Court Opinion

ID: 6932738
Source: CourtListenerOpinion
Date Created: 2022-07-24 00:12:53.916192+00
Date Added: 2024-06-11T16:07:16.944945
License: Public Domain

HANSEN, Circuit Judge,
concurring in part and dissenting in part.
I concur in the opinion of the court with one exception. While I agree that the portion of compensatory damages which represents John Muhl’s breach of fiduciary duty to Mahaska prior to September 30,1989, should *848be added into the book value of Mahaska as of that date, I do not agree that the punitive damages should be treated in the same manner. For the reasons that follow, I dissent from the court’s decision in part II C and part III to include the punitive damages award in the book value of Mahaska as of September 30, 1989.
First and foremost, the court’s decision to add the punitive damage award back into book value as of September 80, 1989, is contrary to Iowa law and the terms of the stock redemption agreement. Punitive damages in Iowa “are awarded, not because a plaintiff deserves them, but as punishment, to deter the defendant and others from repeating similar outrageous conduct.” Ezzone v. Ric-cardi, 1994 WL 515872, *9 (Iowa Sept. 21, 1994). The court blurs this distinction by including the punitive damages in the prior book value under the same rationale by which the court includes the compensatory damages.
An inescapable maxim of contract construction provides that the terms of the contract govern its construction, and in this case, the contract requires that book value be determined by applying generally accepted accounting principles. Because punitive damages are defined as punishment under Iowa law, the punitive damage award in this case cannot and does not represent compensation for past wrongs. Also, the amount of any potential punitive damage award arising out of John Muhl’s breach of fiduciary duty was not a fact known and misused to underrepre-sent the value of the company on the September 30, 1989, financial statement. The punitive award is more in the nature of a gain contingency because the existence and amount of the punitive damages were uncertain until awarded by the jury. Therefore, under Iowa law and generally accepted accounting principles — both standards designated by the contract — the punitive damages should not be included in the book value of the company until the year in which they are realized.
Second, because punitive damages were assessed by the jury, the district court will be unable to rationally apportion which part of the punitive damage award represents punishment for John Muhl’s wrongful acts occurring prior to September 30, 1989. There is no evidence from which to make such an apportionment. For all we, or the district court, know, the whole of the punitive damages may have been assessed by the jury for conduct which occurred after 1989.1 For the foregoing reasons, I respectfully dissent from the court’s decision to include the punitive damage award in the book value of Ma-haska on September 30, 1989.

. The direction our court gives to the district court in footnote 2 of the majority opinion tells the district judge in effect that if you cannot apportion the punitive damage award rationally, then do the next best thing and include it all. In my view, that is a potentially unfair (albeit easy) solution to the difficult question the court creates for itself by including the punitives in the September 30, 1989, book value in the first place. It carries the veiy real risk of overstating book value and compelling Mahaska to pay a greater price for Arnold’s shares than the contract requires.