IN THE SUPREME COURT OF IOWA

No. 06–0877

Filed October 30, 2009

JOSEPH SPREITZER,

Appellee,

vs.

HAWKEYE STATE BANK,

Appellant.

On review from the Iowa Court of Appeals.

Appeal from the Iowa District Court for Johnson County, 

Amanda P. Potterfield, Judge.

Further review of a decision by the court of appeals reversing 

district court judgment on a jury verdict for a claim of fraudulent 

misrepresentation and affirming the decision of the district court to 

refuse to submit punitive damages. DECISION OF COURT OF APPEALS 

VACATED; JUDGMENT OF DISTRICT COURT REVERSED AND CASE 

REMANDED FOR NEW TRIAL. 

Patrick M. Roby and Robert M. Hogg of Elderkin & Pirnie, P.L.C., 

Cedar Rapids, for appellant.

Kevin J. Caster, Mark L. Zaiger, and Sarah Jane Gayer of 

Shuttleworth & Ingersoll, P.L.C., Cedar Rapids, for appellee.
2

CADY, Justice.

In this appeal and cross-appeal, we consider whether there was 

sufficient evidence to support a jury verdict for fraudulent 

misrepresentation and whether a claim for punitive damages should have 

been submitted to the jury. In doing so, we primarily examine the 

justifiable-reliance element of the tort and the requirement that the 

misrepresentation cause the damage claimed. The district court entered 

judgment for fraud based on a jury verdict, but refused to submit a claim 

for punitive damages. The court of appeals held there was insufficient 

evidence to support the verdict for fraud. Upon our review, we vacate the 

decision of the court of appeals. We conclude there was insufficient 

evidence to support the amount of compensatory damages and that 

punitive damages should have been submitted to the jury. We reverse

the judgment of the district court and remand for a new trial on the issue 

of compensatory and punitive damages.

I. Background Facts and Proceedings.

Joseph Spreitzer is a successful businessman from Cedar Rapids. 

He has a degree in mechanical engineering and owns several businesses, 

including a family business that sells heavy equipment used in mining, 

quarrying, and road building. During his career, he has invested in 

several business enterprises. 

In 1998, Spreitzer learned through a business partner that a 

company called RJ Manufacturing was looking for investors. RJ was 

located in Lisbon, Iowa, and manufactured agricultural sprayers. The 

company had been in operation since 1993 and needed to raise capital, 

primarily to pay a host of warranty claims against the company involving

manufacturing defects in the sprayers. 
3

Spreitzer pursued the investment opportunity by first talking to 

Byron Ross and Richard Rank. Ross was the managing partner of a 

large accounting firm and was an investor and director of RJ, as well as 

the company treasurer. Spreitzer had known Ross for nearly thirty years 

and had been involved with him in other business opportunities in the 

past. He considered Ross a friend and advisor. Rank was the president 

of RJ. Some directors wanted to resign from the board after RJ started 

to receive the warranty claims, and Rank was considering new investors 

to replace them, including Spreitzer. 

Spreitzer talked to several other financial advisors about the 

investment opportunity in RJ, including an accountant, bankers, and 

lawyers. He had access to all company records, including financial 

statements and business plans. He knew RJ was facing the potential for 

substantial warranty expenses and was aware the company planned to 

buy out at least one of its investors. 

The financial records of RJ also revealed the company had 

obtained a series of loans from Hawkeye State Bank located in Iowa City. 

The bank was owned by Russell Gerdin. The president of the bank was 

Ray Glass. Glass and Ross were friends, and Glass was the individual in 

the bank who was in charge of the RJ loans. The loans began in 1994 

and included a loan to RJ for $1,000,000 in 1997, in addition to two 

separate loans for $300,000 made within the following nine months. 

After completing his investigation, Spreitzer decided to invest in 

RJ. He invested $200,000 on September 15, 1998, and $200,000 on 

October 5, 1998. 

On November 1, 1998, Spreitzer also signed a personal guaranty 

together with Ross and Rank. Under the terms of the guaranty, the three 
4

men promised to be personally liable for the company debt to Hawkeye 

State Bank up to $1.5 million. 

Ross had executed a prior personal guaranty of the company debt 

to Hawkeye State Bank. He asked the bank to release him from his prior 

guaranty a few weeks before the personal guaranty was executed on 

November 1, 1998, but the bank refused. Spreitzer was unaware of the 

request. 

Spreitzer continued to put money into the company from time to 

time, in various amounts, to help RJ meet its obligations. In one 

instance, he gave Rank $12,000 so RJ could meet its payroll obligation. 

By December 1999, Spreitzer had infused a total of $740,000 into RJ. 

Spreitzer became increasingly concerned about the financial 

viability of RJ. From October 1998 to September 1999, RJ had 

accumulated $1.8 million in warranty obligations. Spreitzer personally 

hired an accountant to review the overall operation of the company in 

hopes of finding a way to allow it to become profitable. He also hired a 

management firm. The management firm issued a report in January 

2000. The report described the administration of the company as 

“dysfunctional.” It concluded “RJ Manufacturing is terminally ill and 

without financial restructuring or sale” the company would “eventually 

be forced to cease operations.” The report presented RJ with two 

options: sale of the company or bankruptcy. 

Spreitzer favored bankruptcy, while Ross wanted to avoid 

bankruptcy. Glass, the bank president, also wanted to avoid 

bankruptcy, in part to avoid any scrutiny of the bank by government 

banking regulators.1

 1During this time, Glass was engaged in an ongoing embezzlement scheme of 

bank assets. In 2004, Glass was convicted and sentenced to imprisonment for 

embezzlement and misappropriation of bank funds, as well as engaging in transactions 

 
5

Ross proposed that Spreitzer purchase the assets of RJ and start a 

new company as an alternative to bankruptcy. Spreitzer, with the advice 

of accountants and attorneys, eventually agreed to form a new company 

to take over the RJ assets. This company was called Walker 

Manufacturing, and Spreitzer was its sole shareholder and president. 

Walker Manufacturing purchased the RJ assets by obtaining a 

$1.5 million loan from Hawkeye State Bank to pay off the RJ loan to the 

bank and purchase the RJ assets. This note was due and payable in 

March 2001. Additionally, Spreitzer and Ross signed a new personal 

guaranty of the $1.5 million loan to Walker Manufacturing from Hawkeye 

State Bank. Ross agreed to personally guarantee the Walker 

Manufacturing loan as part of Spreitzer’s agreement to purchase RJ. 

The circumstances surrounding the execution of the personal 

guaranty form the essence of the claim that gives rise to this litigation. 

Spreitzer was unwilling to proceed with the purchase if Ross would not 

join him in signing the personal guaranty of the loan by the bank to the 

new company. In fact, Spreitzer originally wanted Ross to enter into an 

indemnification agreement concerning their personal responsibility to the 

bank for the company’s debt. Ross rejected such an agreement, but 

agreed to cosign the personal guaranty. 

The guaranty was signed at the bank on May 10, 2000, in the 

presence of Glass, Spreitzer, and Ross. It included the following 

provisions: 

1. The guaranty was “an absolute unconditional and 

continuing guaranty.” 

2. The bank “shall not be required to first resort for 

payment of the indebtedness to borrower or other persons or 

 

involving criminally derived property. These crimes were unrelated to the core facts of 

this case. 
6

their properties, or first to enforce, realize upon or exhaust 

any collateral security for indebtedness, before enforcing this 

guaranty.” 

3. The guaranty was “enforceable against either, any 

or all the undersigned.”

4. The guaranty could “not be waived, modified, 

amended, terminated, released or otherwise changed, except 

by a writing signed by the undersigned and a lender.” 

Notwithstanding these provisions, Spreitzer signed the personal 

guaranty with an understanding he would only be personally responsible 

for $750,000 of the bank loan to Walker Manufacturing and that the 

bank would equally pursue both coguarantors in the event of a default. 

This understanding was derived from a statement made by Glass in 

response to a request for clarification made by Spreitzer at the time the 

guaranty was executed. Spreitzer testified Glass specifically said the 

bank would collect the personal guaranty “equally” if the new business 

defaulted on the loan. Glass did not further explain his response, and 

Spreitzer did not seek a further explanation. Nevertheless, Glass knew at 

the time that Ross had structured his personal assets to limit his 

personal exposure to less than $100,000, and Glass knew Spreitzer was 

relying on the bank to enforce the personal guaranty against Ross. 

Spreitzer assumed Ross had the means to satisfy his portion of the 

obligation and further assumed the two men would each pay one-half of 

the Walker Manufacturing debt in the event the company failed. 

Spreitzer maintained he would not have agreed to purchase the business 

if he had known Ross restructured his assets and did not intend to pay 

his portion of the debt in the event the bank enforced the personal 

guaranty.

Walker Manufacturing was plagued by financial problems. It also 

became involved in litigation with a competitor, forcing it to incur 

substantial legal fees. Other problems hampered the company, including 
7

sale and distribution difficulties. These problems required Spreitzer to 

infuse money into the company. Between the time Spreitzer purchased 

the RJ assets in May 2000 and March 2001, he put money into the 

company nearly every month. 

When the Hawkeye State Bank note came due in March 2001, 

Walker Manufacturing was unable to meet its obligation to pay the note. 

On March 6, 2001, the bank informed Spreitzer it expected the loan to be 

paid by March 31 and further informed him that he and Ross were 

“jointly and individually, 100% liable for the debt.” 

In response to the notice by the bank, Ross claimed to be judgment 

proof. Spreitzer, however, agreed to pay the bank $750,000 under two 

conditions. The first condition was that the bank would release him from 

further liability under the personal guaranty. The second condition was 

that the bank would assign its rights under the personal guaranty to 

allow him to pursue Ross. 

After the bank rejected the second condition, Spreitzer agreed to 

drop the request for an assignment and to pay the bank $750,000 in 

exchange for a release from the personal guaranty. Spreitzer also wanted 

the bank to allow him the opportunity to purchase the Walker 

Manufacturing note and assign its security interest and personal 

guaranty to him in the event he was able to find a buyer for the Walker 

Manufacturing assets. A settlement was eventually reached, and 

Spreitzer paid the bank $750,000. Spreitzer was at all times assisted by 

legal counsel. 

In October 2001, the bank informed Spreitzer that Ross had 

refused to pay his obligation under the personal guaranty. 

Consequently, the bank informed Spreitzer it planned to collect the 

remaining debt from Walker Manufacturing by selling its assets. Walker 
8

Manufacturing eventually surrendered its assets to the bank, except for 

the lawsuit against the competitor.2 Spreitzer had invested a total of 

$663,000 in Walker Manufacturing prior to the sale of its assets. The 

bank sold the company assets for $850,000.3

Spreitzer filed an action against Ross, Glass, and Hawkeye State 

Bank based on fraud, misrepresentation, and breach of fiduciary duty. 

The fraud claim ultimately centered on the statement by Glass that the 

bank would enforce the personal guaranty “equally.” Spreitzer claimed

this promise was the reason he agreed to form Walker Manufacturing 

and the reason he invested new money of $663,000 before the bank sold 

its assets. 

 Ultimately, Ross paid 

nothing on the personal guaranty. 

Some of the claims were dismissed prior to trial, and the case was 

eventually tried to a jury. The jury rendered a verdict against Ross for 

$175,000 for fraudulent misrepresentation and nondisclosure. The jury 

also returned a verdict against Glass for $838,000 for fraudulent 

misrepresentation. Additionally, the jury determined Hawkeye State 

Bank was vicariously liable for the actions of Glass. The district court 

refused to submit Spreitzer’s claims for punitive damages to the jury. 

Hawkeye State Bank filed an appeal, and Spreitzer cross-appealed. 

The bank claims the judgment against it must be reversed for four 

reasons. First, the bank claims there was insufficient evidence of fraud 

because the evidence produced at trial failed to establish that the pivotal 

 2Spreitzer subsequently settled the lawsuit for $500,000 and received a net 

payment of $319,000. There was evidence in the record of a second lawsuit in which 

Spreitzer recovered a settlement payment. The impact of this lawsuit was not used by 

the bank in resolving the issues raised on appeal.

3Glass embezzled this sum of money from the bank as part of the ongoing 

money-laundering and embezzlement scheme he had engaged in for many years while 

president of the bank. 
9

oral statement by Glass was false (the bank did not, in fact, enforce the 

personal guaranty against Spreitzer in excess of $750,000) or that it was 

false at the time it was made. Second, the bank claims there was 

insufficient evidence that Spreitzer acted reasonably in relying on the 

pivotal oral statement made by Glass since it was contrary to the 

language of the written personal guaranty. Third, the bank claims there 

was insufficient evidence to support damages since the claimed

misrepresentation actually reduced Spreitzer’s personal liability from 

$1.5 million to $750,000. Finally, the bank claims there was insufficient 

evidence to support damages of $838,000 because Spreitzer only claimed 

the fraudulent misrepresentation caused him to invest an additional 

$663,000 in the company. Furthermore, the bank points out that 

Spreitzer netted $319,000 in settling the Walker Manufacturing lawsuit 

against its competitor. 

On cross-appeal, Spreitzer claims the district court erred in 

refusing to submit its claim for punitive damages to the jury. He also 

claims the appeal by the bank is moot because the bank failed to appeal 

from the finding by the jury that it was vicariously liable for the conduct 

of Glass, and Glass has not appealed from the judgment for fraud 

entered against him. Thus, Spreitzer claims the bank is vicariously 

liable for the final judgment against Glass for fraud. 

We transferred the case to the court of appeals. The court of 

appeals reversed the judgment entered by the district court against the 

bank and affirmed the decision by the district court to refuse to submit

the claim for punitive damages to the jury. It found insufficient evidence 

that Spreitzer reasonably relied on the oral promise by Glass to support 

fraud since the oral promise was contrary to the written guaranty. It 
10

remanded the case for entry of judgment for the bank. Spreitzer sought, 

and we granted, further review.

II. Standard of Review. 

We review a district court judgment on a ruling for judgment 

notwithstanding the verdict for corrections of errors at law. Gibson v. ITT 

Hartford Ins. Co., 621 N.W.2d 388, 391 (Iowa 2001). We examine 

whether substantial evidence supports each element of the claim. Id. 

The evidence is viewed in a light most favorable to the nonmoving party. 

Id. “ ‘Evidence is substantial if a jury could reasonably infer a fact from 

the evidence.’ ” Id. (quoting Balmer v. Hawkeye Steel, 604 N.W.2d 639, 

641 (Iowa 2000)).

III. Fraudulent Misrepresentation. 

A. Res Judicata. Spreitzer initially claims the bank is precluded 

from arguing insufficient evidence to support a finding of fraud by the 

jury. Essentially, Spreitzer claims the unappealed judgment entered 

against Glass, the bank president, serves as a final adjudication of the 

claim. He claims this judgment is now binding on the bank under the 

doctrine of res judicata because the bank did not challenge its vicarious 

responsibility for the actions of its president in this appeal. Spreitzer 

principally relies on Peppmeier v. Murphy, 708 N.W.2d 57 (Iowa 2005). 

In Peppmeier, a patient sued her doctor for medical malpractice 

and the doctor’s employer under a theory of vicarious liability. 708 

N.W.2d at 59. The district court held the plaintiff failed to establish an 

applicable standard of care because she had not designated an expert 

witness for that purpose, and the district court granted summary 

judgment for both defendants. Id. at 61. We transferred the appeal to 

the court of appeals, and it held the plaintiff could establish the 

applicable standard of care through the hearsay testimony offered by the 
11

patient of another employee of the doctor’s employer. Id. Accordingly, 

the court of appeals reversed the summary judgment against the 

employer and affirmed the summary judgment in favor of the agentdoctor because the hearsay testimony was not admissible against him. 

Id. The employer sought further review of the decision by the court of 

appeals, but the plaintiff did not seek further review of the summary 

judgment in favor of the agent. Id. On further review, we held the final 

judgment in favor of the agent and against the plaintiff barred the 

plaintiff’s subsequent request for further review from a judgment in favor 

of the principal. Id. Spreitzer asserts this principle is not only applicable 

to judgments against an injured person, but is also applicable to 

judgments in favor of the injured person. 

Judgments for or against an injured party involving claims against 

persons who have a relationship that makes one vicariously responsible 

for the conduct of the other may be conclusive against the injured 

person, the primary obligor, and the vicariously responsible person. See

Restatement (Second) of Judgments § 51 (1982). However, when the 

primary obligor and the vicariously responsible person are tried together 

in one action and only the vicariously responsible defendant appeals 

from an adverse judgment, it could be unjust to apply the doctrine of 

res judicata as a bar to such an appeal. In Peppmeier, the plaintiff could 

have sought further review of the judgment, which we later held to bar 

her claim. 708 N.W.2d at 62. In this case, Spreitzer argues we should 

bar the bank from seeking further review based on the failure of the 

agent to appeal. Thus, Spreitzer argues for the offensive use of 

res judicata to bar defense by a party who did not have the opportunity 

to appeal the final judgment being used to bar its defense. Notably, the 

judgment being used to bar the bank’s defense was obtained against a 
12

party who was not represented by legal counsel at trial or an appeal. 

Under the circumstances of this case, it would be unfair to allow the 

doctrine of res judicata to bar an appeal from a judgment by the 

vicariously responsible party. 

B. Sufficiency of Evidence. We recognize eight elements to a 

claim for fraudulent misrepresentation. Gibson, 621 N.W.2d at 400. 

These elements are: 

(1) [the] defendant made a representation to the plaintiff, (2) 

the representation was false, (3) the representation was 

material, (4) the defendant knew the representation was 

false, (5) the defendant intended to deceive the plaintiff, (6) 

the plaintiff acted in [justifiable] reliance on the truth of the 

representation . . ., (7) the representation was a proximate 

cause of [the] plaintiff’s damages, and (8) the amount of 

damages. 

Id. The bank claims the elements of false representation, justifiable 

reliance, and damages were not supported by sufficient evidence at trial. 

We turn to the sufficiency of evidence to support the jury’s verdict on 

those elements.

1. False representation. The bank argues the oral promise by its 

president to “equally” enforce the personal guaranty was not false at the 

time it was made. It also claims the promise was not false because the 

bank did in fact limit Spreitzer’s personal liability under the personal 

guaranty to $750,000, or one-half of the amount of the debt owed to the 

bank. 

Under the law, a representation must be false at the time it was 

made to support a claim of fraud, and a representation that was true 

cannot serve as a basis for a claim of fraud. Hannoon v. Fawn Eng’g 

Corp., 324 F.3d 1041, 1048 (8th Cir. 2003). Thus, the arguments 

asserted by the bank require us to examine the representation made by 
13

the bank president at the heart of this case. We first consider if there 

was substantial evidence that the representation was false. 

The representation made by the bank president to equally enforce 

the personal guaranty gave rise to two interpretations. The bank 

interpreted the representation as a promise to limit the liability of each 

guarantor to one-half of the total debt. Spreitzer interpreted the 

representation as a promise by the bank to pursue both guarantors for 

payment of the debt up to one-half of the total amount in the event of a 

default. The distinction between the two interpretations is critical, as 

revealed by the arguments of the parties. 

The bank argues the representation was not false under its 

interpretation because the bank did in fact limit Spreitzer’s liability 

under the personal guaranty to $750,000. Spreitzer argues the 

representation was fraudulent under his interpretation because the bank 

never pursued Ross. He points to evidence that the bank exclusively 

looked to him for payment under the personal guaranty and never 

intended to pursue Ross or hold Ross responsible for the debt under the 

personal guaranty. 

An ambiguous representation does not necessarily preclude a 

claim for fraud. Under the Restatement (Second) of Torts section 527

(1977), a representation known by the maker “to be capable of two 

interpretations, one of which he knows to be false and the other true” 

can serve as a basis for fraud if, among other circumstances, the 

representation is made “with the intention that it be understood in the 

sense in which it is false.” 

In this case, the proposal for Spreitzer to buy the assets of the 

manufacturing company required him to execute a new agreement with 

the bank to be personally responsible for the company’s $1.5 million loan 
14

to the bank. Yet, Spreitzer was unwilling to make the purchase without 

the help of Ross to share in the personal responsibility for the company 

debt in the event of a default. Spreitzer initially sought to enter into an 

indemnification agreement with Ross that would ensure the two men 

shared the company’s debt burden in the event of a default by the 

company. Ross rejected the agreement with Spreitzer, but agreed to join 

Spreitzer in signing a personal guaranty and to promise the bank to pay 

the new debt in the event of a default by the newly formed company. 

Spreitzer wanted Ross to be responsible for paying one-half of the debt, 

and the bank knew it.

Under the terms of the personal guaranty, Spreitzer and Ross were 

separately liable to the bank for the full amount of the debt. 

Nevertheless, the bank president orally represented to Spreitzer that the 

bank would enforce the personal guaranty equally between the two 

guarantors if the company defaulted on the debt. There is substantial 

evidence that Spreitzer understood this representation to mean the bank 

would seek payment from both guarantors to satisfy the debt. 

Under the circumstances, the representation at issue was capable 

of two interpretations, and the evidence supported a finding that the 

bank president intended the representation to be understood as meaning 

the bank would use its resources to pursue payment of the debt by both 

guarantors in the event of a default. There was evidence the president of 

the bank knew Spreitzer would not go through with the asset purchase if 

Ross was not included in the personal guaranty. There was also 

evidence to infer the president knew Spreitzer was relying on Ross to 

help pay the new company’s debt in the event of a default and that the

president knew Spreitzer was relying on the bank to enforce the personal 

guaranty against Ross. Yet, the president knew Ross had restructured 
15

his personal finances to severely limit the amount of assets available to 

creditors. With this evidence, a jury could conclude the bank president 

made the representation to Spreitzer so that Spreitzer would believe the 

bank would equally pursue both guarantors in the event of a default. 

Moreover, a jury could conclude the representation was false when made 

in light of the evidence that the bank knew at the time of the 

representation that Ross had restructured his assets so the bank would 

be unable to collect from him under the personal guaranty. There was 

also sufficient evidence for the jury to conclude the bank did not comply 

with the promise to equally pursue Ross. Thus, we conclude there was 

sufficient evidence in the record to support the false-representation 

element of the tort. 

2. Justifiable reliance. The bank claims Spreitzer could not have 

justifiably relied on the oral representation by the bank president to 

equally enforce the personal guaranty because the representation was 

contrary to the terms of the written guaranty and Spreitzer was a 

sophisticated investor who acted upon the advice of lawyers and 

accountants. Spreitzer asserts there was sufficient evidence to support 

the finding of justifiable reliance. 

Justifiable reliance is an essential element of a claim for fraud. In 

re Marriage of Cutler, 588 N.W.2d 425, 430 (Iowa 1999). Thus, the 

plaintiff must not only act in reliance on the misrepresentation, but the 

reliance must be justified. Gibson, 621 N.W.2d at 400. 

Like most jurisdictions, we require reliance on the representation 

to be justified, not reasonable. Lockard v. Carson, 287 N.W.2d 871, 878 

(Iowa 1980); see Field v. Mans, 516 U.S. 59, 72–74 & n.12, 116 S. Ct. 

437, 444–46 & n.12, 133 L. Ed. 2d 351, 363–65 & n.12 (1995) (listing 

states); Sutton v. Greiner, 177 Iowa 532, 536, 159 N.W. 268, 271–72 
16

(1916) (holding defendant’s reliance was “justified”). While the terms 

“justifiable” and “reasonable” are often used interchangeably in 

addressing the element of reliance, they can describe different 

approaches. See Field, 516 U.S. at 71–74, 116 S. Ct. at 444–46, 133 

L. Ed. 2d at 362–65. We simply clarify that the justified standard 

followed in Iowa means the reliance does not necessarily need to conform 

to the standard of a reasonably prudent person, but depends on the 

qualities and characteristics of the particular plaintiff and the specific

surrounding circumstances. Lockard, 287 N.W.2d at 878; accord

Restatement (Second) of Torts § 545A cmt. b. This standard reflects that 

fraudulent misrepresentation is an intentional tort, and like other 

intentional torts, recovery is not necessarily barred by the fault of the 

plaintiff that contributed to the damage. See Restatement (Second) of 

Torts § 545A cmt. a. 

The justifiable-reliance standard does not mean a plaintiff can 

blindly rely on a representation. Lockard, 287 N.W.2d at 878. Instead, 

the standard requires plaintiffs to utilize their abilities to observe the 

obvious, and the entire context of the transaction is considered to 

determine if the justifiable-reliance element has been met. Emergent 

Capital Inv. Mgmt., LLC v. Stonepath Group, Inc., 343 F.3d 189, 195 (2d

Cir. 2003); see also Lockard, 287 N.W.2d at 878 (justifiable-reliance 

element viewed in light of plaintiff’s own information and intelligence). 

The federal courts have outlined a host of relevant factors to 

consider in federal securities fraud cases and rule 10b–5 violation cases 

to determine if reliance by a plaintiff on a misrepresentation claim is 

justified. See Davidson v. Wilson, 973 F.2d 1391, 1400 (8th Cir. 1992); 

see also Zobrist v. Coal-X, Inc., 708 F.2d 1511, 1516 (10th Cir. 1983). 

Our common-law fraud claim parallels the federal fraud claim, and these 
17

factors are helpful in determining the justifiable-reliance element of our 

common-law fraud action. The relevant factors are: 

“(1) the sophistication and expertise of the plaintiff in 

financial . . . matters; (2) the existence of long-standing 

business or personal relationships; (3) access to the relevant 

information; (4) the existence of a fiduciary relationship; (5) 

concealment of the fraud; (6) the opportunity to detect the 

fraud; (7) whether the plaintiff initiated the . . . transaction 

or sought to expedite the transaction; and (8) the generality 

or specificity of the misrepresentations.”

Davidson, 973 F.2d at 1400 (quoting Zobrist, 708 F.2d at 1516). Our 

own cases have previously identified some of these factors. See Lockard, 

287 N.W.2d at 878. 

An additional factor has been identified in cases involving oral 

representations. This factor considers whether the oral representation 

clearly contradicts a written agreement. See In re Access Cardiosys., Inc., 

404 B.R. 593, 649 (Bankr. D. Mass. 2009).4

 4Some courts consider the contradiction between an oral representation and a 

written agreement either as a separate factor to use in deciding if reliance is justifiable 

or as a circumstance to consider in conjunction with the third factor involving plaintiff’s 

access to relevant information. Compare, e.g., Kennedy v. Josephthal & Co., 814 F.2d 

798, 805 (1st Cir. 1997) (considering oral misrepresentation at odds with a written 

memorandum as part of the third factor); with In re Access Cardiosys., Inc., 404 B.R. at 

649 (stating courts consider oral representations that contradict written material as an 

additional factor). Other courts consider the parol evidence rule in addressing claims of 

fraud based on oral misrepresentations that contradict written agreements, especially 

integrated agreements. Nevertheless, almost all courts recognize the issue is primarily 

one of whether the plaintiff is justified in relying on the promise. Consequently, most 

courts inevitably recognize that the application of the parol evidence rule by a judge to 

avoid altering the terms of a written agreement “is not necessarily equivalent to the 

judge’s obligation to direct a verdict for a defendant on the basis that there could be no 

reasonable reliance as a matter of law.” Gen. Corp. v. Gen. Motors Corp., 184 F. Supp. 

231, 238–39 (D. Minn. 1960). In this case, the bank did not argue that the parol 

evidence rule played a role in the resolution of this issue. 

 In such instances, reliance 

on the oral representation by a plaintiff can be utterly unjustified in the 

face of a clear written contradiction. See Marram v. Kobrick Offshore 

Fund, Ltd., 809 N.E.2d 1017, 1031 (Mass. 2004). An example of the 

circumstances when reliance by a plaintiff on an oral representation that 
18

is directly contrary to a written agreement is unjustified can be found in 

Smidt v. Porter, 695 N.W.2d 9 (Iowa 2005). In Smidt, we determined that 

a former employee could not establish a claim for fraud against a former 

employer based on an oral promise of long-standing employment and 

benefits allegedly made by the employer when the former employee had 

unsuccessfully attempted to negotiate such terms as a part of a written 

employment contract that did not include the disputed terms. 695 

N.W.2d at 22–23. This approach is consistent with the established view 

that the justifiable-reliance element means a plaintiff cannot close his or 

her eyes to an obvious contradiction. Kennedy v. Josephthal & Co., 814 

F.2d 798, 805 (1st Cir. 1987). 

The bank argues Spreitzer was not justified as a matter of law in 

relying on the oral representation to pursue both guarantors equally. 

Primarily, the bank relies on the inconsistency between the oral 

representation and the terms of the guaranty that permitted the bank to 

collect from a single guarantor, as well as the evidence presented during 

trial that Spreitzer was a sophisticated investor who acted on the advice 

of several professionals in making his decisions to purchase the RJ 

assets and to sign the guaranty.

We acknowledge many of the factors favor a finding in this case 

that the reliance was unjustified. Yet, no one factor is dispositive in 

determining if reliance by a plaintiff is justified, and the scale is tipped in 

one direction or the other only by a balance of all of the factors. See 

Zobrist, 708 F.2d at 1516–17. We recognize the oral representation in 

this case was somewhat vague and was inconsistent with the term of the 

written guaranty that permitted the bank to pursue collection of the debt 

against one guarantor. On the other hand, the parties to the transaction 

were friends and engaged in a face-to-face exchange over the manner in 
19

which the guaranty would be enforced. They did not resort to the 

language of the written personal guaranty when discussing questions of 

enforcement, and the bank president admitted he told Spreitzer the bank 

would pursue both guarantors in the event of a default. Moreover, the 

bank president was authorized to alter terms of the written agreement.

This case did not rise to the level of the circumstances presented in 

Smidt. In this case, the parties did not negotiate the terms of the 

personal guaranty, but signed a standard form agreement. The bank 

president did not rely on the terms of the written agreement to guide the 

discussion prior to the execution of the agreement, but guided Spreitzer 

by his oral representations. Unlike Smidt, there was no evidence the 

written guaranty was a product of the give and take of negotiations by 

the parties so as to make it unjustified for a party to rely on an oral 

representation covered by the negotiations that was clearly inconsistent 

with the written agreement. See Robinson v. Perpetual Servs. Corp., 412 

N.W.2d 562, 567 (Iowa 1987) (recognizing fine print, boilerplate written 

contract terms may not reflect the intentions of the parties to the 

contract). 

Normally, the decision whether or not reliance by a plaintiff is 

justified is one for the fact finder to resolve. See Holcomb v. 

Hoffschneider, 297 N.W.2d 210, 213 (Iowa 1980); Christy v. Heil, 255 

Iowa 602, 611, 123 N.W.2d 408, 413 (1963). After considering all the 

circumstances, we conclude this case does not create an exception to 

this general rule. This conclusion is not to say that integrated written 

contracts cannot thwart a claim for fraud based upon an oral 

representation clearly inconsistent with the contract. We only conclude 

the finding of justifiable reliance made by the jury in this case was 

supported by the evidence. 
20

3. Damage caused by misrepresentation. An essential element of 

fraud requires the plaintiff to show the fraud resulted in damage. 

Sanford v. Meadow Gold Dairies, Inc., 534 N.W.2d 410, 413 (Iowa 1995). 

Fraud without resulting injury is not actionable. Vorpahl v. S. Sur. Co., 

208 Iowa 348, 352, 223 N.W. 366, 368 (1929). 

Spreitzer sought damages in the form of his lost investment in the 

business in the amount of $663,000 and the payment he made under 

the personal guaranty of $750,000 after the company defaulted on its 

loan obligations. He supported these claims primarily with his testimony 

that he would not have agreed to buy the RJ assets, sign the personal 

guaranty, and invest in a new company if he had known the bank would 

not enforce the personal guaranty equally between the coguarantors. 

The bank provides two primary arguments in support of its 

position that the damages Spreitzer claims were not caused by his 

reliance. First, the bank claims Spreitzer lost his investment of 

$663,000 due to the continued financial decline of the business based on 

factors unrelated to a promise to equally enforce the personal guaranty. 

In the bank’s view, the business failed due to product design problems, 

insufficient sales, and a lack of new investors. Second, the bank claims 

the decision to agree to the personal guaranty—found by the jury to be 

fraudulently induced—could not have caused any damage to Spreitzer 

because it was merely a continuation of a prior obligation by Spreitzer to 

be personally responsible for RJ’s debt, which was not alleged to have 

been induced by fraud. 

The challenge by the bank to the damage award is tied to the 

causation element of a claim for fraud. Often, damages and causation 

are intertwined concepts. See Midwest Home Distrib., Inc. v. Domco 

Indus. Ltd., 585 N.W.2d 735, 739 (Iowa 1998). In this case, the bank’s 
21

first argument does not speak so much to the amount or measure of 

damages as it does to the absence of evidence to show the specific 

damages claimed by Spreitzer, and awarded by the jury, were caused by 

the misrepresentation.5

As with other torts, it is generally recognized the causation element 

of a fraud claim is composed of both factual and legal causation of the 

loss. See W. Page Keeton, Prosser & Keeton on the Law of Torts § 110, at 

767 (5th ed. 1984) [hereinafter Prosser & Keeton]. Under the 

Restatement, the fraudulent misrepresentation must not only be a 

factual cause of the loss, but it must also be a legal cause. Restatement 

(Second) of Torts §§ 546 (factual cause), 548A (legal cause). Each must 

be satisfied. 

The factual causation component addresses the question whether 

the representation, that is believed to be true but is actually fraudulent, 

caused the losses in some way. If the plaintiff did not rely on the 

representation in entering into the transaction in which the losses were 

suffered, the representation is not in fact a cause of the loss. 

Restatement (Second) of Torts § 546 cmt. a. 

In this case, sufficient evidence was presented to support a finding 

by the jury that the misrepresentation to equally enforce the personal 

guaranty was a factual cause of the losses suffered by Spreitzer. Based 

on the evidence, the jury could have found Spreitzer would not have 

 5Spreitzer impliedly suggested that the damage claims in the case involved outof-pocket damages. Generally, Iowa law recognizes two basic methods to measure 

damages in fraud cases. Midwest Home Distrib., 585 N.W.2d at 739. The first measure 

of damages provides compensation for the benefit of the bargain. Id. The second 

measure of damages is the out-of-pocket rule. Id. However, these measures of 

damages have primarily been developed in cases of fraud involving the transfer of 

property. Yet, even when property is not transferred between the defendant and the 

plaintiff, a defrauded plaintiff is entitled to recover those losses proximately caused by 

reliance on the misrepresentation.
22

suffered the losses he claims because he would not have invested in the 

business and would not have signed the new personal guaranty that was 

ultimately enforced against him if he had known the representation was 

false. In applying the “but for” test of factual causation, we conclude 

there was sufficient evidence that the losses claimed would not have

occurred “but for” Spreitzer’s reliance on the false representation. See 

Sweeney v. City of Bettendorf, 762 N.W.2d 873, 884 (Iowa 2009) 

(explaining “cause in fact”).

The legal causation component goes further to address the 

question whether the losses that in fact resulted from the reliance were 

connected to the misrepresentation in a way to which the law attaches 

legal significance. Kelly v. Sinclair Oil Corp., 476 N.W.2d 341, 349 (Iowa 

1991) (explaining second component of causation as “the question of

whether the policy of the law will extend responsibility to those 

consequences which have in fact been produced by an actor’s conduct”);

see also Restatement (Second) of Torts § 548A cmt. a. 

Legal causation is a critical component of the causation element of 

the tort of fraud. Without legal causation, the chain of losses resulting 

from an investment would be virtually limitless. See Movitz v. First Nat’l 

Bank of Chicago, 148 F.3d 760, 762 (7th Cir. 1998) (explaining 

importance of requiring more than mere “but for” causation in assigning 

legal responsibility for a plaintiff’s loss).6

 6The separate requirements of factual causation and legal causation have been 

developed in federal security fraud cases wherein the concepts are known as 

“transaction causation” and “loss causation.” Movitz, 148 F.3d at 763. “Transaction 

causation” is met when the plaintiff shows the misrepresentation caused the plaintiff to 

make the investment (i.e., where the plaintiff shows that, if the plaintiff had known the 

truth, the plaintiff would not have made the investment). Bruschi v. Brown, 876 F.2d 

1526, 1530 (11th Cir. 1989). “Loss causation” requires the plaintiff to additionally 

show that the false representation touches upon and relates to the reasons for the 

investment losses suffered. Id.

 Contractual counterparties 
23

would become virtual insurers against the risks inherent in business 

investing. 

The modern trend is to refocus the analysis of legal causation from 

the foreseeability of harm to a risk-based standard. See Restatement 

(Third) of Torts, Liability for Physical Harm § 29 cmt. j (Proposed Final 

Draft No. 1 2005). In negligence cases causing physical harm, tort 

liability now focuses on whether the risk that produces liability actually 

caused the damages suffered. Id. § 29. The scope of liability is limited to 

harms that result from the risks that made the actor’s conduct tortious. 

Id. The shift in analysis has primarily occurred to clarify the often 

confusing concept of legal causation, not to change the substantive scope 

of liability. Id. § 29 cmt. j (explaining analytical connection between 

reasonable foreseeability and risk-based standards). 

We readily acknowledge legal causation for intentional torts often 

reaches a broader range of damages for harm than legal causation 

reaches in cases involving unintentional torts. See id. § 33(b). This 

principle may also apply to intentional torts involving nonphysical harm, 

including fraud actions involving lost investments. Nevertheless, “[t]he 

cases are in accord that even a willful or intentional [tortfeasor] does not 

become an insurer of the safety of those whom he has wronged.” 

Johnson v. Greer, 477 F.2d 101, 106 (5th Cir. 1973). As with the scope 

of liability for unintentional torts, “intentional and reckless tortfeasors 

are not liable for harms whose risks were not increased by the tortious 

conduct, even if that conduct was a factual cause of the harm.” 

Restatement (Third) of Torts, Liability for Physical Harm § 33(c) & cmt. f. 

Even though the authors of the venerable Prosser treatise on torts 

have traditionally used foreseeability to frame this component of legal 
24

causation, the substantive rule that has been charted essentially 

remains unchanged: 

In general and with only a few exceptions, the courts have 

restricted recovery to those losses which might have 

expected to follow from the fraud and from those events that 

are reasonably foreseeable. . . . But if false statements are 

made in connection with the sale of corporate stock, losses 

due to a subsequent decline in the market, or insolvency of 

the corporation brought about by business conditions or 

other factors [that] in no way relate to the representations[,] 

will not afford any basis for recovery. It is only where the 

fact misstated was of a nature calculated to bring about 

such a result that damages for it can be recovered. 

Prosser & Keeton, at 767.

Stated in terms of risk instead of foreseeability, this principle limits 

the scope of liability for tortious conduct by requiring the conduct to 

have “enhanced (at the time the defendant acted) the chances of the 

harm occurring or that it would increase the chances [(risk)] of a similar 

accident [(harm)] in the future if the defendant should repeat the same 

wrong.” Zuchowicz v. United States, 140 F.3d 381, 388 n.7 (2d Cir. 

1998). In other words, a tortfeasor “ ‘is not liable to a person whom he 

intended to harm and who has been harmed, unless from the standpoint 

of a reasonable man, his act has in some degree increased the risk of 

that harm.’ ” Johnson, 477 F.2d at 107 (quoting Restatement of Torts 

§ 870 cmt. g (1939)).

This risk-based approach is compatible with a long-established 

principle of legal causation, reflected in time-honored cases. For 

example, in Berry v. Sugar Notch Borough, 43 A. 240 (Pa. 1899), a 

speeding trolley car was struck by a falling tree. The court held the 

causation requirement was not met. Id. at 240. “This result was correct 

since, although the accident would not have occurred but for the trolley’s 
25

speeding, speeding does not increase the probability of trees falling on 

trolleys.” Zuchowicz, 140 F.3d at 388 n.7. 

Spreitzer acknowledges the factual-causation element of a fraud 

claim, but suggests we have relaxed the legal-causation component in 

fraud cases involving investments by requiring nothing more than a 

showing that the plaintiff would not have made the investment if the 

truth of the misrepresentation had been known. Spreitzer relies on 

Midwest Management Corp. v. Stephens, 353 N.W.2d 76 (Iowa 1984), to 

illustrate this point. 

In Stephens, an investment corporation invested $400,000 in a 

securities venture proposed by three entrepreneurs. 353 N.W.2d at 82. 

The investment made by the corporation was based on a representation 

by a director of the corporation, who was also the father of one of the 

entrepreneurs, that the director and the three entrepreneurs would 

personally invest in the new venture by acquiring stock. Id. at 78. The 

investment corporation wanted the instigators of the business venture to 

have a personal stake in the venture as an incentive to operate the 

business profitably. Id. The instigators never invested in the business 

as promised, and the business failed. Id. at 80. 

In holding the investment corporation was entitled to recoup its 

lost investment as damages based on the false promise that the 

entrepreneurs would also personally invest in the venture, we observed, 

as in this case, the plaintiff would not have invested in the venture but 

for the misrepresentation. Id. at 82. We also observed, as in this case, 

that there was ample evidence that the venture would have failed even if 

the promise had been true. Id. Based on these observations, Stephens

appears on the surface to support Spreitzer’s position. 
26

In Stephens, the investment made by the plaintiff in the venture 

was recoverable as damages, not only because the plaintiff corporation 

would not have invested in the venture if it knew the representation was 

false, but also because the promise made and relied upon as truthful 

was calculated to minimize the risk of investing in the venture. Based on 

plaintiff’s belief that the venture would be less likely to fail if those 

operating it had their own money invested in the venture, the falsity of 

the promise increased the risk of the damage suffered. Thus, the losses 

(loss of invested funds) that did in fact occur by entering into the 

transaction were also losses whose risks were increased by the falsity of 

the promise (greater risk of losing invested funds if the entrepreneurs are 

not personally invested). Legal causation was established in Stephens by 

the presence of facts that showed the type of false promise increased the 

scope of damages, but only because the risk of harm increased as a 

result of the false promise. The damages sought by plaintiff (invested 

funds) were within the risk of harm covered by the false promise.

Thus, legal causation in fraudulent-representation cases requires, 

at a minimum, that the tortious aspect of the conduct increased the risk 

of the damages claimed. This amount of damage is distinguishable from 

the greater universe of losses caused by the mere fact that a false 

representation induced the investment. That is, the plaintiff must show 

not only that the reliance would not have occurred but for the 

defendant’s decision to misrepresent the truth, but the plaintiff must 

also show that the fact misrepresented increased the risk of the specific 

damages claimed. 

Thus, in considering legal causation, we return to the false 

representation at issue. The representation concerned the term of the 
27

personal guaranty that the bank would equally pursue the coguarantors 

in the event of a default by the business on its $1.5 million loan. 

In the procedural context of this case, we must apply the rules for 

legal causation to the bank’s challenge to the sufficiency of the evidence 

to support the jury verdict. With all these guiding principles in mind, the 

question becomes whether substantial evidence exists in the record to 

support a jury finding that the false promise to equally pursue the 

coguarantors increased the risk of damages amounting to $838,000.

We begin with the loss suffered by Spreitzer through the 

investment he made in the business. The question is whether the fact 

Glass did not intend to equally pursue the coguarantors increased the 

risk Spreitzer would lose his investments.

Generally, an investor invests in a business operation to obtain a 

return on the investment through the receipt of profits from the 

operation of the business, through the future sale of the business at a 

profit, or through the sale of the investor’s interest in the business. In 

this case, the business purchased by Spreitzer failed within a relatively 

short period of time, and Spreitzer never realized any operational 

business profits from his investment of $663,000. Spreitzer failed to 

explain how the false promise to equally enforce the personal guaranty of 

the business debt between the coguarantors increased the risk of 

unprofitability of the business, and we can discern no such explanation 

from the record. He did not show the business would have produced a 

return on his investment if the bank would have pursued his 

coguarantor. For sure, all the evidence revealed the business would have 

failed to be profitable even if the bank would have pursued Ross equally 

as promised. Consequently, the misrepresentation was not a legal cause 

of the loss of the $663,000 invested by Spreitzer in the company.
28

We next consider whether or not the misrepresentation was a legal 

cause of the payment of $750,000 by Spreitzer under the personal 

guaranty. The bank had the contractual right to bypass Walker 

Manufacturing and demand satisfaction of the debt from Spreizter. This 

meant that even if the bank had pursued satisfaction of the Walker 

Manufacturing loan from Ross as represented, Spreitzer was still 

obligated to pay up to $750,000. Thus, the falsity of the promise to 

pursue the coguarantors equally did not increase the risk Spreitzer 

would have had to pay $750,000 under the personal guaranty.

Finally, we consider whether the falsity of the bank’s promise 

increased the risk Spreitzer would lose some portion of his interest in the 

assets of Walker Manufacturing. When a creditor bypasses the assets of 

a debtor and collects the debt from a guarantor under the terms of a 

personal guaranty, the guarantor may assert rights of reimbursement 

against the debtor to recoup the amount paid on the guaranty.7

 7The term “reimbursement” is contrasted here with the related concept in the 

law of suretyship, “subrogation.” “Reimbursement” is a legal remedy for a guarantor in 

an implied surety contract between the guarantor and primary debtor in a three-party 

loan contract. Restatement (Third) of Suretyship and Guaranty § 22 cmt. a (1996). 

Some courts may use the term “subrogation” to refer to a “bundle of rights” against the 

primary debtor that a guarantor possesses after fulfilling the underlying obligation to a 

creditor, including the right to reimbursement from the primary debtor. 38 Am. Jur. 2d 

Guaranty § 120, at 971 (1999); see also In re XTI Xonix Tech. Inc., 156 B.R. 821, 827 

(Bankr. D. Or. 1993) (noting that, under Oregon law, “[subrogation] consists of the 

rights of indemnity (or reimbursement), contribution, subrogation and exoneration”). In 

contrast, the Restatement defines “subrogation” as an equitable assignment of the 

creditor’s rights to the guarantor, an enforcement mechanism with which the guarantor 

may be more adequately assured of reimbursement from the primary debtor. See

Restatement (Third) of Suretyship and Guaranty §§ 27 cmt. a, 18 cmt. b, 28 cmt. c. In 

most cases, the rights under the two remedies will not differ significantly. Id. at § 28 

cmt. c. However, a guarantor is eligible for subrogation only when the underlying 

obligation to the creditor has been fully satisfied, regardless of any limit on the amount 

of debt the guarantor agreed to pay. Id. at § 27 cmt. b; Am. Sur. Co. of N.Y. v. 

Westinghouse Elec. Mfg. Co., 296 U.S. 133, 137, 56 S. Ct. 9, 11, 80 L. Ed. 105, 109–10 

(1935). Spreitzer did not pay the entire underlying debt to the bank in this case. 

Consequently, we use the reimbursement remedy for the rights at issue and do not 

address any associated right to subrogation.

 See 

Hills Bank & Trust Co. v. Converse, 772 N.W.2d 764, 772 (Iowa 2009)
29

(adopting the Restatement (Third) of Suretyship and Guaranty position 

on reimbursement); 38 Am. Jur. 2d Guaranty § 120, at 971–72 (1999). 

Any assets of the company would be available to the coguarantors under 

claims of reimbursement for payments made to the bank. Thus, the 

bank’s failure to pursue Ross as promised increased the likelihood the 

bank would collect the remaining portion of the debt from the company, 

which would diminish or exhaust the assets of the company available to 

Spreitzer under either a claim for reimbursement or a claim of 

ownership. Therefore, the falsity of the representation increased the 

likelihood Spreitzer’s reimbursement or ownership interests would be 

less valuable. In this way, some damages could satisfy the legal 

causation rule applied in this case.

While some damages relating to the diminution of company assets 

could satisfy the legal causation standard, the amount would be limited 

by legal causation to those assets that were likely diminished by the 

tortious aspect of the bank’s conduct. The tortious aspect of Glass’ 

conduct was the falsity of his representation regarding equal enforcement 

of the guaranty. Even though the falsity of the promise increased the 

likelihood the bank would forego satisfaction from Ross, the falsity of the 

promise did not affect the amount of money the bank would have actually 

collected from Ross were the guaranty to be enforced equally. 

Consequently, Spreitzer’s losses cannot exceed the amount of money he 

would have recovered from the company if the bank had equally pursued 

both coguarantors as promised.

The evidence at trial supported a finding that the company was 

ultimately sold for $850,000. It also supported a finding that the value 

of the company’s interest in the litigation was $319,000. The bank 

received the $850,000 in satisfaction of the remaining debt obligation, 
30

and Spreitzer received the litigation proceeds of $319,000. In 

determining the amount of damages, the ultimate question in this case is 

what amount of the total company assets ($1.069 million) would 

Spreitzer have received if the representation had been true—if the bank 

had pursued Ross. While it is apparent Spreitzer was damaged in some 

amount as result of the misrepresentation, this amount is far from the 

jury award of $838,000.

For example, if the bank had pursued Ross as promised and 

recovered $750,000 from him as contemplated by Spreitzer, then 

Spreitzer and Ross would have had the company assets of $1.069 million 

($750,000 plus $319,000) available to them to satisfy their claims for 

reimbursement.8

On the other hand, if the bank had pursued Ross as promised but 

recovered nothing from him, the company assets actually received by the 

bank ($850,000) and Spreitzer ($319,000), as shown by the evidence, 

would be the same amounts they would have received if the bank had 

performed its promise. In this event, the falsity of the representation 

would not have increased the risk of any of the damages claimed by 

Spreitzer. Of course, if the bank had pursued Ross as promised and 

recovered some amount, but an amount less than $750,000, then 

 Having paid the bank the debt of $1.5 million, the two 

guarantors could have each netted $534,500 in company assets. As it 

turned out, Spreitzer only received $319,000 in company assets. Thus, 

Spreitzer would have been damaged by the false representation in the 

amount of $215,500 under this scenario. 

 8Although the face value of the bank note was $1.5 million, the bank ultimately 

recovered $1.6 million. While not explained by the record, the bank was apparently 

entitled to the additional amount, which means the bank would have also been entitled 

to receive this amount before Spreitzer and Ross would have been entitled to any 

reimbursement from the company assets. 
31

Spreitzer’s damages would fall between the two extremes based on the 

amount recovered from Ross by the bank.

We conclude there was insufficient evidence to support the jury 

award of $838,000. The record does not contain evidence of $838,000 of 

damages that were increased by the tortious aspect—the falsity—of the 

fraudulent misrepresentation at issue. The evidence at trial would have 

supported an award of some amount of damages, but there was clearly 

insufficient evidence of damages of $838,000. 

The bank requests that we remand the case for entry of judgment 

in an amount supported by the evidence. We acknowledge this is a 

procedure we have followed in the past when the amount of a jury award 

was found to be unsupported by the evidence. See Midland Mut. Life Ins. 

Co. v. Mercy Clinics, Inc., 579 N.W.2d 823, 834 (Iowa 1998). However, 

the amount of the award will depend upon findings of fact, which is not 

our role under the applicable standard of review. As we will 

subsequently conclude, however, the district court erred in failing to 

submit Spreitzer’s punitive-damage claim to the jury. Thus, the case 

must ultimately be remanded for a new trial, and it would be appropriate 

under the circumstances of this case for the new trial to include both 

claims of compensatory and punitive damages. 

In summary, the claim for compensatory damages under the 

theory of liability determined by the jury in this case will involve a twostep process on retrial. The jury must first determine the amount of 

money the bank would have recovered from Ross if the bank had equally 

pursued both guarantors under the personal guaranty. Based upon this 

amount, the jury must then determine any additional amount (over the 

$319,000 received) Spreitzer would have netted in a claim for 

reimbursement against the company. 
32

IV. Punitive Damages. 

Punitive damages may be awarded in an action for fraud when, in 

conjunction with the fraud, the defendant acts with legal malice or 

engages in other aggravating conduct amounting to actual malice. See 

Tratchel v. Essex Group, Inc., 452 N.W.2d 171, 176 (Iowa 1990). Legal 

malice involves wrongful conduct committed “with a reckless disregard of 

another’s rights.” Stephens, 353 N.W.2d at 82. 

The district court rejected the claim for punitive damages based on 

evidence that the bank president partially complied with his promise to 

equally enforce the personal guaranty by limiting Spreitzer’s personal 

liability to one-half of the total debt. In other words, the district court 

found the bank did not perpetrate the fraud in order to collect the entire 

debt from Spreitzer. The district court also found the bank president 

hoped Spreitzer would succeed with his new business. It also pointed 

out Spreitzer was a sophisticated investor and was not financially 

vulnerable. The bank echoed these arguments on appeal in support of 

its claim that the district court did not err in granting a directed verdict 

on punitive damages.9

The fraudulent conduct in this case consisted of the promise to 

equally enforce the personal guaranty between the two guarantors. 

There was evidence Spreitzer would not have purchased the business 

without the promise. There was also evidence the company would likely 

have been forced into bankruptcy if Spreitzer would not have agreed to 

the takeover. Consequently, the fraud was a key component to 

Spreitzer’s decision to take on the risk of purchasing the business. 

 

 9The bank did not claim on appeal, nor did the district court determine at trial, 

that the bank cannot be liable for punitive damages based on the conduct of an 

employee. See Restatement (Second) of Torts § 909 (punitive damages properly awarded 

when agent was manager and acted within scope of employment). 
33

Although the bank president may have wanted Spreitzer to succeed in 

the business, the jury could have found his desire was primarily 

motivated by his own greed and self-interest. He only wanted Spreitzer 

to succeed as a means for his own success, and he purposely misled 

Spreitzer into believing Ross would help absorb the company debt if the 

business failed. 

Even sophisticated and wealthy investors have a right to truthful 

investment information. The bank president acted with his interests in 

the forefront in making the false promise, and there was sufficient 

evidence from which a jury could conclude that the promise was made 

with a conscious and reckless disregard for the rights of Spreitzer. The 

bank president knew the company was failing, and he knew it required a 

capital investment to have any hope of survival. In the event of a default 

on the note by the company, he also knew that Ross would not be 

available to help Spreitzer satisfy the company’s debt to the bank. This 

is the type of conduct that can give rise to punitive damages, and it was 

a question the jury should have been able to decide. Consequently, 

Spreitzer is entitled to a new trial to allow the jury to determine the 

punitive damage claim.10

V. Conclusion. 

We have fully and carefully considered all claims raised by the 

parties on the appeal and cross-appeal. We vacate the decision of the 

court of appeals and reverse the judgment of the district court. We 

conclude Spreitzer is entitled to a new trial on issues of compensatory 

 10Punitive damages would only be recoverable if Spreitzer recovers compensatory 

damages. See Pringle Tax Serv., Inc. v. Knoblauch, 282 N.W.2d 151, 154 (Iowa 1979) 

(stating the general rule that compensatory damages must be established before 

punitive damages may be awarded). If Spreitzer fails to prove damages caused by 

reliance on the misrepresentation on retrial, punitive damages will not be recoverable. 
34

and punitive damages. Compensatory damages shall be calculated in 

the manner described in this opinion, and punitive damages shall be 

submitted on the theory of liability used to support the prior finding of 

fraud. 

DECISION OF COURT OF APPEALS VACATED; JUDGMENT OF 

DISTRICT COURT REVERSED AND CASE REMANDED FOR NEW 

TRIAL. 

All justices concur except Baker, J., who takes no part.