Iowa Court of Appeals Affirms Contract Verdict Against Residential Home Builder, but Reverses Consumer-Fraud Verdict
In Becirovic v. Malic, 2024 WL 4759228 (Iowa Ct. App. Nov. 13, 2024), the Iowa Court of Appeals affirmed a verdict against a residential home builder for breach of contract, but it reversed the consumer-fraud verdict against the builder. Senahid and Hajreta Becirovic owned a residential lot in Urbandale and hired JB Custom Homes to build a house on it. JB Custom Homes was owned by Senahid’s brother and sister-in-law Nedzad and Aisa Malic. Shortly after JB Custom Homes completed the driveway, walkway, front porch, and decorative porch in the backyard, the Becirovics noticed cracks, unlevelness, sloping allowing water to enter the house, and other issues with the work. JB Custom Homes replaced the front porch steps and walkway, but did not repair the remaining work. The Becirovics hired Midwest Foundation Repair to perform a “temporary repair” to the concrete to address the water infiltration issue, and obtained an estimate of $30,000.00 for a final repair to remove and replace the remaining work.
The Becirovics filed a lawsuit against JB Custom Homes’ owners, the Malics, and asserted contract claims, as well as a claim under Iowa’s Private Right of Action for Consumer Frauds Act at Iowa Code Section 714H.5. The case was tried to a judge only, who entered a verdict in favor of the Becirovics. On the contract claims, the district court found the Malics breached the contract and awarded them $30,000.00, which was the cost to repair the damage caused by the Malics’ breach of contract. On the claim under the Act, the district court found that the Malics engaged in a “prohibited practice” because they “‘were not properly registered construction contractors under Iowa Code chapter 91C at the time the work was performed on [the Becirovics’] property,’” and “by ‘[m]isrepresenting that they were operating a legitimate business entity with work to be completed with competence of legitimate business in the field.’” The district court also found that this “prohibited practice” caused the Becirovics an “ascertainable loss,” namely the “damages to fix and repair the defective driveway and decorative patio constructed by [the Malics].” As a result, the district court “awarded attorney fees in the amount of $22,559.50 and costs in the amount of $405.00, to be paid by the Malics.”
On appeal, the Iowa Court of Appeals affirmed the breach-of-contract verdict and judgment for $30,000.00. But it reversed the attorney-fees-and-costs verdict under Iowa’s Private Right of Action for Consumer Frauds Act. Although the Malics did “not challenge the court's determination they engaged in a prohibited practice or act under section 714H.3 by failing to be licensed,” the Court concluded that this “prohibited practice” did not cause an “ascertainable loss” under the Act. The Court noted that Senahid testified that “‘he would not have hired [the Malics] had he been aware of the true facts,’ i.e., that the Malics were not properly registered or licensed,” but the Court noted that “[a]side from this testimony, the Becirovics presented no other evidence to support their claim for damages under section 714H.5.” It explained, “We further note the Becirovics conceded no one was injured on the property because of the alleged deficiencies and the relevant portions of the project were in compliance with City code. Under this record, substantial evidence does not support the district court's finding the Becirovics ‘suffer[ed] an ascertainable loss of money or property as the result of’ the Malics’ licensure status. Becirovic agreed had he known the Malics weren't licensed, he ‘would have hired someone else.’ Quite simply, because the Becirovics would have spent the same amount (or potentially more) to pay a licensed concrete contractor to complete the same work they paid the Malics for, the Becirovics have not shown they sustained an ascertainable loss as a result of the prohibited practice or act. See Poller v. Okoboji Classic Cars, LLC, 960 N.W.2d 496, 523 (Iowa 2021) (observing the plaintiffs failed to prove an ascertainable loss where ‘there is no showing that they would have paid less than this amount had [the defendant] complied with all of the provisions of the [Motor Vehicle Service Trade Practices Act,] MVSTPA’); McKee v. Isle of Capri Casinos, Inc., 864 N.W.2d 518, 533 (Iowa 2015) (‘McKee made money on her gambling that evening, so she had no out-of-pocket loss.’). Accordingly, the Becirovics may not recover ‘actual damages’ under section 715H.5. See Iowa Code § 715H.2(1) (limiting recovery of actual damages to consumers who suffer an ascertainable loss as the result of the prohibited practice or act).” Because the Becirovics could not be awarded “actual damages” under the Act, they were not entitled to an award of attorney fees and costs under the Act either.
This case confirms that residential construction projects can fall within the scope of Iowa’s Private Right of Action for Consumer Frauds Act, and that residential contractors can be liable under the Act for failing to be properly licensed. However, this case makes clear that there must be a causal link between the licensure failure (or any other “prohibited practice” under the Act) and an “ascertainable loss” to trigger recovery under the Act. Here, the Court found the “ascertainable loss”, the defective work that would cost $30,000.00 to remedy, was caused by poor workmanship and a breach of contract, not by the licensure failure, and that the Becirovics would have spent as much, if not more, for the same work if they had hired a properly licensed contractor. An example of a causal link between a licensure failure and an “ascertainable loss” could be the loss of tax credits or other governmental benefits for a construction project where receipt of the credits or benefits requires the work to be done by a properly licensed contractor. If a contractor engages in a licensing-related “prohibited practice” like the Malics did in this case, and it results in the homeowner losing the credits and other government benefits because of the licensing failure, then it seems that would be a sufficient causal link between the “prohibited practice” and “ascertainable loss” to trigger recovery under the Act.
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