author: ROEHR, Circuit Judge.

text:
    2003 SD 152
    BLACK HILLS CENTRAL RAILROAD CO., a South Dakota Corporation, Plaintiff and Appellee, v. CITY OF HILL CITY, a South Dakota Corporation, Defendant and Appellant.
    No. 22626.
    Supreme Court of South Dakota.
    Considered on Briefs Aug. 25, 2003.
    Decided Dec. 30, 2003.

      James F. Margadant of Margadant Law Office, Rapid City, for plaintiff and appel-lee.
    Lynn A. Moran, Custer, for defendant and appellant.
   ROEHR, Circuit Judge.

[¶ 1.] The circuit court granted the application of Black Hills Central Railroad Co. (Railroad) for a peremptory writ of mandamus requiring the City of Hill City (City) to approve Railroad’s plat. City appeals. We affirm.

FACTS

[¶ 2.] Railroad owned several parcels of real property in City. City had a sewer main on Railroad’s property pursuant to a license granted by Railroad in 1953. In the early 1990s, Railroad acquired additional parcels. The additional parcels were contiguous to each other and to the original railroad property.

[¶ 3.] In the early 1990s, the State of South Dakota (State) completed a highway by-pass project in the area. As part of the project, City’s original sewer main was removed from Railroad’s property and a new sewer main was installed on a different portion of Railroad’s property. At various times both before and after installation, City and Railroad discussed and negotiated for an easement or license for the new sewer main. However, the discussions and negotiations failed and no license or easement was ever granted.

[¶ 4.] State owned four surplus lots in the immediate area. Railroad was negotiating to buy them from State, but City exercised its statutory right and purchased the lots. City then attempted to resell the lots to Railroad. City’s asking price included the sewer easement it had been unable to obtain from Railroad. These negotiations also failed. Subsequently, City sold the four lots to Railroad for a purchase price that did not include the desired easement.

[¶ 5.] After the sale of City’s lots to Railroad, Railroad sought to replat several of its lots into one lot. City’s planning commission denied the plat because it contained incorrect measurements. Railroad then submitted a corrected plat. The planning commission recommended approval of this plat subject to obtaining an easement for the existing sewer line.

[¶ 6.] When the plat and the planning commission’s recommendation were presented to the city council, the council tabled the matter. Sixteen days later, on May 28, 2002, the city council met again. After meeting in executive session, the council resumed its regular session and, by motion, withheld approval of the plat pending inclusion of a sewer line easement.

[¶ 7.] Following the city council's action, Railroad applied for a writ of mandamus compelling City’s approval of its plat. After a trial, the circuit court entered a peremptory writ of mandamus requiring City to approve the plat. City appeals.

ISSUE

[¶ 8.] Under SDCL 11-3-6, may a city refuse to approve a plat because the plat does not depict and dedicate an easement for a sewer line previously installed without an easement?

STANDARD OF REVIEW

[¶ 9.] The circuit court has discretion in granting or denying a writ of mandamus. Consequently, the standard of review on appeal is abuse of discretion. Douville v. Christensen, 2002 SD 33, ¶ 5, 641 N.W.2d 651, 653; Willoughby v. Grim, 1998 SD 68, ¶ 6, 581 N.W.2d 165, 167.

[¶ 10.] Our standard of review for statutory interpretation is de novo, without deference to the trial court’s interpretation. Douville, 2002 SD 33 at ¶ 6, 641 N.W.2d at 653.

[¶ 11.] Finally, our standard of review for the trial court’s findings of fact is the clearly erroneous standard. SDCL 15-6-52(a); R & S Const. Co. v. BDL Enter., 500 N.W.2d 628, 630 (S.D.1993).

DECISION

[¶ 12.] South Dakota law provides:

The writ of mandamus may be issued by the Supreme and circuit Courts, to any inferior tribunal, corporation, board, or person, to compel the performance of an act which the law specially enjoins as a duty resulting from an office, trust, or station; or to compel the admission of a party to the use and enjoyment of a right or office to which he is entitled, and from which he is unlawfully precluded by such inferior tribunal, corporation, board, or person.

SDCL 21-29-1 (emphasis added). In addition, the “writ of mandamus must be issued in all cases where there is not a plain, speedy, and adequate remedy, in the ordinary course of law.” SDCL 21-29-2.

[¶ 13.] Because mandamus is an extraordinary remedy, a writ will be issued only when the duty to act is clear:

Mandamus is a potent, but precise remedy. Its power lies in its expediency; its precision in its narrow application. It commands the fulfillment of an existing legal duty, but creates no duty itself, and acts upon no doubtful or unsettled right. To prevail in seeking a Writ of Mandamus, the petitioner must have a clear legal right to performance of the specific duty sought to be compelled and the respondent must have a definite legal obligation to perform that duty.

Baker v. Atkinson, 2001 SD 49, ¶ 16, 625 N.W.2d 265, 271 (emphasis original) (quoting Sorrels v. Queen of Peace Hosp., 1998 SD 12, ¶ 6, 575 N.W.2d 240, 242) (citations omitted).

[¶ 14.] To complete our analysis, we must determine whether the specific duty involved is ministerial or discretionary. Mandamus, as discussed above, is available to compel performance of ministerial duties. However, in the case of discretionary functions, the question is whether the particular entity abused its discretion.

If the service or action which one seeks to compel is discretionary the proper exercise of such discretion will not be interfered with. This is not to say that there are no checks on discretion.
“... The discretion must be exercised under the established rules of law, and it may be said to be abused within the foregoing rule where the action complained of has been arbitrary or capricious, or based on personal, selfish, or fraudulent motives, or on false information, or on a total lack of authority to act, or where it amounts to an evasion of a positive duty ... or where the exercise of the discretion is in a manner entirely futile and known by the officer to be so and there are other methods which if adopted would be effective.”
State v. Richards, 61 S.D. 28, 38-39, 245 N.W. 901, 905 (1932) (citations omitted). Moreover, an erroneous view of the law is sufficient to constitute an abuse of discretion. Richards, supra.
We must therefore ascertain whether the issuance of these permits is a discretionary function. If it is merely ministerial, mandamus will lie. If it is discretionary, we must further ascertain whether the Board abused its discretion and if so, mandamus will lie; otherwise, mandamus is improper.

S.D. Trucking Ass’n v. S.D. Dept. of Transp., 305 N.W.2d 682, 684 (S.D.1981). Accord Crowley v. Spearfish Ind. School Dist., 445 N.W.2d 308, 311 (S.D.1989); Hendriks v. Anderson, 522 N.W.2d 499, 501 (S.D.1994).

[¶ 15.] SDCL 11-3-6 governs the approval or denial of Railroad’s replat. In pertinent part, it provides:

The provisions of this chapter apply to every addition to, or subdivision within, any county, municipality or unincorporated town. If the land or any part of the land included in any addition or subdivision is within, adjoining, or contiguous to the boundaries of any municipality, the plat, before being recorded, shall be submitted to the governing body or, if applicable, the planning director of the municipality. If it appears that the system of streets set forth therein conforms to the system of streets of the existing plats of the municipality, that all provisions of any subdivision regulations have been complied with, that all taxes and special assessments upon the tract or subdivision have been fully paid, and that such plat and the survey thereof have been executed according to law, the governing body shall, by resolution, approve the plat.

Under the statute, if the four requirements are met (conforming system of streets, subdivision regulations complied with, taxes and special assessments paid, and plat and survey executed according to law), the governing body “shall” approve the plat.

[¶ 16.] We have previously recognized that approval or disapproval of a proposed plat requires a city to exercise its judgment and is a discretionary function. In Lohman v. City of Aberdeen, 246 N.W.2d 781 (S.D.1976), Lohman sought approval of a plat for land lying within the joint jurisdiction of Brown County and the City of Aberdeen. As such, approval of the plat involved application of SDCL 11-6-26, not SDCL 11-3-6. The planning commissions for both Brown County and the City of Aberdeen approved Lohman’s plat. However, Aberdeen’s city commission subsequently disapproved the plat. Lohman brought a mandamus action against the City of Aberdeen in circuit court. The circuit court issued a writ compelling approval of the plat. On appeal to this Court, one of the issues presented was whether the city commission had any discretion under SDCL 11-6-26 to approve or disapprove the plat after it had been approved by the two planning commissions. In holding that the city commission had discretion, we said:

Essential and valuable as the recommendations of the planning commission members may be, however, we cannot believe that the legislature intended that the governing body of a municipality should be relegated to the role of ministerially approving all plats that have been found by the planning commission to be in compliance with the local comprehensive plan and subdivision regulations. It is our opinion that the governing body of a municipality has an independent, nondelegable duty to exercise its considered judgment whether to approve or disapprove a proposed plat. This discretionary authority is, of course, not unfettered, as respondents concede, and where refusal to approve a plat is withheld arbitrarily and capriciously, or is based upon invalid grounds or grounds not warranted by law, the governing body may be compelled to approve the plat by mandamus.

Lohman, 246 N.W.2d at 785.

[¶ 17.] SDCL 11-3-6 provides that the governing body “shall” approve the plat if the four requirements are met. “[T]he term, shall, manifests a mandatory directive and does not confer any discretion in carrying out the action so directed.” SDCL 2-14r-2.1. See also Willoughby, 1998 SD 68 at ¶ 9, 581 N.W.2d at 168; Fritz v. Howard Tp., 1997 SD 122, ¶ 15, 570 N.W.2d 240, 242. Thus, the governing body of a municipality has some discretion in reviewing a plat and the requirements of SDCL 11-3-6. However, once the four requirements of the statute have been met, approval of the plat is mandatory; approval then becomes a ministerial function. See 4 Kenneth H. Young, Anderson’s American Law of Zoning § 28.04 (4th ed. 1997); 83 Am.Jur.2d Zoning and Planning § 973 (2003).

[¶ 18.] In its findings of fact, the circuit court found that City’s planning commission unanimously approved the plat and recommended approval by the city council upon the condition that Railroad grant a permanent easement for the sewer line. The circuit court also found that the city council refused to approve the plat unless and until Railroad granted or dedicated the sewer easement. Finally, the circuit court found that the city council never considered other grounds for denial of the plat and that none were asserted by City until the circuit court hearing on the alternative writ of mandamus. On appeal, City challenges these findings. City argues that an additional basis for the conditional approval by the planning commission and the denial by the city council was the failure of the plat to comply with subdivision regulations.

[¶ 19.] The minutes of the planning commission meeting are the only record of the proceedings at that meeting. In pertinent part, the minutes read:

Verchio moved, G. Sullivan seconded to approve the Black Hill Central Railroad plat subject to the city obtaining a utility easement to be shown on the north edge of plat map, reflecting the existing sewer line. Vote all aye.

[¶ 20.] Likewise, the minutes of the May 28 city council meeting are the only record of the proceedings at that meeting. In pertinent part, the minutes read:

EXECUTIVE SESSION: Nimtz moved and Gray seconded to go into Executive Session at 5:03 P.M. to discuss possible litigation. All voted aye. 5:35 P.M.— Anderson moved and LaCroix seconded to come out of Executive Session. All voted aye. LaCroix moved that the approval of the plat of Bob Warder be held up pending his inclusion of the easements for the city sewer line, which had been verbally agreed upon, are in the plat and reduced to written agreements. Nimtz seconded. All voted aye.

[¶ 21.] City’s subdivision regulation requires a final plat be “accompanied by all required legal dedications and easements, in a form acceptable to the City Attorney, and any and all guarantees required by the Planning Commission.” City argues that the planning commission and city council references to easements were in keeping with the subdivision regulations. This argument is without merit. We assume, without deciding, that City’s subdivision regulation applies to Railroad’s proposed plat which is essentially a replat of several previously platted properties. Neither the planning commission minutes nor the city council minutes make any reference to City’s subdivision regulations. City’s attorney has not cited any other part of the settled record showing any testimony or other evidence that the subdivision regulations were ever considered as a reason for denial of the plat. The trial court’s findings of fact are not clearly erroneous.

[¶ 22.] Neither the planning commission nor the city council objected to the plat on the grounds that City’s subdivision regulations had not been complied with. Likewise, they did not object on the grounds that any of the other three requirements of SDCL 11-3-6 had not been met. If such an objection had been raised at either the planning commission meeting or the city council meeting, Railroad would have had the opportunity to contest the objection before the planning commission or the city council. Alternatively, Railroad could have amended its plat to try to satisfy any such objection. By waiting until the mandamus hearing in circuit court to raise any legal objection, City waived its right to do so.

[¶ 23.] Railroad’s plat satisfied the requirements of SDCL 11-3-6. The circuit court properly issued a peremptory writ of mandamus requiring City to perform its ministerial duty to confirm the plat.

[¶ 24.] Affirmed.

[¶ 25.] GILBERTSON, Chief Justice, and SABERS, ZINTER and MEIERHENRY, Justices, concur.

[¶ 26.] ROEHR, Circuit Judge, for KONENKAMP, Justice, disqualified.


source: Caselaw Access Project

author: STREIT, Justice.

license: Public Domain

text:
    W.P. BARBER LUMBER COMPANY, Appellee, v. Elizabeth CELANIA, Appellant.
    No. 02-1455.
    Supreme Court of Iowa.
    Nov. 13, 2003.
    Rehearing Denied Jan. 16, 2004.
    Ed Skinner and R. Bradley Skinner of Skinner Law Office, P.C., Altoona, for appellant.

      Bruce Nuzum of Matthias, Campbell, Tyler, Nuzum & Rickers, Newton, for ap-pellee.
   STREIT, Justice.

A contractor, hired to build a new house, walked off the job and left his subcontractor unpaid. The subcontractor filed a mechanic’s lien against the owner’s house and land. After the district court ordered the lien foreclosed and the owner to pay the subcontractor’s attorney fees, the subcontractor tried to garnish the owner’s wages. The district court held the subcontractor could not garnish the owner’s wages to satisfy the amount of the lien. The owner appeals the district court’s award of attorney fees and the subcontractor cross-appeals the ruling it could not garnish the owner’s wages. Because the subcontractor did not furnish materials directly to the owner, we reverse the district court’s award of attorney fees. Because we find the owner is not personally liable to the subcontractor, we affirm on cross-appeal.

I. Facts and Procedural Background

Elizabeth Celania hired Guy Poe & Sons Construction to build her a house in Monroe, Iowa. W.P. Barber Lumber Company, Inc., a subcontractor, supplied Poe materials for the construction of Celania’s home. Several months after construction began, a dispute arose between Celania and Poe. Poe quit the job but did not pay Barber Lumber for the materials it had furnished.

There was no contract between Celania and Barber Lumber. In order to collect what it was owed, Barber Lumber filed a mechanic’s lien against Celania’s real property in Monroe. See Iowa Code § 572.2(1) (2001) (entitling a subcontractor who furnishes material for a new home to a lien against the building and the property on which it is situated, “to secure payment for the material ... furnished.... ”). After Celania filed a written demand for foreclosure, Barber Lumber brought suit on the lien. See id. § 572.28 (on written demand, an owner may compel lienholder “to commence action to enforce the lien” or forfeit rights thereunder).

After a trial, the district court determined the mechanic’s lien could be enforced in the amount of $18,007.07 plus interest. The court ordered the mechanic’s hen be foreclosed, and the Celania property sold • to satisfy the judgment. The court also taxed costs to Celania and awarded Barber Lumber $6250.00 in attorney fees.

Celania appealed. Barber Lumber subsequently sought to garnish Celania’s wages until the total sum- of $25,918.70 was paid in full. Celania filed three post-trial motions, in which she contended the district court’s judgment of foreclosure on the mechanic’s lien was in rem not in person-am. Celania argued Barber Lumber had no right to garnish her wages, because the judgment of foreclosure was not a personal judgment. The district court agreed, in part, with Celania, and ruled its prior judgment was only partially a personal judgment against Celania. The court held Barber Lumber’s interest in the property itself ($18,007.07 plus interest) was a judgment in rem, i.e., is against the property and does not contemplate personal liability of the owner, but ruled Celania was personally liable for attorney fees and costs. Barber Lumber filed an appeal, which we consolidated with Celania’s prior appeal.

We are thus presented with two questions: 1) Does a judgment of foreclosure on a mechanic’s lien render an owner personally liable to a subcontractor? and 2) Did the district court err in awarding Barber Lumber attorney fees?

II. Scope of Review

An action to enforce a mechanic’s hen is in equity. Iowa Code § 572.26. Our review, therefore, is de novo. Iowa R.App. P. 6.4; Schaffer v. Frank Moyer Constr., Inc., 628 N.W.2d 11, 14 (Iowa 2001). We “giv[e] weight to the fact findings of the trial court, but [are] not bound by them.” Iowa R.App. P. 6.14(6)(p).

III. The Merits

A. Nature of a Judgment of Foreclosure on a Mechanic’s Lien

Barber Lumber argues the district court erred in refusing to hold Gelania personally liable. Barber Lumber contends a mechanic’s lien foreclosure is no different than an ordinary mortgage foreclosure, and thus should result in personal liability. Barber Lumber points to prior cases in which we stated that enforcement of a mechanic’s lien is not truly an action in rem, or against the property, but rather must be commenced against a named defendant. See, e.g., Redman v. Williamson, 2 Clarke 488, 490 (Iowa 1856) (“The action for a mechanic’s lien, is not a proceeding against the property.... It must be against some person by name, as defendant....”); Soc’y Linnea v. Wilbois, 253 Iowa 953, 959, 113 N.W.2d 603, 607 (1962) (“Its enforcement is not an action in rem; it must be commenced against a defendant by name.... ”). From these statements and several portions of Iowa Code chapter 572, Barber Lumber contends foreclosure of a mechanic’s lien results in personal liability against the owner of the property in question.

We reject these arguments. A judgment of foreclosure on a mechanic’s lien is not a personal judgment. See Capitol City Drywall Corp. v. C.G. Smith Constr. Co., 270 N.W.2d 608, 613 (Iowa 1978) (in action to foreclose mechanic’s lien, no basis for personal judgment against owner); Willverding v. Offineer, 87 Iowa 475, 478-79, 54 N.W. 592, 593 (1893) (in the absence of a contract with owner, mechanic’s lien does not impose personal liability). “The [mechanic’s lien] statute does not impose personal liability on the owner for the amount of the lien, but rather limits the remedy of the lien-holder to foreclosure of the lien and sale of the owner’s property interest.” Roger W. Stone, Mechanic’s Liens in Iowa, 30 Drake L.Rev. 39, 44 (1980) (footnote omitted).

Cases such as Redman and Society Linnea merely stand for the principle that

An action on a mechanic’s lien is an action on a contract.... An action for foreclosure of a mechanic’s lien must be referable to a contract binding some person who has a beneficial interest in the property. A claim against the property in the absence of such a contract could not be maintained.

Roger W. Stone, Mechanic’s Liens in Iowa — Revisited, 49 Drake L.Rev. 1, 4-5 (2000) (citing Soc’y Linnea, 253 Iowa at 959-60, 113 N.W.2d at 606-07 and Northwestern Nat’l Bank of Sioux City v. Metro Ctr., Inc., 303 N.W.2d 395, 401 (1981)) (internal quotations omitted). See, e.g., Redman, 2 Clarke at 490 (dismissing mechanic’s lien judgment “against house” where contract was made with individual who had no interest in the land); Soc’y Linnea, 253 Iowa at 959, 113 N.W.2d at 607 (mechanic’s lien improper where agreement was made with someone who did not have, or represent to have, a present beneficial interest in the property). In the present case, the requisite agreement was between Poe, the contractor, and Ce-lania, the owner of the house and land.

Redman and Society Linnea do not justify the conclusion a judgment of foreclosure of a mechanic’s lien is in personam, in the sense that the named defendant is personally liable. The mechanic’s lien only attaches to the real property on which the benefit was conferred, even though the action is not pleaded against the property, i.e., it is not styled in rem. Iowa Code section 572.5, a section of the mechanic’s lien statute entitled “Extent of Lien,” states:

[T]he entire land upon which any building or improvement is situated, including that portion not covered therewith, shall be subject to a mechanic’s lien to the extent of the interest therein of the person for whose benefit such material was furnished....

See also Iowa Code § 572.8 (“A person shall perfect a mechanic’s lien by filing with the clerk of the district court of the county in which the building, land, or improvement to be charged with the lien is situated, ...” (emphasis added)). The mechanic’s hen statute does not expressly provide that a judgment of foreclosure on a mechanic’s hen is a personal judgment. Instead, “[t]he mechanic’s hen is a statutory security device. It may be defined as a statutory charge imposed upon real property in favor of one who has furnished labor or material for its improvement.” Note, Owners’ Liability to Subcontractors Under the Iowa Mechanic’s Lien Law, 47 Iowa L.Rev. 144, 144 (1961) (emphasis added, footnotes omitted).

When we remarked in Redman and Society Linnea that an action to enforce a mechanic’s hen is not an action in rem, we were simply pointing out a plaintiff may not file an action against the property absent a showing of “an agreement with an owner, or one who at that time had an estate or interest in the land.” Soc’y Linnea, 253 Iowa at 959, 113 N.W.2d at 607; see also Redman, 2 Clarke at 490 (“If there has been no contract with the owner of the land, no lien can attach by virtue of the labor done, or materials furnished, in the erection of a house upon it.”). This requirement devolves from the ultimate principle that “[s]ome beneficial ownership in real property by one who receives the benefit of labor and material under a contract, express or implied, has always been held a necessary element to the establishment of a mechanic’s lien in Iowa.” Soc’y Linnea, 253 Iowa at 958, 113 N.W.2d at 606 (citations omitted); see Note, Owner’s Liability to Subcontractors Under the Iowa Mechanic’s Lien Law, 47 Iowa L.Rev. at 146 (“Such a contract or consent serves as a foundation for the subcontracts and the resulting right of subcontractors to establish hens against the property.”). Thus, we have refused to enforce a mechanic’s lien where the named defendant did not have title to, or any present beneficial interest in, the land. Soc’y Linnea, 253 Iowa at 959, 113 N.W.2d at 607; Redman, 2 Clarke at 490-92. These cases do not support the conclusion that a judgment of foreclosure on a mechanic’s lien is a personal judgment.

Of course, an owner “who has contracted for an improvement under chapter 572 ... may encounter personal liability to the contractor for breaches of the construction contract.” Roger W. Stone, Mechanic’s Liens in Iowa, 30 Drake L.Rev. at 90. Absent privity, however, a subcontractor may not garnish an owner’s wages to satisfy a judgment of foreclosure on a mechanic’s lien. Such is the difference between a mechanic’s lien and an ordinary mortgage foreclosure. In practice, however, even though “the statute does not provide for the personal liability of an owner ... this benefit is seldom of much consequence to the owner who wants to keep its property or improvement.” Id.

In the present case, Barber Lumber named Celania the defendant in the action to foreclose the mechanic’s lien, because Celania had both a contract with Poe and a beneficial interest in the property. In this limited respect, the mechanic’s lien foreclosure is not truly a proceeding in rem. But the judgment cannot impose personal liability, and is not, in this sense, in personam. The parties agree there is no privity of contract between them.

Our decision today accords with the weight of authority.

There must be a contractual relation established between the owner of the property and the lienor to support a personal judgment against the owner in an action for foreclosure of the lien ... a subcontractor or supplier who is not in privity of contract with the owner generally may not obtain a personal judgment against the owner.

53 Am.Jur.2d Mechanic’s Liens § 447, at 434 (1996) (footnotes omitted). The highest courts of jurisdictions with similar statutes have reached the same result. See, e.g., Harbridge v. Six Points Lumber Co., 17 Ariz. 339, 152 P. 860, 863 (1915); Brannan Sand & Gravel Co. v. Santa Fe Land & Improvement Co., 138 Colo. 314, 332 P.2d 892, 895 (1958); Pierson v. Sewell, 97 Idaho 38, 539 P.2d 590, 595-97 (1975); Pendleton v. Sard, 297 A.2d 889, 893 (Me.1972); Keeley Lumber & Coal Co., Inc. v. Bunker, 76 S.D. 281, 77 N.W.2d 689, 692 (1956).

To hold otherwise would wreak havoc upon the well-defined and long-established legal relationships amongst owners, contractors, and subcontractors. If a judgment of foreclosure of a mechanic’s lien were construed to be a personal judgment against the owner, it would, in essence, elevate the relationship between Barber Lumber and Celania to a contractual one without there having been a contract between these parties. This would, by operation of law, elevate a subcontractor into a contractual relationship with an owner who it may not have ever met or known.

The district court ruled Celania remained personally liable for costs and attorney fees. For the reasons discussed below, we find Barber Lumber was not entitled to attorney fees. We do not, therefore, reach the issue of whether an award of attorney fees in an action to foreclose a mechanic’s lien constitutes a personal judgment.

B. Attorney Fees

As a general rule, an award of attorney fees is not allowed unless authorized by statute or contract. In re Marriage of Rosenfeld, 668 N.W.2d 840, 848 (Iowa 2003). In this case, the district court awarded Barber Lumber $6250 in attorney fees. Our present mechanic’s lien statute states, in part,

In a court action to enforce a mechanic’s lien, if the plaintiff furnished labor or materials directly to the defendant, a prevailing plaintiff may be awarded reasonable attorney fees.

Iowa Code § 572.32(1) (emphasis added). Celania urges us to reverse the district court’s award of attorney fees, because Barber Lumber, a subcontractor, did not directly furnish material to Celania.

Barber Lumber contends Celania failed to preserve error on this issue. We disagree. In her answer Celania denied Barber Lumber’s request, in its petition, for an award of attorney fees pursuant to chapter 572. The district court ruled in Barber Lumber’s favor. It granted Barber Lumber attorney fees pursuant to section 572.32(1). Error was preserved.

We have not heretofore had occasion to decide the meaning of “directly” in Iowa Code section 572.32(1). Celania contends, in essence, “directly” is legislative shorthand for privity of contract. Celania points out there is no privity of contract between Barber Lumber and Celania. Ce-lania also maintains Barber Lumber did not prove materials were provided directly to Celania, as opposed to indirectly through Poe.

Barber Lumber, in turn, contends the statute uses the word “directly” not “privity of contract,” and we should not equate one with the other. Barber Lumber argues the attorney fee statute should protect a local lumber provider who visibly hauls materials to the jobsite, as opposed to others who do not do so.

Where reasonable minds may disagree over the meaning of a word in a statute, the statute is ambiguous. Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. v. Shell Oil Co., 606 N.W.2d 376, 379-80 (Iowa 2000). We think section 572.32(1) is ambiguous.

If a statute is ambiguous, we apply relevant rules of statutory construction. Id. at 380. “When construing the statute, we read the language used, and give effect to every word.” Id. “We presume the legislature intended a reasonable result, not an absurd one.” In re Estate of Thomann, 649 N.W.2d 1, 4 (Iowa 2002) (citing State v. Iowa Dist. Ct., 616 N.W.2d 575, 578 (Iowa 2000)). We also construe a statute in its entirety. Waterloo Cmty. Sch. Dist. v. Pub. Employment Relations Bd., 650 N.W.2d 627, 632 (Iowa 2002).

Applying these rules, we think the legislature’s specific use of “directly” in our mechanic’s lien statute is legislative shorthand for a requirement the two parties must have a contractual relationship with one another. In order to give effect to the word “directly,” some distinction must be intended in favor of those furnishing labor or materials “directly” to the defendant. Celania argues the distinction must be clearly drawn on contractual lines, whereas Barber Lumber seems to suggest physical delivery as the point of demarcation.

Even if we were to accept Barber Lumber’s definition of “directly,” it has failed to prove its case, for two reasons. First, as argued in its brief, Barber Lumber’s allegations, if accepted, only show it furnished material directly to the Celania home at Poe’s request. The statute, however, permits an award of attorney fees only where “the plaintiff furnished labor or materials directly to the defendant,” not her future home. Iowa Code § 572.32(1) (emphasis added). As our discussion regarding personal liability for a judgment of foreclosure of a mechanic’s lien indicated, the difference between the named defendant and the property to which the lien attaches is an important one. See, e.g., Redman, 2 Clarke at 490 (“The action for a mechanic’s lien, is not a proceeding against the property.... It must be against some person by name, as defendant....”). The language used in Iowa Code section 572.32(1) sharply contrasts with other provisions of the statute. Compare Iowa Code § 572.32(1) (permitting an award of attorney fees to a prevailing plaintiff which “furnished labor or materials directly to the defendant”), with Iowa Code § 572.2 (entitling “[e]very person who shall furnish any material or labor for, or perform any labor upon, any building or land for improvement ...” to a mechanic’s lien).

Second, the limited evidence in the record shows Barber Lumber furnished materials directly to Poe, and only indirectly to Celania or her property. As Celania points out, the invoices for the materials, which appear in the record, were made out to Poe, not Celania. Although Barber Lumber contends it delivered materials to the jobsite, inspection of the invoices reveals 1) most contain an empty space in the blank for “Address,” but when filled in, more invoices list Albia (Poe’s place of business) than Monroe (the location of the house being built); 2) almost every invoice has its “Loaded By” and “Driver” entries blank; 3) many of the purchases were quite small; and 4) some invoices contain purchases which are mixed with credits for returns or costs for materials which were not furnished to the Celania home. Given all these facts, it seems more likely Poe, not Barber Lumber, delivered many of the items to the Celania home.

At any rate, requiring courts to determine to what extent materials were physically delivered to the defendant demonstrates the difficulty of Barber Lumber’s argument: presumably, if some loads of lumber were delivered directly and others indirectly, a court using a physical-delivery test would be required to apportion attorney fees accordingly. Yet the legislature made no provision for apportionment in chapter 572.

Fortunately, a more reasonable interpretation is available. When we look at other sections of the statute, we find the legislature negatively defined the term “subcontractor” as one not “having contracts ... directly with the owner, the owner’s agent or trustee.” Iowa Code § 572.1(5) (emphasis added). Given this contractual use of “directly” in the definitional portion of the statute, we conclude the use of “directly” in the attorney fees section of the statute should be construed as legislative shorthand for privity of contract. Barber Lumber is not, therefore, entitled to an award of attorney fees.

Barber Lumber asks us to remand to the trial court for an award of appellate attorney fees, if it prevails on appeal. Iowa Code § 572.32(1); see Schaffer, 628 N.W.2d at 23 (concluding prior version of statute, which mandated an award of attorney fees to a successful plaintiff, also permitted an award of appellate attorney fees). Because Barber Lumber did not furnish materials directly to the defendant and did not prevail in this appeal, we do not award attorney fees.

IV. Conclusion

The district court correctly held Barber Lumber’s judgment of foreclosure on its mechanic’s lien is not a personal judgment against Celania. Because attorney fees are not allowed in these circumstances, we do not address the issue of whether an award of attorney fees and costs in an action to foreclose a mechanic’s lien constitutes a personal judgment. Since Barber Lumber failed to prove it furnished materials directly to Celania, we reverse the district court’s award of attorney fees.

REVERSED ON APPEAL; AFFIRMED ON CROSS-APPEAL.

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

      . For an example of an action styled in rem, see State v. $10,000 Seized from Mary Patrick, 562 N.W.2d 192 (Iowa Ct.App.1997) (forfeiture action).

      . We have awarded attorney fees to a sub-subcontractor who was neither in privity of contract nor furnished labor or material directly to the defendant. See, e.g., Baumhoefener Nursery, Inc. v. A & D P'ship, II, 618 N.W.2d 363 (Iowa 2000). In Baumhoefener, however, the meaning of “directly” in Iowa Code section 572.32 apparently went unchallenged.


author: CARTER, Justice.

text:
    STATE of Iowa, Appellee, v. Willie Earl WILLIAMS, Appellant.
    No. 02-0026.
    Supreme Court of Iowa.
    Jan. 22, 2004.

      Linda Del Gallo, State Appellate Defender, and Trida A. Johnston, Assistant Appellate Defender, for appellant.
    Thomas J. Miller, Attorney General, Kevin Cmelik, Assistant Attorney General, Thomas J. Ferguson, County Attorney, and Linda Myers-Fangman, Assistant County Attorney, for appellee.
   CARTER, Justice.

Defendant, Willie Williams, appeals from his conviction of first-degree theft in violation of Iowa Code section 714.2(1) (2001). He contends that the district court erred in failing to grant his motion for judgment of acquittal and in failing to instruct the jury that theft by deception requires a specific intent to deceive. The court of appeals affirmed Williams’ conviction. After reviewing the record and considering the arguments presented, we affirm the decision of the court of appeals and the judgment of the district court.

The facts viewed most favorably toward the State include the following. On Monday, June 6, 2001, Williams went to Community Motors, a car dealership in Cedar Falls. In the process of negotiating for the purchase of a 1998 Buick Riviera, he produced a letter written on the letterhead of a local law firm advising that he was about to receive a substantial sum of money as a personal-injury settlement. Williams stated that he would use this money to pay for the car. Williams also filled out a credit application in which he provided false information concerning his place of residence and listed as a place of employment a business where he had applied for work but had not been hired. He was in fact unemployed.

Subject to verifying Williams’ credit information, the dealership agreed to sell him the automobile for approximately $20,000. A down payment of $7500 and proof of insurance was required. A security agreement was prepared for the benefit of a potential lender. When Williams indicated he would need about a week to secure the necessary cash, the dealership placed dealer plates on the automobile and agreed that Williams could drive the car until the following Monday, June 13. Williams agreed to return to the dealership at that time with the required down payment and proof of insurance.

The salesman later checked out Williams’ information and determined that the attorney’s letter was a fabrication. The law firm identified on the letterhead had not written the letter. That firm was representing Williams in a personal-injury action, but no settlement offers had been forthcoming at the time of the transaction with the dealership. It was also determined that Williams’ statements concerning his residence and place of employment were false. When the owner of Community Motors was informed of these facts, he instructed the salesman to cancel the arrangement and obtain the return of the vehicle. The salesman was unable to locate Williams.

The car was not returned to the dealership on the following Monday as Williams had promised. On July 31 police located Williams and arrested him for theft of the vehicle. At this time, he refused to disclose the location of the car. Without his assistance, the car was discovered two months later in a garage in a Chicago suburb. It was damaged beyond repair. Williams was charged with first-degree theft in violation of Iowa Code section 714.2(1), a class “C” felony.

The State proceeded to trial on three theories: (1) that Williams took the car with intent to deprive the dealership of its property, (2) that he concealed the car in order to deprive the dealership of its security interest, and (3) that he deprived the dealership of its property by deception as defined in Iowa Code section 702.2. Williams’ arguments on appeal, as to both the sufficiency of the evidence and the challenged jury instructions, only relate to the theory involving theft by deception.

I. Whether the State Presented Sufficient Evidence to Support a Guilty Verdict as to Theft by Deception.

A. Scope of review. Sufficiency-of-the-evidence claims are reviewed for errors at law. Iowa R.App. P. 6.4 (2001). A verdict will be upheld if there is substantial evidence in the record to support it. State v. Hopkins, 576 N.W.2d 374, 377 (Iowa 1998). Substantial evidence means evidence that “could convince a rational trier of fact that a defendant is guilty beyond a reasonable doubt.” Id. We view the evidence in the light most favorable to the State. State v. Bass, 349 N.W.2d 498, 500 (Iowa 1984).

At trial, the State must prove every element of the crime charged beyond a reasonable doubt. State v. Gibbs, 239 N.W.2d 866, 867 (Iowa 1976). The State’s evidence must “raise a fair inference of guilt and do more than create speculation, suspicion, or conjecture.” State v. Hamilton, 309 N.W.2d 471, 479 (Iowa 1981).

B. Evidence of deception. Williams argues that the State presented insufficient evidence to support a finding that he intended to deceive Community Motors at the time of the transaction on Monday, June 6, 2001. He does not contend that the other theories of guilt should not have been submitted to the jury. We have recognized, however, if the instructions allow the jury to consider multiple theories of culpability, only some of which are supported by the evidence, and a general verdict of guilty is returned, a reversal is required because “we have no way of determining which theory the jury accepted.” State v. Hogrefe, 557 N.W.2d 871, 880-81 (Iowa 1996). Consequently, we must determine whether the evidence was sufficient to sustain guilt under the theory that Williams has elected to challenge.

Under Iowa Code section 714.1, theft is committed if a person

[o]btains the labor or services of another, or a transfer of possession, control, or ownership of the property of another, or the beneficial use of property of another, by deception.

The statutory definition of deception includes knowingly:

Creating or confirming another’s belief or impression as to the existence or nonexistence of a fact or condition which is false and which the actor does not believe to be true.
OR
Promising payment, the delivery of goods, or other performance which the actor does not intend to perform or knows the actor will not be able to perform. Failure to perform, standing alone, is not evidence that the actor did not intend to perform.

Iowa Code § 702.9(1), (5).

In the present case, the jury was free to find from the evidence that Williams knowingly deceived the dealership by presenting a bogus letter indicating a source of payment for the car. It also could have found that there was a further act of deception on his part in giving information that he was employed when he was not. It is uncontroverted that he imparted this false information in an effort to gain possession of the Buick Riviera automobile. Obtaining possession of the car in that manner falls within the definition of theft set forth in section 714.1(3) and the definition of deception contained in section 702.9(1) and (5). The district court correctly denied Williams’ motion for judgment of acquittal on the State’s theory of theft by deception.

II. Jury Instructions on Intent to Deceive.

Williams argues that a significant element of the offense of theft by deception is a specific intent on the part of the actor to deceive. He urges that despite his objection the district court did not adequately convey that requirement to the jury in its instructions. The district court’s instruction on the elements of theft by deception were as follows:

The State must prove all of the following elements ...:
1. On or about the 6th day of June, 2001, the defendant did present statements and documents to Community Motors.
2. The defendant deceived Community Motors in one or more of the following ways:
a. Creating or confirming another’s belief or impression as to the existence or non-existence of a fact or condition which is false and which the actor does not believe to be true;
b. Promising payment, which the actor does not intend to perform or knows the actor will not be able to perform. Failure to perform, standing alone, is not evidence that the actor did not intend to perform.
3. The defendant obtained transfer of possession or control from Community Motors.

The statutory definition of deception on which this instruction was based provides:

“Deception” consists of knowingly doing any of the following:
1. Creating or confirming another’s belief or impression as to the existence or nonexistence of a fact or condition which is false and which the actor does not believe to be true.
5. Promising payment, the delivery of goods, or other performance which the actor does not intend to perform or knows the actor will not be able to perform. Failure to perform, standing alone, is not evidence that the actor does not intend to perform.

Iowa Code § 702.9 (emphasis added).

In affirming Williams’ conviction, the court of appeals classified the crime of theft by deception as not involving a specific intent to defraud. We cannot agree with that conclusion. The acts of knowing deception included in the statutory definition are in all material respects the equivalent of a specific intent to deceive. Consequently, we must decide whether the trial court’s instruction adequately conveyed that requirement to the jury.

Preferably, subparagraphs a and b of paragraph 2 of the instruction should have been preceded by the word “knowingly.” However, the failure to include that word in the instructions did not constitute reversible error in the present case. In considering subparagraph b of paragraph 2 of the instruction (which mirrors paragraph 5 of section 702.9), it appears impossible for the act of promising payment that the actor does not intend to perform to be accomplished in other than a knowing manner. Hypothetically, the type of deception described in subparagraph a of paragraph 2 of the instruction is conduct that could occur unknowingly. However, we are satisfied that there was no room for the jury to conclude that this was the situation with respect to defendant’s conduct in the present case.

The acts of forging the letter promising a large cash payment and the representation that he was employed were matters that defendant had to know were false assertions. He also had to know that he was ma,king those false assertions as part of an effort to obtain possession of an automobile. A failure to instruct that a criminal act must be knowingly done was held to be harmless error due to the context of the transaction in State v. Blackford, 335 N.W.2d 173, 178 (Iowa 1983). We conclude that the same is true with regard to the instruction given in the present case. We have considered all issues presented and conclude that the decision of the court of appeals and judgment of the district court should be affirmed.

DECISION OF COURT OF APPEALS AND DISTRICT COURT JUDGMENT AFFIRMED.


author:
LARSON, Justice.
      CADY, Justice

text:
    Earl V. FULLENWIDER, Appellant, v. STATE of Iowa, Appellee.
    No. 02-0090.
    Supreme Court of Iowa.
    Jan. 22, 2004.

      Kent A. Simmons, Davenport, for appellant.
    Thomas J. Miller, Attorney General, Bridget A. Chambers, Assistant Attorney General, William E. Davis, County Attorney, and Jerald Feuerbach, Assistant County Attorney, for appellee.
   LARSON, Justice.

Earl Fullenwider was convicted of possession with intent to deliver controlled substances, possession of a firearm as a felon, failure to affix tax stamps, and enhancement of his penalty for possession of a firearm while possessing controlled substances. The court of appeals affirmed his convictions on direct appeal, and Fullen-wider applied for postconviction relief. His postconviction application was denied, and he appealed. The court of appeals affirmed the denial, and we granted further review. We vacate the decision of the court of appeals, reverse the judgment of the district court, and remand.

I. Facts and Prior Proceedings.

Following police surveillance of an apartment occupied by Brandy Johnson and her daughter, the police executed a search warrant for the apartment. They found a digital scale, crack cocaine, and Fullenwider — -in bed with Johnson. The police also found a gun under Fullenwider’s side of the bed, although they found no fingerprints on it. The cocaine was in a plastic bag on a chair, still wet, and the bag together with the scale was pushed under a table in the kitchen. LaShawn Williams, who is not involved in this case, was lying on the floor five or six feet from the cocaine. Johnson told the police that she and her daughter were the only people occupying the apartment and that all of the contents of the apartment belonged to her. Fullenwider, however, admitted that a cell phone found on the table immediately above the drugs was his. Testimony suggested the cocaine, which was still wet, had been manufactured one and one-half to two hours before the search.

The police surveillance had revealed that Fullenwider was a frequent visitor to the apartment building where Johnson lived. However, the search revealed no evidence that Fullenwider actually lived there. The police found no paperwork to tie him to the apartment and found no items of clothing (except the clothes by his side of the bed) or other personal items belonging to Ful-lenwider.

Fullenwider and Johnson were tried jointly for possession of cocaine with intent to deliver and failure to affix a tax stamp. Fullenwider was also charged with being a felon in possession of a firearm, and the State sought an enhanced penalty on the drug offenses because of the presence of the gun. Prior to trial, Fullenwider rejected a plea agreement that would have limited his total sentence to an indeterminate term of forty years. After the first day of trial, Fullenwider changed his mind and decided to accept the previously offered agreement. The court, however, refused to approve the plea agreement at that stage.

Fullenwider was convicted on all charges. Because he was convicted of a class “B” felony subject to a firearm enhancement, the court sentenced him to fifty years. See Iowa Code § 124.401(l)(e) (1995). This sentence was then doubled because Fullenwider was a repeat offender. See Iowa Code § 124.411(1). Fullenwider was also sentenced to two indeterminate, five-year terms, based on two class “D” felonies, with all terms to run concurrently. Ful-lenwider lost all subsequent challenges in the court of appeals and in his postconviction proceeding.

II. Principles Underlying Ineffective-Assistance-of-Counsel Claims.

This appeal is based on Fullenwider’s claims of ineffective assistance of counsel, based on trial and appellate counsel’s failure to (1) make an adequate record on the district court’s rejection of the plea agreement, (2) challenge the sufficiency of the evidence of cocaine possession, (3) raise a federal due process claim, (4) object to a jury interrogatory, (5) object to certain jury instructions, and (6) object to the court’s consideration of impermissible sentencing factors. We do not address all of the issues raised because some of them are rendered moot by our disposition of the case on other grounds.

Our review of an allegation of ineffective assistance of counsel is de novo. State v. Bergmann, 600 N.W.2d 311, 313 (Iowa 1999). To establish a claim of ineffective assistance, the applicant must show (1) the attorney failed to perform an essential duty in representing the defendant and (2) prejudice resulted. State v. Ceaser, 585 N.W.2d 192, 195 (Iowa 1998). To prove a breach of an essential duty, the applicant faces a strong presumption that the performance of counsel falls within a wide range of reasonable professional assistance. State v. Hepperle, 530 N.W.2d 735, 739 (Iowa 1995). We will not second-guess reasonable trial strategy. State v. Wissing, 528 N.W.2d 561, 564 (Iowa 1995).

The second prong of the ineffective-assistance test, prejudice, is shown if the applicant establishes a reasonable probability that, but for counsel’s unprofessional errors, the result of the proceeding would have been different. Strickland v. Washington, 466 U.S. 668, 694, 104 S.Ct. 2052, 2068, 80 L.Ed.2d 674, 698 (1984).

III. The Plea Agreement.

Fullenwider’s first ineffective-assistance claim is based on his attorney’s alleged failure to make a record on the trial court’s refusal to approve a plea agreement on the second day of trial. Specifically, Fullenwider contends his trial attorney should have introduced evidence that the court’s decision was based on a firm policy in that district that plea agreements must be presented during the week prior to trial. He claims the court’s ruling was invalid under State v. Hager, 630 N.W.2d 828, 835-36 (Iowa 2001) (firm policy of rejecting plea agreements after specified time held to constitute abuse of discretion). (The State asks us in this appeal to modify or overrule Hager; however, we decline to do so.)

The State responds that Fullenwider’s trial counsel did not breach his professional duty in representing Fullenwider because Hager was not decided until well after Fullenwider’s trial. Fullenwider counters that the principles of law adopted in Hager were well established before Hager was decided.

We conclude Fullenwider’s trial counsel did not breach a professional duty in failing to anticipate the Hager ruling. As we noted in Hager, the courts around the country are split on the issue of applying plea-deadline rules. See id. at 834. The dissent in Hager characterized the holding of the majority opinion to be part of the “distinctly minority view concerning modern court administration.” Id. at 838 (Neuman, J., dissenting). Fullenwider’s counsel was not bound to anticipate future rulings by this court when those rulings are not reasonably predictable. See Hepperle, 530 N.W.2d at 740; State v. Ogilvie, 310 N.W.2d 192, 197 (Iowa 1981).

Even if Fullenwider’s trial counsel was bound to anticipate the holding of Hager, this case is distinguishable from Hager. In Hager the defendant attempted to enter a guilty plea before trial, while Fullenwider waited until most of the State’s evidence was in the record before he decided to accept the plea agreement. Adoption of Fullenwider’s argument on this point would approve a rule allowing a defendant to wait to see how strong the case is against him before he makes a decision to plead.

Presumably, one of the factors motivating the State to compromise the charges is to avoid the problems in getting its evidence accepted by the court. Once the evidence is presented to the jury, the defendant has lost part of his bargaining power, and the State has lost part of its incentive to offer the plea bargain. This could be deemed to be “more ... manipulation than justice.” Hager, 630 N.W.2d at 838 (Neuman, J., dissenting).

IV. The Possession Issues.

Three issues are raised challenging the sufficiency of the evidence of possession of the gun and the controlled substance. Fullenwider’s alleged possession of a gun bears on two of his convictions: possession of a firearm by a previously convicted felon and possession of a firearm as an enhancement to possession of drugs. A third possession issue involves sufficiency of the evidence of possession of the controlled substance itself. We discuss all of the possession issues together.

Fullenwider’s trial counsel moved for judgment of acquittal at the conclusion of the State’s case, based on insufficiency of the evidence of possession. His attorney claimed that Fullenwider’s mere presence at the scene was insufficient to establish possession of any of the items. Fullenwider’s motion was overruled, and he was convicted. His attorney on direct appeal challenged the sufficiency of the evidence regarding possession of the gun, but he did not challenge sufficiency of the evidence as to the controlled substance. The attorney testified at the postconviction hearing that he did not raise the issue because he thought it had little chance of success. We agree with Fullen-wider that his counsel breached a professional duty in failing to raise the sufficiency of the evidence on possession.

In State v. Reeves, 209 N.W.2d 18 (Iowa 1973), we considered for the first time what constitutes possession for purposes of applying our drug-possession statutes. Reeves, 209 N.W.2d at 21. In that case, we adopted this test to establish possession:

[I]n determining the sufficiency of the evidence to support a conviction for possession of ... drugs, precedents of other jurisdictions relating to possession of narcotics express the following relevant principles of law:
(1) Unlawful possession of narcotics is established by proof:
(a) that the accused exercised dominion and control (i.e., possession) over the contraband,
(b) that he had knowledge of its presence, and
(c) that the accused had knowledge that the material was a narcotic.
(2) These necessary elements of unlawful possession may be established by circumstantial evidence and any reasonable inferences drawn from such evidence.
(3) Proof of opportunity of access to a place where narcotics are found will not, without more, support a finding of unlawful possession.
(4) But dominion and control ... by the accused over the narcotic does not mean the narcotic needs to be found on his person nor does it mean that he must have had sole and exclusive use of the premises on which drugs are found.
(5) Constructive possession is all that is necessary and occurs when the accused maintains control or a right to control the narcotic; possession may be imputed when the contraband is found in a place which is immediately and exclusively accessible to the accused and subject to his dominion and control, or to the joint dominion and control of the accused and another.
(6) If the premises on- which the drugs are found are exclusively accessible to the accused and subject to his use, possession or control, knowledge of their presence on such premises ... coupled with his ability to maintain dominion and control ... may be inferred.
(7) Even if the accused does not have exclusive control of the hiding place possession may be imputed if he has not abandoned the narcotic and no other person has obtained possession.
(8) Knowledge of the narcotic character ... of the drug, as well as of their presence ... may be shown by the conduct, behavior and declarations of the accused.

Id. at 21-22.

Reeves remains good law today, despite the fact we have created some confusion surrounding its test for possession of contraband. In State v. Simpson, for example, we said possession is established

when the defendant maintains control or has a right to control the place where the controlled substance was found [and] may be inferred when the substance is found in a place which is accessible to the defendant and is subject to his dominion and control, or the joint dominion and control of the defendant and another.

528 N.W.2d 627, 631 (Iowa 1995).

Fullenwider argues that his appellate counsel was ineffective in failing to challenge the sufficiency of the evidence of possession, contending the nexus between Fullenwider and the contraband and gun is insufficient. Despite the apparently relaxed requirements of Simpson, Fullen-wider argues that his appellate attorney should have argued Reeves and should have been aware of State v. Thomas, 561 N.W.2d 37 (Iowa 1997), which imposed a more stringent test for possession than that of Simpson. (Thomas was filed while Fullenwider’s appeal was pending; he contends his appellate counsel was ineffective in failing to file a supplemental brief to alert the court of appeals to the Thomas case.) The State, on the other hand, contends Simpson and its less stringent test for possession controlled at the time of trial, and Fullenwider’s attorney was not ineffective in failing to object to the sufficiency of the evidence.

We need not decide whether the Simpson or the Reeves and Thomas line of cases controlled here. Even under the more relaxed rule of Simpson, the State failed to establish the control of the premises required by Simpson. Under Simpson possession is established if contraband is found where the defendant had the right to control the premises or in a place which is accessible to the defendant and is subject to his dominion and control — or joint dominion and control with another. Simpson, 528 N.W.2d at 631.

Even when the evidence is considered in the light most favorable to the State, we believe the State failed to show the necessary control of the premises or the contraband itself as required by Simpson. While police officers had the apartment under surveillance, they observed Fullen-wider only on a few occasions going into the apartment building. Brandy Johnson’s apartment was only one of several in the building, and the officers could not establish that Fullenwider had gone into this specific apartment' on other occasions. The apartment was rented to Johnson and occupied by her and her daughter on a full-time basis. There was no indicia of any control of the premises on the part of Fullenwider. The officers’ search for evidence linking Fullenwider to the apartment failed to reveal any items of personal property such as clothes, except those lying beside him while he slept with Johnson, or any other items of personal possession such as even a toothbrush. The gun, which was found under the bed, was out of Fullenwider’s sight, and there were no fingerprints on it.

We agree with the State that it is logical to conclude, based partly on the fact Fullenwider’s cell phone was placed near the drugs, that he knew the methamphetamine was in the apartment. However, mere knowledge of the presence of contraband is insufficient, even under Simpson, to show possession. We conclude that the State failed to establish the necessary control over the premises on which the contraband and gun were found or the items themselves to establish constructive possession. We therefore reverse all of the convictions and remand for dismissal of the ease.

DECISION OF COURT OF APPEALS VACATED; JUDGMENT OF DISTRICT COURT REVERSED; CASE REMANDED WITH INSTRUCTIONS.

All justices concur except Cady, J., who dissents, and Wiggins, J., who takes no part.

CADY, Justice

(dissenting).

For the reasons outlined in my dissent in State v. Bash, 670 N.W.2d 135, 139-41 (Iowa 2003) (Cady, J., dissenting), I respectfully dissent from division IV of the court’s opinion.


author: TERNUS, Justice.

text:
    CITY OF DAVENPORT, Appellee, v. The SHEWRY CORPORATION d/b/a Tri-City Fabricating and Welding Co., Inc., and Donald Shewry, Appellants.
    No. 02-0460.
    Supreme Court of Iowa.
    Jan. 22, 2004.

      Steven J. Havercamp of Stanley, Lande & Hunter, Davenport, for appellants.
    Christopher S. Jackson, Davenport, for appellee.
   TERNUS, Justice.

The district court entered a judgment against the appellants, The Shewry Corporation and its principal owner, Donald Shewry, for the return of economic development grant monies the company received from the appellee, City of Davenport, based on the company’s failure to meet its obligations under an economic development agreement with the City. Shewry and the company appeal, claiming the district court erred in three particulars: (1) in dismissing their claim for an accounting by the City; (2) in failing to hold the repayment provision in the parties’ agreement was unconscionable and a prohibited penalty clause; and (3) in entering judgment against the company for the amount of the grants, $150,000, and against Shewry for the amount of his guaranty, $75,000. Finding no error, we affirm.

I. Background Facts and Proceedings.

In 1996 The Shewry Corporation, d/b/a Tri-City Fabricating and Welding Co., Inc., entered into an economic development agreement (EDA) with the City of Davenport. This agreement contemplated that the company would build a new welding and fabrication facility on property acquired by the company in a tax increment financing (TIF) district located in the City of Davenport. The City agreed to provide up to $200,000 of economic development grant money to the company in three phases coinciding with the company’s construction of taxable improvements to its property. The issuance of each phase of grant money was dependent upon the company making the specified improvements. In addition, the company was required to create 60 new full-time positions within thirty-six months of the date of the agreement, retain 186 existing jobs, and maintain at least 246 full-time equivalent positions from the thirty-sixth month through the one-hundred-twentieth month of the agreement.

The EDA provided that a material breach of the agreement by the company would require repayment of all grant monies already received. Moreover, the agreement specified that the company’s failure to meet the employment requirements would be considered a material breach.

The parties also executed assessment agreements for each phase of the project, which were incorporated in the EDA. See generally Iowa Code § 403.6(19) (1997) (authorizing municipalities to enter into assessment agreements upon entering into a development agreement). The assessment agreements expressed the parties’ intent that the “property taxes generated by the net gain in taxable values to be created by the [company] through its timely construction and equipping of its new facilities [would] be more than sufficient to completely repay the [bonds] issued by the City.” To ensure this result, the company and the City agreed to a specific “minimum actual value” upon which the property would be assessed until the bonds were retired.

The liability of the company under the EDA was secured by two guaranties. Shewry, the president and owner of the company, signed a personal guaranty in the amount of $75,000 to secure the company’s obligation under the agreement. In addition, Shewry signed a guaranty as president of the company that also secured the contractual obligation. The company’s guaranty was similarly limited to $75,000.

Pursuant to the EDA, the City advanced $50,000 to the company on August 30, 1996, and an additional $100,000 on March 18, 1997. The company used these funds to finance improvements to its property, resulting in increased valuations and increased property tax assessments, as contemplated by the agreement. Unfortunately, the company did not meet the employment requirements of the contract. The company eventually sold the facility without reaching phase III of the economic development project.

On March 9, 2001, the City filed this action against the company and Shewry, seeking to recoup the $150,000 in grant money previously dispersed. It sought the entire sum from the company based on the company’s repayment obligation under the EDA, and $75,000 from Shewry based on his personal guaranty.

The defendants claimed the repayment requirement of the EDA was an unconscionable penalty, but Judge Kelley held it was not in his ruling on the City’s motion for summary judgment. The company and Shewry also sought an accounting, claiming that any increased tax revenues generated by the improvements made to the company’s property should serve as an offset against its liability for repayment under the EDA.

The defendants’ counterclaim was tried to the court, Judge Darbyshire, along -with the City’s claim. The district court denied the defendants’ request for an accounting, and entered judgment against the company for $150,000 and against Shewry for $75,000. In a subsequent ruling on the dfefendants’ Iowa Rule of Civil Procedure 1.904(2) motion, the court clarified that the judgment against Shewry was “only upon his guaranty” and that he would have no liability if the company satisfied the $150,000 judgment. The defendants appealed.

II. Issues on Appeal and Scope of Review.

The defendants first challenge the district court’s adverse ruling on their counterclaim, which they have characterized as a claim for an “accounting.” Based on this characterization, they assert de novo review is required. See Atlantic Veneer Corp. v. Sears, 232 N.W.2d 499, 502 (Iowa 1975) (stating “accounting issues are usually deemed to stand in equity”). We are not entirely convinced the counterclaim asserts an equitable claim to an accounting, as opposed to simply seeking a contractual offset against the company’s liability. Nor are we certain the district court tried the matter in equity. Notwithstanding these reservations, we will review the trial court’s disposition of this claim de novo for two reasons: (1) our ultimate resolution of this issue is the same under a de novo review as it would be under a review for correction of errors of law; and (2) the parties appear to be in agreement that the counterclaim was equitable and was tried in equity. See Johnson v. Kaster, 637 N.W.2d 174, 177 (Iowa 2001) (stating court “will hear a case on appeal in the same manner in which it was tried in the district court”).

The second issue on appeal is a challenge to the district court’s summary judgment ruling that the repayment provision was not an unconscionable penalty clause as a matter of law. We review this ruling for correction of errors of law. See Kelly v. Iowa Mut. Ins. Co., 620 N.W.2d 637, 641 (Iowa 2000). In doing so, we must “ ‘determine whether a genuine issue of material fact exists and whether the law was correctly applied.’ ” Id. (citation omitted).

The defendants’ final issue on appeal is that the maximum liability of the company and Shewry was $75,000 and the court erred in entering judgment against the company for $150,000. We review this alleged error for correction of errors of law. See In re Mount Pleasant Bank & Trust Co., 426 N.W.2d 126, 129 (Iowa 1988). The factual findings made by the district court are binding on appeal if supported by substantial evidence. See id. We are not bound, of course, by the trial court’s conclusions of law or its application of legal principles. See id.

III. Dismissal of Defendants’ Counterclaim For an Accounting.

In their counterclaim, the defendants allege the company paid approximately $134,000 in real estate taxes from 1997 through 2002 specifically allocated to the TIF district on its property tax statements. See generally Iowa Code § 403.19 (allowing portion of property taxes to be allocated to .tax increment financing). The defendants assert the City wrongly refused to account for these payments and credit this sum against the company’s liability under the EDA. The district court concluded the EDA did not provide for such an offset, and therefore there was no legal basis upon which to require an accounting. Upon our de novo review, we think the trial court was correct.

The EDA clearly evidences the City’s intent to issue general obligation bonds to fund the economic development grants to the company. The contract documents also recite the City’s plan to retire these bonds using the increased tax revenues generated by the improvements to the company’s property and the assessment agreements. What is not present in the parties’ agreement, however, is any express statement or implication that property taxes paid by the company and allocated to the TIF district would be credited against the company’s liability under the EDA. The parties’ clear intent that the tax revenues would be used to amortize the bonds does not reveal an intent that the tax revenues would be used to repay the grants. Retirement of the bonds and repayment of the grants are different obligations imposed on different parties.

We also reject the defendants’ argument that our decision in Norwest Credit, Inc. v. City of Davenport, 626 N.W.2d 153 (Iowa 2001), requires the requested offset. In that case the property owner, Brammer Company, LLC, had entered into an assessment agreement with the City of Davenport in exchange for a $500,000 economic development grant. Norwest Credit, 626 N.W.2d at 154. The issue in the case was whether this agreement was binding on the purchaser of the property upon the foreclosure of a mortgage recorded prior to the assessment agreement. Id. at 154-55.

The defendants rely on the following general comments in that case:

An assessment agreement is a way to finance improvements to local real estate, usually in blighted areas. See Black’s Law Dictionary 111-12 (7th ed. 1999).
These assessments are, in a certain sense, taxes. But an assessment differs from a general tax in that an assessment is levied only on property in the immediate vicinity of some local municipal improvement and is valid only where the property assessed receives some special benefit differing from the benefit that the general public enjoys.
Robert Kratovil, Real Estate Law 465 (6th ed. 1974). The agreement is usually financed by the real estate holder assuming a bonded indebtedness. In the instant case, the amount of the bond covering the loan to Brammer was $500,000. The assessment on the real estate in question was then fixed at $2.5 million. The goal of this agreement was to amortize repayment of the $500,000 grant through the increased taxes Brammer would pay given the property’s new taxable value.

Id. (emphasis added). The defendants seize on this language to support their argument that an assessment agreement is designed to generate revenue for repayment of the grant made to the property owner through the property owner’s increased tax payments. Based on this purpose, the defendants claim they are entitled to a credit in the amount of the increased taxes the company paid against the company’s obligation to return the grant monies.

Upon reviewing our discussion in Norwest Credit, we conclude this court simply misspoke when it said the goal of an assessment agreement is to amortize the grant. The goal of an assessment agreement is to generate tax revenues to allow the municipality to amortize the bond, not the grant. This goal was clearly expressed in the contract documents at issue here. Thus, our unfortunate misstatement in Norwest Credit does not alter our conclusion here that the company is not entitled to offset its liability under the EDA for repayment of the grant monies by the TIF portion of its property tax payments.

IV. Enforceability of Repayment Provision.

The defendants claim the contract requirement that the company fully repay the economic development grants if it failed to meet any of its obligations under the EDA was an unenforceable penalty. It argues the amount of the repayment is disproportionate to any damage reasonably anticipated from breach of the contract.

The City argues the repayment requirement is more accurately characterized as a liquidated damage clause. It argues any damages resulting from the company’s failure to perform its contractual obligations would be difficult to ascertain, thereby supporting such a provision.

We first note that the determination of whether a liquidated damage clause is actually a penalty clause “is a question of law for the court which is dependent upon the court’s construction of the contract.” Rohlin Constr. Co. v. City of Hinton, 476 N.W.2d 78, 79 (Iowa 1991). In Rohlin, we observed that liquidated damage clauses are favored, but a contract “ ‘term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.’ ” Id. at 80 (quoting Restatement (Second) of Contracts § 356(1) (1981) [hereinafter Restatement] ). We adopted the Restatement test for a penalty, which focuses on two factors: (1) “ ‘the anticipated or actual loss caused by the breach’ and (2) “ ‘the difficulty of proof of loss.’ ” Id. (quoting Restatement § 356(1) cmt. b); accord Aurora Bus. Park Assocs., L.P. v. Michael Albert, Inc., 548 N.W.2d 153, 156-57 (Iowa 1996). “ ‘The greater the difficulty either of proving that loss has occurred or of establishing its amount with the requisite certainty, the easier it is to show that the amount fixed is reasonable.’ ” Rohlin, 476 N.W.2d at 80 (quoting Restatement § 356(1) cmt. b).

The defendants’ claim that the repayment provision is a penalty rests on their erroneous assumption that the City’s only loss is the grant money paid to the company. The defendants argue these damages are readily ascertainable. In addition they contend the company has already paid $134,000 in additional property taxes to the City’s benefit and to require it to pay an additional $150,000 results in payments to the City that are disproportionate to any damage resulting from the company’s breach of the EDA.

We disagree with the defendants’ assumption that the only damage sustained by the City as a result of the company’s failure to perform its obligations under the agreement was the loss of the grant money. This assumption ignores the fact that the EDA expressly recognized two anticipated benefits to the City from the company’s performance of its contractual obligations: (1) an increased tax base; and (2) the creation of jobs. Although damages from a failure to realize the first benefit may be easily computed, the City’s loss from the company’s failure to create the jobs required by the EDA is difficult, if not impossible, to measure. New workers earn payroll dollars that are spent in the community, generating income for other residents who then spend their earnings, and so on. We conclude the City would have great difficulty in establishing with any degree of certainty the loss it has sustained from the company’s breach of the EDA.

That leaves, then, the question whether the damages set in the contract— the amount of the grant money — is an unreasonably large sum in view of the anticipated or actual harm. Clearly it is not. While the City will recover the cash outlays made to the company, this repayment does not cover the costs to the City in issuing the bonds required to obtain the grant funds, nor does it encompass the damages resulting from loss of the anticipated jobs.

We find no merit in the defendants’ argument that the $134,000 paid by the company in property taxes must also be factored into the analysis. The company’s payment of property taxes is not equivalent to payment of damages to the City. The company would owe property taxes even in the absence of the EDA. Furthermore, the company did not pay inflated taxes, notwithstanding the minimum actual value set in the assessment agreements, because, as the company concedes, the extent of its improvements clearly supported the increased valuation of its property.

In summary, the contractual provision requiring the company to repay the $150,000 it received from the City is a valid liquidated damage clause. The actual loss sustained by the City from the company’s breach of the agreement is difficult to ascertain, and the amount the company must pay upon its breach is not unreasonably large given the identifiable losses sustained by the City from the company’s failure to meet its contractual obligations. We conclude the district court did not err in ruling the repayment requirement was not an unenforceable penalty-

V. Amount of Judgment.

The EDA executed by the company required it to repay any grant monies, “not to exceed $200,000 in total,” if it failed to fulfill its obligations under the agreement. The EDA also provided that this obligation would be “secured by a personal and corporate guaranty in that amount by the principal of the business.”

For reasons not shown in the record, two guaranties were executed by Shewry, one in his individual capacity and one in his capacity as president of the company. Both guaranties were limited to $75,000. The record is unenlightening as to why the EDA contemplated a corporate guaranty. “[A] guaranty is a contract by one person to another for the fulfillment of a promise of a third person.” Andrews & Co. v. Tedford, 37 Iowa 314, 316 (1873) (emphasis added). Here the company guaranteed its own performance under the EDA.

The defendants contend the guaranty given by the company limited its liability under the EDA to $75,000. They also argue that the guaranty given by Shewry individually simply guaranteed the company’s guaranty, so that the maximum recovery by the City from both defendants is limited to $75,000. The district court concluded the company’s obligation under the EDA was $150,000 and that Shewry had guaranteed that obligation to the extent of $75,000. We think the court was right.

The City sought to recover from the company pursuant to the terms of the EDA, not under its guaranty. The EDA clearly requires the company to repay the total amount of the grants it received—$150,000. While it is unclear why the company would guarantee its own performance, the corporate guaranty is not at issue here. Cf. Andrews & Co., 37 Iowa at 316 (holding guarantor’s liability was determined by reference to the obligations assumed by the guarantor in the guaranty, not by reference to the contract of the primary obligor). Although the company argues that its guaranty somehow limited its liability under the EDA, we find no provision in the guaranty to support this contention. The guaranty simply says that the company’s liability under the guaranty is limited to $75,000. It does not purport to modify the EDA. To hold that a “guaranty” modifies the undertaking of the principal obligor is contrary to the nature of a guaranty, which is to secure the primary undertaking, not reduce it. We think the trial court properly refused to interpret the guaranty as a modification of the EDA in the absence of a clear expression of such intent by the parties.

Finally, we reject the defendants’ argument that Shewry’s guaranty secures the company’s performance of its guaranty, rather than the company’s performance of its obligations under the EDA. Shewry specifically guaranteed payments due “under the Economic Development Agreement.” The defendants’ contrary contention lacks any merit.

VI. Summary and Disposition.

The trial court did not err in refusing to require the City to account to the defendants for incremental tax payments made by the company and allocated to the TIF district. The economic development agreement and incorporated assessment agreements did not provide that such payments would serve as an offset against the company’s liability upon breach of the contract.

The district court also correctly rejected the defendants’ argument that the repayment provision was an unconscionable penalty. Based on the uncertainty of the City’s damages upon the company’s failure to perform and the reasonable amount of the repayment required, the challenged provision was a valid and enforceable liquidated damage clause.

Finally, the trial court properly entered judgment in the amount of $150,000 against the company under the EDA, and against Shewry in the sum of $75,000 based on his personal guaranty. As specified by the district court, Shewry’s liability will be extinguished should the company pay the $150,000 judgment entered against it.

AFFIRMED.

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

      . It appears the court's mistake may have arisen in part from our failure to distinguish the use of "assessment” in the sense of a "special assessment” or charge against specific property and the use of "assessment” in the sense of determining the value of property to be taxed. The comments quoted from Kratovil's book on real estate law describe the former, "special, or local assessments.” See Robert Kratovil, Real Estate Law 465 (6th ed. 1974) (stating in the sentence immediately preceding the material quoted in Norwest Credit: "[Local] improvements [which benefit particular real estate or limited areas of land] are usually financed by means of special, or local, assessments.”). Special assessments are a tool given to cities to assist them in financing public improvements. See Iowa Code §§ 384.37-79 (setting forth requirements and procedure for city's assessment of costs of public improvements on private property). A special or local assessment requires the owner of property that will benefit from a public improvement made in the vicinity of the property to pay a portion of the cost of that improvement. See Home Builders Ass'n v. City of West Des Moines, 644 N.W.2d 339, 346 n. 2 (Iowa 2002) (stating "cities may impose a special tax assessment on property for 'the cost of construction and repair of public improvements,’ ” quoting Iowa Code § 384.38(1)); Newman v. City of Indianola, 232 N.W.2d 568, 573-74 (Iowa 1975) (" special assessments are generally imposed by an exercise of the taxing power’ " (citation omitted)). That is not the type of assessment at issue in Norwest Credit and is not the type of assessment at issue here. The "assessment” involved in this case and the Norwest Credit case is a determination of the amount of tax to be imposed on real property based on the actual value of the property. See Iowa Code §§ 403.6(19) (stating assessment agreement executed in connection with economic development grant must be reviewed by the assessor "legally responsible for the assessment of the ... property”), 441.19 ("The assessor shall ... assess all the property in the county or city, except property exempted or otherwise assessed.”), 441.21 (stating actual value of property shall be considered its "assessed value”). We disavow any intent in Norwest Credit to equate a special assessment under chapter 384 with the assessment that is the subject of an assessment agreement under chapter 403. The comments quoted from the Kravotil book in Norwest Credit are simply irrelevant to the interpretation of an assessment agreement executed as part of an economic development project.

      . The defendants also complain of the trial court’s ruling that the testimony of their witness, Rick Day, was irrelevant. Day’s testimony was offered to prove that the company had made sufficient improvements to generate more than adequate tax revenues to retire the bonds issued by the City, and that as much as $134,384 of property tax payments made by the company should have been applied to the bonds. Because we agree with the district court that the company is not entitled to an offset for the increased property taxes it paid, we find no abuse of discretion in the trial court’s refusal to hear Day’s testimony. See Mercer v. Pittway Corp., 616 N.W.2d 602, 612 (Iowa 2000) ("We review a district court's decision concerning the admission of relevant evidence for an abuse of discretion.”).

      . Under the terms of the assessment agreement for phase II, the parties agreed that effective January 1, 1998, the minimum actual value that would be assessed for the company's land and building would be $1,163,046. In fact, the assessed valuation as of that date was $1,942,800.

      . The defendants repeatedly refer in their briefs to the earlier summary judgment ruling in which Judge Kelley, interpreting the guaranties, held that the City could only recover $75,000 from the company and an additional $75,000 from Shewry, individually. It is not clear whether the defendants cite this ruling as support for their position or whether they think it governed the later trial before Judge Darbyshire. If the latter thought prompted their reliance on Judge Kelley’s ruling, we simply point out that Judge Kelley's summary judgment discussion of this issue did not prevent Judge Darbyshire from issuing a contrary ruling after trial. See, e.g., Ahls v. Sherwood/Division of Harsco Corp., 473 N.W.2d 619, 624 (Iowa 1991) ("An interlocutory order is not the law of the case because the court is free to change it at a later time.” (citing cases)); Kendall/Hunt Publ'g Co. v. Rowe, 424 N.W.2d 235, 240 (Iowa 1988) ("A trial judge may usually correct his or her own rulings or that of another judge of the same court anytime before final judgment.”). The decision reviewed on appeal is the final ruling on this issue in the district court — Judge Dar-byshire's order. See Am. Family Mut. Ins. Co. v. Allied Mut. Ins. Co., 562 N.W.2d 159, 163 n. 3 (Iowa 1997) (noting review of district court's final ruling was “not controlled by an earlier order entered by another judge,” which was not final and therefore did not establish the law of the case).


text:
    Stephen R. JOHNSON, Appellant, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Appellee.
    No. 02-0624.
    Supreme Court of Iowa.
    Jan. 22, 2004.

      Michael K. Bush of Bush, Motto, Creen <& Koury, P.L.C., Davenport, for appellant.
    J. Michael Weston and Brenda K Wall-richs of Moyer & Bergman, P.L.C., Cedar Rapids, for appellee.
   CARTER, Justice.

Plaintiff, Stephen Johnson, who is suing as the assignee of Eric Jennings, an individual found liable for damages in excess of his liability insurance policy limits in automobile personal-injury litigation, appeals from an adverse judgment in a bad-faith action against Jennings’ insurer, American Family Mutual Insurance Company (American Family). As grounds for reversal, the plaintiff urges that the district court improperly (1) instructed that as a requirement for recovery in this bad-faith litigation the plaintiff must show that the insurer had no reasonable basis for refusing to pay its policy limit, (2) allowed expert witnesses to testify with respect to the bad-faith issues, and (3) admitted evidence of plaintiffs medical history that tended to contradict the jury’s verdict in the personal-injury litigation. We separately consider these contentions and find them to be without merit. We affirm the judgment of the district court.

On January 29, 1996, an automobile accident occurred between the plaintiff and Jennings. American Family provided liability insurance coverage for Jennings up to a limit of $100,000 per claimant. It wrote to Jennings informing him that it had retained counsel on his behalf. That communication advised Jennings- of the $100,000 policy limit applicable to the claim and that he would be personally liable for any judgment in excess of that amount. The letter stated that conflict-of-interest problems might arise between his interests and those of American Family and invited him to obtain his own counsel.

The litigation was handled on Jennings’ behalf by attorneys John Stonebraker and Pat Woodward retained by American Family. It was apparent from the outset that the accident had been solely the fault of Jennings and that he had no basis for disputing liability. Discovery disclosed that plaintiff claimed to have developed a disease known as Fibromyalgia as a result of the accident. Stonebraker and Woodward did not seek an independent physical examination of plaintiff. Instead, they relied on his medical records and the depositions of his physicians to diminish his claim. It appeared from plaintiffs medical records and the deposition testimony of physicians who had examined him that three physicians concluded he suffered from Fibromyalgia and four physicians concluded that he did not. Plaintiffs medical records revealed that he had experienced the symptoms relied on for that diagnosis prior to the accident. Plaintiffs deposition testimony indicated that his body did not suffer any significant trauma from the automobile collision.

Plaintiff obtained an expert economic witness. Stonebraker and Woodward discovered that this witness would testify that plaintiff had sustained damages in excess of $600,000. Nevertheless, Stonebraker and Woodward evaluated the case at between $10,000 and $12,000 and so advised American Family. In spite of that evaluation, American Family, prior to trial, offered first $25,000 and later $75,000 to settle the case.

Stonebraker and Woodward took the depositions of Dr. Nebbeling and Dr. La-morgese, both of whom diagnosed the plaintiff with Fibromyalgia and concluded that it was caused by the collision with Jennings. Dr. Eymanson, who had also examined the plaintiff, was deposed and opined that, although the plaintiff suffered from Fibromyalgia, there was no causal link between that condition and the car collision involving Jennings.

Plaintiff agreed to accept American Family’s policy limits in settlement of his claim against Jennings. This demand was refused but was countered with an offer to pay $75,000. On the day before trial, Woodward, Jennings, and Jennings’ wife consulted for over two hours with respect to the medical evidence, the economic evidence, and the extent of Jennings’ exposure. Woodward continued to value the claim at between $10,000 and $12,000.

On the morning of trial, plaintiffs attorneys again offered to settle for the policy limits. Woodward renewed the $75,000 offer, which was rejected. The case proceeded to trial, and the jury returned a verdict in favor of the plaintiff and against Jennings in the sum of $597,014. Other facts that are of significance in this decision will be considered in our discussion of the legal issues presented.

I. Whether Plaintiff Was Required to Show that American Family Had No Reasonable Basis for Refusing to Pay Its Policy Limits.

The district court instructed the jury that, in order to recover against American Family on the bad-faith claim assigned to him by Jennings, plaintiff must establish, among other things, that “[d]e-fendant had no reasonable basis for its judgment that the demand for settlement was not reasonable.” That instruction was supplemented by a companion instruction in which the court stated “[t]he insurance company may reject settlement demands which it has a reasonable basis to believe are not reasonable.”

Plaintiff urges that these instructions constituted misstatements of the law applicable to a third-party bad-faith claim. He urges that unlike a first-party bad-faith claim, in which a reasonable basis for the insurer’s position immunizes it from bad-faith liability, see Loudon v. State Farm Mut. Auto. Ins. Co., 360 N.W.2d 575, 581 (Iowa Ct.App.1984), the duty to protect the assets of its insured precludes a liability insurer from refusing to settle for policy limits simply because the amount of the expected recovery is fairly debatable.

Unfortunately for plaintiff, our decisions on third-party bad-faith actions have established precisely the opposite of what he is urging. In Henke v. Iowa Home Mutual Casualty Co., 250 Iowa 1123, 97 N.W.2d 168 (1959), the seminal third-party bad-faith case in this jurisdiction, we stated:

If the insurer has exercised good faith in its dealings with the insured and if the settlement proposal has been fully and fairly considered and decided against, based upon an honest belief that the action could be defeated or the judgment held within the policy limits, and in which respect ... counsel have honestly expressed their conclusion, the insurer cannot be held liable even though there is a mistake of judgment in arriving at its conclusion.

Henke, 250 Iowa at 1130, 97 N.W.2d at 173. In the later decision of Ferris v. Employers Mutual Casualty Co., 255 Iowa 511, 122 N.W.2d 263 (1963), we stated:

If the insurer in good faith believed that it could successfully defend, it was not bound to relieve [the insured] of all possible harm that might come from his failure to purchase insurance in an amount that would have protected him from heavy liability.

Ferris, 255 Iowa at 518, 122 N.W.2d at 267.

We conclude that the Henke and Ferris cases are controlling on the issue now presented and support the court’s instruction that plaintiff had to show there was no reasonable basis for American Family’s rejection of the demand for its policy limits. Of course, the reasonableness of an insurer’s rejection of a settlement offer within policy limits must be judged from the point of view of one who is exposed to the entire risk. The district court so. instructed the jury in keeping with that principle. Because the instructions of the court were not erroneous in the manner urged, plaintiff has shown no basis for reversal of the judgment as a result of the jury instructions.

II. Whether Expert Witnesses Were Properly Allowed to Testify Concerning Essential Elements of Plaintiff’s Bad Faith Claim.

By pretrial motion and during trial, plaintiff sought to exclude the testimony of three personal-injury attorneys who testified as expert witnesses and supported the decisions of American Family and its attorneys. The district court allowed the testimony of these witnesses. Plaintiff urges that this was error because bad-faith claims are not negligence actions based on a particular standard of care. Consequently, he argues, the jury had no need to hear expert testimony in order to determine whether American Family met a certain standard.

We disagree with plaintiffs characterization of the use of this evidence. The propriety of certain actions or decisions on the part of American Family’s--attorneys had been placed before the jury as the result of plaintiffs claims. Plaintiff was attempting to show that it was unreasonable to reject his offer to settle for the policy limits. To rebut this contention, American Family called as a witness an experienced personal-injury litigator who had been made familiar with the facts available to American Family and its lawyers. That witness testified that the probability for a verdict in excess of the policy limits was slight. We believe that this was relevant evidence in aid of American Family’s defense of the bad-faith claim.

Two other experienced attorneys testified as to the quality of American Family’s communication with Jennings concerning the status of settlement negotiations and the' potential for a verdict in excess of policy limits. In their opinion, American Family and its lawyers acted properly with respect to both of these areas of communication. The sufficiency of such communication had been expressly challenged by plaintiff in his claim that American Family did not act properly towards its insured. Consequently, this was a matter as to which American Family was entitled to present evidence contradicting plaintiffs claims.'

The admissibility of opinion evidence, lay or expert, is a matter that is largely entrusted to the discretion of the trial court. Thavenet v. Davis, 589 N.W.2d 233, 234 (Iowa 1999); Sonnek v. Warren, 522 N.W.2d 45, 50 (Iowa 1994). We conclude that there was no abuse of discretion in allowing the testimony of American Family’s expert witnesses concerning the issues that we have discussed.

III. Use of Plaintiff’s Medical History to Cast Doubt on Validity of Jury’s Damage Award.

Finally, we consider plaintiffs challenge to American Family’s use of plaintiffs medical records and expert-witness testimony to show that the jury’s damage award was an aberration. Plaintiff argues that this was an improper effort to reliti-gate the underlying tort claim in order to convince the jury in the bad-faith action that the jury in the personal-injury action had reached an unreasonable result.

The verdict of the jury in the underlying tort litigation was a fait accompli for purposes of the bad-faith action. The issue was therefore not the reasonableness of the verdict, but rather, whether a verdict of that size should reasonably have been anticipated. In defending itself against plaintiffs claims that it should have been anticipated, American Family was entitled to produce evidence that militated against a recovery of that magnitude. We have considered all issues presented and conclude that the judgment of the district court should be affirmed.

AFFIRMED.

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

      . Fibromyalgia is a widespread musculoskele-tal pain and fatigue disorder. Symptoms vary, but generally consist of varying degrees of pain, fatigue, sleep disorder, irritable bowels, chronic headaches, sensitivity to odors, noise, bright lights, and foods, 'memory impairment, dizziness, and impaired coordination. The precise cause of Fibromyalgia is unknown, but it is believed that it may be triggered by traumatic events.