Mark Linser, D/B/A H&R Block v. Ardene A. Cross, and Elaine Linser, Third-Party

                   IN THE COURT OF APPEALS OF IOWA

                                   No. 13-1927
                            Filed December 24, 2014

MARK LINSER, d/b/a H&R BLOCK,
    Plaintiff-Appellee,

vs.

ARDENE A. CROSS,
    Defendant-Appellant,

and

ELAINE LINSER,
     Third-Party Defendant-Appellee.
________________________________________________________________

      Appeal from the Iowa District Court for Marshall County, Steven J. Oeth,

Judge.



      Defendant appeals the amount of damages awarded in a breach of

contract action. REVERSED AND REMANDED.



      Joel T.S. Greer of Cartwright, Druker & Ryden, Marshalltown, for

appellant.

      Bethany J. Currie of Peglow, O’Hare & See, P.L.C., Marshalltown, for

appellees.

      Heard by Vaitheswaran, P.J., Mullins, J., and Goodhue, S.J.*

      *Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2013).
                                         2



MULLINS, J.

       The defendant Ardene Cross appeals the amount of damages awarded in

a breach-of-contract action.1    There could be no breach of the employment

contract beyond the one-year term of the contract; and thus, no damages for

future lost profits were recoverable by the plaintiff under this theory. Ardene is

entitled to trial and appellate attorney fees for the breach of the sales contract.

Furthermore, the district court erred in determining that Ardene was not entitled

to additional compensation of $7302.09. The decision of the district court is

reversed and remanded.

       I.     Background Facts & Proceedings

       Ardene operated franchise offices of H & R Block (HRB) in Tama and

Traer, Iowa. She had been preparing taxes since 1978, and in 2010 the HRB

corporate office recommended she develop a five-year exit strategy.          Elaine

Linser, who had been preparing taxes since 1985, was the office manager of the

HRB office in Marshalltown and was interested in purchasing an HRB franchise.

Because Elaine was already working at the Marshalltown HRB office, the parties

agreed Ardene would sell the Tama and Traer franchise offices to Elaine’s

husband, Mark Linser, as the franchisee.            Mark had experience as a

businessman, but no experience in tax preparation.

       Ardene and Mark entered into a sales contract for the tax preparation

practices in Tama and Traer for $225,000. The purchase price was allocated as:



1
  On December 10, 2015, we filed an opinion in this case. Upon a petition by Ardene
we granted rehearing and withdrew that opinion in order to correct a math error that
appeared in the conclusion paragraph. This opinion corrects that error.
                                           3



Tama real estate, $25,000; equipment and furniture, $5000; and the right to

operate under the franchise license agreement, $195,000. Mark paid $15,000 as

a down payment and was to pay $26,000 annually. Mark was responsible to pay

property taxes and insurance on the Tama building. The contract was contingent

upon approval by the HRB corporate office, and this approval was obtained on

January 13, 2011. After the contract was approved Elaine began working at the

Tama office.

          The parties agreed Ardene would continue working at the Tama office as

an employee and expected this would continue over a period of five years as part

of Ardene’s five-year exit strategy.     Ardene and Mark entered into an Office

Manager Employment Agreement, which provided Ardene would be employed at

the HRB franchise offices in Tama and Traer from January 1 to December 31,

2011.      Her compensation until April 18, 2011, was calculated as her tax

preparation volume times ninety-three percent times thirty percent, with $500 per

week to be a draw against her final compensation. For the remainder of the time,

her compensation was $500 per week. The employment agreement provided

that for two years following the cessation of her employment Ardene could not

engage in the business of tax preparation within ten miles of Tama or Traer. She

was also prohibited from soliciting clients. The contract provided Ardene could

be terminated for misconduct, disobedience, or insubordination, among other

things.

          The district court found, “Almost immediately after the sales contract was

signed and approved by all parties, the relationship between Ardene on one side
                                         4



and Mark and Elaine on the other side began to deteriorate.” Mark conducted a

personnel review with Ardene on March 5, 2011.            They discussed Mark’s

concern that Ardene started multiple tax returns, then left them open for a period

of time. The Linsers had a policy that once a tax return was started it should be

completed and the client billed for the work as quickly as possible. There were

also concerns that sometimes Ardene would have two clients scheduled at the

same time. The Linsers felt Ardene should be more open to sharing her clients

with other tax preparers in the office.      The personnel review stated, “Not

cooperating in assisting us w/the above request can/may result in termination.”

Ardene refused to sign the review form and walked out of the meeting, stating

she had an appointment with a client.

      The Linsers terminated Ardene on April 11, 2011, because they believed

she was continuing to operate her bookkeeping business from the HRB office, in

violation of corporate rules.     Ardene was paid $6340.61 after she was

discharged.   Mark testified that although he was not obligated to pay her a

bonus, he voluntarily chose to include a bonus in her payment. Following her

discharge, Ardene obtained employment at the Marengo HRB office, which was

about forty miles away from the Tama office. Two hundred nine former clients

from the Tama and Traer HRB offices followed Ardene to Marengo.

      The Linsers paid the amount of $26,000 due under the sales contract for

2011, but made no further payments. They did not pay the property taxes for the

Tama office. The Linsers moved the HRB office in Tama and were no longer

using the building included in the sales contract with Ardene.
                                        5



      On January 17, 2012, Mark filed a lawsuit against Ardene, claiming she

had breached the restrictive covenant in her employment contract. Ardene filed

a counterclaim against Mark and included Elaine as a third-party defendant,

asserting claims of unpaid wages, wrongful termination, defamation, and breach

of the sales contract. Mark amended his petition to include claims of defamation,

interference with a business relationship, and fraudulent misrepresentation. He

sought damages and injunctive relief.

      A bench trial on these various claims was commenced on August 27,

2013. The district court determined Mark had breached the sales contract by not

making annual payments after 2011. The court determined Ardene’s damages

were $206,237, but reduced this amount by $25,000 (representing the value of

the building, to which Ardene retained title). The court found Ardene breached

the employment contract by being insubordinate. The court calculated Mark lost

revenue of $17,310.65 each year for four years as a result of the breach, for a

total of $69,242.60. The court found Mark made an error of ninety dollars in

calculating Ardene’s wages.     The court denied the claims of breach of the

restrictive covenant, defamation, fraudulent representation, and interference with

a business relationship. The court denied Mark’s request for an injunction. The

parties were ordered to pay their own attorney fees. In total, Mark was ordered

to pay a net judgment to Ardene of $112,084.51.

      Both parties filed motions pursuant to Iowa Rule of Civil Procedure

1.904(2).   The court amended its decision to order Mark to pay $2188 for

property taxes, which he had been obligated to pay under the sales contract.
                                          6



The court also decreased Ardene’s award for breach of the sales agreement to

$205,806.52. The net judgment against Mark was amended to $113,841.92.

Mark appealed the district court decision, and Ardene cross-appealed.            Mark

later voluntarily dismissed his appeal, and Ardene’s cross-appeal remains as the

sole appeal.

       II.     Standard of Review

       This action was tried at law and our review is for the correction of errors at

law. See Iowa R. App. P. 6.907. “If substantial evidence in the record supports a

district court’s finding of fact, we are bound by its finding.” Iowa Mortg. Ctr.,

L.L.C. v. Baccam, 

 (Iowa 2013). “However, a district court’s

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

       III.    Breach of Employment Contract

       On appeal, Ardene does not dispute that she breached the employment

contract by engaging in insubordination. Ardene claims expected future profits

were an improper measure of damages as a matter of law. She asserts that her

written employment contract was only for a period of one year, and states Mark

was not entitled to lost profits for a period of four years after she was terminated.

       In order to prove a breach of contract, a party must show: (1) the

existence of a contract, (2) the terms and conditions of the contract, (3) it has

performed all the terms and conditions required under the contract (4) the other

party’s breach of the contract in some particular way, and (5) the complaining

party has suffered damages as a result of the breach. 

. “The first two
                                        7



elements address the existence of a contract. The last two elements address the

breach of the contract and the damages caused by the breach.” 

      In general, “when a contract has been breached the nonbreaching party is

generally entitled to be placed in as good a position as he or she would have

occupied had the contract been performed.” Midland Mut. Life Ins. Co. v. Mercy

Clinics, Inc., 

 (Iowa 1998). The Iowa Supreme Court has

stated:

            Distinct from the general rule for damages based on
      commitment of a tort, damages based on breach of a contract must
      have been foreseeable or have been contemplated by the parties
      when the parties entered into the agreement. Whether the
      damages were reasonably anticipated by the parties when the
      contract was formed may be discerned from “the language of the
      contract in light of the facts, including the nature and purpose of the
      contract and circumstances attending its execution.” Damages
      which a reasonable person would expect to follow from breach of a
      contract are direct and thus should be awarded.

Kuehl v. Freeman Bros. Agency, Inc., 

 (Iowa 1994)

(citations omitted). “[D]amages recoverable for a breach of contract are limited to

losses actually suffered by reason of the breach and must relate to the nature

and purpose of the contract.” Royal Indem. Co. v. Factory Mut. Ins. Co., 

 (Iowa 2010).

      The district court found:

              The Linsers were counting on Ardene being their employee
      for at least five years. This is consistent with Ardene’s testimony
      that HRB corporate wanted a five-year exit plan in place. Ardene
      also acknowledged that she wanted to continue to do returns after
      selling the franchise. . . . The evidence established that the Linsers
      lost at least 209 clients as a result of having to terminate Ardene.
      That is, 209 clients have left the Tama-Toledo franchise and have
      followed Ardene to the Marengo HRB office. It is clear the parties
      expected those returns to be done in the Tama-Toledo office. The
                                       8



      lack of this revenue is clearly an element of damage suffered by the
      Linsers resulting from their justifiable termination of Ardene’s
      employment contract.

      The threshold question is whether the parties’ expectations that Ardene

would work in the Tama office for five years constituted an enforceable contract.

Neither the sales contract nor the employment agreement reference five years.

The express terms of the employment agreement limit it to one year. Even the

restrictive covenant is only for a two-year term. There is no written document

which memorializes any five-year obligation.    Even if we were to agree that

verbal expectations could form the basis of a contract, neither the verbal

representations nor any other evidence establishes the terms and conditions of

any purported contract.

      Without a contract beyond the one-year term, there could be no breach

beyond that time; and thus, no damages for future profits are recoverable by

Mark under this theory. As the nonbreaching party, Mark is entitled to be placed

in as good a position as he would have occupied had the contract been

performed. See Midland Mut. Life Ins. Co., 

. Here, the term

of the employment contract was specifically for a period of one year. Mark is not

entitled to damages for lost future profits for four years into the future. We

reverse the decision of the district court determining Mark was entitled to

damages of $69,242.60 due to Ardene’s breach of the employment contract.

      III.   Attorney Fees

      A.     Ardene claims she is entitled to trial attorney fees because Mark

breached the sales contract. The district court determined Mark had breached
                                            9



the sales contract and Ardene had breached the employment contract. The court

determined Mark and Ardene were both entitled to attorney fees and these

amounts offset each other, so neither party was awarded attorney fees. Ardene

claims her breach of the employment contract should not trigger the attorney fee

provision of the employment contract.

       The employment contract contains this provision concerning remedies:

              The parties agree that if any provision of Section 8
       [Confidential Information], 9 [Restrictive Covenants], or 10
       [Nonsolicitation of Employees] is violated, the Company will have
       no adequate remedy at law and will suffer irreparable loss and
       damage. . . . Further, in the event of such breach or violation,
       Associate shall pay the Company all court costs, attorneys’ fees,
       and expenses incurred by the Company in enforcing this
       Agreement.

       “A written contract must contain an express provision regarding attorney

fees and litigation expenses in order for a court to include attorney fees and

litigation expenses in a favorable judgment.” NevadaCare, Inc. v. Iowa Dep’t of

Human Servs., 

 (Iowa 2010). “When a contract contains a

clear and express provision regarding attorney fees, the court’s award must be

for reasonable attorney fees.” 

 We will reverse a court’s ruling awarding

attorney fees only when the court abuses its discretion by resting its ruling on

grounds that are clearly unreasonable or untenable. 

.

       The provision concerning attorney fees in the employment contract applies

only if an employee divulges confidential information, breaches the restrictive

covenants by preparing tax returns within ten miles for a period of two years 2 or



2
  There is an exception to the two-year, ten-mile restrictive covenant for the preparation
of tax returns at another HRB office.
                                       10



solicits clients, or solicits HRB employees to work for a competitor within a one-

year period. There are no findings in this case that Ardene engaged in any of

these activities. Therefore, the attorney fee provision of the employment contract

is not applicable in this case. The district court erred by finding Ardene was

responsible for pay Mark’s attorney fees associated with his claim of breach of

the employment contract.

       We remand to the district court for a determination of the attorney fees

Mark should be required to pay Ardene based on his breach of the sales

contract.   The sales contract provides, “If buyer fails to timely perform this

contract, seller may elect to declare the entire balance immediately due and

payable after such notice and seller shall be entitled to any and all remedies, or

action at law, including foreclosure, and the party at fault shall pay costs and

attorney fees.”

       B.      Ardene also seeks attorney fees and costs for this appeal. Under

the sales contract, Ardene is entitled to receive reasonable appellate attorney

fees. See Foxley Cattle Co. v. Midwest Soya Int’l, Inc., 

(Iowa 1998) (finding a contract provision permitting attorney fees includes

appellate attorney fees). From the record on appeal, however, we are unable to

determine a reasonable amount for appellate attorney fees.          The issue is

remanded to the district court for a determination of reasonable appellate

attorney fees and costs. See Soults Farms, Inc. v. Schafer, 

(Iowa 2011).

       V.      Unpaid Wages
                                        11



         A.    Ardene claims she is entitled to unpaid wages under the Iowa

Wage Act, Iowa Code chapter 91A (2011). She contends she was never paid for

work she performed between March 31 and April 11, 2011. She states she

continued to work during this period of time and under the formula in her

employment contract she should have been paid $6954.39. She also claims she

is entitled to liquidated damages of five percent. See Iowa Code § 91A.2(6).

         The employment contract provided, “If Associate’s employment is

terminated pursuant to Section 6, Associate’s compensation shall automatically

cease.” Ardene was terminated under section 6 and the district court determined

she was not entitled to any further compensation, including a bonus, after she

was terminated. The court concluded Mark had voluntarily paid Ardene a bonus

when he paid her $6340.61, although he was not obligated to do so. The court

found that because two numbers were transposed, “Mark owes Ardene $90.00 in

order to accurately reflect the bonus Mark voluntarily chose to pay her.”

         When an employee is terminated, the employer must pay the employee all

wages earned, less lawful deductions.        Iowa Code § 91A.4. An employee’s

wages may be based upon time, task, piece, commission, or other basis of

calculation.   Id. § 91A.2(7)(a).   A bonus may be included in the statutory

definition of wages. Runyon v. Kubota Tractor Corp., 

 (Iowa

2002).

         The terminology used by the parties in this case is somewhat confusing

because what they are referring to as a “bonus,” is actually Ardene’s

compensation under the terms of the employment contract.            A handwritten
                                          12



notation, initialed by Elaine and Ardene, stated Ardene’s “compensation is

calculated as follows: tax volume x 93% x 30% with $500 weekly pay to be a

draw against final compensation which ends 4/18/11 and will be paid on or

before 5/16/11.” A bonus paid to an employee may be considered wages, if the

employer is contractually bound to pay it. Dallenbach v. MAPCO Gas Prod., Inc.,

 (Iowa 1990). Under the terms of the employment contract

Mark was contractually obligated to pay Ardene under the formula found in the

contract.

       Ardene presented an exhibit showing she had completed 509 tax returns.

Of the 509 returns, 483 had been paid for, generating revenue of $69,598. Using

the formula in the employment contract, Ardene’s compensation for these 483

returns should be $19,417.84.3 Ardene also calculated there were twenty-six

returns for which HRB had not yet been compensated.              She determined the

average charge per return was $144.10.4 She estimated the revenue from the

twenty-six returns would be $3746.60. Ardene’s compensation for these unpaid

returns would be $1045.30.5         Ardene’s total compensation would then be

$20,463 ($19,418 + $1045 = $20,463). During her time of employment Ardene

was paid a total of $13,508.61. The amount she had not yet been paid was

$6954.39. Mark did not object to Ardene’s exhibit setting out these calculations.




3
  $69,598 x 93% = $64,726.14; $64,726.14 x 30% = $19,417.84.
4
  Ardene divided the revenue for the paid returns, $69,598, by 483, to arrive at $144.10
per return.
5
  $3746.60 x 93% = $3484.34; $3484 x 30% = $1045.30.
                                           13



       We conclude the district court erred in finding Ardene was not entitled to

any additional wages. We conclude that under the specific terms of the parties’

employment contract Mark is obligated to pay Ardene an additional $6954.39.

       B.     Ardene asserts she is entitled to liquidated damages of $347.70,

which is five percent of $6954.39. Section 91A.8 provides:

               When it has been shown that an employer has intentionally
       failed to pay an employee wages or reimburse expenses pursuant
       to section 91A.3, whether as the result of a wage dispute or
       otherwise, the employer shall be liable to the employee for any
       wages or expenses that are so intentionally failed to be paid or
       reimburse, plus liquidated damages, court costs and any attorney’s
       fees incurred in recovering the unpaid wages and determined to
       have been usual and necessary.

       The liquidated damages provision in section 91A.8 applies to the

intentional withholding of regular paychecks and commissions.             Runyon, 

.       It does not apply to a dispute over the calculation of a

discretionary bonus.     

   Furthermore, it does not apply to an employer’s

inadvertent failure to pay an employee’s full wages. Condon Auto Sales & Serv.,

Inc. v. Crick, 

 (Iowa 1999).             Liquidated damages are

calculated pursuant to section 91A.2(6).6 

       The evidence shows the Linsers intentionally failed to pay Ardene the

wages she was entitled to receive under the terms of the employment contract.


6
   In section 91A.2(6), five percent is multiplied by the amount of unpaid wages and that
sum is then multiplied by the number days the wages were unpaid, “excluding Sundays,
legal holidays, and the first seven days after the regular payday on which wages were
not paid.” The amount of liquidated damages, however, cannot exceed the amount of
unpaid wages. Iowa Code § 91A.2(6); Jackson v. City of Ottumwa, 

 (Iowa Ct. App. 1986). In Ardene’s appellate brief she requests liquidated damages
of $347.70, and we conclude the amount of liquidated damages she receives cannot
exceed that amount. See Schaefer v. Schaefer, 

, 502 n.2 (Iowa 2011)
(finding issue that was not argued on appeal was waived).
                                        14



They arbitrarily decided not to pay her for any work after March 31, 2011,

although she continued to work until she was terminated on April 11, 2011. We

conclude Ardene is entitled to liquidated damages of $347.70. The total amount

Ardene should receive in unpaid wages and liquidated damages is $7302.09

($6954.39 + $347.70 = $7302.09).

       VI.    Disposition

       There could be no breach of the employment contract beyond the one-

year term of the contract; and thus, the damages awarded to Mark for future lost

profits in the amount of $69,242.60 is reversed. Ardene is entitled to trial and

appellate attorney fees for breach of the sales contract. Furthermore, the district

court erred in determining Ardene was not entitled to additional compensation of

$7302.09. Thus, we rule the net judgment against Mark in favor of Ardene is in

the amount of $190,386.61 ($113,841.92 + $69,242.60 + $7302.09). We remand

to the district court for a determination of reasonable trial and appellate attorney

fees and costs as provided by the terms of the sales contract.

       REVERSED AND REMANDED.