text:
    2003 SD 28
    Raymond OSLOOND and Mary Ellen Osloond, Plaintiffs and Appellants, v. Marie FARRIER, Defendant and Appellee.
    No. 22312.
    Supreme Court of South Dakota.
    Considered on Briefs Jan. 13, 2003.
    Decided March 12, 2003.

      Raymond Osloond and Mary Ellen Os-loond, Pro se.
    Jerry D. Johnson of Banks, Johnson, Colbath, Sumner & Kappelman, Rapid City, for defendant and appellee Marie Farrier.
   PER CURIAM.

[¶ 1.] Ray Osloond and Mary Ellen Os-loond (hereinafter Osloonds), pro se appellants, appeal the dismissal of their complaint for failure to state a claim upon which relief could be granted. We reverse.

FACTS AND PROCEDURE

[¶2.] Osloonds caused to be served a summons and complaint upon Marie Farrier, Lawrence County Treasurer. Os-loonds, who allege in their complaint that they are over age seventy, are property owners in Lawrence County, South Dakota. Farrier sent two notices to Osloonds indicating property taxes were past due for property owned in Lawrence County. The notices purport to divide the property into two parcels, the land only and the house only. The notices state that the land only property will be sold at a tax certificate sale if the delinquent taxes are not paid and that the house only property will be subject to a distress warrant and referred to the sheriff for collection if the delinquent taxes are not paid. The amounts owed are indicated as $3,433.54 (land only) and $1,369.58 (house only), respectively.

[¶ 3.] In their complaint, Osloonds claim the property is absolutely exempt from forced sale and protected as a homestead and that Farrier violated their right to due process of law. The trial court dismissed Osloonds complaint pursuant to Rule 12(b)(5) on the basis that it failed to state a claim upon which relief may be granted. Osloonds appeal.

STANDARD OF REVIEW

[¶ 4.] It is well settled that “[a] motion to dismiss under Rule 12(b)(5) tests the law of a plaintiffs claim, not the facts which support it.” Thompson v. Summers, 1997 SD 103, ¶ 5, 567 N.W.2d 387, 390 (citing Stumes v. Bloomberg, 1996 SD 93, ¶ 6, 551 N.W.2d 590, 592; Schlosser v. Norwest Bank South Dakota, 506 N.W.2d 416, 418 (S.D.1993)). Under Schlosser, the trial court is:

directed to consider the complaint’s allegations and any exhibits which are attached. The court accepts the pleader’s description of what happened along with any conclusions reasonably drawn therefrom. The motion may be directed to the whole complaint or only specified counts contained in it.... Tn appraising the sufficiency of the complaint we follow, of course, the accepted rule that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.’ [quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80, 84 (1957)]. The question is whether in the light most favorable to the plaintiff, and with doubt resolved in his or her behalf, the complaint states any valid claim of relief. The court must go beyond the allegations for relief and ‘examine the complaint to determine if the allegations provide for relief on any possible theory.’ Id.

An appeal of a motion to dismiss presents a question of law and our standard of “review is de novo, with no deference given to the trial court’s legal conclusions.” City of Colton v. Schwebach, 1997 SD 4, ¶ 8, 557 N.W.2d 769, 771.

ANALYSIS

ISSUE

[¶ 5.] Whether the trial court erred in dismissing Osloonds various causes of action for failure to state a claim upon which relief could be granted.

A Violation of Right to be Free From Forced Sale of Homestead.

[¶ 6J Osloonds’ argue that any attempt to sell their property for delinquent taxes violates the homestead exemption existing in South Dakota law. Farrier responds by claiming that property taxes apply against the homestead and that Os-loonds are mistaken in their claim that the homestead property is not subject to real estate tax. However, the issue is whether or not the homestead may be the subject of a forced sale for the past due amounts despite the fact taxes are owing.

[¶ 7.] At this stage of the litigation, the complaint and exhibits attached thereto reveal that Osloonds filed a declaration of homestead on land described as “Lot 5A of Lots 4 and 5, Lawrence County NW1/4 NE1/4” in 1994. Osloonds then received two notices in 2000 from Farrier, in her role as Lawrence County Treasurer, indicating:

1. Lot 5A of Lots I & 5 NWl/I NE1/I has delinquent real property tax and that if not paid a tax certificate sale will be held.
2. House only on Lot 5A of Lots ⅛ & 5 NWm NE1/4. has delinquent building on leased site tax and that if not paid the treasurer will issue a distress warrant to the Sheriff for collection.

From this it appears that Farrier attempted to parcel the house from the remainder of the claimed homestead when issuing the deficiency notice. In the notice pertaining only to the land it is evident that a forced sale is threatened if the taxes remain unpaid. As to the house only notice, instead of a sale in the event the taxes remain unpaid, Osloonds were apprised of Farrier’s intent to seek a distress warrant and eventual collection by the sheriff.

[¶ 8.] South Dakota Constitution Article XXI § 4 provides:

The right of the debtor to enjoy the comforts and necessaries of life shall be recognized by wholesome laws exempting from forced sale a homestead, the value of which shall be limited and defined by law, to all heads of families, and a reasonable amount of personal property, the kind and value of which to be fixed by general laws.

[¶ 9.] The homestead exemption carrying out the foregoing provision of the Constitution is found in SDCL ch. 43-31. “The purpose of the homestead exemption is, of course, to provide the security of a home to a family against the claims of creditors.” Speck v. Anderson, 318 N.W.2d 339, 343 (S.D.1982). “There is no question but that this Court has over the years jealously and assiduously protected the homestead exemptions guaranteed by our constitution and statutes.” Id.

[¶ 10.] SDCL 43-31-1 declares that:

The homestead of every family, resident in this state, as hereinafter defined, so long as it continues to possess the character of a homestead is exempt from judicial sale, from judgment lien, and from all mesne or final process from any court, to the extent and as provided in this code, except that a creditor or lien holder of a mobile home classified as a homestead under § 43-31-2 prior to January 1, 1973 shall not be cut off or subject to a homestead exemption. In addition, the homestead of a person seventy years of age or older and the unre-married surviving spouse of such person, so long as it continues to possess the character of a homestead, is exempt from sale for taxes.

[¶ 11.] “The owner or husband and wife may select the homestead, and cause it to be marked off, platted, and recorded as provided in this code.” SDCL 43-31-6. That description “shall be recorded by the register of deeds in the homestead book.” SDCL 43-31-8. A homestead “may contain one or more lots or tracts of land with the buildings thereon and other appurtenances, subject to the limitations contained in [SDCL ch. 43-31].” SDCL 43-31-3. In addition, if there is a dispute as to the extent of the claimed homestead a determination by the circuit court is authorized. SDCL 43-31-12.

[¶ 12.] It is clear from the record that Osloonds allege that the entire tract, indicated as being subject to sale, is homestead property. Attached to their complaint is a document purporting to place this claim of homestead on record with the county treasurer. The notices of default, however, separate that parcel from the house. Farrier relies on this separation to contend that no forced sale of the homestead is contemplated, arguing the sale language in the notice only relates to the land, not the house. However, it is not clear beyond all doubt that this separation is justified and a dispute certainly remains as to the extent of the homestead. This is not a matter resolved on these pleadings.

[¶ 13.] Nevertheless, Farrier seizes upon the language of SDCL 43-31-29 to maintain that these taxes are collectable and that the homestead may be sold to pay the real estate taxes irrespective of how the homestead is defined. That statute provides:

The homestead shall be liable for taxes accruing thereon, and if certified and recorded as hereinbefore directed, shall be liable only for such taxes, and may be sold to pay the same except as provided in § 10-23-7, 43-31-1, 43-45-3.

Significantly, as previously set forth, SDCL 43-31-1 indicates that “the homestead of a person seventy years of age or older and the unremarried surviving spouse of such person, so long as it continues to possess the character of a homestead, is exempt from sale for taxes.” In their complaint, Osloonds assert that they are both over age seventy. The provision of SDCL 43-31-1 is clear and unambiguous; a homestead is exempt from sale for taxes if it is a homestead of a person age seventy or older.

[¶ 14.] A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiffs can prove no set of facts in support of their claim which would entitle them to relief. Osloonds complaint states a claimed violation of the homestead provisions at this early stage of the litigation. The dismissal for failure to state a claim was error as to this count.

B. Due Process Violation

[¶ 15.] Osloonds claim that their right to due process of law was violated when Farrier, as a representative for Lawrence County, refused to assist them with making application for relief from taxes as provided by SDCL 43-31-33 and failed to follow the South Dakota homestead laws in seeking to collect past due taxes. In addition, Osloonds assert that the trial court violated their right to due process by granting the Rule 12(b)(5) motion.

[¶ 16.] “To establish a procedural due process violation, a plaintiff must demonstrate that he has a protected property or liberty interest at stake and that he was deprived of that interest without due process of law.” Hopkins v. Saunders, 199 F.3d 968, 975 (8thCir.1999) (citation omitted). First, the property interest must be derived from a source indepen dent from the Constitution. See Board of Regents of State Colleges v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548, 561 (1972); Hollander v. Douglas Co., 2000 SD 159, ¶ 14, 620 N.W.2d 181, 185. Second, the individual must have been deprived of this right by a state actor. See DeShaney v. Winnebago County Dep’t of Soc. Servs., 489 U.S. 189, 195, 109 S.Ct. 998, 1003, 103 L.Ed.2d 249, 258 (1989). Property interests are granted by state law. Wuest v. Winner School District, 2000 SD 42, ¶ 27, 607 N.W.2d 912, 918 (quoting Winegar v. Des Moines Indep. Com. School Dist., 20 F.3d 895, 899 (8thCir.1994)). See also Hopkins, 199 F.3d at 975 (“A property interest worthy of due process protection must be granted or defined by a source independent from the Constitution, such as state law.”) (citing Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548, 561 (1972)).

[¶ 17.] SDCL ch. 43-31 creates a protected interest in property, a homestead, subject to the terms and limitations of that chapter. As previously discussed, Osloonds claim Farrier has inappropriately attempted to sell the homestead in violation of SDCL 43-31-1. Additionally, SDCL 43-31-33 provides:

Applications for a prohibition on the collections of real property taxes under §§ 43-31-31 to 43-31-41, inclusive, shall be made annually on or before May first on forms prescribed by the secretary of revenue. Forms shall be made available to county treasurers who, shall, wpon request of an applicant, assist the applicant in completing the forms.

[¶ 18.] In their complaint, Osloonds allege that: “Despite numerous requests by Ray Osloond to speak with Ms. Farrier about these property taxes in question, the defendant has refused to speak with Mr. Osloond, much less provide assistance as required [by SDCL] 43-31-33.” In her answer Farrier responds with a general denial.

[¶ 19.] Fact allegations must be viewed in a light most favorable to the petitioner. Stumes v. Bloomberg, 1996 SD 93, ¶ 6, 551 N.W.2d 590, 592 (citations omitted); 5 C. Wright & A. Miller, Federal Practice and Procedure § 1363, at 656 (1969). Viewing these pleadings in the light most favorable to the plaintiff and with doubt resolved on their behalf, as we are required to do, the complaint states a valid claim for relief for violation of due process of law. The homestead provisions provide a positive source of authority granting specific rights and Osloonds assert that those rights have been ignored.

[¶ 20.] While we do not opine as to the merits of these claims it was error to dismiss the complaint at this early stage of the litigation. We have considered the remaining issues and find them to be without merit.

[¶ 21.] Reversed and remanded.

[¶ 22.] GILBERTSON, Chief Justice, SABERS, KONENKAMP, ZINTER and MEIERHENRY, Justices, participating.

      . SDCL 10-22-8 provides that a county treasurer may issue a distress warrant for delinquent taxes "against any person whose mobile home taxes are delinquent.” It is not clear from the record if the Osloonds’ claimed homestead in fact includes a mobile home.

      . In dismissing the complaint the trial court did not enter findings of fact or conclusions of law. Pursuant to SDCL 15-6-52(a) this was not required.

      . Farrier also asserted the affirmative defenses of good faith or qualified immunity. Given the disposition of this case the trial court has not yet addressed these defenses.

      . Osloonds also maintain that the trial court's decision denied them due process of law. Due process requires adequate notice and an opportunity for meaningful participation. Northwest South Dakota Prod. Credit Ass’n v. Dale, 361 N.W.2d 275, 278 (S.D.1985). Osloonds were provided notice of the motion to dismiss and participated at the hearing on the motion. Osloonds do not contend they were not provided notice or given an opportunity to be heard and therefore this argument is without merit.


source: Caselaw Access Project

author: STREIT, Justice.

license: Public Domain

text:
    Elois Anne GARDNER, Appellant, v. HARTFORD INSURANCE ACCIDENT & INDEMNITY CO.; Hartford Casualty Insurance Co.; Hartford Insurance Company of the Midwest; Hartford Fire Insurance Co.; and Hartford Life & Auto Accident Co. d/b/a ITT Hartford Insurance Group, Appellees.
    No. 01-1740.
    Supreme Court of Iowa.
    Feb. 26, 2003.
    Rehearing Denied April 18, 2003.

      Richard G. Book of Huber, Book, Córtese, Happe & Brown, P.L.C., Des Moines, for appellant.
    Frank A. Comito, Patrick J. Hopkins and Kent A. Gummert of Gaudineer, Comi-to & George, L.L.P., Des Moines, for ap-pellees.
   STREIT, Justice.

Elois Gardner seeks to bring a tort action for bad faith denial of benefits against her employer’s workers’ compensation insurer, Hartford Insurance Accident & Indemnity Company. Hartford argues Gardner’s tort suit is barred by the earlier workers’ compensation contested case settlement Gardner agreed to under Iowa Code chapter 85. Hartford also asserts Gardner failed to exhaust her administrative remedies. The district court agreed issue preclusion applies in this case, but found Gardner did not fail to exhaust her administrative remedies. Gardner appeals and Hartford cross-appeals. Hartford also asserts we must dismiss this appeal for untimeliness. Because we find issue preclusion bars Gardner’s tort claim, we affirm the district court’s grant of summary judgment. Our holding renders it unnecessary for us to address the cross-appeal.

I. Background and Facts

Elois Gardner suffered a cumulative injury to her left shoulder as the result of years of wear and tear while working for Donnelly Marketing Incorporated. She asserted the injury date was January 1996. Donnelly’s workers’ compensation carrier is ITT Hartford. Initially, Hartford paid workers’ compensation benefits to Gardner.

On April 17, 1996, Gardner had surgery on her left shoulder. After the surgery, Gardner’s condition worsened. Hartford arranged for the management of Gardner’s case by Susan Fletcher-White of Industrial Disability Management Incorporated. Gardner was suffering from headaches and a CT scan was recommended. Either Hartford or Fletcher-White canceled the scan. Gardner underwent a bilateral MRI of her shoulders.

On July 16, 1996, Gardner’s primary care physician recommended Gardner have exploratory surgery to determine the problem in her shoulder. On July 24, Hartford told Fletcher-White they would not authorize the second surgery unless Gardner obtained a second opinion. It appears Gardner was not informed if she proceeded with the second surgery her workers’ compensation benefits would be canceled for unauthorized treatment. Either Hartford or Fletcher-White tried to cancel the second surgery. However, Gardner went ahead with it on July 31. Hartford terminated Gardner’s workers’ compensation benefits.

Gardner filed a workers’ compensation action asserting Hartford wrongfully terminated her benefits without reasonable or probable cause. She also raised issues regarding payment of medical expenses and the extent of permanent disability. In a pre-hearing conference report signed by Gardner and Hartford, the parties identified their dispute as encompassing virtually all of the controversies that had arisen since Gardner’s injury in January 1996. Specifically, the parties disagreed on the issue of whether the claimed injury arose because of her employment.

In April 1998, the parties filed an application with the Iowa Industrial Commissioner for approval of a contested case settlement pursuant to Iowa Code section 85.35 (1997). They stated a “bona fide” dispute existed under section 85.35(8) regarding whether a substantial portion of the claimed disability “related to physical or medical conditions other than those caused by the injury.” The parties jointly submitted medical documentation to support a finding of a bona fide dispute. The industrial commissioner approved the settlement.

In July 1998, Gardner filed a tort suit against Hartford for bad faith denial of workers’ compensation benefits and negligent medical care. Hartford filed a motion for summary judgment arguing Gardner’s claim for bad faith denial of benefits was barred by the doctrine of issue preclusion. It also asserted Gardner failed to exhaust administrative remedies on the issue of medical treatment. The court initially granted Hartford’s motion upon both asserted grounds.

On August 4, 2000, Gardner filed a motion for amendment of findings and substitution of judgment pursuant to Iowa Rule of Civil Procedure 1.904(2) (former rule 179(b)). Gardner challenged the district court’s application of the doctrine of issue preclusion and the court’s determination she failed to exhaust her administrative remedies. The court confirmed its earlier determination that Gardner’s claim was barred by issue preclusion. The court, however, also ruled Gardner had not failed to exhaust her administrative remedies. Gardner appeals and Hartford cross-appeals.

II. Scope of Review

We review the district court’s grant of the motion for summary judgment for correction of errors of law. Mason v. Schweizer Aircraft Corp., 653 N.W.2d 543, 547 (Iowa-2002). Suminary judgment is appropriate when the record shows “there is no genuine issue as to any material fact and that the moving part is entitled to a judgment as a matter of law.” Iowa R. Civ. P. 1.981(3).

III. The Merits

On appeal Gardner argues the court erred in granting summary judgment based upon its finding her bad faith tort claim was barred by the doctrine of issue preclusion. Hartford cross-appeals asserting the court erred in denying the portion of its motion for summary judgment claiming Gardner failed to exhaust her administrative remedies. Because we find the matter of issue preclusion to be determinative of this case, it is -unnecessary to address Hartford’s cross-appeal. Before turning to the main issue, we briefly address Hartford’s contention Gardner’s appeal is untimely and must be dismissed.

A. Motion to Dismiss Appeal

Hartford argues Gardner did not appeal within thirty days from final judgment as required by Iowa Rule of Appellate Procedure 6.5(1). Hartford asserts it was inappropriate for Gardner to file a 1.904(2) motion after the court sustained Hartford’s motion for summary judgment dismissing Gardner’s petition. Specifically Hartford contends Gardner did nothing more than rehash the legal issues raised and decided adversely to her. See Explore Info. Servs. v. Iowa Ct. Info. Sys., 636 N.W.2d 50, 57 (Iowa 2001) (holding rule 1.904(2) motion does not toll time for appeal where motion merely rehashes legal issues raised and decided adversely to movant in prior motion to adjudicate law points). Hartford asks us to dismiss this appeal as untimely.

The district court granted Hartford’s motion for summary judgment on July 26, 2000. Gardner then timely filed a rule 1.904(2) motion asking the court to amend its findings. On October 4, 2001, the court ruled on Gardner’s 1.904(2) motion. Twenty-five days later, Gardner filed her notice of appeal. Hartford argues Gardner’s appeal is untimely because she did not file notice of appeal within thirty days from the court’s order granting summary judgment. We disagree and decline to dismiss Gardner’s case based upon this ground.

In Orr v. Iowa Public Service Co., we held a motion to reconsider the granting of summary judgment was not authorized by rule 1.904(2). 277 N.W.2d 899, 900 (Iowa 1979). However, this case was. superseded by. rule as stated in Peoples Trust & Savings Bank v. Baird, 346 N.W.2d 1, 3 (Iowa 1984). In Peoples Trust, we held rule 1.981 (formerly rule 237(c)) allows the, filing of a rule 1.904(2) motion after the court renders summary judgment upon the entire case in accordance with the legislature’s 1980 amendment of Iowa Rule of Civil Procedure 1.981. Peoples Trust, 346 N.W.2d at 3. Under such circumstances, a notice of appeal is timely if filed within thirty days of the ruling on what was, in essence, a rule 1.904(2) motion. See id.

In the case before us, the district court rendered summary judgment upon the entire case. Because Gardner filed her notice of appeal within thirty days from the entry of the court’s ruling on the 1.904(2) motion, her appeal is timely. Because this case involves a summary judgment ruling, it is unnecessary for us to examine the basis, for the. 1.904(2) motion to determine if it “raised factual issues tried to the court” or raised an issue the district court failed to resolve as required in Explore. See Explore Info. Servs., 636 N.W.2d at 57. We now turn to the merits of this appeal.

B. Issue Preclusion

Hartford argues Gardner is barred from maintaining her tort action for bad faith under the doctrine of issue preclusion. Issue preclusion provides once a court has decided'an issue of fact or law necessary to its judgmént, the same issue should not be relitigated in later proceedings. Hunter v. City of Des Moines, 300 N.W.2d 121, 123 (Iowa 1981). The purpose of issue preclusion is to protect litigants from the “vexation of relitigating identical issues with identical parties or those persons with a sufficient connective interest to the prior litigation.” United Fire & Cas. Co. v. Shelly Funeral Home, Inc., 642 N.W.2d 648, 655 (Iowa 2002) (quoting State ex rel. Casas v. Fellmer, 521 N.W.2d 738, 740-41 (Iowa 1994)). The doctrine also promotes judicial economy. Id. The doctrine of issue preclusion is applicable if four factors are satisfied: (1) the issue determined in the prior action is identical to the present issue; (2) the issue was raised and litigated in the prior action; (3) the issue was material and relevant to the disposition in the prior action; and (4) the determination made of the issue in the prior action was necessary and essential to the resulting judgment. Id.

Here, Hartford attempts to use the doctrine defensively as a shield against Gardner’s bad faith tort suit. Hartford is relying upon the findings of the industrial commissioner as conclusively establishing issues that Gardner must prove as an element of her claim. See Hunter, 300 N.W.2d at 123. Given the issues involved in the former and present actions, the district court found the key issue in both actions was whether Hartford had a reasonable basis for denying Gardner’s claims for workers’ compensation benefits. Finding the four requirements of issue preclur sion satisfied, the district court determined Gardner’s claim for bad faith was barred by that doctrine. We must determine whether the elements of issue preclusion are present in the case before us to justify application of the doctrine to bar Gardner’s tort claim.

We recently examined whether an injured worker could pursue a tort action for bad faith against his employer’s workers’ compensation carrier. McIlravy v. N. River Ins. Co., 653 N.W.2d 323 (Iowa 2002). In Mcllravy, after the insurance company denied benefits, the employee filed a contested case proceeding with a demand for penalty benefits. Id. at 327. The industrial commissioner awarded benefits to Mcllravy and assessed a penalty against the insurance company for unreasonable denial of benefits. Id. Mcllravy then filed a tort action against North River for bad faith denial of benefits. Id. North River moved for summary judgment arguing Mcllravy’s action must be dismissed because the prior workers’ compensation claim was fairly debatable. Id. Mcllravy moved for partial summary judgment asserting the element of the bad faith tort claim requiring him to prove lack of a reasonable basis for the denial was established as a matter of law under the doctrine of issue preclusion when the commissioner awarded penalty benefits in the earlier workers’ compensation action. Id.

We resolved Mcllravy based upon the recognized exceptions to issue preclusion. In one of the exceptions, issue preclusion does not apply where

The party against whom preclusion is sought had a significantly heavier burden of persuasion with respect to the issue in the initial action than in the subsequent action; the burden has shifted to his adversary; or the adversary has a significantly heavier burden than he had in the first action.

Id. at 330 (citing Heidemann v. Sweitzer, 375 N.W.2d 665, 667-68 (Iowa 1985)). In the prior administrative procedure, the burden was on North River to prove that its denial of benefits had a reasonable basis. Id. In the later tort suit, Mcllravy had the burden to prove bad faith in North River’s denial of benefits. Id. We held that issue preclusion was inapplicable to the case “[gjiven the different burdens of proof between the two penalty mechanisms and the two different stages of the North River/Mcllravy dispute.” Id.

For several reasons, the facts of the case before us are not to be confused with McIlravy. In McIlravy, the injured employee sought to use the doctrine of issue preclusion offensively. As discussed above, in the present case, Hartford seeks to use the doctrine defensively. “Although offensive use of issue preclusion is allowed in Iowa ... it is more restrictively and cautiously applied than defensive issue preclusion.” Buckingham v. Fed. Land Bank Ass’n, 398 N.W.2d 873, 876 (Iowa 1987). We scrutinize cases of offensive issue preclusion more closely by examining whether: (1) the party in the second action had a full and fair opportunity to litigate the issue in the first action; and (2) any other circumstances are present which would justify granting the party the opportunity to relitigate those issues. Harrison v. State Bank of Bussey, 440 N.W.2d 398, 401 (Iowa App. 1989). See generally Restatement (Second) of Judgments § 88 (1982) (discussing seven circumstances which may prevent the application of issue preclusion where mutuality of parties is lacking).

Additionally, unlike in Mcllravy, we note none of the general exceptions to issue preclusion are applicable in the case before us. Gardner urges two of the exceptions to the doctrine of issue preclusion apply. See generally Restatement (Second) of Judgments § 28 (describing the five exceptions to the general rule of issue preclusion). First, Gardner argues she was not afforded an opportunity to litigate before the industrial commissioner. Gardner also contends it was not foreseeable that the contested case settlement would operate as a bar to her later tort action. For the reasons discussed below, both of Gardner’s arguments are without merit.

Gardner was not denied an opportunity to argue her factual and legal claims within the context of the workers’ compensation settlement. A refusal to apply issue preclusion because Gardner allegedly lacked a fair opportunity to litigate the issue of a reasonable basis in the settlement agreement “should not occur without a compelling showing of unfairness.” Restatement (Second) of Judgments § 28 cmt. j. The facts do not support such a finding. Gardner was represented by counsel both before and throughout the initial workers’ compensation action. In that action, both Gardner and Hartford admitted a good faith dispute existed as to whether or not Gardner was entitled to workers’ compensation benefits. The commissioner examined evidence offered by both parties regarding the origin, nature, and extent of Gardner’s claimed injury. All relevant medical documents were submitted to the industrial commissioner for consideration.

Gardner alone chose her route of recovery. Unlike in Mcllravy, by agreeing to the settlement, Gardner stipulated to the existence of a bona fide dispute between the parties. Despite the numerous avenues Gardner could have pursued to resolve her workers’ compensation claim, she opted to follow Iowa Code section 85.35. In contrast to other provisions of chapter 85, section 85.35 requires the parties to agree and the industrial commissioner to find a bona fide dispute exists between them. By agreeing to the settlement, Gardner stipulated that a bona fide dispute existed between the parties. Gardner argued her position for two years before the parties submitted the contested case settlement to the industrial commissioner. Surely she had the incentive and time necessary to argue her case.

Similarly, Gardner’s claim that it was not foreseeable that her agreement to settle under section 85.35 would function as a bar to a later tort suit is likewise unconvincing. Issue preclusion should not apply where it was unforeseeable that an issue would arise in the context of a later action; however, such instances are rare. See id. § 88 cmt. i. Gardner does not argue a subsequent change in law or in fact rendered it unforeseeable that the issue of a reasonable basis would arise in her later tort action. See id. She does not now claim her attorney or the industrial commissioner misled her as to the effects of the settlement. Inescapably entwined in the issue decided by the industrial commissioner, i.e., whether a bona fide dispute existed, was the matter of whether Hartford had a reasonable basis for its denial of benefits. Gardner cannot now argue it was unforeseeable when the parties agreed to the settlement that the issue of a reasonable basis would arise in the context of a later tort action for bad faith. The same facts and issues inherent in the settlement are material to the tort action. Having determined that none of the exceptions to the doctrine of issue preclusion apply in this case, we now turn to examine whether the requisite elements of issue preclusion are present.

We begin with the facts and legal claim involved in the former settlement. Gardner litigated a claim for benefits that ultimately resulted in a contested case settlement with Hartford. The parties filed the settlement with the industrial commissioner pursuant to Iowa Code section 85.35. This section provides in relevant part:

The parties to a contested case ... may enter into a settlement of any claim arising under this chapter ..., providing for final disposition of the claim, provided that no final disposition affecting rights to future benefits may be had when the only dispute is the degree of disability from an injury for which an award for payments or agreement for settlement under section 86.13 has been made. The settlement shall be in writing and submitted to the workers’ compensation commissioner for approval. The settlement shall not be approved unless evidence of a bona fide dispute exists....

Iowa Code § 85.35. The commissioner may find a bona fide dispute exists when

the claimant, in a matter over which the workers’ compensation commissioner has jurisdiction, is represented by an attorney licensed to practice in this state, and the claimant and the claimant’s attorney agree that evidence of a bona fide dispute exists as to the enumerated factors of Iowa Code section 85.35, and the parties set forth a specific statement of facts of the bona fide dispute and allege that such facts are true, the professional statement of counsel for the parties shall constitute prima facie evidence that a bona fide dispute exists as required by Iowa Code section 85.35.

Iowa Admin. Code r. 876 — 6.1(1) (1998). There are eight statutory grounds upon which the commissioner may find a bona fide dispute exists. See Iowa Code § 85.35. A bona fide dispute is one that is “made or carried out in good faith; sincere; authentic; genuine.” The American Heritage Dictionary _ (4th ed.2000)'. Relevant to the issue before us is Iowa Code section 85.35(8) which provides a bona fide dispute exists as to whether “[a] substantial portion of the claimed disability is related to physical or mental conditions other than those caused by the [work-related] injury.” Iowa Code § 85.35(8).

Both Gardner and Hartford presented evidence to the industrial commissioner. The documents submitted to the commissioner show Gardner’s claim which was the subject of the contested case settlement, included all of the disputes which are now the subject of her bad faith claim. The evidence consisted of the reports of six physicians involved in varying degrees with Gardner’s case. The reports addressed the following information regarding Gardner’s claimed injury: physical and mental evaluations, medical diagnoses, proposed treatment, work recommendations, and potential cause of injury. According to the reports, Gardner initially sought treatment for chest pains, not her claimed shoulder injury. After the injury date of January 1996, Gardner did not work during the subsequent months. Dr. Donna Bahls’ February 18, 1998, report stated Gardner started working approximately five hours per day at a pizza restaurant and she continued to bartend. Bahls also stated a bone scan and MRI conducted after the arthroscopic surgery did not show any specific medical problem. One of the medical reports dated March 11, 1998, stated Gardner would continue to work. The reports contained the following information regarding the cause of Gardner’s claimed injury. In January 1996, one doctor noted, “Most likely, this is a myofascial pain syndrome and it may be work related. There is no way to know with certainty, but we certainly have no better candidate. Her job is repetitive, needless to say.” This statement is the extent of the record on the potential relation of the claimed injury to Gardner’s working conditions. After considering all of the evidence, the commissioner found a bona fide dispute existed as to whether “[a] substantial portion of the claimed disability is related to physical or mental conditions other than those caused by the [work-related] injury.” Id.

When the commissioner considered the contested case settlement, she was required by the statute to determine whether a good faith dispute existed. The commissioner’s determination under section 85.35 required her to find a dispute existed at a minimum to one of the eight matters listed in the statute. Whether Gardner’s injuries were caused by or somehow related to Gardner’s employment was material and relevant to the commissioner’s determination of whether a bona fide dispute existed. Id. The commissioner’s finding a good faith dispute existed as to whether her disability was related to the workplace fundamentally affected Gardner’s claim for benefits and the benefits she received in the settlement.

Turning to the present tort action, Gardner tries to bring a cause of action for bad faith denial of workers’ compensation benefits. To be successful, she must prove the following: (1) the absence of a reasonable basis for denial of the claim; and (2) the defendant knew or had reason to know that its denial was without a reasonable basis. Thompson v. United States Fid. & Guar. Co., 559 N.W.2d 288, 291 (Iowa 1997). Hartford had the right to contest a claim for benefits that is “fairly debatable” without being subject to a bad faith tort claim. See Morgan v. Am. Family Mut. Ins. Co., 534 N.W.2d 92, 97 (Iowa 1995). “Where an objectively reasonable basis for denial of claim actually exists, the insurer cannot be held liable for bad faith as a matter of law.” Id. A claim may be fairly debatable either as to a matter of fact or law. Id. We must determine whether the elements of issue preclusion exist in the case before us to bar Gardner’s present tort claim.

To begin our issue preclusion analysis, we first must examine whether the issue determined by the contested case settlement is identical to the issue to be determined in Gardner’s claim for bad faith. See United Fire & Cas. Co., 642 N.W.2d at 655. In the former, the industrial commissioner determined a good faith dispute existed as to whether Gardner’s claimed disability was related to physical or mental conditions other than those caused by the work-related injury. In other words, by negotiating and signing the contested case settlement, both parties acknowledged there was a good faith dispute as to whether Gardner’s injuries were “caused by or related to the working environment or the conditions of employment.” See McIlravy, 653 N.W.2d at 331. Though the tort of bad faith is not within the jurisdiction of the industrial commissioner, the fairly-debatable issue itself was directly before her and was integral to the contested case settlement. See Reedy v. White Consol. Indus., 503 N.W.2d 601, 603 (Iowa 1993) (industrial commissioner lacks jurisdiction over bad faith denial of benefits tort claim). The industrial commissioner’s finding Gardner’s claim was fairly debatable and the existence of a good faith controversy as to whether there was a non-work-related cause of Gardner’s injury is simply an alternative way of finding Hartford may have had a reasonable basis for denying Gardner’s claim.

The facts and issues decided in the settlement are identical to the present issues in the tort suit. In the former settlement, the issue of whether a bona fide dispute existed, i.e., whether the claim was fairly debatable, was material and relevant to the industrial commissioner’s determination of whether the settlement should be approved. See id. (issue preclusion is applicable if the issue was material and relevant to the disposition of the prior action). In the initial action for workers’ compensation benefits, had the evidence shown there was no dispute as to Gardner’s entitlement to benefits, the parties would not have been allowed a contested case settlement on the ground asserted and the commissioner would not have approved it. In the bad faith action, if Gardner could show Hartford denied her claim despite the absence of a reasonable basis for the denial, she could succeed on her bad faith claim.

In sum, instead of rejecting the case settlement, Gardner now wants to frame the same argument with a different label asserting bad faith. In the settlement, Gardner agreed there was a genuine dispute as to the cause of her claimed disability. The industrial commissioner’s finding of a bona fide dispute constituted a finding that the issue of causation was fairly debatable. The commissioner’s approval of the parties’ contested case settlement is a final adjudication on the matter. See Rigby v. Eastman, 217 N.W.2d 604, 606 (Iowa 1974). An adjudication by an administrative agency has preclusive effect. Polk County Secondary Roads v. Iowa Civil Rights Comm’n, 468 N.W.2d 811, 817 (Iowa 1991). The issues raised and decided in the settlement are identical to the central issue in the bad faith tort claim. Both Hartford and Gardner were parties in interest in the case settlement before the industrial commissioner. They each had the opportunity to argue factual issues and legal claims in the contested case settlement. Consequently, Gardner’s agreement to the settlement under Iowa Code section 85.35 precludes her from again arguing lack of a reasonable basis in the form of a bad faith tort action.

IV. Conclusion

We affirm the district court’s grant of summary judgment based upon the ground that Gardner’s claim for bad faith is precluded by the contested case settlement. Because we find issue preclusion bars Gardner from maintaining her tort action, we do not address Hartford’s cross-appeal.

AFFIRMED.

      . Myofascial pain syndrome is one related to the fasciae of muscles. Webster’s Medical Desk Dictionary 460 (1986). Fasciae are "sheet[s] of connective tissue covering or binding together body structures.” Id. at 236. They enclose muscles or muscular groups and separate muscle layers. The American Heritage Dictionary 491 (2d ed.1985).


author: NEUMAN, Justice.

text:
    FEDERATED INSURANCE, Appellee, v. IOWA MUTUAL INSURANCE COMPANY, Appellant.
    No. 02-0170.
    Supreme Court of Iowa.
    April 2, 2003.

      William H. Roemerman of Crawford, Sullivan, Read & Roemerman, P.C., Cedar Rapids, for appellant.
    Mark A. Fonken of Jardine, Logan & O’Brien, P.L.L.P., Lake Elmo, MN, and Lawrence R. Kayser of Kayser Law Office, Webster City, for appellee.
   NEUMAN, Justice.

This is a declaratory judgment action to determine the apportionment of insurance proceeds between two insurers who settled with injured parties following an automobile collision. The appellant, Iowa Mutual Insurance Company, claims the district court’s decision permits the other insurer, Federated Insurance, to unlawfully subro-gate against its own insured. We reject this contention, thereby affirming the district court.

The facts are undisputed. Dorothy Car-stens, while test-driving a car owned by Steineke Ford, struck a car being driven by Bonnie Rusch. Rusch’s husband, Brian, was a passenger in the Rusch vehicle. The Rusches sustained significant injuries.

At the time of the accident, Carstens was insured under a personal auto liability policy issued by Iowa Mutual with a combined single limit of $300,000 per accident. As a customer of Steineke Ford, she was also an insured under the dealer’s garage policy issued by Federated. Both policies contained clauses limiting their coverage. The Iowa Mutual “other insurance” clause states:

If there is other applicable liability insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance.

(Emphasis added.) The Federated policy insures the dealership’s customers; however, the policy states that if a customer

[h]as no other available insurance (whether primary, excess or contingent), they are an “insured” but only up to the compulsory or financial responsibility law limits where the covered “auto” is principally garaged.

In this case, that limit totaled $40,000. See Iowa Code § 321A.21 (1999) (requiring liability insurance of up to $20,000 per person, up to a maximum of $40,000 per accident).

The Rusches sought recovery from both Carstens and Steineke Ford. Mediation ensued. The insurers ultimately agreed to settle the Rusches’ claims for a total of $265,000. Each contributed equally to the settlement pending a later determination of their relative legal liabilities for the accident. Federated then instituted this suit to seek reimbursement for sums it paid over and above its legal liability under the garage policy. Iowa Mutual answered, denying that Federated overpaid and asserting that Iowa Mutual overpaid its share of the settlement.

Ruling on cross motions for summary judgment, the district court determined that because each policy purported to provide only excess coverage, the calculation of each insurer’s coverage obligation must be based on a pro rata share of each company’s policy limits. Thus the court divided the total amount of settlement ($265,000) by the total available policy limits ($340,000) to determine that each carrier should pay 77.94 percent of its policy limits. This appeal by Iowa Mutual followed.

I. The crux of Iowa Mutual’s appeal is its contention that the court’s pro rata apportionment of the carriers’ coverage obligations effectively permits Federated to subrogate against its own insured, Carstens. Its argument seems to hinge on the fact that Federated initially resisted Carstens’ coverage claim based on the “no other available insurance” provision of Federated’s insuring clause. Iowa Mutual contends that Federated settled the case on behalf of Steineke Ford, only, making its current claim against Iowa Mutual one for subrogation.

There are two flaws in Iowa Mutual’s argument. First, the parties’ stipulated agreement to split the Rusch settlement specifically disclaims any intent to fix the “proper division of liability” between them. Nor does the agreement recite on whose behalf the equal payments were made. By its terms, the agreement was reached “solely for purposes of paying [the Rusch-es] the amount owed.”

Second, by the time this declaratory. judgment action reached the summary judgment stage, Federated had conceded Carstens’ insured status consistent with our decision in Aid Insurance Co. v. United Fire & Casualty Co., 445 N.W.2d 767, 771 (Iowa 1989). There we identified nearly identical policy language as a form of “escape” clause, compelling a construction favoring coverage to “protect the person who, although doubly insured, is denied any coverage at all.” Aid Ins. Co., 445 N.W.2d at 770 (citing Union Ins. Co. v. Iowa Hardware Mut. Ins. Co., 175 N.W.2d 413, 418 (Iowa 1970)).

We are convinced, as was the district court, that Iowa Mutual’s subrogation argument simply mischaracterizes the nature of the action. The focus here is not on the respective rights of the insureds but on the respective obligations of the insurers. We made the identical point in Truck Insurance Exchange v. Maryland Casualty Co.:

It is essential to a correct understanding of this opinion that the nature of this action be kept in mind. It is not based on subrogation. The insurance carrier is not seeking contribution or indemnity through some rights his insured might have had against defendant’s insured. It is an action for contribution based upon provisions in the respective policies of insurance which create a question as to which company should stand the loss. If it were not for the other, the policy of each company would cover the loss.

Truck Ins. Exch., 167 N.W.2d 163, 163-64 (Iowa 1969). In the Truck case we went on to observe that when two carriers provide coverage on the same loss, we determine their respective obligations by construing the language used in their respective policies. Id. at 164. That is precisely what the district court did here, subject to the rules applicable to “mutually repugnant” excess clauses. See id.

II. It has long been held that if concurrent policies provide coverage only to the extent that other insurance is not available, such excess provisions are ignored and the loss prorated between the insurers based on their combined policy limits. Aid Ins. Co., 445 N.W.2d at 769; Union Ins. Co., 175 N.W.2d at 418; Truck Ins. Exch., 167 N.W.2d at 164-65.

It is true, as Iowa Mutual contends, that in the Aid Insurance case — which also involved injuries caused by a customer of a car dealership — we denied the dealer’s insurer’s cross-claim for indemnity against the driver of the vehicle. Aid Ins. Co., 445 N.W.2d at 771. Contrary to Iowa Mutual’s argument, however, the cases are plainly distinguishable. In Aid, the dealer’s insurer had paid none of the judgment so there was no loss to be indemnified. Id. More importantly — and in contrast to the case before us — the insurer’s cross-claim sought personal recovery against the consent driver rather than an apportionment of coverage obligations between insurers. Such a cross-claim, of course, implicated the well-settled rule preventing an insurer’s recovery by right of subrogation from its own insured and was rightly rejected. Id. Federated is not attempting such a maneuver here. The district court was correct in so ruling.

III. As noted earlier in this opinion, the court determined that each insurer’s pro rata share of the liability claim/settlement equals 77.94 percent. Applying this figure to their respective policies, Federated would owe $31,176.48 (77.94 x 40,000) and Iowa Mutual would owe $233,822.52 (77.94 x 300,000). Because Federated paid $132,500 toward the settlement, it would be entitled to reimbursement from Iowa Mutual in the sum of $101,322.52. Based on an evident mathematical error, the district court entered judgment against Iowa Mutual for only $100,823.52. Federated, however, has not cross-appealed for the additional sum. We therefore affirm the judgment of the district court.

AFFIRMED.

      . We reasoned that “a clause excluding a person from coverage — unless other insurance does not exist — is just as much an escape clause as one that includes the insured unless other insurance does exist.” Aid Ins. Co., 445 N.W.2d at 770.


author: LARSON, Justice. CARTER, Justice

text:
    Dena SLEETH, Appellant, v. Tony Eugene LOUVAR and Doug Louvar, Appellees.
    No. 01-1315.
    Supreme Court of Iowa.
    April 2, 2003.

      Martin A. Diaz, Iowa City, for appellant.
    Matthew J. Nagle and Amy L. Reasner of Lynch Dallas, P.C., Cedar Rapids, for appellees.
   LARSON, Justice.

We granted plaintiff Dena Sleeth’s application for further review of a court of appeals decision regarding submission of an “aggravation” instruction in her personal-injury action. The plaintiff claims the district court’s decision to give an aggravation instruction due to her preexisting arthritis conflicts with our decision in Waits v. United Fire & Casualty Co., 572 N.W.2d 565 (Iowa 1997), and earlier cases. We vacate the decision, of the court of appeals, reverse the judgment of the district court, and remand for a new trial.

I. Facts and Prior Proceedings.

Dena Sleeth was injured on April 1, 1998, when the defendant, Tony Louvar, ran a stop sign and hit her vehicle. Lou-var admits his negligence. Sleeth had pain in her knees immediately after the accident and went to St. Luke’s Hospital in Cedar Rapids for an examination. X-rays of her knees did not disclose any abnormalities.

Pain from her injury persisted, and on June 10, 1998, her physician referred her to an orthopedic surgeon, Dr. John Turner. Surgery on her left knee was performed on October 7, 1998. During surgery, the doctor found degenerative arthritis in Sleeth’s left knee, and he believed this was present prior to the accident. At the time of the accident, Sleeth was thirty-one years old. She testified that she had no pain in her knees prior to the, accident, but she does admit that her knees have “popped” since childhood.

II. The “Aggravation” and “Eggshell” Concepts.

In Waits, as in the present case, the court instructed the jury on preexisting conditions under both the “eggshell” and “aggravation” concepts. We said:

To clarify the scope of the instructions involved here, we start with the general rule that a defendant is liable only for injuries caused by the defendant’s fault, and not for pain or disability resulting from other causes. Thus, if a plaintiff had a prior back injury that caused pain and a ten percent disability before the injury inflicted by the defendant occurred, the defendant would not be responsible for the disability and pain that predated the current injury, but only for
any additional pain and disability caused by the current injury. Under these circumstances, an aggravation instruction is appropriately submitted to the jury.
The eggshell plaintiff rule is an exception to the general rule. This exception applies only when the pain or disability arguably caused by another condition arises after the injury caused by the defendant’s fault has lighted up or exacerbated the prior condition. The law on this point was clearly stated in Becker [v. D & E Distributing Co., 247 N.W.2d 727 (Iowa 1976)]:
It is also apparent mere existence of a prior nondisabling, asymptomatic, latent condition is not a defense. A tort-feasor whose act, superimposed upon such condition, results in an injury may be liable in damages for the full disability. In these cases the injury, and not the dormant condition, is deemed to be the proximate cause of the pain and disability.

Waits, 572 N.W.2d at 577 (citations omitted) (quoting Becker, 247 N.W.2d at 731).

Sleeth’s orthopedic doctor testified that the accident would have “aggravated her preexisting condition of osteoarthritis.” The defendant has seized on this language as proof that the aggravation instruction was properly given. The plaintiff responds that “aggravation,” as used by the doctor, was not used in its legal sense but in the sense it had lighted up a dormant arthritic condition.

III. The Issue.

The single issue is whether the district court properly instructed the jury on a theory of aggravation of the plaintiffs preexisting condition as well as the “eggshell plaintiff’ theory. Jury instruction No. 14 stated:

Evidence was presented indicating that Dena Sleeth has arthritis in her knees.
If you find Dena Sleeth had arthritis which caused her pain or disability before this accident and this condition was aggravated by this accident causing further suffering, then she is entitled to recover damages caused by the aggravation. She is not entitled to recover for any physical pain or disability which existed before the incident or for any injuries or damages which she now has which were not caused by the Defendant’s actions, [aggravation instruction]
If you find Dena Sleeth had arthritis but without pain or disability before this incident and this condition made her more susceptible to injury than a person in normal health, then Tony Louvar is responsible for those injuries and damages experienced by Dena Sleeth which were proximately caused by Mr. Lou-var’s actions, even though the injuries claimed produced a greater injury than those which might have been experienced by a normal person under the same circumstances, [“eggshell plaintiff’ instruction]

The trial court based its instructions on Waits and Becker, explaining its decision to instruct on both the aggravation and eggshell-plaintiff theories in this way:

Waits deals primarily with both of the instructions [eggshell plaintiff and aggravation], but if you are going to give them both that you basically need to give some additional guidance to the jury, and I’ve attempted to do that by adding some language to the uniform instructions and have tried to make that as clear as I think that it is possible....

The jury awarded Sleeth $15,000. Past medical expenses were for $7499.95 of that amount, $1400 for past loss of full body; $600 for future loss of full body, and $5500.05 for past and future pain and- suffering. It is impossible to tell whether the jury awarded compensation for one knee or both knees, and it cannot be known whether the jury applied aggravation or eggshelhplaintiff principles in determining the amount of damages.

IV. Disposition.

Alleged errors regarding jury instructions are reviewed for correction of errors at law. Herbst v. State, 616 N.W.2d 582, 585 (Iowa 2000). In Waits, as in the present case, the court instructed on both the aggravation and eggshell-plaintiff rules; In Waits the plaintiff had prior pain and disability because of an injury five years before the last injury. Her doctor testified the injury had healed, and “it was possible that Waits would be asymptomatic after her 1987 injury, but that her prior injury would make her more susceptible to a back injury in 1992.” Waits, 572 N.W.2d at 576. The plaintiff testified she had no residual disability from her earlier injury as of the time of the collision in question. We said, based on the testimony of the plaintiff and her doctor,

the jury could conclude that Waits’ back condition was a nondisabling, asymptomatic condition that made her more susceptible to injury than a normal person.

Id. An eggshell instruction was therefore appropriate. The trial court in Waits also instructed on aggravation because a jury could find that at least some of the plaintiffs disability from her accident five years earlier was present at the time of her. last accident. Id. at 577.

The plaintiffs orthopedic surgeon, Dr. David Hart, testified that he observed arthritis in her left knee during surgery and that, in his opinion, the plaintiff had arthritis in both knees before the accident. However, he testified this was not necessarily disabling or painful as explained in this colloquy:

Q. Now, just because you have arthritis, does that mean you’re going to have knee, and pain, and those types of things — knee problems, I mean. A. Well, not necessarily. It’s possible that the ... accident kind of precipitated some of this.
Q. Okay. Did she give any history of any prior problems with her knees? A. I — I don’t think I have any in my record that indicates that....
Q. So assuming she doesn’t have— didn’t have any problems with the knee beforehand, and had these arthritic changes in her knee — or at least some of those — what does the automobile accident actually do, if anything? A. Well, in my opinion, it would have ... aggravated her preexisting condition of osteoarthritis.
Q.. Okay. And how does it aggravate it? A. Well, the ... direct blow ... it’s already deteriorating a little bit, and you take a direct blow like a dashboard, a significant impact, it can cause some of that fragmentation to be worsened, loo-qen up some of that joint surface, spit some of those pieces of cartilage into the joint, cause inflammation.

The doctor was asked about apportioning Sleeth’s disability between the preexisting arthritis and her disability following the recent accident:

I want to ask you about the impairment rating [in the doctor’s report]. Do you feel as if any portion of the impairment rating ought to be attributable to her preexisting arthritic condition, and a portion of it to any aggravation that may have happened in this accident?

The doctor responded:

A. Well, I’ll tell you, that’s a very, very difficult thing and it’s ... just pure speculation on my part to apportion, you know, that.
... A. I mean, ..., to ask me to kind of assign a certain percentage to the car accident, I ... think that would be impossible to do that.

The colloquy continued:

Q. [What] is your sense of what may have been caused and what may not have been caused by the collision? A. Well, a situation like this ... quite frankly, go[es] a lot on historical evidence. And [I have] got a patient telling me her knees didn’t hurt beforehand, had a direct blow, and ... has a problem, so, I mean — I hate to put it in too much of simple terms but that’s ... what I base a lot of [my diagnosis] on.

A friend of the plaintiff, who was living in the same home at the time of the accident, testified she had never heard the plaintiff complain about any knee problems, and she had noticed no problems in her mobility. The plaintiff was able to get up and down stairs in her three-level home without any problems and was able to keep up with all of the chores around the home.

At the time of the accident, the plaintiff was living with a man named David Butler, who was also her business associate. He was asked questions about the plaintiffs condition prior to the accident:

Q. For the length of time that you’ve known Dena Sleeth, have you ever known her prior to this automobile collision to have had any problems with her knees or her legs? A. None whatsoever.
Q. Did she ever complain to you about any pain or problems she was having with the movement of her knees or legs? A. No.
Q. Were you ever aware that she had arthritic knees or arthritis in the knees?_ A. No. She seems in very good shape, always was.
Q. In terms of getting around, moving around? A. Absolutely, absolutely. In fact, some of the security, she was in charge of [security at a beer tent] which is an extensive area, and there were some other accounts, too, that she handled very well, absolutely.

This witness further engaged in this colloquy:

Q. Up until this point in time, that is up until this automobile collision, you’ve described her activity level as normal in terms of her movement, legs and that type of thing, is that what you said? A. Yes.

The witness continued:

Prior to the accident Dena ... was in good shape, she really was. You know, we would wrestle around and she went through ... self-defense training. [The self-defense instructor] taught handcuff technique, she had, a straight baton and some other things, she was perfect [too]. She got a certifícate on it. And I’m sure [the instructor] doesn’t just pass anybody, he is a very strenuous instructor....

He testified that the plaintiff worked “forty, sixty, sometimes eighty hours” prior to the accident, and

it was sad to see her go up the stairs [after the accident] when before she would jump around, run around, we would have a good time, and after that we just couldn’t do it.

The plaintiff testified that prior to the accident her activity level was normal. She said:

I would do and go wherever I wanted to do, go wherever I wanted to go and do whatever I wanted to do without any problems.
Q. Did you ever experience, that you know of, any problems in particular? When I say problems, I’m talking about difficulty using your knees, either one of your knees, prior to April 1 of 1998? A. No.
Q. Did you ever have any pain associated with it other than maybe striking an object of some kind? A. No.
Q. Now, have you experienced problems with your knees since the automobile collision? A. Yes, I have.

The plaintiff testified that she was not aware that she had arthritis in her knees before the accident, although she had had a “popping” in her knees. Her surgeon testified, in response to the question, “What does that [popping] mean to you as an orthopedist?”.

Well, you know, joints typically make noise. That’s a fact of life. And that, in and of itself, doesn’t necessarily mean there is a problem. It could be a soft tissue click, it could be a bony click, or a hard cartilaginous surface clicking. In a ... joint that swells and has pain, it ... might be significant.

There was no evidence that Sleeth had any swelling in either knee.

The defendant points to no evidence that Sleeth had any disability or pain prior to the accident with Louvar. See Waits, 572 N.W.2d at 576 (“Notably, United Fire points to no testimony that [the plaintiff] had a two percent impairment before the accident”). Louvar called no medical witnesses to contradict Sleeth’s medical testimony that popping alone does not mean there is a problem.

When we weigh the sufficiency of the evidence to support an instruction, we “construe the evidence in a light most favorable to the party seeking submission[,]” here the defendant. Sonnek v. Warren, 522 N.W.2d 45, 47 (Iowa 1994). However, the evidence must be substantial. Walker v. Sedrel, 260 Iowa 625, 632, 149 N.W.2d 874, 878 (1967) (“There is, of course, no duty to instruct on an issue without substantial support in evidence or which rests only on speculation or conjecture.”).

The plaintiff’s doctor testified it would be “a very, very difficult thing [to apportion the disability]” and “it’s ... just pure speculation” to attempt it. Further, the popping noise was a joint, and “joints typically make noise. That’s a fact of life.” And it “doesn’t necessarily mean there is a problem,” according to the witness. The defendant presented no evidence on which the jury could assess the plaintiffs preexisting disability, if any. The jury would have to speculate on that issue, and speculation is not substantial evidence. Walker, 260 Iowa at 632, 149 N.W.2d at 878. The jury was not bound, of course, to believe the plaintiff or her witnesses. But, even the establishment of a lack of credibility in the plaintiffs case cannot fill the void in the defendant’s proof of a preexisting disability — as opposed to a mere preexisting condition.

The court in Newbury v. Vogel, 151 Colo. 520, 379 P.2d 811 (1963), reversed the trial court for failure to give an eggshell instruction. It discussed the difficulty in apportioning disability between the recent trauma and a preexisting arthritic condition. The court held the jury should have been instructed on the eggshell rule in view of the difficulty in assessing the amount of preexisting disability:

Under the instructions given the jury was advised that the plaintiff could recover only that portion of his damage which was due to aggravation. If the jury could not make such apportionment (and it might well be that they could not, since two of the medical experts could not) they were left without an instruction as to the law which would apply in such circumstances.

Newbury, 379 P.2d at 813.

V. Conclusion.

Here, it was error to submit an aggravation instruction because there was no substantial evidence of preexisting disability. We vacate the decision of the court of appeals, reverse the judgment of the district court, and remand for a new trial.

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

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

CARTER, Justice

(dissenting).

I dissent.

Based on the facts presented concerning the cause of plaintiffs physical condition following the accident, the district court correctly instructed on both the eggshell-plaintiff doctrine and the rules for apportioning disability based on an aggravation of a prior physical condition. In Waits v. United Fire & Casualty Co., 572 N.W.2d 565, 578 (Iowa 1997), we recognized that, when there is evidence from which the jury could either accept or reject a claim for apportionment of an injury or disability between a recent traumatic event and a physical condition preceding that event, both the eggshell-plaintiff instruction and an aggravation instruction should be given by the court. That is the situation here.

Plaintiffs accident occurred in April 1998. Plaintiff reported to Dr. David Hart, who performed surgery on her, that she was continuing to experience pain in her right knee in January 1999. Dr. Hart testified:

Q. And you’ve told the jury it’s your feeling that the symptoms Ms. Sleeth has reported in her right knee were caused by the car accident of April 1, specifically that she had — may have had some preexisting arthritis in her knee, and that that may have been aggravated by bumping the dashboard in the accident? A. That’s correct.
Q. Okay. Now, when you told the jury you thought when — Ms. Sleeth bumped her knees on the dashboard in this accident, am I to understand this aggravation injury is sort of like she had some loose arthritic fragments — fragments of her tendons and ligaments, and they were somehow bumped or maybe broken loose? A. Yes.
Q. And so the range — the range of time when the first symptoms could appear would be, at the earliest, immediately, and at the latest, within a month or so? A. I would think so.
Q. All right. It would be unusual to have symptoms cropping up four or six months after the accident? A. Well, if they did, it’s probably unrelated to the— traumatic incident.
Q. You have explained to the jury your feelings about Ms. Sleeth’s preexisting arthritic condition, and the fact that it may have been aggravated in this car accident. You’ve also assigned an impairment rating for her left knee. I want to ask you about the impairment rating. Do you feel as if any portion of the impairment rating ought to be attributable to her preexisting arthritic condition, and a portion of it to any aggravation that may have happened in this accident? A. Well, I’ll tell you, that’s is a very, very difficult thing, and it’s — it’s just pure speculation on my part to apportion, you know, that. I mean, she had a significant preexisting condition that essentially would get her this impairment rating based on just her condition, whether or not she was in a car accident.

(Emphasis added.)

The opinion of the court mischaracter-izes the issue in terms of whether plaintiffs arthritic condition prior to the accident was symptomatic. The critical question to be asked is whether some or all of the condition for which plaintiff sought recovery for disability and pain and suffering would have existed from the arthritis even if no accident had occurred. Dr. Hart’s testimony was sufficient to permit the jury to find that it would have. In light of his testimony, it would have been error for the district court not to have given an aggravation instruction along with the eggshell-plaintiff instruction.

The fact that the medical experts who testified found it difficult to apportion a particular percentage of disability to the prior arthritic condition does not mean that the prior condition did not cause a portion of the posttraumatic condition for which damages are sought. It was equally difficult for these witnesses to state that the arthritis is not a cause of a portion of plaintiffs disability and pain and suffering after the accident, irrespective of the automobile accident. Their inability to resolve this factual issue in no way establishes that the issue does not exist. Because it did exist, it was a matter for the jury to resolve. The district court’s instructions were a proper statement of the law for purposes of guiding the jury’s resolution of the matter. I would affirm the judgment of the district court.


author: CADY, Justice.

text:
    STATE of Iowa, Appellee, v. James Craig THOMAS, Appellant.
    No. 01-1463.
    Supreme Court of Iowa.
    April 2, 2003.

      Linda Del Gallo, State Appellate Defender, and Theresa R. Wilson, Assistant Appellate Defender, for appellant.
    Thomas J. Miller, Attorney General, Karen Doland, Assistant Attorney General, Richard Crowl, County Attorney, and Martha Heinicke, Assistant County Attorney, for appellee.
   CADY, Justice.

In this appeal, we must determine if a guilty plea entered in a county drug court program was voluntary and intelligent. The court of appeals determined any error in the plea was harmless, but vacated the sentence and remanded thé case to the district court for resentencing. On further review, we conclude the guilty plea was voluntary and intelligent. We affirm the decision of the court of appeals, affirm the conviction, and remand for resentencing.

I. Background Facts and Proceedings.

On two separate occasions in April 1999, James C. Thomas sold methamphetamine to a confidential informant working with the Southwest Iowa Narcotics Enforcement Task Force. Thomas was subsequently charged with two counts of delivery of a controlled substance, a class “C” felony, in violation of Iowa Code section 124.401(l)(c)(6) (1999). He was later accepted into a drug court program established in Pottawattamie County.

On September 28, 2000, Thomas appeared in drug court and entered a plea of guilty to the charges. Prior to accepting the plea, the presiding district court judge questioned Thomas to determine the vol-untariness of his decision to plead guilty. The colloquy between the district court and Thomas included a factual basis for the guilty plea, as well as an acknowledgement by Thomas of the rights lost by pleading guilty. Thomas was also informed that each offense carried a maximum sentence of ten years incarceration. Yet, in explaining the drug court process to Thomas, the district court judge informed him that the charges would be dismissed if he successfully completed the drug-treatment program. He also informed him he would “end up doing 20 years in the penitentiary” if he failed to successfully complete the program. After accepting the plea, the district court judge noted that sentencing would be held in abeyance pending completion of the treatment program.

On August 16, 2001, Thomas was returned to the district court after absconding from the supervision of his treatment facility. At that time, the court held a brief hearing and sentenced Thomas to two consecutive sentences of ten years.

Thomas appealed from the district court’s judgment and sentence. He claimed his guilty plea was not voluntarily or intelligently entered based on the statement by the district court during the plea colloquy that the charges would be dismissed if he successfully completed the drug court program. Thomas asserted this- disposition was not an availablé sentencing option for the district court to impose because Iowa Code section 124.401E(1) (Supp.1999) authorizes only a suspended sentence as a predicate to the drug court program. Additionally, Thomas argued the district court actually imposed a deferred sentence when it ordered him into the drug court program, which was not an available sentencing option under section 124.401E(1). Finally, Thomas claimed the district court sentenced him following his departure from the drug court program without providing him with counsel and a right of allocution, and without stating the reasons for the sentence imposed. We transferred his appeal to the court of appeals.

The court of appeals. determined that ahy mistake by the district court during the plea colloquy in informing Thomas of an outcome — dismissal of the charges' — • that was not possible under section 124.401E(1) was “moot” and “harmless” because Thomas failed to successfully complete the program* It otherwise found the plea was entered voluntarily and intelligently. However, the court of appeals concluded the district court failed to provide Thomas with counsel and with his right of allocution. It therefore upheld the conviction, but remanded the case for re-sentencing.

Thomas sought further review of the court of appeals decisión challenging only the conclusion relating to his guilty plea. The State did not seek further review of the court of appeals decision. Thus, the sole question presented is whether Thomas’ guilty plea in the district court was voluntary and intelligent.

II. Standard of Review.

Challenges to the validity of a guilty plea involve determinations of a constitutional magnitude. For that reason, we review de novo. State v. Sayre, 566 N.W.2d 193, 195 (Iowa 1997).

III. The Guilty Plea.

In State v. Boone, 298 N.W.2d 335, 337 (Iowa 1980), we recognized,

[a] defendant who enters a plea of guilty waives several constitutional rights. For the waiver to be valid under the Due Process Clause of the Fourteenth Amendment to the United States Constitution, there must be an intentional relinquishment of known rights or privileges. If a defendant’s guilty plea is not equally voluntary and knowing, it has been obtained in violation of constitutional guarantees of due process and is therefore void. The defendant must have a full understanding of the consequences of a plea before constitutional rights can be waived knowingly and intelligently.

Id. (citations omitted) (emphasis added); see also State v. Buck, 510 N.W.2d 850, 853 (Iowa 1994) (citing State v. Johnson, 318 N.W.2d 417, 426-27 (Iowa 1982)) (“A defendant’s waiver of a jury trial must be a voluntary, knowing, and intelligent act, done with awareness of the relevant circumstances and likely consequences.”); State v. Lawrence, 344 N.W.2d .227, 229 (Iowa 1984). Concomitant with the constitutional guarantees described in Boone, “[w]e have also stated as a separate requirement that there be compliance with Iowa rule of criminal procedure 8(2)(b) through (d) [now rule 2.8(2)(6) through (&)].” State v. Higginbotham, 351 N.W.2d 513, 514 (Iowa 1984). Therefore, the entry of a plea by a defendant has both constitutional and procedural elements that must be addressed to ensure that a plea is entered voluntarily and intelligently. These protections are not altered because the plea is part of a drug court proceeding within a county drug court program.

In considering the challenge by Thomas to the voluntariness of his guilty plea, we first turn to the State’s claim, which was the basis of the decision by the court of appeals, that the issue was rendered moot after Thomas absconded from the drug court program. We begin our review of this claim with the proposition that Thomas “ ‘had an unqualified constitutional right to a trial on the issue of [his] guilt, which [he may have] abandoned on the strength of [the court’s misinformation].’ ” State v. Kress, 636 N.W.2d 12, 22 (Iowa 2001) (quoting Meier v. State, 337 N.W.2d 204, 208 (Iowa 1983)). In other words, if the district court informed Thomas of a sentencing disposition it was not authorized to impose, his guilty plea based on that misinformation would be rendered involuntary and not intelligent. Moreover, the misinformation would not be rendered harmless simply by his failure to become eligible for the dismissal disposition. Even though Thomas may have lost a chance, by absconding from the drug program, to later benefit from a disposition he claims the court was not authorized to impose, any misinformation provided by the court could have been used by Thomas to influence his decision to plead guilty and pursue the drug court program rather than go to trial. For this reason, his failure to complete the program would not have rendered this claim harmless or moot. Thus, we must consider if Thomas was misinformed by the district court during the plea colloquy.

Our sentencing laws and procedures recognize three general sentencing options short of incarceration. Following a plea or' verdict of guilt, a court may, subject to exceptions, defer judgment, defer sentence, or suspend sentence. Iowa Code § 907.3 (1999). When judgment is deferred, the defendant is placed on probation without entry of a judgment. Id. §§ 907.1(1), 907.3(1). If the probation is successfully completed, the defendant is discharged and no judgment is entered. Id. § 907.3(1). If probation fails, the judgment is entered and the court is permitted to impose any authorized sentence. Id. This option allows a defendant to avoid a record of a conviction. When the sentence is deferred, a defendant is placed on probation at or after pronouncement of judgment, but without any sentence imposed. Id. §§ 907.1(2), 907.3(2). The court enters an adjudication of guilt, but the sentence is deferred to a later time. Id. § 907.1(2). This delay allows the court to consider sentencing in the future after the court has had an opportunity to view a defendant’s conduct on probation. The court retains the power to impose “any sentence it originally could have imposed.” Id. Finally, when a sentence is suspended, a defendant is placed on probation following the pronouncement of the sentence. Id. §§ 907.1(3), 907.3(3). The sentence is imposed, but execution of the sentence is suspended. Id. § 907.1(3). This option allows a defendant to avoid a known sentence of incarceration or other punishment based on successful completion of probation. Any revocation of the suspended sentence results in the execution of the sentence previously pronounced. Id. Thus, courts generally have the option to either defer judgment or sentence, or suspend a sentence.

Notwithstanding the availability of the sentencing options under section 907.3, Thomas argues the district court was restricted to granting a suspended sentence under section 124.401E(1), which specifically applies to the sentencing of persons convicted of delivery or possession with intent to deliver methamphetamine who are placed in a drug court program. This statute provides:

If a court sentences a person for the person’s first conviction for delivery or possession with intent to deliver a controlled substance under section 124.401, subsection 1, paragraph “c,” and if the controlled substance is methamphetamine, its salts, isomers, or salts of its isomers, the court may suspend the sentence, and the court may order the person to complete a drug court program if a drug court has been established in the county in which the person is sentenced or order the person to be assigned to a community-based correctional facility for a period of one year or until maximum benefits are achieved, whichever is earlier.

Id. § 124.401E(1) (Supp.1999) (emphasis added).

The only sentencing option mentioned as a predicate to ordering a defendant to complete a drug court program under the statute is a suspended sentence. Thomas argues this is a special statute that trumps the deferred judgment and deferred sentencing options of section 907.3, and only authorizes the district court to impose a suspended sentence in the event the district court chooses to order an offender into a drug court program. He claims this means the court had no authority to impose a sentencing option that would have resulted in a dismissal of the charge following successful treatment.

We recognize a special statute prevails over a general statute when they cannot be reconciled. State v. Farley, 351 N.W.2d 537, 538 (Iowa 1984). However, section 124.401E(1), the special statute in this case, can easily be reconciled with the available sentencing options under 907.3. Under the general sentencing statute, a defendant is required to be placed on probation following a deferred judgment or suspended sentence and, in a like manner, is required to be assigned to the judicial district department of correctional services following a deferred sentence. Iowa Code § 907.3(1), (2), and (3) (1999). Probation is a statutorily defined term, which means release for “supervision by a resident of this state or by the judicial district department of correctional services.” Id. § 907.1(4). Thus, if a district court pursues a sentencing option under section 907.3 it must place the defendant on probation under the form of supervision specified in the statute. Section 124.401E(1), therefore, expands the district court’s placement options for first offense delivery or possession with intent to deliver methamphetamine under section 124.401(l)(c). Under this statute the court can simply suspend the sentence and order the defendant into a drug court program. Accordingly, when sentencing an offender for such an offense, the district court has two options under a suspended sentence. It may suspend the sentence under section 907.3(3) and place the defendant on probation, or suspend the sentence under section 124.401E(1) and order the defendant to complete a county drug court program or order the defendant to be assigned to a community-based correctional facility. Thus, section 124.401E(1) merely supplements section 907.3(3). It does not otherwise restrict the district court.

It is also important to observe that section 124.401E(1) applies only “[i]f a court sentences a person” for first offense delivery or possession with intent to deliver methamphetamine under section 124.401(l)(c). Thus, it applies only to sentencing. The record in this case reveals Thomas was not sentenced on September 28, 2000, following his plea colloquy. An examination of the record reveals the following exchange occurred in the course of the plea colloquy between the court and Thomas:

The Court: ... By reading the minutes of testimony here it’s fairly clear to me that you could easily be found guilty because of the facts that are leading up to the time that these buys were made as well as the buys going down. Do you understand that?
The Defendant: Yes, sir.
The Court: All right. And you have the right to remain silent. It’s the state’s burden and not yours to prove your guilt. You have the right to cross-examine witnesses and you could have them come — people come here to testify for you if there were any associated with your defense. Do you think there’s anybody that was going to show up to help defend you from this?
The Defendant: No, sir.
The Court: Probably not. All right. So we’ll have this case transferred from criminal district court to the drug court pending successful completion of the drug court. In the event that you complete it successfully, your charges will be dismissed against you. If you fail to successfully complete it, you will end up doing 20 years in the penitentiary. There are — and there are some míni-mums associated with this offense that you’d be — you would end up doing three and a half years on each — each offense or a total of seven years hard time.
The Defendant: Yes, sir.

Also relevant to this issue is the court’s notation in the criminal calendar entered after Thomas’ plea hearing:

Defendant appeared with counsel ... and entered guilty pleas to: [two counts of delivery of a controlled substance]. Defendant was advised of his constitutional rights he waives by pleading guilty. Sentencing is held in abeyance and this case is hereby transferred to Drug Court.

This record reveals all further proceedings that would normally follow the acceptance of a plea of guilty were suspended in Thomas’ case while Thomas entered the drug court program. The district court further explained the case would either be dismissed if Thomas successfully completed the program, or the case would be set for sentencing if he failed to successfully complete the program. Thus, the district court did not impose any sentencing option, but merely explained how the drug court program established in the county would operate in his case. The promise to dismiss the case upon successful completion of the program was not a sentence, and section 124.401EQL) never came into play, just as no other sentencing options came into play at the time the plea was accepted. Thomas does not argue the district court had no authority to hold his case in abeyance pending his voluntary participation in the drug court program. Moreover, courts are authorized to dismiss criminal prosecutions at any stage in the interest of justice. See Iowa R.Crim. P. 2.33(1). Drug court is set up to permit offenders to enter the program at most any stage of a criminal proceeding, and courts are permitted to exercise all expressed or implied authority to achieve the objectives of drug court, including dismissal of a case. Consequently, Thomas was not misinformed about the consequences of his guilty plea.

IV. Conclusion.

The plea of guilty entered by Thomas was voluntary and intelligent. He is not entitled to have it set aside. However, he is entitled to be returned to the district court for resentencing. The district court denied Thomas his fundamental rights to counsel and allocution. We affirm the decision of the court of appeals, affirm the conviction entered by the district court, vacate the sentence, and remand for resen-tencing.

DECISION OF COURT OF APPEALS AFFIRMED; CONVICTION AFFIRMED; SENTENCE VACATED AND CASE REMANDED.

      . “Drug courts” are a relatively new phenomenon in the criminal justice system. See Drug Courts Program Office (U.S. Dep’t of Justice), About the Drug Courts Program Office 1 (2000) (explaining the first drug court program was established in 1989 in response to growing concerns about drugs and drug-related crime and the effectiveness of existing treatment and enforcement programs). The courts are constituted by "[l]ocal coalitions of judges, prosecutors, attorneys, substance abuse treatment professionals, probation officers, community-based service organizations, law enforcement officials, and others” who use "the coercive power of the court to force abstinence from drugs and alter behavior of substance-abusing offenders” through the integration of "substance abuse treatment, sanctions, and incentives with case processing” and the placement of "nonviolent drug-involved defendants in judicially supervised visitation programs.” Id. There are over nine hundred drug court programs currently in existence in the United States. Drug Court Clearinghouse & Technical Assistance Project (U.S. Dep’t of Justice), Summary of Drug Court Activity by State & County (2002). The first program in Iowa began in Polk County in 1996, but there are now several programs operating within the state. Paul Stageberg, et al., Final Report on the Polk County Adult Drug Court 3 (2001). It is estimated that Polk County’s drug court program prevented 50,874 days of confinement and saved $2,543,651.14 in 2000 alone. Drug Court Clearinghouse & Technical Assistance Project (U.S. Dep’t óf Justice), Cost Benefits Reported by Dtug Court Programs 3 (2003).


author: PER CURIAM.

text:
    CITY OF AKRON, Appellee, v. AKRON WESTFIELD COMMUNITY SCHOOL DISTRICT, Appellant.
    No. 02-0058.
    Supreme Court of Iowa.
    April 2, 2003.

      James R. Villone and Douglas L. Phillips of Klass, Stoik, Mugan, Villone, Phillips, Orzechowski, Clausen & Lapierre, L.L.P., Sioux City, for appellant.
    Paul E. Horvath and F. Richard Lyford of Dickinson, Mackaman, Tyler & Hagen, P.C., Des Moines, and David A. Stuart of Stuart & Peterson, Beresford, South Dakota, for appellee.
   PER CURIAM.

Because the taxpayers end up paying for public obligations, set formalities are required for a binding governmental contract. Here those formal actions were not met by a city in its contract with a school district, so the trial court held the contract was void. Because the school district negotiated, entered, and acted on the contract in good faith, school district officials view the holding as unfair. It is however correct and we affirm.

This unfortunate suit stems from an exceptionally good idea. The superintendent for defendant Akron-Westfield Community School District became interested in wind energy after an old wind turbine was donated to the school district. Initial study results indicated such a project would be feasible only if plaintiff City of Akron became involved. A committee, including both school district and city representatives, met regularly and, after much study, the city and school district entered a written contract. Signed by the city administrator and the school superintendent, it obligated the city to buy electricity generated by the school district’s wind turbine. Having participated in its negotiation, the city was certainly aware of the contract, but never approved it by motion, resolution, amendment or ordinance.

Relying on the agreement, the school district constructed a new wind generator which went online the spring of 1999. For about eighteen months the parties operated under the contract’s “net billing arrangement.” During this period the school district paid the city nothing for city electricity because the wind-generated electricity more than offset the amount of the city’s electricity used by the school district. The legality of the agreement was first questioned during a city audit in the spring of 2000.

After a new mayor was elected the city brought this suit on its open account for the school district’s use of electricity. The city claimed the wind turbine contract was void under Iowa Code section 364.3(1) (2001) which provides “[a] city council shall exercise a power only by the passage of a motion, a resolution, an amendment, or an ordinance.” The school district responded, alleging the city was equitably es-topped from asserting the contract was void.

I. The trial court rejected the school district’s claim of equitable estoppel and sustained the city’s motion for summary judgment. A party filing such a motion surrenders all disputed facts because, to prevail, the movant must be entitled to judgment as a matter of law. Iowa R. Civ. P. 1.981(3). If a conflict exists only in the legal consequences flowing from undisputed facts, or from facts viewed most favorably toward the resisting party, summary judgment is appropriate. Humphries v. Trustees of the Methodist Episcopal Church, 566 N.W.2d 869, 872 (Iowa 1997).

II. A city’s compliance with Iowa Code section 364.3(1) is crucial. It is clear that any contract with a city entered without a formal motion, resolution, amendment or ordinance is void. Riley v. City of Hartley, 565 N.W.2d 344, 348 (Iowa 1997). A contract, unlawful for lack of authority, is not rescued by good faith. Marco Dev. Corp. v. City of Cedar Falls, 473 N.W.2d 41, 43 (Iowa 1991). Those who negotiate or enter contracts with a municipality are charged with notice of the limits on the municipality’s authority. Miller v. Marshall County, 641 N.W.2d 742, 751 (Iowa 2002).

The rule imputing knowledge of a city’s limitations might strike a casual observer as unduly harsh, but its rationale is apparent. Out of respect for the legislature we assume the formal requirements of section 364.3(1) protect city taxpayers, and are a good idea. Thus it would be a bad idea to frustrate those requirements, either — as here — inadvertently by the unwary, or — in another case — deliberately by the unscrupulous.

The school district concedes all the foregoing but defends on its claim of equitable estoppel. On this issue, though the equities seem to favor the school district, the law does not. As the trial court pointed out

[t]he essential elements of the affirmative defense of equitable estoppel are: (1) a false representation or concealment of material facts; (2)[a] lack of knowledge of the true facts on the part of the actor; (8) the intention that it be acted upon; and (4) reliance thereon by the party to whom made, to his prejudice and injury. Johnson v. Johnson, 301 N.W.2d 750, 754 (Iowa 1981).

The equitable estoppel claim fails on the first element. The trial court put it precisely:

Giving the school the benefit of every inference, the record contains no evidence of the first element. At best, it appears the city was as mistaken as the school in believing the city administrator could bind the city without the council’s passage of a motion, resolution, amendment or ordinance. There is no evidence the city represented its compliance with section 364.3 was unnecessary or evidence it tried to conceal the limitations on the council’s power.

There is a further rule that equitable estoppel is generally unavailable against a governmental body and is applied against a city only under exceptional circumstances. City of Marshalltown v. Reyerson, 535 N.W.2d 135, 137 (Iowa Ct.App.1995). But this rule does not supplant any of the four elements required for equitable estoppel. Even if we were to pretend the facts here would amount to exceptional circumstances, equitable estop-pel would remain unavailable for want of false representation or concealment of material facts.

III. The school district suggests the failure to comply with the formal requirements of section 364.3(1) should be overlooked because both contracting parties are governmental entities. It argues that the same taxpayer protected by the statute will suffer when required to make good for the void contract. The trial court correctly rejected this contention. The statute makes no exception for a city’s dealings with another governmental entity. Perhaps this is because involvement of two contracting governmental entities rather than one would elevate, not lower, the importance of compliance with the statute.

In all likelihood this holding will not go down well with the school district officials who obviously acted in the best of good faith in what they perceived as the public interest. We think our holding is nevertheless demanded. The legislature considered it of first importance for city officials to observe formal requirements before obligating taxpayers to finance the affairs of city government. Any party, including even another public entity like a school district, must yield to those set formal requirements.

AFFIRMED.

      . The city has alternative theories which will be rendered moot under our holding. They will not be discussed.


author: /s/ Paul H. Anderson Associate Justice

text:
    In re PETITION FOR DISCIPLINARY ACTION AGAINST Ronald P. SMITH, a Minnesota Attorney, Registration No. 102763.
    No. C5-02-987.
    Supreme Court of Minnesota.
    April 8, 2003.
   ORDER

On December 26, 2002, this court suspended respondent Ronald P. Smith from the practice of law for 90 days, effective 14 days from the date of the order. The order provided that respondent could be reinstated to permanent retired status only.

The Director of the Office of Lawyers Professional Responsibility has filed an affidavit stating that respondent has requested reinstatement and that, to the best of the Director’s knowledge, respondent has complied with all conditions of reinstatement. The Director does not object to the reinstatement of respondent to permanent retired status.

Based upon all the files, records and proceedings herein,

IT IS HEREBY ORDERED that respondent Ronald P. Smith is reinstated to permanent retired status effective April 9, 2003.

BY THE COURT:

/s/ Paul H. Anderson Associate Justice


text:
    In re Petition for DISCIPLINARY ACTION AGAINST James J. BANG, a Minnesota Attorney, Registration No. 4467.
    No. C9-91-445.
    Supreme Court of Minnesota.
    April 11, 2003.
   ORDER

On September 5, 2002, the Director of the Office of Lawyers Professional Responsibility filed a petition seeking disciplinary action or transfer to disability inactive status of respondent James J. Bang.

The Director and respondent have entered into a stipulation in which the parties agree that respondent’s current medical condition prevents respondent from competently representing clients. The parties jointly recommend the transfer of respondent to disability inactive status without further proceedings.

This court has reviewed the stipulation and approves the jointly recommended disposition.

Based upon all the files, records and proceedings herein,

IT IS HEREBY ORDERED that respondent James J. Bang is transferred to disability inactive status effective immediately. During the period respondent is on disability inactive status, he may not render legal advice or otherwise engage in the practice of law. All further proceedings regarding the pending petition are stayed during the period of disability inactive status. Upon the filing of a petition for reinstatement to active status, the stay will automatically be lifted. The pending allegations of misconduct shall be considered in the reinstatement proceeding under Rules 18 and 28(d), Rules on Lawyers Professional Responsibility.

BY THE COURT:

/s/ Paul H. Anderson Association Justice