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IN THE COURT OF APPEALS OF IOWA No. 0-090 / 09-0833 Filed April 21, 2010

KIM BECKER and PAMELA MORGAN, Plaintiffs-Appellees/Cross-Appellants, vs. JAY LONGINAKER, MARVIN PENNING, and TRI-VALLEY BANK f/k/a RANDOLPH STATE BANK, Defendants-Appellants/Cross-Appellees. ________________________________________________________________

Appeal from the Iowa District Court for Fremont County, J.C. Irvin, Judge.

Defendants appeal the district court`s denial of their motion for a judgment notwithstanding the verdict or new trial. Plaintiffs cross-appeal, seeking trial and appellate attorney fees. AFFIRMED ON CONDITION AND CASE REMANDED WITH INSTRUCTIONS.

Janice M. Woolley of McGill, Gotsdiner, Workman & Lepp, P.C., L.L.O, Omaha, Nebraska, for appellants. A. W. Tauke & Dustin P. Kreifels of Portor, Tauke, & Ebke, Council Bluffs, for appellees.

Considered by Sackett, C.J., and Doyle and Danilson, JJ.

2 DOYLE, J. Defendants Tri-Valley Bank, Jay Longinaker, and Marvin Penning appeal the district court`s denial of their motion for a judgment notwithstanding the verdict or new trial. They argue the damages awarded by the jury, both actual and punitive, were excessive, duplicative, improper, and contrary to law. Additionally, defendants assert that the district court erred in allowing plaintiffs to inquire into attorney-client privileged matters, and that they were prejudiced by the plaintiffs` actions in referring to attorney-client privileged matters. Plaintiffs Pamela Morgan and Kim Becker cross-appeal, seeking trial and appellate attorney fees. We affirm on condition and remand the case to the district court with instructions. I. Background Facts and Proceedings. Plaintiffs and sisters Pamela Morgan and Kim Becker grew up raising and showing horses. In their adult life, both plaintiffs raised, showed, and bred

horses as a side business and hobby. In 1997 Morgan purchased a tract of land in Fremont County, Iowa. In purchasing her land, Morgan obtained a loan from defendant Tri-Valley Bank (the Bank), formerly known as Randolph State Bank. At that time, defendant Jay Longinaker was the Bank`s executive vice president and chief lending officer, as well as a partial owner. Prior to his employment at the Bank, Longinaker

practiced law for thirteen years. Defendant Marvin Penning was the Bank`s loan officer. Morgan`s loan was secured by a mortgage on her real estate. Additionally, Morgan entered into a security agreement with the Bank granting

3 the Bank a security interest in Morgan`s horses, among other things, to secure all of her debts, liabilities, and obligations with the Bank. She subsequently

obtained a second mortgage on the real estate from a private third-party. In 2003, Morgan refinanced her loan with the Bank, and she re-entered into the security agreement with the Bank. In approximately 2005, Morgan fell behind on her real estate taxes. She received additional funds from the Bank to pay the taxes, which became a third mortgage on the real estate. At some point that year, Longinaker and Penning visited Morgan`s farm to see her horses. Penning later filed a report indicating that Morgan had twenty horses worth $43,750. Thereafter, Morgan defaulted on her mortgage with the Bank. In May 2006, the Bank filed a petition to foreclose the mortgage without redemption and waiving any right or claim to a deficiency judgment against Morgan. On

January 3, 2007, the district court entered a decree of in rem foreclosure, ordering a foreclosure sale of Morgan`s real estate. The decree stated that the Bank waived any deficiency in its judgment. Just prior to the sheriff`s sale, Morgan moved herself and her horses to Becker`s property, which adjoined Morgan`s foreclosed property. A sheriff`s sale of Morgan`s real estate was held in July 2007. The second mortgage holder purchased the property; the Bank did not place a bid. After applying the

proceeds of the purchase price to the liens against the property, there remained a $7990 deficiency on the Bank`s loans. Ultimately, the Bank`s loan committee determined it wanted to collect the deficiency from Morgan. The loan committee included Longinaker, then

4 president of the Bank, and Penning, then vice-president of the Bank. In

approximately August 2007, the Bank allegedly mailed a Loan Account Inquiry to Morgan at Morgan`s old address. The inquiry statement showed information about Morgan`s loan such as a current balance and payoff amount. On the

bottom of the inquiry statement was a handwritten note indicating that Morgan owed the Bank $8615.07 plus per diem after the foreclosure proceeds were applied to her loan. Morgan allegedly did not receive the inquiry statement, and she did not pay the Bank the amount it asserted she owed. The Bank`s loan committee then decided to repossess Morgan`s horses in an attempt to satisfy the money it claimed Morgan still owed. Penning On

contacted Becker to ascertain where Morgan`s horses were being kept.

September 13, 2007, Longinaker and Penning entered Becker`s property and took possession of fifteen horses. Eleven of the horses taken were owned by Morgan, and the other four horses were owned by the Beckers. Longinaker and Penning loaded the horses onto trailers and transported them to secret locations. Plaintiffs discovered that their horses were missing around 5:30 p.m. on the evening of the 13th. Becker found that her fence between her property and Morgan`s former property had been cut down. Becker reported the missing

horses to the sheriff and learned the horses had been repossessed by the Bank and Longinaker. Becker`s husband called Longinaker at home and demanded that the Beckers` horses be returned. Longinaker told Becker`s husband that he would exchange the Beckers` four horses for four of Morgan`s horses, but would not tell him where the horses were. Becker and Morgan then drove around that night looking for their missing horses but were unable to locate them.

5 The next day both plaintiffs stayed home from work to recover their horses. Morgan spoke to Longinaker on the phone around 9 a.m. to find out what was going on. Longinaker demanded she pay the Bank $7990 to satisfy the amount the Bank claimed was still due. Longinaker offered to exchange the Beckers` four horses for four of Morgan`s horses. Morgan said she did not

believe she still owed the bank money and that she would have her attorney call the Bank. Morgan related her conversation to Becker, and Becker offered to use her own funds to pay the amount demanded by the Bank to return their horses. Becker called Longinaker back and asked for the exact amount Morgan owed. Becker advised Longinaker she would be bringing in a check for the amount demanded by Bank, and she requested that the Bank provide her with a release stating Morgan was completely released of any and all other obligations that she owed the Bank. Morgan and Becker went to the bank and met with Penning. Becker

tendered a check for $7990 to the Bank, and Penning then presented to Morgan and Becker documents titled Agreement, drafted by Longinaker, for their signatures. In addition to the release language requested by Becker, the

agreement contained a paragraph stating: Pam Morgan and Kim Becker hereby unconditionally release [the Bank], it`s officers, employees and any third parties acting on behalf, or independent contractors working for said bank, from any and all liability for any acts, omissions, or occurrences from the beginning of time, up to and including the date of this agreement, and further releases without limitation any liability for any trespassing or seizure of any horses in Fremont County, Iowa on September 13th, 2007, and for their subsequent return at any later date.

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The plaintiffs refused to sign the agreement with the additional language. Penning called Longinaker, who was at another bank branch, and gave Becker the phone. Becker spoke with Longinaker, and Longinaker told her she and Morgan had to sign the agreement or he would not release their horses. After discussing the matter for a period of time, Longinaker eventually agreed to tell the plaintiffs where their horses were being kept. By approximately 10:30 p.m. on September 14, 2007, Morgan and Becker had recovered all of their horses. On December 24, 2007, Morgan and Becker filed their petition at law, amended in November 2008, asserting claims against defendants for conversion and civil extortion (Count 1) and intentional infliction of emotional distress (Count 2). Additionally, Becker asserted a claim against defendants for trespass upon her land (Count 3). Defendants answered, denying the claims and asserting various affirmative defenses and counterclaims. In July 2008, plaintiffs filed a motion for partial summary judgment as to their conversion claims against defendants and to defendants` counterclaims. Defendants resisted, asserting they were entitled to enforce all of their remedies including enforcement of the security interest in all collateral for the indebtedness of Morgan to the Bank. The Bank claimed it did not attempt to obtain the entry of a deficiency judgment or to enforce any deficiency following the real estate foreclosure. Rather, by taking action to gain possession of the horses at issue in this action, [the Bank] was enforcing its rights in the personal property collateral Morgan pledged for said loans from [the Bank]. In support of its resistance, the Bank attached the affidavit of Longinaker, in which Longinaker stated, in relevant part:

7 [N]one of the defendants have ever sought entry of or enforcement of a deficiency judgment against [Morgan] at any time. .... [I]n early September 2007 there remained an unpaid indebtedness due [to the Bank] secured by said horses in the approximate amount of $8,100.00. Fearing that the horses would be sold and the proceeds not applied to the debt, and after consultation with outside counsel, it was decided to take possession of said horses. (Emphasis added.) The court granted plaintiffs` motion, finding judgment should be entered in their favor on their conversion claims and that defendants` counterclaims should be dismissed. The court specifically found: Defendants [did] not dispute that [the Bank] foreclosed on the mortgage it had with Morgan and waived the right to a deficiency in the foreclosure action. . . . . . . [T]hrough the foreclosure, [the Bank] exhausted the full measure of remedy available to it against Morgan. Because [the Bank] cannot seek foreclosure of a mortgage in one action, and in a later one ask for a personal judgment against Morgan, Morgan is entitled to judgment as a matter of law. Accordingly, the court holds defendants` taking of [plaintiffs`] horses was wrongful. The wrongful taking of [plaintiffs`] horses amounted to a conversion thereof because defendants intentionally exercised control over the horses. . . . [Plaintiffs] are entitled to the reasonable and necessary expenses incurred in maintaining this action, as these are proper damages in a conversion action. In addition, defendants intentionally exercised control over Becker`s $7990.00. The exercise of control over this money so seriously interfered with Becker`s right to control the money that defendant may justly be required to pay the full $7990.00. In addition, Becker is entitled to the reasonable and necessary expenses incurred in recovering the $7990.00, including expenses incurred in preparation for trial, as these are proper damages in a conversion case. In December 2008, plaintiffs filed a motion for preliminary ruling on waiver of attorney

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