Dispute involving sand and gravel rights under lease turns on whether lawsuit filed in timely manner

April 15, 2009 | Roger McEowen

Most civil (non-criminal) lawsuits must be filed within a certain time after the date of the occurrence of the defendant’s act giving rise to the plaintiff’s claim. This is known as the statute of limitations, and if the lawsuit is filed too late, the statute can successfully defeat the plaintiff’s claim. The primary reason for the rule is fairness. Over time, memories fade and evidence is lost or never found. Generally, causes of action relating to real property have longer limitations periods than actions not involving real property. Also, a different statute of limitations may apply in cases involving contracts. This case involved numerous statute of limitations issues with respect to a lease for sand and gravel on a 90-acre tract.

In 1987, the plaintiff, a mining company, negotiated a lease with the defendants for the sand and gravel rights to their property. The original lease period was for 10 years with an automatic 10-year renewal period. The defendants objected to the renewal provision and it was removed. The defendants then signed two copies of the lease - one that they were given and the other which the plaintiff retained to be signed by company officers. About a month later, a representative of the plaintiff gave the defendants a copy of the lease that the company officers had signed. The defendants initialed each page at the representative’s direction (except the signature page), but didn’t notice that the plaintiff had switched the page showing the renewal provision crossed out with the similar page in the original lease that gave them an option to renew the lease. The defendants had simply assumed that they were initialing the same lease that they had signed a month earlier - one that did not give the plaintiff an automatic 10-year renewal. In 1996, the defendants contacted their attorney about the upcoming termination of the lease (and other matters). The attorney advised the defendants that the lease gave the plaintiff an option to renew for another 10 years. The defendants couldn’t find the original lease, couldn’t remember for sure what had been agreed upon almost a decade earlier, and didn’t raise the issue with the defendant. The plaintiff then exercised its option to renew the lease. In 2001, the defendants found the original lease and realized that they had actually never agreed to a renewal provision. They also believed that the plaintiff was not paying in full for materials removed from the land and, in late 2002, served the plaintiff with notice of termination and demanded that the plaintiff vacate the premises. The plaintiff refused to leave and sought a court judgment establishing its rights under the lease containing the renewal clause. The defendants filed a counterclaim in 2003 on the grounds that (1) there was no valid written contract and an at-will tenancy existed; (2) they were entitled to damages for the plaintiff’s intentional and unlawful holding over; (3) the plaintiff had failed to pay the agreed-upon rents and royalties; and (4) they were damaged by the plaintiff’s alteration of the lease. The trial court ruled for the plaintiff on all four counts on the basis that the defendants’ claims were time-barred by the five-year statute of limitations for fraud and unwritten contracts. The court held that the defendants’ claim accrued no later than 1996, when their lawyer told them the lease contained a renewal option. On appeal, the Iowa Court of Appeals held that the defendants’ contract claim was governed by the 10-year statute of limitations for recovery of real property and was, therefore, not time-barred. However, the appellate court agreed that the remaining claims were time-barred by the five-year statute of limitations.

On further review, the Iowa Supreme Court held that the 10-year statute of limitations applied to the contract claim and that the statute did not begin to run until they terminated the plaintiff’s tenancy. At that point in time, the plaintiff’s occupancy became adverse, triggering the defendant’s right to recover the real estate. Under Iowa law, they had 10 years to bring that type of an action. While the five-year statute of limitations applied to the defendant’s holdover claim (because the claim was founded on an unwritten contract), the accrual of the claim did not begin until the plaintiffs demanded recovery of the real estate. Since the holdover claim was filed within five years of the filing of the lawsuit, the holdover claim was also not time-barred. As for the defendants’ claim for unpaid rents and royalties, the Court held that the five-year statute of limitations for unwritten contracts applied, and the claim was not time-barred as to sums payable in the five-year period preceding the defendants’ filing of the lawsuit. On the lease alteration claim, the Court held that the nature of the claim was one for fraud and not for breach of a written contract and, as a result, a five-year statute of limitations applied rather than the 10-year statute for claims founded on a written contract. The appellate court had held that because the claim for fraud didn’t accrue until the plaintiff exercised its option to renew the lease in May of 1998, the filing of the lawsuit in April of 2003 was within the five-year statute of limitations and was not time-barred. The Supreme Court disagreed, noting that the defendants knew as early as 1987 that they had signed a lease without a renewal option and knew that the plaintiff had allegedly perpetrated a fraud as of 1996. That triggered the running of the five-year statute of limitations in 1996. So, by the time the defendants filed suit in 2003, the fraud claim was time-barred. Hallett Construction Co. v. Meister, 713 N.W.2d 225 (Iowa 2006).

On remand, the district court was faced with the counterclaims of the landowners.  One of those involved a claim for exemplary damages under Iowa Code Sec. 646.21 for the mining company's alleged "malicious, willful, wanton and unlawful conduct" in wrongfully possessing the property.  The district court denied the claim, but the appellate court reversed.  The court determined that the mining company had deliberately switched the lease forms to include the 10-year renewal option without the landowners' knowledge or consent.  That was fraud.  As such, an issue of fact remained concerning whether the mining company acted with the required "wanton aggression" for an award of exemplary damages to be granted.  Hallett Construction Co. v. Meister, No. 8-860/07-0976, 2009 Iowa App. LEXIS 240 (Mar. 26, 2009).