Category: Iowa Supreme Court

Volunteer members of regional planning commission board not subject to penalties for open meetings violations

Gary Taylor

by Gary Taylor

City of Postville et al., v. Upper Explorerland Regional Planning Commission et al.
(Iowa Supreme Court, June 7, 2013)

The Upper Explorerland Regional Planning Commission is a regional planning commission serving five northeast Iowa counties that is organized under Iowa Code chapters 28E and 28H. There are twenty-four commission members.  None receive compensation for their service on the commission, except that three members have salaries for full-time government positions that require them to serve on the commission.  Others receive reimbursement for mileage.

The commission was examining the feasibility and cost of either expanding the Postville office of the commission, or locating alternative office space in any of the five counties.  Contract negotiations for properties in the five-county area took place, and on September 23, the commission held a meeting to approve a contract to purchase property in either Decorah or Postville. Sixteen members attended. After lengthy discussion, the motion was made to approve a proposed purchase contract for the Decorah property. The attending members unanimously agreed with a proposal to conduct the vote by secret ballot. The members cast their ballots and then publicly counted the votes. The motion to purchase the Decorah property was approved 10-6.

Immediately after the vote concerns were raised about the propriety of the secret ballot vote under the Iowa Open Meetings Act (OMA). After the meeting one of the commission members told another member before leaving that there was a problem with the ballot vote. The same night, this concern was relayed to the commission’s executive director. The following Monday after the vote, all commission members received an email indicating concern about the legality of the secret ballot vote. Several members proposed that if the voting members revealed their vote and recorded their decision in the minutes, then the commission’s action would be legal. The commission also contacted the State Ombudsman’s Office, which recommended sending new written ballots to each voting member. The commission heeded this recommendation and instructed each voting member to reaffirm their vote and include their name on the ballot. Of the sixteen original voting members, one abstained, another returned the ballot unmarked, and a third did not return the ballot at all. Six members changed their votes in the subsequent reaffirmation. Despite this, the outcome remained the same with ten “yes” votes in favor of purchasing the property in Decorah. The commission distributed revised minutes of the meeting, which listed the name and vote of each member who was present for the September 23 meeting.

The City of Postville and a resident taxpayer of Allamakee County filed suit claiming fifty-one violations of the OMA for actions taken associated with the office relocation decision and several others.  Among the remedies requested by the City was an order that commission members be held personally liable for the OMA violations.  The district court found for the Commission on all counts.  The City appealed to the Court of Appeals.

The Court of Appeals boiled the claims down to three primary issues:   (1) whether a volunteer of a governmental body is immune under Iowa Code section 28H.4 for damages due to OMA violations; (2) whether the governmental body’s meeting notices met OMA requirements; and (3) whether a certain publication is a newspaper of general circulation, as required by section 28E.6(3)(a).

Volunteer immunity under OMA.  The commission and its members admitted to violating OMA with respect to the secret ballot and subsequently when the commission reaffirmed the vote by mail; however, they argued they are immune from liability under the state immunity provision in Iowa Code section 28H.4(2), which provides that “a director, officer, employee, member, trustee, or volunteer is not personally liable for a claim based upon an act or omission of the person performed in the discharge of the person’s duties, except for acts or omissions which involve intentional misconduct or knowing violation of the law, or for a transaction for which the person derives an improper personal benefit.”

The Court of Appeals noted that “intentional misconduct” requires more than a reckless disregard for the law, and a “knowing violation” requires a deliberate or conscious act. The court found no evidence that the actions of the members amounted to intentional misconduct or a knowing violation. Instead, the record shows the members did not identify an issue with the secret ballot vote until after its completion. Upon identifying the problem, the members self-policed their actions and took corrective measures.

On appeal the city argued for the first time that the immunity provided in 28H.4 does not apply to violations of OMA; however, because the court does not decide issues not presented in district court the issue was “left for another day.”

Posting of meeting notices.  The City alleged the commission conducted improper closed sessions lacking reasonable meeting notice from October 28, 1999, through August 19, 2010, basing its claim on the fact the commission posted its meeting notice on a bulletin board located in the hallway of the commission’s Postville office. The bulletin board is approximately thirty to forty feet from the main public access door, and is not visible from the entrance door to the office. The office is open to the public Monday through Friday from 8:00 a.m. until 4:30 p.m.

OMA requires notices of meetings to be provided “in a manner reasonably calculated to apprise the public” of the date, time, location and subject of the meetings.  One manner of notice specified in OMA is to “post the notice on a bulletin board or other prominent place which is easily accessible to the public and clearly designated for that purpose ….”  The court remanded the case to the district court for further inquiry into whether the meeting notices met this standard.  It noted that the commission secretary posted the notice on the board at least five days in advance of each meeting, but the public generally does not utilize the hallway where the bulletin board is located unless the individual has an appointment or uses the restroom. The question remained how often the public uses the hallway or if the board and its contents are visible from the reception area.

Newspaper of general circulation. Iowa Code 28E.6 requires councils of governments to annually publish the “names and gross salaries of persons regularly employed by the entity” in “one newspaper of general circulation within the geographic area served by the joint board of the entity.” The City contended the Olewein Daily Register was not a newspaper of general circulation because there are no individual subscribers to the paper in three of the five counties, and no business subscribers in four of the five counties.

The court noted that the statute only requires publication in one newspaper – the legislature expressly stated it is not necessary to publish in multiple newspapers within a single geographic area. Moreover, it is not necessary to publish using a newspaper outside the geographic region. The undisputed record established there is no single newspaper available that has subscriptions in all five counties within the commission’s service region. The commission specifically selected the Register because it is the only daily newspaper serving the five-county area. A “newspaper of general circulation” is a publication that “contains news and information of interest to the general public, rather than to a particular segment, and that is available to the public within a certain geographic area….[It is] not determined by the number of its subscribers, but by its diversity….More compelling is the fact the Register serves the same area as the commission.”  The court sided with the commission on this claim.

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Comment: Rural Subdivisions and the Agricultural Exemption to Iowa County Zoning after Lang v. Linn County

Gary Taylor

by Gary Taylor

This article originally appeared in the Legal Briefs section of the May “The Iowa County” magazine.

Iowa Code 335.2 states that county zoning cannot be enforced against “land, farm houses, farm barns, farm outbuildings or other buildings or structures which are primarily adapted, by reason of nature and area, for use for agricultural purposes, while so used.” This agricultural exemption has been the subject of court cases throughout the years focusing on what constitutes a “use for agricultural purposes.”  Despite the lessons provided by these cases, county officials still wrestle with many unanswered questions about the interpretation of section 335.2. One of the most vexing issues has been rural acreages and large-lot rural subdivisions.  Is the owner of a five-acre residence who has a job in the nearby city qualified for the exemption if he raises an acre or two of crops or a few head of livestock?

On March 29 the Iowa Supreme Court decided Lang v. Linn County Board of Adjustment, in which the Court reviewed two separate decisions by the county to deny exemptions for two separate parcels: a 6.52-acre parcel that included the Langs’ residence, and a 43.3-acre parcel with 2 houses.  While the case does not definitively answer the exemption question for every rural acreage, it does provide several helpful guidelines for county officials going forward.

The Court began by pointing out the differences between the language of section 335.2 as it appears today, and as it was prior to amendments made in 1963.  The differences were critical to the Court’s reasoning.  Prior to 1963 the statute was concerned with land, farm houses and buildings “which are adapted, by reason of nature and area, for use for agricultural purposes as a primary means of livelihood, while so used.” Thus, prior to 1963 the statute did not contain the word “primarily,” (“primarily adapted”) but did tie the exemption to use for agricultural purposes “as a primary means of livelihood” for the landowner.

In the Court’s view, the addition of the word “primarily” allows county zoning authorities to consider “the relative size, value, and construction date of the house compared to the scope, value, and duration of the claimed agricultural activities,” and deny the exemption when the agricultural activities “are basically a sideline designed to obtain an agricultural zoning exemption for the owners’ residence.”  For the Langs’ residence on 6.52-acres, the Court determined that it was a “a residential tail wagging a farmland dog and that the property as a whole was not primarily dedicated to agriculture.” Although the Langs claimed in their exemption filing to be producing trees, raspberries, blackberries, asparagus, apples, grapes, and tomatoes, they provided no records of production or sales. Photographs indicated that the asparagus, grape vines and raspberry bushes, at least, were wild and in a wooded thicket. The Court did not believe that “the legislature intended to allow a homeowner to avoid county zoning requirements simply by having a tomato patch in his or her backyard.”

The Langs also claimed that the county improperly applied a minimum acreage test and flunked the Langs’ 6.52-acre parcel simply because it was too small.  Previous cases have held that a county cannot use parcel size as the sole measure for determining whether a parcel is primarily adapted for agriculture; however, in Lang the Court affirmed that parcel size can be one of the factors considered when making the determination, stating that “if size were not relevant, then nothing could prevent a developer from obtaining a zoning exemption for an entire development subdivided into half-acre lots so long as some agricultural product were planted in the development and tended by the homeowners.”

Because the Linn County Zoning Ordinance prohibits more than one dwelling on a single undivided parcel of land, the Langs sought an exemption for a second house built on a 43.3-acre tract, claiming that the occupant (the Langs’ son) would be performing farming tasks on the property.  The county did not dispute that the 43.3 acres should be considered agricultural, but disagreed that the second house was “primarily adapted” for agriculture since the son had a regular day job, and that he would be spending only 2 1/2-hours per day at most on farming activities.  The Court sided with the county, stating that “it is appropriate for the county to ask how much time the tenants of the house spend on farming activities. Otherwise, a farmer could erect multiple homes and avoid county zoning simply by assigning nominal farm tasks to an occupant of each home.” Implicit in the Court’s reasoning is that although a landowner no longer must show that the property is his “primary means of livelihood,” the landowner must be able to closely tie the activities of the person occupying the house to the agricultural production taking place on the property.

The Court concluded with a common-sense observation of how misapplying the exemption to rural acreages has the potential to cause problems in the future: “When a house has been erected by taking advantage of an agricultural exemption, but then is later sold to a person who is not engaged in agriculture, the house becomes a nonconforming use, which limits the new owner’s ability to modify or, if necessary, to rebuild the house.”

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The never-ending saga of Okoboji Barz (non-conforming use)

Gary Taylor

by Gary Taylor

City of Okoboji v. Leo Parks and Okoboji Barz, Inc.
(Iowa Supreme Court, April 26, 2013)

If you have attended one of my workshops you know that this ongoing dispute is one of my favorite discussion topics.  This is another case in the the efforts of the City of Okoboji to enforce zoning restrictions on properties owned by Okoboji Barz (Okoboji Boat Works, The Fish House Lounge, and Clucker’s Broasted Chicken), all located on the shore of West Lake Okoboji. The lakefront property is zoned residential, but has been historically operated as a marina pursuant to special-use permits allowing the preexisting nonconforming uses. In a series of previous cases (City of Okoboji v. Okoboji Barz, Inc., 717 N.W.2d 310, 315–16 (Iowa 2006);  City of Okoboji v. Iowa District Court, 744 N.W.2d 327, 332 (Iowa 2008)) the Iowa Supreme Court has held that while the use of the property as a marina is lawful under the special-use permits, the permits do not allow an expansion of the use to include on-premises consumption of alcohol with live entertainment, karaoke, hog roasts, and full-moon parties.

“Undeterred” (in the words of the Supreme Court), “the owner of the property sought to operate a bar on a structure called the Fish House Lounge, which, while generally moored to the marina’s ‘seawall,’ is capable of getting underway on the lake.” The Fish House Lounge has a class “D” liquor license obtained from the state, and not the City, based upon the state’s control of the lake bed. The City objected to the operation of the Fish House Lounge as contrary to the holdings of the Supreme in the previously-cited cases and sought declaratory and injunctive relief. The district court found that the Fish House Lounge cannot cruise the lake during winter months, has no regular cruise schedule, and is rarely seen cruising the lake. Patrons are asked to use the restroom facilities on the marina property. It offers live and recorded entertainment, hosts theme parties, karaoke, and other activities as late as midnight.  The district court concluded that the activities at the Fish House Lounge were the very activities prohibited by the Supreme Court in the previous cases, and entered an injunction prohibiting use of the marina property to “provide parking, access to or from, and supporting services, including bathroom facilities, to patrons of a boat, vessel, or structure on which alcohol is served or upon which entertainment, music, karaoke, abandon-ship parties, or howl-at-the-moon parties are provided.’ The injunction further prohibited the selling or serving of alcohol, wine, and beer on any boat or structure moored to or attached to the marina and on or from any boat or structure attached to a dock extending from the premises.  The property owner appealed.

The broad question before the Supreme Court was “whether our prior rulings can be avoided by moving the locus of prohibited activity onto a floating pontoon structure that is located above the state-owned lake bed and outside the geographic boundaries of the City, but which utilizes the upland marina property for ingress, egress, parking, and restroom facilities.” The property owner argued several points.  First, that the City cannot exercise its zoning authority over the Fish House Lounge because the Lounge is floating over the lake bed when it is moored to the marina’s seawall, and that this could only lead to one of two results: (1) The state owns the lake bed in its sovereign capacity, and under various statutes other state agencies – and not the City – are responsible for lake bed activities, or (2) the boundary line of the City is the mean high water mark of the lake, which the Fish House Lounge sits below when moored to the marina. Second, that the Fish House Lounge activities were merely accessory to the permitted use of operating a marina.

The Supreme Court dispensed with all of these arguments.  Contrary to the owner’s arguments, the City did not claim the authority to zone over the lake bed; rather, it was asserting jurisdiction only over the upland real property, and the use of the real property for ingress and egress to the Fish House Lounge, to provide parking for patrons of the Fish House Lounge, and to provide restroom facilities for patrons of the Fish House Lounge is inconsistent with the preexisting nonconforming use of the property for marina operations.  In the 2006 case the Court held that activities similar to those conducted at the Fish House Lounge could not be considered “merely an accessory use to the operation of the marina.”

Prior to 1972 [when zoning was enacted], the property was used for operating marinas. The marinas were open between 8:00 a.m. and 5:00 p.m., with the gas dock occasionally staffed until 8:00 p.m. As the district court noted, there was no evidence that, prior to 1972 when the City enacted its zoning ordinance, the property was used to provide nearly permanent mooring for a liquor establishment, to provide restroom facilities for patrons of such an establishment, or to provide parking for such use. Since 2008, however, the marina property has been providing access to a floating bar that stays open at night…. While it is true that the main platform upon which liquor is sold and loud activities occur is above the lake bed, it is obvious the activities of the Fish House Lounge are inextricably intertwined with the use of the real property subject to the City’s zoning restrictions. The use of the property for ingress and egress, for restroom facilities, and for parking to a floating bar moored at the marina are not accessory uses to the valid, nonconforming use of the marina. These uses of the upland real estate are also in violation of section 2(B)(2) of article VII of the City’s zoning ordinance, which prohibits such lakeshore lots from being used for access to commercial activities.

The Supreme Court agreed that an injunction was appropriate to prevent the use of the marina to support the activities of the Fish House Lounge.  Providing access, parking, and restroom facilities has had an adverse impact on the residential character of the waterfront.  The Supreme Court refused to enjoin the the provision of or sale of liquor on boats when moored at the docks (versus those moored directly to the shoreline); noting, however, that “this distinction makes little difference as the City has shown entitlement to an injunction that prohibits using the upland to provide ingress, egress, parking, or restroom facilities to patrons of boats or similar vessels selling alcohol or engaging in bar-type activities while docked at the marina.”

 

 

 

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Linn County’s denial of ag exemption upheld by Iowa Supreme Court. Subtitle: “A residential tail wagging a farmland dog”

Gary Taylor

by Gary Taylor

Lang v. Linn County Board of Adjustment
(Iowa Supreme Court, March 29, 2013)

The Court of Appeals case from which this appeal originated is here.  The Supreme Court provided an extensive set of facts that gives readers a more complete picture of the situation.  Space does not permit a complete review here, other than to say that the facts illustrate Lang’s creative attempts to gain an ag exemption for several parcels with houses he developed subsequent to his subdivision of his original 49-acre tract.  The reader is strongly urged to review the Supreme Court opinion for a detailed factual background.

Supreme Court’s legal analysis.  The Supreme Court began by pointing out the differences between the statutory language of the ag exemption as it was originally adopted, and as it appears today.

Iowa Code 335.2 Prior to 1963:

No regulation or ordinance adopted under the provisions of this act shall be construed to apply to land, farm houses, farm barns, farm outbuildings or other buildings, structures, or erections which are adapted, by reason of nature and area, for use for agricultural purposes as a primary means of livelihood, while so used.

Today (after 1963):

Except to the extent required to implement section 335.27, no ordinance adopted under this chapter applies to land, farm houses, farm barns, farm outbuildings or other buildings or structures which are primarily adapted, by reason of nature and area, for use for agricultural purposes, while so used.

The amendment put the focus of the exemption on whether the “land, farm houses, farm barns, farm outbuildings or other buildings or structures” are “primarily adapted” for the asserted agricultural purpose, when considering the “nature and area.”  It turned the focus away from the use of the property as a “primary means of livelihood” for the landowner.  Thus the amount of income generated for the landowner by agricultural activities, as a percentage of the landowner’s total income, is no longer the focus.

However, the legislature at the same time added the requirement that the property be “primarily” adapted to agricultural use. In our view, this authorizes the county to deny the farmhouse exemption when the record, as here, indicates that the agricultural activities are basically a sideline designed to obtain an agricultural zoning exemption for the owners’ residence. The Board was entitled to look at the relative size, value, and construction date of the house compared to the scope, value, and duration of the claimed agricultural activities. For example, we do not believe the legislature intended to allow a homeowner to avoid county zoning requirements simply by having a tomato patch in his or her backyard….[We believe]  that the “primarily adapted” test allows county zoning authorities to consider the overall importance and underlying purpose of the agricultural activities in question.

“In our view, the Zoning Board of Adjustment (ZBA) could reasonably conclude that the Langs’ large, manorial residence on the 6.52 acres was a residential tail wagging a farmland dog and that the property as a whole was not primarily dedicated to agriculture. Although the Langs had recently planted small trees, they could not be expected to mature for many years and could be viewed as having an aesthetic purpose. Photographs indicated that the other claimed farming activities were not substantial in scope, even relative to the size of the parcel. The Langs presented no evidence of actual production, beyond the bare claims they made in their application for an agricultural exemption.”  The Lang’s claimed that the county improperly applied a minimum acreage test and flunked the Langs’ primary residence on a 6.52-acre parcel simply because it was not big enough; however the Supreme Court disagreed, noting that the “zoning administrator’s report, the recording of the 2004 ZBA hearing, and the ZBA’s 2-2 decision all indicate that the county did not summarily reject the application based on parcel size.  This is not to say that the size of the parcel should not be a consideration.  “If size were not relevant, then nothing could prevent a developer from obtaining a zoning exemption for an entire development subdivided into half-acre lots so long as some agricultural product were planted in the development and tended by the homeowners.”

Because the Linn County Zoning Ordinance prohibits more than one dwelling on a single undivided parcel of land, the Langs sought an agricultural exemption for a second house built on a 43.3-acre tract of land.  The second house was occupied by Langs’ son.  The Court observed that “regardless of the status of the land, Iowa Code 335.2 anticipates that a county may consider whether a specific building or structure [on the land] is primarily adapted for use for agricultural purposes.”   The Court found that substantial evidence existed to support the ZBA’s finding that the second house under the son’s tenancy would not be “primarily adapted” for agricultural purposes.  Referencing an Ohio Court of Appeals case, the Court stated that “When landowners build an additional house on their land, rent it out, and then want to claim it as another exempt farmhouse, it is appropriate for the county to ask how much time the tenants of the house spend on farming activities. Otherwise, a farmer could erect multiple homes and avoid county zoning simply by assigning nominal farm tasks to an occupant of each home.”

The Court concluded by observing that “the Langs’ construction of various homes on what began as one property had the potential to cause problems for third parties down the road. When a house has been erected by taking advantage of an agricultural exemption, but then is later sold to a person who is not engaged in agriculture, as occurred in this case with respect to [one of the houses on a subdivided parcel], the house becomes a nonconforming use, which limits the new owner’s ability to modify or, if necessary, to rebuild the house.

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US Supreme Court declines to hear Des Moines franchise fee case

Gary Taylor

Yesterday the US Supreme Court declined to hear the appeal of the city of Des Moines in its franchise fee case, blogged here.  The Iowa Supreme Court ruled in March that the city’s 5-percent fee on utility bills was beyond that allowable as reasonably related to the administration of electric and gas franchises, and that the excess must be returned to the people who paid it.

You can read the Des Moines Register article concerning yesterday’s action here.

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Hamburg (IA) adult business licensing scheme preempted by state law

Gary Taylor

by Gary Taylor

Mall Real Estate, LLC v. City of Hamburg
(Iowa Supreme Court, July 27, 2012)

In 2008, the Hamburg city council passed its “Sexually Oriented Business Ordinance.” It contains provisions relating to licensing and zoning and imposes a range of regulations upon sexually oriented businesses.  Businesses subject to the terms of the ordinance include adult cabarets, which the ordinance defines, among other things, as any “business or entity that is with the emphasis on observation or viewing of nude or semi-nude performances whether the performers receive compensation or not, that regularly features persons who appear nude or semi-nude.” The ordinance requires a sexually oriented business to have a valid sexually oriented business license and an employee of a sexually oriented business to have a valid sexually oriented business employee license. Further, the ordinance regulates many aspects and activities of sexually oriented businesses, including the consumption of alcohol on the premises, exterior design aspects of the businesses including signage, hours of operation, the exhibition of sexually explicit films, live nudity, and siting. For example, the ordinance prohibits any person from intentionally or knowingly appearing in a state of nudity or from intentionally or knowingly violating Iowa Code section 728.5. The ordinance contains requirements that seminude employees remain more than six feet away from customers and on a stage at least two-feet high. It also prohibits the exchange of gratuities between customers and seminude employees and prohibits intentional contact between customers and seminude employees.  If a sexually oriented business licensee violates the ordinance or knowingly allows an employee to violate the ordinance, then the City may suspend or revoke the license of the business and the employee.

Mall Real Estate (MRE) leases space in Hamburg to the Hamburg Theatre for the Performing Arts, aka Shotgun Geniez.  Performers at the Hamburg Theatre perform nude, seminude, and fully clothed. At times during performances, performers physically contact customers, often by sitting in their laps. The performers also spend time talking to customers. The Hamburg Theatre does not have a liquor license or sell alcohol, but it does allow customers to supply their own alcohol.  Shortly after the City adopted the ordinance MRE filed a lawsuit seeking to declare the ordinance unconstitutional, and also that the ordinance is in conflict with, and is therefore preempted by state law. The district court upheld the validity of the Hamburg ordinance, and MRE appealed.  The Iowa Supreme Court decided the case on the preemption issue and did not address MRE’s constitutional claims.

MRE argued that because Iowa Code 728.5(3) creates a “theater exception” to the regulation of obscenity and the Hamburg ordinance did not, the ordinance is therefore in conflict with and preempted by state law.  The City argued that the final sentence of 728.11 – also in the state code chapter pertaining to obscenity – allows local governments to pass ordinances related to zoning and licensing of businesses dealing in obscene materials.

Iowa Code 728.5 provides in part:

1.  An owner, manager, or person who exercises direct control over a place of business required to obtain a sales tax permit shall be guilty of a serious misdemeanor under any of the following circumstances:
a.  If such person allows or permits the actual or simulated public performance of any sex act upon or in such place of business.
b.  If such person allows or permits the exposure of the genitals or buttocks or female breast of any person who acts as a waiter or waitress.
[c.  through f. contain more such circumstances]
2.  However, if such person allows or permits a minor to participate in any act included in subsection 1, paragraphs “a” through “d”, the person shall be guilty of an aggravated misdemeanor.
3.  Except for subsection 1, paragraph “f”, the provisions of this section shall not apply to a theater, concert hall, art center, museum, or similar establishment which is primarily devoted to the arts or theatrical performances and in which any of the circumstances contained in this section were permitted or allowed as part of such art exhibits or performances.
Iowa Code 728.11 is a “uniform application” (preemption) provision. It states:
In order to provide for the uniform application of the provisions of this chapter relating to obscene material applicable to minors within this state, it is intended that the sole and only regulation of obscene material shall be under the provisions of this chapter, and no municipality, county or other governmental unit within this state shall make any law, ordinance or regulation relating to the availability of obscene materials.  All such laws, ordinances or regulations shall be or become void, unenforceable and of no effect on January 1, 1978.  Nothing in this section shall restrict the zoning authority of cities and counties.
The Iowa Supreme Court looked to its previous cases construing these provisions and concluded that Hamburg’s ordinance is preempted by the Iowa Code.  In Chelsea Theater Corp v. Burlington the Court determined that chapter 728 was not limited to the dissemination of obscene materials to minors, but rather restricted local governments from enacting any local ordinances regulating obscene materials.  This led the Court to examine whether live nude dancing constituted “obscene materials” as the term is used in 728.11.  “Materials” is defined in 728.(3) as “any book, magazine, newspaper or other printed or written material or any picture, drawing, photograph, motion picture, or other pictorial representation or any statue or other figure, or any recording, transcription or mechanical, chemical or electrical reproduction or any other articles, equipment, machines or materials.”  “Obscene materials” is defined in 728.(5) as “any material depicting or describing the genitals, sex acts, masturbation, excretory functions or sadomasochistic abuse which the average person, taking the material as a whole and applying contemporary community standards with respect to what is suitable material for minors, would find appeals to the prurient interest and is patently offensive; and the material, taken as a whole, lacks serious literary, scientific, political or artistic value.” The Court looked to legislative history to conclude that the legislature intended to include live nude dancing within the meaning of obscene materials in the code.  As a result, Hamburg’s attempt to regulate live nude dancing through its licensing ordinance was preempted by chapter 728 of the Iowa Code.

The Court noted that, contrary to the City’s assertion, the last sentence of 728.11 only creates an exception to the preemption for local zoning authority, not for licensing or permitting authority.  “Accordingly, unless a local ordinance is a zoning ordinance it is preempted to the extent it regulates material regulated by chapter 728.”

Chief Justice Cady and Justice Waterman each filed separate dissenting opinions.  Chief Justice Cady took issue with the reasoning the majority followed to find that “obscene materials” included live nude dancing.  “In the judgement of the majority, ‘materials’ means a dancer to our legislature.  This conclusion not only defies common sense, it defies our accepted rules of [statutory] construction….Thus, for the majority to conclude it would be absurd for our legislature to have left nude dancing out of its preemption scheme is itself absurd.”

Justice Waterman joined in the preemption analysis of Justice Cady, and wrote further to express his opinion that not only is the Hamburg ordinance not preempted, it passes constitutional muster under well-settled precedent.

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Iowa Supreme Court requires Des Moines to refund roughly $35 million in franchise fees

Gary Taylor

by Gary Taylor

Kragnes, et al., v. City of Des Moines
(Iowa Supreme Court, March 2, 2012)

In 2004, the City of Des Moines considered raising property taxes to hire more police and firefighters, maintain the library’s hours, and rehabilitate deteriorating neighborhoods. The City realized the state was phasing out sales and use taxes on residential gas and electric services and determined that it would be possible to increase the franchise fees on these services to raise revenue. After deciding this source of revenue was preferable to an increase in property taxes, the City renegotiated the franchise agreements with MidAmerican Energy and increased the franchise fee beginning June 2005. Lisa Kragnes promptly filed a lawsuit on behalf of herself and all others similarly situated challenging the franchise fees as illegal taxes. She sought reimbursement for all illegal taxes paid through the allowable statute of limitations and sought an injunction prohibiting the City from charging such franchise fees in the future. In the first suit that came before the Supreme Court the Court determined that a city has the authority to assess a franchise fee expressed as a percentage of the gross receipts derived from the utility’s sale of its services to the public, so long as the charge is “reasonably related to the reasonable costs of inspecting, licensing, supervising, or otherwise regulating the activity that is being franchised.”  The case was sent back to district court to determine whether all or part of the franchise fees were reasonably related to the City’s administrative expenses in exercising its police power.  It was also up to the district court to determine whether a class should be certified (which would allow all  City of Des Moines utilities customers who paid the electricity or gas franchise fee from July 27, 1999, forward to be represented in a single action).  The district court did, in fact, certify the class and determined that a portion of the franchise fee collected was excessive. The court held the City must refund to the class, with interest, the amount by which the franchise fees exceeded $1,575,194 per year for the electric utility and $1,574,046 for the gas utility (an amount that would cost the city roughly $40 million). The court retained jurisdiction to determine the details of how the refund would be calculated and refunded to class members. Both the City and Kragnes appealed.

Certifying class.  The City first contended the district court should have granted its motion to decertify the class because a conflict of interest exists between Kragnes, as the class representative, and Des Moines property owners who will suffer economically as a result of a judgment in favor of the class. Specifically, the City contended that if the City is required to refund the roughly $40 million in excess tax that was collected from 2004 until 2009, it will need to raise the revenue for this payment from property taxes. This puts Kragnes and class members in a fundamental conflict over the litigation because property owners would tend to oppose Kragnes’s refund objective because they benefitted from the collection of the excessive franchise fees from payors who were not property owners.  The Court sided with Kragnes, stating that the City’s position was “rife with speculation” —beginning with speculation about what City leaders would have done in the past and ending with predictions about what City might do to raise revenue to pay the refund.  In light of this the district court did not abuse its discretion in certifying the class.  The Supreme Court further observed:

The litigation of this case has resulted in two Supreme Court opinions, a forty-nine page district court decision after a fourteen-day bench trial involving the testimony of twenty-eight witnesses, including eight experts—three for the City and five for Kragnes. The record fills five bankers’ boxes. However, Kragnes’s claim standing alone would likely fall within the jurisdictional limit of the small claims court. We think this case demonstrates the very necessity and importance of class action litigation both for the plaintiffs and for the City. The likelihood of a plaintiff bringing such a complex suit requiring substantial resources to litigate in small claims is highly unlikely. And if she, and scores of thousands of others like her, did bring their claims individually, it could easily overwhelm the legal department of the City and the resources of the Polk County district court….

It also determined that sufficient procedural safeguards exist to protect individuals when members are not given the option of excluding themselves from the class.

Proper amount of expenses.  Both parties disagreed with the categories and amounts of expenses that the district court counted as “reasonably related” to the administration of electric and gas franchises during the relevant time period, an amount which totaled nearly $1.574 million annually for the gas utility and $1.575 million annually for the electric utility.  After a lengthy review of the various costs claimed by the City (lost value of trees, indirect operating costs, construction costs paid by other governments, others) the Supreme Court concluded that the amounts the City were entitled to collect in franchise fees were $1.47 million annually for the gas utility and $2.1 million annually for the electric utility (still resulting in an overcollection by the city of roughly $35 million).

Refund to customers.  Finally, the City contended the district court erred in concluding the plaintiff class is entitled to a refund.  Citing with approval a 1990 U.S. Supreme Court case, the Iowa Supreme court reasoned that there must be financial consequences from the illegal taxation of the City’s residents notwithstanding that the funds received from the illegal taxation of the City’s residents were used wisely, legally, and with the best intentions for the residents. “Because exaction of a tax constitutes a deprivation of property, procedural safeguards are generally required to protect against “unlawful exactions in order to satisfy the commands of the Due Process Clause.” The Court further noted that Kragnes filed the case soon after the City decided to commence collecting the franchise fees. On notice of Kragnes’s claim that the franchise fees were illegal, the City nonetheless collected them and even increased the amount of the fees collected. “The failure of the City to respond differently after it was on notice of Kragnes’s claim does not mitigate in favor of depriving Kragnes and the class of a remedy for the unlawful taxation.”

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The Mitchell County steel wheels case

Gary Taylor

by Gary Taylor

Mitchell County, Iowa v. Zimmerman
(Iowa Supreme Court, February 3, 2012)

Members of the Old Order Groffdale Conference Mennonite Church are forbidden from driving tractors unless their wheels are equipped with steel cleats. According to the defendant Zimmerman, the biblical passage from which the rule derives is Romans 12:2, which reads,

And be not conformed to this world: but be ye transformed by the renewing of your mind, that ye may prove what is that good, and acceptable, and perfect, will of God.”

The Order’s members have been using steel wheels for at least forty years, the church having determined that steel wheels would contribute to the maintenance of small-scale farming and help ensure that tractors are not used for pleasure purposes and thereby displace the horse and buggy.  The defendant testified, “The religious practice, it has to be steel hitting the surface, [be] it soil, [be] it highway, [be] it concrete.” Over the years, to minimize possible road damage, the steel cleats and lugs have been made wider and have been mounted on rubber belts to provide cushioning.

For many years Mitchell County (Iowa) officials did not object to the Mennonites’ use of steel wheels; however, in 2009 the county spent $9 million on a road resurfacing project.  The county “white-topped” (covered existing roads with concrete) several roads.  County officials testified that they found that the steel wheels caused pavement cracking, and took the paint off of the white-topped road.  As a result, in September 2009, the county adopted the following ordinance; its stated purpose being “to protect Mitchell County hard surfaced roads”:

No person shall drive over the hard surfaced roadways, including but not limited to cement, concrete and blacktop roads, of Mitchell County, or any political subdivision thereof, a tractor or vehicle equipped with steel or metal tires equipped with cleats, ice picks, studs, spikes, chains or other projections of any kind or steel or metal wheels equipped with cleats, ice picks, studs, spikes, chains, or other projections of any kind.

Violators are subject to a maximum fine of $500 or 30 days in jail, or both.  A civil penalty may also be imposed equal to the amount necessary to repair the damage to the road.  Iowa Code 321.442 contains similar prohibitions on the use of tires with  “block, stud, flange, cleat, or spike or any other protuberances of any material other than rubber,” but the penalty is only a $10 fine. County officials testified that the county ordinance was intended to have identical prohibitions to the state law, but with stiffer sanctions for violations.  Zimmerman was charged with violating the county ordinance.  The district court found that the ordinance “substantially burdened religious practice” but also determined that the ordinance was neutral (treating secular and religious conduct the same), generally applicable, and not motivated by religious animosity, citing the US Supreme Court case Employment Division, Department of Human Resources of Oregon v. Smith. The district court upheld the citation.  Zimmerman appealed.

The question before the Iowa Supreme Court was whether the ordinance violates the religious rights of the church members under either the United States or the Iowa Constitution.  In a unanimous verdict, the Court determined that, indeed, the Mitchell County ordinance violated the Free Exercise Clause of the First Amendment of the United States Constitution (it did not reach the question whether the defendant’s rights under the Iowa Constitution had been violated). The Court found that the ordinance was neutral on its face and in its operation, but that the ordinance was not of general applicability because it contained exemptions that are inconsistent with its stated purpose of protecting Mitchell County’s roads. The county ordinance carried over the exceptions to the prohibition found in Iowa Code 321.442, those being

1. Farm machinery with tires having protuberances which will not injure the highway.
2. Tire chains of reasonable proportions upon any vehicle when required for safety because of snow, ice, or other conditions tending to cause a vehicle to skid.
3. Pneumatic tires with inserted ice grips or tire studs projecting not more than one-sixteenth inch beyond the tread of the traction surface of the tire upon any vehicle from November 1 of each year to April 1 of the following year, except that a school bus and fire department emergency apparatus may use such tires at any time.

The Court concluded that the exceptions that allow school buses and fire department vehicles to have studded tires year-round undermine the purpose of protecting the roads; indeed, this still would be the case  if the ordinance was specifically stated to have the dual purposes of protecting roads and providing for the safety of school buses and emergency vehicles.  Moreover, the County “declined in September 2009 to regulate various other sources of road damage besides steel wheels. Rather, it chose to prohibit only a particular source of harm to the roads that had a religious origin.”

An ordinance can fail the general applicability test and still pass “strict scrutiny,” if the ordinance “serves a compelling state interest and is the least restrictive means of attaining that interest.” The Court, however, also found that the ordinance could not survive strict scrutiny.  Given the lack of evidence of the degree to which the steel lugs harm the County’s roads, in light of the undisputed fact that other events cause road damage, and the undisputed fact that the County had tolerated steel lugs for many years before 2009, “it is difficult to see that an outright ban on those lugs is necessary to serve a compelling state interest.” The Court pointed to neighboring Howard County, where an agreement was reached with the Mennonite community to accept a financial deposit to cover possible road damage in lieu of banning steel wheels, as an example of a less restrictive means of accomplishing the goal of road preservation available to Mitchell County.

The Court reversed the lower court’s affirmation of the citation against Zimmerman, and remanded for entry of an order of dismissal.

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City cannot be sued for failure to enforce subdivision ordinance requiring developer provide improvements

Gary Taylor

by Gary Taylor

Nelson, et al., v. City of Hampton
(Iowa Supreme Court, August 26, 2011)

A rather complicated twenty year history associated with the platting and development of a residential neighborhood on the northwest edge of Hampton boils down to this:  Three separate subdivisions, each connected by streets dedicated within each subdivision, were planned.  As the project proceeded plans changed, and at a point in 2000 the city and developer reached an agreement that, among other things, obligated the city to surface a 300-foot portion of dirt road that connected one subdivision to the existing street network -which passed both within and outside the boundaries of the subdivision plat – and assess the cost to adjacent landowners.  When the city moved forward with the resurfacing project they prepared an assessment plat and schedule that assessed the adjacent landowners amounts ranging from about $4,000 to 9,000.  The landowners contested the assessments in district court, making three claims: (1) the assessments were void because they were contrary to a city ordinance that requires subdividers to “make and install” the grading and improvement of streets within the final plat of a subdivision by “surfacing or causing to be surfaced the roadways” per ordinance standards; and in the alternative, that (2) the assessments exceeded the special benefits conferred upon the adjacent properties in violation of Iowa law.  The district court rejected both claim, and this appeal to the Iowa Supreme Court ensued.

Agreement contrary to ordinance. The Supreme Court first noted that the legislature has given cities statutory authority to both assess property owners the costs of public improvements based on the benefits they receive from those improvements (Iowa Code Chapter 384) and to charge developers with installing public improvements through the plat approval process (Iowa Code Chapter 354).  Given that both alternatives exist for getting streets constructed, the Court viewed the core question to be whether the city was under a mandatory obligation to enforce the ordinance directive requiring subdividers to “make and install” improvements.  To decide this the Court examined whether the ordinance directive was mandatory or directory, and to decide this the Court will look at whether failure to mandate performance under the ordinance would undermine the purpose of the ordinance itself.  The purpose of the ordinance, as set out in the city code, is to “establish minimum standards for the design, development and improvement of subdivisions” and to make adequate provisions “for public services.” The court concluded that the provision requiring subdividers to install improvements was not mandatory because the end result (a paved road) could be accomplished just as satisfactorily by the city through the assessment process.  In either case, the cost is ultimately borne by the landowners in the subdivision.  In this particular case the agreement allowed for the recoupment of street costs from landowners outside the subdivision who nonetheless benefit from the street.  This result is also consistent with a long line of cases that have sanctioned cities’ decisions to waive plat approval standards when strict adherence to the standards would thwart the objectives of the ordinance.

Special benefits conferred.  The Court further found the amount of the special assessments to be reasonable.  It noted that the law “not only presumes the assessments are correct, but also that they do not exceed the special benefit derived.”  Despite the landowners’ assertions that they would not use the street and it provided them with no additional access, the Court found special benefit in the increase in property values that resulted, and in the transformation of a dirt road into a paved road (despite the landowners’ personal satisfaction with a dirt road).

The district court ruling was affirmed.

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Apartments owned by residential cooperatives must be assessed as residential property

Gary Taylor

by Gary Taylor

Krupp Place 1 Co-op and Krupp Place 2 Co-op v. Jasper County Board of Review
(Iowa Supreme Court, July 29, 2011)

Residential cooperatives are authorized by the Multiple Housing Act, Iowa Code chapter 499A. This chapter generally allows two or more adult persons to organize themselves into residential cooperatives. The determination of whether an entity is a residential cooperative is important because of the favorable tax treatment available for property held by residential cooperatives. Ordinarily, multi-unit apartment buildings are classified as commercial ventures, with owners subject to property tax at commercial rates; however, residential cooperatives are classified as residential property.

Krupp Place 1 Co-op, Inc. and Krupp Place 2 Co-op, Inc. are both corporations organized as multiple housing cooperatives under Chapter 499A, and each corporation has filed its articles of incorporation with the Iowa Secretary of State. Each cooperative subsequently obtained title to real estate designated as Krupp Place 1 and Krupp Place 2. Both properties have twenty-four apartment units. As members of the cooperatives, Larry and Connie Krupp have entered into leases with the cooperatives requiring the Krupps to pay rent to the cooperatives. Neither of the Krupps have ever resided in the cooperative properties. Instead, they have subleased the apartments to subtenants who use the properties for residential purposes. The Krupps use the net rental income from subtenants to pay the rent they owe to the cooperatives under the proprietary leases. The cooperatives in turn use the rent paid by the Krupps to meet cooperative expenses. Any net income left after payment of expenses is retained by the cooperatives as they are prohibited by Iowa Code section 499A.4 from distributing net income to its members.

On March 18, 2008, the Jasper County Assessor mailed Larry and Connie Krupp a notice of the 2008 Real Estate Assessment Roll for Jasper County wherein the cooperative real estate was classified as commercial real estate for property tax purposes. The cooperatives appealed this classification to the Board of Review of Jasper County. The board adjusted the assessed value of the properties but did not alter its classification of the properties as commercial. The cooperatives appealed the board’s decision to the district court. The district court recognized that under Iowa Code 441.21(11), “all land and buildings of multiple housing cooperatives organized under chapter 499A” are to be classified as residential property for tax purposes. The district court, however, concluded the Krupps had not complied with “the spirit of the law.” Although the district court found that the real estate fell within the definition of a multiple housing cooperative under chapter 499A, it stated that like any corporation, the corporate entity may be disregarded and the corporate veil pierced if the entity is a sham or if corporate formalities are not followed. The court noted that there was no evidence of the existence of any bylaws, or that corporate meetings had ever been held.  While the district court recognized that members of a housing cooperative have the power to sublease their units under Iowa Code section 499A.5, the district court concluded that the manner in which Connie and Larry Krupp have “subleased” the premises “reeks of impropriety.” The district court was concerned the Krupps may have been making a profit as a result of the arrangement, something cooperatives are not authorized to do under Iowa Code section 499.1. The district court concluded that the facts revealed “two people, seeking to minimize their tax liability, forming a shell multiple housing cooperative under chapter 499A while actually operating a standard rental property.” The district court affirmed the board’s determination the real estate held by the cooperatives should be taxed as commercial property. The Krupps appealed.

The Iowa Supreme Court disagreed with the district court.  The Court examined the language of Iowa Code 441.21(11) and determined that it imposes only an “organizational test”; that is, property owned by residential cooperatives is required to be classified as residential property.  The assessor and board of review are not permitted to consider a property’s actual use in classifying the property for tax purposes. “When the language of a statute is plain and its meaning clear, the rules of statutory construction do not permit us to search for meaning beyond the statute’s express terms…. As a result, we agree with the cooperatives that the legislature did not create an ‘actual use’ test in section 441.21(11).

Note:  The Iowa League of Cities filed a brief in support of Jasper County.  The League’s posted this response to the court decision on their website:  The result of this decision is that the residential rollback will apply to these coops, despite the fact that all the units in the co-ops are owned by Larry and Connie Krupp and are subleased to other parties. The outcome in this case will likely encourage the owners of other apartment buildings to similarly convert their apartment buildings to “co-ops” to take advantage of the residential rollback, resulting in further erosion of property tax revenues for cities.

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