Cedar Rapids Lodge & Suites, LLC et al v. JFS Development, Inc. et al
ORDER granting 133 Motion for Summary Judgment; dismissing as moot 194 Motion in Limine. The Clerk of Court is directed to enter judgment in favor of Defendant Lightowler against Plaintiff CRLS. Signed by Chief Judge Linda R Reade on 1/6/2012. (Copy to Vosburg via US mail) (pac) Modified on 1/6/2012 to indicate service (pac).
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF IOWA
CEDAR RAPIDS DIVISION
CEDAR RAPIDS LODGE & SUITES,
LLC et al.,
JFS DEVELOPMENT, INC., f/k/a JCS
DEVELOPMENT, INC., et al.,
TABLE OF CONTENTS
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PROCEDURAL HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SUBJECT MATTER JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY JUDGMENT STANDARD . . . . . . . . . . . . . . . . . . . . . . . . . 5
RELEVANT FACTUAL BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . 6
Players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Project Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
CRLS-Lightowler Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Project Design, Construction and Completion . . . . . . . . . . . . . . . 10
ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Choice of law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Validity of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .
Statutes of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. North Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The matter before the court is Defendant Lightowler Johnson Associates, Inc.’s
“Motion for Summary Judgment” (“Motion”) (docket no. 133).
II. PROCEDURAL HISTORY
On December 3, 2009, Plaintiffs filed an eighty-seven-page, eighteen-count
Complaint (docket no. 1). The Complaint arises from the development of an AmericInn
hotel (“Hotel”) in Cedar Rapids, Iowa. Plaintiffs allege that the former governors of the
Hotel fraudulently induced them to invest in the Hotel and proceeded to mishandle the
financing, construction and/or management of the Hotel.
Lightowler Johnson Associates, Inc. (“Lightowler”) is only named in Count VII of
the Complaint.1 See Complaint at 71. Count VII alleges that Lightowler was negligent in,
among other things, providing plans and specifications that did not comply with standards
and regulations and failing to provide proper oversight during the construction phase. On
February 12, 2010, Lightowler filed an Answer (docket no. 42) to the Complaint, claiming
that it did not breach any duties to Plaintiffs and asserting affirmative defenses. On July
15, 2011, Lightowler filed the Motion, arguing that Plaintiffs did not file their claim
against Lightowler within the applicable statute of limitations and again asserting that it did
not breach any duties of care. On September 15, 2011, Plaintiffs filed a Resistance
(docket no. 151) to the Motion, and, on September 26, 2011, Lightowler filed a Reply
(docket no. 159). On November 7, 2011, United States Magistrate Judge Jon S. Scoles
granted Plaintiffs leave to file a supplemental resistance, see Order (docket no. 184), which
Plaintiffs filed the same day, see Supplemental Resistance (docket no. 185). On November
14, 2011, Lightowler filed a Reply (docket no. 186) to the Supplemental Resistance. On
The court recognizes that Cedar Rapids Lodge & Suites is the only named plaintiff
in Count VII. For ease of reading, however, the court frequently refers to Plaintiffs
December 8, 2011, the undersigned held a telephonic hearing during which the parties
argued specific issues raised in the Motion. See Hearing Minutes (docket no. 201). Kevin
Visser and Robert Miller represented Plaintiffs. Kevin Caster and Dana Oxley represented
Lightowler. Ted Vosburg appeared personally and was represented by Michael Mellaney
for the purpose of the pending Motion to Withdraw Reference. John Seibert appeared
personally and unrepresented. The Motion is now fully submitted and ready for decision.
III. SUBJECT MATTER JURISDICTION
The court has federal question jurisdiction over Plaintiffs’ claims against Defendants
John F. Seibert, Ted Vosburg and JFS Development, Inc. (f/k/a JCS Development, Inc.)
(“JFS Development”) arising under the Racketeer Influenced and Corrupt Organizations
Act (“RICO”), 18 U.S.C. § 1962 (a)-(c). Although Lightowler is not a defendant in
Plaintiffs’ RICO claims, the court has supplemental jurisdiction over Plaintiffs’ state law
claim against Lightowler. Pursuant to 28 U.S.C. § 1367(a):
[I]n any civil action of which the district courts have original
jurisdiction, the district courts shall have supplemental
jurisdiction over all other claims that are so related to claims
in the action within such original jurisdiction that they form
part of the same case or controversy under Article III of the
United States Constitution.
28 U.S.C. § 1367(a).
A federal court has supplemental jurisdiction over all claims in an action, including
state law claims, “whenever the federal-law claims and state-law claims in the case derive
from a common nucleus of operative fact and are such that [a plaintiff] would ordinarily
be expected to try them all in one judicial proceeding.” Kan. Pub. Emps. Ret. Sys. v.
Reimer & Koger Assocs., Inc., 77 F.3d 1063, 1067 (8th Cir. 1996) (alteration in the
original) (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 349 (1988)) (internal
quotation marks omitted). For instance, claims arise from a common nucleus of operative
fact when they are “factually interdependent,” Myers v. Richland Cnty., 429 F.3d 740,
746 (8th Cir. 2005) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375,
379 (1994)); there is “discernable overlap between the operative facts underlying the
federal claims and those underlying the appended state claims,” Hunt v. Up N. Plastics,
Inc., 980 F. Supp. 1042, 1044 (D. Minn. 1997); or remanding the case to state court
would “require duplicative evidence to be presented in both the state and federal forum,”
Schuster v. Anderson, 378 F. Supp. 2d 1070, 1122 (N.D. Iowa 2005). In Schuster, the
court found that it had supplemental jurisdiction over the plaintiffs’ state professional
negligence claims against their accountants who were also defendants in the underlying
378 F. Supp. 2d at 1119-22.
The court reasoned that, because the
accountants negligently prepared tax returns and failed to inform the plaintiffs about the
tax consequences of high-risk investments and loans and because the same investments
were central to the RICO claims, both the state and federal cases would require proof
regarding the same investments and loans. Id. at 1122.
The court can still have supplemental jurisdiction even when the defendant is not
part of the claim giving rise to the federal question jurisdiction.
For example, in
Armstrong v. American Pallet Leasing, Inc., the court declined to dismiss a claim against
U.S. Bank for lack of jurisdiction even though the bank was not a defendant in the
underlying RICO claims because the bank’s misrepresentations were used to facilitate the
RICO fraud. 678 F. Supp. 2d 827, 845-47 (N.D. Iowa 2009).
While the facts of this case differ somewhat from those in Schuster and Armstrong
in that Lightowler is not a defendant in the RICO claim and Plaintiffs are not alleging
intentional wrongdoing beyond negligence against Lightowler, the court finds that it has
supplemental jurisdiction over Count VII.
“‘[I]n trying to set out standards for
supplemental jurisdiction and to apply them consistently, we observe that, like unhappy
families, no two cases of supplemental jurisdiction are exactly alike.’” Lyon v. Whisman,
45 F.3d 758, 760 (3d Cir. 1995) (quoting Nanavati v. Burdette Tomlin Mem’l Hosp., 857
F.2d 96, 105 (3d Cir. 1988)).
Plaintiffs allege that part of the fraud constituting racketeering activities involves
Seibert’s misrepresentations and fraudulent nondisclosures regarding the Hotel’s
construction, specifically that the Hotel did not conform to Cedar Rapids code
requirements and, consequently, the Hotel was operating without a certificate of occupancy
at certain points following construction. See Complaint at ¶¶ 175-181. In their claim
against Lightowler, Plaintiffs allege that Lightowler was negligent in failing to design the
Hotel according to regulations and failing to properly oversee the general contractor during
construction. See id. at ¶¶ 219-223. Therefore, Plaintiffs are alleging that Lightowler’s
negligence facilitated the alleged RICO fraud. Additionally, the facts of the RICO claim
and the state negligence claim are interdependent and would require evidence of the
Hotel’s construction and regulatory compliance in both state and federal proceedings.
Because there is a common nucleus of operative facts between the RICO claim and the
negligence claim, the court has supplemental jurisdiction over the claim against
IV. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). “A dispute is genuine if the evidence is such that it could cause a
reasonable jury to return a verdict for either party; a fact is material if its resolution affects
the outcome of the case.” Amini v. City of Minneapolis, 643 F.3d 1068, 1074 (8th Cir.
2011), petition for cert. filed, 80 BNA U.S.L.W. 3321 (U.S. Nov. 14, 2011) (No. 11-609)
(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 252 (1986)). “[S]elf-serving
allegations and denials are insufficient to create a genuine issue of material fact.” Anuforo
v. Comm’r, 614 F.3d 799, 807 (8th Cir. 2010). “‘To survive a motion for summary
judgment, the nonmoving party must ‘substantiate [its] allegations with sufficient probative
evidence [that] would permit a finding in [its] favor based on more than mere speculation,
conjecture, or fantasy.’” Barber v. C1 Truck Driver Training, LLC, 656 F.3d 782, 801
(8th Cir. 2011) (quoting Putman v. Unity Health Sys., 348 F.3d 732, 733-34 (8th Cir.
2003)). The court must view the record in the light most favorable to the nonmoving party
and afford it all reasonable inferences. See Schmidt v. Des Moines Pub. Schs., 655 F.3d
811, 819 (8th Cir. 2011).
V. RELEVANT FACTUAL BACKGROUND
Viewing the evidence in the light most favorable to Plaintiffs and affording them all
reasonable inferences, the uncontested material facts are as follows.
Plaintiff Cedar Rapids Lodge & Suites, LLC (“CRLS”) is a limited liability
company organized in Minnesota with its principal place of business in Cedar Rapids,
Iowa. A limited liability company is “a hybrid business entity . . . offering all of its
members limited liability as if they were shareholders of a corporation but treating the
entity and its members as a partnership for tax purposes.” 51 Am. Jur. 2d Limited
Liability Companies § 1 (footnote omitted).
Plaintiff James T. Rymes is a current CRLS governor and is a citizen of New
Hampshire. Plaintiff Scott Shisler is a current CRLS governor. He and his wife, Plaintiff
Julie Shisler, are citizens of Illinois. Plaintiff Rhonda Coborn is also a current CRLS
governor. She and her husband, Plaintiff Michael Coborn, are citizens of Iowa. Plaintiffs
Raymond Mulford, Theresa A. Mulford, Jerred Ruble, Jacob Sailer and Ronald J. Sailer
are all citizens of Iowa, and Plaintiff Pamela J. Cobb Revocable Trust is a trust
administered in Iowa.
Defendant JFS Development is a hotel management corporation organized in
Minnesota with its principal place of business in Minnesota. Defendant Seibert is the
president of JFS Development, was an original governor of CRLS and is a citizen of
Minnesota. Defendant Vosburg was an original governor of CRLS and is a citizen of
Iowa. Defendant Lightowler is an architectural and engineering corporation with its
principal place of business in North Dakota and was the project architect for the Hotel.
B. Project Background
Seibert, Vosburg and Marc Gabrielson2 were partners in multiple AmericInn hotel
projects. Around 2001, the three partners explored the potential for building an AmericInn
hotel in Cedar Rapids, Iowa, and discovered that Midwestern Hospitality, Inc.
(“Midwestern”) already had exclusive rights to develop an AmericInn franchise in Cedar
Tim Tyrrell and Vern Cooper signed Midwestern’s AmericInn franchise
agreement as personal guarantors. See Plaintiff’s Appendix (“Pl. App’x”) (docket nos.
151-3 through 151-9) at 53. Lightowler was the architect for Midwestern’s AmericInn
project, and the two entities executed a “Standard Form of Agreement Between Owner and
Architect for a Small Project” (“Midwestern Contract”). See Pl. App’x at 58-62.
After Midwestern failed to pay the amount due on the Midwestern Contract,
Lightowler initiated legal action against Midwestern to recover the contract amount. After
learning that Midwestern was planning to sell its franchise rights to CRLS, Lightowler
suspended its legal action against Midwestern and agreed to be the architect for the Hotel.
From the time CRLS was organized until 2008, the CRLS governors were John Seibert,
Ted Vosburg, Marc Gabrielson and Tim Tyrrell. Seibert was the president and chief
manager of CRLS. In March of 2003, Seibert executed the Articles of Organization in
Minnesota on behalf of CRLS. In April of 2003, Midwestern transferred its exclusive
Cedar Rapids AmericInn franchise rights to CRLS.
Gabrielson was dismissed from this action on November 16, 2011. See Stipulation
for Dismissal as to Defendant Marc Gabrielson (docket no. 181); Order (docket no. 187)
C. CRLS-Lightowler Agreement
CRLS and Lightowler had an understanding that the CRLS project was a “new
engagement, with a new client, under a separate contract,” further evidenced by a new
project number in Lightowler’s records. Plaintiff’s Statement of Additional Material Facts
(“Pl. Statement of Additional Material Facts”) (docket no. 151-2) at ¶ 25; Defendant’s
Supplemental Appendix (“Def. Supp. App’x”) (docket nos. 157-1 and 157-2) at 213-15
(discussing meetings between Seibert and Lightowler about the new project and referencing
different project numbers). On June 19, 2003, Lightowler sent Seibert an altered version
of its “Standard Form of Agreement Between Owner and Architect for a Small Project”
(“Agreement”) signed by Lightowler’s Vice President, Steve Goldade, see Defendant’s
Appendix (“Def. App’x”) (docket nos. 133-3 through 133-6) at 3-5, which Seibert
received in June 2003 or shortly thereafter, see Def. App’x at 1.
The Agreement identifies the project as “[d]rawings previously prepared for:
AmericInn Hotel.” Id. at 3. Lightowler crossed out several provisions of the Agreement,
including the duty to reject nonconforming work and all other construction phase duties
except contract interpretation. See id. Seibert has no memory of signing the Agreement,
and there is no known copy of the Agreement bearing his signature. See id. at 1-8; Pl.
App’x at 110, 125.3, 138. CRLS’s operating agreement states that a contract on behalf
of the LLC must be signed by the chief manager, president, vice president or designee.
See Pl. App’x at 370. However, there is no evidence that Lightowler was aware of this
document or CRLS’s internal policy.
Seibert stated both at his deposition and in an affidavit that the Agreement was the
contract between CRLS and Lightowler. See Def. App’x at 1-2; Pl. App’x at 138; Def.
Supp. App’x at 148; see also Pl. App’x at 110 (fax from Seibert to an attorney referring
to the Agreement as “the architectural contract,” although admitting that he never signed
the document). Stevan Dewald, Lightowler’s President and CEO, stated in his affidavit
that, although Seibert never signed the Agreement, CRLS never objected to it. Def. App’x
at 142. Dewald stated that “Lightowler performed the work under the belief that the
owner agreed to the terms in the contract. We did the work described in the contract and
we billed and were paid the fixed sum in the contract.” Id. Furthermore, CRLS paid
Lightowler an invoiced amount based on the lump sum payment stated in the Agreement,
id. at 14-15, and CRLS received the Hotel plans from Lightowler, Pl. App’x at 170.
The Agreement provides for a lump sum fee of $33,800, minus Midwestern’s $3000
retainer. See Def. App’x at 4. The Agreement also states that, “This Agreement shall be
governed by the law of the location of the Architect’s office.” Id. Lightowler’s office is
located in North Dakota. The price in the Agreement is the same as Midwestern’s unpaid
lump sum contract amount. See Pl. App’x at 60, 112. The Agreement also states that
Lightowler would make site visits only upon the client’s request. See Def. App’x at 5.
The Agreement provides that revisions to the original design “shall be negotiated
prior to commencement of the work.” Pl. App’x at 100. The standard billing rates
schedule that was attached to the Agreement did not include billing rates for additional
work done by architects and engineers. See id. at 61; Def. App’x at 7. Lightowler billed
Seibert for plan revisions, and Seibert subsequently directed his staff not to pay several of
the invoices for these revisions. See Pl. App’x at 151-58 (invoices with handwritten
instructions not to pay them).
Seibert testified in his deposition that it was his understanding that Lightowler would
ensure compliance with local and federal regulations and notify CRLS if it noticed that
something was not up to standards during a site visit. See id. at 133.2-135. Seibert also
stated in his Answer to the Complaint (“Seibert’s Answer”) (docket no. 78) that the
“[d]efendants . . . relied on Lightowler, as the architect, to review the work being
performed by [the general contractor], and Lightowler did review . . . the project and
would identify any issues which it had with the construction process.” Seibert’s Answer
at ¶ 88. Goldade stated during his deposition that, if plans submitted to AmericInn did not
comply with standards, Lightowler would fix those problems only at the request of the
client. See Pl. App’x at 124; see also Def. App’x at 4 (architect’s duty to reject
nonconforming work is crossed out in the Agreement). Seibert testified in his deposition
that he understood that Lightowler’s duties under the Agreement were to make site visits
only at CRLS’s request and to notify CRLS if anything was not up to standard during a site
visit. See Def. Supp. App’x at 149-51. Seibert also testified that struck-through duties
were not part of the agreement. Id.
D. Project Design, Construction and Completion
On November 6, 2003, Lightowler sent Seibert building plans for the Hotel. See
Pl. App’x at 170. The plans contained several designs that did not conform to AmericInn’s
internal specifications and did not comply with Iowa and Cedar Rapids building codes and
regulations. See Def. App’x at 16-18, 26-30; Pl. App’x at 253-98. Specifically, the plans
included specifications for a 62-room hotel instead of AmericInn’s 68 required rooms,
included specifications for a 4 inch foundation instead of AmericInn’s required 12 inch
foundation, failed to include sprinklers in the attic and porte-cochere, included
specifications calling for a 3 foot high railing (which is the residential standard height) and
failed to include a fire-alarm exit door or exterior concrete pad at the foot of the stairway
in violation of Iowa and Cedar Rapids regulations. See Complaint at ¶¶ 75, 78-80.
Lightowler corrected some of these errors while the project was ongoing.
On November 21, 2003, Shawn Lidberg, the AmericInn project manager, sent
Seibert a letter noting various problems with the plans, including the incorrect number of
rooms. See Def. App’x at 19. Construction was scheduled to commence on January 1,
2004, Complaint at ¶ 65, and was ongoing as of January 20, 2004, see Plaintiff’s
Supplemental Appendix (“Pl. Supp. App’x”) (docket no. 185-2) at 476. On July 20, 2004,
Gabrielson sent Seibert an email listing several items of concern with the structure of the
Hotel. See Def. App’x at 23.
On July 26, 2004, Lidberg led a site visit of the Hotel, which was attended by
Lightowler engineer Tim Olson, various other AmericInn representatives, Seibert,
Vosburg, Gabrielson and Tyrrell, who was also the general contractor for the Hotel. See
Pl. App’x at 284. After the July visit, Olson generated a report of the deficiencies with
the Hotel’s design and construction that were discovered during the walkthrough. See id.
at 290. Both Olson and Lidberg notified Seibert and Tyrrell of the design and construction
deficiencies in writing. See id. at 284-91. Lightowler’s last involvement of any kind on
the Hotel project was a fax sent to Tyrrell on September 24, 2004. See id. at 297.
Lidberg led another site visit on October 21, 2004, attended by Tyrrell and another
AmericInn representative. See id. at 299-304. Neither Seibert nor any Lightowler
representative attended the October site visit. See id. During the October visit, Lidberg
found several more deficiencies and notified Seibert, Tyrrell and Lightowler of those
deficiencies in a written report. See id. at 299. In response to the report of the October
site visit, Lightowler sent AmericInn a letter on November 1, 2004, stating that it was not
involved in construction administration and was not aware of the problems that Lidberg
observed during the walkthrough. See id. at 349. Seibert and Tyrrell received copies of
the letter. See id.
On either December 4 or December 9, 2004, the Hotel opened for business.3 The
Hotel received a temporary certificate of occupancy on December 9, 2004, pending
necessary corrections to the building’s construction.
See id. at 350, 356-60.
temporary certificate of occupancy expired on February 9, 2005, and was renewed on
April 15, 2005. See id. at 360. Another temporary certificate of occupancy was issued
There is a discrepancy between Plaintiffs’ Complaint and Plaintiff’s Response to
Defendant’s Statement of Material Facts as to whether the Hotel’s opening day was
December 4 or December 9, 2004. Compare Complaint at ¶ 105, with Plaintiff’s
Response to Defendant’s Statement of Material Facts (docket no. 151-1) at ¶ 32.
on April 7, 2006, and expired on October 7, 2006. See id. at 357. A final certificate of
occupancy was denied on October 16, 2006. See id. at 360. On March 8, 2007, the
Hotel’s financial difficulties and an additional capital call were discussed at an investors’
meeting. See Complaint at ¶ 125. On June 16, 2008, the investors experienced a “wakeup call” when Seibert, Vosburg and Gabrielson could not account for the money obtained
from investors as a result of the 2007 capital call. See id. at ¶ 130. On October 16, 2008,
Plaintiffs gained control of the Hotel from Seibert, Vosburg, Gabrielson and Tyrrell. See
id. at ¶ 137. After gaining control of the Hotel, Plaintiffs learned that the Hotel had been
operating without a certificate of occupancy and that various deficiencies existed in the
design and construction of the Hotel. See Pl. Statement of Additional Material Facts at
¶ 62; Pl. App’x at 436-40. The Hotel did not receive a final certificate of occupancy until
October 26, 2009. See Pl. App’x at 361.
In the Motion, Lightowler argues that it is entitled to summary judgment because
Plaintiffs’ claim is barred under both the North Dakota statute of limitations and the Iowa
statute of limitations. Plaintiffs argue that their claim is not barred.
A. The Agreement
Whether the Iowa statute of limitations or North Dakota statute of limitations applies
depends on whether the choice of law provision in the Agreement is enforceable as part
of a valid contract between CRLS and Lightowler. Plaintiffs argue that the Agreement is
not a contract because it was never signed, and the CRLS internal operating agreement
required the president or designee to sign contracts entered into on behalf of CRLS.
Plaintiffs also argue that CRLS’s payment to Lightowler was a pass-through of
Midwestern’s debt and did not constitute acceptance of a new contract. Furthermore,
Plaintiffs argue that there was no meeting of the minds regarding the terms of the contract
because Seibert and Lightowler had different understandings of the duties that were
required of them under the contract, and Seibert refused to pay for Lightowler’s
subsequent plan revisions. Defendants argue that the Agreement is a binding contract
because representatives of both contracting parties agree that it was the contract between
them and both parties performed pursuant to its terms. Defendants also argue that the
Agreement left the scope and price of future work open to later negotiations, and,
therefore, differences in the parties’ understanding regarding subsequent plan revisions are
not relevant to the question of whether a contract was formed.
The court will first assess which state substantive law controls the question of
contract formation. Then, the court will determine whether Seibert had authority to enter
into a contract on behalf of CRLS and whether a contract was formed.
Choice of Law
At the outset, the court must determine which state law to apply in assessing the
validity of the Agreement. “Federal district courts must apply the choice-of-law rules of
the forum state, whether sitting in diversity or deciding federal question cases with
supplemental state law claims.” Bendzak v. Midland Nat’l Life Ins. Co., 440 F. Supp. 2d
970, 983 (S.D. Iowa 2006). Thus, the court will apply Iowa choice of law rules in
determining what state substantive law applies. Iowa has adopted the choice of law test
set forth in the Restatement (Second) of Conflicts of Law, which applies either the law that
the parties intended to control the agreement or the law of the state with the “most
significant relationship.” Cole v. State Auto. & Cas. Underwriters, 296 N.W.2d 779, 781
In determining whether the Agreement is a contract between CRLS and Lightowler,
the North Dakota choice of law provision in the Agreement does not control because the
existence of a binding agreement has not been established. “[A] choice-of-law provision
can have no effect until the court determines the validity of the contract itself.”
Jones Constr. Co. v. Hoot Gen. Constr. Co., 613 F.3d 778, 782-83 (8th Cir. 2010). “The
Iowa Court of Appeals has applied Iowa law to determine the existence of a contract
without regard to a choice of law provision in the purported contract.” Id. at 783 (citing
Flanagan v. Consol. Nutrition, L.C., 627 N.W.2d 573, 579 (Iowa Ct. App. 2001)).
“Once the existence of a contract is determined, the parties’ intent as evinced in the choiceof-law provision controls, and [the court] will apply [the law of the state chosen by the
parties] to questions of interpretation or construction of the contract.” Id. at 783 (internal
Thus, the court will use the most significant relationship test to determine which
substantive state law to apply regarding contract formation.
The most significant
relationship test requires the court to consider: “the place where the injury occurred, the
place where the conduct causing the injury occurred, the place of domicile, residence,
incorporation or business of the parties, and the place where the relationship between the
parties is centered.” Bendzak, 440 F. Supp. 2d at 984. In reviewing these factors, the
court notes that the Hotel was constructed in Iowa.
Therefore, the alleged
injury—economic harm caused by faulty design and construction—occurred in Iowa.
Although relevant, consideration of the place of domicile, residence, incorporation or
business of the parties are less helpful in this case. Plaintiff CRLS is a Minnesota limited
liability company with its primary place of business in Iowa. All of the individual
plaintiffs are citizens or residents of Iowa except James T. Rymes, who is a citizen of New
Hampshire, and Scott and Julie Shisler, who are citizens of Illinois. Lightowler is a North
Dakota firm. Finally, the relationship between the parties is centered in Iowa because the
relationship is based upon the construction of an Iowa hotel. While not all of the parties
are domiciled in Iowa, after considering all the relevant factors, the court finds that Iowa
has the most significant relationship to the case and applies Iowa substantive law to
determine the validity of the Agreement.
Seibert had authority to accept the Agreement on behalf of CRLS. At the time the
Hotel project began, Seibert was an agent of CRLS. At the time Plaintiffs’ cause of action
accrued,4 “[e]very manager [was] an agent of the limited liability company.” Iowa Code
§ 490A.702(3)(b) (2003-2008).
There are various types of authority that an agent can have to act on behalf of a
principal. “‘Actual authority to act is created when a principal intentionally confers
authority on the agent either by writing or through other conduct which, reasonably
interpreted, allows the agent to believe that he has the power to act.’” Frontier Leasing
Corp. v. Links Eng’g, LLC, 781 N.W.2d 772, 776 (Iowa 2010) (emphasis omitted)
(quoting Hendricks v. Great Plains Supply Co., 609 N.W.2d 486, 493 (Iowa 2000)).
“Apparent authority is authority the principal has knowingly permitted or held the agent
out as possessing.” Id. Additionally, under the doctrine of estoppel, “[a] principal is
liable if he (1) causes a third party to believe an agent has the authority to act, or (2) has
notice that a third party believes an agent has the authority and does not take steps to notify
the third party of the lack of authority.” Id. at 777. Finally, “a principal may be liable
when he knowingly accepts the benefits of a transaction entered into by one of his agents”
under the doctrine of ratification. Id.
According to the applicable provision of the Iowa Code,
[t]he act of any manager with agency authority, including, but
not limited to, the execution in the name of the limited liability
The Iowa legislature enacted the Revised Uniform Limited Liability Company Act
that became effective on January 1, 2009. See Iowa Code § 489.101. The Act includes
a savings clause, however, which states that “[t]his chapter does not affect an action
commenced, proceeding brought, or right accrued before this chapter takes effect.” Id.
at § 489.1303. Because Plaintiffs’ cause of action against Lightowler accrued before
January 1, 2009, as discussed more fully below, the court applies the Iowa Code
provisions in effect at the time Plaintiffs’ cause of action accrued.
company of any instrument, for apparently carrying on in the
ordinary course the business or affairs of the limited liability
company shall bind the limited liability company, unless the
manager so acting has, in fact, no authority to act for the
limited liability company in the particular matter, and the
person with whom the manager is dealing has knowledge of
the fact that the manager has no such authority.
Iowa Code § 490A.702(3)(b) (2003-2008); see also Restatement (Third) of Agency § 3.03
cmt. b (2006) (“A principal may also make a manifestation by placing an agent in a
defined position in an organization . . . . Third parties who interact with the principal
through the agent will naturally and reasonably assume that the agent has authority to do
acts consistent with the agent’s position . . . unless they have notice of facts suggesting that
this may not be so.”).
Pursuant to the CRLS operating agreement, Seibert, as the president of CRLS, had
actual authority to execute contracts for the company by signature. See CRLS Operating
Agreement, Pl. App’x at 370 (“All . . . contracts and other instruments pertaining to the
business and affairs of the Company shall be signed on behalf of the Company by the Chief
Manager, or the President, or any Vice President, or by such other person or persons as
may be designated from time to time by the Board of Governors.”). Furthermore, through
organizational resolutions, CRLS gave original governors Seibert and Gabrielson the
power to “execute, acknowledge and deliver” bank loan documents. Pl. App’x at 117.
Even if Seibert did not have actual authority to enter into a contract, he did have
apparent authority. Seibert was the president of CRLS at the time Lightowler sent him the
Agreement, and Plaintiffs have not produced any evidence indicating that Lightowler had
notice that, under the operating agreement, CRLS required a signature on its contracts.
Furthermore, CRLS is estopped from denying the existence of the contract because it
caused Lightowler to believe that Seibert had authority to act and did not take any steps
to inform Lightowler otherwise. Finally, CRLS accepted the benefits of the contract by
receiving the plans from Lightowler, thereby ratifying the contract. Therefore, the court
finds that Seibert had authority to enter into the contract.
Validity of the Agreement
The Agreement is an enforceable contract. A valid contract must have both an offer
and an acceptance, with acceptance being a “‘manifestation of assent to the terms thereof
made by the offeree in a manner invited or required by the offer.’” Heartland Express,
Inc. v. Terry, 631 N.W.2d 260, 270 (Iowa 2001) (quoting Restatement (Second) of
Contracts § 50). “[A]n offer, unaccepted, makes no binding contract, and . . . the
acceptance must be on the terms of the offer . . . .” Hankins v. Young, 156 N.W. 380,
383 (Iowa 1916). “[A]lthough a party making an offer may specify how it shall be
accepted, failing this anything that amounts to a manifestation of the determination to
accept is sufficient . . . .” Anderson v. Armstrong, 264 N.W.2d 619, 621 (Iowa Ct. App.
“[A] manifestation of mutual assent is based upon the objective evidence, not the
hidden intent of the parties.” Eaton Corp. v. Branson, 772 N.W.2d 16 (Table), No. 081537, 2009 WL 1677239, at *3 (Iowa Ct. App. June 17, 2009) (citing Heartland Express,
631 N.W.2d at 268). “‘For a contract to be valid, the parties must express mutual assent
to the terms of the contract,’” which is “present when it is clear from the objective
evidence that there has been a meeting of the minds.” Royal Indem. Co. v. Factory Mut.
Ins. Co., 786 N.W.2d 839, 846 (Iowa 2010) (quoting Schaer v. Webster Cnty., 644
N.W.2d 327, 338 (Iowa 2002)). To meet this objective standard, “the contract terms must
be sufficiently definite for the court to determine the duty of each party and the conditions
of performance.” Id. “‘[A]n agreement need not contain definitely and specifically every
fact in detail to which the parties may be agreeing.’ The agreement need only be ‘certain
and unequivocal in its essential terms’ and ‘absolute certainty is not required; only
reasonable certainty is necessary.’” In re Guardianship & Conservatorship of Price, 571
N.W.2d 214, 216-17 (Iowa Ct. App. 1997) (quoting 17A Am. Jur. 2d Contracts ¶¶ 196197) (holding that a contract was enforceable because the essential terms of the price to be
paid and the services to be rendered were defined in the agreement).
If a document is unsigned or signed by only one of the parties, a contract can still
be formed if the parties accept by conduct. See Phone Connection, Inc. v. Harbst, 494
N.W.2d 445, 448 (Iowa Ct. App. 1992). “The parties to an unsigned agreement are
obligated to abide by the agreement, when the acceptance appears from the acts of the
parties.” Id. (holding that there was an employment contract even though the employee
did not sign the agreement because the employee performed pursuant to the agreement and
accepted the benefits of the agreement). “In the absence of a statute requiring a signature
. . . or an agreement that the contract shall not be binding until it is signed[,] signatures
of both parties are not essential for establishment of a binding contract if manifestation of
mutual expressions of assent is otherwise shown.” Serv. Emps. Int’l, Local No. 55 v.
Cedar Rapids Cmty. Sch. Dist., 222 N.W.2d 403, 407 (Iowa 1974) (citing Henderson v.
Henderson, 114 N.W. 178, 179 (Iowa 1907)).
The existence of a contract, meeting of the minds, intention to
assume an obligation . . . is to be determined not alone from
words used, but in the situation, acts, and conduct of the
parties, and from their situation and the attending
circumstances, and by the inferences which mankind would
ordinarily and reasonably draw therefrom.
The statute of frauds in either Iowa or North Dakota is not applicable in this case
because Lightowler’s duties under the contract could potentially be performed in less than
one year. See Shearon v. Boise Cascade Corp., 478 F.2d 1111, 1115 (8th Cir. 1973)
(holding that, under Iowa law, “an oral contract is not invalidated by the statute of frauds
unless, according to the reasonable interpretation of its terms, the contract requires that
it should not be performed within one year”); see also Thompson v. N.D. Workers’ Comp.
Bureau, 490 N.W.2d 248, 251-52 (N.D. 1992) (holding that, under North Dakota law,
“[i]f there is a possibility that an agreement may be performed within one year, the
agreement does not have to be in writing”).
LaFontaine v. Developers & Builders, Inc., 156 N.W.2d 651, 655-56 (Iowa 1968) (quoting
Kladivo v. Melberg, 227 N.W. 833, 837 (Iowa 1929) (internal quotation marks omitted).
“The existence of the mutual understanding, the proposal, and acceptance may be implied
from conduct and circumstances[,] [which] may be shown by circumstantial evidence, or
by the admission of the party to be charged.” Siebring Mfg. Co. v. Carlson Hybrid Corn
Co., 70 N.W.2d 149, 153 (Iowa 1955) (quoting In re Newson’s Estate, 219 N.W. 305,
307 (Iowa 1928)); see also Burns Philp Inc. v. Cox, Kliewer & Co., P.C., 2000 WL
33361992, No. 4-99-CV-90033, at *3 (S.D. Iowa Nov. 2, 2000) (holding as a matter of
law that a choice of law provision in an unsigned agreement was enforceable where an
architect sent an owner a written agreement that the owner never signed, but the evidence
showed that the owner assented to and performed under the contract and the owner stated
in an affidavit that the document was the agreement between the parties). Additionally,
if a party accepts the benefits of an unsigned contract, he or she is estopped from denying
the existence of the contract because the agreement has been ratified. See Ross v. Gordon,
109 N.W.2d 208, 211 (Iowa 1961) (holding that a party could not deny the existence of
a contract, even though she did not sign it, because she ratified the contract by her
acceptance of payments and benefits under the agreement).
The Agreement is an enforceable contract. Although Seibert never signed the
Agreement, both Seibert and Goldade testified that the Agreement was the contract
between them for the Hotel project. The Agreement states the services that Lightowler
was obligated to provide and the price that CRLS was to pay for those services. Because
Lightowler provided CRLS with the Hotel plans and CRLS paid Lightowler for the plans,
both parties to the agreement performed under the contract. Consequently, there was
acceptance of Lightowler’s offer by conduct. Furthermore, Seibert sent a fax to his
attorney on May 2, 2005, that referred to the Agreement as the “architectural contract,”
which indicates that Seibert understood that the Agreement was the controlling agreement
between CRLS and Lightowler. Pl. App’x at 110. Although the Agreement does not
define the price and scope of work for subsequent plan revisions, if there were any, the
Agreement is sufficiently definite in its essential terms regarding required services and
price to become an enforceable agreement. Furthermore, the Agreement contains no
language indicating that terms will not be binding unless signed or that all aspects of the
agreement between the parties must be expressed in the document.
Plaintiffs claim that CRLS’s payment to Lightowler was not acceptance of a new
contract, but, rather, a “pass-through” of Midwestern’s debt to Lightowler, minus
Midwestern’s retainer. See Pl. Statement of Additional Material Facts at ¶¶ 28-29. This
argument, however, is not persuasive because both parties acknowledged that the
Agreement represented a new project with a new agreement.
Plaintiffs further argue that there was no meeting of the minds regarding the parties’
duties under the contract. The fact that Seibert and Goldade disagreed in their testimony
about the duty to reject nonconforming work and the fact that Seibert stated that he relied
on Lightowler to check Tyrrell’s work are immaterial to the question of contract
formation, however. The parties’ conduct provided objective evidence of mutual assent
to a binding agreement. A finding of mutual assent cannot be based on the hidden intent
of the parties.
See Eaton Corp., 2009 WL 1677239, at *3.
Based on the above
discussion, there is no genuine issue of material fact regarding whether the Agreement is
a valid contract. Because the Agreement is enforceable, the North Dakota choice of law
provision in the contract governs this dispute.
B. Statutes of Limitations
The court finds that Plaintiffs’ cause of action against Lightowler is barred under
either the two-year North Dakota statute of limitations or the five-year Iowa statute of
limitations. Plaintiffs argue that their claim is not barred under the Iowa statute of
limitations because their cause of action did not accrue until the Hotel opened for business
in December of 2004. Plaintiffs also argue that, under the doctrine of adverse domination,
neither statute of limitations started running until they took over CRLS in 2008.
Defendants argue that Plaintiffs had notice of their cause of action against Lightowler well
before the Hotel opened and that neither North Dakota nor Iowa have adopted the doctrine
of adverse domination.
Because the Agreement contains a choice of law provision stating that North Dakota
law governs the agreement, the court applies the North Dakota statute of limitations to
Plaintiffs’ claim against Lightowler. See John T. Jones Constr. Co., 613 F.3d at 783
(“Once the existence of a contract is determined, the parties’ intent as evinced in the
choice-of-law provision controls . . . .”).
The applicable statute of limitations under North Dakota law is two years. See
N.D. Cent. Code § 28-01-18(3); see also Sime v. Tvenge Assocs. Architects & Planners,
P.C., 488 N.W.2d 606, 609 (N.D. 1992) (“[E]ngineers and architects are professionals
for purposes of the two-year statute of limitations for malpractice actions.”). “The
determination of when a plaintiff’s cause of action has accrued is generally a question of
fact, but if there is no dispute about the relevant facts, the determination is for the court.”
Dunford v. Tryhus, 776 N.W.2d 539, 541 (N.D. 2009) (quoting Tarnavsky v. McKenzie
Cnty. Grazing Ass’n, 665 N.W.2d 18, 22 (N.D. 2003)). North Dakota has adopted the
discovery rule in determining when a statute of limitations begins to run. Id. at 542. “The
discovery rule postpones a claim’s accrual until the plaintiff knew, or with the exercise of
reasonable diligence should have known, of the wrongful act and its resulting injury.” Id.
(quoting Wells v. First Am. Bank W., 598 N.W.2d 834, 838 (N.D. 1999)).
Plaintiffs had notice of their claim before December 3, 2007. The Hotel opened for
business on December 4 or December 9, 2004, and, as discussed below, CRLS had notice
of the cause of action before the Hotel opened. Plaintiffs do not dispute that CRLS had
notice of its cause of action before December 3, 2007, but urge the court to apply the
doctrine of adverse domination6 to the instant case. Because North Dakota has not adopted
the doctrine of adverse domination, the court declines to apply the exception in the instant
action. Thus, the court finds that CRLS’s cause of action is outside North Dakota’s twoyear statute of limitations.
The court further finds that, even if the choice of law provision in the Agreement
is not enforceable, CRLS had notice of its cause of action against Lightowler before
December 3, 2004, and the claim is therefore barred under the Iowa statute of limitations.
The applicable Iowa statute of limitations for Plaintiffs’ negligence action against
Lightowler is five years. See Iowa Code § 614.1(4); see also Iowa Supreme Court Att’y
Disciplinary Bd. v. Powell, 726 N.W.2d 397, 407 (Iowa 2007) (noting that a legal
negligence claim for injury to property was subject to a five-year statute of limitations).
The statute of limitations for a negligence claim begins to run when “the aggrieved party
has a right to institute and maintain a suit.” Chrischilles v. Griswold, 150 N.W.2d 94, 99
(Iowa 1967), superseded by statute on other grounds, Iowa Code § 614.1(9), as recognized
in Langner v. Simpson, 533 N.W.2d 511, 516-17 (Iowa 1995); see also Bob McKiness
Excavating & Grading, Inc. v. Morton Bldgs., Inc., 507 N.W.2d 405, 408 (Iowa 1993)
(“[N]o cause of action accrues under Iowa law until the wrongful act produces loss or
damage to the claimant.”).
Iowa has adopted the “discovery rule,” which states that “a cause of action based
on negligence does not accrue until plaintiff has in fact discovered that he has suffered
injury or by the exercise of reasonable diligence should have discovered it.” Chrischilles,
Under the adverse domination doctrine, if agents who dominate a corporation have
knowledge of an injury to the corporation, that knowledge will not be imputed to the
corporation if the agents themselves are the wrongdoers. See 3A William Meade Fletcher,
Fletcher Cyclopedia of the Law of Corporations § 1306.20.
150 N.W.2d at 100; see also Hasbrouck v. St. Paul Fire & Marine Ins. Co., 511 N.W.2d
364, 367 (Iowa 1993) (“The statute of limitations under the discovery rule begins to run
when the injured party discovers the cause of action.”). In other words, the injured party
must have “‘actual or imputed knowledge of the facts that would support a cause of
action.’” Rieff v. Evans, 630 N.W.2d 278, 291 (Iowa 2001) (quoting State v. Wilson, 573
N.W.2d 248, 253 (Iowa 1998)). CRLS is the only plaintiff named in Count VII. Whether
CRLS had notice of a negligence claim depends on what notice its officers had “when the
information [was] pertinent to the duties of the officer or employee receiving it.” Kemin
Indus., Inc. v. KPMG Peat Marwick LLP, 578 N.W.2d 212, 216 (Iowa 1998). Iowa
courts have held that, “‘[w]hen an incident occurs causing minor injuries and later more
serious injuries appear,’ the plaintiff’s claim for all injuries accrues for purposes of the
statute of limitations upon discovery of the first injury.” K & W Electric, Inc. v. State,
712 N.W.2d 107, 119 (Iowa 2006) (quoting LeBeau v. Dimig, 446 N.W.2d 800, 801
Other courts have held that the statute of limitations begins to run in the construction
context when plaintiffs discover structural damage. See City of Omaha v. Hellmuth, Obata
& Kassabaum, Inc., 767 F.2d 457, 460 (8th Cir. 1985) (applying a Nebraska statute of
limitations and holding that the statute of limitations began to run when the city learned
that a retaining wall was beginning to crack and deteriorate, despite the architect’s
assurances that the damage was expected, minor and the result of factors other than faulty
design); Roof-Techs Int’l, Inc. v. State, 57 P.3d 538, 545-46 (Kan. Ct. App. 2002)
(holding that a subcontractor’s knowledge of asbestos in the roof of a construction project
and knowledge that it would cause delays was sufficient knowledge of the injury to start
the statute of limitations running on its claim against the project architect, even though the
subcontractor did not know the extent of the injury).
Plaintiffs argue that their claim against Lightowler did not accrue until, at the
earliest, the day that the Hotel opened for business because the injury would not accrue
until the building was substantially complete. Because Lightowler undertook only the duty
to provide design services to CRLS in the Agreement, CRLS’s cause of action accrued
long before completion of construction. Furthermore, the facts show that Seibert and other
CRLS governors received notice of design and construction problems at several points
before the Hotel’s opening day. Seibert received notice that there were problems with the
design of the Hotel as early as November 21, 2003, the date of the letter from AmericInn.
All four CRLS governors received notice of design and construction problems during the
July site visit, and Seibert and Tyrrell were notified of additional design and construction
issues during the October site visit. Lightowler did not do any additional work on the
project after September 24, 2004, and Lightowler’s November 1, 2004, letter to AmericInn
put Seibert on notice that Lightowler did not believe it had any construction administration
duties with respect to the Hotel project. The Hotel opened for business on December 4 or
December 9, 2004, and it received a temporary certificate of occupancy on December 9,
2004, see Pl. App’x at 360.
Because Plaintiffs filed the Complaint on December 3, 2009, Plaintiffs must not
have received notice of the claim until after December 3, 2004, for the action to fall within
the statute of limitations. The facts regarding CRLS’s knowledge of the design and
construction issues during the construction process are undisputed. Plaintiffs urge the
court to adopt an analysis that the cause of action does not accrue until the building is
substantially complete. Iowa courts have not adopted this rule, however, and the court
declines to apply this analysis to the present case. Additionally, Iowa has not adopted the
doctrine of adverse domination, and the court declines to extend the doctrine to this case.
The record shows that the CRLS governors received notice of the facts giving rise to this
cause of action on several occasions prior to December 3, 2004. Thus, there is no genuine
issue of material fact regarding whether the Iowa statute of limitations has run, and the
action is barred by the Iowa statute of limitations.
In light of the foregoing, the court finds that the Agreement was a contract between
the parties, the contract contained a provision stating that North Dakota law governs the
agreement and Plaintiffs’ claim is barred by the two-year North Dakota statute of
limitations. Furthermore, even if the Agreement is not enforceable, Plaintiffs’ claim is
barred by the Iowa statute of limitations because Plaintiffs had notice of their cause of
action before December 3, 2004. Therefore, Lightowler’s Motion for Summary Judgment
(docket no. 133) is GRANTED. The Clerk of Court is DIRECTED to enter Judgment
in favor of Defendant Lightowler against Plaintiff CRLS. Lightowler’s pending Motion
in Limine (docket no. 194) is DISMISSED AS MOOT.
IT IS SO ORDERED.
DATED this 6th day of January, 2012.
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