author: KEAN, Circuit Judge.

text:
    2006 SD 52
    In the Matter of Steven J. TINKLENBERG, Appellant.

      No. 23704.
    Supreme Court of South Dakota.
    Argued March 23, 2006.
    Decided June 14, 2006.
    Rehearing Denied July 26, 2006.

      Patricia de Hueck of deHueck Law Firm, Pierre, South Dakota, Shannon Rigsby of Samp Law Office, Sioux Falls, South Dakota, for appellant.
    Neil Fulton of May, Adam, Gerdes & Thompson, Pierre, South Dakota, for ap-pellee.
   KEAN, Circuit Judge.

[¶ 1.] Steven Tinklenberg (Tinklen-berg) appeals the decision of the South Dakota Division of Insurance (Division) to revoke his insurance producer’s license. The circuit court affirmed the revocation making additional findings of fact and conclusions of law and rejecting Tinklenberg’s claim of improper ex parte communications within the Division. Tinklenberg appeals. We affirm.

FACTS AND PROCEDURE

[¶ 2.] Tinklenberg became a licensed insurance producer in the State of South Dakota in 1979. In 1980 Tinklenberg sold a life insurance policy from Pennsylvania Life Insurance Company (Pennsylvania Life) to Albert Klein (Albert). Because the policy was designed to allow money to pass outside the insured’s estate, Pennsylvania Life encouraged making someone other than the insured the owner of the policy. Albert designated his sister, Mary Klein (Mary), as the owner. The beneficiaries of the policy were Mary and his two other siblings. The death benefit under the policy was $25,000.

[¶ 3.] Albert and Mary were raised on a farm in Waverly, South Dakota. Mary was born in 1912 and was the oldest of six children. Albert was born in 1926 and was the youngest child. Albert and Mary lived their entire lives together, first on the family farm and then in an apartment in Watertown, South Dakota for the last few years of their lives. Mary was a caregiver for Albert. Albert was physically disabled from farm injuries and arthritis and he needed Mary’s assistance with his daily needs, including dressing. In 1961 Albert was committed for a time to the State Hospital in Yankton, South Dakota. He was diagnosed with schizophrenia and with having limited intelligence, likely in the mild mental retardation range. A psychological evaluation in 1998 confirmed this diagnosis.

[¶ 4.] Tinklenberg resigned as an agent for Pennsylvania Life in 1984. However, he continued to assist Albert with various matters. Albert’s life insurance policy included a waiver of premium for disability. Albert paid the first premium and was thereafter considered disabled. He periodically had to verify his continued disability in order to receive the premium waiver. Tinklenberg assisted Albert with this paperwork. Tinklenberg also attempted to assist Albert and Mary in getting long term care insurance. When Albert had problems with receiving disability checks from another unrelated disability policy, Tinklenberg assisted him. Eventually the disability checks were sent directly to Tinklenberg who forwarded them to Albert upon receipt. Evidence was introduced at the hearing that Albert made numerous calls to Tinklenberg over the years both at home and at the office.

[¶ 5.] Tinklenberg claims that during a visit to the farm in late 1993 Albert said he wanted Tinklenberg to have his life insurance policy with Pennsylvania Life. Tink-lenberg testified that he obtained the necessary forms from Pennsylvania Life. Tinklenberg testified that he returned to the farm on October 29, 1993, where the form transferring ownership was signed by Mary and witnessed by Albert. Tinklen-berg submitted the form to Pennsylvania Life. It was approved by the company and ownership and beneficiary designations were changed to Tinklenberg.

[¶ 6.] In February 1999 Albert and Mary’s niece, Mary Ann Brennan (Mary Ann) was appointed conservator over Albert’s affairs. After her appointment, Albert told Mary Ann that he had two disability policies and a life insurance policy. He gave Tinklenberg’s phone number to Mary Ann. In March 1999 Mary Ann contacted Tinklenberg to discuss Albert’s insurance. Mary Ann testified that Tinklen-berg told her that the life insurance policy was in effect and that Albert’s siblings were named as beneficiaries. Mary Ann contacted Tinklenberg again on or about February 16, 2000, to notify him that Albert’s health was deteriorating. Mary Ann testified that during the conversation Tinklenberg confirmed the status of the policy and that the policy’s beneficiaries were Albert’s siblings. The administrative law judge (ALJ) found that Tinklenberg deliberately concealed the fact that ownership of the policy had been transferred to him in 1993 and that he had named himself as the beneficiary. On February 25, 2000, Mary Ann called to notify Tinklenberg that Albert had died. Mary Ann testified that Tinklenberg said that he would start the paperwork for the payment of the death benefit proceeds. Tinklenberg did not tell Mary Ann that he was both the owner and beneficiary of the policy. He did not attend Albert’s funeral or send any acknowledgment to the family.

[¶ 7.] Shortly after Albert’s death, Tinklenberg submitted a death benefit claim to Pennsylvania Life. On March 23, 2000, Tinklenberg received a check from Pennsylvania Life for $34,398.96, after the deduction of a remaining balance of $1,170.52 from a loan Tinklenberg had earlier taken against the policy. Tinklenberg deposited the check on March 30, 2000. Tinklenberg paid Albert’s funeral expenses in the amount of $6,766.58 without telling the family. The family was later notified by the funeral home that the bill had been paid. When Albert’s family did not receive any proceeds from the life insurance policy, Mary Ann contacted Attorney Tom Burns (Burns) who spoke with Tinklen-berg to find out the necessary steps to collect on the policy. Tinklenberg did not disclose to Burns his ownership of the policy, but instead referred Burns to Pennsylvania Life. When Burns contacted Pennsylvania Life, he was notified that Tinklenberg was the owner of the policy and had already collected the death benefit proceeds.

[¶ 8.] Burns obtained a copy of the form changing ownership and beneficiary from Pennsylvania Life and showed it to Mary. While it appeared to have Mary’s signature, she did not remember signing it. She claimed that she never had an intention to transfer ownership to Tinklenberg. A complaint against Tinklenberg was filed with the Division. The Division began an investigation which eventually led to the criminal prosecution of Tinklenberg for grand theft. He was found not guilty in the criminal case.

[¶ 9.] The Division commenced an administrative proceeding to revoke Tinklen-berg’s license. The Division alleged that Tinklenberg converted a life insurance policy and death benefit proceeds belonging to Mary and in doing so failed to meet the standards for licensure. It further alleged that Tinklenberg gave Mary Ann the false impression that the Klein family would receive the death benefit proceeds of the policy. During the investigation, an inquiry was made regarding Tinklenberg’s residence. Tinklenberg verified his address as 747 South Third Avenue, Sioux Falls, South Dakota. However, a letter sent to that address was returned to the Division as undeliverable and the post office reported a current address of 3120 East Claudette Drive, Sioux Falls, South Dakota. The Division claimed that Tinklenberg failed to provide notice of his change of address as required by statute.

[¶ 10.] A contested hearing was held on October 16, 17, and November 10, 2003. The ALJ proposed the revocation of Tink-lenberg’s insurance producers license. The Division adopted the ALJ’s proposed findings of fact, conclusions of law and decision and ordered the revocation of Tinklenberg’s license. Tinklenberg appealed the Division’s decision to the circuit court. On appeal to the circuit court, Tinklenberg raised a new issue alleging ex parte contact by the acting Division Director and Division personnel working on Tinklenberg’s case. The circuit court held a supplemental evidentiary hearing on this issue. The circuit court affirmed the Division’s decision. Tinklenberg appeals.

STANDARD OF REVIEW

[¶ 11.] Our standard of review of an administrative appeal is the same as that of the circuit court. Kuhle v. Lecy Chiropractic, 2006 SD 16, ¶ 15, 711 N.W.2d 244, 247 (citing Clausen v. Northern Plains Recycling, 2003 SD 63, ¶ 7, 663 N.W.2d 685, 687 (additional citation omitted)). “'Our standard of review is controlled by SDCL 1-26-37.’ ” Kuhle, 2006 SD 16, ¶ 15, 711 N.W.2d at 247 (quoting Kassube v. Dakota Logging, 2005 SD 102, ¶ 25, 705 N.W.2d 461, 465). The Division’s factual findings and credibility determinations are reviewed under the clearly erroneous standard. Kuhle, 2006 SD 16, ¶ 15, 711 N.W.2d at 247 (citing Enger v. FMC, 1997 SD 70, ¶ 10, 565 N.W.2d 79, 83 (citing Tieszen v. John Morrell Co., 528 N.W.2d 401, 403-04 (S.D.1995))). “We will reverse those findings only if we are definitely and firmly convinced a mistake has been made.” Kuhle, 2006 SD 16, ¶ 15, 711 N.W.2d at 247 (citing Gordon v. St. Mary’s Healthcare Center, 2000 SD 130, ¶ 16, 617 N.W.2d 151, 157). “Questions of law are reviewed de novo.” Kuhle, 2006 SD 16, ¶ 16, 711 N.W.2d at 247 (citing Enger, 1997 SD 70, ¶ 10, 565 N.W.2d at 83 (additional citations omitted)). “Mixed questions of law and fact are also fully reviewable.” Id. In matters involving the revocation'of a professional license, the agency’s burden of proof is clear and convincing evidence. In re Setliff, 2002 SD 58, ¶ 13, 645 N.W.2d 601, 605.

DECISION AND ANALYSIS

ISSUE ONE

[¶ 12.] Whether it was error to revoke Tinklenberg’s license for a violation of SDCL 58-30-106 when the statute was repealed before administrative proceedings to revoke his license were commenced.

[¶ 13.] Tinklenberg’s alleged violations of SDCL 58-30-106 took place between December 1993 when he transferred the policy to himself and March 2000 when he collected the death benefit proceeds and kept them. The administrative proceeding to revoke Tinklenberg’s license was commenced in January 2002. SDCL 58-30-106 was repealed by the South Dakota Legislature effective July 1, 2001, prior to the commencement of the administrative action, but after the alleged violation of the statutory section. See 2001 SDSessLaws ch 286 § 280. Tinklenberg asserts the repeal of the statute cancelled any action against him pursuant to the statute and that no savings clause revives SDCL 58-30-106. The Division argues that the general saving clause of SDCL 2-14-18 allows a proceeding pursuant to the statute, even though it has been repealed, as the conduct at issue had occurred while the statute was in force and because a penalty is involved. Alternatively, the Division argues that SDCL 58-30-106 was simultaneously re-enacted by SDCL 58-30-167. This issue involves a question of law which we review de novo.

[¶ 14.] Prior to its repeal, SDCL 58-30-106 provided:

The director may suspend for not more than twelve months, or may revoke or refuse to continue any license issued under this chapter, or any surplus lines broker’s license if, after hearing held on not less than twenty days’ advance notice of such hearing and of the charges against the licensee given to the licensee and to the insurers represented by such licensee or to the appointing agent of a soliciting agent, he finds that as to the licensee any one of the following causes exists:
(1) Any cause for which issuance of the license could have been refused had it then existed and been known to the director;
(2) Obtaining or attempting to obtain any such license through fraud or through willful misrepresentations or misstatements as to any material matter;
(3) Violation of or noneompliance with an applicable provision of this title, or for willful violation of any lawful rule, regulation, or order of the director;
(4) Misappropriation or conversion to his own use, or illegal withholding, of moneys or property belonging to policyholders, or insurers, or beneficiaries, or others and received in conduct of business under the license;
(5) Conviction, by final judgment, of a crime involving moral turpitude;
(6) For material misrepresentation of the terms of any insurance contract or proposed insurance contract; or
(7) If in the conduct of his affairs under the license the licensee has used fraudulent or dishonest practices, or has shown himself to be incompetent or untrustworthy.

[¶ 15.] “It is general basic law that the effect of the repeal of a statute, where neither a saving clause within the repealing statute itself nor a general saving statute exists to prescribe the governing rule for the effect of the repeal, is to destroy the effectiveness of the repealed act in futuro and to divest the right to proceed under the statute which, except as to proceedings passed and closed, is considered as if it had never existed.” State Highway Commission v. Wieczorek, 248 N.W.2d 369, 372 (S.D.1976). The legislature did not enact a specific savings clause as to SDCL 58-30-106. Therefore, we must consider whether South Dakota’s general savings cause contained in SDCL 2-14-18 preserved SDCL 58-30-106 as to this administrative proceeding against Tinklenberg. SDCL 2-14-18 provides:

The repeal of any statute by the Legislature shall not have the effect to release or extinguish any penalty, forfeiture, or liability incurred under such statute unless the repealing act shall so expressly provide, and such statute shall be treated as still remaining in force for the purpose of sustaining any proper action or prosecution for the enforcement of such penalty, forfeiture, or liability, (emphasis added)

[¶ 16.] Black’s Law Dictionary 1168 (8th ed 2004) defines “penalty” as:

[p]unishment imposed on a wrongdoer, usu. in the form of imprisonment or fine; esp., a sum of money exacted as punishment for either a wrong to the state or a civil wrong (as distinguished from compensation for the injured party’s loss). Though usu. for crimes, penalties are also sometimes imposed for civil wrongs.

Under the Division’s administrative rules, sanctions which may be imposed for violations of the insurance code are characterized as a “penalty.” ARSD 20:06:01:02 provides:

In determining the penalty for a violation of an insurance law by an agent, broker, or insurer, the director may consider, but is not limited to, the following factors:
(1) Prior violations of the law by the agent, broker, or insurer;
(2) Number of violations of a statute;
(3) Number of statutes violated;
(4) Penalties assessed against other agents, brokers, or insurers for the same violations;
(5) Magnitude of the harm to the public and insured; and'
(6) Any mitigating circumstances,

(emphasis added).

[¶ 17.] There can be little question that the revocation of a professional license is a serious matter with significant consequences. Setliff, 2002 SD 58, ¶ 23, 645 N.W.2d at 608 (citing Bruggeman v. S.D. Chem. Dependency Counselor Certification Bd., 1997 SD 132, ¶ 12, 571 N.W.2d 851, 853 (additional citation omitted)). This Court has characterized the revocation of a resident insurance agent’s license as a “penalty.” Kent v. Lyon, 1996 SD 131, ¶ 53, 555 N.W.2d 106, 117. We con-elude that the revocation of Tinklenberg’s license for his misconduct is a penalty for the purposes of SDCL 2-14-18. Therefore, it was not error for the Division to seek revocation of Tinklenberg’s license under the authority of SDCL 58-30-106, since his conduct occurred during the time when the statute was in force.

[¶ 18.] Our conclusion has support from other courts which have addressed this issue. The cases are summarized thus:

To alleviate the hardship and to rectify the injustice of the common-law rules of construction and interpretation as they prescribe the effect of the repeal of a statute, a majority of the jurisdictions have enacted general savings statutes with the express purpose of achieving the continuation of repealed statutes in respect to past activity and pending legal actions.... Although these general savings statutes have been designated as mere rules of construction to be applied only to resolve a question of legislative intent, the ’prevalent and more favored view is to construe the savings provisions as positive legislation which should be given the effect as though they were incorporated into every future enactment involving a substantive right. Where a statute is repealed, a general saving statute operates to save any substantive right of a private nature, liability, right of action, penalty, forfeiture, or offense which has accrued .under the repealed statute. Consequently, any action predicated upon the repealed statute may be commenced and prosecuted to a conclusion under the provisions of the repealed act

1A Norman J. Singer, Sutherland Statutory Construction § 23:38 (6th ed) (emphasis added).

[¶ 19.] Further, there is a South Dakota ■ decision which discussed the general savings clause in relation to a “liability.” In Schultz v. Jibben, 513 N.W.2d 923 (S.D.1994), a vendor under a contract for deed commenced an action to foreclose the interest of the purchasers and their assign-ee. The assignee counterclaimed for an equitable adjustment of the contract referring to SDCL 21-50-2. However, this statute was repealed after execution of the original contract for deed. In denying application of the general savings statute to preserve the right of equitable adjustment for the assignees, we determined that the right of equitable adjustment was not a liability and therefore could not be saved under SDCL 2-14-18. Yet, we considered the preservation of a liability under this general savings statute, if the liability existed prior to the repeal and was not mentioned in the repealed statute, by writing: “[T]he repeal of a statute does not bar actions commenced after the repeal if predicated upon liability which accrued when the act was in force [.] ” Id. at 925 (emphasis in original) (citing Colorado v. McMillin, 150 Colo. 23, 370 P.2d 435 (1962)).

ISSUE TWO

[¶ 20.] Whether the circuit court erred in finding that the Division’s decision was not made under irregularities in procedure.

[¶ 21.] Tinklenberg claims that ex parte communications in violation of SDCL 1-26-26 occurred with the Division’s Director Wendal Malsam (Malsam) while Tinklenberg’s case was pending. Malsam issued the final decision adopting the ALJ’s proposed revocation of Tinklen-berg’s license. The circuit court allowed Tinklenberg to present additional evidence to prove his allegations of irregularities. The circuit court heard testimony on February 8 and March 7, 2005, from five witnesses from the Division. After hearing the testimony, the circuit court made specific findings of fact and conclusions of law. The circuit court concluded that Tinklen-berg failed to prove that ex parte communications occurred.

[¶ 22.] SDCL 1-26-26 provides:

Unless required for the disposition of ex parte matters authorized by law, members of the governing board or officers or employees of an agency assigned to render a decision or to make findings of fact and conclusions of law in a contested case shall not communicate, directly or indirectly, in connection with any issue of fact, with any person or party, nor, in connection with any issue of law, with any party or his representative, except upon notice and opportunity for all parties to participate. If one or more members of a board or commission or a member or employee of an agency, who is assigned to render a decision in a contested case, took part in an investigation upon which the contested case is based, he shall not participate in the conduct of the hearing nor take part in rendering the decision thereon, but he may appear as a witness and give advice as to procedure. If, because of such disqualification, there is no person assigned to conduct the hearing or render the decision, the agency shall appoint someone pursuant to § 1-26-18.1 to fulfill those duties. A person assigned to render a decision:
(1) May communicate with other members of the agency; and
(2) May have the aid and advice of one or more personal assistants.

[¶ 23.] “ ‘A fair trial in a fair tribunal is a basic requirement of due process.’ ” Strain v. Rapid City Sch. Bd., 447 N.W.2d 332, 336 (S.D.1989) (quoting In re Murchison, 349 U.S. 133, 136, 75 S.Ct. 623, 625, 99 L.Ed. 942, 946 (1955)). “This applies to administrative agencies which adjudicate as well as to courts.” Strain, 447 N.W.2d at 336 (citing Gibson v. Berryhill, 411 U.S. 564, 93 S.Ct. 1689, 36 L.Ed.2d 488 (1973)). “ ‘Administrative officials are presumed to be objective and capable of judging controversies fairly on the basis of their own circumstances.’ ” Voeltz v. John Morrell Co., 1997 SD 69, ¶ 11, 564 N.W.2d 315, 317 (quoting Northwestern Bell Tel. Co., Inc. v. Stofferahn, 461 N.W.2d 129, 133 (S.D.1990)). The presumption may be overcome when the record establishes either 1) actual bias, or 2) the existence of circumstances that lead to the conclusion that an unacceptable risk of actual bias or prejudgment inhered in the proceeding. Id. “Pre-decision involvement ‘is not enough to overcome the presumption of honesty and integrity in policy makers with decisionmaking power.’ ” Strain, 447 N.W.2d at 336-37 (quoting Hortonville Dist. v. Hortonville Ed. Assoc., 426 U.S. 482, 497, 96 S.Ct. 2308, 2316, 49 L.Ed.2d 1, 11-12 (1976)).

[¶ 24.] The circuit court made specific findings of fact regarding the testimony on this issue and determined that the prosecution and decision making functions were kept separate within the Division. It found that Tinklenberg failed to prove that ex parte communications occurred with Malsam and that Tinklenberg had not overcome the presumption that Malsam acted in good faith. “ ‘Determining the credibility of the witnesses is the role of the factfinder.’ ” Fall River County v. SD Dept. of Rev., 1996 SD 106, ¶ 22, 552 N.W.2d 620, 626 (quoting Mash v. Cutler, 488 N.W.2d 642, 653-54 (S.D.1992) (additional citation omitted)). Tinklenberg has not shown that the circuit court’s findings of fact are clearly erroneous. The trial court did not err in concluding that Tinklenberg failed to show a violation of SDCL 1-26-26.

ISSUE THREE

[¶25.] Whether the Division erred in revoking Tinklenberg’s insurance producer license.

[¶ 26.] The circuit court affirmed the Division’s decision and adopted its findings of fact and conclusions of law. In addition, the circuit court entered its own findings of fact and conclusions of law. Tinklenberg attacks the findings of fact and argues the Division’s decision is not supported by clear and convincing evidence in the record.

[¶ 27.] The Division’s factual findings and credibility determinations are reviewed under the clearly erroneous standard. Kuhle, 2006 SD 16, ¶ 15, 711 N.W.2d at 247 (citations omitted). “We will reverse those findings only if we are definitely and firmly convinced a mistake has been made.” Id. While Tinklenberg advocates for a different interpretation of the testimony presented, he has not shown that the ALJ’s findings of fact are clearly erroneous. The ALJ heard the testimony and had the opportunity to judge the credibility of the witnesses. Credibility was an important aspect of this case. For example, Mary Ann testified that Tinklenberg told her during their phone conversations that Albert’s siblings were named as beneficiaries of the life insurance policy. Tink-lenberg denied telling her the siblings were the beneficiaries. The ALJ found that Tinklenberg deliberately concealed the fact that the policy had been transferred to himself and that he was the beneficiary. “ ‘[D]ue regard shall be given to the opportunity of the agency to judge the credibility of the witness.’ ” Engel v. Prostrollo Motors, 2003 SD 2, ¶ 29, 656 N.W.2d 299, 303 (quoting Bonnett v. Custer Lumber Corp., 528 N.W.2d 393, 396 (S.D.1995)). Tinklenberg has not shown that the findings of fact are clearly erroneous. Reviewing the record as a whole, there is clear and convincing evidence to support the revocation of Tinklenberg’s license for violating SDCL 58-30-106.

[¶ 28.] Affirmed.

[¶ 29.] GILBERTSON, Chief Justice, and SABERS, KONENKAMP and MEIERHENRY, Justices, concur.

[¶ 30.] KEAN, Circuit Judge, for ZINTER, Justice, disqualified.

      . It is not necessary for the Court to address the Division’s alternative argument that SDCL 58-30-106 was repealed and re-enacted as SDCL 58-30-167.

      . Therefore, the claim by Tinklenberg that the word "sustaining” excludes proper action or prosecution which has not been started is rejected.


source: Caselaw Access Project

author: WIGGINS, Justice.

license: Public Domain

text:
    CITY OF OKOBOJI, IOWA, Appellant, v. OKOBOJI BARZ, INC., d/b/a Okoboji Boats and Leo Parks, Jr., Appellees.
    No. 04-1554.
    Supreme Court of Iowa.
    May 26, 2006.
    Rehearing Denied July 18, 2006.

      Michael J. Chozen of Chozen & Saunders, Spirit Lake, for appellant.
    Mark McCormick of Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, and Phil C. Redenbaugh of Phil C. Redenbaugh, P.C., Storm Lake, for appel-lees.
   WIGGINS, Justice.

In this appeal, we must decide whether the proposed operation of a bar on lakefront property constitutes an unlawful expansion of a nonconforming use under a city’s zoning ordinance and a violation of the special use permits granted by the board of adjustment. The district court determined the proposed use of the property for a bar did not violate the city zoning ordinance or the special use permits. Because we disagree with the district court’s determination, we reverse the judgment of the district court and remand the case for the court to enter a permanent injunction enjoining the owner and his corporation from using the property as a bar.

I. Background Facts and Proceedings.

The property in question in this case is located on the lakeshore of Smith’s Bay on West Lake Okoboji. A marina has been located on the property since the 1890’s. Until the mid-1970’s, the property was operated as two separate marinas with different owners. One property was known as the Cove and the other as Oko-boji Boats. The surrounding neighborhood is primarily residential, with some commercial activity.

In 1972, the City of Okoboji (City) enacted a zoning ordinance. Under the ordinance, the marinas were zoned lakeshore residential. Lakeshore residential permits single-family homes and prohibits commercial uses. Okoboji Zoning Ordinance art. VII, § 2(A)(1) (1995) (originally codified in 1972). Accordingly, the Cove and Okoboji Boats became nonconforming uses. The minutes from the Okoboji planning and zoning commission meeting where the commission discussed the ordinance reflect the commission’s

suggestion] that these [nonconforming uses] be given a perpetual special permit to continue their respective businesses regardless of any type of disaster that may destroy the entire operation [contrary to a provision in the ordinance prohibiting rebuilding if such a use is damaged more than fifty percent of its replacement value. The commission noted it] should be stipulated, however, that the permit is limited to the specific operation or business for which it was originally intended.

In 1973, the owner of Okoboji Boats filed an application for a special use permit stating:

We request that the provision of Ordinance. No. 63 stating that if a non-conforming business is destroyed beyond 50% of replaceable value, the business may not be rebuilt, be waived, as pertains to the business known as “Okoboji Boats.” The business being a sales, service, and storage facility for boats.

The Okoboji board of adjustment granted the permit as requested.

Around the same time, the owner of the Cove filed an application for a special use permit. The application stated:

I request that the provisions of Art. IV, Sec. 4, par. B be waived so that a nonconforming use of a building destroyed or damaged more than 50% of its then replacement value could be restored; also I request that the provisions of Art. IV, Sect. 4 which states that no building or land devoted to a use not permitted by this ordinance -in a residential district in which such building or land is located, except when required by law, shall be enlarged, extended, constructed, reconstructed, substituted or structurally altered, unless the use thereof is changed to a use permitted in the district in which such building, structure or premises is located, be also waived. The Cove is such a business involved in sales, rental, service and storage of boats, snowmobiles and related items.

The board granted the permit specifying in part

[t]hat all objections be overruled and the permit application be approved subject to the following restrictions: That the proposed building be utilized for only boat sales, service, storage facilities, and related various business, and further provided that the proposed building be no higher than specified in the attached site plan, which is 15' above street grade, adequate parking as defined in Ord. 63 and 10' side yards.

In 1975, the two properties began operating as a single marina known as Okoboji Boats. The hours of operation were typically 8 a.m. to 5 p.m., with the gas dock sometimes operating until 8 p.m. Around this time, the City issued a building permit to the marina for some expansion and remodeling. In addition, the marina eventually began selling beer intended for consumption off the premises as well as soda, snack foods, and microwavable sandwiches. The marina also expanded its inventory of boating equipment, apparel, and accessories.

In January 2001, Leo Parks, Jr. purchased Okoboji Boats. Parks leased a portion of the marina during that summer to an individual who operated a business that included the sale of carryout broasted chicken. The broasted chicken operation brought a myriad of complaints from the neighbors. With the support of numerous property owners in the neighborhood, the City filed a petition for declaratory judgment and injunctive relief, claiming the operation of the chicken business was contrary to the zoning ordinance. The court denied the City’s request for a temporary injunction. The City dismissed the case. The chicken business eventually closed.

In September 2003, a corporation controlled by Parks, Okoboji Barz, Inc., leased the marina property. In October, Parks’ corporation applied for an on-premises class C commercial liquor license for the marina. This license allows the licensee to sell liquors, wine, and beer by the drink for consumption on the premises. Iowa Code § 123.30(3)(c) (2003). Parks’ proposed operation of a bar contemplates serving alcohol inside and outside of both buildings on the premises, year-round and every day of the week. Parks contends a bar “fills the piece of the puzzle to make a modern day marina complete.”

Parks intends to operate a bar at this marina under the same business model he is running at a different marina he owns. At the other marina, Parks operates a tiki bar known as the Barefoot Bar. The revenue from the Barefoot Bar contributes approximately one and a half percent of the marina’s gross sales. The Barefoot Bar is not intended to be a late night bar, but rather a “lakeside sunny day bar.” It is usually open to 10:30 p.m., but on some occasions it remains open until midnight. The bar’s activities include karaoke, live music, hog roasting, and monthly full moon parties.

The City denied Okoboji Barz, Ine.’s application for a liquor license on the grounds the “operation of a tavern/restaurant on premises represents a substantial change in the nature and character of the use permitted under the special use permit.”

In November, the City filed a petition against Okoboji Barz, Inc., d/b/a Okoboji Boats, and Parks for declaratory judgment and injunctive relief. The petition was filed in light of Okoboji Barz, Ine.’s appeal to the alcoholic beverages division of the

Iowa department of commerce from the City’s denial of its application for a liquor license. The City sought a temporary and permanent injunction against the operation of a tavern or bar on the marina property as such operation constituted an unlawful expansion of a nonconforming use, as well as rulings that such operation violated conditions of a special use permit, allowing the board of adjustment to revoke the permit. The district court issued a ruling denying the City’s requested relief. The City appeals.

II. Issues.

One issue raised on appeal by the City is whether the district court erred when it ruled that the operation of a bar on the marina property does not violate the City’s zoning ordinance and the special use permits issued by the board of adjustment. The City also asks us to decide if the board of adjustment may revoke one of the special use permits.

III. Scope of Review.

The district court tried the City’s petition for declaratory judgment and in-junctive relief as an equity action. Therefore, our review is de novo. Perkins v. Madison County Livestock & Fair Ass’n, 613 N.W.2d 264, 267 (Iowa 2000). Under this review, we give weight to the fact findings of the district court, especially as to the credibility of witnesses, but we are not bound by them. Id.

IV. Analysis.

A Did the district court err when it ruled that the operation of a bar on the Okoboji Boats property does not violate the City’s zoning ordinance and the special use permits issued by the board of adjustment?

To decide this appeal, we must consider the interpretation and application

of the Okoboji zoning ordinance. “In interpreting ordinances it is appropriate to apply the general rules of construction for statutes.” Lauridsen v. City of Okoboji Bd. of Adjustment, 554 N.W.2d 541, 543 (Iowa 1996). “We resort to ‘the rules of statutory construction only when the terms of [a] statute are ambiguous.’ ” State v. Wiederien, 709 N.W.2d 538, 541 (Iowa 2006) (alteration in original). Ambiguity exists if reasonable persons can disagree on the meaning of a statute. Id. An ambiguity may arise from the meaning of particular words or from the general scope and meaning of a statute in its totality. Id.

We have stated:

The goal of statutory construction is to determine legislative intent. We determine legislative intent from the words chosen by the legislature, not what it should or might have said. Absent a statutory definition or an established meaning in the law, words in the statute are given their ordinary and common meaning by considering the context within which they are used. Under the guise of construction, an interpreting body may not extend, enlarge or otherwise change the meaning of a statute.

Auen v. Alcoholic Beverages Div., 679 N.W.2d 586, 590 (Iowa 2004) (citations omitted). Zoning restrictions are construed strictly to favor the free use of property and will not be extended by implication or interpretation. Ernst v. Johnson County, 522 N.W.2d 599, 602 (Iowa 1994). The assessment of an ordinance requires consideration in its entirety so that the ordinance may be given its natural and intended meaning. Kordick Plumbing & Heating Co. v. Sarcone, 190 N.W.2d 115, 117 (Iowa 1971).

When the City enacted its zoning ordinance in 1972, it zoned the marina properties in the L-R Lakeshore Residential District. This district only allows single-family dwellings on each lot or building site. Okoboji Zoning Ordinance art. VII, § 2(A)(1). After the City enacted its zoning ordinance, the marina properties thus became nonconforming uses. See Perkins, 613 N.W.2d at 270 (stating a nonconforming use is one lawfully in existence when a zoning restriction became effective and has been permitted to continue to exist). As to nonconforming uses, the City’s zoning ordinance provides:

Within the districts established by this Ordinance or by amendments which may later be adopted, there exist lots, structures, buildings and uses which were lawful before this ordinance was effective or amended, but which would be prohibited, regulated or restricted under the provisions of this Ordinance or future amendment, the intent of this Ordinance is to permit these nonconformities to continue until they are removed, but not to encourage their survival. It is further the intent of this Ordinance that nonconformities shall not be enlarged upon, expanded or extended, nor be used as grounds for adding other structures or uses prohibited elsewhere in the same district.

Okoboji Zoning Ordinance art. IV, § 3.

A party who asserts a nonconforming use has the burden to establish the lawful and continued existence of the use, and once the preexisting use has been established by a preponderance of the evidence, the burden is on the city to prove a violation of the ordinance by exceeding the established nonconforming use.

City of Jewell Junction v. Cunningham, 439 N.W.2d 183, 186 (Iowa 1989). In evaluating whether changes in such nonconforming uses are permissible, we have stated:

A property owner may lose the protection of a nonconforming-use status when the property owner exceeds the established nonconforming use. Thus, “[enlargements or extensions of nonconforming uses are not allowed.” This court has explained the rationale underlying this principle as follows: “The prohibition against expanding or enlarging a non-conforming use defends against the growth of a pre-existing aggravation. That pre-existing aggravation, the nonconforming use, survives as a matter of grace. The public is not required to expand upon that grace to its increasing aggravation.” Landowners are given some latitude, however, and may change the original nonconforming use “if the changes are not substantial and do not impact adversely on the neighborhood.”

Perkins, 613 N.W.2d at 270 (alteration in original) (citations omitted). Reasonable and normal accessory uses are usually permitted in connection with nonconforming uses. 8A Eugene McQuillin, The Law of Municipal Corporations § 25.209 (3d ed. rev.2003). The use made of the land at the time the ordinance became effective is the standard we use to determine whether there is an unlawful enlargement of a nonconforming use. City of Cent. City v. Knowlton, 265 N.W.2d 749, 754 (Iowa 1978).

We must also consider the uses allowed under the special use permits to determine whether Parks’ proposed bar is an allowable use. A special use permit “allows property to be put to a purpose which the zoning ordinance conditionally allows.” Buchholz v. Bd. of Adjustment of Bremer County, 199 N.W.2d 73, 75 (Iowa 1972); see also Iowa Code § 414.7 (allowing the board of adjustment to make special exceptions to ordinances).

Prior to the issuance of the special use permits, the owners of the two properties operated each property as a separate marina. The marinas did not sell food or alcoholic beverages. Although the special use permit issued to the old Okoboji Boats marina waived the provision of the zoning ordinance which would not allow reconstruction if the business was destroyed beyond fifty percent of its replacement value, the permit did not expand the existing nonconforming use. The special use permit only allowed the owner to operate the business on the property as a sales, service, and storage facility for boats.

The special use permit issued for the old Cove marina not only waived the reconstruction restriction, but it also allowed the owner to build on the property with certain restrictions. The Cove’s special use permit did not expand the property’s existing nonconforming use. By its terms, the special use permit stated “the proposed building be utilized for only boat sales, service, storage facilities, and related various business.” The use of the word “business” in the permit refers to activity directed towards the sale, service, and storage of boats. See Webster’s Third New International Dictionary 302 (unabr. ed. 2002) (defining “business” as “activity directed toward some end”). This definition is consistent with the then owner’s application for the special use permit that stated “[t]he Cove is such a business involved in sales, rental, service and storage of boats, snowmobiles and related items.”

Thus, the special use permits issued by the board of adjustment in 1973 did not expand the uses allowed by the property owners under the zoning ordinance’s nonconforming use provisions.

It is uncontested that the prior marina owners expanded the operation of the marina to include the sale of beer intended for off-premises consumption, soda, snack foods, microwavable sandwiches, and boating equipment and accessories. These items, however, are related to the sales and service of boats because boat owners use these items when they are on their boats. The prior owners did not use the property as a bar for on-premises consumption of alcoholic beverages. The pri- or owners did not have live entertainment, karaoke, hog roasts, or full moon parties. The prior owners only operated the marina from 8 a.m. to 5 p.m., with a gas pump attendant on duty until 8 p.m.

Parks acknowledges the proposed bar at Okoboji Boats would be similar in operation to the bar at his other marina. This means the Okoboji Boats marina would be open longer hours than under the prior owners and host activities such as karaoke, live music, hog roasting, and monthly full moon parties. Such activities change the nature and character of the nonconforming use. Accordingly, we cannot consider a full-fledged bar to be merely an accessory use to the operation of a marina. Instead, the operation of a bar is a change in use that is substantially different from the use the marina properties had at the time of the adoption of the zoning ordinance. Thus, the proposed bar constitutes an unlawful expansion of a prior nonconforming use. See Perkins, 613 N.W.2d at 270-71 (finding an enlarged racetrack and the figure-eight racing for which it was used was substantially different from the previous rodeo-type arena and the events held in it, in (dew of the new racetrack’s size, character, form, and different neighborhood effect, causing it “to lose the protection of the nonconforming use provisions of the ordinance”); Waukesha County v. Pewau-kee Marina, Inc., 187 Wis.2d 18, 522 N.W.2d 536, 540 & n. 3 (Ct.App.1994) (finding a marina owner’s addition of a retail store and place for lounging and entertainment as well as sale of boats, boat lifts, and piers resulted in a change of the prior nonconforming use consisting of a dry-docking and wet-docking facility with fuel and bait services; the court rejected the notion of “once a marina, always a marina, even though marina business itself is transformed”).

Therefore, the district court should have granted the City’s request for a permanent injunction enjoining Okoboji Barz, Inc., d/b/a Okoboji Boats, and Parks from operating the proposed bar on the premises.

B. May the hoard of adjustment revoke one of the special use permits?

The City’s zoning ordinance provides:

The special permit issued may include time limits, and other conditions or safeguards deemed necessary or appropriate by the Board [of Adjustment]. Violations of such conditions and safeguards shall be deemed a violation of this Ordinance and punishable under the provisions of this Ordinance. In addition, the special permit in connection with such violation shall be subject to revocation by the Board.

Okoboji Zoning Ordinance art. XI, § 6(5). The legislature granted the board of adjustment jurisdiction over special use permits, not the city council. Iowa Code §§ 414.7, 414.12; see also Holland v. City Council of Decorah, 662 N.W.2d 681, 688 (Iowa 2003) (stating “[t]o the extent the council has claimed authority to grant the fill permit in this case, it has [unlawfully] diminished the jurisdiction of the board of adjustment”).

As of the date of trial, the board of adjustment had made no determination whether to revoke the special use permit granted to the old Cove property. Until the board takes action under the City’s zoning ordinance, there is no justiciable controversy. See Citizens for Responsible Choices v. City of Shenandoah, 686 N.W.2d 470, 474 (Iowa 2004) (finding , for purposes of a declaratory judgment there was no justiciable controversy prior to a final decision of other governing bodies involved in the case). Therefore, we will not address this issue on appeal.

V. Disposition.

Because the proposed use of the property as a bar is an unlawful expansion of a prior nonconforming use under the zoning ordinance and the special use permits granted by the board of adjustment, Parks’ proposal to use the premises as such is illegal. Accordingly, the district court should have granted the City’s request for a permanent injunction enjoining Okoboji Barz, Inc., d/b/a Okoboji Boats, and Parks from operating a bar on the premises. Therefore, we reverse the judgment of the district court and remand the case for the court to enter a permanent injunction consistent with this opinion.

REVERSED AND CASE REMANDED WITH DIRECTIONS.


author: LAVO RATO, Chief Justice.

text:
    RPC LIQUIDATION, Appellee, v. IOWA DEPARTMENT OF TRANSPORTATION, Appellant.
    No. 04-1584.
    Supreme Court of Iowa.
    June 2, 2006.
    Rehearing Denied July 18, 2006.

      Thomas J. Miller, Attorney General, Mark Hunacek, Assistant Attorney General, for appellant.
    Robert W. Goodwin, Goodwin Law Office, P.C., Ames, for appellee.
   LAVO RATO, Chief Justice.

In this breach-of-contract action, we must decide whether several contracts conferred third-party beneficiary status on a material supplier. Following a bench trial, the district court held that they did. Because, as a matter of law, we conclude otherwise, we vacate the court of appeals decision, reverse the district court judgment, and remand the case with directions.

I. Background Facts and Proceedings.

The Iowa Department of Transportation (IDOT) had a construction project on part of U.S. Highway 218 near Mount Pleasant, Iowa. As a result of that project, the IDOT entered into contracts for bridge construction with contractors for the work. At issue are contracts that identify Raider Precast Concrete, Inc., now known as RPC Liquidation, as a source of material. RPC was not a signatory to the contracts. RPC fabricated the beams that were used by the contractors in the bridge construction.

W.W. Transport hauled a load of concrete aggregate from Missouri to RPC’s fabrication plant in West Burlington, Iowa. Before this trip, W.W. Transport had hauled soybeans from Iowa to Missouri. When the concrete aggregate arrived at RPC’s plant, an RPC inspector discovered soybeans in the aggregate, apparently because of W.W. Transport’s previous shipment of soybeans. The inspector recommended that the aggregate not be used for the fabrication of the beams, a recommendation that RPC approved. RPC terminated its contract with W.W. Transport to haul coarse aggregate to RPC’s plant.

Several weeks later an IDOT inspector who was on RPC’s premises discovered that eleven beams RPC had fabricated showed soybean contamination. Later the IDOT rejected ten of the eleven beams because of the contamination.

RPC and W.W. Transport sued the IDOT. Both plaintiffs alleged that they were third-party beneficiaries to the contracts between the IDOT and the contractors. RPC alleged that the IDOT’s rejection of the ten beams was a violation of the contracts resulting in damages to RPC. W.W. Transport alleged that as a result of the IDOT’s rejection of the beams, W.W. Transport lost its contract with RPC to haul coarse aggregate to RPC’s plant resulting in damages to it. In its answer to the allegations of both plaintiffs, the IDOT alleged that the contracts specifically provided that there are no third-party beneficiaries and that neither party is a third-party beneficiary to the contracts referred to in the petition.

The IDOT moved for summary judgment, contending that neither party was a third-party beneficiary of the contracts in question. The district court denied the motion as to RPC but granted it as to W.W. Transport. W.W. Transport has not appealed and is not involved in these proceedings.

The case was tried to the court, following which, the court ruled that RPC was a third-party beneficiary to the contracts and that the IDOT had breached the contracts by rejecting the ten beams. The court awarded RPC damages in the amount of $103,589.

The IDOT appealed, and we transferred the case to the court of appeals, which summarily affirmed the district court ruling. We granted the IDOT’s application for further review.

II.Issues.

The issues are whether RPC was a third-party beneficiary under the contracts between the IDOT and the contractors and if so, whether the IDOT’s rejection of the beams containing soybeans was a breach of the contracts. Because we conclude RPC was not a third-party beneficiary, we do not address the damages issue.

III. Scope of Review.

This contract case was brought as a law action. Our review is therefore for correction of errors at law. See Fausel v. JRJ Enters., Inc., 603 N.W.2d 612, 617 (Iowa 1999). The third-party beneficiary question is a legal issue, one for the court. Therefore we are not bound by the legal conclusions of the district court. Id.

IV. Third-Party Beneficiary.

A. Applicable law. In Midwest Dredging Co. v. McAninch Corp., we adopted Restatement (Second) of Contracts section 302 relating to third-party beneficiaries. 424 N.W.2d 216, 224 (Iowa 1988). Section 302 provides:

(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either

(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

Restatement (Second) of Contracts § 302, at 439-40 (1981) (emphasis added).

The primary question in a third-party beneficiary case is “whether the contract manifests an intent to benefit a third party.” Midwest Dredging, 424 N.W.2d at 224. Such intent, however, need not benefit a third party directly. Vogan v. Hayes Appraisal Assocs., Inc., 588 N.W.2d 420, 423 (Iowa 1999). In applying section 302, we have noted that the promisee’s intent generally controls. Midwest Dredging, 424 N.W.2d at 224. In determining such intent, we look to the language of the contract and to the circumstances surrounding it. Id. at 225.

When two or more parties enter into a contract, they have separate purposes and may be stimulated by various motives. Vogan, 588 N.W.2d at 423. A person claiming to be a third-party beneficiary may not be acutely aware of those motives. Id. The general rule is that

“ ‘[a] third party who is not a promisee and who gave no consideration has an enforceable right by reason of a contract made by two others ... if the promised performance will be of pecuniary benefit to [the third party] and the contract is so expressed as to give the promisor reason to know that such benefit is contemplated by the promisee as one of the motivating causes of his making the contract.’ ”

Id. at 423-24 (second alteration in original) (omission in original) (citations omitted).

When a contract expressly negates the creation of third-party beneficiaries, we have rejected the claim that such status exists. See Walters v. Kautzky, 680 N.W.2d 1, 4 (Iowa 2004). In Walters, prison inmates sued the Iowa State Penitentiary claiming to be third-party beneficiaries of an agreement between the Iowa Department of Corrections and the state public defender. Id. at 2. The agreement provided that the state public defender would provide limited legal assistance to prison inmates. Id. at 2-3. “The agreement expressly stated that ‘[t]here are no third party beneficiaries to this Agreement. This Agreement is intended only to benefit the [Department of Corrections] and the Public Defender.’ ” Id. (first alteration in original). The agreement provided that the state public defender could contract with private attorneys to provide those services. Id. The state public defender contracted with an attorney to advise inmates at the state penitentiary. Id. The attorney refused to provide services requested by the inmates because the agreement did not provide for performing such services. Id. at 3-4.

In rejecting the inmates’ third-party beneficiary claim, we relied on the opening language in section 302 of the Restatement (Second) of Contracts: “Unless otherwise agreed between promisor and promisee.” Id. at 4. In relying on this language we said:

The agreement between [the Department of Corrections] and [the state public defender] expressly negates an intention to benefit the inmates of the institution where the legal services were to be provided. Because [the attorney’s] contract served as the implementation of [the state public defender’s] agreement with [the Department of Corrections], it must be viewed as similarly limited as to the persons to be benefited.

Id. at 4.

B. Analysis. The contracts between the IDOT and the contractors incorporated by reference certain standard specifications. One of these specifications, which is central to this appeal, provided in part:

1107.12 RESPONSIBILITY FOR DAMAGE CLAIMS.
Notwithstanding the above, it is specifically agreed between the parties execut ing this contract that it is not intended by any of the provisions of any part of the contract documents to create in the public or any member thereof a third party beneficiary hereunder, or to authorize anyone not a party to this contract to maintain a suit for personal injuries or property damage pursuant to the terms or provisions of this contract. The duties, obligations, and responsibilities of the parties to this contract with respect to third parties shall remain as imposed by law....
It is understood that no subcontractor is a third party beneficiary to any contract between the Contracting Authority and the prime contractor. Nothing in any special provision or any supplemental specification shall be construed as eliminating or superseding the requirements of this section.

(Emphasis added.)

In finding that RPC was a third-party beneficiary, the district court first determined that the express disclaimer regarding third party beneficiary status in specification 1107.12 did not preclude RPC from asserting such status. The court then focused on section 302 of Restatement (Second) of Contracts to determine if RPC was an intended beneficiary under that provision. The court concluded that RPC was indeed such an intended beneficiary.

As mentioned, section 302 of the Restatement (Second) of Contracts begins with the language “Unless otherwise agreed between promisor and promisee.” Pursuant to such language we conclude, contrary to the district court, that the disclaimer in specification 1107.12 precluded RPC from being a third-party beneficiary. Because of our conclusion, we limit our discussion to the disclaimer. Resolving the disclaimer issue requires us to construe specification 1107.12.

In deciding contract issues, our cases have frequently used the terms “interpretation” and “construction” interchangeably despite their distinct purposes. Connie’s Constr. Co. v. Fireman’s Fund Ins. Co., 227 N.W.2d 207, 210 (Iowa 1975). Interpretation concerns the meaning of words in a contract, an issue for the court unless the meaning depends on extrinsic evidence or on a choice among reasonable inferences from such evidence. Id. Construction, on the other hand, concerns the legal effect of a contract, an issue that as a matter of law the court decides. Id.

Our task is to construe — that is, determine the legal effect of — specification 1107.12 and determine whether it provides third-party beneficiary status to RPC. That question turns on the parties’ intention. In determining the parties’ intention we are bound by what the contract says except in cases of ambiguity. State Public Defender v. Iowa Disí. Ct., 594 N.W.2d 34, 37 (Iowa 1999). And when the contract is not ambiguous, we will enforce it as written. Id.

The district court construed the disclaimer on third-party beneficiary status in specification 1107.12 this way:

Turning to the first sentence of [specification] 1107.12, it is clear that a contractor must indemnify the IDOT for any claim or lawsuit brought by a person against the IDOT for injuries or damage sustained by a person because of the contractor’s acts, omissions, neglect, or use of unacceptable materials. The second portion of the indemnification clause authorizes the IDOT to retain money from the contractor until any such claims or lawsuits are settled. The next sentence of the paragraph starts with the phrase “notwithstanding the above.” This next sentence deals with third parties, but refers back to the preceding sentence. “Notwithstanding” means the same as “in spite of.” This sentence must be construed as meaning: in spite of the fact that it is agreed a contractor will indemnify the IDOT, for any type of claim or lawsuit, no member of the public can assert the status of being a third-party beneficiary if maintaining a suit for personal injuries or property damage. The first two sentences of [specification] 1107.12 read together require a contractor to indemnify the IDOT for any claims or lawsuits brought and in spite of the fact that the IDOT has a right of indemnification against a contractor, this does not confer upon the public the status of third-party beneficiary for any lawsuit against the contractor or the IDOT for personal injuries or property damage. These two sentences, combined, do not foreclose [RPC] from bringing a third-party beneficiary contract claim. [RPC] is not bringing its lawsuit against any of the bridge contractors. The issue before the Court does not involve the IDOT pursuing indemnification from any of the bridge contractors. In addition, [RPC] is not alleging the IDOT caused personal injuries or property damage. [Specification] 1107.12 does not explicitly bar or prevent [RPC] from bringing this third-party beneficiary contract claim.

(Emphasis added).

Contrary to the district court’s reasoning, which RPC relies on here to uphold the court’s ruling, we agree with the IDOT that the above italicized language in specification 1107.12 unambiguously conveys two ideas. First, there are no third-party beneficiaries to the contracts. The phrase “public or any member thereof’ is broad enough to express this idea. Second, none of the provisions of the contracts is intended to authorize a non-signatory to the contracts to maintain a suit for personal injuries or property damage pursuant to the terms or provisions of the contracts. The use of the word “or” clearly expresses the intent of the parties that they meant these two separate ideas.

In contrast, the district court’s construction (the language only meant that “no member of the public can assert the status of being a third-party beneficiary if maintaining a suit for personal injuries or property damage”) conveys only the second idea. The court’s construction effectively renders the first idea (there are no third-party beneficiaries to the contract) meaningless and redundant. We therefore conclude that the first idea clearly expresses the intent of the parties to exclude anyone from having third-party beneficiary status. Such exclusion therefore necessarily includes RPC. See Iowa Fuel & Minerals, Inc. v. Iowa State Bd. of Regents, 471 N.W.2d 859, 863 (Iowa 1991) (holding that a contract is construed as a whole and that it is assumed in first instance that no part of it is superfluous; an interpretation that gives a reasonable, lawful, and effective meaning to all terms is preferred to an interpretation that leaves a part unreasonable, unlawful, or of no effect); accord Restatement (Second) of Contracts § 203(a), at 92-93; 17A Am.Jur.2d Contracts § 377, at 364-66 (2004).

We likewise reject the district court’s construction that the use of the word “notwithstanding” conveys the meaning that

in spite of the fact that it is agreed a contractor will indemnify the IDOT, for any type of claim or lawsuit, no member of the public can assert the status of being a third-party beneficiary if maintaining a suit for personal injuries or property damage.

We do so for two reasons. First, we have already construed specification 1107.12 as prohibiting third-party beneficiaries to the contracts. The prohibition against third-party beneficiary status is therefore not limited, as the district court concluded, to members of the public bringing lawsuits against the contracting authority for personal injuries and property damage.

Second, we think the word “notwithstanding” is used to avoid any implication of a third-party beneficiary status from the indemnification language in the first part of specification 1107.12. This intent to avoid such an implication is emphasized by the use of the following italicized language in the clause prohibiting third-party beneficiary status:

Notwithstanding the above, it is specifically agreed between the parties executing this contract that it is not intended by any of the provisions of any part of the contract documents to create in the. public or any member thereof a third party beneficiary hereunder, or to authorize anyone not a party to this contract to maintain a suit for personal injuries or property damage pursuant to the terms or provisions of this contract.

(Emphasis added.) Clearly the language “the provisions of any part of the contract” and “pursuant to the terms or provisions of this contract” was intended to refer back to the indemnification provision.

The district court noted that RPC did not bring its lawsuit against any of the bridge contractors and that the IDOT did not pursue indemnification from them. Like the IDOT, we think that if either scenario were the case, that fact proves nothing regarding whether anyone can be a third-party beneficiary to the contracts.

RPC also relies on this part of the district court reasoning to uphold the court’s ruling:

This conclusion [relating to the court’s determination that specification “1107.12 does not explicitly bar or prevent [RPC] from bringing this third-party beneficiary contract claim”] is further supported by the next sentence of the paragraph which reads as follows: “The duties, obligations, and responsibilities of the parties to this contract with respect to third parties shall remain as imposed by law.” The law in Iowa requires the Court to determine whether the contract as a whole manifests an intent to benefit a third party. The first two sentences of [specification 1107.12] do not negate third-party beneficiary claims in a contract action. The third sentence then requires the obligations of the contractor and the IDOT, with respect to third parties, to remain as imposed by law.

We likewise reject this reasoning because we have already determined, contrary to the district court’s conclusion, that specification 1107.12 by express language bars the public or any member thereof, which includes RPC, from claiming third-party beneficiary status concerning the contracts. Additionally, the language “The duties, obligations, and responsibilities of the parties to this contract with respect to third parties shall remain as imposed by law” does not change this determination. As the IDOT points out, such language merely directs the parties to existing law to determine what, if any, obligations are owed to an intended beneficiary. Although such language appears somewhat redundant or superfluous, it in no sense establishes an intent to create third-party beneficiary status or to negate the third-party beneficiary disclaimer language in specification 1107.12. Later in this opinion, we point out that the use of redundant or superfluous language is not always outcome-determinative.

Finally, RPC relies on this part of the district court reasoning to uphold the court’s ruling:

The first sentence of the second paragraph of [specification] 1107.12 contains a clear pronouncement that no subcon-
tractor is a third-party beneficiary to the contract. IDOT specification 1101.03 defines the term “subcontractor.” The parties agree that [RPC] is not a subcontractor for the purpose of this lawsuit. [RPC] is a “source of material” for the bridge construction project. If the IDOT intended to eliminate a source of material as a third-party beneficiary, then the logical place to insert the term would be the sentence which excludes subcontractors from the third-party beneficiary status. Because a source of material is not specifically excluded from third-party beneficiary status, then the obligations of the IDOT and the contractor, with respect to third parties, should remain as imposed by law. Again, this goes back to construing the contract as a whole to determine if [RPC] is an intended beneficiary. In construing [specification] 1107.12, [RPC] is not explicitly barred or excluded as a third-party beneficiary in pursuing its contract claim against the IDOT.

In short, the court reasoned that because no subcontractor is a third-party beneficiary, any entity other than a subcontractor would be a third-party beneficiary. As the IDOT asserts, this reasoning might be valid if the only contractual provision relating to third-party beneficiary status was the one that excluded subcontractors. See Maytag Co. v. Alward, 253 Iowa 455, 460, 112 N.W.2d 654, 656 (1962) (recognizing that the rule expressio unius est exclusio alterius applies in the construction of contracts); Black’s Law Dictionary 620 (8th ed.2004) (defining ex-pressio unius est exclusio alterius as a “canon of construction holding that to express or include one thing implies the exclusion of the other, or of the alternative”). The court’s reasoning ignores the third-party beneficiary disclaimer language in the preceding paragraph. See Estate of Pearson ex rel. Latta v. Interstate Power & Light Co., 700 N.W.2d 333, 343 (Iowa 2005) (“We construe a contract in its entirety by considering all of its pertinent provisions.”); see also 5 Margaret N. Knif-fin, Corbin on Contracts § 24.28, at 317 (Joseph M. Perillo ed., rev. ed. 1998) (“If a clearer source of information concerning the parties’ intentions is available, the court will decline to apply the maxim [ex-pressio unius est exclusio alterius].”).

The IDOT, however, concedes that reading the two provisions together — the third-party beneficiary disclaimer and the subcontractor language — does provide some “mild redundancy.” The IDOT explains away this redundancy to our satisfaction. It notes that the paragraph on subcontractors goes on to say: “Nothing in any special provision or any supplemental specification shall be construed as eliminating or superseding the requirements of this section.” The IDOT explains that this paragraph, taken as a whole, was clearly intended to respond to our decision in Midwest Dredging.

In Midwest Dredging, we took notice of several special provisions of the contract between the IDOT and the contractor that overrode the provisions of the contract and that required hydraulic dredging. 424 N.W.2d at 225. These special provisions led us to conclude that the dredging contractor, as a third-party beneficiary, could enforce an implied warranty by the IDOT that a pit designated by the IDOT could be hydraulically dredged in accordance with its plans and specifications. Id. Ultimately, it was discovered that the dredging was not feasible. Id. at 219. The IDOT asserts here that the subcontractor language in specification 1107.12 was meant — even at the risk of redundancy — to ensure this situation would never arise again.

Restatement (Second) of Contracts section 203, standards of preference in interpretation, provides in relevant part the following:

In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable:
(a) an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.

Restatement (Second) of Contracts § 203(a), at 92-93 (emphasis added); accord Fashion Fabrics of Iowa, Inc. v. Retail Investors Corp., 266 N.W.2d 22, 26 (Iowa 1978). The key words in this provision are “generally” and “preferred,” implying that some redundancy and superfluousness are to be considered harmless.

Comment (b) to this section notes that “[s]ince an agreement is interpreted as a whole, it is assumed in the first instance that no part of it is superfluous.” Restatement (Second) of Contracts § 203 cmt. (b), at 93. The comment, however, also recognizes that “[e]ven agreements tailored to particular transactions sometimes include overlapping or redundant or meaningless provisions.” Id.; see also Hubbard v. Marsh, 241 Iowa 163, 168, 40 N.W.2d 488, 491 (1950) (“ ‘[I]t is presumed that no words were used aimlessly and that no provision is superfluous unless plainly repetitious.’ ” (Citation omitted.)).

We think the district court’s reasoning takes what is harmless redundancy and uses it to render what went before it meaningless. See Am. Soil Processing, Inc. v. Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd., 586 N.W.2d 325, 334 (Iowa 1998) (holding that district court’s construction of an agreement that rendered part of an agreement a nullity violated the rule against construing a contract so that part of it is unreasonable, unlawful, or of no effect). Moreover, as the IDOT makes clear, it makes no sense to deny third-party beneficiary status to a subcontractor but not to the materials supplier. The subcontractor is more deserving of protection because the subcontractor has closer ties to the contract than the materials supplier.

For all of these reasons we conclude as a matter of law that RPC is not a third-party beneficiary to the contracts.

V. Disposition.

Because we find the district court erred as a matter of law in interpreting the contracts as conferring third-party beneficiary status to RPC, we vacate the court of appeals decision, reverse the district court judgment, and remand the case for an order dismissing RPC’s petition.

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


author: /s/Helen M. Meyer Associate Justice

text:
    In re Petition for DISCIPLINARY ACTION AGAINST William F. JONES, a Minnesota Attorney, Registration No. 146444.
    No. A06-1056.
    Supreme Court of Minnesota.
    July 5, 2006.
   ORDER

The Director of the Office of Lawyers Professional Responsibility has filed a petition for disciplinary action alleging that respondent William F. Jones committed professional misconduct warranting public discipline, namely, engaging in business transactions with two clients without making full disclosures to the clients, advising them to seek independent legal advice on the transactions, or obtaining their informed consent to respondent’s role in the transactions, in violation of Minn. R. Prof. Conduct 1.8(a) and 1.15(c)(2).

Respondent has entered into a stipulation with the Director under which he admits the allegations of the petition for purposes of these proceedings, and waives his rights under Rule 14, Rules on Lawyers Professional Responsibility (RLPR). The parties jointly recommend that the appropriate discipline is suspension for 60 days, effective upon the filing of this order, subject to the following conditions:

(a) The reinstatement hearing provided for in Rule 18(a) through (d), RLPR, is waived. At least 15 days before the expiration of the suspension period, respondent may file an affidavit with the Clerk of Appellate Courts and the Director’s Office establishing that respondent is current with continuing legal education requirements, has fully complied with Rules 24 and 26, RLPR, and has satisfactorily completed all other conditions imposed in this order;
(b) Respondent shall successfully complete the professional responsibility portion of the state bar examination within one year of the filing of this order;
(e) Respondent shall comply with Rule 26, RLPR, requiring notice of his suspension to clients, opposing counsel, and tribunals; and
(d) Respondent shall pay $900 in costs pursuant to Rule 24(a), RLPR.

This court has independently reviewed the file and approves the jointly recommended disposition.

Based upon all the files, records, and proceedings herein,

IT IS HEREBY ORDERED that respondent William F. Jones is suspended from the practice of law for 60 days, effective immediately, subject to the conditions set forth above.

BY THE COURT:

/s/Helen M. Meyer Associate Justice


author: /s/G. Barry Anderson Associate Justice

text:
    Dawn C. PETERSON, Respondent, v. BENEDICTINE HEALTH CENTER/Self-Insured Berkley Risk Admin. Co., Relators, and RS Medical, Lakewalk Surgery Center, SMDC Health System, Wolverine Anesthesia, and Noridian/Medicare, Intervenors.
    No. A06-583.
    Supreme Court of Minnesota.
    July 10, 2006.
    Edward Q. Cassidy, Karen M. Charlson, Felhaber Larson Fenlon & Vogt, P.A., St. Paul, MN, for Relator.

      Sean Michael Quinn, Falsani, Balmer, Peterson, Quinn & Beyer, Duluth, MN, for Respondent.
   ORDER

Based upon all the files, records and proceedings herein,

IT IS HEREBY ORDERED that the decision of the Workers’ Compensation Court of Appeals filed March 1, 2006, be, and the same is, affirmed without opinion. See Hoff v. Kempton, 317 N.W.2d 361, 366 (Minn.1982) (summary affirmances have no precedential value because they do not commit the court to any particular point of view, doing no more than establishing the law of the case).

Employee is awarded $1,200 in attorney fees.

BY THE COURT:

/s/G. Barry Anderson Associate Justice