author: LARSON, Justice.

text:
    GENERAL ELECTRIC COMPANY, Appellant, v. IOWA STATE BOARD OF TAX REVIEW, Appellee.
    No. 04-0458.
    Supreme Court of Iowa.
    Aug. 12, 2005.

      Bruce W. Baker of Nyemaster, Goode, West, Hansell & O’Brien, P.C., Des Moines, Walter Hellerstein of University of Georgia School of Law, Athens, Georgia, and William Booth of General Electric Company, Albany, New York, for appellant.
    Thomas J. Miller, Attorney General, and James D. Miller, Assistant Attorney General, for appellee.
   LARSON, Justice.

General Electric Company (GE) applied for a refund on its 1993 Iowa income tax based on a carryback of a capital loss sustained in 1995. The Iowa Department of Revenue and Finance (department) denied the refund, and GE appealed to the Iowa State Board of Tax Review. The board affirmed the denial of the refund, and GE petitioned for judicial review. The district court agreed with the board, and GE appealed to this court. We affirm.

I. Facts and Prior Proceedings.

GE is a New York corporation doing business in Iowa. In 1993 it sold one of its subsidiaries, an aerospace business, realizing roughly $557,000,000 in capital gain. GE reported the capital gain on its federal and Iowa income tax returns. However, for Iowa tax purposes, this capital gain was classified as “nonbusiness,” a term we discuss later, and therefore was allocated to, and taxed by, another state. The full amount of the capital gain in 1993 was deducted in calculating GE’s Iowa taxable income; as a result, it was not taxed by Iowa.

In 1995 GE sold another subsidiary, a chemical business, and this time it realized a capital loss of almost $1.2 billion. Because, under federal tax law, a corporation’s capital losses may only be recognized in an amount equal to its capital gains, see I.R.C. § 1211(a) (1995), the federal tax code allows corporations to “carry back” capital losses to previous tax years and offset the losses against capital gains recognized in those prior years. Id. § 1212(a)(1)(A). In this case, GE’s only capital gain to which the carryback could be applied was the $557,000,000 gain in 1993. Accordingly, GE amended its federal 1993 return by carrying back $557,000,000 of its 1995 capital loss to offset the 1993 gain. This carryback reduced GE’s federal taxable income in 1993 from $2,554,466,349 to $1,992,452,524. In 1995 GE also amended its 1993 Iowa return to reflect the $557,000,000 capital loss carry-back. It sought a tax refund of $555,320, based on its amended return (roughly the tax on $557,000,000).

II. Iowa’s Income Tax Scheme.

We believe that a brief description of Iowa’s income tax scheme is helpful to understand the issues in this case. Iowa’s income tax scheme for corporations that derive income from Iowa and other states was explained in Kraft, Inc. v. Iowa Department of Revenue & Finance, 465 N.W.2d 664, 666 (Iowa 1991), reversed on other grounds by 505 U.S. 71, 112 S.Ct. 2365, 120 L.Ed.2d 59 (1992):

Iowa income tax is imposed upon the portion of a taxpayer’s “net income” attributable to its trade or business within Iowa. Iowa Code § 422.33. Section 422.35 defines “net income” as “the taxable income before the net operating loss deduction, as properly computed for federal income tax purposes.... ”

If a corporation has income sources from several states, Iowa splits the items comprising its net income into two types: business income and nonbusiness income. The distinction between business and non-business income is important because it determines whether an item of income is “allocated” to one specific state or “apportioned” among several states. See Iowa Code § 422.33(2)(a )-(&) (1993).

When income is allocated, it is attributed to the particular state or states that are considered to be the source of the income, often on the basis of the location of the property that gave rise to the income or on the basis of the taxpayer’s commercial domicile....
When income is apportioned, on the other hand, it is divided among the various states in which the taxpayer derives such apportionable income. The mechanism for apportioning income among the states [is an apportionment formula].

Jerome R. Hellerstein & Walter Heller-stein, State Taxation ¶ 9.02 (3d ed.1999) (footnotes omitted). In general “all ‘business income’ is apportioned; all ‘nonbusiness income’ is allocated.” Id.; accord Iowa Code § 422.33(2).

III. The Argument.

Three lines in GE’s original and amended 1993 returns are involved in this appeal. Line 1, entitled “Net Income From Federal Return,” is the starting point for computing the Iowa income tax. See Iowa Code § 422.35; First Nat’l Bank of Ottumwa v. Bair, 252 N.W.2d 723, 725 (Iowa 1977). Line 8, entitled “Net Income After Reductions,” shows the net income from line 1, less adjustments not relevant here. Line 9, entitled “Nonbusiness Income,” provides the basis for apportioning and allocating taxable income. The amount shown there that is allocable to other states is deducted from line 8 to determine Iowa’s taxable share.

Line 1 of GE’s original 1993 return showed federal taxable income of $2,549,466,349. Line 1 of the amended return showed $1,992,452,524, which reflected the $557,000,000 loss carried back from 1995. The parties agree that line 1 of the amended return properly reported GE’s net income for 1993 based on the loss carryback on the federal return.

Line 8, “net income,” shown on GE’s original return at $2,119,227,623, was reduced in its amended return to $1,562,213,798 to reflect the $557,000,000 reduction. Again, the parties agree that this figure is correct.

At line 9, the argument begins. The parties agree that the $557,000,000 capital gain was nonbusiness income, allocable in full outside of Iowa. The parties disagree, however, about whether line 9 on GE’s amended return should include that gain. GE’s figures on the original and amended returns at line 9 were identical, showing $768,051,794 as nonbusiness income. The department argues that, on the amended return, this amount must be reduced by the $557,000,000 loss carryback. GE disagrees; for purposes of allocating income away from Iowa in line 9, the $557,000,000 capital gain must remain included. This is so, it argues, because Iowa law mandates that this nonbusiness capital gain must be allocated in its entirety outside of Iowa. In other words, the $557,000,000 in question, as part of line 9, must be subtracted from line 8 and allocated outside of Iowa, even though that amount had already been deducted at line 1 by adopting the federal taxable income amount.

The department contends that the non-business-allocation rules — used to calculate the line 9 figure — only apply to items of income contained in the taxpayer’s Iowa net income — the figure found on line 8. In this case, because the $557,000,000 capital gain was completely offset at the federal level, none of that gain was included in GE’s Iowa net income on line 8. The department argues that GE cannot allocate gain that was not included in the first instance. Allowing allocation of such items, according to the department, would amount to a double deduction and would also have the effect of offsetting capital loss against ordinary income, which is not permitted.

According to GE, the department’s position ignores “the State’s strong commitment to conformity to federal taxable income as the starting point for the determination” of Iowa income tax. GE asserts that this is

a commitment that sometimes creates “inequities” for taxpayers and sometimes creates “inequities” for the State. But these “inequities” are simply the cost of conforming the Iowa statute to the federal income tax — a cost that is far outweighed by the gains in administrative simplicity for both taxpayers and the state implementing Iowa’s income tax system.

For the reasons to be discussed, the “inequity” in this case would fall on the state if GE’s argument prevails.

IV. Standard of Review.

Review of agency action is limited to correction of errors at law. Iowa R.App. P. 6.4; IBP, Inc. v. Harpole, 621 N.W.2d 410, 414 (Iowa 2001). “In reviewing the district court’s decision, we apply the standards of Iowa Code [chapter 17A] to determine whether our conclusions are the same as those of the district court.” Grundmeyer v. Weyerhaeuser Co., 649 N.W.2d 744, 748 (Iowa 2002). If they are the same, we affirm; if not, we reverse. Id.

In reviewing agency action, this court gives deference to the agency’s statutory interpretation, provided that the power to interpret the statute “has clearly been vested by a provision of law in the discretion of the agency.” Iowa Code § 17A.19(10)(Z) (2003). In City of Marion v. Iowa Department of Revenue & Finance, 643 N.W.2d 205, 206-07 (Iowa 2002), we concluded that the legislature had vested in the director of the department of revenue the power to interpret tax statutes. Thus, we accorded the lenient deference described in section 17A.19(10)(Z) to the agency’s official interpretation as reflected in its regulations. City of Marion, 643 N.W.2d at 207; accord Iowa Code § 17A.19(ll)(c). In this ease, however, neither party has identified an agency regulation that is directly on point. The agency has no official interpretation to which this court should defer; thus, we will reach our own conclusion regarding the proper interpretation of the relevant statutes.

V. Statutory Interpretation.

This court considers several rules when construing statutes:

(1) In considering legislative enactments we should avoid strained, impractical or absurd results.
(2) Ordinarily, the usual and ordinary meaning is to be given the language used but the manifest intent of the legislature will prevail over the literal import of the words used.
(3) Where language is clear and plain, there is no room for construction.
(4) We should look to the object to be accomplished and the evils and mischiefs sought to be remedied in reaching a reasonable or liberal construction which will best effect its purpose rather than one which will defeat it.
(5) All parts of the enactment should be considered together and undue importance should not be given to any single or isolated portion.
(6) We give weight to the administrative interpretation of statutes, particularly when they are of longstanding.
(7) In construing tax statutes doubt should be resolved in favor of the taxpayer.

Welp v. Iowa Dep’t of Revenue, 333 N.W.2d 481, 483-84 (Iowa 1983); accord Gen. Elec. Co. v. Iowa State Bd. of Tax Rev., 492 N.W.2d 417, 420 (Iowa 1992).

This case turns on the interplay between the statutory definition of “net income” and the statutory rules regarding apportionment and allocation. The department contends that the only items of income subject to allocation and apportionment are those items included in GE’s Iowa net income. GE, conversely, argues that the statute imposes no such limitation; according to GE, the deciding factor is the label of “nonbusiness income” assigned to the 1993 capital gain. GE asserts that, because the gain is nonbusiness and originated in another state, the allocation-apportionment rules mandate that such gain be allocated to that state and deducted from GE’s Iowa net income.

A. Plain meaning of the statute. The department argues, and the district court ruled, that GE’s interpretation conflicts with the plain language of the statute. The statute’s plain language creates a natural order of calculation. First, a taxpayer must determine its Iowa “net income,” as all Iowa taxes are based on that figure. See Iowa Code § 422.33(1). Section 422.35 defines “net income” as “the taxable income before the net operating loss deduction, as properly computed for federal income tax purposes.... ” We have interpreted this language to mean that the starting point for calculating a corporation’s Iowa net income is its federal taxable income. See First Nat’l Bank, 252 N.W.2d at 725.

Section 422.35 then provides a number of “adjustments,” which modify the federal taxable income figure. See Iowa Code § 422.35(1)-(16). After these adjustments are made, the resulting figure is the taxpayer’s Iowa “net income.”

Finally, after the taxpayer calculates its Iowa “net income,” the process of allocating and apportioning that income begins. This is so because the legislature specifically provided that the allocation-apportionment rules are used to calculate the “portion of the [taxpayer’s] net income reasonably attributable” to sources within Iowa. Iowa Code § 422.33 (emphasis added). As a matter of linguistic logic, a portion of the whole cannot be allocated before “the whole” has been identified. Thus, by employing the statutorily defined term “net income” in section 422.33, the legislature obviously intended to delay the application of the allocation-apportionment rules until after the taxpayer’s “net income” has been calculated. In so doing, the legislature limited the rule’s applicability to only those items of income included in the net income figure. In other words, only those items that make up the taxpayer’s “net income” are subject to allocation and apportionment.

B. Statutory purpose and legislative intent. This interpretation reinforces the legislature’s goal in enacting the statute— the creation of an efficient yet constitutional corporate tax system. The legislature met its efficiency goal by basing Iowa taxes on the taxpayer’s federal taxable income. See Iowa Code § 422.35. Our system

is convenient for the taxpayer, prevents the taxpayer from spending time and money on complex forms, provides a saving to the state, allows the state to rely on federal regulation and interpretation, and provides the state with an inexpensive and quick way of verifying the accuracy of taxpayers’ returns.

Kraft, 465 N.W.2d at 669, rev’d on other grounds by 505 U.S. 71, 112 S.Ct. 2365, 120 L.Ed.2d 59; see also Comptroller of Treasury Income Tax Div. v. Am. Satellite Corp., 312 Md. 537, 540 A.2d 1146, 1150 (1988) (citing efficiency as one reason the legislature adopted the taxpayer’s federal taxable income as the base figure in determining state income tax liability).

If we were to adopt GE’s interpretation, it would hinder this efficiency objective because taxpayers and taxing entities alike would be forced to look beyond the taxpayer’s federal taxable income and consider each item of gain and loss used in calculating that figure. See Am. Satellite Corp., 540 A.2d at 1150 (stating that the comptroller’s interpretation — which was quite similar to GE’s — would frustrate the legislature’s goal of efficiency). Certainly this is not the result the legislature intended.

Moreover, GE’s interpretation does nothing to further the legislature’s goal of constitutionality. The statute classifies income as either business or nonbusiness income simply to avoid unconstitutionally taxing taxpayers’ extraterritorial income. However, if an item of extraterritorial income is not included in the taxpayer’s Iowa net income to begin with, there is no risk of overtaxing, and thus allocation is no longer necessary.

C. The department’s long-standing interpretation. The department has a longstanding rule regarding capital-loss carry-backs that supports its interpretation. See Iowa Admin. Code r. 701 — 53.3(1). That rule states:

Capital losses shall be allowed or allowable for Iowa corporation income tax purposes to the same extent they are allowed or allowable for federal corporation income tax purposes. Capital loss carrybacks shall be treated as an adjustment to federal taxable income to arrive at net allocable and apportiona-ble income.

Id. (emphasis added). Again, this rule contemplates a scheme in which only items of income included in the taxpayer’s federal taxable income are subject to allocation and apportionment. This rule supports the department’s position in this case.

D. Avoidance of strained or absurd results. In interpreting statutes, “we should avoid strained, impractical or absurd results.” Gen. Elec. Co., 492 N.W.2d at 420. GE argues that, if the department’s view prevails, it would result in unfortunate and “unintended” consequences. For example, if a taxpayer who has a capital gain otherwise taxable to Iowa also has a capital loss in another state in a larger amount, Iowa would receive no tax because the capital loss from the other state would wipe out the Iowa gain in the taxpayer’s federal taxable income figure at line 1. The department concedes that this could happen, but observes that this is simply a cost of adopting a taxing scheme that relies on conformity with federal tax law. See Kraft, 465 N.W.2d at 669 (explaining advantages of conformity).

The hypothetical offered by GE is not involved in this case; however, a Maryland court, applying similar federal conformity law, considered such a case and reached exactly the conclusion advanced by the department. See Am. Satellite Corp., 540 A.2d 1146. Maryland’s tax scheme, like Iowa’s, uses the corporation’s federal taxable income as the starting point. In American Satellite Corp., the taxpayer realized a capital gain of $5,000,000, all of which was allocable to Maryland. 540 A.2d at 1148. However, the company had federal net-operating losses of over $51,000,000 from previous years, which completely offset the capital gain and reduced the taxpayer’s federal taxable income to zero. Thus, the taxpayer reported Maryland net income of zero and did not pay any state tax. The Maryland comptroller determined a deficiency because, in his opinion, the $51,000,000 of offsetting net-operating loss was appor-tionable among the states. Id. The comptroller found that only $1,300,000 of the net operating loss was allocable to Maryland, so the taxpayer owed state tax on the remaining $3,700,000. Id.

The Maryland Court of Appeals did not agree with the comptroller’s calculation and, instead, found for the taxpayer. Under its reading of the statute, “the federal taxable base [is] a ceiling on net income subject to Maryland tax.” Id. at 1149. Moreover, the court criticized the comptroller’s strained interpretation:

The statute clearly imposes a tax only on “such portion [of net income] as is allocable to this State under the [allocation-apportionment rules].” (Emphasis added.) [The allocation-apportionment rules] cannot be used to create additional net income as a ‘portion’ cannot be more than the whole.

Id. at 1151.

We find this logic equally applicable here. Our allocation-apportionment rules cannot be used to allocate a “portion” of the whole if that portion was never part of the whole in the first place. In other words, if an item of the taxpayer’s federal gross income is completely offset in calculating its federal taxable income — and therefore is not part of its Iowa net income — then that item is not subject to Iowa’s allocation-apportionment rules.

GE raises other hypothetical scenarios that, it contends, would make the department’s interpretation of our tax statutes unworkable. We disagree. In any event, the facts in those scenarios are not before us now, and we need not speculate how those cases would be resolved. One scenario that requires no speculation, however, is the effect in this case if we adopted GE’s argument: GE would obtain a “refund” of taxes that it had never paid to Iowa. That is so because, as the parties agree, the entire 1993 capital gain from the sale of GE’s aerospace business was allocated away from Iowa in its original 1993 return.

It is true that generally in construing tax statutes doubts will be resolved in favor of the taxpayer. Gen. Elec., 492 N.W.2d at 420. We do not believe that the meaning of the tax statutes here is in doubt; in fact, their language is quite clear. Moreover, as we noted in General Electric, other rules of construction also apply, one of which is to avoid strained, impractical, or absurd results. Id. At least impliedly based in part on this rule of construction, we held in General Electric that an income-tax refund, admitted by the taxpayer to be a windfall, would not be allowed. Id. at 421-22. Here, the “refund” requested by GE, amounting to over $550,000, would be a windfall not mandated or even permitted by our law. The department properly denied the claim, and we affirm the district court’s decision so holding.

AFFIRMED.

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

      . Iowa Code section 422.32 (1993) defines both terms:
      2. "Business income" means income arising from transactions and activity in the regular course of the taxpayer’s trade or business and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations.

      7. “Nonbusiness income " means all income other than business income.


source: Caselaw Access Project

author: WIGGINS, Justice. CADY, J.

license: Public Domain

text:
    IMT INSURANCE COMPANY, Appellant, v. CRESTMOOR GOLF CLUB, d/b/a Crestmoor Country Club, Galen Krieger and Tabitha Lynnae Cottrell, Appellees.
    No. 65/04-0904.
    Supreme Court of Iowa.
    Aug. 19, 2005.

      Merrill C. Swartz and John B. Grier of Cartwright, Druker & Ryden, Marshall-town, for appellant.
    Jeffrey L. Goodman and Gretchen R. Jensen of Goodman & Associates, P.C., West Des Moines, for appellee Cottrell.
    No appearance by other appellees.
   WIGGINS, Justice.

This appeal involves a petition for declaratory judgment filed by an insurance company requesting judgment that it did not have a duty to defend or indemnify under its policy of insurance. The district court found coverage to exist for the claims of negligent supervision and retention. Thus, the insurance company was required to defend or indemnify regarding those claims. The insurance company appeals contending various exclusions in the policy exclude coverage. We reverse the decision of the district court and remand the case to enter judgment in favor of the insurance company because the policy provides “[t]his insurance does not apply under any of the coverages to damages arising out of ... the liability of the insured for the misconduct of ... any other person,” thereby excluding coverage for the claims of negligent supervision and retention.

I. Background Facts and Proceedings.

Tabitha Lynnae Cottrell, a former female employee of Crestmoor Golf Club d/b/a Crestmoor Country Club (Crestm-oor) claims her supervisor, Galen Krieger, made inappropriate sexual comments to her, touched her inappropriately, and sexually assaulted her. She later complained to Crestmoor personnel. She alleges when she returned to work at Crestmoor, “other managers ridiculed her complaint and engaged in other improper conduct toward her.” She further claims Crestm-oor constructively discharged her. As a result of the actions of her supervisor and Crestmoor, she claims she suffered humiliation, alienation, severe emotional distress, and economic harm.

She filed a complaint in the United States District Court against Crestmoor and Krieger. She also filed a petition against the same defendants in state court, making the same allegations as she made in federal court. She alleged federal and state claims of sexual harassment and retaliation against Crestmoor. She additionally alleged claims of negligent supervision, negligent retention, tortious infliction of severe emotional distress, and a claim of respondeat superior against Crestmoor.

Relevant to this appeal, she alleged “Crestmoor knew, or should have known, that Krieger harassed and acted inappropriately toward other employees prior to Krieger’s harassment and assault on [her].” Her allegation of negligent supervision claimed: “Crestmoor, its agents, board members, servants, and employees were negligent in failing to properly supervise and control the activities of Krieger.” Her allegation of negligent retention claimed: “Crestmoor, its agents, board members, servants, and employees were negligent in retaining and failing to terminate Krieger.” As a proximate cause of Crestmoor’s negligent supervision and retention of Krieger, Cottrell asked for damages.

Crestmoor purchased a contract of insurance through IMT Insurance Company (IMT). This policy was in force at the time of the alleged incident. Although Crestmoor and Krieger timely requested IMT defend them from the claim, IMT denied the request asserting there was no coverage under the terms and provisions of the insurance contract existing between IMT and Crestmoor. IMT filed a petition for declaratory judgment requesting judgment that it did not have a duty to defend or indemnify Crestmoor or Krieger under its policy of insurance. IMT also named Cottrell as a defendant.

The parties submitted the coverage case to the court as a bench trial on stipulated facts. The parties stipulated the IMT insurance policy did not provide coverage for the claims against Krieger, individually, or for the claims against Crestmoor based on theories other than negligent supervision and retention. Therefore, the issue before the district court was whether the IMT policy provided coverage for the negligent supervision and retention claims brought against Crestmoor. The district court determined insurance coverage existed for the negligent supervision and retention claims requiring IMT to defend and indemnify Crestmoor on those claims. IMT appeals.

II. Issue.

Although IMT raises numerous issues on appeal, one is dispositive: whether the amendatory endorsement exclusion, which provides “[t]his insurance does not apply under any of the coverages to damages arising out of ... the liability of the insured for the misconduct of ... any other person,” is applicable to this case.

III. Scope of Review.

“A declaratory judgment action tried at law limits our review to correction of errors at law. We are bound by well-supported findings of fact, but are not bound by the legal conclusions of the district court.” Am. Family Mut. Ins. Co. v. Petersen, 679 N.W.2d 571, 575 (Iowa 2004) (citing United Fire & Cas. Co. v. Shelly Funeral Home, Inc., 642 N.W.2d 648, 651 (Iowa 2002)).

IV. Analysis.

General Principles of Insurance Contract Construction and Interpretation. We have long adhered to the following principles regarding interpretation and construction of insurance contracts:

“The cardinal principle in the construction and interpretation of insurance policies is that the intent of the parties at the time the policy was sold must control. Except in cases of ambiguity, the intent of the parties is determined by the language of the policy. ‘An ambiguity exists if, after the application of pertinent rules of interpretation to the policy, a genuine uncertainty results as to which one of two or more meanings is the proper one.’ ”

Am. Family Mut. Ins. Co. v. Corrigan, 697 N.W.2d 108, 111 (Iowa 2005) (quoting LeMars Mut. Ins. Co. v. Joffer, 574 N.W.2d 303, 307 (Iowa 1998)). “Where neither party offers any extrinsic evidence concerning the meaning of the policy language, the process of construing or interpreting the meaning of the words used is a matter of law for the court to decide.” Nationwide Mut. Ins. Co. v. Kelly, 687 N.W.2d 272, 274 (Iowa 2004).

Because insurance policies are adhesion contracts, we construe ambiguous terms in the insured’s favor. Cairns v. Grinnell Mut. Reins. Co., 398 N.W.2d 821, 824 (Iowa 1987); see also Joffer, 574 N.W.2d at 307 (stating, “[exclusions from coverage are construed strictly against the insurer”). “It is therefore incumbent upon an insurer to define clearly and explicitly any limitations or exclusions to coverage expressed by broad promises.” Cairns, 398 N.W.2d at 824. Even in cases of doubt as to whether a claim is covered by the policy, the doubt must be resolved in the insured’s favor. N. Star Mut. Ins. Co. v. Holty, 402 N.W.2d 452, 454 (Iowa 1987).

The Amendatory Endorsement Exclusion. The policy of insurance issued to Crestmoor contains an amendatory endorsement that states:

This insurance does not apply under any of the coverages to damages arising out of:
a. misconduct by an insured, or
b. the liability of the insured for the misconduct of another insured or any other person.

(Emphasis omitted.) The policy endorsement includes a definition of “misconduct”:

Misconduct as used in this endorsement means sexual misconduct, sexual molestation, sexual abuse, non-consensual sexual activity, or the physical or mental abuse of any person.

(Emphasis omitted.)

Cottrell claims she is entitled to damages because Krieger made inappropriate sexual comments to her, touched her inappropriately, and sexually assaulted her. These claims clearly constitute misconduct under the policy endorsement’s definition. Paragraph “a” of the amendatory endorsement exclusion does not exclude coverage, however, because Cottrell is not alleging misconduct by Crestmoor. Her claims against Crestmoor are for negligent supervision and retention of Krieger, whose misconduct allegedly caused her damages.

We hold under paragraph “b” of the amendatory endorsement exclusion, coverage for Crestmoor’s negligent supervision and retention of Krieger is excluded. Crestmoor is liable for Cottrell’s damages only if Krieger committed the underlying acts alleged by her. A necessary element of a claim for negligent supervision or retention is an underlying tort or wrongful act committed by the employee. Kiesau v. Bantz, 686 N.W.2d 164, 172 (Iowa 2004). In a claim of negligent retention and supervision, the cause of action arises from the employer’s own tortious conduct. Id. at 173. “[T]he underlying tort or wrongful conduct is simply a link in the causal chain leading to compensable damages.” Id.

Paragraph “b” of the amenda-tory endorsement exclusion applies “to damages arising out of ... the liability of the insured for the misconduct of ... any other person.” We narrowly construe the phrase “damages arising out of’ to mean only those injuries proximately caused by the liability of the insured. Kalell v. Mut. Fire & Auto. Ins. Co., 471 N.W.2d 865, 868 (Iowa 1991); accord Corrigan, 697 N.W.2d at 112-13 (holding because the claim of negligent supervision alleged against one insured was not independent of the other insured’s excluded wrongful acts, all theories of liability arose out of the wrongful conduct of the other insured and coverage was therefore excluded). The phrase “the liability of the insured” refers to the theories of recovery alleged in the claim of the injured party. In the present case, the theories of recovery are negligent supervision and retention. The phrase “for the misconduct of ... any other person” means misconduct, as defined by the exclusion, caused by any person. In the present case, the misconduct is the inappropriate sexual comments, inappropriate touching, and sexual assault allegedly committed by Krieger, who qualifies as “any other person.”

The claims of negligent supervision and retention, the basis of Crestmoor’s liability, are dependent on the wrongful conduct of Krieger; consequently, the damages allegedly incurred by Cottrell arose out of the liability of Crestmoor and the wrongful conduct of Krieger. The alleged wrongful conduct of Krieger, the inappropriate sexual comments, inappropriate touching, and sexual assault, is misconduct under the amendatory exclusion. Therefore, the amendatory exclusion excludes coverage for Crestmoor, because Krieger qualifies as “any other person” under the exclusion.

Cottrell also argues that the sev-erability-of-interests clause of the policy precludes us from holding paragraph “b” of the amendatory endorsement exclusion applies to her claim. She relies on our decision in Shelly Funeral Home, where we held the severability-of-interests clause required us to apply the policy from the perspective of the insured seeking coverage. 642 N.W.2d at 654. The severability-of-interests clause in the IMT policy provides:

Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Part or the first Named Insured, this insurance applies:
(a) As if each Named Insured were the only Named Insured; and
(b) Separately to each insured against whom claim is made or “suit” is brought.

We recently rejected a similar argument. Corrigan, 697 N.W.2d at 117.

In Corrigan, Mark Francke seriously injured an eight-month-old child left in his care, while he operated a daycare business in the home of his father, Harold Francke. Id. at 110. Mark ultimately pled guilty to child endangerment. Id. The child’s parents filed suit against Mark and Harold seeking damages for the injuries to their son. Id. They based their claims against Harold on his failure to warn them of the danger that Mark presented, Harold’s failure to supervise, monitor, or otherwise take action to discover Mark was a danger, and for knowingly allowing dangers to exist at the daycare that created a substantial risk of harm to children on the premises. Id.

Harold’s insurance policy contained a criminal acts exclusion. It provided, “We will not cover bodily injury or property damages arising out of ... violation of any criminal law for which any insured is convicted.” Id. at 112. The policy also contained a severability-of-interests clause similar to the clause contained in Crestm-oor’s policy. Id. at 115. After considering the argument that the severability-of-in-terests clause required the company to provide coverage, we concluded:

that even though the severability-of-in-terests clause requires that we apply the criminal acts exclusion from the viewpoint of Harold, the plain language of the exclusion mandates that we consider whether the claims made against Harold include as an element conduct by any insured that is a violation of the criminal law.

Id. at 117.

The same result is required in the present case. Even though we are required to apply the amendatory endorsement exclusion solely from the viewpoint of Crestm-oor, the plain language of the exclusion requires that we consider whether the claims made against Crestmoor include as an element misconduct, as defined by the exclusion, by any other person. Therefore, the damages that Cottrell seeks to recover from Crestmoor arise out of Krieger’s misconduct, as defined by the amendatory endorsement exclusion; thus, the policy does not provide coverage.

V. Disposition.

We reverse the decision of the district court requiring IMT to defend and indemnify Crestmoor because the amendatory endorsement exclusion precludes coverage for Cottrell’s claims for negligent supervision and retention against Crestmoor based on the inappropriate sexual comments, inappropriate touching, and sexual assault committed by Krieger. Accordingly, we remand the case to the district court to enter judgment in favor of IMT.

REVERSED AND CASE REMANDED WITH INSTRUCTIONS.

All justices concur except CADY, J., who dissents.

CADY, J.

(dissenting).

I respectfully dissent. I disagree with the holding by the majority that damages in an action for negligent supervision and retention arise out of “the liability of the insured for the wrongful conduct of [the employee].” I would hold the exclusion in the insurance policy does not apply.

It is fundamental that a claim for negligent supervision and retention arises out of the employer’s own conduct. Kiesau v. Bantz, 686 N.W.2d 164, 173 (Iowa 2004). The tort does not, in any way, impose liability on the employer for misconduct of the employee. See 27 Am.Jur.2d Employment Relationship § 390, at 842 (2004) (“The theory of direct liability [for negligent hiring, supervision, or retention] is completely separate from the respondeat superior theory of vicarious liability because the cause of action is premised on the wrongful conduct of the employer, such that the employer’s negligence was the proximate cause of the plaintiffs injuries.”); 30 C.J.S. Employer-Employee § 189, at 268 (1992) (“Aside from respon-deat superior, or where the doctrine of respondeat superior is inapplicable, an employer may be liable to a third person for its negligence in the training and supervision of, its employees. The basis of the employer’s liability for negligent supervision is direct, not vicarious, liability.”); see also 7A Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 103:31, at 103-74 (1997) (distinguishing between the insured’s liability for negligent supervision and “legal responsibility for the third party’s act (vicarious liability)”). Such a proposition ignores the fundamental premise of the tort and creates a legal fiction that serves only to permit an insurer to avoid its obligation to an insured under a contract of insurance.

Of course, we have said that the wrongful conduct of the employee is an element of the tort of negligent supervision and retention. Kiesau, 686 N.W.2d at 172. We have also said that a plaintiff must prove the wrongful conduct of the employee was a cause of the damages. Id. at 173. However, neither of these propositions supports the conclusion that an employer in a negligent supervision and retention action is liable for the wrongful conduct of the employee.

Our observation in Kiesau that the wrongful conduct of the employee is an element of the tort of negligent supervision and retention does not mean that the tort imposes liability on the employer for the employee’s wrongful conduct. Liability is imposed under the tort of negligent supervision and retention essentially for the failure of the employer to prevent the wrongful conduct by the employee. See Godar v. Edwards, 588 N.W.2d 701, 709 (Iowa 1999) (employer has a duty to use care in hiring, supervising, and retaining people who may present a threat of harm to others). The tort requires an employer to protect others from its employee’s wrongful misconduct if the employee fore-seeably posed an unreasonable risk of harm to others. Id. at 708-09. Thus, to impose liability on the employer, the plaintiff must necessarily show the presence of wrongful misconduct by the employee that should have been prevented. See 30 C.J.S. Employer-Employee § 186, at 262-63 (“In order to impose liability on an employer for negligent hiring of an employee, the plaintiff must first establish liability on the part of the employee by virtue of the employee’s wrongful act against the plaintiff, and no liability attaches to the master by reason of hiring incompetent or otherwise unfit servants unless their incompetence or unfitness was the proximate cause of the injury.”). Only in this way is the underlying misconduct a part of the tort. However, the wrongful conduct is not that part of the tort that gives rise to liability. Liability arises from the failure of the employer to prevent the wrongful conduct. See 27 Am.Jur.2d Employment Relationship § 390, at 842 (noting that liability imposed in negligent hiring, supervision, and retention cases is direct liability for the employer’s own conduct, not vicarious liability for the conduct of the employee); 30 C.J.S. Employer-Employee § 189, at 268 (same).

Our statement in Kiesau that a plaintiff must prove that the wrongful conduct of the employee was a cause of the plaintiffs damages also does not support the majority’s position. Kiesau cited Schoff v. Combined Insurance Co., 604 N.W.2d 43, 53 (Iowa 1999), for this proposition. Kiesau, 686 N.W.2d at 173 (citing Schoff, 604 N.W.2d at 53). However, Schoff merely indicated that an employer cannot be liable if the employee’s conduct, the act the employer had a duty to prevent, was “not actionable against the employee.” Schoff, 604 N.W.2d at 53. Schoff did not hold that in negligent hiring, supervision, and retention cases, liability is imposed on the employer for the misconduct of the employee, but merely said the conduct that the employer was obligated to prevent must be wrongful or tortious. See id. Thus, Schoff instructs that wrongfulness of the employee’s conduct is necessary to make the employer’s conduct actionable, and our decision had nothing to say about injecting proof of causation between the wrongful conduct of the employee and the damages, as an element of the tort. Instead, like any other tort, the torts of negligent hiring, supervision, and retention require the plaintiff to show the defendant’s breach proximately caused the plaintiffs damages. See 30 C.J.S. Employer-Employee § 186, at 262-63 (“In order to impose liability on an employer for negligent hiring of an employee, the plaintiff must first establish liability on the part of the employee by virtue of the employee’s wrongful act against the plaintiff, and no liability attaches to the master by reason of hiring incompetent or otherwise unfit servants unless their incompetence or unfitness was the proximate cause of the injury.”). Properly read, Schoff only holds that the employer’s duty under the tort does not extend to protect others from conduct that was not wrongful or tortious.

Accordingly, the damages in an action for negligent hiring, supervision, or retention arise out of the liability of the employer for the misconduct of the employer, not the misconduct of the employee. As applied to the insurance policy at issue in this case, this means “liability of the insured” is not imposed “for the misconduct of [the employee],” and the exclusion does not apply.

I recognize we recently held in American Family Mutual Insurance Co. v. Corrigan, 697 N.W.2d 108, 114 (Iowa 2005), that injuries to a child inflicted by the son of an operator of an in-house day care in an action for negligent supervision against the homeowner-operator were excluded from coverage under the homeowner’s insurance policy because such “damages [arose] out of ... a violation of criminal law.” I do not take issue with Corrigan, or the proposition that damages, detached from liability, arise from the acts of someone other than the defendant in an action for negligent supervision. However, the exclusion in this ease does not deal with damages arising out of the misconduct of another, but those arising out of liability for misconduct of another. If the concept of liability was excluded from the insurance policy in this case, I would have no objection to the result reached by the majority. But liability was not excluded, and this is what makes all the difference. The insurance policy in this case is much more narrowly drawn than the policy in Corri-gan and should be interpreted to recognize this important distinction.

The whole focus of the tort of negligent hiring, supervision, and retention is to make the employer liable based upon its individual and separate obligation to step in and prevent the wrongful acts, so that the employer cannot avoid responsibility by pointing the finger at the employee who committed the wrongful acts. Yet, the majority interprets the amendatory endorsement exclusion to allow the insurer to avoid responsibility for coverage for damages from the employer’s act by pointing the finger at the employee. The insurance contract should not be interpreted to permit the tortfeasor’s insurer to do what the law forbids the tortfeasor to do, without clear language to support that interpretation.


author: PER CURIAM.

text:
    STATE of Iowa, Appellee, v. Carolee PHILPOTT, Appellant.
    No. 04-0060.
    Supreme Court of Iowa.
    Aug. 19, 2005.

      Judith M. O’Donohoe of Elwood, O’Do-nohoe, Stochl, Braun & Churbuck, Charles City, for appellant.
    Thomas J. Miller, Attorney General, Bruce Kempkes and Cris C. Douglass, Assistant Attorneys General, and Marilyn J. Dettmer, County Attorney, for appellee.
   PER CURIAM.

Defendant, Carolee Philpott, appeals from a judgment following a jury trial convicting her of mechanical eavesdropping in violation of Iowa Code section 727.8 (2003). The court of appeals affirmed her 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.

Defendant, who had worked for twenty-five years in the office of the clerk of court for Franklin County, was involved in a series of acrimonious exchanges with fellow employees in the office who repeatedly accused her of discourtesy toward them and members of the public. Defendant, who was a union representative, consulted union officials and was advised that in order to protect herself in these situations she should tape-record conversations in the office. She was told that this was proper if she was present and participating in or listening to the recorded conversations. Upon receiving this advice, defendant brought a tape recorder to work, where it remained on her desk from November 2001 through October 2002.

The criminal prosecution that is now before us concerns events that took place on October 7, 8, and 9 of 2002. Evidence presented at trial through the testimony of defendant’s coworkers indicated that on October 7 defendant left the tape recorder operating in a working area in the office while she was at lunch. This conduct was reported to the acting district court administrator and the county attorney. On October 8, when defendant left to participate in a conference call on court-related business, coemployees testified that they again observed that the tape recorder was left running.

On October 9, while defendant was at lunch, coworkers observed the tape recorder was running and called a district judge. The judge testified at the trial that he observed the tape recorder in operation and attempted to play the tape. When he backed the tape up and switched it to play mode, he heard a conversation between an employee in the office and a juvenile probation officer that he could recognize as having taken place while he was watching the tape recorder function. He also heard some whistling on the tape that he had initiated as a test for determining that it was functioning. Following a staff meeting, the defendant removed the recorder from the office.

On August 4, 2003, the State filed a trial information charging the defendant with a violation of Iowa Code section 727.8. She was found guilty following a jury trial. We separately consider defendant’s several challenges to her conviction.

I. Defendant’s Constitutional Challenges.

Defendant urges that the statute under which she was charged violates both due process and equal protection because the words “right or authority to do so” are not specifically defined and because the statute does not embrace a concept of expectation of privacy. Iowa Code section 727.8 provides:

Any person, having no right or authority to do so, who taps into or connects a listening or recording device to any telephone or other communication wire, or who by any electronic or mechanical means listens to, records, or otherwise intercepts a conversation or communication of any kind, commits a serious misdemeanor; provided, that the sender or recipient of a message or one who is openly present and participating in or listening to a communication shall not be prohibited hereby from recording such message or communication; and further provided, that nothing herein shall restrict the use of any radio or television receiver to receive any communication transmitted by radio or wireless signal.

Defendant’s equal-protection argument must fail because she has identified no similar class of persons that is treated more favorably under the act than she was. Her contention that an expectation of privacy must exist in order for the statute to satisfy substantive due-process requirements is of doubtful constitutional merit. We need not decide that question, however, because the district court instructed the jury that, in order to convict, the recorded matter “must have been uttered by a person or persons who exhibited a subjective expectation of privacy which was reasonable by societal standards.”

With respect to defendant’s contention that the words “right or authority to do so” are not sufficiently definite to withstand a vagueness challenge, we are convinced that the words are not vague as applied to her situation. Because no fundamental right is involved, defendant may not lodge a facial due-process challenge to the statute. State v. Reed, 618 N.W.2d 327, 332 (Iowa 2000).

Defendant also argues that section 727.8 violates due process because it would permit the conviction of a person who accidentally records a conversation. Without deciding whether the statute is defective in that manner or, if so, whether this would violate due process, we reject defendant’s challenge because the district court instructed the jury that the State was required to show defendant intended the actions, i.e., the recording of conversations, on which the prosecution was based.

II. Sufficiency of Evidence.

Defendant urges that the evidence was insufficient to warrant her conviction because the tape became lost prior to trial and thus there was no evidence presented to the jury that anything had been recorded. We reject this contention.

The jury’s findings are binding on us if supported by substantial evidence. State v. Weatherly, 679 N.W.2d 13, 16 (Iowa 2004); State v. Speicher, 625 N.W.2d 738, 740 (Iowa 2001). In order to be substantial, the evidence must be such as would convince a rational jury of a defendant’s guilt beyond a reasonable doubt. Weatherly, 679 N.W.2d at 16. We are satisfied that there was sufficient circumstantial evidence to establish that conversations in the clerk’s office were being recorded on defendant’s tape recorder on October 7 and 8. In addition, there was direct evidence through the testimony of a district judge that conversations were in fact being recorded on October 9. There was only one count in the information, so the October 9 event, standing alone, was sufficient to convict.

In addition, the evidence revealed that defendant had advised her coworkers that she had brought the tape recorder to the office for purposes of tape recording the conversations with coworkers as a result of their prior disagreements. Defendant argues that she only intended to record conversations to which she was listening or in which she was participating while openly present at the place where the conversations were taking place. However, the evidence indicated that, at least part of the time the recorder was present on October 7, 8, and 9, it was set on voice-activation mode so that it would record conversations automatically in defendant’s absence. The jury could find from that circumstance that defendant intended to record conversations that took place during her absence.

III. Objection to Jury Instructions.

Defendant urges that the district court erred in giving Uniform Criminal Jury Instruction No. 100.6 describing direct and circumstantial evidence. Defendant contends that this instruction invites the jury to make decisions based on speculation. The instruction given was a correct statement of the law and nothing contained therein served to prejudice the defendant in the present case.

IV. Objections to Evidence.

As observed by the court of appeals with respect to defendant’s evidentia-ry challenges:

The defendant fills more than two pages in her brief with a list of examples of four categories of evidence which was admitted over objection that she claims was irrelevant, lacking foundation, or unfairly prejudicial. Her summary conclusion is that “Taken as the whole, this evidence was more prejudicial than probative and the Court should have granted a new trial on this ground.”

Although the court of appeals attempted to respond in a general manner to the arguments that were thus presented, we do not. We will decline to consider arguments that do not pinpoint specific questions and objections the overruling of which is alleged to be error. Miller v. Griffith, 246 Iowa 476, 480, 66 N.W.2d 505, 507 (1954). Defendant’s arguments on the evidentiary issues are too vague and indefinite to support the granting of relief based on the admission of improper evidence.

We have considered all issues presented and conclude that the decision of the court of appeals and the judgment of the district court should be affirmed.

AFFIRMED.

      . Defendant’s argument assumes that the statute prohibits the recording of conversations irrespective of whether the situation is one in which an expectation of privacy exists. We do not suggest that this interpretation is not correct. The validity of the district court's instruction suggesting a contrary view is not before us, and we express no opinion in regard to the correctness of that instruction. It is, however, the law of the case for purposes of defendant's claims on appeal.


author: EISENHAUER, J.

text:
    SELDIN COMPANY, d/b/a Featherstone Apartments, Plaintiff-Appellee, v. Amberleah CALABRO, Defendant-Appellant.
    No. 03-1252.
    Court of Appeals of Iowa.
    March 31, 2005.
    Publication Ordered June 29, 2005.

      Michael J. Tulis of Iowa Legal Aid, Council Bluffs, for appellant.
    Craig M. Dreismeier of Reilly, Petersen, Hannan & Dreismeier, P.L.C., Council Bluffs, for appellee.
    Considered by HUITINK, P.J., and MILLER and EISENHAUER, JJ.
   EISENHAUER, J.

Amberleah Calabro rented an apartment from Seldin Co., d/b/a Featherstone Apartments (Featherstone), an apartment complex receiving Section 8 assistance from the United States Department of Housing and Urban Development (HUD). In May 2003, Featherstone gave Ms. Calabro a notice to pay unpaid rent, see Iowa Code § 562A.27(2) (2003), alleging she owed part of April rent, May rent, and additional charges, including a late fee. After the expiration of the notice period, Feather-stone filed a small claims action for forcible entry and detainer. Id. § 648.1(5). The small claims court granted the requested relief and awarded attorney fees to Featherstone, and Ms. Calabro appealed to district court. Id. § 631.13(1). The district court affirmed the small claims decision.

The supreme court granted Ms. Calab-ro’s application for discretionary review, and transferred this case to us for disposition. Our review is de novo. Id. § 648.5 (stating forcible entry actions are tried in equity); Horizon Homes of Davenport v. Nunn, 684 N.W.2d 221, 224 (Iowa 2004).

I. Late Fees. Ms. Calabro raises several arguments centering on Featherstone’s inclusion of late fees in its notice to pay unpaid rent. We now consider these arguments, which are the core of Ms. Calabro’s appeal.

We find the following facts. Ms. Calab-ro and Featherstone signed a lease in January 2002. The lease stated rent was due on the first day of each month and provided for a late fee of $25.00, if rent is not paid on the sixth day of each month. The lease provides Ms. Calabro may not be evicted for unpaid late fees. At all times material to this action, Ms. Calabro’s monthly rent was $68.00, with an additional $37.00 washer/dryer rental fee, for a total monthly payment of $105.00. Ms. Calabro was to pay rent by mailing it to Featherstone’s bank in envelopes provided by Featherstone. The bank would let Featherstone know when Ms. Calabro’s rent was received.

Ms. Calabro purchased a money order for $105.00 on March 3, 2003, and mailed it to Featherstone’s bank. It was not credited to her account until March 11, by which time a $25.00 late fee had been assessed. On April 4, 2003, Ms. Calabro purchased and mailed a money order for $105.00 to the landlord’s bank, which was not credited to her account until after another late fee had been assessed. The landlord applied this payment to the March and April late fees first, leaving a balance owing of $50.00. On April 22, Featherstone sent Ms. Calabro a $23.00 bill for maintenance, due within thirty days (or May 22, 2003). Featherstone’s witness testified the landlord would apply payments first to late fees, then to other charges (such as maintenance charges), then to current rent.

Ms. Calabro’s May 2003 public assistance check, her only income, normally received on the third of each month, arrived on May 11, 2003. On May 12, Feath-erstone sent her a notice to pay unpaid rent, and demanded payment of $203.00. The notice included $50.00 for “unpaid” April rent, a late fee for May, and the $23.00 maintenance fee. Ms. Calabro testified she mailed a payment and produced a money order receipt for $130.00, dated May 12, 2003; however, Featherstone’s witness testified the payment was not received. Featherstone filed this action on May 21. The small claims petition incorporated the contents of the May 12 notice by reference.

Turning to the applicable law, we first conclude the late fees charged exceed the amount permitted by HUD. According to the relevant HUD handbook, Feather-stone may charge a late fee of $5.00 if the rent is not paid on the sixth of each month, and $1.00 per day for each additional day that rent remains unpaid. U.S. Dep’t of Hous. & Urban Dev., Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs 6-23(B), at 6-34 (2003) [hereinafter HUD Handbook], This portion of the HUD Handbook is reasonable and not “inconsistent with statutory authority.” Horizon Homes, 684 N.W.2d at 226. Therefore, we enforce it. The late fee charged by Feath-erstone clearly exceeds this limit, and there is no indication Featherstone has received HUD’s permission to charge a higher late fee.

We also conclude Ms. Calabro may not be evicted for unpaid late fees. Not only is this against HUD policy, see HUD Handbook 6—23(E), at 6-34; see also Community Realty Mgmt. Co. v. Harris, 155 N.J. 212, 714 A.2d 282, 292-93 (1998), it is prohibited by Ms. Calabro’s lease. The inclusion of late fees on Ms. Calabro’s notice to pay unpaid rent and the petition violates federal law and is a breach of the lease. See also Brown v. N.Y. Residential Works, Inc., 5 Misc.3d 614, 782 N.Y.S.2d 628, 632 (N.Y.City Civ.Ct.2004) (stating collection of unauthorized late fees may give rise to a cause of action for fraud). We note HUD allows landlords to collect late fees in other ways, such as by withholding funds from a tenant’s security deposit. HUD Handbook 6-23(E), at 6-34.

We now consider Featherstone’s decision to apply any payments first to late fees. Featherstone argues it is entitled to apply Ms. Calabro’s payments in any manner it sees fit. It argues it may apply her payments to late fees, charges for which it could not evict her, leaving her with a balance at the end of each month. We would agree with this argument only if Featherstone could evict its tenants for unpaid late fees. Here, it attempts to do indirectly what it could not do directly. Featherstone’s argument turns HUD policy on its head, and we are not persuaded by it.

II. The Remedy. Citing Symonds v. Green, 493 N.W.2d 801 (Iowa 1992), Ms. Calabro asks us to strike the notice to pay unpaid rent because of its demand for late fees and the maintenance charge and dismiss this case. Feather-stone asks us to affirm, arguing Ms. Calab-ro did owe rent, regardless of the amount stated in the notice, see Garrison v. Fetters, 383 N.W.2d 550, 553 (Iowa 1986), and did not pay it. We are persuaded by Ms. Calabro’s argument.

We begin by noting the cases cited by the parties are factually distinguishable. In Garrison, the notice to pay unpaid rent did not advise the tenants of the amount due or the due date. Garrison, 383 N.W.2d at 553. Our supreme court rejected that argument, noting section 562A.27(2) only required notice that rent was due and that the lease would be terminated if rent was not paid within three days. Id. The Garrison court found the tenants received the notice required by statute. Id. Symonds is also distinguishable. In that case, the landlord served a three-day notice to quit, which did not contain the “right to cure” language required by section 562A.27(2). Symonds, 493 N.W.2d at 803. As the landlord failed to give the notice required by statute, the Symonds court held the “trial court lacked jurisdiction to hear” the landlord’s forcible entry petition. Id.

While Featherstone’s notice to Ms. Cal-abro contains the matter required by section 562A.27, our inquiry is not over. The illegal terms contained in Featherstone’s notice continue to demand our attention. Of the $203.00 demanded in the notice at issue, we conclude a large portion is not allowable. Demanding the $25.00 May late fee is clearly illegal. HUD Handbook 6-23(E), at 6-34. This factor alone would require some form of relief. We also conclude the $50.00 sought for April rent is properly characterized as late fees for March and April, given the landlord’s improper policy of applying payments first to unpaid late fees. As noted above, this approach entirely frustrates HUD policy. Although these two factors would be enough to grant the relief Ms. Calabro seeks, on our de novo review, we additionally find and conclude the $23.00 maintenance fee was not yet delinquent when Featherstone gave the notice at issue. By the terms of her lease and the April 22 maintenance bill, Ms. Calabro had until May 22, 2003 to pay this bill. She should be allowed this entire period to pay this amount. Any lesser amount of time would violate her lease, and any action to enforce this debt prior to the end of this allowed period is premature.

While the parties cited no landlord-tenant case in which a notice was nullified for containing improper matter, we conclude cases concerning real estate contract forfeitures are fair comparisons and provide significant guidance. Like forcible entry actions involving residential tenants, contract forfeitures are statutory remedies and require notices to cure any alleged contract breaches. Iowa Code § 657.2. Also like the present action, challenges to real estate contract forfeitures are heard in equity. Sheeder v. Lemke, 564 N.W.2d 1, 2 (Iowa 1997). In Sheeder, our supreme court nullified a notice of contract forfeiture due to “unreasonable” breach allegations and demands to cure. Id. at 3. There, nearly one-half of the alleged breach of $53,000.00 was attributable to “failure to insure a corncrib and barn.” Id. The contract vendors demanded $25,000.00 to cure this alleged breach, when the value of the barn and “rat-infested” corncrib was around $500.00. Id. In granting relief to the contract purchaser, our supreme court stated:

We find that the inclusion of this alleged breach and the demand of $25,000 to cure it was unreasonable. This circumstance alone requires a court of equity to grant relief from the forfeiture initiated by the Lemkes’ notice. The Sheed-ers were in no position to predict which items in the notice would be sustained by a court and which items would be rejected. The unreasonableness of the total demand thus frustrated their efforts to pay its various components.

Id. We find similar considerations govern this case. The objectionable terms of the May 12 notice amount to nearly one-half of the alleged breaches. Additionally, Ms. Calabro had no way of knowing how the trial court would treat her contention that the May 12 notice contained illegal terms. Finally, the presence of illegal terms tended to frustrate her ability to comply with the demand to cure the alleged breach, especially given the landlord’s policy of first applying rent to accrued late charges. We consider these factors in conjunction with the principle that a court sitting in equity will not give its aid to those who seek to enforce a violation of the law, a consideration not present in Sheeder. See, e.g., Incorporated Town of Ackley v. Central States Elec. Co., 206 Iowa 533, 539, 220 N.W. 315, 318 (1928). Finally, we find no equitable factor barring Ms. Calabro from receiving the relief she seeks. Cf. Garrison, 383 N.W.2d at 553 (stating tenants barred from equitable relief because they “lack clean hands”).

We are mindful that Ms. Calabro received subsidized housing assistance. While the $98.00 in charges we have determined to be illegitimate may not be a large amount in absolute terms, it is nearly one-quarter of Ms. Calabro’s monthly income. This factor strongly weighs in favor of Ms. Calabro’s argument.

Based on the record before us, Feather-stone’s forcible entry and detainer judgment should be reversed.

III. Attorney Fees. Ms. Calab-ro challenges the attorney fee award. Although we reverse the judgment against her, some comment about the attorney fee award is necessary. Iowa Code section 562A.27(3) states landlords may recover reasonable attorney fees after termination of a tenancy if termination was due to “willful” noncompliance by the tenant. By the statute’s plain language, not every tenant breach will justify a fee award. If every tenant breach formed the basis of an attorney fee award, the legislature would never have used the word “willful.” See Iowa Code § 4.4(2) (stating “entire statute” is presumed effective). Nothing in the record supports a finding of willfulness. There is no evidence of stubborn disobedience or ill will on Ms. Calabro’s part. Cf. Brandenburg v. Feterl Mfg. Co., 603 N.W.2d 580, 585 (Iowa 1999) (in an action to set aside a default judgment, stating “willfully” and “defying” “indicate conduct ... showing a deliberate intention to ignore, and resist any adherence to, the rules of procedure”) (emphasis added); Kuta v. Newberg, 600 N.W.2d 280, 288-89 (Iowa 1999) (under punitive damages statute, “willful and wanton disregard” means “the actor has intentionally done an act of an unreasonable character in disregard of a known or obvious risk that was so great as to make it highly probable that harm would follow”) (emphasis added) (citation omitted). In a challenge to a contempt charge, our supreme court stated “willfully” means

intentional and deliberate with a bad or evil purpose, or wanton and in disregard of the rights of others, or contrary to a known duty, or unauthorized, coupled with an unconcern whether the contem-nor had the right or not.

Henley v. Iowa District Ct., 533 N.W.2d 199, 202 (Iowa 1995) (citation omitted). Consistent with these authorities, we conclude “willful” as it is used in section 562A.27(3) connotes a similar state of mind, which we find Ms. Calabro lacked. Rather, the undisputed evidence reflects Ms. Calabro’s May rent was initially late because of agency error in failing to timely issue public assistance payments to her. For this independent reason, the fee award is reversed.

IV. Conclusion. We have considered all issues presented, whether or not specifically addressed herein. We reverse and remand for further proceedings consistent with our opinion.

REVERSED AND REMANDED.

      . From the information presented to the district court on appeal, but not considered by it, apparently Ms. Calabro accidentally mailed this payment to her cellular telephone provider.

      . Ms. Calabro also argues reversal is required by HUD regulations’ governing the required contents of termination notices. See, e.g., 24 C.F.R. § 247.4. We need not consider this argument, as Iowa law provides her the relief she seeks. Moreover, the district court’s ability to grant relief from a notice to cure under chapter 562A does not depend on whether the tenant receives any form of housing subsidy.


author: MAHAN, J.

text:
    STATE of Iowa, Plaintiff-Appellee, v. Kevin Eugene CAQUELIN, Defendant-Appellant.
    No. 04-1683.
    Court of Appeals of Iowa.
    May 11, 2005.
    Linda Del Gallo, State Appellate Defender, and Theresa R. Wilson, Assistant Appellate Defender, for appellant.
    Thomas J. Miller, Attorney General, Kevin Cmelik, Assistant Attorney General, Timothy N. Schott, County Attorney, and Wendy S. Samuelson, Assistant County Attorney, for appellee.
    Considered by SACKETT, C.J., and MAHAN and ZIMMER, JJ.
   MAHAN, J.

Kevin Caquelin appeals the convictions and sentences entered by the district court following his guilty pleas to introducing a controlled substance into a detention facility in violation of Iowa Code section 719.8 (2003) and possession of a controlled substance in violation of Iowa Code section 124.401(5). Specifically, he contends he received an illegal sentence because the district court failed to merge his two offenses pursuant to Iowa Code section 701.9. We affirm.

I. Background Facts & Proceedings.

On May 4, 2004, the State charged Ca-quelin by trial information with introducing a controlled substance into a detention facility (Count I) and driving while barred (Count II). On July 23, 2004, pursuant to a plea agreement, the State amended Count II of the trial information to reflect a charge of possession of controlled substance. Caquelin pled guilty to the two charges on September 2, 2004. On October 12, 2004, the district court sentenced Caquelin to an indeterminate term of incarceration not to exceed five years on Count I and six months of incarceration on Count II. The court ordered the sentences to be served consecutively. Caque-lin appeals.

II. Standard of Review.

Where a defendant alleges he has illegally been sentenced under the merger statute, our review is for the correction of errors at law. See State v. Anderson, 565 N.W.2d 340, 342 (Iowa 1997); see also Iowa R.App. P. 6.4.

III. Merger of Offenses.

Iowa Code section 701.9 provides:

No person shall be convicted of a public offense which is necessarily included in another public offense of which the person is convicted. If the jury returns a verdict of guilty of more than one offense and such verdict conflicts with this section, the court shall enter judgment of guilty of the greater of the offenses only.

Our supreme court has held that this statute “codifies the double jeopardy protection against cumulative punishment.” State v. Gallup, 500 N.W.2d 437, 445 (Iowa 1993). Thus, we look to legislative intent to determine whether merger is required under section 701.9. See id. Legislative intent is indicated, in part, by whether the crimes at issue meet the legal elements test for lesser-included offenses. State v. Halliburton, 539 N.W.2d 339, 344 (Iowa 1995); see generally Blockburger v. United States, 284 U.S. 299, 304, 52 S.Ct. 180, 182, 76 L.Ed. 306, 309 (1932). To apply the legal elements test, we look to the elements of each offense and determine if the greater can be committed without also committing the lesser. State v. Hickman, 623 N.W.2d 847, 850 (Iowa 2001). If the greater offense cannot be committed without also committing the lesser offense, the lesser is an included offense of the greater. Id. Even though a crime may meet the legal elements test for lesser-included offenses, separate punishment is permissible if the legislature intended to impose multiple punishments for both offenses. See Halliburton, 539 N.W.2d at 344.

In order to be convicted of introducing a controlled substance into a detention facility, a class D felony, the State must prove that the defendant (1) introduced a controlled substance or intoxicating beverage into the premises of a detention facility and (2) was not authorized by law to do so. Iowa Code § 719.8. In contrast, in order to prove a defendant guilty of possession of a controlled substance, a serious misdemeanor, the State must show the defendant (1) knowingly or intentionally possessed a controlled substance and (2) knew the substance he possessed was a controlled substance. Id. § 124.401(5). Thus, the issue is whether possession is a necessary element of introducing a controlled substance into a detention facility. Caquelin contends that it is, because a person cannot introduce a controlled substance into a detention facility without exerting dominion and control over the contraband. Contrarily, the State asserts that possession is not necessarily an element because section 719.8 encompasses situations where a person mails contraband into a prison or relies on someone else to transport the contraband into the facility.

Our supreme court has not definitively decided this issue. However, in State v. Grady, 215 N.W.2d 213, 214 (Iowa 1974), the court addressed an analogous issue and held that possession is not a necessary legal element of delivery. There, the court reasoned that a person could conceivably act as a broker in the drug trade, thereby effecting delivery of a controlled substance by transfer of title or sale without ever having possession. Id. Similarly, in State v. Spivie, 581 N.W.2d 205, 208-09 (Iowa Ct.App.1998), this court determined that possession was not a necessary legal element of manufacturing a controlled substance. Relying on the reasoning employed by the supreme court in Grady, this court determined that a defendant could also finance the manufacturing of controlled substances and be a part of the venture without being in actual possession of the illegal substance. Id. at 209. In accord with the dictates of Grady and Spivie, it seems self-evident that one might introduce a controlled substance into a detention facility without necessarily being in possession of the substance. Therefore, in accordance with the reasoning of the aforementioned case law, we conclude that possession is not a necessary legal element of introducing a controlled substance into a detention facility.

A review of case law from other jurisdictions addressing similar situations bolsters our conclusion. At least one other state supreme court has recently held that taking controlled substances into a jail may be proven without necessarily proving possession. See Paramo v. State, 896 P.2d 1342, 1345 (Wyo.1995). A number of federal court decisions, although dealing with a different set of statutes, further compel our conclusion that possession is not a necessary element of introducing controlled substances into a detention facility. See, e.g., United States v. Campbell, 652 F.2d 760, 762-63 (8th Cir.1981). For example, in United States v. Ahmad, 347 F.Supp. 912, 921-22 (M.D.Pa.1972), aff'd in part and rev’d in part sub nom. United States v. Berrigan, 482 F.2d 171 (3d Cir.1973), the district court concluded that an attempt to introduce contraband into a federal prison had been proved against an outside sender who transmitted unapproved mail through a courier. Thus, although the outside sender did not have actual or constructive possession of the contraband at issue, the federal district court determined the outside sender had violated the federal statute prohibiting the introduction of contraband into federal penal institutions. Id. Relying on Ahmad, the Eighth Circuit Court of Appeals similarly held that possession of a controlled substance was not necessarily included in the offense of introduction of contraband onto the grounds of a federal penal institution. Campbell, 652 F.2d at 762-63. The Eighth Circuit further noted a number of other cases where convictions were approved for both possession of a controlled substance and introduction of a controlled substance into a penal institution. See id. at 762 (citing United States v. Corral, 578 F.2d 570 (5th Cir.1978); United States v. Yanishefsky, 500 F.2d 1327 (2d Cir.1974); United States v. Jiminez, 454 F.Supp. 610 (M.D.Tenn.1978); United States v. Ward, 431 F.Supp. 66 (W.D.Okl.1976)).

Caquelin attempts to rely on the decisions from two other jurisdictions that have reached contrary conclusions. See Goodwin v. State, 342 Ark. 161, 27 S.W.3d 397, 400 (2000), rev’d on other grounds by McCoy v. State, 347 Ark. 913, 69 S.W.3d 430 (2002); Brown v. State, 35 S.W.3d 183, 190 (Tex.App.2000), rev’d on other grounds by Brown v. State, 89 S.W.3d 630 (Tex.Crim.App.2002). However, both Arkansas and Texas employ case law that is inconsistent with current Iowa legal precedent. For example, in Arkansas, possession is considered a lesser-included offense of delivery. See Glover v. State, 273 Ark. 376, 619 S.W.2d 629, 630 (1981). This is in direct conflict with our supreme court’s holding in Grady, 215 N.W.2d at 214. Further, it appears that Texas employs a factual basis analysis for determining whether a lesser offense is included in a greater one. See, e.g., Duhrkopf v. State, 671 S.W.2d 147, 151 (Tex.App.1984) (“The relevant test is whether the possession offense can be proved by the same facts necessary to establish the offense charged.”). Iowa has abandoned the factual basis analysis, and as previously mentioned applies the “impossibility test.” Shearon, 660 N.W.2d at 55. Consequently, we find the cases relied upon by Caque-lin to be nonpersuasive.

Further, assuming arguendo that Ca-quelin’s crimes had met the legal elements test, merger of his sentences would still be improper based upon the clear legislative intent to the contrary. See State v. Lewis, 514 N.W.2d 63, 69 (Iowa 1994). Based on the differing purposes of the statutes at issue, we believe it is apparent the legislature intended multiple punishments for both offenses. Iowa Code section 124.401(5) prohibits possession of a controlled substance within the general public. This section was designed to punish an individual who possesses drugs for personal use because such conduct is destructive to society in general. In contrast, section 719.8 prohibits the introduction of a controlled substance into a detention facility because the introduction of contraband threatens the security and disrupts the balance of Iowa’s penal institutions. The purpose of section 124.401(5) is to protect the public at-large from substance abusers. Contrarily, the purpose of section 719.8 is to protect the security of the facilities in which convicted criminals are incarcerated. Thus, we think it is clear the legislature intended that a defendant who violates section 124.401(5) and section 719.8 be punished under both statutes. In light of the foregoing, we conclude the district court did not err by failing to merge Ca-quelin’s offenses. Consequently, we affirm his convictions and sentences.

AFFIRMED.

      . The “legal elements test" is also referred to as the “impossibility test,” see, e.g., State v. Shearon, 660 N.W.2d 52, 55 (Iowa 2003), and the Blockburger test, see, e.g., Halliburton, 539 N.W.2d at 344.

      . At the time Ahmad was decided, the statute under which the defendant was charged, 18 U.S.C. § 1791, provided: "Whoever, contrary to any rule or regulation promulgated by the Attorney General, introduces or attempts to introduce into or upon the grounds of any Federal penal or correctional institution or takes or attempts to take or send therefrom anything whatsoever, shall be imprisoned not more than ten years.”


author: SACKETT, C.J.

text:
    STATE of Iowa, Plaintiff-Appellee, v. Wendy Jane JORDISON, Defendant-Appellant.
    No. 04-1273.
    Court of Appeals of Iowa.
    May 25, 2005.

      Linda Del Gallo, State Appellate Defender, and Patricia Reynolds, Assistant Appellate Defender, for appellant.
    Thomas J. Miller, Attorney General, Kevin Cmelik, Assistant Attorney General, Timothy N. Schott, County Attorney, and Sarah J. Livingston, Assistant County Attorney, for appellee.
    Considered by SACKETT, C. J., and ZIMMER and HECHT, JJ.
   SACKETT, C.J.

Defendant-appellant, Wendy Jane Jordi-son, was convicted of the crime of escape in violation of Iowa Code section 719.4(1) (2003) after she walked away from the Community and Family Resources Center in Fort Dodge, Iowa where she was being held. She contends the conviction should be reversed because she was not lawfully held at the time of her escape; consequently, there was not a factual basis to prove the necessary elements for the crime of escape. We affirm.

On March 16, 1998 defendant was convicted in Webster County, Iowa of the felony of possession of a controlled substance with intent to deliver and other offenses. An indeterminate penitentiary sentence was imposed and suspended. Defendant was placed on probation until March 15, 2001. On March 16, 2001 the State moved to revoke defendant’s probation, and the district court ordered that it be extended until March 16, 2006, some eight years after the sentencing date. It is conceded that the extension of defendant’s probation for more than five years from the time of sentencing is not authorized by statute and the latest date to which probation could have been extended was March 16, 2003.

On February 24, 2004 the State filed a second motion asking for revocation of defendant’s probation. The defendant was arrested and placed in the custody of the Webster County Sheriff. Just over a month later the defendant admitted she violated probation. The district court set a hearing on the disposition of the admitted violation and ordered defendant to remain in the custody of the sheriff but be placed in the Community and Family Resources Center for in-patient treatment of substance abuse. The order further provided defendant would be subject to prosecution for escape for unauthorized absences from the facility.

On March 18, 2004, defendant left the facility without permission. On April 19, 2004, the State filed an oral motion to dismiss the motion for revocation of defendant’s probation and the motion was sustained. The cursory order does not reference the date of the probation revocation motion the State moved to dismiss, yet the only conclusion one can draw from the record is that it was the February 24, 2004 motion that resulted in defendant being taken into custody.

While according to statute defendant’s probation should have terminated on March 16, 2003, defendant did not challenge the illegal extension in 2003 when it was ordered. She initially admitted she was in violation of that order rather than challenging it when she initially was taken into custody.

On June 24, 2004, after the State had dismissed the motion for revocation of her probation, the defendant entered a plea of guilty to the escape charge. While pleading guilty she called to the court’s attention that the probation revocation motion resulting in her placement at the drug treatment center had been dismissed.

She subsequently filed a motion in arrest of judgment contending (1) she was arrested for violating a probation that had expired, (2) her detention was unlawful, and (3) there was no factual basis for her plea. The district court denied the motion and sentenced the defendant to a term of no more than five years.

Defendant contends on appeal the district court erred in accepting her guilty plea where no factual basis existed to prove the necessary elements for the crime of escape because she was illegally confined on a probation violation and in refusing to grant her motion in arrest of judgment.

This is a challenge to the lack of a factual basis for the offense to which the defendant pled guilty; consequently, we review for errors at law. See State v. Keene, 630 N.W.2d 579, 581 (Iowa 2001). A plea that is not supported by the record violates the letter and spirit of Iowa Rule of Criminal Procedure 2.8(2)(6), requiring reversal of the conviction and remand for further proceedings. State v. Hack, 545 N.W.2d 262, 262 (Iowa 1996). The issue was preserved for review by the timely filing of a motion in arrest of judgment. Iowa R.Crim. P. 2.24(3)(a).

A conviction under Iowa Code section 719.4(1) requires proof that (1) the defendant had been convicted of, charged with, or arrested for a felony; and (2) she “intentionally escape[d]” from an “institution to which the person has been committed” or “from the custody of any public officer, public employee, or any other person to whom the person has been entrusted.” Iowa Code § 719.4(1); State v. Smith, 690 N.W.2d 75, 77 (Iowa 2004). Because this is a penal statute it must be strictly construed. State v. Burtlow, 299 N.W.2d 665, 669 (Iowa 1980); State v. Davis, 271 N.W.2d 693, 695 (Iowa 1978). Doubts are resolved in favor of the accused. Id.

There does not appear to be any authority directly on point from an Iowa court. In State ex rel. Robison v. Boles, 149 W.Va. 516, 142 S.E.2d 55, 57 (1965), the West Virginia Supreme Court of Appeals determined, “an escape from imprisonment under a void judgment ... did not constitute an offense.”

In State ex rel. McGilton v. Adams, 143 W.Va. 325, 102 S.E.2d 145, 148-9 (1958) the same court opined, “there is a vast difference between a void sentence, ... and a sentence ... improper because of reversible error committed by the trial court.” Id. The court found, because the defendant was incarcerated at the time of his escape under a judgment and sentence that was absolutely void from the beginning, and not merely voidable, his escape from custody did not constitute a crime. Id.

Other courts have rejected West Virginia’s minority position, holding

that where the imprisonment is under color of law, the prisoner is not entitled to resort to self-help but must apply for his release through regular legal channels, even though he might be able to show such defects in the procedure by which he or she was arrested, tried, sentenced, committed, or imprisoned as to justify or require his release on appeal or habeas corpus.

27A Am.Jur.2d Escape 11, at 758 (1996).

In United States v. Smith, 534 F.2d 74, 75 (5th Cir.1976) cert. denied, 429 U.S. 1100, 97 S.Ct. 1122, 51 L.Ed.2d 549 (1977), the federal court determined the validity of the conviction under which an escapee was confined was not an element of the offense of unlawfully escaping from confinement in a federal institution. In Mullican v. United States, 252 F.2d 398, 403, (5th Cir.1958), the court said the validity of a conviction under which an escapee is confined is not an essential element of unlawfully escaping from confinement under federal law but there must be proof of confinement pursuant to conviction. The court also noted, “The doctrine of self help is not available to a prisoner in a penal or correctional institution. Remedies are available for procuring, through legal process, the release of those who are unlawfully held in custody.” Id. Even innocence of the offense, dismissal of the charge, or reversal of the conviction do not justify escape. 27A Am.Jur.2d Escape § 16, at 760.

The State argues a factual basis existed to support defendant’s conviction of escape. The State advances that defendant was not illegally confined. It argues that even if she were illegally confined, she must pursue a legitimate legal means of release from custody or her absence from the facility is an escape. The State also argues that, while generally a court lacks authority to extend probation beyond the statutory maximum, a defendant’s inaction can result in an extension of probation. In support of this argument the State points to State v. Iowa Dist. Ct., 581 N.W.2d 640, 643 (Iowa 1998), where the court reversed a district court judge’s ruling which found a due process violation in another district court judge’s ruling extending probation within the statutory allotted time. The supreme court held:

any impediment to the court’s authority to impose this additional condition, whether for alleged lack of due process or other legal error, was obviated by [the person on probation’s] failure to challenge it by certiorari or postconviction petition.

Id.

This case supports the State’s position that, where as here there is proof of confinement pursuant to a conviction, the doctrine of self-help is not available to a prisoner; rather, he or she must use the remedies available through legal process to obtain relief, which is the position of the majority of the states. Id.; see Mullican, 252 F.2d at 403. Defendant was not free to walk away from the treatment center without being subject to a charge of escape. We affirm the district court.

AFFIRMED.

      . Iowa Code section 719.4(1) provides:
      A person convicted of a felony, or charged with or arrested for the commission of a felony who intentionally escapes, or attempts to escape, from a detention facility, community-based correction facility, or institution to which the person has been committed by reason of the conviction, charge, or arrest, or from the custody of any public officer, public employee, or any other person to whom the person has been entrusted, commits a class "D" felony.

      . Iowa Code section 907.7 provides in applicable part, "The length of probation shall be for a term as the court shall fix but not to exceed five years if the offense is a felony.” (Emphasis supplied).