa Property Holding’s status was not justified. See Cornell, 408 N.W.2d at 374(setting out the elements for a fraudulent misrepresentation claim). While
Schwickerath did testify on cross-examination that she knew Iowa Property
Holding “was a holding account for the money” when she entered into the
contracts, she clarified on redirect:
Q. You were asked a question about your deposition, that at
the time you were entering these agreements, did you know that
Iowa Property Holding, LLC—did you know if it owned anything? A.
No. I thought they did but I—no.
....
Q. . . . What did you understand at the time you entered these
agreements about Iowa Property Holding? A. I thought that was his
LLC that all his properties and everything were in.
She added that her testimony on cross-examination was based on her
“understanding now,” not what she knew at the time of the contracts. In accepting
this explanation, we defer to the district court’s finding that Schwickerath was more
credible than Anderson. See Tim O’Neill Chevrolet, Inc. v. Forristall, 551
N.W.2d 611, 614 (Iowa 1996) (“The trier of fact—here, the district court—has the
prerogative to determine which evidence is entitled to belief.”).
Anderson is correct that the “justifiable-reliance standard does not mean a
plaintiff can blindly rely on a representation.” Spreitzer v. Hawkeye State
Bank, 779 N.W.2d 726, 737 (Iowa 2009). “Instead, the standard requires plaintiffs
to utilize their abilities to observe the obvious, and the entire context of the
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transaction is considered to determine if the justifiable-reliance element has been
met.” Id. The fatal context to Anderson’s claim is that he was Schwickerath’s
attorney when they entered into these contracts. See id. (considering the
relationship between the parties and the existence of a fiduciary relationship).
While Anderson contested that fact at trial, he concedes it on appeal. Because of
that relationship, Schwickerath testified that she “believed and trusted in him.” She
explained: “[H]e’s an attorney, and this is what he does. It’s on his law site, that
he does investments and estate planning. . . . He’s an attorney. He’s a minister.
I just—I just believed him.”
As Schwickerath’s attorney, Anderson had a duty to disclose material facts
about the investments to her, along with his own personal interests in the
transactions or other potential conflicts of interest. See Cornell, 408 N.W.2d at 375(stating that when an attorney-client relationship exists between the parties, “we
have required the party to make a full and truthful disclosure of all material facts
within that party’s knowledge); see also Gregory C. Sisk, Iowa Practice Series,
Lawyer and Judicial Ethics § 13:8(a) (July 2022 update) (“[A]s part of the fiduciary
responsibilities of the lawyer, . . . the lawyer owes a proactive duty of candor to the
client that goes well beyond not being deceptive or misleading.”). Anderson failed
in this most basic duty of honesty. See Iowa Supreme Ct. Bd. of Prof. Ethics v.
Clauss, 530 N.W.2d 453, 455 (Iowa 1995) (noting the “absolute necessity for
lawyers to be absolutely honest”). Viewing this evidence in the light most favorable
to the district court’s judgment, we conclude the court’s findings on Schwickerath’s
fraud claim are supported by substantial evidence. See Chrysler, 703 N.W.2d at
418.
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B. Negligent Misrepresentation
For his next claim, Anderson argues that the tort of negligent
misrepresentation does not apply because he provided information to
Schwickerath during transactions between them. See Sain v. Cedar Rapids Cmty.
Sch. Dist., 626 N.W.2d 115, 126 (Iowa 2001) (“[T]he tort does not apply when a
defendant directly provides information to a plaintiff in the course of a transaction
between the two parties, which information harms the plaintiff in the transaction
with the defendant.”). Again, although Schwickerath does not contest error
preservation, the issue was not raised or decided by the district court. Cawiezell,
958 N.W.2d at 848. As a result, we find error was not preserved. Sime Farms,
Inc., 608 N.W.2d at 470.
Anderson’s remaining argument on the negligent misrepresentation claim
is that “there was no false representation on which” Schwickerath could justifiably
rely. Because we laid out those false representations above, we summarily reject
this argument and affirm the court’s ruling on this claim.
C. Legal Malpractice
Anderson next challenges the court’s finding that he committed legal
malpractice. Because he now concedes that he had an attorney-client relationship
with Schwickerath, Anderson only contests whether he breached a duty to her.
See Stender v. Blessum, 897 N.W.2d 491, 502 (Iowa 2017) (setting out the
elements of a legal malpractice claim). He argues that in finding he did breach a
duty, the court erred in relying on a violation of Iowa Rule of Professional Conduct
32:1.8, which prohibits an attorney from entering into a business transaction with
a client unless
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(1) the transaction and terms on which the lawyer acquires the
interest are fair and reasonable to the client and are fully disclosed
and transmitted in writing in a manner that can be reasonably
understood by the client;
(2) the client is advised in writing of the desirability of seeking
and is given a reasonable opportunity to seek the advice of
independent legal counsel on the transaction; and
(3) the client gives informed consent, in a writing signed by
the client, to the essential terms of the transaction and the lawyer’s
role in the transaction, including whether the lawyer is representing
the client in the transaction.
Anderson is correct that a violation of a rule of professional conduct does
not establish a per se claim of legal malpractice. Id. But, as the district court
correctly recognized, a violation can be “used as some evidence of negligence.”
Id. The court found that Anderson
entered into business transactions with Schwickerath in which he
failed to fully disclose the terms of the transactions to her. He also
failed to tell Schwickerath in writing to seek independent counsel. He
finally failed to obtain in writing from Schwickerath her informed
consent regarding these transactions. All of these actions constitute
a violation of Iowa Rule of Professional Conduct 32:1.8. These
actions further demonstrate negligence on his part.
(Emphasis added.)
Beyond Anderson’s violation of rule 32:1.8, the court found he “made
fraudulent statements and omitted material facts,” used Schwickerath’s funds “for
things outside the context of the agreements,” failed to inform her about the “risks
involved in these agreements,” and failed to draft the contracts in her best
interests. Anderson challenges these findings, arguing that the contracts he
entered into with Schwickerath “were not part of any legal service” he offered to
her. See id. at 504 (“[B]efore a violation of our rules of professional conduct can
be used—even as some evidence of negligence—there must be an underlying
actionable claim against the attorney arising out of how the attorney mishandled a
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legal matter.”). He instead characterizes them as “business transactions.” We
cannot agree.
Each of the contracts was drafted on letterhead for Anderson’s firm.
Throughout the time when these contracts were entered into, Anderson referred
to Schwickerath as his client, telling her at one point in an email about the Blade
Pros deal that the “way I’m protecting you (my client) is I’m guaranteeing
repayment through my apartments.” (Emphasis added.) Just above the parties’
signature lines, four of the contracts stated: “Kara understands that Patrick R.
Anderson is an attorney, and that he has an interest in Iowa Property Hold LLC.”
Schwickerath testified that she thought this meant Anderson was acting as her
attorney in these transactions. Consistent with that belief, in an email from
September 2018 when she was getting near the end of the money she had
available to lend Anderson, Schwickerath said: “Sorry to keep bothering you but I
trust you as my attorney to tell me if I’m making a mistake.” With these facts, we
find no merit in Anderson’s argument that he was not acting as Schwickerath’s
legal counsel when they entered into the contracts, and we conclude substantial
evidence supports the court’s finding that he committed legal malpractice.
D. Compensatory Damages
Anderson claims compensatory damages must be recalculated because
Schwickerath failed to mitigate her damages. Schwickerath responds that error
was not preserved on this issue because the district court did not address that
defense. Anderson did raise the issue in his “statement of primary issues for trial”
and again in a motion for new trial. But before the court could rule on the new trial
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motion, Anderson filed a notice of appeal. The court accordingly entered an order
stating it no longer had jurisdiction to rule on the motion.
Citing Lamasters v. State, 821 N.W.2d 856, 864 (Iowa 2012), Anderson
nevertheless argues error was preserved because the “court’s ruling ‘indicates that
the court considered the issue and necessarily ruled on it, even if the court’s
reasoning is ‘incomplete or sparse.’” We disagree. This is not a situation where a
ruling “contains incomplete findings or conclusions,” but instead one where the
issue was simply “‘not considered by’ the district court and thus error was not
preserved.” Lamasters, 821 N.W.2d at 864 (citation omitted).
E. Punitive Damages
Anderson next asserts that because “[t]his is a contract case,” punitive
damages are not permitted. We reject this argument given our findings on the
fraud, misrepresentation, and malpractice claims. See Larew v. Hope Law Firm,
P.L.C., 977 N.W.2d 47, 63 (Iowa 2022) (“Punitive damages are generally not
available in a breach of contract action unless a party can show malice, fraud, or
other illegal actions.” (citation omitted)); see also Wilson v. Vanden Berg, 687
N.W.2d 575, 586–87 (Iowa 2004) (affirming an award of punitive damages against
an attorney who failed to disclose “his conflicted representation”).
This leaves the question of whether the damages were excessive.
Anderson argues the extent and nature of his conduct wasn’t sufficiently
outrageous to justify an award of $200,000.00 in punitive damages, again insisting
this was simply a breach-of-contract case. This argument overlooks the fraud
Anderson committed in his role as an attorney and advisor to Schwickerath over a
course of years, which makes his conduct particularly egregious and deserving of
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punitive damages. See, e.g., Hoeppner v. Holladay, No. 06-1288, 2007
WL 2963662, at *4 (Iowa Ct. App. Oct. 12, 2007) (finding the defendant’s “conduct,
considering their relationship, was outrageous and designed to deceive. This type
of nefarious conduct must be deterred”); see also Wolf, 690 N.W.2d at 894(considering the degree of reprehensibility of the defendant’s misconduct).
Anderson also argues that he cannot pay $200,000.00 on top of the
$755,371.06 in compensatory damages given his poor financial condition. See
Wilson v. IBP, Inc., 558 N.W.2d 132, 148 (Iowa 1996). But while Schwickerath
was having to “max[] out” her credit cards and borrow $300,000.00 “to cover court
costs and . . . living expenses,” Anderson was still taking cruises with his wife at a
cost of more than $22,000.00 in 2020 alone. So we find no merit in this complaint.
Nor do we find any merit in Anderson’s complaint that the award is “four
times greater” than the $50,000.00 Schwickerath requested at trial. Although
Schwickerath at first asked for just $50,000.00, she then testified:
I don’t think $50,000 is enough because after going through all this
stuff and seeing where my money did go and where it didn’t go and
all the trips and the jewelry and the payments they made to the
racquetball club, they continued their life; and I have literally fallen
apart over this, and I’ll never get back these last three years of my
life, but they lived them up to their fullest.
Given Anderson’s conduct, and the need to deter future misconduct, we see no
reason to reduce the punitive damage award. See Tullis v. Merrill, 584
N.W.2d 236, 241 (Iowa 1998) (upholding punitive damage award because sum
awarded would “deter future misconduct and is not so out of proportion to the
actual damages as to shock the conscience”).
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F. Attorney Fees
Anderson finally argues that his conduct did not warrant an award of
common law attorney fees. See Williams v. Van Sickel, 659 N.W.2d 572, 579
(Iowa 2003) (noting a party can recover common law attorney fees when the party
can prove “the culpability of the [opposing party’s] conduct exceeds the willful and
wanton disregard for the rights of another standard required to prove punitive
damages”). Though not raised by either party, we find that we lack jurisdiction to
address this claim. See Crowell v. State Pub. Def., 845 N.W.2d 676, 681 (Iowa
2014) (“[A]n appellate court has responsibility sua sponte to police its own
jurisdiction.”).
Although the district court found Anderson’s bad faith merited an award of
attorney fees in its September 2021 ruling, the court directed “Schwickerath’s
counsel to prepare and submit an application for attorney fees and costs.”
Anderson filed his notice of appeal on October 11, 2021, before the court held a
hearing on the amount of fees that should be awarded. That determination was
not made until two weeks later. Anderson did not separately appeal that ruling.
See Iowa R. App. P. 6.103(2) (“A final order or judgment on an application for
attorney fees entered after the final order or judgment in the underlying action is
separately appealable.”).
“Although the filing of a notice of appeal generally deprives the district court
of jurisdiction, the court ‘retains jurisdiction to proceed as to issues collateral to
and not affecting the subject matter of the appeal.’” Iowa State Bank & Tr. Co. v.
Michel, 683 N.W.2d 95, 110 (Iowa 2004) (citation omitted). Attorney fees are such
a collateral matter. Id. Because that issue was decided after Anderson appealed
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the court’s ruling on the merits of the lawsuit, he needed to separately appeal the
award of attorney fees to bring that matter before us for review. Id. Since he did
not, “we may not consider the district court’s attorney fee award on appeal.” Id.G. Appellate Attorney Fees
This leaves us with Schwickerath’s request for an award of appellate
attorney fees. We find such an award to be appropriate considering Anderson’s
conduct, which is antithetical to the very nature of our profession, and his continued
denials of wrongdoing on appeal. See Van Sickel, 659 N.W.2d at 581 (awarding
common law appellate attorney fees where appellant continued to insist on appeal
that she did not engage in fraud, “causing the [appellees] to once again defend
against this claim”); see also Olson v. Elsbernd, No. 10-0236, 2010 WL 5023241,
at *6 (Iowa Ct. App. Dec. 8, 2010) (finding appellee was “entitled to appellate
attorney fees because she had to defend against [appellant’s] continued attempt
to excuse her oppressive actions on appeal”). Schwickerath’s attorney filed an
affidavit and itemization seeking $13,742.05 in appellate attorney fees. We find
that amount to be reasonable and award Schwickerath those fees.
IV. Conclusion
We find substantial evidence supports the district court’s ruling on fraud,
negligent misrepresentation, and legal malpractice. Anderson’s challenge to the
court’s award of compensatory damages was not preserved. We affirm the award
of punitive damages and conclude we lack jurisdiction to address Anderson’s
challenge to the court’s award of trial attorney fees. Schwickerath’s request for
appellate attorney fees in the amount of $13,742.05 is granted.
AFFIRMED.