Intimidating Farm Tenant Who Owed Rent Proves Costly to Landlord

Overview

The Iowa Court of Appeals has upheld a judgment of $1.4 million in punitive damages against a landlord who intentionally interfered with his tenant’s ability to rent other farm properties.  While punitive damages are rarely awarded, Iowa law does allow them when it's shown by clear and convincing evidence that a party has "willfully and wantonly disregarded the rights or safety of another."  The court believed that standard had been met in this case.

Facts of the Case

The landlord was a real estate developer with a net worth of $150 million. He owned farmland in Mills County. In 1996 or 1997, the landlord donated a tract of farmland to the City of Emerson, which used the cash rent generated from the property to maintain its cemetery where the landlord’s relatives were buried.

The tenant began renting the city’s farmland shortly after the donation. The tenant’s family had a long history of leasing the landlord’s property, dating back to the tenant’s father. In 2008, the tenant entered into a two-year agreement to lease four tracts of the landlord’s farmland. The tenant paid the landlord in full for the 2008 rent, but sought to renegotiate the amount of future rent after the 2008 harvest. The parties did not agree on a modification, and the tenant farmed the land under the original terms. At the end of 2009, the tenant did not pay the landlord the full amount due. He paid the landlord $225/acre instead of the contract price of $285 to $295 an acre (different tracts had different rental amounts).  

The landlord made several attempts to collect the unpaid rent, including hiring his attorney to write a letter urging that the tenant’s “standing in the community” depended upon making full payment. He also met with the tenant and his son and others, and called the tenant’s family “liars,” “cheats,” and “thieves.” In 2010, the landlord filed a lien for crops grown on the tenant’s property in 2009, even though the grain had already been marketed. He then sent a letter to the city, expressing disfavor that it was renting the gifted property to the tenant for what he believed were “below market rents.” He urged the city to rent to a different tenant, concluding by stating:

In addition, as I am sure most or all of you know, your present tenant still owns me substantial cash rents from 2009 which is just one of the many reasons why I am no longer renting any of my farms to him. 2009 was the second year of a two-year lease and both years were at the same price per acre rents. Oh, how I truly wish [the tenant’s father] was still with us.

After the landlord sent the letter to the city, the city for the first time put the property lease rights up for auction. The tenant was the highest bidder for two years, but then lost the property in 2013.

In 2010, the landlord filed a breach of contract action against the tenant. The tenant filed a counterclaim alleging, among other things, interference with current and past business relationships, slander, and abuse of process. He also sought punitive damages.

Trial Court Decision and Appeal

After four hours of deliberation, the jury awarded $319,951 to the landlord on his breach of contract claim. The jury then awarded the tenant $353,465 on his counterclaim for interference with prospective business relations between the tenant and the city. Finally, the jury awarded the tenant $1.4 million in punitive damages.

Because the parties had not preserved other alleged errors, the appellate court considered only the issue of whether the punitive damages award was excessive, violating the landlord’s due process rights under the United States and Iowa Constitutions.

After analyzing three guideposts set forth by the United States Supreme Court in BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996), the court affirmed the award, determining that the evidence supported a finding that the landlord’s behavior was “reprehensible.” The court said that this first factor was the most important indication of the reasonableness of a punitive damages award because the damages imposed should “reflect the enormity of the offense.”

The court considered the remaining factors in tandem: disparity between the actual or potential harm suffered by the tenant and the difference between the punitive damages awarded and the civil penalty authorized.  

The court found that punitive damages in the amount of four times the amount of the actual damages did not exceed constitutional limits. The court noted that case law has not created a bright-line ratio which a punitive damages award cannot exceed, and the Iowa Supreme Court has considered the wealth of the person paying the damages in making its constitutional determination.

The court found that because the landlord was wealthy, the jury likely determined that only a large punitive damages award would deter him from engaging in future reprehensible conduct. The court concluded that the award was not excessive and did not violate the landlord’s due process rights.

Given the amount of the judgment, the Supreme Court will no doubt be asked to consider the case further. We will keep you posted.