Opinion
22-1786
03-06-2024
JAMES L. RADERS, M.D., Plaintiff-Appellee, v. DEAN R. PRICE and RSM U.S. LLP, Defendants-Appellants.
Alexandra Galbraith (until withdrawal) and Gregory M. Lederer of Lederer Weston Craig, PLC, Cedar Rapids, and Bruce Braun, Benjamin Brunner (until withdrawal), and Stephen Spector of Sidley Austin, LLP, Chicago, Illinois, for appellants. David J. Dutton and Nathan J. Schroeder of Dutton, Daniels, Hines, Kalkhoff, Cook &Swanson, PLC., Waterloo, for appellee.
Appeal from the Iowa District Court for Johnson County, Jeffrey D. Bert, Judge.
Defendants appeal the district court order that denied their motion for summary judgment. REVERSED AND REMANDED WITH INSTRUCTIONS.
Alexandra Galbraith (until withdrawal) and Gregory M. Lederer of Lederer Weston Craig, PLC, Cedar Rapids, and Bruce Braun, Benjamin Brunner (until withdrawal), and Stephen Spector of Sidley Austin, LLP, Chicago, Illinois, for appellants.
David J. Dutton and Nathan J. Schroeder of Dutton, Daniels, Hines, Kalkhoff, Cook &Swanson, PLC., Waterloo, for appellee.
Heard by Schumacher, P.J., and Ahlers and Langholz, JJ.
SCHUMACHER, Presiding Judge.
James Raders filed suit against RSM U.S. LLP and Dean Price (collectively, the defendants) in 2019. The instant appeal rises and falls on an engagement agreement between the parties that included a two-year statute-of-limitation period. The district court initially entered an order of summary judgment for the defendants, as Raders filed his suit outside the two-year period. But the court reversed course following a motion to reconsider and denied the defendants' motion for summary judgment on three counts. The defendants seek reversal of the trial court's reconsideration order, reinstatement of the previous grant of summary judgment in their favor, and dismissal of all claims against them as time-barred.
I. Background Facts and Prior Proceedings
Raders had a longtime investment relationship with his childhood friend, Mike Frantz. Raders began investing with Frantz in 2003. In March 2016, Raders elected to liquidate his retirement accounts and invest the funds with Frantz and his companies. Although he trusted Frantz "as a brother," Raders had concerns about making this investment, particularly over the tax consequences of liquidating his IRA. On March 1, 2016, at 12:40 p.m., Raders instructed his financial advisor to liquidate his retirement accounts and wire the proceeds to his bank account. Raders spoke to Frantz's accountant, Dean Price, who worked with RSM, for the first time at 1:36 p.m. that same day.
Around this same time, Raders sought to have RSM prepare and file his 2015 tax return. Part of this process involved Raders and RSM entering into an engagement agreement, which then governed the services RSM provided to Raders. This engagement agreement was included with the tax organizer sent to Raders on March 5, 2016. It contained a provision implementing a two-year limitation period for filing a lawsuit asserting claims from their engagement. The provision reads:
No claim or action by either party, regardless of whether the claim is in contract, in tort, at law or in equity, arising out of or relating to any matter under the Arrangement letter may be brought by either party (i) more than 24 months after the party first knows or has reason to know that the claim or cause of action has accrued ....
While the engagement agreement was included with Raders's tax preparation materials for 2015, it also contained a "certain additional services provision," which reads:
In connection with our tax returns or in response to your request(s), we may provide you with Federal, state, local or international tax advice concerning matters that are not the subject of a separate arrangement letter.... Unless these additional services are the subject of a separate arrangement letter, our services in rendering that advice or responding to the inquiries will be subject to the terms of this letter, including the attached terms, conditions, and limitations.
Raders agreed to the terms of this engagement letter by returning the completed tax organizer to RSM on March 9, 2016. Raders wired over two million dollars to Frantz's organizations on March 8. He asserts this liquidation was based on Price's advice.
The benefits that Raders anticipated from his investment with Frantz failed to materialize. After realizing Frantz absconded with his investment, Raders filed suit against Frantz to pursue the return of the funds. But because Frantz had entered bankruptcy proceedings, Raders could not recover from Frantz. Raders turned his recovery efforts toward Price and RSM. In August 2017, Raders sent a claims notice drafted by legal counsel to the defendants, alleging faulty tax advice regarding his investment with Frantz and also alleging fraud. In September 2019, Raders filed a two-count suit against the defendants, alleging professional malpractice and breach of fiduciary duty. He filed an amended three-count petition in May 2020, alleging professional negligence and malpractice, breach of fiduciary duty, and fraud in the inducement. Raders alleged that the defendants "were aware of Frantz's precarious financial position in 2015 and into 2016," and "at the same time . . . Defendants also had a significant financial interest in Frantz obtaining addition [sic] funds to pay his outstanding invoices." Frantz owed RSM nearly $300,000 in past due fees by March 2016. Raders alleged the defendants failed to disclose this information when offering advice to him.
The defendants were not named parties in Raders's initial lawsuit against Frantz.
After Raders filed suit and the parties engaged in a year of discovery, the defendants moved for summary judgment, asserting that the engagement agreement applied to Raders's claims and precluded the claims as they fell outside the two-year limitation period. The district court agreed and granted summary judgment for the defendants on all claims. After Raders moved to reconsider, the court entered an order that denied summary judgment on three counts, reviving some claims:
The Court finds material issues of fact exist related to the equitable and legal fraud in the inducement claims. If Plaintiff succeeds in showing fraud in the inducement of the Engagement Agreement, rescission would be available and could prevent the defendants from relying upon the contractual limitations to defeat Plaintiff's claims. These disputed issues of fact require the Court to reverse its Ruling granting summary judgment and reinstate this case.
The defendants filed an interlocutory appeal, which our supreme court granted and transferred to this court for disposition.
II. Standard of Review
We review orders concerning summary judgment for correction of errors at law. Banwart v. 50th St. Sports, L.L.C., 910 N.W.2d 540, 544 (Iowa 2018). "Summary judgment is proper only when the entire record demonstrates the absence of a genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Linn v. Montgomery, 903 N.W.2d 337, 342 (Iowa 2017). Because Price and RSM are the moving parties, they must show they are entitled to judgment as a matter of law. See id. However, in our review, we view the record in the light most favorable to the nonmoving party. Id.
III. Discussion
The defendants assert that the two-year limitation period in the engagement agreement bars Raders's claims. They argue such contractual limitation periods are enforceable against all types of fraud claims, and that the district court impermissibly created an exception for fraudulent inducement claims to revive Raders's suit.
The court's reversal of its previous grant of summary judgment was based on its determination that a successful fraud in the inducement claim could lead to rescission of the entire contract and the unenforceability of the limitation period. The defendants argue that for the limitation period to be invalidated, there must be fraud in the inducement as to that specific provision of the contract, comparing the instant situation to Iowa law on arbitration and forum-selection clauses in fraud in the inducement claims. See Dacres v. John Deere Ins. Co., 548 N.W.2d 576, 578 (Iowa 1996); Karon v. Elliott Aviation, 937 N.W.2d 334 (Iowa 2020).
a. Application of the Engagement Agreement
Raders has disputed whether the engagement agreement applies to the advice he received from Price on his investment with Frantz. The district court found that the engagement agreement applied to all the services RSM provided to Raders. We agree with the district court as to this determination and conclude that the engagement agreement applies to the advice Raders received from Price. There is no question that Raders received the engagement agreement on March 5 and returned it on March 9. While Raders asserts that the engagement agreement only governs the preparation and filing of his 2015 tax returns, or that he believed it only governed the preparation and filing of his 2015 tax returns, he acknowledges the engagement agreement states applicability to other services. He argues "it would be unfair and unreasonable for [the defendants] to be able to rely on that provision to apply the Engagement Letter to the earlier bad advice." But he cites no authority for this argument in his brief.
And Raders's argument does not find support in the clear language of the engagement agreement. The agreement states it applies to "additional services" provided "in response to [Raders's] requests." We highlight that "[t]he cardinal rule of contract interpretation is the determination of the intent of the parties at the time they entered into the contract," C &J Vantage Leasing Co. v. Wolfe, 795 N.W.2d 65, 77 (Iowa 2011), and "[t]he language the parties used is the most important evidence of their intentions, and therefore, we endeavor to give effect to all language of the contract." Homeland Energy Sols., LLC v. Retterath, 938 N.W.2d 664, 687 (Iowa 2020). And it is impossible to find the engagement agreement applies only to the preparation and filing of Raders's returns without ignoring the "additional services" language. The engagement agreement applies to all services provided from RSM to Raders. And to the extent that Raders failed to fully understand the scope of the engagement agreement, it is a unilateral mistake, and unilateral mistake alone does not void a contract. State, Dep't of Hum. Servs. ex rel. Palmer v. Unisys Corp., 637 N.W.2d 142, 150 (Iowa 2001).
b. Rescission and the Contractual Limitation Clause
Iowa law allows parties to a contract to modify the period of limitations, and if that modification is reasonable, it is enforceable. Osmic v. Nationwide Agribusiness Ins. Co., 841 N.W.2d 853, 858-59 (Iowa 2014); Nicodemus v. Milwaukee Mut. Ins. Co., 612 N.W.2d 785, 787 (Iowa 2000). Raders does not argue the limitation period here was unreasonable but argues that it would not apply should he make a successful claim of fraud in the inducement leading to rescission.
In the reconsideration order, the court agreed with Raders and found summary judgment was not appropriate on some counts, as if rescission were ultimately granted, the two-year limitation period would not apply, and the claims would not be barred. "It is a well settled principle of equity that misrepresentations amounting to fraud in the inducement of a contract, whether innocent or not, give rise to a right of avoidance on the part of the defrauded party." First Nat. Bank in Lenox v. Brown, 181 N.W.2d 178, 182 (Iowa 1970). "Ordinarily, rescission must be of the whole contract." Butler Mfg. Co. v. Elliott &Cox, 233 N.W. 669, 670 (Iowa 1930). Yet some contractual provisions cannot be avoided with a simple allegation of general fraud in the inducement. With arbitration clauses and forumselection clauses, a plaintiff must allege fraud in the inducement of that particular provision, rather than just generally, to avoid it. Dacres, 548 N.W.2d at 578; Karon, 937 N.W.2d at 346. In Karon, the Iowa Supreme Court justified this approach in part by noting:
If a forum-selection clause could be challenged simply based on fraud in an overall transaction, then the advantages of predictability and efficiency would be lost. Predictability would be lost because the parties would not be able to know the locus of litigation in advance (and perhaps retain counsel accordingly). Efficiency would be lost because it would be necessary to litigate the merits in order to determine the locus of litigation. In this case, plaintiffs acknowledge that it would be necessary to litigate their entire fraud claim in Iowa in order to determine whether the litigation should then proceed in Kansas.937 N.W.2d at 346.
Raders relies on Hall v. Crow, where an integration clause was not found to defeat a claim of fraudulent inducement. 34 N.W.2d 195, 199 (Iowa 1948) ("[W]here there is evidence of fraudulent misrepresentations in the inception of a contract such misrepresentations can be the basis for either an action to rescind or for damages, despite the limiting provisions of a contract."). The court ruled a party could not seek to use a provision of the contract to exclude evidence of their fraud. See id. "'The same public policy that in general sanctions the avoidance of a promise obtained by deceit strike[s] down[] all attempts to circumvent that policy by means of contractual devices.'" Id. (quoting Bates v. Southgate, 31 N.E.2d 551, 558 (Mass. 1941)). Even so, this case does not mandate the total voiding of all limiting contractual provisions in all general fraudulent inducement claims regardless of the circumstances. Dacres and Karon enforce provisions limiting the forum unless there has been fraudulent inducement as to that specific provision. See Dacres, 548 N.W.2d at 578; Karon, 937 N.W.2d at 346.
Outside of Iowa, courts applying New York law have found that to avoid a limitation period with a fraud in the inducement claim, a party must allege fraud as to that specific provision.
[Plaintiff] argues that if the Purchase Agreement was fraudulently induced and, thus, void, then there is no contractual statute of limitations to be enforced. According to [Plaintiff], its fraud claims cannot be barred by a contract that is void....
.... However, [Plaintiff] fails to even allege that [Defendant] engaged in any particular fraud with respect to . . . the shortened limitations period. Consequently, its claim that the shortened contractual limitations period is unenforceable due to [Defendant's] alleged pre-contractual fraud is without merit.Maxcess, Inc. v. Lucent Techs., Inc., 433 F.3d 1337, 1342 (11th Cir. 2005).
Here, while [Plaintiff] generally alleges that it was fraudulently induced to enter the contract due to [Defendant's] misrepresentations about the nature and quality of its products, there are no allegations that the limitations provision of the agreement was procured by fraud. The parties' agreement to reduce the limitations period to one year for any claims arising out of the partnership agreement(s) is therefore binding here.CingleVue Int'l Pty, Ltd. v. eXo Platform NA, LLC, No. 1:13-CV-818 GLS/RFT, 2014 WL 3400856, at *4 (N.D.N.Y. July 10, 2014). Further, federal courts in Iowa have applied the same principle to jury waiver and choice-of-law provisions. Morris v. McFarland Clinic P.C., No. CIV. 4:03-CV-30439, 2004 WL 306110, at *2 (S.D. Iowa Jan. 29, 2004) ("A general allegation of fraud in the inducement with respect to a contract does not avoid the waiver provision."); Republic Credit Corp. I v. Ficachi, No. 4-04-CV-90246, 2004 WL 3168273, at *4 (S.D. Iowa Dec. 2, 2004) ("[T]here is nothing in the record to support a conclusion that the . . . choice-of-law provisions were fraudulently included in the Note.").
Under Hall a party cannot use contractual provisions to bar evidence of their fraud, but under Karon and Dacres, contractual provisions which merely dictate how a party may assert their claim cannot be defeated by only general allegations of fraud in the inducement. See Hall, 34 N.W.2d at 199; Dacres, 548 N.W.2d at 578; Karon, 937 N.W.2d at 346. A contractual limitation period governs how a party may assert their claim. Under such a provision, a party may still assert their claim within the period. It does not categorically bar parties from bringing a fraudulent inducement claim, nor does it interfere with a party's ability to present evidence of fraud. This situation is therefore not congruent with Hall. See Hall, 34 N.W.2d at 199. Instead, Dacres and Karon are instructive because they deal with provisions that determine the manner in which a party may assert their claim. See Dacres, 548 N.W.2d at 578; Karon, 937 N.W.2d at 346.
The policy rationale justifying the decision in Karon also applies with equal force in this context. See 937 N.W.2d at 346. Iowa law does not require allegations of fraud to be pled with particularity, see Rosenberg v. Mississippi Val. Const. Co., 106 N.W.2d 78, 79 (1960), and consequently a problem arises where parties could simply plead around a contractual limitation period. See id. at 344 (stating that Iowa's pleading rules would not prevent plaintiffs from pleading around forum-selection clauses). Such a scheme would inevitably force all fraud claims to be litigated before a determination could be made on whether the limitation period applied, essentially making contractual limitation periods unenforceable. See Morris, 2004 WL 306110, at *2 ("First, agreements to waive jury trials, as well as those fixing venue, making a choice of law, and the like would be practically unenforceable if they could be avoided simply by an allegation of fraud in the inducement."). Additionally, this situation would undermine the efficiency and predictability offered by limitation periods. See Karon, 937 N.W.2d at 346. Efficiency would be lost when all fraud claims are litigated regardless of any applicable limitation periods, and predictability would be lost when no party can count on a limitation period to prevent costly litigation.
Raders knew of his claim since at least August 21, 2017, when his counsel sent the defendants a claims notice. That claims notice stated: "[c]laims for breach of contract, professional negligence, fraud, aiding and abetting, among others, are supported by Iowa law as applied to the referenced facts." Indeed, Raders may have had earlier knowledge, as in a September 8, 2016, conference call with Price, Raders's sister, Mary Lou Raders, an attorney, accused Price of having a conflict of interest. But Raders waited until September 2019 to file his claim against Price and RSM. Raders's inability to now assert his claim does not result from a contract which effectively immunizes its author from liability for fraud. It results from a failure to pursue rights in a timely manner. Raders failed to timely file his claim.
IV. Conclusion
The two-year limitation period in the engagement agreement bars Raders's action. We reverse and remand for reinstatement of the district court's March 22, 2023, order granting summary judgment to the defendants and dismissal of Raders's suit consistent with this opinion. Costs, if any, associated with his appeal are assessed to Raders.
REVERSED AND REMANDED WITH INSTRUCTIONS.