Steve Everly Vs. Knoxville Community School District, Musco Sports Lighting, Llc, And Randy Flack ( 2009 )

IN THE SUPREME COURT OF IOWA
No. 06–1695
Filed October 16, 2009
STEVE EVERLY,
Appellant,
vs.
KNOXVILLE COMMUNITY SCHOOL
DISTRICT, MUSCO SPORTS LIGHTING,
LLC, and RANDY FLACK,
Appellees.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Marion County, Dale B.
Hagen, Judge.
Plaintiff appeals the dismissal of his action and in a certiorari
action to this court challenges the district court’s award of sanctions.
DECISION OF COURT OF APPEALS AFFIRMED IN PART AND
VACATED IN PART; DISTRICT COURT JUDGMENT AFFIRMED IN
PART, WRIT SUSTAINED, AND CASE REMANDED.
Kathryn S. Barnhill of Barnhill & Associates, P.C., West Des
Moines, for appellant.
Kimberly J. Walker and Christian S. Walker of Faegre & Benson,
LLP, Des Moines, for appellee Musco Sports Lighting, LLC.
2
Andrew J. Bracken of Ahlers & Cooney, P.C., Des Moines, for
appellees Knoxville Community School District and Randy Flack.
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WIGGINS, Justice.
In this case, we must decide if the district court properly dismissed
plaintiff’s cause of action. We also review by certiorari the district court’s
award of sanctions against the plaintiff’s attorney. The court of appeals
affirmed the dismissal and the award of sanctions. Because we agree
with the court of appeals’ and district court’s decisions regarding the
dismissal, we affirm that part of their decisions. However, we disagree
with the court of appeals’ and district court’s decisions on sanctions.
Accordingly, we vacate that part of the court of appeals’ decision dealing
with sanctions, sustain the writ of certiorari, and remand the case to the
district court for further proceedings regarding the award of sanctions
not inconsistent with this opinion.
I. Factual and Procedural Background.
The Knoxville Community School District desired to install
replacement lighting at its football stadium. The school district hired
KJWW Engineering Consultants, P.C. to provide structural and electrical
engineering services for the project. KJWW was responsible for design,
bidding/negotiation, and construction.
Subsequent to the school district providing notice of letting and
advertising for bids, KJWW issued the initial bid specifications for the
project. The school district received four bids on the project. ABC-
Electrical Contractors, LLC submitted the lowest bid using Musco Sports
Lighting, LLC lights. KJWW recommended that the school district accept
ABC’s bid.
Steve Everly filed an action as a taxpayer seeking a temporary
injunction and a writ of certiorari against the school district and the
school district superintendent, Randy Flack. He also joined Musco as an
additional party. He alleged the school district and Flack exceeded the
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scope of their authority. Further, Everly alleged that awarding the bid to
ABC utilizing Musco lighting products was unlawful “because the
products do not conform to the bid specifications (even as amended) and
are a non-responsive bid.”
Based on these allegations, Everly’s action contains two separate
counts. Count I alleges that the award of a contract “on the basis of bid
specifications that discriminate in favor of one bidder” violates Iowa Code
section 394.99 and is void ab initio. Count II alleges fraud based upon
deceit and deception.
As a result of these claims, Everly prayed that a writ of certiorari
issue to stay the commencement of the project. Everly further asked the
defendants’ act be annulled and decreed void, the project be rebid in
accordance with Iowa public bidding laws, and any money expended by
the school district be returned to it.
The district court held a prompt hearing on the motion for a
temporary injunction and entered an order denying relief. After the court
denied the motion for a temporary injunction, Musco filed a motion to
dismiss the action. With respect to the certiorari claim, Musco argued in
part that it was not a proper party to the action. Musco claimed it was
merely a supplier to ABC, the successful bidder. As a result, Musco
argued that it did not have any contractual relationship with the school
district. Further, Musco claimed that it was not a tribunal, board, or
officer subject to Iowa Rule of Civil Procedure 1.1401. See Iowa R. Civ. P.
1.1401 (stating, “[a] writ of certiorari shall only be granted . . . where an
inferior tribunal, board or officer, exercising judicial functions, is alleged
to have exceeded proper jurisdiction or otherwise acted illegally”). 1
1Iowa Rule of Civil Procedure 1.1401 was amended effective January 1, 2009. It
now states, “A party may commence a certiorari action when authorized by statute or
5
With respect to the common law fraud claim, Musco asserted that
Everly made no claim that a misrepresentation was made to him upon
which he reasonably relied. As a result, Musco argued that the fraud
claim should be dismissed.
Everly filed a resistance to Musco’s motion to dismiss. In addition
to filing a resistance, Everly filed an application for leave to amend his
petition. In his amended petition, Everly sought to bring a class action
on behalf of all taxpayers of the Knoxville Community School District for
damages sustained as a result of Musco’s “fraudulent, deceptive, and
misleading advertising,” which resulted in the award of a contract to a
bidder using Musco’s products. Moreover, the amended petition named
Dennis Fee as an additional plaintiff.
The amended petition named Musco as the only defendant. It did
not name Flack or the school district as a defendant and did not seek a
writ of certiorari against anyone. In the amended petition, Everly now
relied solely on a fraudulent inducement theory. Nonetheless, the
amended petition still asserted that Flack “had actual knowledge that the
Musco product was non-responsive and did not meet the bid
specifications but colluded with Musco so as to award the bid to Musco.”
According to the amended petition, the board of directors of the school
district relied on the misrepresentations and had no way to discover the
truth about the product’s deficiencies.
On August 25, 2006, the court held a hearing on Musco’s motion
to dismiss. At the beginning of the hearing, Everly moved to dismiss the
school district and Flack, without prejudice, as parties, thereby leaving
____________________________
when the party claims an inferior tribunal, board, or officer, exercising judicial
functions, or a judicial magistrate exceeded proper jurisdiction or otherwise acted
illegally.”
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Musco as the sole remaining defendant in the certiorari action. The
court granted Everly’s motion to dismiss the school district and Flack as
defendants.
On September 22, 2006, the court entered an order dismissing the
action against Musco. The court noted that Everly had dismissed his
claims against the school district and its superintendent, leaving only a
private entity, Musco, as a party. Further, the district court observed
that Everly had not sued ABC, the successful bidder. While the district
court recognized that generally taxpayers do have the ability to challenge
the legality of a contract entered into by a school district, Everly’s action,
as now postured before the district court, did not challenge the validity of
the contract issued by the school district to ABC. All that was left was a
taxpayer’s claim against a supplier. The district court dismissed this
claim on the ground that a taxpayer cannot sue a private entity, who was
not a party to the allegedly illegal contract at issue. The district court
did not rule on Everly’s application for leave to amend the petition as the
matter had not been set for hearing and the dismissal of the underlying
petition rendered the amendment moot.
In the wake of the dismissal of Everly’s claim, Musco filed an
application for costs and attorneys’ fees under Iowa Rule of Civil
Procedure 1.413(1). This rule allows the court to award attorneys’ fees
and expenses for the filing of a frivolous pleading. Iowa R. Civ. P.
1.413(1). In its application, Musco argued it was not a proper party to
the action because it was merely a supplier to the successful bidder,
ABC. Further, Musco alleged the relief of certiorari could not have been
granted against it because it is a private entity. In support of its
application, Musco provided affidavits indicating that Musco had
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expended a total of $45,030 in fees and $612 in costs in connection with
the action.
Everly resisted the application. He asserted Musco was a bidder in
the sense that it submitted a bid to ABC and ABC passed the bid on to
the school district. As a result, Musco was a third-party beneficiary of
the contract between the school district and ABC and had a real interest
in the outcome of the case. Further, Everly argued that while, strictly
speaking, only the tribunal whose act is examined is a necessary party in
a certiorari action, other parties may and even must be brought into the
certiorari action if their rights are to be adjudicated.
The district court entered an order granting the award of sanctions
in favor of Musco. The district court held there was no authority for the
proposition that Musco could be joined as a party in a certiorari action.
The district court concluded the lawsuit was “riddled with deficiencies;
deficiencies that should have been apparent to plaintiff from the start.”
The lynchpin of the district court’s analysis was that any claim against
Musco was “bound to fail because Musco simply is not a proper party.”
Because Musco’s attorneys did not present an itemized list of their
billings, the court deferred entering a specific amount as sanctions.
Once the court received itemized attorneys’ fees, the court awarded
Musco the entire amount, or $47,403.87, plus interest, as a sanction
against Everly’s attorney, Kathryn Barnhill.
Everly filed a notice of appeal. We transferred the case to the court
of appeals. The court of appeals affirmed the district court on all issues.
The court of appeals agreed that once Everly dismissed the school
district and the superintendent, Everly’s underlying petition against
Musco seeking certiorari was unfounded. While there may have been a
valid claim against governmental entities, the court of appeals noted that
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Everly had dismissed those claims at the hearing on the motion to
dismiss. As a result, on the merits the court of appeals affirmed the
district court’s dismissal of the action.
The court of appeals also affirmed the district court on the
question of sanctions. Because the court of appeals found Everly’s claim
after the dismissal of the governmental entities was frivolous, it affirmed
the sanctions awarded by the district court.
In considering an application for further review, we have the
discretion to review all or part of the issues raised on appeal or in the
application for further review. In re Marriage of Becker, 756 N.W.2d 822,
824 (Iowa 2008). In exercising our discretion, we choose only to review
the court-imposed sanctions awarded to Musco by the district court.
Therefore, we will let the court of appeals’ affirmance of the district
court’s dismissal of Everly’s action stand as the final decision of this
court. See Hills Bank & Trust Co. v. Converse, 772 N.W.2d 764, 770
(Iowa 2009).
II. Standard of Review.
The proper means to review a district court’s order imposing
sanctions is by writ of certiorari. Mathias v. Glandon, 448 N.W.2d 443,
445 (Iowa 1989). Thus, although this action is styled as an appeal, we
treat it as a petition for a writ of certiorari to the extent it challenges the
award of sanctions in this matter. See Iowa R. App. P. 6.108.
A district court’s order imposing sanctions under our rules of civil
procedure is reviewable for an abuse of discretion. Mathias, 448 N.W.2d
at 445. We will find an abuse “when the district court exercises its
discretion on grounds or for reasons clearly untenable or to an extent
clearly unreasonable.” Schettler v. Iowa Dist. Ct., 509 N.W.2d 459, 464
(Iowa 1993). Although our review is for an abuse of discretion, we will
9
correct erroneous applications of law. Weigel v. Weigel, 467 N.W.2d 277,
280 (Iowa 1991).
III. Analysis.
A. General Principles Regarding Rule 1.413(1). The Iowa Rules
of Civil Procedure provide in relevant part:
Counsel’s signature to every motion, pleading, or other paper
shall be deemed a certificate that: counsel has read the
motion, pleading, or other paper; that to the best of counsel’s
knowledge, information, and belief, formed after reasonable
inquiry, it is well grounded in fact and is warranted by
existing law or a good faith argument for the extension,
modification, or reversal of existing law; and that it is not
interposed for any improper purpose, such as to harass or
cause an unnecessary delay or needless increase in the cost
of litigation. . . . If a motion, pleading, or other paper is
signed in violation of this rule, the court, upon motion or
upon its own initiative, shall impose upon the person who
signed it, a represented party, or both, an appropriate
sanction, which may include an order to pay the other party
or parties the amount of the reasonable expenses incurred
because of the filing of the motion, pleading, or other paper,
including a reasonable attorney fee.
Iowa R. Civ. P. 1.413(1).
In determining whether a pleading is sanctionable, we must look at
the state of the facts at the time the party filed the pleading. Weigel, 467
N.W.2d at 280–81. The standard we apply is that of a reasonably
competent attorney admitted to practice before the district court. Id. at
281. This test of reasonableness is an objective one, measured by all the
circumstances. Id.
B. Sanctions Arising from the Filing of the Original Action.
The first question we must decide is whether the naming of Musco in
Everly’s original certiorari petition was sanctionable. At the outset, all
parties seem to recognize that taxpayers, in contrast to disappointed
bidders, have standing to challenge a purchasing decision by a
10
governmental entity, ordinarily through a certiorari action. See Elview
Constr. Co. v. N. Scott Cmty. Sch. Dist., 373 N.W.2d 138, 141–42 (Iowa
1985). This case, however, presents a different question. The question
in this case is whether Everly, a taxpayer, could name Musco as a party
in a certiorari action challenging the school district’s purchasing decision
when Musco was only a supplier to the successful bidder, ABC.
The rule in effect at the time Everly filed his petition states:
A writ of certiorari shall only be granted when specifically
authorized by statute; or where an inferior tribunal, board or
officer, exercising judicial functions, is alleged to have
exceeded proper jurisdiction or otherwise acted illegally.
Iowa R. Civ. P. 1.1401. In order for a party to seek a writ of certiorari, it
must name, as defendant, a party who is an inferior tribunal, board, or
officer, exercising judicial functions. Id. r. 1.1402(1). Musco is not such
an entity.
Everly claims existing law, or a good faith argument for the
extension of existing law, warrants joining Musco as a party to a
certiorari action. He contends that although, strictly speaking, only the
tribunal whose act is examined is a necessary party in a certiorari action,
other parties may and even must be brought in to the certiorari action if
their rights are to be adjudicated. The district court and the court of
appeals rejected this argument.
While it is true that a certiorari action must be brought against a
government tribunal, this case as originally filed involved a substantially
different question. The question that arises from the original filing in
this case is whether a supplier that allegedly conspired with a
government entity may be joined as a party in a certiorari petition
brought by a taxpayer against the government entity and its appropriate
official. The issue is not whether a government entity or official
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exercising judicial functions must be joined, but whether a private party
allegedly in league with the unlawful conduct of the government entity or
official may be joined as an additional party.
Although there is no Iowa law directly on this point, case law in
Iowa and from other jurisdictions supports Everly’s claim. One Iowa
case that lends credence to Everly’s claim is Sear v. Clayton County
Zoning Board of Adjustment, 590 N.W.2d 512 (Iowa 1999). There, the
Sears obtained a variance from the board of adjustment allowing them to
place a mobile home upon their agricultural land. Sear, 590 N.W.2d at
513. An adjoining landowner, Metzger, did not want the Sears to have a
mobile home on their land and filed a petition for writ of certiorari
challenging the board’s actions in the district court. Id. Metzger did not
join the Sears as parties to the certiorari action. Id. In Sear, we held the
rules of joinder apply to certiorari actions. Id. at 517–18. We further
held because the Sears’ rights may be affected by the ruling in the
certiorari action, they were indispensible parties to the certiorari action
and should be joined as parties. Id. Although Sear is not factually
identical to the present case, it indicates that our rules of civil procedure
may allow the joinder of a party to a certiorari action whose rights may
be affected by adjudication of the action.
There is at least some support in the case law from other
jurisdictions for naming additional parties in a certiorari petition. In
certiorari actions involving the district court, it has been held that the
usual practice is to name all parties who are likely to be affected by the
judgment. Hilton v. Second Judicial Dist. Ct., 183 P. 317, 319 (Nev.
1919); Hilton Bros. Motor Co. v. Dist. Ct., 25 P.2d 595, 597 (Utah 1933).
Indeed, there is authority for the proposition that in a certiorari action
challenging the ruling of a district court, the real party in interest must
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be brought into the certiorari action, as the district court is only a
nominal defendant. Lally v. Dorchester Div. of the Dist. Ct. Dep’t, 531
N.E.2d 1275, 1278 (Mass. App. Ct. 1988).
There are a number of potential reasons for allowing the joinder of
a private party with a real interest in a certiorari action against a
government entity or official. While a government entity may have
formally approved a bid, the party with the most tangible interests in
defending the bid is not ordinarily the government entity but the
successful bidder. A government entity with no real “dog in the fight”
might decide it is more convenient to “roll-over and die” in order to avoid
the time and expense of litigation. Further, by joining a private party
with a real interest in the action, a plaintiff-taxpayer can establish the
judicial framework and enforcement mechanisms by which the
government entity will be repaid the funds that were unlawfully obtained
by the interested private party.
In this case, because Everly dismissed the school district and its
superintendant from the lawsuit prior to the final resolution of the suit,
we need not, and will not, decide whether a supplier to a successful
bidder, who has a tangible financial interest in the successful bidder’s
contract with the governmental entity, can be joined as a party in a
certiorari action. However, up to the time when Everly dismissed the
school district and its superintendent from his suit, a reasonably
competent attorney could argue under existing law, or make a good faith
argument for the extension of existing law, that such a party may be
joined in a certiorari action. Therefore, we conclude as a matter of law,
the naming of Musco as a party in the original petition along with the
school district and its superintendent was not so far off the mark as to
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be sanctionable at the time the original pleading was filed. 2 See Bellville
v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 485 (Iowa 2005) (holding
no action for bad faith will exist if, as a matter of law, the decision of the
company was fairly debatable).
C. Sanctions Arising After the Dismissal of the School District
and the Superintendent. Prior to the date set for the hearing on
Musco’s motion to dismiss, Everly filed his “Amended Petition.” Prior to
the hearing on the motion to dismiss, the district court had taken no
action on the amended petition. At the beginning of the hearing on the
motion to dismiss, Barnhill clearly and unequivocally moved that the
school district and the superintendent be dismissed without prejudice.
At this point, the landscape materially changed. There was no
longer a government entity before the court, but only a private party.
Everly, however, was not entitled to recover directly from Musco even if
he proved that the underlying contract was illegal. In a certiorari action
against a government entity, the government entity is a necessary party.
See Iowa R. Civ. P. 1.1401. Thus, at this point, as found by the district
court and the court of appeals, there was no basis for proceeding solely
against Musco.
The narrow issue that emerges is whether at this point in the
proceedings, Barnhill crossed the line established by Iowa Rule of Civil
Procedure 1.413(1) by continuing to press her claim solely against
Musco. We know of no authority for the proposition that a disappointed
taxpayer can bring a certiorari action solely against a supplier to a
successful bidder who allegedly improperly procured a government
2It is possible that the original pleading could be sanctionable because of lack of
a good faith factual basis or because it was motivated to achieve an improper purpose.
See Iowa R. Civ. P. 1.413(1). Musco, however, did not make these claims before either
the district court or the court of appeals. As a result, we do not consider them.
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contract without naming a government entity. We conclude that the
district court did not abuse its discretion by sanctioning Barnhill for her
actions after the dismissal of the government entity and official.
IV. Remand Directions.
Because the district court sanctioned Everly’s attorney for the
original filing of his certiorari petition, we must reverse its decision doing
so. On remand, the district court should determine the appropriate
sanction for the continuation of Everly’s certiorari action against Musco
after he voluntarily dismissed the school district and the superintendent
from the action. In determining the proper sanction, the district court
should make specific findings as to “ ‘(1) the reasonableness of the
opposing party’s attorney’s fees; (2) the minimum to deter; (3) the ability
to pay; and (4) factors related to the severity of the . . . violation.’ ”
Barnhill v. Iowa Dist. Ct., 765 N.W.2d 267, 277 (Iowa 2009) (quoting In re
Kunstler, 914 F.2d 505, 523 (4th Cir. 1990)). In weighing the severity of
the violation, the district court should consider the American Bar
Association factors we set forth in the Barnhill decision. Id. at 276–77.
V. Disposition.
We affirm the decisions of the court of appeals and the district
court dismissing Everly’s petition for writ of certiorari against Musco. As
to the sanctions, we vacate the decision of the court of appeals, and
sustain the writ of certiorari. Additionally, we remand the case to the
district court for further proceedings regarding the award of sanctions
not inconsistent with this opinion.
DECISION OF COURT OF APPEALS AFFIRMED IN PART AND
VACATED IN PART; DISTRICT COURT JUDGMENT AFFIRMED IN
PART, WRIT SUSTAINED, AND CASE REMANDED.
All justices concur except Appel, J., who takes no part.