IN THE COURT OF APPEALS OF IOWA

No. 15-0446

Filed September 28, 2016

HEARTLAND COOPERATIVE COMPANY,

Plaintiff-Appellee/Cross-Appellant,

vs.

GERALD MURPHY,

Defendant-Appellant/Cross-Appellee

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HEARTLAND COOPERATIVE COMPANY,

Plaintiff-Appellant,

vs.

GARY FELL,

Defendant-Appellee.

________________________________________________________________

Appeal from the Iowa District Court for Guthrie County, Randy V. Hefner, 

Judge.

Gerald Murphy appeals the district court’s judgment in favor of Heartland 

Cooperative Company (Heartland). Heartland challenges the district court’s

judgment in favor of Gary Fell. AFFIRMED IN PART, REVERSED IN PART, 

AND REMANDED ON APPEAL; AFFIRMED ON CROSS-APPEAL.

Gina C. Badding of Neu, Minnich, Comito & Neu, P.C., Carroll, for Gerald 

Murphy and Gary Fell.

John F. Lorentzen of Nyemaster Goode, P.C., Des Moines, and Sarah J. 

Gayer of Nyemaster Goode, P.C., Cedar Rapids, for Heartland Cooperative 

Company.

Heard by Danilson, C.J., and Mullins and Bower, JJ.
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MULLINS, Judge.

Gerald Murphy appeals the district court’s judgment in favor of Heartland 

Cooperative Company (Heartland) on its breach-of-contract and fraudulentmisrepresentation claims. Heartland challenges the district court’s judgment in 

favor of Gary Fell, alleging the district court abused its discretion by not entering 

default judgment against Fell as a discovery sanction. For the reasons stated 

herein, we affirm in part, reverse in part, and remand.

I. Background Facts and Proceedings

At issue in this case are forty-one hedge-to-arrive (HTA) contracts, which 

the district court described as follows:

A hedge-to-arrive contract, as pertinent to this case, obligates the 

seller to deliver a specified quantity of grain to a specified location 

by a particular date. The buyer agrees to pay a specific price for 

the grain upon delivery. Use of a hedge-to-arrive or cash-forward 

contract provides a [seller] an opportunity to establish a favorable 

sales price prior to harvest. The contract is a “hedge” because the 

[seller] possesses or reasonably anticipates possession of grain in 

sufficient quantities to deliver to the [buyer] at the delivery date. 

These types of contracts are not regulated by the Commodities 

Exchange Act, 7 U.S.C. section 1(a)(11).

Heartland, an Iowa cooperative, is in the business of buying and selling 

grain and offers HTA contracts. To minimize its risk, Heartland sells futures 

contracts on the Chicago Board of Trade (CBOT) to offset its obligation to buy 

the grain under the HTA contracts.

Of the forty-one contracts in dispute, thirty were originally entered into by 

Heartland and UY Partnership (UY) in 2009 and early 2010. Murphy, who has a 

degree in agricultural business and holds a patent he describes as involving a 
3

“bundling strategy for financing, crop insurance, and commodity trading,” was a 

general manager of UY.

The district court summarized the history of UY, which was formed in 

2006, as follows:

Fell farmed approximately 5500 acres in 2005. Murphy assisted 

him with marketing grain. At some point during this 2005 

timeframe, Fell was investigated by the Farm Service Agency 

[(FSA)], which administers crop programs on behalf of the U.S. 

Department of Agriculture, for noncompliance with farm program 

requirements and was disqualified from receiving government farm 

program payments. In order to circumvent Fell’s disqualification, 

Fell and Murphy approached [David Smith and Lynn Smith], who 

had worked for Fell, about forming UY Partnership. UY would not 

be eligible for farm program payments if Fell participated in its 

management. Thus, [Murphy] and the Smiths were reported as 

UY’s general partners. . . . Operational control of the 5500 acres 

Fell had farmed, or a substantial portion thereof, was transferred to 

UY. 

The district court found, based in part on the testimony of David Smith, 

that “Fell continued to participate in management of the UY farming operations.” 

As a partner of UY, Murphy entered into a number of HTA contracts with 

Heartland, placing phone calls to Heartland to create the contracts.1

In late 2008, Murphy withdrew as a partner from UY, purportedly due to 

conflicts between the Smiths and Fell. Murphy testified he informed Heartland of 

his departure from the partnership in or before June 2009, which he contends is 

confirmed by Heartland’s notation of “Don’t Use” on its customer records for UY. 

However, a witness for Heartland testified Heartland was not notified until 2011, 

 

1 Murphy notes Heartland accepted his calls despite never having had UY execute a 

grain authorization form designating individuals authorized to enter into grain contracts 

on behalf of the partnership—as is Heartland’s standard practice. Murphy further noted 

that, despite Heartland’s claim it would send written confirmation of the calls in the mail, 

only two of the UY contracts at issue had actual, signed confirmations from UY.
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testimony the district court deemed more credible. The district court also found 

Murphy continued to exercise control over UY’s grain marketing even after his 

withdrawal, relying at least in part on certain HTA confirmation documents 

executed by Murphy on behalf of UY in 2009.

In 2009, FSA notified UY it was disqualified from future participation in the 

FSA programs and ordered repayment of certain monies already received 

because the FSA had determined UY and its members had “adopted and 

participated in a scheme and device that had the effect of evading the payment 

limitation and payment eligibility provisions for the 2007 crop year.” By the spring 

of 2009, UY was defunct. The Smiths began farming through a partnership 

called UY09; Fell started producing grain under Fell Partnership; Murphy farmed 

through JM48 LLC. The above-referenced thirty HTA contracts executed with 

UY in 2009 and 2010 (the UY contracts) were formed after UY had stopped 

producing grain and after Murphy had withdrawn from UY.

The district court summarized the events after UY became defunct:

Control of the 5500 Fell acres was transferred to these 

various entities prior to the 2009 crop year. The result was that UY 

was out of the grain farming business. Murphy continued to enter 

into HTA contracts for UY, even though he had dissociated from the 

partnership and even though UY was no longer producing grain. 

Fell partnership, UY09, and JM48 sold grain harvested from these 

farms to other elevators or merchants.

(Footnote omitted.) 

Heartland became concerned about the HTA contracts in early 2010, at 

which point Heartland representatives met with Murphy. Murphy contended

Heartland asked him to provide a successor entity to UY that could fulfill UY’s 

contracts; Heartland argued, and the district court found, Murphy proposed rolling 
5

the UY contracts into another name. Murphy executed a grain trade 

authorization form for Equity Control Group (ECG). All but three of the thirty UY 

contracts were rolled into contracts with ECG. Murphy also entered into eleven 

new HTA contracts on behalf of ECG in 2010 (the ECG contracts).2

At trial, Murphy testified Heartland was well-aware ECG was an entity “in 

name only,” with no actual legal status and no ability to independently perform 

the contracts executed, relying in part on Heartland’s failure to request a 

taxpayer identification number or other identifying information from ECG. The 

district court found Murphy’s testimony not credible, concluding Heartland was 

never told ECG and Murphy were not in the farming business, did not produce 

grain, and had no means to fulfill the contracts.

During the summer of 2010, Heartland learned a bank had seized some of 

UY’s grain.3 At Murphy’s request, the three outstanding UY contracts were rolled 

into 2011.

In 2011, Murphy requested all the existing contracts be rolled to a different 

date; Heartland refused when Murphy was unable to collateralize the contracts. 

In March 2011, Fell delivered beans to a Heartland facility. Heartland applied the 

proceeds to two of the UY contracts that had been transferred to ECG and 

issued contracts for the balance on the Fell Partnership account. Murphy 

testified Heartland did the same thing with grain delivered to one of its elevators 

by JM48, applying the proceeds to one of the ECG contracts. Murphy and Fell 

 

2 The thirty UY contracts and eleven ECG contracts are collectively referred to herein as 

the HTA contracts.

3 Murphy claims that, by at least July 2009, Heartland was aware UY was in financial 

hardship, as it was instructed by the same bank to include the bank’s name on all 

proceeds checks made to UY.
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contended they stopped delivering grain to Heartland as a result. Heartland 

claimed Murphy and Fell sold their grain to other buyers who paid a substantially 

higher price than they would have received under the UY or ECG contracts. 

In 2012, Heartland sold its futures positions on the CBOT with respect to 

the HTA contracts. Had Murphy and Fell disclosed in the spring of 2010 that UY 

and ECG could not deliver the contracted grain, Heartland could have liquidated 

its futures positions thereby minimizing or preventing its losses.

On April 24, 2012, Heartland filed its petition against Murphy and Fell, 

alleging they were personally liable for the breach of the HTA contracts and had 

tortiously interfered with the contracts. In their answer, Murphy and Fell denied 

Heartland’s allegations and asserted a number of affirmative defenses. On 

September 19, 2014, Heartland sought leave to file an amended petition in which 

it asserted Murphy and Fell had intentionally interfered with the HTA contracts, 

had breached the contracts, and had committed fraud. The district court granted 

Heartland’s motion to amend on October 20. In their answer, Murphy and Fell 

generally raised the same affirmative defenses.

The matter proceeded to a bench trial on November 18. On January 12, 

2015, the district court entered its findings of fact, conclusions of law, and 

judgment, finding in favor of Heartland and against Murphy on the breach-ofcontract and fraud claim and entering judgment against Murphy in the amount of 

$1,962,009.44 plus postjudgment interest. The court dismissed Heartland’s 

claims against Fell and dismissed the intentional-interference-with-contract claim 

against Murphy. The court also found both Murphy and Fell guilty of two counts 
7

of contempt of court for violating the court’s discovery orders and ordered each 

defendant to pay $500 fines on each count. 

In January 2015, Heartland filed a motion to retax costs and an attorneyfee application. Heartland also filed a motion to amend or enlarge judgment, 

seeking prejudgment interest. Murphy resisted the filings. Following a hearing, 

the district court entered an amended and substituted judgment, adjusting the 

judgment against Murphy to $2,217,608.20 to include prejudgment interest and 

awarding Heartland attorney fees in the amount of $215,761.27 plus interest. 

Murphy appeals the district court’s judgment against him; Heartland appeals the 

district court’s judgment in favor of Fell.

II. Analysis

A. Murphy Appeal

On appeal, Murphy challenges the district court’s denial of his motion to 

dismiss and finding he breached the HTA contracts and committed fraudulent 

misrepresentation. Murphy also appeals the damages awarded. We address 

each claim in turn.

1. Motion to Dismiss

On November 15, 2014, three days before trial was to commence, Murphy 

filed a motion to dismiss, alleging the district court lacked jurisdiction to hear the 

matter because the HTA contracts at issue are governed by the grain trade rules 

of the National Grain and Feed Association (NGFA), which require arbitration of 

disputes. Heartland resisted the motion, arguing, in relevant part, Murphy had

waived his right to arbitration by actively participating in the litigation that, at the 

time Murphy filed his motion, had been ongoing for thirty-one months. On 
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November 18, 2014, the district court orally denied Murphy’s motion “for the 

reasons stated in [Heartland’s] resistance.”

“We review a district court’s ruling on a motion to dismiss for the correction 

of errors at law.” Iowa Individual Health Benefit Reins. Ass’n v. State Univ. of 

Iowa, 876 N.W.2d 800, 804 (Iowa 2016) (citation omitted). “Our standard of 

review of rulings on subject matter jurisdiction is also for correction of errors at 

law.” Id.

“The test for waiver of arbitration is twofold.” Pa. Life Ins. Co. v. Simoni, 

641 N.W.2d 807, 812 (Iowa 2002). “It requires ‘conduct or activity inconsistent 

with the right to arbitration and prejudice to the party claiming waiver.’” Id.

(citation omitted). “Factors relevant to an assessment of prejudice include the 

delay in the moving party’s request for arbitration and the extent of the moving 

party’s trial-oriented activity.” Wesley Ret. Servs., Inc. v. Hansen Lind Meyer, 

Inc., 594 N.W.2d 22, 30 (Iowa 1999). “Prejudice can be shown by ‘lost evidence, 

duplication of efforts, or the use of discovery methods unavailable in arbitration.’” 

Id. (citation omitted). “Ordinarily, waiver is a fact question for the court to 

decide.” Simoni, 641 N.W.2d at 813. “[E]vidence of waiver must be 

compelling . . . .” Id. (citation omitted).

Here, there is ample evidence Murphy engaged in conduct inconsistent 

with the right to arbitration to Heartland’s prejudice. The lawsuit was pending 

thirty-one months before Murphy sought dismissal. During the pendency of the 

litigation, Murphy filed two answers (neither of which asserted a right to 

arbitration), a motion to change venue, and numerous filings on evidentiary 

matters and in preparation for trial. Murphy also sought and obtained two 
9

continuances of the trial date and filed resistances to Heartland’s motion to 

amend the petition and motions for sanctions. Murphy had also fully utilized the 

discovery process, having taken the depositions of Heartland employees and 

served interrogatives and requests for production. See Campbell v. AG Finder 

Iowa Neb., No. 00-1630, 2002 WL 576160, at *2 (Iowa Ct. App. Feb. 20, 2002) 

(finding the parties seeking arbitration “frustrated the purpose behind arbitration 

by their long [twenty-month] delay in requesting arbitration and by taking full 

advantage of the litigation process”). We therefore affirm the district court’s 

denial of Murphy’s motion to dismiss.4

2. Breach of Contract

Murphy raises the following challenges to the district court’s finding on 

Heartland’s breach-of-contract claim: (1) the UY contracts transferred to ECG are 

void for lack of consideration; (2) the UY contracts transferred to ECG are void 

because Heartland fraudulently induced Murphy to execute the documents; (3) 

Murphy is not personally liable for the HTA contracts; and (4) Heartland failed to 

mitigate its damages. Heartland alleges Murphy failed to preserve error on 

certain of these claims and disputes each claim on the merits. 

a. Standard of Review

“The standard of review for a breach of contract action is for correction of 

errors at law.” Iowa Mortg. Ctr., L.L.C., v. Baccam, 841 N.W.2d 107, 110 (Iowa 

2013). “If substantial evidence in the record supports a district court’s finding of 

 

4 On appeal, Murphy contends he did not assert a right to arbitration in his initial answer 

because he did not yet have a copy of the contracts. Murphy does not indicate when he 

first received the contracts; Heartland states it provided the contracts “early in the 

litigation.” Regardless, in the motion to dismiss, Murphy did not rely upon any alleged 

late production of the contracts as a basis for his tardy invocation of his right to arbitrate.
10

fact, we are bound by its finding.” Id. “However, a district court’s conclusions of 

law or its application of legal principles do not bind us.” Id.

b. Consideration

Murphy contends the transfer of the contracts to ECG necessitated new or 

additional consideration. A claim of lack of consideration is an affirmative 

defense. See In re Koch’s Estates, 142 N.W.2d 541, 544 (Iowa 1966); Ins.

Agents, Inc. v. Abel, 338 N.W.2d 531, 534 (Iowa Ct. App. 1983). “Failure to 

plead an affirmative defense normally results in waiver of the defense, unless the 

issue is tried with the consent of the parties.” Dutcher v. Randall Foods, 546 

N.W.2d 889, 893 (Iowa 1996). Here, no dispute regarding the existence or 

sufficiency of consideration was tried by the parties. To the contrary, the district 

court found “[t]he parties do not dispute that the HTA contracts were valid” or 

“properly formed under common law principles.” Murphy argues error was 

preserved because his answers to Heartland’s petitions “dispute[d] whether there 

are any written contracts” and asserted “any such contracts . . . are contrary to 

law.” The vague and solitary invocation that the contracts were “contrary to law” 

is not enough to preserve error on a claim for lack of consideration. Moreover, 

the district court never ruled upon this affirmative defense. See Meier v. 

Senecaut, 641 N.W.2d 532, 537 (Iowa 2002) (“It is a fundamental doctrine of 

appellate review that issues must ordinarily be both raised and decided by the 

district court before we will decide them on appeal.”). Error was not preserved.

c. Fraudulent Inducement

Murphy next contends Heartland fraudulently induced him to enter into the 

contract on behalf ECG by demanding he provide a successor name for UY 
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without him realizing the change would make him liable on all the UY contracts. 

In its ruling, the district court concluded Murphy’s allegations were “not supported 

by the evidence,” finding “Murphy was a sophisticated business person and 

understood what he was doing.” Further, the court concluded, based on the 

testimony of a Heartland representative, it was Murphy, not Heartland, who 

requested the UY contracts be transferred to ECG. The district court also 

credited the testimony of a Heartland representative as being more credible, 

finding it was not until 2011 that Heartland was informed Murphy had withdrawn 

from UY. 

Substantial evidence supports these factual findings. See Tim O’Neill 

Chevrolet, Inc. v. Forristall, 551 N.W.2d 611, 614 (Iowa 1996) (“The district court 

has a better opportunity than we do to evaluate the credibility of witnesses. So 

we think factual disputes depending heavily on such credibility are best resolved 

by the district court.”). As it was Murphy, not Heartland, who sought to transfer 

the contracts from UY to ECG, Murphy cannot be said to have been fraudulently 

induced into doing so. Murphy has failed to identify a misrepresentation or 

concealment by Heartland or his justifiable reliance on the same. See Whalen v. 

Connelly, 545 N.W.2d 284, 294 (Iowa 1996) (noting, to prove fraudulent 

inducement, the pleading party must demonstrate “by clear and convincing 

evidence: (1) representation; (2) falsity; (3) materiality; (4) scienter; (5) intent to 

deceive; (6) reliance; and (7) resulting injury and damage”). 

d. Personal Liability

Murphy raises five objections to the district court’s finding he was 

personally liable for the HTA contracts. First, Murphy disputes his liability for the 
12

two contracts transferred to Fell Partnership. At oral arguments, Heartland 

conceded it is pursuing its claims as to these two contracts only against Fell, not 

Murphy. Accordingly, we vacate the district court’s judgment as to those two 

contracts as applied to Murphy.

Murphy next argues he should not have been found liable for the three 

contracts that remained in UY’s name because he had dissociated with UY and 

Heartland knew of the dissociation. But Murphy’s contentions are premised upon 

factual allegations the district court explicitly rejected. The district court found 

Heartland was not informed of Murphy’s departure from UY until 2011. In fact, 

two of the three contracts at issue, all of which were executed in 2009, were 

signed by Murphy. Even though Murphy dissociated from UY in 2008, he 

remained liable for the UY contracts because Heartland was unaware of this 

dissociation. See Iowa Code § 486A.703(2) (“A partner who dissociates without 

resulting in a dissolution and winding up of the partnership business is liable as a 

partner to the other party in a transaction entered into by the partnership . . . 

within two years after the partner’s dissociation, only if . . . [t]he other party did 

not have notice of the partner’s dissociation.”).

Murphy also disputes the district court’s finding ECG was a sole 

proprietorship or trade name of ECG, as no such trade name had been filed and 

ECG was not registered as a sole proprietorship. Regardless of the label applied 

to ECG by the district court, it is undisputed ECG is a nonexistent legal entity and 

Murphy entered into contracts with Heartland on ECG’s behalf. Murphy “does 

not escape liability by purporting to act for a fictitious or non-existent [company].” 

Alsco Iowa, Inc. v. Jackson, 118 N.W.2d 565, 567 (Iowa 1962); see also Allen v. 
13

Pegram, 16 Iowa 163, 170 (Iowa 1864) (“[W]here there is no principal who can 

be made legally responsible, the agent who undertakes to bind such a principal is 

individually liable.”). 

Next, Murphy alleges he cannot be found liable for the ECG contracts 

because he was merely functioning as a broker between Heartland and certain 

principals—such as UY09—under the NGFA grain trade rules. There is no 

indication the actual NGFA rule relied on by Murphy was raised before the district 

court. In its ruling, the district court noted, “Although [Murphy’s] testimony is 

confusing and somewhat contradictory on this point, Murphy seems to claim that 

at least some of the ECG contracts were called in for other producers perhaps 

UY09.” The district court went on to conclude, even in the event Murphy’s 

allegations were true, Murphy remained liable on these contracts, citing the 

Restatement (Third) of Agency sections 6.02 and 6.03. Section 6.02 provides, in 

relevant part, “[w]hen an agent acting with actual or apparent authority makes a 

contract on behalf of an unidentified principal, . . . the agent is a party to the 

contract.” Restatement (Third) of Agency § 6.02. Section 6.03 provides, in 

relevant part, “[w]hen an agent acting with actual authority makes a contract on 

behalf of an undisclosed principal, . . . the agent . . . [is a] part[y] to the contract.” 

Id. § 6.03. While Murphy denies making any calls on behalf of ECG, the district 

court found “Murphy entered into eleven other HTA contracts with Heartland for 

ECG,” and there is no indication any other third-party was disclosed as the 

principal in these transactions. Murphy remains liable on these contracts.

Finally, Murphy claims the eight contracts are unenforceable under Iowa 

Code section 554.2201(1) (providing “a contract for the sale of goods for the 
14

price of five hundred dollars or more is not enforceable . . . unless there is some 

writing sufficient to indicate that a contract for sale has been made between the 

parties and signed by the party against whom enforcement is sought”). However, 

Murphy failed to raise the statute of frauds as an affirmative defense in his 

answer to Heartland’s amended petition. See Harriott v. Tronvold, 671 N.W.2d 

417, 422 (Iowa 2003) (“The statute [of frauds] provides a defense, and the party 

asserting it must therefore raise it by answer or by objection to evidence at 

trial.”). Further, there is no indication the district court considered this claim. To 

the contrary, the district court explicitly held “[t]he parties do not dispute that the 

HTA contracts are valid” or “were properly formed.” Error was not preserved.

We find substantial evidence supports the factual findings of the district 

court and it did not err in finding Murphy personally liable for the disputed 

contracts, with the exception of the two contracts transferred to Fell Partnership.

5

e. Mitigation of Damages

Finally, Murphy asserts the district court erred in finding he failed to show 

Heartland could have mitigated its losses.6 An affirmative defense of failure to 

mitigate damages requires a defendant to show, by substantial evidence, 

(1) there was something the plaintiff could have done to mitigate 

[its] loss, (2) requiring the plaintiff to do so was reasonable under 

the circumstances, (3) the plaintiff acted unreasonably in failing to 

undertake the mitigating activity, and (4) a causal connection exists 

between the plaintiff’s failure to mitigate and the damages claimed.

 

5 Murphy disputes the district court’s finding of his personal liability only as to sixteen of 

the HTA contracts: the eleven ECG contracts, the three UY contracts not transferred to 

ECG, and the two contracts transferred to Fell Partnership. 

6 Heartland contends Murphy failed to preserve error on this issue; however, the district 

court explicitly found “mitigation of damages was pled” but “Murphy and Fell presented 

no evidence supporting this affirmative defense.” We therefore assume, without 

deciding, error was preserved.
15

Vasconez v. Mills, 651 N.W.2d 48, 53-54 (Iowa 2002).

In support of his affirmative defense, Murphy notes Heartland conceded it 

could have gotten out of its contracts without a loss in the spring of 2010 but 

failed to do so, despite knowing Murphy had left UY and UY was in financial 

difficulty. Again, Murphy’s contentions are premised upon factual allegations the 

district court explicitly rejected. The district court found Heartland was not 

informed of Murphy’s departure from UY until 2011. Heartland expressed 

concerns about the HTA contracts to Murphy in 2010, at which point Murphy—

not Heartland—requested the UY contracts be transferred to ECG. Heartland 

relied upon Murphy’s representations that grain would be produced by the 

entities with which Murphy was associated. Substantial evidence supports these 

factual findings. Accordingly, we affirm the finding of the district court.

3. Fraudulent Misrepresentation

Murphy raises the following challenges to the district court’s finding on the 

fraudulent-misrepresentation claim: (1) there was no misrepresentation, (2) there 

was no intent to deceive, (3) Heartland lacks justifiable reliance, and (4) any 

alleged misrepresentations did not cause Heartland’s damages. See Van Sickle 

Constr. Co. v. Wachovia Commercial Mortg., Inc., 783 N.W.2d 684, 687 (Iowa 

2010) (listing the elements of fraudulent misrepresentation as “(1) representation, 

(2) falsity, (3) materiality, (4) scienter, (5) intent to deceive, (6) reliance, and 

(7) resulting injury and damage” (citation omitted)).

a. Standard of Review

Our review of the judgment of the district court on Heartland’s fraudulentmisrepresentation claim is for correction of errors at law. See Chrysler Fin. Co. 
16

v. Bergstrom, 703 N.W.2d 415, 418 (Iowa 2005); see also Martin v. Chemtech, 

Inc., No. 14-0230, 2015 WL 1332329, at *6 (Iowa Ct. App. Mar. 25, 2015) 

(reviewing findings from a bench trial on a fraudulent-misrepresentation claim).

b. Misrepresentations

In its ruling, the district court identified the following misrepresentations: 

(1) Murphy represented, by signing the grain authorization marketing form, ECG

was in the business of producing grain and (2) Murphy’s implicit representation 

UY was actively engaged in grain production after 2009 and his failure to 

disclose he had dissociated from UY in 2008. Murphy disputes these findings.

As to the first misrepresentation, Murphy does not dispute he signed the 

grain authorization marketing form but rather the district court’s interpretation of 

said form. Our review of the district court’s interpretation of the contract is as a 

matter of law. Longfellow v. Sayler, 737 N.W.2d 148, 153 (Iowa 2007). 

The form at issue contains two portions: the first identifying individuals 

authorized to enter into grain contracts on behalf of ECG and the second making 

representations to Heartland. In the former portion, it provides, “I the customer 

[ECG] hereby grant the following individuals authorization to enter into grain 

contracts on behalf of the account name and number stated above, including 

credit sale contracts and warehouse receipts.” The form then identified and was 

signed by Fell, Murphy, and David Smith—through their respective companies—

as authorized individuals. 

Following these signatures, the latter part of the grain trade authorization 

form contained the following representation:
17

Contracting of Grain: I represent to Heartland on behalf of 

the Customer [ECG] that: (1) we routinely sell grain to elevator[s]; 

(2) we have the particular skills and knowledge of grain trading 

practices that enable us to understand the terms of grain sale 

contracts enter[ed] into; (3) we are a merchant with respect to the 

sale of grain; (4) we understand that Heartland will rely on this 

representation as a condition for contracting; and ([5]) each of the 

individuals names above is authorized to enter into grain contracts 

with Heartland on our behalf. National Grain and [F]eed 

Association Rules apply to all contracts.

In addition to providing his signature identifying him as an individual 

authorized to contract on behalf of ECG, Murphy also signed the bottom of the 

form following this latter representations portion. 

Murphy claims the form did not represent that ECG was in the business of 

producing and selling grain, but rather that the authorized individuals were in the 

business of producing and selling grain. On the face of the contract, this claim 

lacks merit. Regardless of what entities are also potentially part of the “we” 

referenced in the representations portion, the form clearly indicates the 

“Customer”—here, ECG—is “a merchant with respect to the sale of grain.” See 

generally Hartig Drug Co. v. Hartig, 602 N.W.2d 794, 797 (Iowa 1999) (“In 

interpreting contracts, we give effect to the language of the entire contract 

according to its commonly accepted and ordinary meaning.”). It is undisputed by 

the parties that ECG was, in fact, not producing grain or otherwise engaged in 

the industry. Accordingly, we affirm the district court’s ruling that this constituted 

a misrepresentation.

Murphy also challenges the district court’s finding he misrepresented his 

status with UY to Heartland. First, as addressed above, substantial evidence 

supports the district court’s finding that Murphy did not disclose to Heartland his 
18

dissociation with UY until 2011. Following that time, Murphy entered into HTA 

contracts with Heartland on behalf of UY. He also worked with Heartland in 2010 

to transfer the UY contracts to ECG. Even after 2010, Murphy sought to roll the 

remaining UY contracts to future dates, thereby representing UY’s ability to 

perform those contracts in the future. Substantial evidence supports that, even 

after Murphy’s departure from UY, he continued to present himself as a partner 

of a functioning UY.

c. Intent to Deceive

Murphy next challenges the district court’s finding he made 

misrepresentations with the intent to deceive. Specifically, he claims he only 

provided the name ECG at Heartland’s request; providing ECG’s name only 

converted already existing contracts—thus Heartland was not induced into HTA 

contracts by the representations made about ECG; and any representations 

made by Murphy about his intent to deliver grain in the future are not actionable 

because he had the intent to deliver at the time the statements were made. 

As previously addressed, Murphy’s first argument was dismissed by the 

district court, and substantial evidence supports the finding that it was Murphy, 

not Heartland, who sought transfer of the UY contracts to ECG. Ultimately, the 

district court found Murphy entered into the contracts—and sought to roll over the 

contracts—when fully aware he had withdrawn from UY and neither ECG nor UY 

were able to perform them. On this element, Murphy’s claim on appeal fails.

d. Justifiable Reliance

Murphy avers Heartland lacked justifiable reliance on any alleged 

misrepresentations made because it failed to ask for sufficient identifying 
19

information from ECG—such as a tax identification number; no business entity 

designation was provided for ECG; Murphy provided no indication of the capacity 

in which he acted on behalf of ECG; and Heartland requested the entity change 

in the relevant UY contracts.

Reliance on a misrepresentation must be justified, not reasonable. 

Spreitzer v. Hawkeye State Bank, 779 N.W.2d 726, 736 (Iowa 2009). “[T]he 

standard requires [parties] to utilize their abilities to observe the obvious, and the 

entire context of the transaction is considered to determine if the justifiablereliance element has been met.” Id. at 737.

The district court found, in addition to Murphy’s degree and patent, that 

Murphy was a sophisticated grain marketer who was responsible for marketing 

grain for the entities involved, provided grain marketing advice to Fell, the 

Smiths, and others, and otherwise showed substantial marketing expertise. 

Substantial evidence supports these factual determinations. Heartland had been 

doing business with and through Murphy since 2006. See id. (considering “the 

existence of long-standing business or personal relationships”). The district court 

explicitly found Murphy did not inform Heartland of his 2008 departure from UY 

until 2011. See id. (considering “the concealment of the fraud” and the 

defrauded party’s “opportunity to detect the fraud”). Heartland relied upon the 

explicit and implicit representations made by Murphy—about ECG, UY, and his 

continued association with UY—when agreeing to transfer the contracts to ECG, 

to roll over the contracts for UY, and to enter into new agreements with ECG. 

See id. (considering the plaintiff’s “access to the relevant information,” which 

party initiated the transaction, and the “generality or specificity of the 
20

misrepresentations”). We find no legal error in the district court’s determination 

Heartland justifiably relied upon Murphy’s representations.

e. Damages

Finally, Murphy contends the alleged misrepresentations did not cause 

Heartland’s losses. See id. at 740 (noting damages is an essential element of 

fraud, which requires a finding that the misrepresentations “caused the losses in 

some way” and that the losses “result[ing] from the reliance were connected to 

the misrepresentation[s] in a way to which the law attaches legal significance”).

The district court noted, “[Heartland’s] claim for damages is based upon 

the losses it suffered in liquidating its CBOT contracts, which it foreseeably 

purchased to offset the UY and ECG contracts, plus interest on those losses,” 

and concluded, “[t]hese damages were foreseeable and reasonably calculated.”

All of the contracts at issue were entered into in or after 2009, after

Murphy’s dissociation with UY in 2008. Also subsequent to Murphy’s 

dissociation with UY, thirty of those contracts were transferred to ECG and 

eleven originated with ECG in 2010. By originating and continuing those 

contracts, Murphy’s misrepresentations “caused the losses in some way” and 

would not have happened “but for” Murphy’s misrepresentations. Id. (applying 

the “but for” test of factual causation). Further, Murphy’s misrepresentations, 

which induced Heartland to maintain or acquire CBOT futures, “increased the risk 

of harm.” Id. at 741.

4. Interest Award

In its judgment, the district court awarded Heartland $1,962,009.44, the 

amount Heartland presented at trial as being its total losses. This calculation 
21

included “interest expense,” or the cost to Heartland of maintaining its positions 

on the CBOT. On appeal, Murphy contends the district court erred in including 

this “unspecified amount of interest in its compensatory damage judgment 

against Murphy.” In its judgment, the district court noted, Murphy had not 

“argued that [Heartland’s] calculation of damages is incorrect or applies a wrong 

measure of damages.” At no time prior to appeal did Murphy dispute the 

damages calculations provided by Heartland during trial—including the “interest 

expense”—which were adopted by the district court and granted in its judgment. 

Error was not preserved on this issue.

Murphy next claims the district court erred in granting Heartland’s motion 

to enlarge or amend because a reasonable controversy existed concerning 

Heartland’s entitlement to recovery and the amount of that recovery, and thus the 

claim was unliquidated and prejudgment interest should not have been awarded. 

But Murphy did not raise the alleged unliquidated status of Heartland’s damages 

in his resistance to the motion. Error was not preserved.

B. Heartland Appeal

In the cross-appeal, Heartland contends the district court erred in denying 

its request for default judgment against Fell and Murphy as a sanction for 

discovery violations. 

1. Discovery Process

This action was initiated in April 2012. On June 20, Heartland served its 

first set of interrogatories and requests for production of documents on Murphy 

and Fell. By September 11, Heartland had filed its first motion to compel based 

upon Murphy and Fell’s failure to provide any response to its discovery requests. 
22

The district court granted Heartland’s motion to compel on October 1, giving 

Murphy and Fell until October 19 to produce the documents. Murphy and Fell 

then served some responses and produced a limited number of documents. In 

early 2014, Heartland served more discovery requests. Heartland contends no 

response was received. Murphy and Fell were then deposed on April 7, 2014. 

At these depositions, Murphy and Fell indicated they, or their agents, were in 

possession of numerous relevant documents that had not been produced. On 

May 9, Heartland served its third requests for production of documents on Fell 

and Murphy, seeking documents identified by them in their depositions. 

On July 23, 2014, Heartland filed its second motion to compel discovery 

and subpoenaed documents. As the district court found following trial, Murphy 

and Fell “did not resist that motion, did not deny that the requested documents 

were in their possession, custody, or control, and did not deny that they had not 

produced those documents. They did not contend that the documents were not 

discoverable.” However, in early August, Fell and Murphy produced additional 

documents to Heartland. On August 11, Heartland’s second motion to compel 

was granted. In late August, Murphy and Fell produced additional documents

with a letter that outlined some documents received by Murphy and Fell from 

Heartland, specified documents already produced that qualified as the 

documents being sought, and denied the existence or possession of other 

documents requested. 

In early September, Heartland sent Fell a deficiency letter based on his 

production. By letter dated September 12, 2014, Fell responded to this 

deficiency letter, indicating some of the documents sought either were already 
23

produced, were not in Fell’s possession, or did not exist. On September 19, 

Heartland filed a motion for sanctions seeking default judgment against Murphy 

and Fell. Murphy and Fell summarily resisted. The district court denied 

Heartland’s motion “at this time” but granted Heartland leave to renew its motion. 

On November 11, Heartland renewed its request for sanctions, seeking 

default judgment against Murphy and Fell. Murphy and Fell summarily resisted 

the motion. On November 18, the date set for trial, the district court deferred 

ruling on Heartland’s renewed motion for sanctions.

Following trial, in its judgment, the district court dismissed the claims 

brought against Fell, finding Fell was not a general partner of UY and never 

entered into contracts as ECG’s agent. The court stated there was “no evidence” 

Fell exercised authority as an ECG agent, had ownership in ECG, had a legal 

relationship with ECG, made any false representations to UY, or conspired with 

Murphy to defraud Heartland. 

The district court also found the case had been “plagued with discovery 

disputes” and “a review of the exhibits to the motion for sanctions establishe[d] a 

pattern of late, incomplete, and evasive discovery responses.” The court 

concluded the “situation require[d] imposition of substantial sanctions.” However, 

the district court found it was “too late to declare either Defendant to be in 

default,” instead treating Murphy and Fell’s discovery violations as contempt of 

court and imposing fines of $1000 to each as “the most appropriate remedy 

under these circumstances.”
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2. Standard of Review

We review Heartland’s appeal of the sanctions imposed against Fell and 

Murphy for abuse of discretion. See Rowedder v. Anderson, 814 N.W.2d 585, 

589 (Iowa 2012) (applying an abuse-of-discretion standard when considering an 

appeal by the prevailing party that the sanctions were too low and made payable 

to the wrong entity); see also Everly v. Knoxville Cmty. Sch. Dist., 774 N.W.2d 

488, 492 (Iowa 2009). “An abuse of discretion occurs ‘when the district court 

exercises its discretion on grounds or for reasons clearly untenable or to an 

extent clearly unreasonable.’” Rowedder, 814 N.W.2d at 589 (citation omitted).7

3. Default Judgment Against Fell

Heartland claims the district court abused its discretion in determining it 

was “too late” to find Fell in default, because it failed to appropriately consider the 

options available. See Lawson v. Kurtzhals, 792 N.W.2d 251, 258 (Iowa 2010) 

(“In determining whether the court has abused its discretion, we must determine 

whether the trial court appropriately considered the options available.”). 

Heartland contends this constitutes an abuse of discretion because the 

determination it was “too late” for certain sanctions means the district court failed 

to exercise its discretion at all. Id. at 257 (“A court abuses its discretion when it 

 

7 Both Murphy and Fell dispute the means of review employed by Heartland, arguing the 

proper means to raise this challenge was by writ of certiorari. See Everly, 774 N.W.2d at 

492 (“The proper means to review a district court’s order imposing sanctions is by writ of 

certiorari.”). Heartland contends it is not appealing the sanction imposed, but rather 

appealing the district court’s denial of its request for default judgment as a sanction. 

Regardless of the proper means to raise this appeal, see Iowa R. App. P. 6.108 (noting, 

irrespective of how a case is initiated, the appellate court “shall proceed as though the 

proper form of review has been requested”), both parties agree the standard of review is 

for abuse of discretion. Compare Everly, 774 N.W.2d at 492 (“A district court’s order 

imposing sanctions . . . is reviewable for an abuse of discretion.”), with Mathias v. 

Glandon, 448 N.W.2d 443, 445 (Iowa 1989) (applying the abuse-of-discretion standard 

to an appeal of the court’s denial of a request for sanctions).
25

fails to exercise any discretion.” (citation omitted)). Heartland also alleges, in 

light of the district court’s finding that Fell’s conduct “requires imposition of 

substantial sanctions,” a more severe sanction than the de minimis fine of $1000 

was necessitated. Finally, Heartland contends the district court’s abuse of 

discretion was prejudicial, because Heartland has presented enough evidence to 

justify more severe sanctions and the production of the discovery requested may 

well have altered the outcome of its case against Fell. See Jones v. Univ. of 

Iowa, 836 N.W.2d 127, 140 (Iowa 2013) (noting, when considering a district 

court’s denial of a motion to compel discovery, “[i]t is well-settled that 

nonprejudicial error is never ground for reversal on appeal”). Heartland 

concludes the district court failed to impose the just sanctions required when it 

failed to grant default judgment.

“Dismissal and entry of a default judgment should be the rare judicial act.” 

Kendall/Hunt Pub. Co. v. Rowe, 424 N.W.2d 235, 241 (Iowa 1988) (citation 

omitted). “[B]efore the district court may dismiss an action for failure to comply 

with a discovery order there must be a finding that the failure to comply was a 

result of willfulness, fault, or bad faith.” Marovec v. PMX Indus., 693 N.W.2d 779, 

786 (Iowa 2005). Heartland contends the district court found willfulness when it 

imposed a sanction based on contempt, see Reis v. Iowa Dist. Ct., 787 N.W.2d 

61, 68 (Iowa 2010) (“Resistance to or violation of an order cannot be considered 

contempt of court unless it is willful.”), and that this finding is binding on appeal. 

While default may have been justified, “the sanction to result from noncompliance 

[with discovery] rests with the sound discretion of the trial court.” Whitley v. C.R. 

Pharm. Serv., Inc., 816 N.W.2d 378, 388 (Iowa 2012). The district court 
26

considered the options available for the discovery abuses committed—including 

the default judgment Heartland requested—and determined fines for contempt 

were “the most appropriate remedy under these circumstances.” We cannot find 

the district court abused its discretion in reaching this conclusion.

4. Default Judgment Against Murphy

Heartland requests, in the event this court finds in favor of Murphy on his 

appeal, that this court grant default judgment against him for the same reasons 

asserted against Fell. Because Murphy’s claims have failed, we need not reach 

Heartland’s alternative contention.

C. Appellate Attorney Fees

On appeal, Heartland seeks an award of its appellate attorney fees. 

Murphy resists. “Generally, attorney fees are not allowable unless authorized by 

statute or contractual agreement.” FNBC Iowa, Inc. v. Jennessey Grp., L.L.C., 

759 N.W.2d 808, 810 (Iowa Ct. App. 2008) (citing W.P. Barber Lumber Co. v. 

Celania, 674 N.W.2d 62, 66 (Iowa 2003)). However, courts are authorized “to 

award attorney fees in an action where ‘judgment is recovered upon a written 

contract containing an agreement to pay an attorney’s fee.” Id. (quoting Iowa 

Code § 625.22). The HTA contracts provide: “In the case of either party’s default 

of any of its obligations in this contract, he/she shall be liable to the other party 

for all costs incurred (including attorney fees) in the enforcing of this contract 

and/or collecting any damages found owing to the party not in default.”

As the written contract contains a clear and express provision regarding 

attorney fees and litigation expenses, Heartland is entitled to attorney fees 

expended in defending against Murphy’s appeal. We remand this issue to the 
27

district court to make findings and conclusions regarding the appropriate amount 

of appellate attorney fees.

III. Conclusion

For the foregoing reasons, we affirm the judgment of the district court in 

part, reverse in part, and remand for recalculation of the judgment in favor of 

Heartland against Murphy without the two Fell Partnership contracts and related 

interest and for calculation of appellate attorney fees.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED ON 

APPEAL; AFFIRMED ON CROSS-APPEAL.