Financial Company Allowed Deficiency Judgment Despite Bringing Case in Wrong County

Chrysler Financial Company v. Bergstrom, _____ N.W.2d _____ (Iowa 2005)(No. 64/04-0582)
The Supreme Court vacates a decision of the court of appeals and affirms the Iowa District Court for Mitchell County.

Jon Bergstrom leased a vehicle from Chrysler Financial. He fell behind in his payments. Chrysler gave notice of right to cure. Bergstrom failed to cure. Chrysler repossessed the vehicle and filed suit against Bergstrom in Howard County (The consumer credit code requires the deficiency action to be brought in the county where the debtor resides.) seeking deficiency of $7,690.46. Bergstrom resided in Mitchell County (Bergstom’s post office address is Riceville. Riceville straddles the Howard/Mitchell County line.). He moved for change of venue to Mitchell County which was granted. Bergstrom answered and counterclaimed seeking damages for Chrysler filing in the wrong county. The district court granted Chrysler a deficiency judgment against Bergstrom and held that Chrysler’s error in filing in the wrong county was unintentional and “constitute[d] a bona fide error”. It denied the counterclaim but allowed Bergstrom attorney fees for the change of venue. Bergstrom appealed. The court of appeals reversed, concluding that Chrysler’s “bona fide error defense to the counterclaim should have failed as a matter of law”. The Supreme Court granted further review.

The majority decision is written by Cady, J. The focus of the decision is the filing of the lawsuit in the wrong county, whether it was intentional, whether Chrysler had in place procedures to prevent filing against a consumer in the wrong county, and whether the procedure used was reasonably adapted to avoid error. The Court finds there is substantial evidence to support the district court conclusion that Chrysler did not intentionally file in the wrong county and that it had procedures to avoid filing in the wrong county. The Court observes that “Brewer [a legal secretary handling the filing of the petition] testified at trial that she intended to file the action in the county of Bergstrom’s resident. Thus, her intent was to follow the venue requirements of the consumer credit code.” The Court also notes that Brewer consulted a United States Postal Service city-county directory which showed that Riceville (the community of Bergstrom’s residence) is in Howard County. Riceville is on the Howard-Mitchell County line, and Bergstrom lives in Mitchell County. The Court, then, determines whether under all the circumstances use of the USPS city-county directory was reasonable, and the Court states, “Our law has never considered reasonableness to be perfect or foolproof.”

. . . [W]hat we do know from the evidence is that the procedure has been used “hundreds” of times by Chrysler in the past without knowledge that it adversely affected the venue rights of litigants. This evidence would support a finding that the chance of invading the protected interest and the number of people likely to be adversely affected is minimal.

The majority finds there was substantial evidence to support the district court conclusion that Chrysler acted reasonably, that it was entitled to the deficiency, and that it was proper to deny Bergstrom’s counterclaim.

Streit, J., in a dissent joined by Ternus and Wiggins, JJ., argues that the Chrysler procedures are not “reasonably adapted” to avoid the problem of suing defendants in wrong venues. The dissent notes the reference to the USPS city-county directory fails to note that there are a number of Iowa communities which are located in more than one county (West Des Moines which is in Polk and Dallas Counties is offered as an example.). The dissent contends that Bergstrom was entitled to judgment on his counterclaim.

Broker Not Entitled to Commission in Sale of Business

Business Consulting Services, Inc. v. Wicks, _____ N.W.2d _____ (Iowa 2005)(No. 73/04-0002)
Leroy Wicks owned a business known as Homeguard which provided antitheft and antiburglary services for homes and businesses. Business Consulting Services, Inc. did business as Hawkeye Business Brokers. Wicks and Hawkeye entered into a non-exclusive listing agreement that provided Hawkeye would receive a ten per cent commission if Hawkeye produced a ready, willing and able buyer during a three month period. There was an extension clause that provided Hawkeye would receive ten per cent commission if within a year the business was sold, traded or conveyed to anyone to with whom Hawkeye had referred to Wicks or had negotiations about the business. Wicks sold the business to David Gutfruend. Gutfruend initially advised Hawkeye that Homeguard might be for sale. A Polk County District Court judge entered judgment for Hawkeye. Homeguard appealed.

In a per curiam opinion, the Supreme Court reverses the district court and remands for dismissal of plaintiff’s petition. The Supreme Court finds that Hawkeye is not entitled to the commission. The Court holds that in order for Hawkeye to collect a commission on the transaction, it was required to do more than just refer a potential buyer.

We adopt the majority rule and hold that a broker seeking to recover under an extension clause must establish some causal connection between the broker’s efforts and the eventual sale. This might include negotiations between the parties or actual assistance in the closing of the sale. In this case, Hawkeye has not shown it was involved in any negotiations or the closing of the sale. As the Nebraska court said in Chapman, a rule that would allow recovery for merely soliciting a buyer without requiring a causal connection with the sale would burden the owner’s right to dispose of his property. 329 N.W.2d at 111. We agree, and we also believe it would be poor public policy to reward brokers who, through such mailings or other forms of mass communication, would receive a substantial commission without diligent effort toward the conclusion of a sale. While the broker in this case did not mass mail to prospects, but rather, limited her contacts to six possible buyers, the point remains that “referring,” as the broker did in this case, without more, is insufficient. As the court observed in Patterson v. Blair, 257 P.2d 944 (Utah 1953),

although the clause with which we are concerned is perfectly valid and to be invoked for the broker’s protection in a proper case, it surely was not intended to benefit a real estate man who has done nothing, by conferring upon him a “windfall” commission because he casually or inadvertently mentioned the listing to someone who thereafter happened to purchase it in the normal course of affairs and quite independent of the broker’s activities. If so, he might well content himself with letting everyone possible know of a listing in the hope that some such eventuality would inure to his benefit, instead of really working on selling the property.

Patterson, 257 P.2d at 946. The plaintiff has failed to establish a causal connection between its referral of the buyer and the ultimate sale.