UPDATES & ANALYSIS

6.27

April 2024 Opinion Roundup

by Chloe Dinardo | June 27, 2024

The Iowa Supreme Court entered opinions in nine cases during April 2024.  You can read Rox Laird’s analysis of White v. Department of Human Services, State v. Wilson, and Kirkwood Institute v. Auditor of State. The remaining opinions from April are summarized below.

 

Iowa Supreme Court Attorney Disciplinary Board v. Reuben Andrew Neff, No. 23–0572

Opinion date: April 12, 2024

On appeal from the report and recommendation of the Iowa Supreme Court Grievance Commission.

Issue:

• Whether the grievance commission erred in finding a violation of Iowa Rule of Professional Conduct 32:8.4(g).
• Whether Iowa Rule of Professional Conduct 32:8.4(g) violates the First Amendment.
• If a violation of the rule was proven, whether the suggested sanction of a 30-day license suspension was too severe.

 

The Wapello County Attorney, Reuben Neff, made a number of inappropriate comments and sexual jokes at work. As a result, two employees left the office. These comments led to a disciplinary proceeding based on an alleged violation of Iowa Rule of Professional Conduct 32:8.4(g), which makes sexual harassment or other unlawful discrimination in the practice of law sanctionable conduct. The grievance commission found Neff violated rule 32:8.4(g) and recommended his license be suspended for sixty days.

The Supreme Court affirmed the commission, finding that the Board proved a violation. Although any one of the statements alone may have been insufficient, taken together, they clearly impacted the workplace. With regard to Neff’s constitutional challenge, the Court noted that preventing sexual harassment and discrimination in the workplace is a compelling governmental interest. The tension between sexual harassment and free speech can be resolved with a showing of objective harm “beyond mere adverse emotional impact on the audience.” Neff’s speech caused harm in the workplace and ultimately led two employees to resign. The Court concluded that this qualified as objective harm sufficient to uphold the sanctions without violating Neff’s First Amendment rights. Neff also failed to meet his burden of proving Rule 32:8.4(g) is unconstitutionally overbroad and vague. Finally, considering the mitigating factors and the lesser degree of harm caused by Neff’s conduct compared to prior cases under 32:8.4(g), public reprimand, rather than a suspension of Neff’s license to practice law, was the appropriate sanction. Justice McDonald delivered the opinion of the Court, in which all participating justices joined. Chief Justice Christensen and Mansfield took no part in the decision.

 

William and Mary Goche, LLC, Global Assets, LLC, and Joseph Goche v. Kossuth County Board of Supervisors in their capacity as Trustees of Drainage Districts 4, 18, and 80, Roger Tjarks, Pam Wymore, Kyle Stecker, Jack Plathe, Gene Elssbecker, Galen Casey, Donnie Loss, Don McGregor, and Don Besch, No. 23–0866

Opinion date: April 19, 2024

On appeal from the Iowa District Court for Kossuth County

Issue:

• Whether a stand-alone cause of action for punitive damages exists independently of any other causes of action.

 

William Goche owns land in three drainage districts administered by the Kossuth County Board of Supervisors. Goche brought suit against the Board, claiming that the members of the Board breached their fiduciary duty by administering the districts to specifically injure him. Goche sought punitive damages for the alleged breach. The district court dismissed his claims. On appeal, Goche conceded that the Board did not owe him a fiduciary duty, and instead argued that he could nevertheless pursue a stand-alone cause of action for punitive damages.

The Supreme Court affirmed, holding that Iowa law does not recognize punitive damages as an independent cause of action. Rather, punitive damages are a form of relief that must be tied to a distinct underlying cause of action. Goche’s argument that Iowa Code section 468.526A grants statutory authorization for his independent punitive damages claim was unavailing. Section 468.526A applies to districts administered by an elected board of trustees, not a board of supervisors. Similarly, the Court rejected his argument that section 670.12 creates a stand-alone claim for punitive damages. According to the Court, that section 670.12 “permits officers and employees of municipalities to be subject to punitive damages but only where a cause of action permitting punitive damages already exists.” Justice McDonald delivered the opinion of the Court, in which all justices joined except Justice McDermott, who took no part in the decision.

 

State of Iowa v. Jesse Lee McCollaugh, No. 23–0600

Opinion date: April 19, 2024

On appeal from the Iowa District Court for Boone County

Issue:

• Whether a video on a defendant’s phone of a minor using the bathroom was sufficient to meet the statutory definition of a “prohibited sexual act” and therefore sustain a conviction for child exploitation.
• Whether the district court improperly considered how frequently the defendant viewed explicit videos in determining sentencing.

 

Jesse McCollaugh was convicted of child exploitation after videos of a minor using the bathroom were found on his cell phone. He was sentenced to an indeterminate prison term not exceeding two years and required to register as a sex offender. McCollaugh appealed, challenging the sufficiency of the evidence. He argued that Iowa Code section 728.1(7)(g) required the State to establish that the victim’s purpose in being nude was to “arouse or satisfy the sexual desires of a person” who may view the video.

The Supreme Court affirmed the conviction. First, the plain language of the statute does not require the State to prove the minor’s purpose in being nude but, instead, to prove the defendant’s purpose in possessing the video. The Court concluded that evidence of secretly-recorded videos of a 15-year-old victim urinating, revealing her genitalia, was sufficient to support McCollaugh’s purpose for sexual gratification. On the issue of sentencing, the Court held that the trial court did not improperly consider an unproven fact about how often McCollaugh viewed videos when determining his sentence. Instead, the judge delineated several proper reasons for ordering the sentence, which was well within the statutory limits. Justice Oxley delivered the opinion of a unanimous Court.

 

State of Iowa v. Clayton Curtis Brown, No. 23–0055

Opinion date: April 19, 2024

On further review from the Iowa Court of Appeals

Issue:

• Whether the district court erred in denying defendant’s motion for mistrial after an officer testified that the defendant had “convictions on his record.”
• Whether evidence was sufficient to establish the defendant’s identity as the driver of car, supporting a conviction for aggravated eluding and driving while barred.
• Whether the evidence was sufficient to establish that the defendant knowingly possessed the firearm found in the car.

 

Clayton Brown was observed driving without a seat belt, and an officer attempted to initiate a traffic stop. Brown fled, driving recklessly before abandoning the car. The officer later found the car with personal items belonging to Brown, including a loaded handgun under the driver’s seat. Brown was convicted by a jury of possession of a firearm as a felon, aggravated eluding, and driving while barred. The Court of Appeals reversed the convictions for possession of a firearm and aggravated eluding, citing insufficient evidence that Brown knowingly possessed the handgun.

The Supreme Court granted further review, reversing in part the Court of Appeals and affirming the judgment of the district court. First, Brown argued that a mistrial should have been declared due to an officer’s testimony that he had “convictions on his record,” which was beyond the stipulated criminal history presented to the jury. The stipulation indicated that Brown had two convictions. The Court found the officer’s comment about “convictions” was cumulative and did not prejudice the jury. Additionally, the trial court acted promptly to sustain the objection and offered a curative instruction, which Brown declined. Accordingly, the district court’s denial of the motion for mistrial was not an abuse of discretion.

With regard to his sufficiency claims, the State adequately established both Brown’s identity as the driver and that he knowingly possessed the firearm found underneath his seat. The officer identified Brown through in-court identification, personal items found in the car, and knowledge that Brown’s girlfriend owned the car. As for the firearm charge, the Court noted that “[c]onstructive possession is recognized by inferences.” Facts such as the firearm being found under the driver’s seat where Brown had been sitting, the proximity of the firearm and ammunition to Brown’s personal items, and Brown’s suspicious behavior in eluding the police, support the inference that Brown knew about and had control over the firearm. Chief Justice Christensen delivered the opinion of a unanimous Court.

 

Brian Hora and Gregg Hora, Individually and on behalf of Hora Farms, Inc., and Precision Partners Corp. v. Keith Hora and Kurt Hora, Individually and in their capacity as Shareholders, Directors, Officers, Managers, and Employees of Hora Farms, Inc., Heather Hora, and HK Farms, Inc., No. 22–0259

Opinion date: April 19, 2024

On further review from the Iowa Court of Appeals

Issue:

• Whether an operations manager of a family farm was the corporation’s agent, and therefore owed the corporation fiduciary duties.
• Whether the business judgment rule applied to a director’s general oversight of an employee.

 

This case arose out of a dispute amongst shareholders in a family farming operation, Hora Farms, Inc. Two sons (Brian and Gregg) brought suit against their father (Keith) and brother (Kurt) on behalf of HFI in a derivative action, alleging breach of fiduciary duties and fraud. They sought statutory remedies of appointment of an independent custodian for HFI or dissolution of the corporation altogether, as well as Keith’s removal as trustee of their mother’s trust. After a bench trial, the district court made several credibility determinations and findings of fact, and ultimately dismissed all claims.

The court of appeals affirmed in part and reversed in part. The panel concluded that Keith engaged in self-dealing by using HFI’s credit card for personal expenses and facilitating Kurt’s misappropriation of HFI corn. However, it affirmed the district court’s dismissal of the fraud-related claims based on the high standard required to prove those claims. The Court of Appeals remanded the case for determination of damages related to the breach of fiduciary duty claims and for reconsideration of the request for appointment of a custodian and removal of Keith as trustee. All parties sought further review from the Supreme Court.

The Supreme Court vacated the decision of the court of appeals, affirming the district court. As for the breach of fiduciary duty claim against Kurt, the Court held that such duties cannot be imposed on an employee simply because of the employee’s managerial status. The Court drew a distinction between agents and employees, noting that fiduciary duties are linked to an agent-principal relationship, which is not automatically created by employment. Fiduciary duties are automatically imposed on officers and directors, but “whether an employee is acting in a capacity to give rise to fiduciary duties depends on the specific circumstances” because employees typically render services at the direction of the employer, with less autonomy. Here, because Kurt was not acting as an agent for HFI but instead either acting for his own interests or performing duties as an employee, the breach of duty claims against Kurt were limited to the common law duty of loyalty owed by an employee. On this, the Court deferred to the determinations of the trial court that the long-standing practice of using corn as Kurt’s compensation was poorly documented but not intentionally wrongful. Absent proof that Kurt misappropriated HFI corn, he did not breach any duty of loyalty.

By contrast, Keith, as a director and officer, owed fiduciary duties to HFI. The Court noted that the court of appeals misapplied the “conflicting interest transaction” provisions because applying the provision so broadly would “subject every family-owned business that employs family members to a heightened standard for its day-to-day operations.” Instead, Keith’s payment of personal expenses with HFI funds was appropriate because such payments were included in his compensation package. Questions of director compensation come down to fairness, and according to the Court, Keith’s compensation package was fair to HFI. Additionally, Keith’s alleged lack of oversight over Kurt was subject to the business judgment rule, and the district court properly dismissed it. Just because Brian and Gregg would have done things differently does not mean that Keith breached his duties, the Supreme Court reasoned. The Court cautioned against intervening in parties’ personal disagreements about management and operations of a corporation. Justice Oxley delivered the opinion of a unanimous Court.

[Disclosure: Nyemaster Goode attorneys John Lorentzen and Sarah Gayer represented the appellants in this appeal.]

 

The University of Iowa, Board of Regents, and State of Iowa v. Modern Piping, Inc., No. 23–0239

Opinion date: April 26, 2024

On appeal from the Iowa District Court for Johnson County

Issue:

• Whether the district court had jurisdiction to proceed with a wrongful injunction counterclaim following the Court of Appeals’ opinion affirming dismissal of the plaintiff’s claims in the underlying case.
• Whether the district court erred in allowing a contractor to pursue restitutionary damages as part of a “wrongful injunction” claim.

 

A construction dispute between the University of Iowa Stead Family Children’s Hospital and Modern Piping, Inc. led to this appeal. In the underlying case, the University filed an ex parte petition against the American Arbitration Association (AAA), seeking a temporary injunction to prevent arbitration of construction-delay disputes with Modern Piping. Modern Piping intervened. The injunction against the AAA was later dissolved, and the University was ordered to pay over $16 million to Modern Piping through arbitration on Modern Piping’s construction delay claim. This appeal revolved around damages that Modern Piping sought after the University lost its appeal about the validity of the injunction. Modern Piping asserted a wrongful injunction claim under an unjust enrichment theory against the University for operating the hospital during the injunction period. At a jury trial, Modern Piping was awarded over $21,000 for fees and costs and an additional $12.7 million in damages for unjust enrichment. The University did not appeal the verdict awarded for costs and fees but contended that unjust enrichment damages were not available for the dissolved injunction in this case.

The Supreme Court affirmed in part, reversed in part, and remanded. The Court first addressed the jurisdictional challenge raised by the University, which argued that the district court did not have jurisdiction to proceed with Modern Piping’s wrongful injunction counterclaim after the court of appeals had affirmed the dismissal of its claims in the underlying case. The Court noted that, generally, a district court lacks the authority to decide new issues raised following the affirmance of a final order, but there are exceptions. Since Modern Piping’s motion for fees and costs was filed before the appeal and the district court allowed it to add the counterclaim as ancillary relief, the district court retained jurisdiction over the claim.

The core issue was the scope of damages recoverable by an enjoined party when the injunction is found to be wrongful. Where an injunction is determined to be wrongful, restitution is only an appropriate remedy where there is a direct correlation between the conduct being enjoined and the claimed harm. Because “[u]nder no set of circumstances would a mechanical contractor be entitled to the profits of the business occupying the building it is constructing” Modern Piping was not entitled to restitution for unjust enrichment in this case. Justice Oxley delivered the opinion of a unanimous Court.

 

Tags: Iowa Supreme Court 2023-24