Iowa Supreme Court Reverses Consumer-Fraud Verdict Against Residential Home Builder
In Bradshaw Renovations, LLC v. Graham, 20 N.W.3d 479 (Iowa 2025), the Iowa Supreme Court reversed a consumer-fraud verdict against a home builder, and concluded that the “contractor may be guilty of sloppy billing practices, but the evidence presented at trial fails to demonstrate that he improperly billed the homeowners with the intent that they would rely on it to do business with him.” Barry and Jacklynn Graham contracted with Bradshaw Renovations, LLC, to renovate their Urbandale home. Work began in 2019 and continued into 2020. In May 2020, Bradshaw emailed the Grahams a “[f]inal bill” of $18,779.15, bringing the total project bill to $158,252.03. The Grahams responded that the invoice was “exceptionally higher than what we talked about,” and that they were concerned that “Bradshaw had billed almost $20,000 more than its last estimate even though the Grahams purchased their own flooring.” The Grahams also wanted “to understand and see how this is possible as we didn't do anything in excess with regards to our estimates.” The parties each hired attorneys, and Bradshaw filed a lawsuit “seeking payment from the Grahams for the final invoice under claims of breach of contract, unjust enrichment, and quantum meruit. The Grahams counterclaimed breach of contract and consumer fraud.” After a four-day jury trial, the jury returned a verdict “in favor of the Grahams and found that Bradshaw failed to prove its breach of contract claim. It awarded the Grahams $16,000 in damages for their breach of contract claim and $40,000 in damages for their consumer fraud claim—$10,000 in actual damages and $30,000 in statutory damages.” The district court later awarded the Grahams attorney fees. On appeal, the Iowa Court of Appeals affirmed the district court and “remanded the case to the district court to determine the Grahams’ compensation for appellate attorney fees.” Bradshaw Renovations, LLC v. Graham, 2024 WL 4368669 (Iowa Ct. App. Oct. 2, 2024). The Supreme Court granted Bradshaw’s application for further review.
The Supreme Court concluded that the district court should have vacated the jury’s verdict “because there was not substantial evidence that Bradshaw engaged in a prohibited practice under Iowa's consumer fraud statute.” The statute is at Iowa Code Chapter 714H and is Iowa’s Private Right of Action for Consumer Frauds Act. Under the Act, “‘[a] consumer who suffers an ascertainable loss of money or property as the result of a prohibited practice or act in violation of this chapter may bring an action at law to recover actual damages,’” and the Act further states that “‘[a] person shall not engage in a practice or act the person knows or reasonably should know is an unfair practice, deception, fraud, false pretense, or false promise, or the misrepresentation, concealment, suppression, or omission of a material fact, with the intent that others rely upon’ these practices or actions ‘in connection with the advertisement, sale, or lease of consumer merchandise, or the solicitation of contributions for charitable purposes.’” The Grahams argued that “Bradshaw engaged in deceptive billing practices that resulted in actual damage to the Grahams. Specifically, the Grahams asserted: ‘(1) Bradshaw represented its 486 hourly labor rate was $45, but billed labor at a higher rate; (2) Bradshaw represented that it would make no upcharges on labor and materials yet added a profit; and (3) various items that appeared on receipts were improperly billed to Graham.’” The Supreme Court concluded that there was not substantial evidence supporting those claims.
The Court concluded that “the evidence the Grahams presented on this issue only shows that Bradshaw's post hoc justification for requesting more than the costs specified in the contract was suspect. But this does not amount to a prohibited practice under the consumer fraud statute because Bradshaw never misrepresented its labor rate to the Grahams with the intent that they would rely on this misrepresentation to enter the contract in 2019.” The Court also explained that “there was not substantial evidence that Bradshaw engaged in a prohibited practice by improperly billing the Grahams for materials not used on their project. This improper billing argument, too, is based on receipts that Bradshaw provided the Grahams when their dispute over the final invoice began. And these receipts were not limited to items bought only for the Grahams’ project, as the undisputed testimony at trial was that Bradshaw had multiple projects going at once and would purchase materials for these projects together. On cross-examination of Jacklynn, Bradshaw's counsel went item-by-item with her to confirm that the Grahams were not invoiced for any of these additional items that were not used on the Grahams’ project.” The Court summarized that “the Grahams failed to demonstrate that Bradshaw committed consumer fraud by improperly billing them for materials that it did not use on their project. Further, any alleged misrepresentation of the rate for labor or materials revealed after the work was performed is not a ‘prohibited practice’ that caused an ascertainable loss under the consumer fraud statute.” Therefore, the Court reversed the judgment for treble damages and attorney fees under the Act, but it did affirm the jury’s $16,000 verdict in favor of the Grahams and against Bradshaw for breach of contract.
The Supreme Court’s decision substantially narrows the applicability of Iowa’s consumer fraud statute to residential construction projects. Specifically, to qualify as a “prohibited practice” under the Act, the contractor’s alleged wrongful conduct must be done with “the intent that [the homeowners] would rely on it to do business with [the contractor].” For example, during contract negotiations, if a contractor misrepresents to homeowners the hourly rate it will charge in order to induce the homeowners to hire it, that could qualify as a “prohibited practice” under the Act. But if the misrepresentation occurs after the project is completed, it would not qualify as a “prohibited practice.” The Court explained this when it stated that “the evidence that the Grahams presented on this issue only shows that Bradshaw's post hoc justification for requesting more than the costs specified in the contract was suspect. But this does not amount to a prohibited practice under the consumer fraud statute because Bradshaw never misrepresented its labor rate to the Grahams with the intent that they would rely on this misrepresentation to enter the contract in 2019.” (emphasis added). The Court’s ruling is a good one for contractors because it severely limits when the Act can be successfully used by homeowners against contractors in residential construction disputes.
for more information
Contact attorney Steve Marso at 515-288-6041.