Opinion ID: 2209840
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Heading: Remedy for Fraudulently Obtained Dismissal.

Text: Iowa has followed the long-standing rule that when a contract is procured by fraud by one party, the defrauded party may elect to rescind the contract or affirm it and pursue an independent claim for damages. Test v. Heaberlin, 254 Iowa 521, 524-25, 118 N.W.2d 73, 75 (1962). The rescission must be elected promptly, and requires a party to restore the benefits received under the contract. Mills County State Bank v. Fisher, 282 N.W.2d 712, 714 (Iowa 1979). The Phipps claim the settlement agreement in this case constituted a contract, and the election of remedies doctrine should apply to permit them to pursue an independent claim for damages. We agree with the Phipps that settlement agreements are essentially contractual in nature. Wright v. Scott, 410 N.W.2d 247, 249 (Iowa 1987); Thornton v. Hubill, Inc., 571 N.W.2d 30, 32 (Iowa App.1997). In fact, we utilize contract principles when interpreting settlement agreements and considering other challenges. Shirley v. Pothast, 508 N.W.2d 712, 715 (Iowa 1993); see also Turner v. Low Rent Hous. Agency, 387 N.W.2d 596, 599 (Iowa 1986) (recognizing a release or settlement agreement may be invalid by reason of economic duress). Thus, like a contract, we enforce a settlement agreement absent fraud, misrepresentation, or concealment. Bergman v. Bergman, 247 Iowa 98, 103, 73 N.W.2d 92, 96 (1955). Although we have never considered whether the traditional election of remedies doctrine of contracts applies to settlement agreements, we observe most jurisdictions who have considered the issue permit a defrauded party to elect their remedy between rescission and an independent action for damages. [2] See Matsuura v. Alston & Bird, 166 F.3d 1006 (9th Cir.1999); Sade v. Northern Natural Gas Co., 483 F.2d 230, 234 (10th Cir.1973); Automobile Underwriters, Inc. v. Rich, 222 Ind. 384, 53 N.E.2d 775, 777 (1944); Ware v. State Farm Mut. Auto. Ins. Co., 181 Kan. 291, 311 P.2d 316, 320 (1957); Bilotti v. Accurate Forming Corp., 39 N.J. 184, 188 A.2d 24, 34 (1963); Ponce v. Butts, 104 N.M. 280, 720 P.2d 315, 322 (N.M.Ct.App.1986). Other jurisdictions, on the other hand, have limited the remedy of the defrauded party to rescission of the agreement. See Taylor v. Hopper, 207 Cal. 102, 276 P. 990, 991-92 (1929); Mackley v. Allstate Ins. Co., 564 S.W.2d 634, 636 (Mo.Ct.App.1978); Davis v. Hargett, 244 N.C. 157, 92 S.E.2d 782, 786 (1956). We find the majority view persuasive. First, a rule which restricts plaintiffs to a claim for rescission may result in prejudice due to the delay that may result in pursuing their claims. See Matsuura, 166 F.3d at 1008 n. 4 (citing DiSabatino v. United States Fidelity & Guar. Co., 635 F.Supp. 350, 354 (D.Del.1986)). Second, damages for fraud are conceptually different from the underlying tort claim and are capable of calculation. Id. Third, absent an action for fraud, many plaintiffs who have been fraudulently induced to enter into a settlement agreement would have no other practical remedy. Id. Finally, a rule which limits the remedy to rescission may do little to discourage fraud. Id. While we find the election of remedies doctrine should generally be available to a defrauded party to a settlement agreement, we must further consider the effect of the dismissal of the prior lawsuit which was filed in conjunction with the settlement agreement in this case. The County claims the dismissal constituted a final judgment, and we should not recognize a cause of action based on grounds which would be unavailable to vacate such a judgment. Our law distinguishes between extrinsic and intrinsic fraud, and applies different rules to vacate a judgment based upon fraud. Although extrinsic fraud can be a ground to vacate a judgment, intrinsic fraud cannot. Costello v. McFadden, 553 N.W.2d 607, 612 (Iowa 1996); Stearns v. Stearns, 187 N.W.2d 733, 735 (Iowa 1971); 49 C.J.S. Judgments § 309, at 432-33 (1997). Instead, intrinsic fraud inheres in the issues submitted to the court. Stearns, 187 N.W.2d at 735. A claim of false testimony constitutes intrinsic fraud. Id.; see also Mauer v. Rohde, 257 N.W.2d 489, 496 (Iowa 1977). We consider a dismissal filed by a party in a case in conjunction with a settlement agreement to be a final adjudication on the merits. See Bloom v. Steeve, 165 N.W.2d 825, 826-27 (Iowa 1969); Mensing v. Sturgeon, 250 Iowa 918, 925, 97 N.W.2d 145, 148 (1959); Iowa R. Civ. P. 215, 217. Moreover, under our rules of procedure every final adjudication of any of the rights of the parties in an action is a judgment. Iowa R. Civ. P. 219. Nevertheless, this does not mean all voluntary dismissals are judgments. A dismissal filed as part of a settlement agreement is considered a final adjudication to prevent multiple litigation over the same claims or issues. See Bloom, 165 N.W.2d at 827. Thus, for the purpose of applying the principles of res judicata, a voluntary dismissal can constitute a final adjudication of the claims and issues of a dismissed lawsuit. Id. On the other hand, voluntary dismissals are otherwise not considered to be an adjudication on the merits. See Iowa R. Civ. P. 217. The County seeks to apply a rule in this case which relates to vacating judgments. The Phipps do not seek to vacate a judgment. Moreover, the rationale for considering a voluntary dismissal to be a judgment for purposes of applying the principles of res judicata is not present in this situation. A rule which limits the collateral attack on a judgment by distinguishing between extrinsic and intrinsic fraud exists to protect the integrity of the adjudication process. See 47 Am.Jur.2d Judgments § 929, at 396 (1995). The collateral attack on a judgment procured by intrinsic fraud is not permitted because the parties had an opportunity at trial to expose the fraud to the trier of fact. Id. Any intrinsic fraud thus inheres in the issues submitted to and decided by the court. Stearns, 187 N.W.2d at 735. The voluntary dismissal in this case did not involve an adjudication of the case by the court or a jury and the rationale for protecting the integrity of the judgment does not exist. We conclude a voluntary dismissal is a final adjudication only for the purposes of res judicata principles. It is not a judgment for the purpose of the principles of collateral attack on a judgment. Accordingly, we conclude a party who dismisses a petition with prejudice following a settlement of the issues in the case may maintain an action for intrinsic fraud perpetrated by the other party in the settlement and dismissal. We reverse the order entered by the district court and remand this case for further proceedings. REVERSED AND REMANDED.