author: TERNUS, Justice.

text:
    In re the ESTATE OF David P. BOYD, Deceased. Estate of Berta BOYD, Deceased, Appellant, v. George Norman and Old Republic Surety Co., Appellees.
    No. 99-1368.
    Supreme Court of Iowa.
    Oct. 10, 2001.

      James A. Pugh of Morain, Burlingame <& Pugh, P.L.C., West Des Moines, for appellant.
    Benjamin B. Ullem and Richard J. Kirschman of Whitfield & Eddy, P.L.C., Des Moines, for appellees.

       Senior Judge assigned by order pursuant to Iowa Code section 602.9206 (2001).

   TERNUS, Justice.

In this case, the district court rejected a claim made by a judgment creditor of the Estate of David Boyd against the administrator of that estate, appellee, George Norman, and his surety, appellee, Old Republic Surety Company. The judgment creditor, appellant, the Estate of Berta Boyd, alleged that the administrator had improperly depleted the estate’s assets prior to payment of its claim. The district court ruling was affirmed by the Iowa Court of Appeals. Upon our review, we vacate the decision of the court of appeals, reverse the judgment of the district court, and remand for further proceedings.

I. Background Facts and Proceedings.

On July 8, 1990, David and Berta Boyd, husband and wife, were killed in a one-car accident. Both victims died intestate, survived by a single minor child, Jazzber Boyd. David was driving the car, which was owned by Berta. He was legally intoxicated when the accident occurred.

The Boyd automobile was insured through Farm Bureau Mutual Insurance Company. The policy was issued to David, but included Berta and Jazzber as additional insureds. Although the policy in-eluded liability insurance, that coverage did not apply to injury to any insured or any member of an insured’s family residing in the insured’s household. Even though the Farm Bureau policy did not cover David’s potential tort liability, it did provide uninsured motorist (UM) coverage to Berta and Jazzber.

Shortly after the accident, an estate was opened in Berta’s name. Fort Madison Bank & Trust Company was appointed the administrator. The bank was also named Jazzber’s conservator. Attorney Robert Johnson III was appointed to act as the attorney for the administrator of Berta’s estate, as well as the attorney for Jazz-ber’s conservatorship. Vera Boyd, David’s mother, was appointed Jazzber’s guardian.

David’s estate was opened on August 6, 1990, with Vera serving as the administrator. Notice to creditors for David’s estate was published on August 10, 1990, and August 17,1990. See Iowa Code § 633.230 (1989) (requiring publication of a notice to creditors once each week for two consecutive weeks in a local newspaper). Pursuant to the limitations period established in Iowa Code section 633.410, all claims against David’s estate were barred unless filed within four months after the date of the second publication of the notice to creditors, or by December 17,1990.

Early on Vera perceived possible conflicts in her role as the administrator of David’s estate and her position as Jazz-ber’s guardian. On October 8, 1990, she was allowed to withdraw as the administrator of David’s estate and George Norman, a Keokuk attorney, was appointed in her place.

On March 29, 1991, Norman filed the probate report and inventory. According to the report, David’s estate had net assets of $49,049. These assets included a $25,000 death benefit received by David’s estate as a result of Berta’s death. This death benefit was payable under the death indemnity coverage of the Farm Bureau policy.

During the probate of David’s estate, Jazzber’s conservator pursued a dramshop claim against the Tin Shed, a tavern that had sold and served David alcoholic beverages after he was intoxicated and immediately prior to the fatal accident. In July 1991, the conservator entered into a structured settlement with the Tin Shed for Jazzber’s damages for loss of parental consortium. The present value of that settlement was $50,000.

Farm Bureau was first notified on August 21, 1991, that Berta’s estate was considering a wrongful death claim against David’s estate and a UM claim against Farm Bureau. This notification was made after the dramshop settlement and well beyond the four-month period for filing claims in David’s estate.

On September 5, 1991, Fort Madison Bank, as the administrator of Berta’s estate, sued David’s estate for the wrongful death of Berta. The bank, as Jazzber’s conservator, also filed suit for Jazzber’s loss of consortium. In the same lawsuit, Berta’s estate sued Farm Bureau for UM benefits. In Farm Bureau’s answer, it raised several “affirmative defenses,” including an assertion that it was subrogated to Berta’s estate for any recovery it had from David’s estate.

On May 28, 1993, during the pendency of the wrongful death and UM action, Norman, the administrator of David’s estate, disbursed the bulk of David’s estate, approximately $49,000, to the conservator of David’s sole heir, Jazzber. Norman had not sought nor obtained authorization from the court to make this disbursement. Due to this distribution, there was approximately $1250 left in David’s estate at the time the wrongful death and UM claims were tried.

Prior to trial of the wrongful death and UM claims, the parties stipulated that (1) David was legally liable for Berta’s injuries, (2) David was an uninsured motorist, (3) under the terms of the Farm Bureau policy, Berta’s estate was entitled to UM benefits of $100,000, (4) Berta’s estate had suffered damages of $300,000 as a result of her wrongful death, (5) the four-month period for filing claims had expired on December 17, 1990, (6) Farm Bureau was first contacted on August 21, 1991 regarding Berta’s estate’s claim, (7) Farm Bureau did not file a claim in David’s estate, (8) Farm Bureau did not file suit against David’s estate asserting its subrogation claim, nor did it file a cross-claim in the pending suit, (9) the only notice of Farm Bureau’s subrogation claim was its pleading of this claim in its answer, (10) on May 28, 1993, the administrator of David’s estate distributed $49,000 of estate assets to Jazzber’s conservatorship, and (11) the administrator made this disbursement because the estate was approaching the statutory three-year limit on the administration of estates. Although the parties agreed that Farm Bureau was liable to Berta’s estate for $100,000 in UM benefits, the parties disputed whether Farm Bureau was entitled to offsets for the $50,000 dramshop settlement obtained by Jazzber’s conservator and the $49,000 disbursement made from David’s estate to Jazzber’s conservatorship.

After trial on the stipulated facts, the district court entered judgment on the wrongful death claim in favor of Berta’s estate and against David’s estate for $300,000. On the contract claim, the court ruled that Farm Bureau’s entire liability for UM benefits was offset by the monies received by the conservatorship from the dramshop and David’s estate, and by the remaining assets in the estate. ’Therefore, the court dismissed the UM claim against Farm Bureau. Only Berta’s estate appealed. It claimed that Farm Bureau was not entitled to any offset for sums received by Jazzber’s conservator.

When Berta’s estate’s appeal reached our court, we framed the issues as follows:

(1) whether the district court erred by offsetting against Farm Bureau’s UM liability the $50,000 Tin Shed structured settlement proceeds and the $49,000 probate disbursement Jazzber’s conservator received from David’s estate and the balance remaining in David’s estate at the time of trial, and (2) whether Farm Bureau is entitled to an offset for any monies Berta’s estate received from David’s estate pursuant to the $300,000 judgment.

Fort Madison Bank & Trust Co. v. Farm Bureau Mut. Ins. Co., 543 N.W.2d 591, 594-95 (Iowa 1996). We held that the offsets allowed by the district court were not proper because the payments in question were received by Jazzber’s conserva-torship, not Berta’s estate. Id. at 595. Because these were separate legal entities, monies received by one could not be offset against Farm Bureau’s liability to the other. Id.

On the second issue, we concluded that Farm Bureau was entitled to offset its UM liability to Berta’s estate by any funds recovered by Berta’s estate from David’s estate in satisfaction of the $300,000 wrongful death judgment awarded to Berta’s estate. Id. at 596. A special concurrence foreshadowed the present lawsuit:

[Although the so-called probate disbursement from David’s estate to Jazz-ber’s conservator is not in itself a payment that would reduce the uninsured motorist benefits owed Berta’s estate, it may have been an improper depletion of the assets in David’s estate in the face of a potential wrongful-death claim by Berta.
The assets transferred to Jazzber, if left in David’s estate, would have been available to pay Berta’s wrongful-death claim. That payment, if made, would reduce the uninsured motorist benefits owed to Berta’s estate. These issues have not been presented on this appeal, and based on the record at the time the appeal was taken, were not ripe for decision.

Id. at 596-97 (Carter, J., concurring).

On remand, a judgment for $100,000 plus interest was entered in favor of Berta’s estate on its UM claim against Farm Bureau. Following additional legal wrangling with respect to the amount of interest due, Farm Bureau satisfied the judgment.

Once the UM judgment was satisfied, Farm Bureau sought to enforce its subro-gation claim. Johnson, the attorney for Berta’s estate, declined to pursue collection of the estate’s $300,000 judgment against David’s estate, claiming he had a conflict of interest. The estate did not object, however, to Farm Bureau proceeding in the name of Berta’s estate to collect the judgment to offset Farm Bureau’s UM payment.

On January 19, 1999, counsel employed by Farm Bureau, acting on behalf of Berta’s estate, filed a motion in the probate proceeding seeking judgment against Norman, the administrator of David’s estate, and his surety, Old Republic Surety Company, for the sums distributed to Jazzber’s conservatorship without court approval. Berta’s estate claimed that the distribution was improper and constituted a breach of the administrator’s fiduciary duty under Iowa Code section 633.160. After an evi-dentiary hearing to the district court, the court ruled that Farm Bureau could not recover because Farm Bureau had failed to file a claim in David’s estate within four months of the second publication of notice to creditors. In addition, it held that Farm Bureau was not an interested party authorized to bring suit against the personal representative. As a final matter, the court ruled that Norman had not acted improperly in distributing estate funds to Jazzber’s conservatorship.

An appeal by Berta’s estate was transferred to the court of appeals. The court of appeals held that Farm Bureau was trying to enforce its own subrogation claim, and agreed with the district court that its claim was untimely because it was filed outside the four-month limit. It also affirmed the district court’s finding that Norman had not acted improperly. We granted further review.

II. Scope of Review.

At the hearing of this matter, the district court believed that the case was in equity, despite the parties’ assertions that the case was at law. See Iowa Code § 633.33 (“Actions ... for the establishment of contested claims shall be triable in probate as law actions.... ”). As a result, the matter was tried on the premise that it was being heard in equity. In issuing a ruling, however, the district court held that Berta’s estate’s claim was a contested case, as the parties had contended. Therefore, the court proceeded to decide the claim on the basis that it was a law action.

The scope of review depends on how the case was tried in the district court. See In re Guardianship of B.J.P., 613 N.W.2d 670, 672 (Iowa 2000). We think the trial court correctly determined that the estate’s claim was a contested case, triable at law. See In re Lundvall’s Estate, 242 Iowa 430, 434, 46 N.W.2d 535, 537 (1951) (holding that action seeking accounting and judgment against executor was an action at law). Even though the matter was submitted on the assumption that it would be considered an equity action, Berta’s estate has identified no prejudice to it by the trial court’s decision to decide the case as a law action, as the estate had urged. Therefore, we consider this appeal as an action at law.

In view of this conclusion, our review is for the correction of errors of law. See In re Enfield’s Estate, 217 Iowa 273, 274, 251 N.W. 637, 637 (1933) (holding that action against administrator of decedent’s estate was not reviewed de novo). The findings of the district court are binding on appeal if supported by substantial evidence. See In re Lundvall’s Estate, 242 Iowa at 434, 46 N.W.2d at 537.

III. Is the Claim Against the Administrator Asserted in This Case Barred by Farm Bureau’s Failure to File a Claim Asserting Its Sub-rogation Interest in David’s Estate Prior to the Expiration of the Four-Month Statute of Limitations?

The district court concluded that, although Farm Bureau was purporting to act on behalf of' Berta’s estate, it was actually seeking to enforce its own subro-gation interest. The court ruled that such an action was untimely because Farm Bureau had not filed a claim in David’s estate or a cross-claim in the wrongful death/UM action.

The fundamental problem with the district court’s analysis is its erroneous focus on the purpose of the present action rather than on the identity of the actual party before it. Although it is true that the goal of this action has always been enforcement of Farm Bureau’s subrogation interest, the present suit was filed by Berta’s estate to collect the judgment held by Berta’s estate. As the following discussion will explain, the form of this action is entirely proper.

We begin our analysis with the relevant contractual terms. The Farm Bureau policy provides for the insurer’s right to recover any UM payments made to an insured:

(1) We [Farm Bureau] have the right to recover our payments from the proceeds of any settlement or judgment the injured person obtains from any party liable for the bodily injury.
(2) The person to or for whom we have made payment shall:
(a) not hurt our rights to recover;
(b) execute any legal papers we need; and
(c) when we ask, take action through our representative to recover our payments.

(Emphasis in original omitted and emphasis added.) Pursuant to these policy provisions, Farm Bureau is entitled to recover its UM payment from the proceeds of the judgment obtained by Berta’s estate against David’s estate. Thus, it is subro-gated to Berta’s estate’s rights with respect to collection of this judgment. In addition, these policy provisions obligate Berta’s estate to pursue collection of the judgment owed by David’s estate, when asked to do so by Farm Bureau. The policy specifically states that this action may be taken through Farm Bureau’s representative.

The present action reflects the rights and obligations of Farm Bureau and Berta’s estate under the policy. Berta’s estate has cooperated in Farm Bureau’s attempt to recover Farm Bureau’s UM payment by seeking to collect the judgment with the assistance of Farm Bureau’s attorneys. Although any monies ultimately recovered in this action may accrue to Farm Bureau, depending on the extent of any such recovery, the underlying basis for any recovery will be the judgment owned by Berta’s estate, not any independent claim held by Farm Bureau against David’s estate. Thus, the claim being asserted here is the claim of Berta’s estate, to which Farm Bureau is partially subrogated.

That brings us to the next step in our analysis: was Farm Bureau required to assert its subrogation interest independently of any attempts by Berta’s estate to collect from David’s estate? Not only do we conclude that Farm Bureau was not required to do so, we think it was prohibited from doing so.

“Generally, every action must be prosecuted in the name of the real party in interest.” United Sec. Ins. Co. v. Johnson, 278 N.W.2d 29, 30 (Iowa 1979). This court has consistently held that an insurer who is only partially subrogated to its insured’s rights against another is not the real party in interest. See Krapfl v. Farm Bureau Mut. Ins. Co., 548 N.W.2d 877, 879 (Iowa 1996); Wayne County Mut. Ins. Co. v. Grove, 318 N.W.2d 192, 193 (Iowa 1982); Glancy v. Ragsdale, 251 Iowa 793, 801-02, 102 N.W.2d 890, 895-96 (1960).

Here, Farm Bureau was originally only a potential subrogee. Even after its payment of UM benefits, it was merely partially subrogated because its payment — $100,000—was less than the judgment against David’s estate — $300,000. Thus, Farm Bureau has never been the real party in interest with respect to the claim against David’s estate. Accordingly, it would have been improper, “absent some inability or unwillingness” of Berta’s estate to pursue a claim against David’s estate, for Farm Bureau to proceed directly against David’s estate. Farm Bureau Mut. Ins. Co. v. Allied Mut. Ins. Co., 580 N.W.2d 788, 790 (Iowa 1998). The undisputed facts in this case establish that Berta’s estate was not unwilling or unable to pursue a claim against David’s estate. To the contrary, it sued David’s estate and obtained a $300,000 judgment.

For these reasons, we find no merit in the argument that the present claim by Berta’s estate is barred because Farm Bureau did not file a separate subrogation claim in David’s estate. The trial court erred in so ruling.

Before we address the merits of the claim against Norman, we consider an alternative argument made in Norman’s brief. Norman argues that not only did Farm Bureau fail to timely file a claim against David’s estate, but in addition the wrongful death action filed by Berta’s estate was late. He points out that the September 5, 1991 lawsuit filed by Berta’s estate against David’s estate was filed more than four months after the final notice to creditors. See Iowa Code §§ 633.410 (requiring claims to be filed within four months of notice to creditors), 633.415 (allowing the commencement of a separate action in lieu of filing a claim in the estate, but imposing the time constraints of section 633.410 on any such action).

Norman spends considerable effort in his brief explaining why he did not waive the statutory limitations period in his defense of the wrongful death case. At this point, however, the rationale for and the wisdom of Norman’s defense of the wrongful death claim are not really important. What is essential here is the fact that the district court, in ruling on the wrongful death suit, entered a $300,000 judgment in favor of Berta’s estate against David’s estate. David’s estate did not appeal that judgment and it became final. Therefore, Norman may not collaterally attack that judgment now by claiming any recovery should have been barred by section 633.410. See Sanford v. Manternach, 601 N.W.2d 360, 364 (Iowa 1999) (holding that final judgment “is not subject to collateral attack except on jurisdictional grounds”); Iowa Coal Mining Co. v. Monroe County, 555 N.W.2d 418, 440 (Iowa 1996) (stating that final judgment is conclusive “as to the rights of the parties and their privies”).

A related argument made by Norman suffers the same fate. He argues that because the wrongful death claim was barred by the statutory limitations period, any resulting judgment was “valid only to the extent that insurance coverage existed for the claim.” This argument rests on the language in section 633.410 that states “[t]his section does not bar claims for which there is insurance coverage, to the extent of the coverage.” Iowa Code § 633.410. The problem with this argument is that the judgment entered against David’s estate is not limited to the available insurance coverage. It is too late now to argue that such a limitation should have been imposed. See Sanford, 601 N.W.2d at 364 (holding that error in final judgment “is not reviewable in a collateral proceeding”).

As a final matter, we note for the sake of clarity that the matter at issue here is not the validity of Farm Bureau’s subrogation interest in any proceeds recovered by Berta’s estate in satisfaction of the judgment against David’s estate. That matter was settled in our prior decision. See Fort Madison Bank, 543 N.W.2d at 596 (holding offset terms of policy were enforceable). Nor is the matter at issue here the validity of Berta’s estate’s wrongful death claim. As we have pointed out, that matter became final when David’s estate did not appeal the judgment rendered against it in the wrongful death action. The matter at issue here is the claim of Berta’s estate for Norman’s allegedly wrongful depletion of assets from David’s estate. The limitations period of section 633.410 for filing claims against the estate has no application to the claims being made here against the personal representative and his bonding company.

IV. Did the Trial Cowrt Err in Ruling That Farm Bureau Was Not an “Interested Person” Who Could Bring Suit Against the Administrator Under Iowa Code Section 633.122?

As noted earlier the district court held that the present suit against the administrator was not authorized under Iowa Code section 633.122. This statute provides that an “interested person” may contest any act taken by a fiduciary without prior court approval, provided the challenge is made prior to the fiduciary’s discharge. See Iowa Code § 633.122. Here, Norman, as the administrator of an estate, is a fiduciary. See id. § 633.3(17). It is undisputed that his act of making an interim disbursement of estate assets was done without court approval. In addition, at the time this claim was filed against him, Norman had not been discharged as the administrator. Nonetheless, the trial court held that the claim against Norman was not properly brought because Farm Bureau was not an interested person and therefore could not challenge Norman’s conduct. As we have already discussed, however, the claim at issue here is that of Berta’s estate, not of Farm Bureau. Therefore, it is irrelevant whether Farm Bureau qualified as an interested person at the time of the disputed distribution. The entity that must qualify as an interested person is Berta’s estate.

An “interested person” in the context of section 633.122 is one whose “interests are directly affected by a diminution of the [estate] assets.” In re Estate of Plumb, 256 Iowa 938, 942-43, 129 N.W.2d 630, 632-33 (1964) (holding that beneficiaries could challenge allowance of claim, citing Iowa Code section 638.122 (1964), which was identical to the present section 633.122). More recently, this court has held that a creditor who succeeds to the interest of a beneficiary is an “interested person who may contest the actions of the executors.” In re Estate of Foster, 483 N.W.2d 327, 329 (Iowa 1992). Like a beneficiary, a claimant or creditor also has an interest in the assets of the estate. Because those assets will be used to pay the claims of such a person, to the extent such claims are found valid, see Iowa Code § 633.426, any distribution of estate assets will directly affect the interest of claimants and creditors. We hold, therefore, that Berta’s estate, as a claimant of David’s estate, is an interested person within the meaning of section 633.122. Accordingly, the district court erred in holding that the present suit was not authorized under that statute.

V. Did the Trial Court Err in Holding That Norman Did Not Wrongfully Deplete Estate Assets?

The district court held that Berta’s estate had not shown wrongful conduct on the part of administrator Norman. The factual aspect of this ruling was undisputed: Norman distributed $49,000 to Jazz-ber’s conservator without court approval at a time when there was a pending claim against David’s estate, namely, the wrongful death action filed by Berta’s estate. Thus, the issue for our review is not whether there is substantial evidence to support the court’s factual finding that the distribution occurred under these circumstances; it is undisputed that it did. Rather, the issue for our determination is a legal one: whether, under governing legal principles, such action by the administrator subjects the administrator to personal liability.

We start with the general principle that the personal representative of an estate “is a trustee acting in a fiduciary relation” between creditors of an estate and devisees, legatees, and distributees of the estate. In re Smith’s Estate, 240 Iowa 499, 518, 36 N.W.2d 815, 826 (1949). As an “impartial trustee,” it is the duty of the personal representative to preserve the assets of the estate for the benefit of creditors and beneficiaries. Id.; accord In re Estate of Pence, Sil N.W.2d 651, 652 (Iowa Ct.App.1993).

Of crucial importance to the present matter are the relative rights of creditors and beneficiaries. Under the Iowa Probate Code, debts and charges against a decedent’s estate have priority over distributions to heirs and beneficiaries of the estate. See Iowa Code § 633.436 (providing that shares of distrib-utees must abate for payment of debts and charges); accord 31 Am.Jur.2d Executors and Administrators § 685, at 346 (1989) (“In the distribution of a decedent’s estate, the rights of creditors are prior to those of heirs or legatees; their claims are paid before the balance is paid to legatees or heirs.”). It is true that “a court order [is] not required for a personal representative to make a distribution to beneficiaries.” In re Estate of Foster, 483 N.W.2d at 329. Nonetheless,

[a] personal representative acts at his or her peril with respect to distributions made without court approval. This peril pertains to the dangers presented by creditors, costs of administration, and claims of other beneficiaries. If a particular distribution so depletes the estate that those interests suffer, then, of course, the personal representative may be surcharged.

Id. at 330 (emphasis added); accord 31 Am.Jur.2d Executors and Administrators § 1015, at 493 (“Executors are required to pay the debts of the decedent to the extent of assets of the estate before paying testamentary dispositions, or else risk personal liability for any unpaid debt.”); cf. In re Estate of Eschweiler, 202 Iowa 259, 262, 209 N.W. 273, 274 (1926) (affirming trial court ruling that charged administratrix with amount of disallowed disbursements in suit brought by creditors of estate). See generally Black’s Law Dictionary 1441 (6th ed.1990) (defining “surcharge” as “[t]he imposition of personal liability on a fiduciary for wilful or negligent misconduct in the administration of his fiduciary duties”).

It is apparent from these statutes and authorities that an estate’s personal representative has a duty to provide for payment of known creditors and claimants, including those holding unliquidated claims, before depleting estate assets by distributions to heirs, legatees or beneficiaries. Under the undisputed facts of this case, Norman breached this duty: he distributed estate assets without making any provision for payment of the unliqui-dated wrongful death claim then pending in the estate. As a result, funds that would have been available to pay on the judgment ultimately obtained by Berta’s estate were transferred to the estate’s beneficiary.

Norman seeks to justify his conduct on the basis that he had to distribute the estate’s assets so he could close the estate within the time prescribed by statute. He relies on Iowa Code section 633.473, which provides that “[f]inal settlement [of an estate] shall be made within three years, after the second publication of the notice to creditors, unless otherwise ordered by the court after notice to all interested parties.” Iowa Code § 633.473. As the terms of the statute make evident, however, the three-year period is not absolute; a court may order an estate to remain open beyond this period. In fact, that is exactly what happened here. Five months after distributing the bulk of David’s estate, Norman obtained a court-ordered extension of six months due to the pending wrongful death litigation.

Norman also argues that his failure to provide for payment of the claim of Berta’s estate was a sound decision because “the administrator would reasonably believe there was insurance coverage.” The record does not support this assertion. The action filed by Berta’s estate included a claim for uninsured motorist benefits. Under the terms of the Farm Bureau policy, UM coverage was available only if the tortfeasor was driving an uninsured motor vehicle, i.e., a vehicle “not insured or bonded for bodily injury liability.” Thus, Berta’s estate’s UM claim was based on the fact that no insurance was available to cover the potential liability of David’s estate. This belief was well grounded in the facts and the law. Liability coverage for the wrongful death claim was denied based on a “family member exclusion” in the Farm Bureau policy that stated there was no liability coverage “for any bodily injury to any insured.” As noted in our recitation of the facts, Berta and Jazzber were insureds under the Farm Bureau policy. Moreover, prior to the time the challenged distribution was made in 1993, this court had repeatedly upheld the validity of the family member exclusion. See Principal Cas. Ins. Co. v. Blair, 500 N.W.2d 67, 70 (Iowa 1993) (upholding family member exclusion in homeowners policy against claims that it violated public policy and the right to equal protection); Walker v. Am. Family Mut. Ins. Co., 340 N.W.2d 599, 601 (Iowa 1983) (upholding identical exclusion in auto policy against claim that it violated public policy); Rodman v. State Farm Mut. Auto. Ins. Co., 208 N.W.2d 903, 908 (Iowa 1973) (upholding identical exclusion in auto policy against claims that it violated doctrine of reasonable expectations and was void because it was contrary to public policy). Ironically, our decision in Blair upholding the exclusion was rendered a mere nine days before Norman disbursed funds to the conservatorship. Given the facts known to Norman and the case law in Iowa, we do not understand what basis he would have had when he distributed the estate’s assets to believe that the estate had insurance coverage for the wrongful death claim pending against it.

Finally, Norman asserts that Farm Bureau cannot complain about any interim disbursement because it failed to file a claim in the estate. As we have already discussed, however, Farm Bureau had no right to make a claim in its own name. In any event, Norman was well aware of Farm Bureau’s subrogation rights when he disbursed estate assets to Jazzber’s con-servatorship because Farm Bureau had asserted those rights in its answer filed in the wrongful death/UM case.

Under the circumstances of this case, the rule quoted above from our Foster decision applies: when distributions made without court order so deplete the estate that known creditors cannot be paid, the administrator may be surcharged. See In re Estate of Foster, 483 N.W.2d at 330; accord 31 Am.Jur.2d Executors and Administrators § 1062, at 513 (holding that if personal representative “pays legacies or distributive shares while there are unpaid debts, without retaining sufficient assets to pay the debts, he may be personally liable for any deficiency”). The fact that the personal representative may have acted in good faith does not excuse his breach of duty. See 31 Am. Jur.2d Executors and Administrators § 1062, at 512-13 (“The common-law rule is that volunteer distributions, even those made in good faith, without court order, are made at the representative’s own peril.”); cf. In re Conservatorship of Rininger, 500 N.W.2d 47, 51 (Iowa 1993) (allowing surcharge against conservator for depletion of conservatorship assets, stating that “conservator’s sincerity and good intentions” did not excuse his breach of fiduciary responsibility).

As a final matter, we address Norman’s argument that this case is like the Foster case in which this court rejected the claim of a judgment creditor of a beneficiary who sought to surcharge the executors for an early distribution made to the beneficiary without court approval. 483 N.W.2d at 330. In that case, the beneficiary’s creditor garnished the executors to obtain the distribution due the beneficiary/judgment debtor. Id. at 328. The sheriff then levied on the beneficiary’s interest in the estate and the judgment creditor purchased this interest at an execution sale. Id. at 328-29. The creditor subsequently sought to surcharge the personal representative for a distribution to the beneficiary made before the garnishment and execution. Id. In rejecting this claim, we first held that the creditor was not an interested party in the estate until she succeeded to the beneficiary’s interest at the execution sale. Id. at 329. At the time she became an interested party, her interest in the estate was merely “that which she purchased at execution sale.” Id. at 330. Because the execution sale occurred after the challenged distribution, the beneficiary’s interest in the estate at the time of the distribution was the beneficiary’s “remaining right to distributions.” Id. (emphasis added). Therefore, the challenged distribution was not part of the judgment creditor’s interest. Id.

The present case is clearly distinguishable. Here we are dealing with a creditor of the estate, not a creditor of a beneficiary. This distinction is crucial because a personal representative has a fiduciary duty to provide for the payment of creditors of the estate before making payments to beneficiaries; no similar duty exists with respect to creditors of a beneficiary. Moreover, at the time of the distribution challenged here, Berta’s estate, unlike the judgment creditor in Foster, was an interested party who would be adversely affected by the distribution of assets to an estate beneficiary. These assets, had they not been distributed, would have been available to pay the claim of Berta’s estate. Thus, in contrast to the situation in Foster, the premature distribution here denied the interested party funds to which it would otherwise have been entitled. For these reasons, Norman’s reliance on our disposition of the claim in Foster is misplaced.

In summary, we hold that given the undisputed circumstances of the distribution made by Norman to Jazzber’s conser-vatorship, the trial court erred in holding that Noman should not be surcharged.

VI. What Is the Appropriate Amount of the Surcharge ?

Norman argues that Fann Bureau should not be able to recover that portion of the interim distribution representing the $25,000 death indemnity benefit paid to David’s estate by Farm Bureau on account of Berta’s death. Norman accurately points out that under Farm Bureau’s policy, Farm Bureau has no subro-gation rights with respect to payments made under the death indemnity coverage.

There are two flaws in Norman’s argument. First, the entity seeking recovery here is not Farm Bureau; it is Berta’s estate. There is nothing in the policy, nor any rule of law of which we are aware, that would prohibit Berta’s estate from accessing the death benefit paid to David’s estate to satisfy the judgment held by Berta’s estate against David’s estate. Any question as to Farm Bureau’s right to this $25,000 payment is between Berta’s estate and Farm Bureau and does not affect the liability of Norman.

Second, the fact that Farm Bureau has no subrogation rights with respect to the death benefit does not affect its subrogation rights as to its UM payment. It is the latter rights Farm Bureau asserts against any funds recovered by Berta’s estate on its judgment. Therefore, the fact that the original source of these funds was a death indemnity benefit is no impediment to Farm Bureau’s ability to claim the entire $49,000 interim disbursement as an offset against its $100,000 UM payment.

VII. Disposition.

We vacate the decision of the court of appeals and reverse the judgment of the district court. This case is remanded for entry of judgment in favor of Berta’s estate against Norman and, to the extent of its bond, against Norman’s surety, see Iowa Code § 633.181 (making surety jointly and severally liable with fiduciary), in the amount of the funds improperly disbursed plus interest from the date judgment on the wrongful death claim was entered.

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

SNELL, S.J., participates in lieu of STREIT, J., who takes no part.

      . Although there are exceptions to this limitations period, see Iowa Code § 633.410, none are material to resolution of the issues in this case.

      . Norman cites our cases applying the prudent investor rule of Iowa Code section 633.123 as setting forth the principles of law that should govern his conduct in this matter. We disagree. Berta's estate does not complain of Norman's handling of the funds while they were in the estate. Rather, its complaint focuses on the transfer of the funds out of the estate. Therefore, the rules and cases governing investments by fiduciaries are inapposite.
      We also reject Farm Bureau’s contention that the wrongful death claim filed by Berta’s estate should have been handled as a contingent claim under Iowa Code section 633.424, which provides a mechanism for distributing estate assets prior to a contingent claim becoming absolute. This court has held that a tort claim is not a contingent claim, the latter being a claim "that depends for its effect upon some future event which may or may not happen.” Des Moines Transp. Co. v. Haring, 238 Iowa 395, 399, 27 N.W.2d 210, 212 (1947). An accrued tort claim may be unliq-uidated, but it is not contingent. See id.


source: Caselaw Access Project

author: NEUMAN, Justice.

license: Public Domain

text:
    The DIAL CORPORATION, Appellant, v. IOWA DEPARTMENT OF REVENUE and Finance, Appellee.
    No. 99-1393.
    Supreme Court of Iowa.
    Oct. 10, 2001.

      Mark R. Schilling of Brick, Gentry, Bowers, Swartz, Stoltze, Schilling & Levis, P.C., Des Moines, for appellant.
    Thomas J. Miller, Attorney General, Harry M. Griger, Special Assistant Attorney General and Marcia Mason, Assistant Attorney General, for appellee.

       Senior Judge assigned by order pursuant to Iowa Code section 602.9206 (2001).

   NEUMAN, Justice.

This appeal by The Dial Corporation concerns sales and use taxes imposed by the Iowa Department of Revenue for the period January 1, 1989 through September 3, 1993. The district court, on review of agency action under Iowa Code chapter 17A (1999), affirmed most but not all of the department’s assessment. On the company’s appeal, and the department’s cross-appeal, we now affirm in part, reverse in part, and remand for a corrected judgment.

I. Background Facts and Proceedings.

Petitioner, The Dial Corporation, is an Arizona-based company that owns a food processing plant near Ft. Madison, Iowa, in Lee County. Among the foods produced at this plant are microwaveable meals called “Lunch Buckets.” A Lunch Bucket consists of a stew-like product poured into a small plastic container, sealed with an aluminum lid, pressure cooked, labeled, and then covered with a plastic lid. After the plastic lid is placed on the container, a conveyor moves the Lunch Bucket to machinery that places a cardboard box around groups of twelve Lunch Buckets. An electrical substation located near the machinery furnishes electrical power for this case-packing equipment. Because the twelve-pack box is equipped with special perforations, retailers have the option of using the box as a display case. The Lunch Bucket is designed so that a consumer purchasing the product may remove its aluminum lid, replace the plastic lid on the container, and heat the product in a microwave oven.

In June 1993, the department contacted Dial concerning an impending tax audit of its Lunch Bucket operations. Upon the audit’s completion, Dial received two notices of tax assessment, one for local option sales taxes in the sum of $7723.56 and another for consumer use tax totaling $221,160.87. Dial contested the assessments in a hearing before an administrative law judge (ALJ). At issue were exemptions claimed by Dial for machinery and equipment used in processing and packaging the Lunch Buckets, a dispute over two accounts included in the auditing sample, whether the statute of limitations barred the assessment on a portion of the tax period because the waiver form furnished by the department was incomplete, and whether penalty, interest, and local option sales tax payments were properly assessed. The department prevailed on each contested item.

On judicial review of the agency’s action, the district court agreed with the ALJ on all but the sampling issue. Dial appealed, and the department cross-appealed. Further facts will be detailed as they pertain to the issues on review.

II. Scope of Review.

On appeal from judicial review of agency action, our review is for the correction of errors at law. Iowa Code § 17A.19(8). We give weight to the agency’s interpretation of pertinent statutes, but we are not bound by those determinations. Heartland Lysine, Inc. v. Iowa Dep’t of Revenue & Fin., 503 N.W.2d 587, 588 (Iowa 1993). Because the propriety of a use tax assessment or exemption is a fact-intensive inquiry, the agency’s decision is binding on us if supported by substantial evidence. Id. at 589.

“Tax exemption statutes are construed strictly, with all doubts resolved in favor of taxation.” Id. at 588 (citation omitted). Thus a party seeking an exemption bears the burden of proving its entitlement. Id.

III. Issues on Appeal and Cross Appeal.

A. Statute of limitations. Dial asserts that Iowa Code section 422.54(1) (1997), the pertinent statute of limitations for its audit, bars the department’s assessment of taxes for the period January 1, 1989 through March 31,1991. The department counters, and the ALJ and district court found, that Dial executed extension agreements waiving the limitation period. Dial argues on appeal that the agreements prepared by the department for its signature did not comply with the waiver statute, section 422.54(3), and were, therefore, invalid.

The governing statute, Iowa Code section 422.54(1), provides:

As soon as practicable after a return is filed and in any event within five years after the return is filed, the department shall examine it, assess and determine the tax due if the return is found to be incorrect, and give notice to the taxpayer of the assessment and determination as provided in subsection 2.

(Emphasis added.) According to the highlighted language, a tax return more than five years old may not be reviewed as part of the audit. However, the limitation may be waived pursuant to section 422.54(3), which states:

The five-year period of limitation provided in subsection 1 may be extended by a taxpayer by signing a waiver agreement form to be provided by the department. The agreement shall stipulate the period of extension and the tax period to which the extension applies.

The record reveals that Dial and the department entered into three extension agreements, the first in June 1994, the second in January 1995, and the third in March 1996. Each agreement was on a preprinted form, prepared by the department for Dial’s signature, with blanks completed specific to Dial’s case. On each agreement, however, the line for the ending date of the extension was left blank. Following the line for the extension expiration date, the preprinted form stated, “This agreement ends on the earlier of the above expiration date or the assessment of an increase of the above tax.”

Dial contends that because the waivers signed by its officers and the department contained no stipulated expiration dates, the waivers did not comply with section 422.54(3) and are, accordingly, void. The ALJ and district court rejected that argument, and so do we. First of all, each waiver does contain an expiration date— the date of the tax assessment. Second, the record supports the Department’s claim that the open-ended extensions were agreed upon by Dial and actually inured to its benefit, rather than its detriment.

Dial argues that the department was obligated to insert an expiration date on the waivers it provided and claims that the department’s auditor, Arthur Hagem-eier, used the blank waivers to obtain unlimited time period extensions. But Ha-gemeier’s testimony reveals a less sinister motive. He did not put a date in the agreements because he believed that it was up to the taxpayer to specify the ending date. His belief is supported by the language of section 422.54(3), which gives the taxpayer, not the department, the right to an extension. The taxpayer is essentially permitted unlimited time to furnish the records it believes the auditor should consider. Under an indefinite extension, Hagemeier testified, the audit ends whenever the auditor gets the information needed to finish it in such a way that the auditor and taxpayer can either agree on everything or “agree to disagree.” So also, a taxpayer may insist at any time that the audit be concluded, in which case the auditor wraps up the remaining work and sends the audit to the department for assessment.

As found by the district court, the information provided by Dial after the auditor left Dial’s plant in September 1994 was ultimately helpful to Dial’s position on several disputed items. During the extension period, several items were removed from the assessment, leading to a reduction of nearly $1 million. In short, neither the language of section 422.54(3), nor the record before us, supports Dial’s claim that its waivers were invalidated by the department’s failure to include an expiration date.

B. Claimed exemption for machinery and equipment. Dial claims the department improperly included exempt industrial machinery and equipment in its use tax base. At issue are exemptions claimed for equipment and an electrical substation devoted solely to the production of cardboard case packers for the Lunch Bucket twelve-pack display cartons. Dial claims that the cardboard case packer is a container within the meaning of Iowa Code section 423.1(12), that is, a container which becomes “an integral part of other tangible personal property intended to be sold ultimately at retail.... ” The department insists that all of the production activity that occurs after labels and overcaps are placed on individual Lunch Buckets constitutes packaging, rather than processing, and so the material and machines used are not exempt from the use tax.

1. Applicable law. Iowa Code section 423.2 imposes an excise tax on the use in Iowa of “tangible personal property purchased for use in this state, at the rate of five percent of the purchase price of the property.” Section 423.4(4) provides a use tax exemption for “[t]angible personal property, the gross receipts from the sale of which are exempted from the retail sales tax by the terms of section 422.45.” Section 422.45(27)(a) exempts “gross receipts from the sale or rental of industrial machinery [and] equipment,” if that equipment is “directly and primarily used in ... processing tangible personal property....” In the context of use tax, property used in “processing” means

any tangible personal property including containers which it is intended shall, by means of fabrication, compounding, manufacturing, or germination, become an integral part of other tangible personal property intended to be sold ultimately at retail....

Iowa Code § 423.1(12).

Rule 701-18.29(2) of the Iowa Administrative Code implements these statutes and provides that processing begins “when the ‘form, context, or condition’ of tangible personal property is changed with the intent of eventually transforming the property into a saleable finished product.” Processing does not include storage or transport after the property has been transformed into a finished product. Iowa Admin. Code r. 701-18.29(3). Finally, equipment may be considered an integral part of the production of a product if it is “very closely interconnected with, or [is] an integral part of, the operation of the processing equipment while processing is occurring.” Id. r. 701-18.29(5). This includes conveyor belts that move parts while the processing is occurring. Id. (example).

2. Industrial equipment and machinery: case packer and conveyor systems. Dial asserts the department improperly assessed $19,743.36 in taxes on case packers and conveyor systems purchased at a cost of $493,584. The equipment is used to place twelve individual Lunch Buckets into a cardboard container. The container is then stacked onto a pallet, shrink wrapped, and sent to retailers who may use the container to display the product at the store. As already noted, Dial claims the cardboard case packers are containers within the meaning of section 423.1(12). The department contends the cardboard case packers are no more than packaging and, therefore, the materials and equipment used in their manufacture are not entitled to the use tax exemption pertinent to containers. The department has the better argument.

It is true, as Dial suggests, that prior decisions interpreting section 423.1 hold that certain packaging materials and equipment may form an integral part of processing goods for sale. For example, in Zoller Brewing Co. v. State Tax Commission, 232 Iowa 1104, 1108, 5 N.W.2d 643, 645 (1942), this court held that in the production of beer, “there would be no means for the sale” without the bottles in which to contain the liquid. We applied the same principle to kegs and cartons purchased by the consumer along with the beer. Zoller, 232 Iowa at 1108, 5 N.W.2d at 645. By contrast, equipment used to facilitate a sale without changing the product’s form, context or condition does not qualify for the use tax exemption. Hy-Vee Food Stores v. Iowa Dep’t of Revenue, 379 N.W.2d 37, 43 (Iowa Ct.App.1985). Thus, in Hy-Vee, scales and automatic baggers were held non-exempt, even though deemed “essential” to the business. Id.

The record before us reveals that the ultimate consumer purchases the individual Lunch Buckets, not the case packer. The Lunch Buckets are priced individually for sale, while the cardboard case packer is used by the retailer for display purposes. Thus the case packer may facilitate sales, but it is not an integral part of the property sold ultimately at retail. See Iowa Code § 423.1; Hy-Vee, 379 N.W.2d at 43. The district court, and the agency before it, correctly denied the use tax exemption for this equipment and materials.

3. Electrical substation. Dial likewise contends the department incorrectly assessed $8490.50 in taxes for machinery and equipment used to produce usable electricity for the Lunch Bucket line. The substation at issue reduces voltage used by the labeler, overcapper and case packing machines. Thus, Dial argues, the substation is entitled to exemption under the section 422.45(27)(a) as it is used in processing tangible personal property.

As correctly recognized by the agency and the district court, denial of the exemption is compelled by this court’s holding in Heartland Lysine. There we observed that switching gear and transformers regulating the electricity coming into the plant were “crucial to the plant’s successful operation.” Heartland Lysine, 503 N.W.2d at 591. But, although vital, the electrical equipment’s function was deemed “preliminary to the actual processing” and, hence, not subject to the use tax exemption. Id.

The same principle applies to the case before us. Although the substation’s work is crucial to the functioning of the Lunch Bucket line, it merely serves to lower the voltage of electricity from high-power lines coming into the plant. The substation plays no part in changing the form, context or condition of the Lunch Buckets. Its function is preliminary to processing, not part of it. Dial’s contentions to the contrary are without merit.

C. Penalty and interest abatement. Dial’s third claim is that the department erred in failing to abate the assessed penalty and interest because Dial timely paid its taxes and always attempted to comply with Iowa tax law. It contends that the invalid extensions allowed the auditor to drag his feet in finishing the audit, thereby delaying requests for additional information from Dial. The department responds that Dial was the one dribbling out information during 1994,1995 and even into 1996, all for the purpose of convincing the auditor that certain capital assets were not taxable. Because Dial caused the delay, the department argues, the ALJ and district court were correct to deny Dial’s claim for penalty and interest abatement.

Iowa Code section 422.58(1) imposes penalty and interest charges in addition to any additional tax assessed against a taxpayer as the result of an audit. Section 421.27(3) sets the penalty at five percent of any deficiencies revealed. The director of the department may waive the penalty if the taxpayer has already paid ninety percent of the taxes ultimately assessed or the taxpayer tenders documented proof that it acted in reliance on written advice from statutorily-authorized sources. Iowa Code § 421.27(3)(a), (b), (d). Dial, however, furnished no evidence that it is entitled to an abatement under any one of these subsections.

A taxpayer must also pay interest from the time the taxes should have been paid. Iowa Code § 422.58(1). The department may waive this interest pursuant to section 421.60(i) if it deems the interest (or penalty) to be erroneous, illegal or excessive. Dial argued before the district court, and urges on appeal, that the interest imposed was excessive because the department took over a year to complete the audit, a result of securing allegedly invalid extensions. The record, however, contains overwhelming proof that Dial contributed to, if not outright caused, these delays. It continued to present additional information to the auditor for almost two years, even after the auditor had issued several audit closing letters. Moreover, as discussed earlier in this opinion, Dial never advised the department that it wished to terminate the extension and demand an immediate assessment. As already noted, this would not have been to Dial’s advantage.

In short, Dial has presented no convincing reason supporting the abatement of penalty and interest it seeks. The district court did not err in affirming the agency on this point.

D. Local option tax assessment. Dial’s final claimed error is the district court’s affirmance of the department’s assessment of $7723.56 for a local option sales tax. Dial claims the retailer, not the purchaser, is obligated to collect the tax. The department contends the local option tax assessments were for those transactions entered into by Dial where delivery occurred in the local option taxing jurisdiction. It points out that under Iowa Code section 422.47(3)(b), made applicable to local option sales tax by section 422B.9, tax liability rests on both the seller and the purchaser unless the seller, in good faith, takes an exemption certificate making only the purchaser liable.

We are convinced the district court made no error in interpreting the pertinent law and applying it to the facts before us. The auditor testified that, upon reviewing Dial’s invoices, he determined that Dial had not paid, and the seller had not collected, the local option sales tax due. Dial was obligated to pay those taxes when the delivery was taken in the local option taxing jurisdiction. Dial presented no evidence to sustain its claim of double taxation. Nor did it contradict the auditor’s proof that Dial had not paid the tax to the retailers, therefore the retailers could not have remitted the tax to the department. Substantial evidence in the record supports the district court’s judgment in the department’s favor.

E. Department’s cross-appeal: inclusion of disputed accounts. The department challenges the district court’s reversal of the agency’s ruling that two accounts which happened to have no errors in them for the sampled months were nevertheless properly audited and used in determining the tax assessment on expense items. The question is whether Dial agreed to the audit technique used, including the accounts to be reviewed for purposes of determining an error rate applicable to expense item purchases. The district court found the record insufficient to support the agency’s finding of an agreement regarding accounts 6453 and 6454. On our review, we conclude the record contains ample support for the agency’s decision.

The record reveals that early in June 1993, the department contacted Dial regarding the impending audit. A follow-up letter sent to Dial’s tax compliance coordinator included a list of thirty-nine expense accounts that the department intended to review for the audit. Among the list of accounts are the two now in dispute. Account 6453 was an expense account for various chemicals totaling $2.4 million. Account 6454 was an expense account for vinegar purchases totaling $60,000.

Several months later, the department sent Dial an audit procedure agreement which explained how an error rate would be established during the audit “by computing the ratio of errors found in listed accounts to total of listed accounts for the test periods.” No accounts were listed on the actual agreement form nor were any attached to the agreement which was later signed by officers at Dial. However, included with the audit procedure agreement was a copy of the June 1993 letter that had listed the thirty-nine expense accounts, as well as copies of all other correspondence between the parties up to that date. At no time prior to the tax assessment did Dial register any misunderstanding about which accounts would be included in the audit sample.

At the conclusion of the audit, Dial’s total tax liability was determined to be $228,884.43. As it turned out, no errors had been discovered in accounts 6453 and 6454. Their inclusion in the expense base increased the total assessment, however, by $4341.29. Dial unsuccessfully claimed on its administrative appeal before the agency that, because no errors were found in these accounts, they should not have been included in the sample. The district court reversed the agency on judicial review, reasoning the record contained no proof that an agreement had been reached between Dial and the auditor concerning which particular accounts would be used in the sample. Its ruling rested on the fact that the letter describing the sampling method did not list the specific accounts to be sampled, nor did the letter contain a specific reference to the earlier letter listing the thirty-nine accounts.

We are convinced that although the inferences drawn by the district court may be supported by substantial evidence, the contrary inferences drawn by the agency are equally well-supported by the record before us. See Mercy Health Ctr. v. State Health Facilities Council, 360 N.W.2d 808, 811-12 (Iowa 1985) (evidence substantial if reasonable person would find it adequate to reach given conclusion, even if reviewing court might draw contrary inference). No one from Dial ever indicated to the auditor any misunderstanding about which “listed accounts” were referred to in the signed audit procedure agreement. Dial employees provided the auditor information about all of the accounts listed in the June 1993 letter. Based on the audit procedure agreement, the auditor reasonably believed the accounts he could review for his sample were the ones listed in that letter.

The department points out that Dial’s protest rested on the inclusion of error-free accounts in the audit sample, not the alleged misunderstanding relied upon by the district court. Plainly the question of whether an account contained errors for the months sampled has no bearing on whether there was an agreement to include that account in the audit sample. As the department rightly notes, if taxpayers were allowed to object after-the-fact to inclusion of accounts without errors, where would the department draw the line on the audit? Surely taxpayers would complain vehemently if the department used audit samples that included only accounts where mistakes were found to the exclusion of accounts where no mistakes were found. Including accounts with no errors in the sampled months could logically lessen an assessment from what it would otherwise be. As explained by the department’s auditor, such inclusion would decrease the error rate while increasing the expense base, resulting in less tax than would result from applying a higher error rate to lower base.

Because there was substantial evidence in the record made before the agency to support its conclusion that Dial understood, and agreed to, the accounts reviewable under the audit, it was error for the district court to draw a contrary factual conclusion. We therefore reverse that portion of the district court’s ruling that required the department to delete accounts 6453 and 6454 from its computation of the error rate.

IV. Conclusion.

The extension agreements signed by the parties were valid and, therefore, the taxing period from January 1, 1989 through March 31, 1991 did not fall outside the pertinent statute of limitations and was properly included in the assessment. The industrial machinery and electrical equipment used by Dial to produce Lunch Buckets does not involve containers integral to the processing of the product and, accordingly, were properly included in the use tax assessment. The record also supports the agency’s denial of Dial’s claim to an abatement of penalties and interest, and the agency’s imposition of local option sales tax. The district court did, however, err in its determination that the record contained no substantial evidence of agreement regarding the inclusion of accounts 6453 and 6454 in the error sample. We therefore affirm the district court on Dial’s appeal, reverse on the department’s cross-appeal, and remand to the district court for entry of a corrected judgment that affirms the tax assessment in full.

APPEAL AFFIRMED; CROSS APPEAL REVERSED AND REMANDED WITH INSTRUCTIONS.

SNELL, S.J., participates in lieu of STREIT, J., who takes no part.

      . Unless otherwise indicated, all further references to the Iowa Code shall be to the 1997 edition.

      . The statute has since been amended to allow a three-year statute of limitations. See 1999 Iowa Acts ch. 156, § 3 (codified at Iowa Code § 422.54(1) (2001)).

      . This subsection has been amended to allow exemptions for the type of machinery and equipment at issue in this case purchased after July 1, 1997. See 1997 Iowa Acts ch. 87, § 1 (codified at Iowa Code § 422.45(27) (1999)).


text:
    IOWA SUPREME COURT BOARD OF PROFESSIONAL ETHICS AND CONDUCT, Complainant, v. Randy J. HOHENADEL, Respondent.
    No. 01-0812.
    Supreme Court of Iowa.
    Oct. 10, 2001.

      Norman G. Bastemeyer and Charles L. Harrington, Des Moines, for complainant.
    J.E. Tobey, III, Davenport, for respondent.
   TERNUS, Justice.

This case comes before the court on the report of a division of the Iowa Supreme Court Grievance Commission. See Ct. R. 118.10. The Commission found that the respondent, Randy J. Hohenadel, violated the Iowa Code of Professional Responsibility by neglecting two clients’ legal matters and misrepresenting the status of those matters to his clients and the court in order to conceal his actions. The Commission recommends a four-month suspension. The Commission also suggests, with one member dissenting, that three months of the suspension period be suspended and Hohenadel be put on probation for twenty-four months. Upon our respectful consideration of the findings of fact, conclusions of law and recommendation of the Commission, we find the respondent guilty of the charged ethical violations and suspend his license to practice law indefinitely with no possibility of reinstatement for four months.

I. Report of the Commission.

The facts giving rise to this disciplinary action were admitted by Hohenadel. Ho-henadel was licensed to practice law in Iowa in 1977. Since then, he has practiced in Davenport, Iowa, primarily in the area of court-appointed criminal defense. Witnesses at the hearing confirmed that prior to the events in question Hohenadel enjoyed a good reputation. He was respected and trusted by the bench and bar.

Unfortunately, approximately four years before the hearing, Hohenadel began drinking at inappropriate times and to excess. This fact did not go unnoticed by the judges and lawyers in his community. Over the last few years, he was urged to seek help from Alcoholics Anonymous and Lawyers Helping Lawyers. Hohenadel did not think he needed help, however. He minimized his drinking problem and thought that he could correct whatever difficulty he had by himself.

A wake-up call came in September of 1999 when Hohenadel was publicly reprimanded for neglect of a client’s dental malpractice claim, including misrepresenting to the client that her lawsuit had been filed when, in fact, it had not. Despite this disciplinary sanction, Hohenadel failed to acknowledge his problem. He continued drinking, with disastrous effects on at least two of his clients, Raul Liendo and Alan Reinier.

Hohenadel was appointed to represent Raul Liendo in a criminal matter. Hohe-nadel filed a notice of appeal from Liendo’s criminal conviction and then failed to prosecute the appeal. At the disciplinary hearing, he claimed that the appeal had no merit and that he had so informed his client. Nonetheless, he admitted that he had not complied with the appellate rules for dismissal of frivolous appeals. See Iowa R.App. P. 104. As a result of Hohe-nadel’s failure to take any action in the matter, the appeal was dismissed. Thereafter, Hohenadel did not inform his client of the dismissal. Moreover, when a district court judge inquired into the status of the appeal, Hohenadel told the judge that he was continuing to work on the appeal and simply had to file a brief, even though a notice of default had already been issued. Eventually, Liendo filed a pro se motion to reinstate his appeal, which was granted.

The second matter that brought Hohe-nadel to the attention of the ethics board concerned a personal injury action that Hohenadel had filed on behalf of Alan Reinier on July 1, 1997. That action was initially dismissed on September 23, 1998 for lack of prosecution. Hohenadel filed an application to reinstate the lawsuit, stating in the application that he had been unable to locate the defendant for service of process. He also stated that he had now found the defendant, this statement being untrue. Reinier’s petition was reinstated, but Hohenadel still failed to have the defendant served. He eventually requested a continuance, misrepresenting to a district court judge that he had been unable to locate the defendant despite efforts to do so. The continuance was granted, but once again, Hohenadel did not take advantage of the reprieve. On November 29, 2000, the Reinier case was again dismissed for failure to serve the defendant. During this entire time, Hohenadel concealed from his client the true reason for the delay in his client’s case.

In addition to the two cases that are the subject of this proceeding, evidence at the hearing established that in the last few years prior to the hearing Hohenadel had frequently been late to or absent from scheduled matters. There were occasions when judges smelled alcohol on his breath in court or in chambers. Sometimes, judges would not permit Hohenadel to participate in court proceedings because of his condition.

The present proceeding came about, in part, due to the intervention of the judges in Hohenadel’s district. The judge who granted the continuance in the Reinier case was skeptical of Hohenadel’s statements that he could not find the defendant to effect service. The judge then took it upon himself to locate the defendant, which he did in a very short period of time. This discovery resulted in a meeting between Hohenadel, the chief judge of the district, and two district court judges who had been involved in the Reinier case. At that meeting, Hohenadel was instructed to report what had happened to the ethics board. He did so, leading to the present proceeding.

This action was filed in December 2000. In early March 2001, Hohenadel finally obtained an alcohol evaluation and began treatment. At the time of the hearing in early April 2001, he had been diligently complying with the treatment program for a month.

Witnesses at the hearing testified to Ho-henadel’s basically good and trustworthy nature, as well as his considerable skills as a criminal defense lawyer. They believed that with the assistance of medical professionals and his peers, Hohenadel could be a productive member of the bar, posing no threat to his clients or the public, so long as he remained sober.

The Commission concluded that Hohe-nadel’s failure to prosecute his clients’ cases violated Iowa Code of Professional Responsibility DR 6-101(A)(3) (“A lawyer shall not ... [njeglect a client’s legal matter.”), DR 7-101(A) (“A lawyer shall not intentionally ... [flail to seek the lawful objectives of a client through reasonably available means .... ”), and DR 1-102(A)(5) (“A lawyer shall not ... [ejngage in conduct that is prejudicial to the administration of justice”). In addition, the Commission concluded that his failure to timely and accurately inform his clients of the status of their cases constituted a violation of DR 1-102(A)(4) (“A lawyer shall not ... [ejngage in conduct involving dishonesty, fraud, deceit, or misrepresentation”). Finally, Hohenadel was determined to have violated DR 1 — 102(A)(5) by misrepresenting the status of these matters to various district court judges.

The Commission recommended a four-month suspension. All Commission members but one also recommended that three months of the four-month suspension be suspended and that Hohenadel serve a twenty-four-month probation subject to various conditions. These conditions included, among other items, completion of his treatment program, abstention from the use of alcohol or other mind-altering substances, and direct monitoring by the director of the Iowa Lawyers Assistance Program. It was suggested that the director be required to report any violation of the probation conditions to the Iowa Supreme Court Board of Professional Ethics and Conduct. Any failure of Hohena-del to abide by the terms of his probation would result in immediate imposition of the remaining three-month suspension.

II. Scope of Review.

Our scope of review is well established:

This court reviews an attorney disciplinary proceeding de novo. Although we are not bound by the Commission’s findings, we give them weight, particularly when considering the credibility of witnesses. We also respectfully consider the discipline recommended by the Commission, but we are not bound by such recommendations. The burden rests on the Board to prove the alleged disciplinary violations by a “convincing preponderance of the evidence.”

Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Mulford, 625 N.W.2d 672, 679 (Iowa 2001) (citations omitted).

III. Ethical Violations.

Hohenadel, to his credit, has never disputed the relevant facts or that his conduct violated the Iowa Code of Professional Responsibility. We agree with the Commission that Hohenadel violated the ethical provisions cited by the Commission in its report. We turn now to a determination of the appropriate discipline.

IY. Discipline.

In determining the appropriate discipline, we consider “ ‘the nature of the alleged violations, the need for deterrence, protection of the public, maintenance of the reputation of the [bar] as a whole, and the respondent’s fitness to continue in the practice of law.’ ” Iowa Supreme Ct. Bd. of Profl Ethics & Conduct v. Freeman, 603 N.W.2d 600, 603 (Iowa 1999) (quoting Comm. on Prof'l Ethics & Conduct v. Havercamp, 442 N.W.2d 67, 69 (Iowa 1989)). We also take into account “both aggravating and mitigating circumstances.” Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Mears, 569 N.W.2d 132, 134 (Iowa 1997).

Of course, there is no standard discipline for a particular type of attorney misconduct. Nonetheless, when neglect of clients’ legal matters is the primary infraction, discipline generally ranges from a public reprimand to a six-month suspension. See Freeman, 603 N.W.2d at 603. Misrepresentations made to clients, and particularly to the court, warrant a more severe sanction than neglect standing alone. See Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Adams, 623 N.W.2d 815, 819 (Iowa 2001); Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Stein, 603 N.W.2d 574, 576 (Iowa 1999). In this regard, we have stated:

Fundamental honesty is the base line and mandatory requirement to serve in the legal profession. The whole structure of ethical standards is derived from the paramount need for lawyers to be trustworthy. The court system and the public we serve are damaged when our officers play fast and loose with the truth.

Comm. on Prof'l Ethics & Conduct v. Bauerle, 460 N.W.2d 452, 453 (Iowa 1990). Given the importance of honesty in our profession, we have stated that misrepresentation by a lawyer “constitutes a grave and serious breach of professional ethics” and generally results “in a lengthy suspension of the license to practice law.” Stein, 603 N.W.2d at 576.

In addition to considering the nature of Hohenadel’s violations, we also focus on the need to protect the public. In this regard, we rely on the testimony of those witnesses who testified to their belief that due to Hohenadel’s acknowledgement of his alcoholism and successful commencement of treatment, he would not pose a threat to his clients or the public if allowed to practice law. Although this fact supports a lesser sanction, protection of the public is not our only consideration in imposing discipline. We must also be protective of the reputation of the bar as a whole. When an attorney neglects his clients’ matters to the point that his clients are harmed and then makes misrepresentations to the court that serve as the basis for court action, serious discipline is warranted.

We also consider Hohenadel’s fitness to practice law. Due to the belated timing of his effort to obtain treatment, the extent of Hohenadel’s rehabilitation is unknown. Nonetheless, the record shows he is on the road to recovery. We turn now to the aggravating and mitigating circumstances surrounding Hohenadel’s misconduct.

There are two aggravating circumstances present here. One is the fact that Hohenadel’s neglect resulted in the dismissal of his clients’ cases. Although Liendo was able to have his appeal reinstated, Reinier’s personal injury action was not. We have recognized that harm to a client is an aggravating circumstance that warrants a more serious sanction. Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Jay, 606 N.W.2d 1, 4 (Iowa 2000); Freeman, 603 N.W.2d at 604.

Secondly, this matter is not Hohe-nadel’s first ethical infraction. As we noted earlier, he was previously reprimanded for neglecting a client’s legal matter and then lying to his client to conceal his neglect. Again, this circumstance is an aggravating factor, warranting more severe discipline. Adams, 623 N.W.2d at 819; Jay, 606 N.W.2d at 4. We also note that the three matters brought to the attention of the disciplinary system do not appear to be isolated instances of unethical conduct. See generally Freeman, 603 N.W.2d at 605 (noting that attorney’s ethical violations were isolated events “in an otherwise unblemished career”). In this regard, we note the testimony of witnesses who said that during the last few years Hohenadel has failed to appear for court hearings or has arrived smelling of alcohol and has been prevented by the court from participating.

On the other hand, there is also an important mitigating circumstance. Hohe-nadel’s unethical conduct does not appear to reflect a fundamentally dishonest character, but rather is a consequence of his alcoholism. There was abundant testimony at the hearing that his recent neglect and the ensuing deceit were out of character for him. More importantly, Hohenadel has finally sought treatment for the alcoholism that is the root of his professional problems. His attempts to address his illness appear to be genuine and to reflect a recognition that he can no longer conduct his professional life as he has in the past.

In view of the various pertinent factors and the aggravating and mitigating circumstances, we concur in the recommendation of the Commission that a four-month suspension is appropriate. . We decline to suspend any portion of this period for two reasons. First, due to Hohenadel’s misrepresentations to the court and the fact that harm resulted to his clients, we find a one-month suspension and a period of probation an insufficient sanction. Second, we continue in our belief that the suggested framework for the probation recommended in this case is ill advised. As we noted in Committee on Professional Ethics & Conduct v. Barrer, 495 N.W.2d 756 (Iowa 1993):

The suggestion that the Iowa State Bar Association Lawyers Helping Lawyers Committee could.serve as a supervising agency places that group beyond its scope. That committee performs a commendable service, intervening in cases of substance abuse to encourage impaired attorneys to obtain treatment. Its members are practicing attorneys and judges whose activity is ameliorative, rather than of the supervisory nature of a probation authority.

Barrer, 495 N.W.2d at 760. We have the same concerns about using the director of the Iowa Lawyers Assistance Program in a probationary role. The director’s efforts are sorely needed to assist lawyers before their substance abuse problems reach the stage of an ethical violation. In addition, we think the confidential role served by the director at that stage of an attorney’s illness would conflict with using the director as a supervisor and informant for the court when matters reach the point of professional discipline.

In summary, we suspend Hohenadel’s license to practice law indefinitely with no possibility of reinstatement for four months. This suspension applies to all facets of the practice of law. Ct. R. 118.12. Upon any application for reinstatement, Hohenadel must establish that he has not practiced law during the suspension period and that he has in all other ways complied with the requirements of Court Rule 118.18. Costs of this action shall be taxed to the respondent pursuant to Court Rule 118.22.

LICENSE SUSPENDED.