               IN THE SUPREME COURT OF IOWA

                                No. 06–0877

                         Filed October 30, 2009


JOSEPH SPREITZER,

      Appellee,

vs.

HAWKEYE STATE BANK,

      Appellant.


      On review from the Iowa Court of Appeals.



      Appeal from the Iowa District Court for Johnson County,

Amanda P. Potterfield, Judge.



      Further review of a decision by the court of appeals reversing

district court judgment on a jury verdict for a claim of fraudulent

misrepresentation and affirming the decision of the district court to

refuse to submit punitive damages. DECISION OF COURT OF APPEALS

VACATED; JUDGMENT OF DISTRICT COURT REVERSED AND CASE

REMANDED FOR NEW TRIAL.



      Patrick M. Roby and Robert M. Hogg of Elderkin & Pirnie, P.L.C.,

Cedar Rapids, for appellant.



      Kevin J. Caster, Mark L. Zaiger, and Sarah Jane Gayer of

Shuttleworth & Ingersoll, P.L.C., Cedar Rapids, for appellee.
                                       2

CADY, Justice.

      In this appeal and cross-appeal, we consider whether there was

sufficient   evidence   to   support       a   jury   verdict   for   fraudulent

misrepresentation and whether a claim for punitive damages should have

been submitted to the jury.      In doing so, we primarily examine the

justifiable-reliance element of the tort and the requirement that the

misrepresentation cause the damage claimed. The district court entered

judgment for fraud based on a jury verdict, but refused to submit a claim

for punitive damages. The court of appeals held there was insufficient

evidence to support the verdict for fraud. Upon our review, we vacate the

decision of the court of appeals.      We conclude there was insufficient

evidence to support the amount of compensatory damages and that

punitive damages should have been submitted to the jury. We reverse

the judgment of the district court and remand for a new trial on the issue

of compensatory and punitive damages.

      I. Background Facts and Proceedings.

      Joseph Spreitzer is a successful businessman from Cedar Rapids.

He has a degree in mechanical engineering and owns several businesses,

including a family business that sells heavy equipment used in mining,

quarrying, and road building.     During his career, he has invested in

several business enterprises.

      In 1998, Spreitzer learned through a business partner that a

company called RJ Manufacturing was looking for investors.              RJ was

located in Lisbon, Iowa, and manufactured agricultural sprayers.            The

company had been in operation since 1993 and needed to raise capital,

primarily to pay a host of warranty claims against the company involving

manufacturing defects in the sprayers.
                                         3

      Spreitzer pursued the investment opportunity by first talking to

Byron Ross and Richard Rank.         Ross was the managing partner of a

large accounting firm and was an investor and director of RJ, as well as

the company treasurer. Spreitzer had known Ross for nearly thirty years

and had been involved with him in other business opportunities in the

past. He considered Ross a friend and advisor. Rank was the president

of RJ. Some directors wanted to resign from the board after RJ started

to receive the warranty claims, and Rank was considering new investors

to replace them, including Spreitzer.

      Spreitzer talked to several other financial advisors about the

investment opportunity in RJ, including an accountant, bankers, and

lawyers.   He had access to all company records, including financial

statements and business plans. He knew RJ was facing the potential for

substantial warranty expenses and was aware the company planned to

buy out at least one of its investors.

      The financial records of RJ also revealed the company had

obtained a series of loans from Hawkeye State Bank located in Iowa City.

The bank was owned by Russell Gerdin. The president of the bank was

Ray Glass. Glass and Ross were friends, and Glass was the individual in

the bank who was in charge of the RJ loans. The loans began in 1994

and included a loan to RJ for $1,000,000 in 1997, in addition to two

separate loans for $300,000 made within the following nine months.

      After completing his investigation, Spreitzer decided to invest in

RJ.   He invested $200,000 on September 15, 1998, and $200,000 on

October 5, 1998.

      On November 1, 1998, Spreitzer also signed a personal guaranty

together with Ross and Rank. Under the terms of the guaranty, the three
                                           4

men promised to be personally liable for the company debt to Hawkeye

State Bank up to $1.5 million.

        Ross had executed a prior personal guaranty of the company debt

to Hawkeye State Bank. He asked the bank to release him from his prior

guaranty a few weeks before the personal guaranty was executed on

November 1, 1998, but the bank refused. Spreitzer was unaware of the

request.

        Spreitzer continued to put money into the company from time to

time, in various amounts, to help RJ meet its obligations.                    In one

instance, he gave Rank $12,000 so RJ could meet its payroll obligation.

By December 1999, Spreitzer had infused a total of $740,000 into RJ.

        Spreitzer became increasingly concerned about the financial

viability of RJ.      From October 1998 to September 1999, RJ had

accumulated $1.8 million in warranty obligations. Spreitzer personally

hired an accountant to review the overall operation of the company in

hopes of finding a way to allow it to become profitable. He also hired a

management firm.        The management firm issued a report in January

2000.      The report described the administration of the company as

“dysfunctional.”     It concluded “RJ Manufacturing is terminally ill and

without financial restructuring or sale” the company would “eventually

be forced to cease operations.”            The report presented RJ with two

options: sale of the company or bankruptcy.

        Spreitzer   favored    bankruptcy,     while    Ross   wanted    to    avoid

bankruptcy.         Glass,    the   bank   president,   also   wanted    to    avoid

bankruptcy, in part to avoid any scrutiny of the bank by government

banking regulators. 1

        1During
              this time, Glass was engaged in an ongoing embezzlement scheme of
bank assets. In 2004, Glass was convicted and sentenced to imprisonment for
embezzlement and misappropriation of bank funds, as well as engaging in transactions
                                           5

        Ross proposed that Spreitzer purchase the assets of RJ and start a

new company as an alternative to bankruptcy. Spreitzer, with the advice

of accountants and attorneys, eventually agreed to form a new company

to take over the RJ assets.                This company was called Walker

Manufacturing, and Spreitzer was its sole shareholder and president.

        Walker Manufacturing purchased the RJ assets by obtaining a

$1.5 million loan from Hawkeye State Bank to pay off the RJ loan to the

bank and purchase the RJ assets. This note was due and payable in

March 2001.       Additionally, Spreitzer and Ross signed a new personal

guaranty of the $1.5 million loan to Walker Manufacturing from Hawkeye

State    Bank.      Ross    agreed    to   personally     guarantee     the   Walker

Manufacturing loan as part of Spreitzer’s agreement to purchase RJ.

        The circumstances surrounding the execution of the personal

guaranty form the essence of the claim that gives rise to this litigation.

Spreitzer was unwilling to proceed with the purchase if Ross would not

join him in signing the personal guaranty of the loan by the bank to the

new company. In fact, Spreitzer originally wanted Ross to enter into an

indemnification agreement concerning their personal responsibility to the

bank for the company’s debt.           Ross rejected such an agreement, but

agreed to cosign the personal guaranty.

        The guaranty was signed at the bank on May 10, 2000, in the

presence of Glass, Spreitzer, and Ross.                It included the following

provisions:

              1. The guaranty was “an absolute unconditional and
        continuing guaranty.”
             2. The bank “shall not be required to first resort for
        payment of the indebtedness to borrower or other persons or

involving criminally derived property. These crimes were unrelated to the core facts of
this case.
                                    6
      their properties, or first to enforce, realize upon or exhaust
      any collateral security for indebtedness, before enforcing this
      guaranty.”
             3. The guaranty was “enforceable against either, any
      or all the undersigned.”
            4. The guaranty could “not be waived, modified,
      amended, terminated, released or otherwise changed, except
      by a writing signed by the undersigned and a lender.”

      Notwithstanding these provisions, Spreitzer signed the personal

guaranty with an understanding he would only be personally responsible

for $750,000 of the bank loan to Walker Manufacturing and that the
bank would equally pursue both coguarantors in the event of a default.

This understanding was derived from a statement made by Glass in

response to a request for clarification made by Spreitzer at the time the

guaranty was executed.     Spreitzer testified Glass specifically said the

bank would collect the personal guaranty “equally” if the new business

defaulted on the loan. Glass did not further explain his response, and

Spreitzer did not seek a further explanation. Nevertheless, Glass knew at

the time that Ross had structured his personal assets to limit his

personal exposure to less than $100,000, and Glass knew Spreitzer was

relying on the bank to enforce the personal guaranty against Ross.

Spreitzer assumed Ross had the means to satisfy his portion of the

obligation and further assumed the two men would each pay one-half of

the Walker Manufacturing debt in the event the company failed.

Spreitzer maintained he would not have agreed to purchase the business

if he had known Ross restructured his assets and did not intend to pay

his portion of the debt in the event the bank enforced the personal

guaranty.

      Walker Manufacturing was plagued by financial problems. It also

became involved in litigation with a competitor, forcing it to incur

substantial legal fees. Other problems hampered the company, including
                                          7

sale and distribution difficulties. These problems required Spreitzer to

infuse money into the company. Between the time Spreitzer purchased

the RJ assets in May 2000 and March 2001, he put money into the

company nearly every month.

      When the Hawkeye State Bank note came due in March 2001,

Walker Manufacturing was unable to meet its obligation to pay the note.

On March 6, 2001, the bank informed Spreitzer it expected the loan to be

paid by March 31 and further informed him that he and Ross were

“jointly and individually, 100% liable for the debt.”

      In response to the notice by the bank, Ross claimed to be judgment

proof. Spreitzer, however, agreed to pay the bank $750,000 under two

conditions. The first condition was that the bank would release him from

further liability under the personal guaranty. The second condition was

that the bank would assign its rights under the personal guaranty to

allow him to pursue Ross.

      After the bank rejected the second condition, Spreitzer agreed to

drop the request for an assignment and to pay the bank $750,000 in

exchange for a release from the personal guaranty. Spreitzer also wanted

the bank to allow him the opportunity to purchase the Walker

Manufacturing note and assign its security interest and personal

guaranty to him in the event he was able to find a buyer for the Walker

Manufacturing assets.        A settlement was eventually reached, and

Spreitzer paid the bank $750,000. Spreitzer was at all times assisted by

legal counsel.

      In October 2001, the bank informed Spreitzer that Ross had

refused   to     pay   his   obligation       under   the   personal   guaranty.

Consequently, the bank informed Spreitzer it planned to collect the

remaining debt from Walker Manufacturing by selling its assets. Walker
                                         8

Manufacturing eventually surrendered its assets to the bank, except for

the lawsuit against the competitor. 2        Spreitzer had invested a total of

$663,000 in Walker Manufacturing prior to the sale of its assets. The

bank sold the company assets for $850,000. 3              Ultimately, Ross paid

nothing on the personal guaranty.

       Spreitzer filed an action against Ross, Glass, and Hawkeye State

Bank based on fraud, misrepresentation, and breach of fiduciary duty.

The fraud claim ultimately centered on the statement by Glass that the

bank would enforce the personal guaranty “equally.” Spreitzer claimed

this promise was the reason he agreed to form Walker Manufacturing

and the reason he invested new money of $663,000 before the bank sold

its assets.

       Some of the claims were dismissed prior to trial, and the case was

eventually tried to a jury. The jury rendered a verdict against Ross for

$175,000 for fraudulent misrepresentation and nondisclosure. The jury

also returned a verdict against Glass for $838,000 for fraudulent

misrepresentation.      Additionally, the jury determined Hawkeye State

Bank was vicariously liable for the actions of Glass. The district court

refused to submit Spreitzer’s claims for punitive damages to the jury.

       Hawkeye State Bank filed an appeal, and Spreitzer cross-appealed.

The bank claims the judgment against it must be reversed for four

reasons. First, the bank claims there was insufficient evidence of fraud

because the evidence produced at trial failed to establish that the pivotal

       2Spreitzer subsequently settled the lawsuit for $500,000 and received a net
payment of $319,000. There was evidence in the record of a second lawsuit in which
Spreitzer recovered a settlement payment. The impact of this lawsuit was not used by
the bank in resolving the issues raised on appeal.
       3Glass  embezzled this sum of money from the bank as part of the ongoing
money-laundering and embezzlement scheme he had engaged in for many years while
president of the bank.
                                     9

oral statement by Glass was false (the bank did not, in fact, enforce the

personal guaranty against Spreitzer in excess of $750,000) or that it was

false at the time it was made.      Second, the bank claims there was

insufficient evidence that Spreitzer acted reasonably in relying on the

pivotal oral statement made by Glass since it was contrary to the

language of the written personal guaranty. Third, the bank claims there

was insufficient evidence to support damages since the claimed

misrepresentation actually reduced Spreitzer’s personal liability from

$1.5 million to $750,000. Finally, the bank claims there was insufficient

evidence to support damages of $838,000 because Spreitzer only claimed

the fraudulent misrepresentation caused him to invest an additional

$663,000 in the company.        Furthermore, the bank points out that

Spreitzer netted $319,000 in settling the Walker Manufacturing lawsuit

against its competitor.

      On cross-appeal, Spreitzer claims the district court erred in

refusing to submit its claim for punitive damages to the jury. He also

claims the appeal by the bank is moot because the bank failed to appeal

from the finding by the jury that it was vicariously liable for the conduct

of Glass, and Glass has not appealed from the judgment for fraud

entered against him.      Thus, Spreitzer claims the bank is vicariously

liable for the final judgment against Glass for fraud.

      We transferred the case to the court of appeals.       The court of

appeals reversed the judgment entered by the district court against the

bank and affirmed the decision by the district court to refuse to submit

the claim for punitive damages to the jury. It found insufficient evidence

that Spreitzer reasonably relied on the oral promise by Glass to support

fraud since the oral promise was contrary to the written guaranty.       It
                                    10

remanded the case for entry of judgment for the bank. Spreitzer sought,

and we granted, further review.

        II. Standard of Review.

        We review a district court judgment on a ruling for judgment

notwithstanding the verdict for corrections of errors at law. Gibson v. ITT

Hartford Ins. Co., 621 N.W.2d 388, 391 (Iowa 2001).          We examine

whether substantial evidence supports each element of the claim.        Id.

The evidence is viewed in a light most favorable to the nonmoving party.

Id. “ ‘Evidence is substantial if a jury could reasonably infer a fact from

the evidence.’ ” Id. (quoting Balmer v. Hawkeye Steel, 604 N.W.2d 639,

641 (Iowa 2000)).

        III. Fraudulent Misrepresentation.

        A. Res Judicata. Spreitzer initially claims the bank is precluded

from arguing insufficient evidence to support a finding of fraud by the

jury.    Essentially, Spreitzer claims the unappealed judgment entered

against Glass, the bank president, serves as a final adjudication of the

claim. He claims this judgment is now binding on the bank under the

doctrine of res judicata because the bank did not challenge its vicarious

responsibility for the actions of its president in this appeal.   Spreitzer

principally relies on Peppmeier v. Murphy, 708 N.W.2d 57 (Iowa 2005).

        In Peppmeier, a patient sued her doctor for medical malpractice

and the doctor’s employer under a theory of vicarious liability.       708

N.W.2d at 59. The district court held the plaintiff failed to establish an

applicable standard of care because she had not designated an expert

witness for that purpose, and the district court granted summary

judgment for both defendants. Id. at 61. We transferred the appeal to

the court of appeals, and it held the plaintiff could establish the

applicable standard of care through the hearsay testimony offered by the
                                     11

patient of another employee of the doctor’s employer. Id. Accordingly,

the court of appeals reversed the summary judgment against the

employer and affirmed the summary judgment in favor of the agent-

doctor because the hearsay testimony was not admissible against him.

Id. The employer sought further review of the decision by the court of

appeals, but the plaintiff did not seek further review of the summary

judgment in favor of the agent. Id. On further review, we held the final

judgment in favor of the agent and against the plaintiff barred the

plaintiff’s subsequent request for further review from a judgment in favor

of the principal. Id. Spreitzer asserts this principle is not only applicable

to judgments against an injured person, but is also applicable to

judgments in favor of the injured person.

      Judgments for or against an injured party involving claims against

persons who have a relationship that makes one vicariously responsible

for the conduct of the other may be conclusive against the injured

person, the primary obligor, and the vicariously responsible person. See

Restatement (Second) of Judgments § 51 (1982).          However, when the

primary obligor and the vicariously responsible person are tried together

in one action and only the vicariously responsible defendant appeals

from an adverse judgment, it could be unjust to apply the doctrine of

res judicata as a bar to such an appeal. In Peppmeier, the plaintiff could

have sought further review of the judgment, which we later held to bar

her claim. 708 N.W.2d at 62. In this case, Spreitzer argues we should

bar the bank from seeking further review based on the failure of the

agent to appeal.      Thus, Spreitzer argues for the offensive use of

res judicata to bar defense by a party who did not have the opportunity

to appeal the final judgment being used to bar its defense. Notably, the

judgment being used to bar the bank’s defense was obtained against a
                                       12

party who was not represented by legal counsel at trial or an appeal.

Under the circumstances of this case, it would be unfair to allow the

doctrine of res judicata to bar an appeal from a judgment by the

vicariously responsible party.

        B. Sufficiency of Evidence.         We recognize eight elements to a

claim for fraudulent misrepresentation.         Gibson, 621 N.W.2d at 400.

These elements are:

        (1) [the] defendant made a representation to the plaintiff, (2)
        the representation was false, (3) the representation was
        material, (4) the defendant knew the representation was
        false, (5) the defendant intended to deceive the plaintiff, (6)
        the plaintiff acted in [justifiable] reliance on the truth of the
        representation . . ., (7) the representation was a proximate
        cause of [the] plaintiff’s damages, and (8) the amount of
        damages.

Id.   The bank claims the elements of false representation, justifiable

reliance, and damages were not supported by sufficient evidence at trial.

We turn to the sufficiency of evidence to support the jury’s verdict on

those elements.

        1. False representation. The bank argues the oral promise by its

president to “equally” enforce the personal guaranty was not false at the

time it was made. It also claims the promise was not false because the
bank did in fact limit Spreitzer’s personal liability under the personal

guaranty to $750,000, or one-half of the amount of the debt owed to the

bank.

        Under the law, a representation must be false at the time it was

made to support a claim of fraud, and a representation that was true

cannot serve as a basis for a claim of fraud.        Hannoon v. Fawn Eng’g

Corp., 324 F.3d 1041, 1048 (8th Cir. 2003).            Thus, the arguments

asserted by the bank require us to examine the representation made by
                                    13

the bank president at the heart of this case. We first consider if there

was substantial evidence that the representation was false.

      The representation made by the bank president to equally enforce

the personal guaranty gave rise to two interpretations.        The bank

interpreted the representation as a promise to limit the liability of each

guarantor to one-half of the total debt.        Spreitzer interpreted the

representation as a promise by the bank to pursue both guarantors for

payment of the debt up to one-half of the total amount in the event of a

default.   The distinction between the two interpretations is critical, as

revealed by the arguments of the parties.

      The bank argues the representation was not false under its

interpretation because the bank did in fact limit Spreitzer’s liability

under the personal guaranty to $750,000.           Spreitzer argues the

representation was fraudulent under his interpretation because the bank

never pursued Ross.      He points to evidence that the bank exclusively

looked to him for payment under the personal guaranty and never

intended to pursue Ross or hold Ross responsible for the debt under the

personal guaranty.

      An ambiguous representation does not necessarily preclude a

claim for fraud.   Under the Restatement (Second) of Torts section 527

(1977), a representation known by the maker “to be capable of two

interpretations, one of which he knows to be false and the other true”

can serve as a basis for fraud if, among other circumstances, the

representation is made “with the intention that it be understood in the

sense in which it is false.”

      In this case, the proposal for Spreitzer to buy the assets of the

manufacturing company required him to execute a new agreement with

the bank to be personally responsible for the company’s $1.5 million loan
                                    14

to the bank. Yet, Spreitzer was unwilling to make the purchase without

the help of Ross to share in the personal responsibility for the company

debt in the event of a default. Spreitzer initially sought to enter into an

indemnification agreement with Ross that would ensure the two men

shared the company’s debt burden in the event of a default by the

company. Ross rejected the agreement with Spreitzer, but agreed to join

Spreitzer in signing a personal guaranty and to promise the bank to pay

the new debt in the event of a default by the newly formed company.

Spreitzer wanted Ross to be responsible for paying one-half of the debt,

and the bank knew it.

      Under the terms of the personal guaranty, Spreitzer and Ross were

separately liable to the bank for the full amount of the debt.

Nevertheless, the bank president orally represented to Spreitzer that the

bank would enforce the personal guaranty equally between the two

guarantors if the company defaulted on the debt. There is substantial

evidence that Spreitzer understood this representation to mean the bank

would seek payment from both guarantors to satisfy the debt.

      Under the circumstances, the representation at issue was capable

of two interpretations, and the evidence supported a finding that the

bank president intended the representation to be understood as meaning

the bank would use its resources to pursue payment of the debt by both

guarantors in the event of a default. There was evidence the president of

the bank knew Spreitzer would not go through with the asset purchase if

Ross was not included in the personal guaranty.           There was also

evidence to infer the president knew Spreitzer was relying on Ross to

help pay the new company’s debt in the event of a default and that the

president knew Spreitzer was relying on the bank to enforce the personal

guaranty against Ross. Yet, the president knew Ross had restructured
                                       15

his personal finances to severely limit the amount of assets available to

creditors. With this evidence, a jury could conclude the bank president

made the representation to Spreitzer so that Spreitzer would believe the

bank would equally pursue both guarantors in the event of a default.

Moreover, a jury could conclude the representation was false when made

in light of the evidence that the bank knew at the time of the

representation that Ross had restructured his assets so the bank would

be unable to collect from him under the personal guaranty. There was

also sufficient evidence for the jury to conclude the bank did not comply

with the promise to equally pursue Ross. Thus, we conclude there was

sufficient evidence in the record to support the false-representation

element of the tort.

      2. Justifiable reliance. The bank claims Spreitzer could not have

justifiably relied on the oral representation by the bank president to

equally enforce the personal guaranty because the representation was

contrary to the terms of the written guaranty and Spreitzer was a

sophisticated investor who acted upon the advice of lawyers and

accountants. Spreitzer asserts there was sufficient evidence to support

the finding of justifiable reliance.

      Justifiable reliance is an essential element of a claim for fraud. In

re Marriage of Cutler, 588 N.W.2d 425, 430 (Iowa 1999).         Thus, the

plaintiff must not only act in reliance on the misrepresentation, but the

reliance must be justified. Gibson, 621 N.W.2d at 400.

      Like most jurisdictions, we require reliance on the representation

to be justified, not reasonable. Lockard v. Carson, 287 N.W.2d 871, 878

(Iowa 1980); see Field v. Mans, 516 U.S. 59, 72–74 & n.12, 116 S. Ct.

437, 444–46 & n.12, 133 L. Ed. 2d 351, 363–65 & n.12 (1995) (listing

states); Sutton v. Greiner, 177 Iowa 532, 536, 159 N.W. 268, 271–72
                                         16

(1916) (holding defendant’s reliance was “justified”).            While the terms

“justifiable”   and    “reasonable”     are   often   used     interchangeably   in

addressing      the   element   of    reliance,   they   can    describe   different

approaches.      See Field, 516 U.S. at 71–74, 116 S. Ct. at 444–46, 133

L. Ed. 2d at 362–65.        We simply clarify that the justified standard

followed in Iowa means the reliance does not necessarily need to conform

to the standard of a reasonably prudent person, but depends on the

qualities and characteristics of the particular plaintiff and the specific

surrounding circumstances.            Lockard, 287 N.W.2d at 878; accord

Restatement (Second) of Torts § 545A cmt. b. This standard reflects that

fraudulent misrepresentation is an intentional tort, and like other

intentional torts, recovery is not necessarily barred by the fault of the

plaintiff that contributed to the damage.          See Restatement (Second) of

Torts § 545A cmt. a.

      The justifiable-reliance standard does not mean a plaintiff can

blindly rely on a representation. Lockard, 287 N.W.2d at 878. Instead,

the standard requires plaintiffs to utilize their abilities to observe the

obvious, and the entire context of the transaction is considered to

determine if the justifiable-reliance element has been met.                Emergent

Capital Inv. Mgmt., LLC v. Stonepath Group, Inc., 343 F.3d 189, 195 (2d

Cir. 2003); see also Lockard, 287 N.W.2d at 878 (justifiable-reliance

element viewed in light of plaintiff’s own information and intelligence).

      The federal courts have outlined a host of relevant factors to

consider in federal securities fraud cases and rule 10b–5 violation cases

to determine if reliance by a plaintiff on a misrepresentation claim is

justified. See Davidson v. Wilson, 973 F.2d 1391, 1400 (8th Cir. 1992);

see also Zobrist v. Coal-X, Inc., 708 F.2d 1511, 1516 (10th Cir. 1983).

Our common-law fraud claim parallels the federal fraud claim, and these
                                           17

factors are helpful in determining the justifiable-reliance element of our

common-law fraud action. The relevant factors are:

       “(1) the sophistication and expertise of the plaintiff in
       financial . . . matters; (2) the existence of long-standing
       business or personal relationships; (3) access to the relevant
       information; (4) the existence of a fiduciary relationship; (5)
       concealment of the fraud; (6) the opportunity to detect the
       fraud; (7) whether the plaintiff initiated the . . . transaction
       or sought to expedite the transaction; and (8) the generality
       or specificity of the misrepresentations.”

Davidson, 973 F.2d at 1400 (quoting Zobrist, 708 F.2d at 1516).                       Our

own cases have previously identified some of these factors. See Lockard,

287 N.W.2d at 878.

       An additional factor has been identified in cases involving oral

representations.      This factor considers whether the oral representation

clearly contradicts a written agreement. See In re Access Cardiosys., Inc.,

404 B.R. 593, 649 (Bankr. D. Mass. 2009). 4 In such instances, reliance

on the oral representation by a plaintiff can be utterly unjustified in the

face of a clear written contradiction.            See Marram v. Kobrick Offshore

Fund, Ltd., 809 N.E.2d 1017, 1031 (Mass. 2004).                    An example of the

circumstances when reliance by a plaintiff on an oral representation that

       4Some   courts consider the contradiction between an oral representation and a
written agreement either as a separate factor to use in deciding if reliance is justifiable
or as a circumstance to consider in conjunction with the third factor involving plaintiff’s
access to relevant information. Compare, e.g., Kennedy v. Josephthal & Co., 814 F.2d
798, 805 (1st Cir. 1997) (considering oral misrepresentation at odds with a written
memorandum as part of the third factor); with In re Access Cardiosys., Inc., 404 B.R. at
649 (stating courts consider oral representations that contradict written material as an
additional factor). Other courts consider the parol evidence rule in addressing claims of
fraud based on oral misrepresentations that contradict written agreements, especially
integrated agreements. Nevertheless, almost all courts recognize the issue is primarily
one of whether the plaintiff is justified in relying on the promise. Consequently, most
courts inevitably recognize that the application of the parol evidence rule by a judge to
avoid altering the terms of a written agreement “is not necessarily equivalent to the
judge’s obligation to direct a verdict for a defendant on the basis that there could be no
reasonable reliance as a matter of law.” Gen. Corp. v. Gen. Motors Corp., 184 F. Supp.
231, 238–39 (D. Minn. 1960). In this case, the bank did not argue that the parol
evidence rule played a role in the resolution of this issue.
                                      18

is directly contrary to a written agreement is unjustified can be found in

Smidt v. Porter, 695 N.W.2d 9 (Iowa 2005). In Smidt, we determined that

a former employee could not establish a claim for fraud against a former

employer based on an oral promise of long-standing employment and

benefits allegedly made by the employer when the former employee had

unsuccessfully attempted to negotiate such terms as a part of a written

employment contract that did not include the disputed terms.              695

N.W.2d at 22–23. This approach is consistent with the established view

that the justifiable-reliance element means a plaintiff cannot close his or

her eyes to an obvious contradiction. Kennedy v. Josephthal & Co., 814

F.2d 798, 805 (1st Cir. 1987).

      The bank argues Spreitzer was not justified as a matter of law in

relying on the oral representation to pursue both guarantors equally.

Primarily, the bank relies on the inconsistency between the oral

representation and the terms of the guaranty that permitted the bank to

collect from a single guarantor, as well as the evidence presented during

trial that Spreitzer was a sophisticated investor who acted on the advice

of several professionals in making his decisions to purchase the RJ

assets and to sign the guaranty.

      We acknowledge many of the factors favor a finding in this case

that the reliance was unjustified.     Yet, no one factor is dispositive in

determining if reliance by a plaintiff is justified, and the scale is tipped in

one direction or the other only by a balance of all of the factors. See

Zobrist, 708 F.2d at 1516–17. We recognize the oral representation in

this case was somewhat vague and was inconsistent with the term of the

written guaranty that permitted the bank to pursue collection of the debt

against one guarantor. On the other hand, the parties to the transaction

were friends and engaged in a face-to-face exchange over the manner in
                                    19

which the guaranty would be enforced.        They did not resort to the

language of the written personal guaranty when discussing questions of

enforcement, and the bank president admitted he told Spreitzer the bank

would pursue both guarantors in the event of a default. Moreover, the

bank president was authorized to alter terms of the written agreement.

      This case did not rise to the level of the circumstances presented in

Smidt.   In this case, the parties did not negotiate the terms of the

personal guaranty, but signed a standard form agreement.        The bank

president did not rely on the terms of the written agreement to guide the

discussion prior to the execution of the agreement, but guided Spreitzer

by his oral representations.   Unlike Smidt, there was no evidence the

written guaranty was a product of the give and take of negotiations by

the parties so as to make it unjustified for a party to rely on an oral

representation covered by the negotiations that was clearly inconsistent

with the written agreement. See Robinson v. Perpetual Servs. Corp., 412

N.W.2d 562, 567 (Iowa 1987) (recognizing fine print, boilerplate written

contract terms may not reflect the intentions of the parties to the

contract).

      Normally, the decision whether or not reliance by a plaintiff is

justified is one for the fact finder to resolve.         See Holcomb v.

Hoffschneider, 297 N.W.2d 210, 213 (Iowa 1980); Christy v. Heil, 255

Iowa 602, 611, 123 N.W.2d 408, 413 (1963). After considering all the

circumstances, we conclude this case does not create an exception to

this general rule. This conclusion is not to say that integrated written

contracts cannot thwart a claim for fraud based upon an oral

representation clearly inconsistent with the contract. We only conclude

the finding of justifiable reliance made by the jury in this case was

supported by the evidence.
                                   20

      3. Damage caused by misrepresentation. An essential element of

fraud requires the plaintiff to show the fraud resulted in damage.

Sanford v. Meadow Gold Dairies, Inc., 534 N.W.2d 410, 413 (Iowa 1995).

Fraud without resulting injury is not actionable. Vorpahl v. S. Sur. Co.,

208 Iowa 348, 352, 223 N.W. 366, 368 (1929).

      Spreitzer sought damages in the form of his lost investment in the

business in the amount of $663,000 and the payment he made under

the personal guaranty of $750,000 after the company defaulted on its

loan obligations. He supported these claims primarily with his testimony

that he would not have agreed to buy the RJ assets, sign the personal

guaranty, and invest in a new company if he had known the bank would

not enforce the personal guaranty equally between the coguarantors.

      The bank provides two primary arguments in support of its

position that the damages Spreitzer claims were not caused by his

reliance.   First, the bank claims Spreitzer lost his investment of

$663,000 due to the continued financial decline of the business based on

factors unrelated to a promise to equally enforce the personal guaranty.

In the bank’s view, the business failed due to product design problems,

insufficient sales, and a lack of new investors. Second, the bank claims

the decision to agree to the personal guaranty—found by the jury to be

fraudulently induced—could not have caused any damage to Spreitzer

because it was merely a continuation of a prior obligation by Spreitzer to

be personally responsible for RJ’s debt, which was not alleged to have

been induced by fraud.

      The challenge by the bank to the damage award is tied to the

causation element of a claim for fraud. Often, damages and causation

are intertwined concepts.    See Midwest Home Distrib., Inc. v. Domco

Indus. Ltd., 585 N.W.2d 735, 739 (Iowa 1998). In this case, the bank’s
                                           21

first argument does not speak so much to the amount or measure of

damages as it does to the absence of evidence to show the specific

damages claimed by Spreitzer, and awarded by the jury, were caused by

the misrepresentation. 5

       As with other torts, it is generally recognized the causation element

of a fraud claim is composed of both factual and legal causation of the

loss. See W. Page Keeton, Prosser & Keeton on the Law of Torts § 110, at

767 (5th ed. 1984) [hereinafter Prosser & Keeton].                          Under the

Restatement, the fraudulent misrepresentation must not only be a

factual cause of the loss, but it must also be a legal cause. Restatement

(Second) of Torts §§ 546 (factual cause), 548A (legal cause). Each must

be satisfied.

       The factual causation component addresses the question whether

the representation, that is believed to be true but is actually fraudulent,

caused the losses in some way.              If the plaintiff did not rely on the

representation in entering into the transaction in which the losses were

suffered, the representation is not in fact a cause of the loss.

Restatement (Second) of Torts § 546 cmt. a.

       In this case, sufficient evidence was presented to support a finding

by the jury that the misrepresentation to equally enforce the personal

guaranty was a factual cause of the losses suffered by Spreitzer. Based

on the evidence, the jury could have found Spreitzer would not have


       5Spreitzer  impliedly suggested that the damage claims in the case involved out-
of-pocket damages. Generally, Iowa law recognizes two basic methods to measure
damages in fraud cases. Midwest Home Distrib., 585 N.W.2d at 739. The first measure
of damages provides compensation for the benefit of the bargain. Id. The second
measure of damages is the out-of-pocket rule. Id. However, these measures of
damages have primarily been developed in cases of fraud involving the transfer of
property. Yet, even when property is not transferred between the defendant and the
plaintiff, a defrauded plaintiff is entitled to recover those losses proximately caused by
reliance on the misrepresentation.
                                          22

suffered the losses he claims because he would not have invested in the

business and would not have signed the new personal guaranty that was

ultimately enforced against him if he had known the representation was

false.    In applying the “but for” test of factual causation, we conclude

there was sufficient evidence that the losses claimed would not have

occurred “but for” Spreitzer’s reliance on the false representation. See

Sweeney v. City of Bettendorf, 762 N.W.2d 873, 884 (Iowa 2009)

(explaining “cause in fact”).

         The legal causation component goes further to address the

question whether the losses that in fact resulted from the reliance were

connected to the misrepresentation in a way to which the law attaches

legal significance. Kelly v. Sinclair Oil Corp., 476 N.W.2d 341, 349 (Iowa

1991) (explaining second component of causation as “the question of

whether the policy of the law will extend responsibility to those

consequences which have in fact been produced by an actor’s conduct”);

see also Restatement (Second) of Torts § 548A cmt. a.

         Legal causation is a critical component of the causation element of

the tort of fraud. Without legal causation, the chain of losses resulting

from an investment would be virtually limitless. See Movitz v. First Nat’l

Bank of Chicago, 148 F.3d 760, 762 (7th Cir. 1998) (explaining

importance of requiring more than mere “but for” causation in assigning

legal responsibility for a plaintiff’s loss). 6        Contractual counterparties


         6Theseparate requirements of factual causation and legal causation have been
developed in federal security fraud cases wherein the concepts are known as
“transaction causation” and “loss causation.” Movitz, 148 F.3d at 763. “Transaction
causation” is met when the plaintiff shows the misrepresentation caused the plaintiff to
make the investment (i.e., where the plaintiff shows that, if the plaintiff had known the
truth, the plaintiff would not have made the investment). Bruschi v. Brown, 876 F.2d
1526, 1530 (11th Cir. 1989). “Loss causation” requires the plaintiff to additionally
show that the false representation touches upon and relates to the reasons for the
investment losses suffered. Id.
                                    23

would become virtual insurers against the risks inherent in business

investing.

       The modern trend is to refocus the analysis of legal causation from

the foreseeability of harm to a risk-based standard.      See Restatement

(Third) of Torts, Liability for Physical Harm § 29 cmt. j (Proposed Final

Draft No. 1 2005).      In negligence cases causing physical harm, tort

liability now focuses on whether the risk that produces liability actually

caused the damages suffered. Id. § 29. The scope of liability is limited to

harms that result from the risks that made the actor’s conduct tortious.

Id.   The shift in analysis has primarily occurred to clarify the often

confusing concept of legal causation, not to change the substantive scope

of liability.   Id. § 29 cmt. j (explaining analytical connection between

reasonable foreseeability and risk-based standards).

       We readily acknowledge legal causation for intentional torts often

reaches a broader range of damages for harm than legal causation

reaches in cases involving unintentional torts.      See id. § 33(b).   This

principle may also apply to intentional torts involving nonphysical harm,

including fraud actions involving lost investments. Nevertheless, “[t]he

cases are in accord that even a willful or intentional [tortfeasor] does not

become an insurer of the safety of those whom he has wronged.”

Johnson v. Greer, 477 F.2d 101, 106 (5th Cir. 1973). As with the scope

of liability for unintentional torts, “intentional and reckless tortfeasors

are not liable for harms whose risks were not increased by the tortious

conduct, even if that conduct was a factual cause of the harm.”

Restatement (Third) of Torts, Liability for Physical Harm § 33(c) & cmt. f.

       Even though the authors of the venerable Prosser treatise on torts

have traditionally used foreseeability to frame this component of legal
                                     24

causation, the substantive rule that has been charted essentially

remains unchanged:

      In general and with only a few exceptions, the courts have
      restricted recovery to those losses which might have
      expected to follow from the fraud and from those events that
      are reasonably foreseeable. . . . But if false statements are
      made in connection with the sale of corporate stock, losses
      due to a subsequent decline in the market, or insolvency of
      the corporation brought about by business conditions or
      other factors [that] in no way relate to the representations[,]
      will not afford any basis for recovery. It is only where the
      fact misstated was of a nature calculated to bring about
      such a result that damages for it can be recovered.

Prosser & Keeton, at 767.

      Stated in terms of risk instead of foreseeability, this principle limits

the scope of liability for tortious conduct by requiring the conduct to

have “enhanced (at the time the defendant acted) the chances of the

harm occurring or that it would increase the chances [(risk)] of a similar

accident [(harm)] in the future if the defendant should repeat the same

wrong.”   Zuchowicz v. United States, 140 F.3d 381, 388 n.7 (2d Cir.

1998). In other words, a tortfeasor “ ‘is not liable to a person whom he

intended to harm and who has been harmed, unless from the standpoint

of a reasonable man, his act has in some degree increased the risk of
that harm.’ ” Johnson, 477 F.2d at 107 (quoting Restatement of Torts

§ 870 cmt. g (1939)).

      This risk-based approach is compatible with a long-established

principle of legal causation, reflected in time-honored cases.            For

example, in Berry v. Sugar Notch Borough, 43 A. 240 (Pa. 1899), a

speeding trolley car was struck by a falling tree.      The court held the

causation requirement was not met. Id. at 240. “This result was correct

since, although the accident would not have occurred but for the trolley’s
                                   25

speeding, speeding does not increase the probability of trees falling on

trolleys.” Zuchowicz, 140 F.3d at 388 n.7.

      Spreitzer acknowledges the factual-causation element of a fraud

claim, but suggests we have relaxed the legal-causation component in

fraud cases involving investments by requiring nothing more than a

showing that the plaintiff would not have made the investment if the

truth of the misrepresentation had been known.            Spreitzer relies on

Midwest Management Corp. v. Stephens, 353 N.W.2d 76 (Iowa 1984), to

illustrate this point.

      In Stephens, an investment corporation invested $400,000 in a

securities venture proposed by three entrepreneurs. 353 N.W.2d at 82.

The investment made by the corporation was based on a representation

by a director of the corporation, who was also the father of one of the

entrepreneurs, that the director and the three entrepreneurs would

personally invest in the new venture by acquiring stock. Id. at 78. The

investment corporation wanted the instigators of the business venture to

have a personal stake in the venture as an incentive to operate the

business profitably. Id. The instigators never invested in the business

as promised, and the business failed. Id. at 80.

      In holding the investment corporation was entitled to recoup its

lost investment as damages based on the false promise that the

entrepreneurs would also personally invest in the venture, we observed,

as in this case, the plaintiff would not have invested in the venture but

for the misrepresentation. Id. at 82. We also observed, as in this case,

that there was ample evidence that the venture would have failed even if

the promise had been true. Id. Based on these observations, Stephens

appears on the surface to support Spreitzer’s position.
                                    26

      In Stephens, the investment made by the plaintiff in the venture

was recoverable as damages, not only because the plaintiff corporation

would not have invested in the venture if it knew the representation was

false, but also because the promise made and relied upon as truthful

was calculated to minimize the risk of investing in the venture. Based on

plaintiff’s belief that the venture would be less likely to fail if those

operating it had their own money invested in the venture, the falsity of

the promise increased the risk of the damage suffered. Thus, the losses

(loss of invested funds) that did in fact occur by entering into the

transaction were also losses whose risks were increased by the falsity of

the promise (greater risk of losing invested funds if the entrepreneurs are

not personally invested). Legal causation was established in Stephens by

the presence of facts that showed the type of false promise increased the

scope of damages, but only because the risk of harm increased as a

result of the false promise.   The damages sought by plaintiff (invested

funds) were within the risk of harm covered by the false promise.

      Thus, legal causation in fraudulent-representation cases requires,

at a minimum, that the tortious aspect of the conduct increased the risk

of the damages claimed. This amount of damage is distinguishable from

the greater universe of losses caused by the mere fact that a false

representation induced the investment. That is, the plaintiff must show

not only that the reliance would not have occurred but for the

defendant’s decision to misrepresent the truth, but the plaintiff must

also show that the fact misrepresented increased the risk of the specific

damages claimed.

      Thus, in considering legal causation, we return to the false

representation at issue. The representation concerned the term of the
                                    27

personal guaranty that the bank would equally pursue the coguarantors

in the event of a default by the business on its $1.5 million loan.

      In the procedural context of this case, we must apply the rules for

legal causation to the bank’s challenge to the sufficiency of the evidence

to support the jury verdict. With all these guiding principles in mind, the

question becomes whether substantial evidence exists in the record to

support a jury finding that the false promise to equally pursue the

coguarantors increased the risk of damages amounting to $838,000.

      We begin with the loss suffered by Spreitzer through the

investment he made in the business. The question is whether the fact

Glass did not intend to equally pursue the coguarantors increased the

risk Spreitzer would lose his investments.

      Generally, an investor invests in a business operation to obtain a

return on the investment through the receipt of profits from the

operation of the business, through the future sale of the business at a

profit, or through the sale of the investor’s interest in the business. In

this case, the business purchased by Spreitzer failed within a relatively

short period of time, and Spreitzer never realized any operational

business profits from his investment of $663,000.        Spreitzer failed to

explain how the false promise to equally enforce the personal guaranty of

the business debt between the coguarantors increased the risk of

unprofitability of the business, and we can discern no such explanation

from the record. He did not show the business would have produced a

return on his investment if the bank would have pursued his

coguarantor. For sure, all the evidence revealed the business would have

failed to be profitable even if the bank would have pursued Ross equally

as promised. Consequently, the misrepresentation was not a legal cause

of the loss of the $663,000 invested by Spreitzer in the company.
                                           28

       We next consider whether or not the misrepresentation was a legal

cause of the payment of $750,000 by Spreitzer under the personal

guaranty.      The bank had the contractual right to bypass Walker

Manufacturing and demand satisfaction of the debt from Spreizter. This

meant that even if the bank had pursued satisfaction of the Walker

Manufacturing loan from Ross as represented, Spreitzer was still

obligated to pay up to $750,000.             Thus, the falsity of the promise to

pursue the coguarantors equally did not increase the risk Spreitzer

would have had to pay $750,000 under the personal guaranty.

       Finally, we consider whether the falsity of the bank’s promise

increased the risk Spreitzer would lose some portion of his interest in the

assets of Walker Manufacturing. When a creditor bypasses the assets of

a debtor and collects the debt from a guarantor under the terms of a

personal guaranty, the guarantor may assert rights of reimbursement

against the debtor to recoup the amount paid on the guaranty. 7                      See

Hills Bank & Trust Co. v. Converse, 772 N.W.2d 764, 772 (Iowa 2009)


       7The   term “reimbursement” is contrasted here with the related concept in the
law of suretyship, “subrogation.” “Reimbursement” is a legal remedy for a guarantor in
an implied surety contract between the guarantor and primary debtor in a three-party
loan contract. Restatement (Third) of Suretyship and Guaranty § 22 cmt. a (1996).
Some courts may use the term “subrogation” to refer to a “bundle of rights” against the
primary debtor that a guarantor possesses after fulfilling the underlying obligation to a
creditor, including the right to reimbursement from the primary debtor. 38 Am. Jur. 2d
Guaranty § 120, at 971 (1999); see also In re XTI Xonix Tech. Inc., 156 B.R. 821, 827
(Bankr. D. Or. 1993) (noting that, under Oregon law, “[subrogation] consists of the
rights of indemnity (or reimbursement), contribution, subrogation and exoneration”). In
contrast, the Restatement defines “subrogation” as an equitable assignment of the
creditor’s rights to the guarantor, an enforcement mechanism with which the guarantor
may be more adequately assured of reimbursement from the primary debtor. See
Restatement (Third) of Suretyship and Guaranty §§ 27 cmt. a, 18 cmt. b, 28 cmt. c. In
most cases, the rights under the two remedies will not differ significantly. Id. at § 28
cmt. c. However, a guarantor is eligible for subrogation only when the underlying
obligation to the creditor has been fully satisfied, regardless of any limit on the amount
of debt the guarantor agreed to pay. Id. at § 27 cmt. b; Am. Sur. Co. of N.Y. v.
Westinghouse Elec. Mfg. Co., 296 U.S. 133, 137, 56 S. Ct. 9, 11, 80 L. Ed. 105, 109–10
(1935). Spreitzer did not pay the entire underlying debt to the bank in this case.
Consequently, we use the reimbursement remedy for the rights at issue and do not
address any associated right to subrogation.
                                       29

(adopting the Restatement (Third) of Suretyship and Guaranty position

on reimbursement); 38 Am. Jur. 2d Guaranty § 120, at 971–72 (1999).

Any assets of the company would be available to the coguarantors under

claims of reimbursement for payments made to the bank.          Thus, the

bank’s failure to pursue Ross as promised increased the likelihood the

bank would collect the remaining portion of the debt from the company,

which would diminish or exhaust the assets of the company available to

Spreitzer under either a claim for reimbursement or a claim of

ownership.   Therefore, the falsity of the representation increased the

likelihood Spreitzer’s reimbursement or ownership interests would be

less valuable.   In this way, some damages could satisfy the legal

causation rule applied in this case.

      While some damages relating to the diminution of company assets

could satisfy the legal causation standard, the amount would be limited

by legal causation to those assets that were likely diminished by the

tortious aspect of the bank’s conduct.      The tortious aspect of Glass’

conduct was the falsity of his representation regarding equal enforcement

of the guaranty. Even though the falsity of the promise increased the

likelihood the bank would forego satisfaction from Ross, the falsity of the

promise did not affect the amount of money the bank would have actually

collected from Ross were the guaranty to be enforced equally.

Consequently, Spreitzer’s losses cannot exceed the amount of money he

would have recovered from the company if the bank had equally pursued

both coguarantors as promised.

      The evidence at trial supported a finding that the company was

ultimately sold for $850,000. It also supported a finding that the value

of the company’s interest in the litigation was $319,000.       The bank

received the $850,000 in satisfaction of the remaining debt obligation,
                                          30

and Spreitzer received the litigation proceeds of $319,000.                          In

determining the amount of damages, the ultimate question in this case is

what amount of the total company assets ($1.069 million) would

Spreitzer have received if the representation had been true—if the bank

had pursued Ross. While it is apparent Spreitzer was damaged in some

amount as result of the misrepresentation, this amount is far from the

jury award of $838,000.

       For example, if the bank had pursued Ross as promised and

recovered $750,000 from him as contemplated by Spreitzer, then

Spreitzer and Ross would have had the company assets of $1.069 million

($750,000 plus $319,000) available to them to satisfy their claims for

reimbursement. 8 Having paid the bank the debt of $1.5 million, the two

guarantors could have each netted $534,500 in company assets. As it

turned out, Spreitzer only received $319,000 in company assets. Thus,

Spreitzer would have been damaged by the false representation in the

amount of $215,500 under this scenario.

       On the other hand, if the bank had pursued Ross as promised but

recovered nothing from him, the company assets actually received by the

bank ($850,000) and Spreitzer ($319,000), as shown by the evidence,
would be the same amounts they would have received if the bank had

performed its promise.        In this event, the falsity of the representation

would not have increased the risk of any of the damages claimed by

Spreitzer.   Of course, if the bank had pursued Ross as promised and

recovered some amount, but an amount less than $750,000, then


       8Although   the face value of the bank note was $1.5 million, the bank ultimately
recovered $1.6 million. While not explained by the record, the bank was apparently
entitled to the additional amount, which means the bank would have also been entitled
to receive this amount before Spreitzer and Ross would have been entitled to any
reimbursement from the company assets.
                                    31

Spreitzer’s damages would fall between the two extremes based on the

amount recovered from Ross by the bank.

      We conclude there was insufficient evidence to support the jury

award of $838,000. The record does not contain evidence of $838,000 of

damages that were increased by the tortious aspect—the falsity—of the

fraudulent misrepresentation at issue. The evidence at trial would have

supported an award of some amount of damages, but there was clearly

insufficient evidence of damages of $838,000.

      The bank requests that we remand the case for entry of judgment

in an amount supported by the evidence.         We acknowledge this is a

procedure we have followed in the past when the amount of a jury award

was found to be unsupported by the evidence. See Midland Mut. Life Ins.

Co. v. Mercy Clinics, Inc., 579 N.W.2d 823, 834 (Iowa 1998). However,

the amount of the award will depend upon findings of fact, which is not

our role under the applicable standard of review.             As we will

subsequently conclude, however, the district court erred in failing to

submit Spreitzer’s punitive-damage claim to the jury.      Thus, the case

must ultimately be remanded for a new trial, and it would be appropriate

under the circumstances of this case for the new trial to include both

claims of compensatory and punitive damages.

      In summary, the claim for compensatory damages under the

theory of liability determined by the jury in this case will involve a two-

step process on retrial.   The jury must first determine the amount of

money the bank would have recovered from Ross if the bank had equally

pursued both guarantors under the personal guaranty. Based upon this

amount, the jury must then determine any additional amount (over the

$319,000 received) Spreitzer would have netted in a claim for

reimbursement against the company.
                                          32

       IV. Punitive Damages.

       Punitive damages may be awarded in an action for fraud when, in

conjunction with the fraud, the defendant acts with legal malice or

engages in other aggravating conduct amounting to actual malice. See

Tratchel v. Essex Group, Inc., 452 N.W.2d 171, 176 (Iowa 1990). Legal

malice involves wrongful conduct committed “with a reckless disregard of

another’s rights.” Stephens, 353 N.W.2d at 82.

       The district court rejected the claim for punitive damages based on

evidence that the bank president partially complied with his promise to

equally enforce the personal guaranty by limiting Spreitzer’s personal

liability to one-half of the total debt. In other words, the district court

found the bank did not perpetrate the fraud in order to collect the entire

debt from Spreitzer.       The district court also found the bank president

hoped Spreitzer would succeed with his new business. It also pointed

out Spreitzer was a sophisticated investor and was not financially

vulnerable. The bank echoed these arguments on appeal in support of

its claim that the district court did not err in granting a directed verdict

on punitive damages. 9

       The fraudulent conduct in this case consisted of the promise to
equally enforce the personal guaranty between the two guarantors.

There was evidence Spreitzer would not have purchased the business

without the promise. There was also evidence the company would likely

have been forced into bankruptcy if Spreitzer would not have agreed to

the takeover.       Consequently, the fraud was a key component to

Spreitzer’s decision to take on the risk of purchasing the business.

       9The bank did not claim on appeal, nor did the district court determine at trial,

that the bank cannot be liable for punitive damages based on the conduct of an
employee. See Restatement (Second) of Torts § 909 (punitive damages properly awarded
when agent was manager and acted within scope of employment).
                                          33

Although the bank president may have wanted Spreitzer to succeed in

the business, the jury could have found his desire was primarily

motivated by his own greed and self-interest. He only wanted Spreitzer

to succeed as a means for his own success, and he purposely misled

Spreitzer into believing Ross would help absorb the company debt if the

business failed.

       Even sophisticated and wealthy investors have a right to truthful

investment information. The bank president acted with his interests in

the forefront in making the false promise, and there was sufficient

evidence from which a jury could conclude that the promise was made

with a conscious and reckless disregard for the rights of Spreitzer. The

bank president knew the company was failing, and he knew it required a

capital investment to have any hope of survival. In the event of a default

on the note by the company, he also knew that Ross would not be

available to help Spreitzer satisfy the company’s debt to the bank. This

is the type of conduct that can give rise to punitive damages, and it was

a question the jury should have been able to decide.                  Consequently,

Spreitzer is entitled to a new trial to allow the jury to determine the

punitive damage claim. 10

       V. Conclusion.

       We have fully and carefully considered all claims raised by the

parties on the appeal and cross-appeal. We vacate the decision of the

court of appeals and reverse the judgment of the district court.                   We

conclude Spreitzer is entitled to a new trial on issues of compensatory


       10Punitive damages would only be recoverable if Spreitzer recovers compensatory
damages. See Pringle Tax Serv., Inc. v. Knoblauch, 282 N.W.2d 151, 154 (Iowa 1979)
(stating the general rule that compensatory damages must be established before
punitive damages may be awarded). If Spreitzer fails to prove damages caused by
reliance on the misrepresentation on retrial, punitive damages will not be recoverable.
                                      34

and punitive damages.       Compensatory damages shall be calculated in

the manner described in this opinion, and punitive damages shall be

submitted on the theory of liability used to support the prior finding of

fraud.

         DECISION OF COURT OF APPEALS VACATED; JUDGMENT OF

DISTRICT COURT REVERSED AND CASE REMANDED FOR NEW

TRIAL.

         All justices concur except Baker, J., who takes no part.
