IN THE COURT OF APPEALS OF IOWA
No. 20-1321
Filed November 23, 2021
S3 DEVELOPMENT, LLC,
Plaintiff-Appellant,
vs.
HGR INVESTMENTS, INC.,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Jeffrey D. Farrell,
Judge.
The plaintiff appeals district court’s grant of summary judgment in the
defendant’s favor. AFFIRMED.
Louis R. Hockenberg, Michael Streit and J. Mason Bump (until withdrawal)
of Sullivan Ward, P.C., West Des Moines, for appellant.
Daniel P. Kresowick of Brick Gentry P.C., West Des Moines, for appellee.
Considered by Tabor, P.J., Ahlers, J., and Carr, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2021).
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AHLERS, Judge.
S3 Development, LLC (S3) appeals the grant of summary judgment in favor
of HGR Investments, Inc. (HGR). S3 argues a genuine issue of material fact exists
over whether S3 entered a contract with HGR through HGR’s agent and whether
HGR ratified the contract. We reject S3’s arguments and affirm.
I. Background Facts & Proceedings
The facts needed to resolve this appeal are gleaned from the parties’ filings
in support of and in resistance to HGR’s motion for summary judgment. In
resistance to HGR’s motion, S3 provided an affidavit from one of its
representatives, Mike Stessman. According to Stessman’s affidavit, he and two
friends established S3 in early 2017 “for the purpose of acquiring land, constructing
Starbucks facilities, and leasing the facilities to operators.” In trying to achieve this
goal, they met Todd Raufeisen, who claimed he was the “R” in HGR. Raufeisen
stated he had contacts with Starbucks and could secure commercial tenants for
S3’s purposes. In February 2017, Raufeisen and S3 signed a consulting contract
under which S3 would pay Raufeisen for assistance in the planning and
procurement processes for Starbucks locations. Several of Raufeisen’s emails to
S3 contained the following signature block:
Todd B Raufeisen
HGR Investments
todd@hgrinv.com
However, Raufeisen sent these emails from a different address with no apparent
connection to HGR. Raufeisen eventually provided S3 with three documents titled
“Starbucks Letter of Intent,” which purportedly showed Starbucks’s intention to
enter into three separate leases with S3 for commercial space.
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According to Stessman’s affidavit, Raufeisen informed S3 in September
2017 that he had been criminally charged and would be going to prison.1 Soon
after this disclosure, Raufeisen introduced S3 to one of his fellow “partners” at
HGR. After meeting, one of the principals of HGR assured Stessman that he would
take over Raufeisen’s role and secure leasing agreements with Starbucks or other
commercial tenants if necessary.
At some point, S3 learned Raufeisen falsified the communications
appearing to come from Starbucks, including the letters of intent. After the
anticipated leases with Starbucks failed to materialize, S3 filed a petition against
HGR. S3 alleged Raufeisen was HGR’s agent and HGR committed breach of
contract and fraudulent misrepresentation through the actions of Raufeisen. S3
sought damages for fees it paid under the consulting contract and related
expenses. HGR moved for summary judgment, asserting it could not be held liable
for the contract because it was not a party to the contract, it was not incorporated
when the contract was executed, and Raufeisen was not an agent of HGR.2 The
district court granted HGR’s motion for summary judgment, and S3 now appeals.
1 See United States v. Raufeisen, 748 Fed. Appx. 704, 704 (7th Cir. 2019) (“Todd
Raufeisen ran a Ponzi scheme that defrauded at least 22 investors, many of them
close friends or family members, of over $1.7 million. He pleaded guilty to wire
fraud . . . and money laundering . . . . The district court sentenced Raufeisen to an
above-guideline term of 72 months in prison and three years of supervised
release.”).
2 HGR answered an interrogatory by stating, “Raufeisen has never been a
shareholder, director, officer, or employee of HGR, nor has [Raufeisen] ever been
authorized to act on HGR’s behalf.” HGR later amended its answer to
acknowledge that “Raufeisen was an independent commission consultant from
approximately March 2017 until October 2017,” by which Raufeisen “acted as an
intermediary between real estate owners and prospective purchasers” like HGR.
Whatever duties Raufeisen performed as “an independent commission
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II. Standard of Review
We review a grant of summary judgment for correction of errors at law.
Peak v. Adams, 799 N.W.2d 535, 542 (Iowa 2011). In determining whether the
grant was proper,
we ask whether the moving party has demonstrated the absence of
any genuine issue of material fact and is entitled to judgment as a
matter of law. The resisting party must set forth specific facts
showing that a genuine factual issue exists. Summary judgment is
proper if the only issue is the legal consequences flowing from
undisputed facts.
Id. (quoting Huber v. Hovey, 501 N.W.2d 53, 55 (Iowa 1993)). A material issue is
one that may affect the outcome of the suit. Id. We must look at the facts in the
light most favorable to the nonmoving party, and we will draw all reasonable
inferences in the nonmoving party’s favor. Id. at 543. A legitimate inference is one
that “is ‘rational, reasonable, and otherwise permissible under the governing
substantive law.’” Id. (quoting Phillips v. Covenant Clinic, 625 N.W.2d 714, 717
(Iowa 2001)). However, it is not a permissible inference if it is only based on
speculation or conjecture. Id. The district court is not to make credibility
assessments when considering a motion for summary judgment, as credibility
determinations are a responsibility for the fact finder. Frontier Leasing Corp. v.
Links Eng’g, LLC, 781 N.W.2d 772, 776 (Iowa 2010). If reasonable minds may
differ, a genuine issue of material fact exists. Peak, 799 N.W.2d at 542.
consultant,” they were performed after S3 had already entered the consulting
contract with Raufeisen.
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III. Analysis
S3’s claim hinges on its ability to establish that Raufeisen was HGR’s agent
with authority to bind HGR to the consulting contract. Agency can be established
by actual or apparent authority. Frontier Leasing, 781 N.W.2d at 776.
Actual authority to act is created when a principal intentionally
confers authority on the agent either by writing or through other
conduct which, reasonably interpreted, allows the agent to believe
that he has the power to act. Actual authority includes both express
and implied authority. Express authority is derived from specific
instructions by the principal in setting out duties, while implied
authority is actual authority circumstantially proved.
Id. (emphasis omitted) (quoting Hendricks v. Great Plains Supply Co., 609 N.W.2d
486, 493 (Iowa 2000)). “Apparent authority is authority the principal has knowingly
permitted or held the agent out as possessing.” Id. Thus, actual authority focuses
on the principal’s communications to the agent, while apparent authority focuses
on the principal’s communications to third parties. Id.; Hendricks, 609 N.W.2d at
493. Under both actual and apparent authority, the alleged principal’s
communications and actions must lead to the agency relationship. Id. As the party
asserting an agency relationship, S3 must ultimately prove Raufeisen was an
agent of HGR by a preponderance of the evidence. See Hendricks, 609 N.W.2d
at 493.
S3 argues the record, including Stessman’s affidavit and emails from
Raufeisen, shows a connection between HGR and Raufeisen that generates a
genuine issue of material fact whether Raufeisen was HGR’s agent. We disagree.
HGR’s interrogatory answer asserted Raufeisen never held a position with HGR
or had authority from HGR that would have permitted Raufeisen to act on HGR’s
behalf. This assertion was not rebutted by any evidence of anything said or done
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by HGR. Not having any evidence of anything HGR did to establish an agency
relationship, S3 focuses instead on Raufeisen’s statements and conduct. But it is
the action of the purported principal, not the purported agent, that establishes an
agency relationship. Frontier Leasing, 781 N.W.2d at 776 (“Apparent authority
must be determined by what the principal does, rather than by any acts of the
agent.” (quoting Magnusson Agency v. Pub. Entity Nat’l Co.-Midwest, 560 N.W.2d
20, 26 (Iowa 1997))). As a result, absent some evidence that HGR bestowed
agency authority on Raufeisen, it does not matter what Raufeisen said or did in
terms of creating an agency relationship. In other words, Raufeisen could claim
he was an agent of HGR in any way he chose, but unless HGR communicated
such agency authority to Raufeisen or S3, no agency relationship was created.
See id.
Nothing in the record supports a finding that anything HGR did gave
Raufeisen actual authority to bind the corporation in any way, either as an express
grant of authority or an implied grant of authority. Furthermore, there is no
evidence anyone associated with HGR held out Raufeisen as its agent. S3 does
not allege that anyone from HGR claimed an agency relationship. Also, HGR is
not mentioned in the consulting contract. Rather, the contract is printed on
“Raufeisen Development” letterhead. Raufeisen signed the contract using only his
name. S3 acknowledges it paid fees under the contract to Raufeisen only, and
there is no evidence HGR received compensation or other consideration from the
consulting contract. S3 first communicated with someone from HGR after
Raufeisen disclosed he would be going to prison and long after the consulting
contract was signed. While HGR then tried to secure a commercial tenant for S3
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as Raufeisen contracted to do, there is no evidence HGR acted because it believed
Raufeisen had bound it to the consulting contract. Instead, the evidence suggests
HGR viewed its relationship with S3 as a new business opportunity. Stessman’s
affidavit asserts HGR never denied an agency relationship. While failure to
repudiate an unauthorized action may give rise to an agency relationship, there is
no evidence HGR knew or should have known Raufeisen purportedly took any
action on its behalf. See Fort Dodge Creamery Co. v. Com. State Bank, 417
N.W.2d 245, 247 (Iowa Ct. App. 1987). As the record does not support finding
Raufeisen possessed actual or apparent authority to act on behalf of HGR, HGR
was not bound to the consulting contract.
Alternatively, S3 asserts HGR ratified the consulting contract with its later
actions. “A principal may ratify the unauthorized act of an agent.” Life Invs. Ins.
Co. of Am. v. Est. of Corrado, 838 N.W.2d 640, 644 (Iowa 2013). Our supreme
court has provided the following elements of ratification: “(1) the existence of a
principal”; “(2) an act done as agent”; “(3) principal’s knowledge of material facts”;
and “(4) intent of the principal to ratify the agent's act which can be either express
or implied.” Abodeely v. Cavras, 221 N.W.2d 494, 502 (Iowa 1974) (citing
Restatement (Second) of Agency §§ 85, 87, 91, 93(1), 94)). Another factor “is the
acceptance of the benefits of an agent’s unauthorized act.” Id. S3 failed to prove
these factors. As explained above, the record does not support finding HGR and
Raufeisen had a principal-agent relationship or even that Raufeisen purported or
assumed he was HGR’s agent. There is no evidence HGR knew the full extent of
Raufeisen’s actions. See id. (“To ratify the principal must have full knowledge of
the facts.”). There is no evidence HGR intended to ratify Raufeisen’s actions. See
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id. (“Intent is a necessary element of ratification.”). Nor is there any evidence HGR
benefited from the consulting contract. See id.; see also Corrado, 838 N.W.2d at
647 (“A person should not be able to accept the benefits of a contract even if the
signer’s acts are unauthorized, but deny his or her obligations under the contract
because the signer’s acts are unauthorized.”). There is thus no evidence HGR
ratified the consulting contract.
With no evidence to support finding Raufeisen was HGR’s agent or that
HGR ratified the consulting contract, there is no genuine issue that HGR was not
bound to the contract. Thus, S3’s breach-of-contract claim fails. Similarly, S3’s
fraudulent-misrepresentation claim is based on allegations HGR committed fraud
“due to its knowledge of Raufeisen’s activities as agent of HGR and based on its
ratification of the” consulting contract. Again, no evidence supports finding
Raufeisen was an agent of HGR or that HGR ratified the contract, so the
fraudulent-misrepresentation claim also fails. The court thus did not err in granting
summary judgment for HGR on the breach-of-contract and fraudulent-
misrepresentation claims.
Finally, S3 argues the grant of summary judgment “was premature due to
the ongoing development of new evidence in discovery.” The nature of this
claimed error is unclear. S3 moved to continue the summary judgment hearing,
and the district court denied this motion about four days before the hearing.
However, the order denying the motion stated that the court “will consider any
arguments regarding continuing a decision on summary judgment at the . . .
hearing.” Presumably, this statement in the order was an acknowledgment that
the court would consider postponing a ruling to give S3 more time pursuant to Iowa
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Rule of Civil Procedure 1.981(6). Despite the court’s invitation, S3 did not renew
its motion to continue to the district court, nor did the court rule on S3’s contention
that ongoing discovery is a basis to deny summary judgment. S3 did not file a
motion under Iowa Rule of Civil Procedure 1.904(2) asking the court to rule on this
contention. Further, S3’s reply brief expressly states “S3 does not appeal the
denial of” its motion to continue. On the issue S3 raises, S3 does not specify what
discovery it seeks other than “meaningful discovery responses and depositions of
[HGR’s] officers and shareholders.” Based on these circumstances, any argument
that summary judgment was premature is not preserved for our review. 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.”).
IV. Conclusion
Because there is no evidence in the record to support finding Raufeisen
was an agent of HGR or that HGR ratified the consulting contract, we find no error
in granting summary judgment for HGR. Any argument summary judgment was
premature is not preserved for our review.
AFFIRMED.