Aschliman v. Hettinger, No. 13-0332, 2014 Iowa App. LEXIS 988 (Iowa Ct. App. Oct. 15, 2014).
The debtors were dairy farmers who owned Iowa farmland. In 2007, they hired the defendant to custom farm their property. In 2007, the debtors also received a loan from the plaintiff’s Wisconsin farm implement company. In exchange for the loan, the debtors gave the implement company a mortgage on some of their farmland.
In 2009, the debtors owed money to the defendant for his ongoing custom farm work. To resolve the indebtedness, the defendant and the debtors reached an agreement under which the defendant would purchase 85 acres from the debtors. A portion of the defendant’s purchase price was debt forgiveness. After signing the contracts, the defendant learned that an Iowa bank that also held a mortgage against some of the debtors’ property had initiated foreclosure proceedings. The defendant contacted the plaintiff and encouraged him to purchase the bank’s interest in the property. The plaintiff instead offered to purchase the debtors’ entire 234-acre parcel, including the 85 acres the debtors had sold on contract to the defendant. The defendant filed an affidavit with the county recorder on August 19, 2009, attaching his purchase agreement. The plaintiff closed on his purchase of the property from the debtors on August 26, 2009. The plaintiff knew of the defendant’s contract with the debtors at the time of his purchase. Proceeds from the plaintiff’s purchase satisfied the Iowa bank’s claims.
Two days after the plaintiff’s purchase, the defendant filed an action for specific performance and quiet title against the debtors. On September 21, 2009, the plaintiff sought to intervene in the lawsuit. While the motion to intervene was pending, the district court entered default judgment against the debtors, quieting title in favor of the defendant and directing the debtors to perform their obligations under the real estate contract with the defendant. On October 13, 2009, the district court granted the plaintiff’s motion to intervene. The plaintiff then filed a counterclaim, which the district court dismissed on the grounds that the default judgment had not been vacated.
One year later, the debtors assigned their rights in the litigation to the plaintiff. The plaintiff filed a petition to vacate, correct, or modify the default judgment as an assignee of the debtors. While the petition was pending (it never was ruled upon), the plaintiff also filed a quiet title and declaratory judgment action against the defendant. The defendant filed counterclaims asserting various causes of action, including intentional interference with a contract, conversion of USDA payments, and fraudulent conveyance.
After a bench trial, the district court dismissed the plaintiff’s action, but concluded that the plaintiff was entitled to an equitable lien on the defendant’s 85-acre parcel in the amount of $221,000. This represented the value of the benefit the defendant received when the plaintiff’s subsequent purchase satisfied the debtors’ obligation to the Iowa Bank. The district court then entered judgment in favor of the defendant as to his counterclaims asserting intentional interference with a contract and conversion. The district court dismissed the remainder of the counterclaims.
On appeal, the court first held that the plaintiff’s quiet title action was a collateral attack on the validity of the defendant’s contract with the debtors. Because the defendant had already obtained a final default judgment on that issue, the court stated that the plaintiff’s proper means to attack that contract would have been to file a motion or an appeal in that lawsuit, not to file a separate action. Consequently, the court ruled that the plaintiff could not challenge the validity of the contract between the defendant and the debtors.
Nonetheless, the court found that the plaintiff could not have shown superior title to the defendant, even if he had been entitled to collaterally attack the judgment. The court explained that either constructive or actual notice is sufficient to defeat bona fide purchaser status. Because the plaintiff had both actual and constructive notice of the defendant’s claim at the time he purchased the property, he was not a bona fide purchaser and his interest in the property was not superior to that of the defendant.
The court then evaluated the $221,000 equitable lien the district court imposed on the property in the plaintiff’s favor. Although the plaintiff argued that the $2,600 per acre amount was insufficient, the court found that it was just. This was the amount per acre that the plaintiff had paid to the debtors. Finally, the court ruled that the district court did not err in finding in favor of the defendant as to his interference with a contract and conversion claims. Conversion, the court stated, only requires an intentional dispossession of property. It does not contemplate an actor’s motivation. As such, the plaintiff’s motivation in receiving federal payments due the defendant was not at issue. The court found that substantial evidence supported the district court’s finding that the plaintiff wrongfully asserted dominion and control over $5,483 in such payments.