Larry D. Schaefer and Elaine M. Schaefer v. Dale L. Putnam, Putnam Law Office, and SMP, L.L.C.

IN THE SUPREME COURT OF IOWA
No. 12–0064
Filed December 13, 2013
LARRY D. SCHAEFER and ELAINE M. SCHAEFER,
Appellants,
vs.
DALE L. PUTNAM, PUTNAM LAW OFFICE, and SMP, L.L.C.,
Appellees.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Cerro Gordo County,
James M. Drew, Judge.
A farm creditor seeks further review of a court of appeals decision
reversing a district court ruling that found it had subject matter
jurisdiction to foreclose a mortgage on agricultural property. DECISION
OF COURT OF APPEALS VACATED IN PART AND AFFIRMED IN
PART; DISTRICT COURT JUDGMENT AFFIRMED.
Peter C. Riley of Tom Riley Law Firm, P.L.C., Cedar Rapids, for
appellants.
Dale L. Putnam of Putnam Law Office, Decorah, for appellees.
2
ZAGER, Justice.
In this appeal, we are asked to interpret Iowa Code section
654A.6(1) (2009) when a farm creditor, after being sued regarding the
validity of its mortgages, brought a counterclaim to foreclose the
mortgages without first obtaining a mediation release. Larry and Elaine
Schaefer filed suit against their sons, their former attorney, Dale
Putnam, a limited liability company, SMP, L.L.C. (SMP), and others.
SMP, without first seeking mediation, counterclaimed to foreclose on a
mortgage granted by the Schaefers on their agricultural property. The
district court foreclosed the mortgage. After the district court denied the
Schaefers’ motion to quash or stay the sheriff’s sale, they appealed,
arguing that the district court lacked subject matter jurisdiction to
foreclose on the agricultural property without SMP first obtaining the
mediation release required by Iowa Code section 654A.6(1). The court of
appeals agreed and reversed the district court. We granted further
review. For the reasons set forth below, we conclude SMP was not
required to obtain the mediation release prior to filing a counterclaim to
foreclose its mortgage. We therefore reverse the court of appeals on this
issue and affirm the decision of the district court.
I. Background Facts and Proceedings.1
In 1998, Land O’ Lakes obtained a judgment against Larry
Schaefer for $127,125 plus interest. After the judgment, Larry Schaefer
transferred by quitclaim deed, for no consideration, real property located
in Oklahoma to his wife Elaine. After Land O’ Lakes commenced a
1The procedural history of this case is lengthy and complex. However, some
history regarding the facts leading up to the current dispute will be instructive.
3
fraudulent-transfer action against Larry and Elaine Schaefer2 in
Oklahoma, it obtained a judgment for $161,749.19. The Oklahoma
judgment amount represented the original judgment against Larry plus
accrued interest and costs.
On January 12, 2001, G.R.D. Investments L.L.C. (G.R.D.) filed its
“Articles of Organization” with the Iowa Secretary of State, naming the
Schaefers as the managers of G.R.D. The Schaefers entered into an
employment agreement with G.R.D., which entitled Larry and Elaine
each to health insurance and a salary. G.R.D.’s operating agreement
named Raymond and Dean Schaefer, the Schaefers’ sons,3 as the initial
members of G.R.D. The purpose of G.R.D., according to the operating
agreement, was to purchase, sell, and rent real estate. G.R.D. was
formed with the assistance of the Schaefers’ attorney, Dale Putnam.4
In January 2001, the Schaefers transferred by quitclaim deed all of
their nonexempt real property to G.R.D. The property consisted of
approximately 160 acres of farmland and other real estate on which
houses and buildings were situated. The Schaefers retained forty acres
of real estate in Cerro Gordo County, which they claimed as their forty-
acre homestead. After the transfer of the real property, Liberty Bank,
F.S.B.5 loaned money to G.R.D., and G.R.D. executed and delivered to
2We will refer individually to Larry Schaefer and Elaine Schaefer as Larry and
Elaine. We will refer collectively to Larry and Elaine Schaefer as the Schaefers.
3To
avoid confusion with Larry and Elaine Schaefer (Schaefers), we will refer to
Raymond and Dean Schaefer as Raymond and Dean.
4We will refer collectively to Dale Putnam and Putnam Law Office as Putnam.
5Liberty Bank, F.S.B. is successor by merger of Hancock County Bank & Trust.
The loans in question were actually made by Hancock County Bank, but for purposes of
clarity, we refer to the lender as Liberty Bank, which was a party to this suit, though it
has no role in this appeal.
4
Liberty Bank mortgages on the real property transferred previously by
the Schaefers to G.R.D.
In July 2001, Land O’ Lakes filed a complaint in the United States
District Court for the Northern District of Iowa seeking to enforce its
judgment against the 160 acres of farmland, despite the Schaefers’
purported transfer of the farmland to G.R.D. Afterwards, Land O’ Lakes
and the Schaefers discussed settlement. In May 2003, the parties
reached a settlement agreement under which the Schaefers agreed to pay
Land O’ Lakes $85,000.
On April 2, the Schaefers executed a promissory note for $85,000
payable to G.R.D. A mortgage on the Schaefers’ previously retained
forty-acre homestead, executed the same day, secured the note. On May
1, G.R.D. borrowed $275,000 from Liberty Bank and executed a
promissory note. G.R.D. then loaned the Schaefers $85,000. On May
12, the Schaefers tendered to Land O’ Lakes the settlement funds.
In October 2003, the Schaefers filed for Chapter 7 bankruptcy. On
March 30, 2004, the bankruptcy trustee filed a complaint seeking to
avoid as fraudulent the January 2001 transfers by the Schaefers to
G.R.D. The bankruptcy court afterward voided the 2001 transfers under
the Bankruptcy Code.6 See 11 U.S.C. § 548 (2000). As a result of the
bankruptcy ruling, the trustee had the authority to take control of the
real property, liquidate it, and distribute sale proceeds to the Schaefers’
creditors.
To prevent the trustee from selling the real property, the Schaefers
had to pay their creditors, the trustee’s fees, and the trustee’s attorney
6The effect of this bankruptcy ruling on who held title to the real property was
examined in Schaefer v. Schaefer, 795 N.W.2d 494, 502 (Iowa 2011).
5
fees. The Schaefers borrowed the necessary money from SMP. In late
2005, the Schaefers executed four promissory notes payable to SMP and
granted SMP a mortgage on certain real property. Also, on June 8, 2006,
G.R.D. assigned to SMP the mortgage on the forty-acre homestead dated
April 2, 2003, which secured the $85,000 promissory note with the same
date. The Schaefers defaulted on the notes.
On September 23, 2008, the Schaefers filed their petition at law for
declaratory relief against Putnam, SMP, G.R.D., Raymond and Dean, and
Liberty Bank.7 The Schaefers alleged Putnam negligently advised them
with respect to their bankruptcy and the formation of G.R.D. The
Schaefers also alleged Putnam and SMP breached their fiduciary duties
to the Schaefers. According to the petition, these breaches of fiduciary
duties rendered the mortgages delivered to SMP unenforceable.
Both Putnam and SMP filed answers and counterclaims. Putnam
counterclaimed for unpaid attorney fees. SMP counterclaimed seeking to
foreclose all its mortgages, including the $85,000 mortgage on the forty-
acre homestead. With respect to the mortgage on the forty-acre
homestead, SMP’s counterclaim contended that “[d]ue to the Plaintiff’s
filing their Petition, and the claim of SMP constituting a compulsory
counterclaim, there is no requirement for mediation or a Notice to Cure.”
In their answer to SMP’s counterclaim, among their other responses, the
Schaefers “den[ied] the allegations . . . with respect to the requirement
for mediation.”
The district court bifurcated the proceedings and commenced a
jury trial on February 8, 2011. The jury reached a verdict on March 4 in
7Because this appeal addresses only the claims and counterclaims among the
Schaefers, Putnam, and SMP, only the facts and proceedings relevant to those claims
have been set forth here.
6
which it rejected the Schaefers’ claims against Putnam. The jury
returned a verdict in favor of Putnam on his counterclaim for unpaid
attorney fees. Accordingly, the court dismissed the claims against
Putnam and entered judgment for him in the amount of $12,200. The
court later denied all of the Schaefers’ posttrial motions.
On June 6, the district court issued its findings of fact and
conclusions of law regarding SMP’s counterclaims to foreclose its
mortgages. Based on its findings and conclusions, the court entered
judgment in rem in favor of SMP for $149,596.80 plus $86,079.25 in
attorney fees and foreclosed the mortgage on the forty-acre homestead.8
On September 7, on behalf of Putnam, a “Notice of Sheriff’s Levy
and Sale” was issued notifying the Schaefers of the sheriff’s intent to sell
the Schaefers’ right to appeal the district court’s June 6 order. The sale
was scheduled for November 17. Also on September 7, on behalf of SMP,
a “Notice of Sheriff’s Levy and Sale” was issued informing the Schaefers
the sheriff planned to liquidate the foreclosed real property, including the
forty-acre homestead. The sale was scheduled for December 8, and the
notice indicated the sale was not subject to a right of redemption.
On November 3, the Schaefers filed a motion to quash, seeking to
prevent the sale of their appeal rights. The Schaefers argued the right to
appeal was not subject to levy under Iowa Code section 626.21. Putnam
resisted, arguing the right to appeal is like any other asset, and as such,
is subject to execution. On November 15, the district court found that
Putnam, as a judgment creditor of the Schaefers, may levy on appeal
rights relating to the claims brought by the Schaefers. Putnam could
8Inthe same order, the district court also foreclosed an additional mortgage that
secured the four additional promissory notes, totaling $476,148.39.
7
not, however, levy on the appeal rights of the claims brought against the
Schaefers. The court ordered the sheriff’s sale cancelled. Following
receipt of another levy and sale notice, this one reflecting the district
court’s order narrowing Putnam’s right to levy on the appeal rights, the
Schaefers sought again to quash the sale. Again, SMP resisted. The
district court denied the second motion to quash.
On November 30, the Schaefers filed another motion to quash, this
time seeking to prevent the sale of the forty-acre homestead. The
Schaefers argued for the first time that under Iowa Code chapter 654A
the district court lacked subject matter jurisdiction to foreclose the forty-
acre homestead. According to the Schaefers, the forty-acre homestead
was agricultural property under Iowa Code chapter 654A, and SMP did
not obtain a mediation release prior to asserting its counterclaim seeking
foreclosure. The mediation release, the Schaefers argued, was a
jurisdictional prerequisite to the district court’s subject matter
jurisdiction over the foreclosure proceeding. The Schaefers asserted the
sale of the forty-acre homestead should therefore be quashed or stayed.
In addition to contesting jurisdiction, the Schaefers asserted the sale
should be subject to a right of redemption. SMP resisted.
On December 7, the district court denied the Schaefers’ motion to
quash the Sheriff’s sale of the forty-acre homestead. Nevertheless, noting
that SMP agreed that the forty-acre homestead was agricultural property,
the court found the sale should be subject to a one-year right of
redemption.
On January 6, 2012, the Schaefers appealed the district court’s
ruling denying their motion to quash the sale of the forty-acre
homestead. On March 8, the Schaefers appealed the court’s ruling
denying their motion to quash the sale of their appeal rights. We
8
consolidated the two appeals and transferred the case to the court of
appeals.
In February 2013, the court of appeals issued its opinion. Finding
that Iowa Code section 626.21 permits creditors to levy upon “things in
action” and that the rights of the Schaefers to appeal the affirmative
claims brought by them were just such “things,” the court held the
district court did not abuse its discretion when it denied the Schaefers’
motion to quash the levy and sale of their appeal rights. The Schaefers
do not seek further review of the court’s holding affirming the district
court.
The court of appeals did, however, reverse the foreclosure of the
forty-acre homestead. As they had at the district court, the Schaefers
argued the court lacked subject matter jurisdiction to hear SMP’s
counterclaim seeking foreclosure because SMP did not first obtain the
mediation release required by Iowa Code section 654A.6(1). SMP
countered that the mediation requirement did not apply to its
counterclaim because it did not “desire” to “initiate” the foreclosure
proceeding, which SMP asserted was a compulsory counterclaim under
Iowa Rule of Civil Procedure 1.241.
The court did not determine whether the foreclosure proceeding
was a compulsory counterclaim. Rather, based on the court’s
examination of the legislative history of chapter 654A and our precedent,
the court of appeals concluded the legislature intended a broad
construction of the mediation requirement to protect farmers facing
foreclosure. Adopting this broad construction, the court of appeals held
the phrase “desiring to initiate a proceeding” used in Iowa Code section
654A.6(1)(a) encompassed the filing of a counterclaim. Because SMP had
not obtained a mediation release before asserting its counterclaim, it had
9
not met the jurisdictional prerequisites of section 654A.6(1). The court of
appeals concluded, therefore, that the district court lacked subject
matter jurisdiction to hear SMP’s foreclosure counterclaim.
SMP sought further review, which we granted to interpret Iowa
Code section 654A.6(1).
II. Standard of Review.
We review subject matter jurisdiction rulings for correction of
errors at law. Klinge v. Bentien, 725 N.W.2d 13, 15 (Iowa 2006); see also
Iowa R. App. P. 6.907. “A ‘court has inherent power to determine
whether it has jurisdiction over the subject matter of the proceedings
before it.’ ” Klinge, 725 N.W.2d at 15 (quoting Tigges v. City of Ames, 356
N.W.2d 503, 512 (Iowa 1984)). Questions of statutory construction also
are reviewed for corrections of legal error. Hardin Cnty. Drainage Dist.
55, Div. 3, Lateral 10 v. Union Pac. R.R., 826 N.W.2d 507, 510 (Iowa
2013); cf. Wesley Ret. Servs., Inc. v. Hansen Lind Meyer, Inc., 594 N.W.2d
22, 29 (Iowa 1999) (ruling compelling mandatory arbitration under Iowa
Code section 679A.1 is reviewed for correction of errors at law).
III. Discussion.
On further review, we have discretion to review any issues raised
on appeal, whether or not they were raised in the application for further
review. Chamberlain, L.L.C. v. City of Ames, 757 N.W.2d 644, 648 (Iowa
2008). We here choose not to review the court of appeals’ affirmance of
the trial court’s denial of the Schaefers’ motion to quash the sale of their
appeal rights. Therefore, the court of appeals decision on that issue
stands. Cf. Hills Bank & Trust Co. v. Converse, 772 N.W.2d 764, 770
(Iowa 2009) (holding court of appeals decision stood on issues not
addressed on further review).
10
The sole issue before us is whether a farm creditor that brings a
compulsory counterclaim to foreclose agricultural property is subject to
the mandatory mediation requirement contained in Iowa Code section
654A.6(1)(a) (2009).9 On further review, SMP makes two arguments.
First, SMP contends it did not desire to initiate the proceeding to
foreclose the mortgage on the forty-acre homestead. Second, SMP argues
the Schaefers could have pursued voluntary mediation under Iowa Code
section 654A.5, the voluntary mediation provision. The Schaefers’ failure
to do so, according to SMP, relieved SMP of the obligation to seek
mediation under section 654A.6(1), the mandatory mediation provision.
The Schaefers urge us to broadly interpret section 654A.6(1),
which would prevent SMP from bringing its counterclaim prior to
pursuing mediation. The Schaefers assert we should not address SMP’s
second argument, which they note SMP did not raise at the court of
appeals. Alternatively, the Schaefers insist their election not to mediate
under the voluntary mediation provision has no effect on the
jurisdictional requirement that SMP first seek mediation under the
mandatory mediation provision.
A. Compulsory Counterclaim. As a preliminary matter, we must
determine whether SMP’s counterclaim to foreclose on the forty-acre
homestead was indeed compulsory. The court of appeals did not answer
this question. Under Iowa Rule of Civil Procedure 1.241, a party who
fails to raise a compulsory counterclaim loses the claim. See Iowa R. Civ.
P. 1.241. A compulsory counterclaim is a claim that arises out of the
same transaction or occurrence that is the basis of the opposing party’s
claim if the following are true: (1) the claim is then matured, (2) the claim
9Unless otherwise noted, all references are to the 2009 Iowa Code.
11
is not the subject of any other pending action, (3) the claim is held by the
pleader against the opposing party, and (4) the claim does not require the
presence of necessary parties over whom the court cannot acquire
jurisdiction. Iowa R. Civ. P. 1.241 official cmt; Harrington v. Polk Cnty.
Fed. Savs. & Loan Ass’n of Des Moines, 196 N.W.2d 543, 545 (Iowa
1972). In order to determine whether a claim arises out of the same
transaction or occurrence, we ask whether there is any logical relation
between the plaintiff’s claim and the counterclaim. Harrington, 196
N.W.2d at 545. SMP’s foreclosure counterclaim was logically related to
the Schaefers’ claim. In fact, the Schaefers’ petition sought to have the
mortgages declared unenforceable because, they alleged, SMP had
breached its fiduciary duties to the Schaefers. See Farmers State Bank v.
Cook, 251 Iowa 942, 948, 103 N.W.2d 704, 707 (1960) (finding
counterclaim to foreclose on a trailer was compulsory after buyer sought
damages for breach of warranty). A counterclaim is mature when the
party possessing the claim “is entitled to a legal remedy.” Sky View Fin.,
Inc. v. Bellinger, 554 N.W.2d 694, 697 (Iowa 1996). SMP’s claim to
foreclose on the forty-acre homestead was mature because the Schaefers
were in default on the mortgage and promissory note.
The other elements of a compulsory counterclaim are also met.
The foreclosure action was not pending at the time the Schaefers filed
their petition, it was held by SMP against the Schaefers, and the
foreclosure action did not require the presence of parties over whom the
district court could not acquire jurisdiction. Accordingly, SMP’s right to
foreclose the mortgage on the forty-acre homestead clearly was a
compulsory counterclaim in the Schaefers’ action to declare that
mortgage invalid.
12
B. Statutory Interpretation. This case requires us to interpret
the language of Iowa Code section 654A.6(1). In doing so, we apply well-
settled principles:
“The purpose of statutory interpretation is to determine the
legislature’s intent. We give words their ordinary and
common meaning by considering the context within which
they are used, absent a statutory definition or an established
meaning in the law. We also consider the legislative history
of a statute, including prior enactments, when ascertaining
legislative intent. When we interpret a statute, we assess the
statute in its entirety, not just isolated words or phrases.
We may not extend, enlarge, or otherwise change the
meaning of a statute under the guise of construction.”
State v. Romer, 832 N.W.2d 169, 176 (Iowa 2013) (quoting In re Estate of
Bockwoldt, 814 N.W.2d 215, 223 (Iowa 2012)).
1. The provenance and purpose of farm mediation in Iowa. Before
proceeding to analyze the terms of the mandatory mediation statute, it is
helpful to examine its history and the events that culminated in its
enactment. We examine the statute’s legislative history and the
circumstances under which it was enacted to aid our understanding of
the legislature’s intent. See Iowa Code § 4.6(2) (permitting courts when
resolving ambiguity to examine the circumstances of a statute’s
enactment); Romer, 832 N.W.2d at 176 (noting we consider legislative
history when interpreting an ambiguous statute); State v. Lindell, 828
N.W.2d 1, 5 (Iowa 2013) (“We also consider the legislative history of a
statute when determining legislative intent.”). The history of chapter
654A and the circumstances under which it was enacted offer support
for our ultimate interpretation of the mandatory mediation provision.
In the late 1970s and early 1980s, sudden economic changes
“caused the bottom to fall out of the U.S. farm economy.” Bethany
Verhoef Brands et al., The Iowa Mediation Service: An Empirical Study of
Iowa Attorneys’ Views on Mandatory Farm Mediation, 79 Iowa L. Rev.
13
653, 661 (1994) [hereinafter Brands]; see also Leonard L. Riskin, Two
Concepts of Mediation in the FmHA’s Farmer–Lender Mediation Program,
45 Admin. L. Rev. 21, 25–26 (1993) (describing the onset of the farm
crisis). The bust followed a boom. Brands, 79 Iowa L. Rev. at 657–63
(contrasting the 1970s with the 1980s). In the 1970s, world agricultural
commodity markets vastly expanded, agricultural land prices rapidly
increased, and credit for farmers freely flowed. See id. at 658–61. When
the farm crisis descended, farmers who had taken on heavy debt
burdens could no longer manage the interest payments on those debts.
Id. at 665. Lenders responded by foreclosing on real property or seeking
to recover farm machinery shortly after loans became delinquent. Id.
The crisis not only devastated farms, small banks, and agribusinesses,
but also destroyed farmers and their families. See id. at 665–67.
Substance abuse, violence, and suicide tore through Iowa’s farm
communities. See id. at 667.
In response, advocacy groups formed to aid distressed farmers. Id.
They established hotlines and held workshops to inform farmers of their
rights. Id. at 668. They gathered media attention. Id. Members of the
clergy, social workers, and healthcare professionals visited farmers and
their families, but attorneys capable of handling farmers’ legal problems
were scarce. Id. at 668–69.
In 1985, disparate groups including farmers, mediators, and
creditors created a voluntary mediation program to ease tensions
between farmers and creditors. See id. at 672–73. The next year, the
Iowa legislature, by enacting Iowa Code chapter 654A, went a step
further and mandated a creditor seek mediation in some cases before it
could proceed to foreclosure. See 1986 Iowa Acts ch. 1214, § 19 (codified
14
at Iowa Code § 654A.6(1) (1987)).10 It also enacted that same year the
voluntary mediation provision. See id. § 18 (codified at Iowa Code
§ 654A.5 (1987)). The legislature found specifically that foreclosure
threatened farmers who were unable to make mortgage payments, that
the farm crisis affected all rural businesses, and that the “agricultural
sector of the economy of this state [was] under severe financial stress.”
Id. § 1. The legislature further noted “[t]he agricultural economic
emergency require[d] an orderly process . . . to adjust agricultural
indebtedness to preserve the general welfare and fiscal integrity of the
state.” Id. Interpreting the statute shortly after it was enacted, we
described a “general legislative intent to give some relief to farmers in
dire financial straits.” First Nat’l Bank in Lenox v. Heimke, 407 N.W.2d
344, 346 (Iowa 1987).
2. The terms of the mandatory mediation provision. We have had
few opportunities to review Iowa Code section 654A.6. See generally Kent
Feeds, Inc. v. Manthei, 646 N.W.2d 87, 89–90 (Iowa 2002) (holding on a
narrow reading of chapter 654A that the mandatory mediation provision
does not require a creditor to engage in mediation before pursuing a
10Like Iowa, other states have passed statutes mandating that creditors seek
mediation or provide debtors notice of the chance to mediate before foreclosing on
agricultural property. See, e.g., Ark. Code Ann. § 2-7-302 (West, Westlaw current
through 2013 Reg. and First Ex. Sess.); Minn. Stat. Ann. § 583.26 (West, Westlaw
current through 2013 First Special Sess.); S.D. Codified Laws § 54-13-10 (Westlaw
current through 2013 Reg. Sess.). Some states have provided for voluntary mediation
schemes before agricultural property foreclosure. See, e.g., Neb. Rev. Stat. Ann. § 2-
4808 (Westlaw current through 2013 Reg. Sess.); Or. Rev. Stat. Ann. § 36.256 (West,
Westlaw current through 2013 Reg. and Special Sess.); Wis. Stat. Ann. § 93.50 (West,
Westlaw current through 2013 Wis. Act 57). Still other states have adopted mediation
programs that apply to residential property foreclosures generally. See, e.g., Conn.
Gen. Stat. Ann. § 8-265ee (Westlaw current through 2013 Reg. and Special Sess.); Me.
Rev. Stat. Ann. tit. 14, § 6321-A (Westlaw current through 2013 First Reg. Sess. and
First Special Sess. of the 126th Legis.). Our research has not revealed another case
involving facts analogous to those presented by this case.
15
personal judgment); Prod. Credit Ass’n of the Midlands v. Shirley, 485
N.W.2d 469, 471 (Iowa 1992) (explaining section 654A.6 stays
proceedings until a creditor obtains a mediation release); Graham v.
Baker, 447 N.W.2d 397, 399 (Iowa 1989) (“The procedural requirements
imposed by the statute mandate only that a creditor request mediation
and participate therein.”); Heimke, 407 N.W.2d at 346 (holding the
mandatory mediation provision is retrospectively applicable).
Chapter 654A applies to “borrowers” who are operating farms.
Iowa Code § 654A.4(2). The chapter applies to creditors of those
borrowers with a secured debt of at least twenty thousand dollars against
the borrower. Id. § 654A.4(1). Under the chapter a “creditor” is, among
other things, “the holder of a mortgage on agricultural property.” Id.
§ 654A.1(3) (emphasis omitted).
The mandatory mediation provision, Iowa Code section
654A.6(1)(a), in relevant part provides, “A creditor . . . desiring to initiate
a proceeding to enforce a debt against agricultural property which is real
estate under chapter 654 . . . shall file a request for mediation with the
farm mediation service.” The phrase “initiate a proceeding to enforce a
debt” could mean Iowa Code section 654A.6(1)(a) requires only that a
creditor bringing the initial claim first seek mediation. The district court
adopted this interpretation, and accordingly, found it was not deprived of
jurisdiction to hear SMP’s foreclosure counterclaim.
It is not apparent from the plain language, however, that section
654A.6 is so limited in scope. The phrase could also be interpreted more
broadly to require mediation prior to a counterclaimant’s action to
enforce a debt, which, if so interpreted, would deprive the district court
of jurisdiction in this case. The Schaefers urge this interpretation, the
same one adopted by the court of appeals. We agree the statute is
16
susceptible of two interpretations and reasonable persons could disagree.
See Bockwoldt, 814 N.W.2d at 223. The statute is ambiguous and “we
must turn to the principles of statutory construction.” Id.
We examine this statute in its entirety when determining the
legislature’s intent. See Romer, 832 N.W.2d at 176; see also Lindell, 828
N.W.2d at 5 (noting we consider the context in which statutory terms are
used); Hardin Cnty. Drainage Dist. 55, 826 N.W.2d at 512 (“We also
examine statutory language holistically.”). Although on further review
SMP directs much of its argument toward insisting the court of appeals
placed insufficient emphasis on what SMP actually “desired,” the real
crux of this dispute is what it means to “initiate” a proceeding under the
mandatory mediation provision. See Iowa Code § 654A.6(1)(a). We
believe Iowa Code section 654A.6 does not require a creditor to seek
mediation before asserting a compulsory counterclaim against a creditor.
The legislature left “initiate” undefined. Therefore, “ ‘we may refer
to prior decisions of this court and others, similar statutes, dictionary
definitions, and common usage’ ” to ascertain the meaning of the word.
Iowa Dental Ass’n v. Iowa Ins. Div., 831 N.W.2d 138, 145 (Iowa 2013)
(quoting Bernau v. Iowa Dep’t of Transp., 580 N.W.2d 757, 761 (Iowa
1998)). The dictionary definitions of “initiate” are “to cause or facilitate
the beginning of” and “set going.” Merriam Webster’s Collegiate
Dictionary 644 (11th ed. 2004). Black’s Law Dictionary also defines
initiate: “Commence; start; originate; introduce; inchoate.” Black’s Law
Dictionary 784 (6th ed. 1990). In Iowa Code section 654A.6, then,
“initiate” means to start or commence. Read with this meaning, the
mandatory mediation provision mandates a creditor first seek mediation
before it starts a proceeding. See Iowa Code § 654A.6(1)(a). On the other
hand, a creditor named as a defendant in a proceeding, like SMP in this
17
case, by a borrower, like the Schaefers in this case, need not seek
mediation because the creditor did not start the proceeding.
The word “initiates” appears again in section of 654A.6(1). Iowa
Code section 654A.6(1)(b), the jurisdictional prerequisite provision, which
directly impinges on this dispute, provides that the requirements of the
mandatory mediation provision “are jurisdictional prerequisites to a
creditor filing a civil action that initiates a proceeding subject to [chapter
654A].”11 This provision is noteworthy for its similarity to Iowa’s
procedural rule governing the commencement of actions. That rule
provides, “For all purposes, a civil action is commenced by filing a
petition with the court.” Iowa R. Civ. P. 1.301(1). As noted above, one
definition of “initiate” is “commence.” Black’s Law Dictionary at 784.
The initiation of a civil action is thus achieved by filing a petition with a
court. See Iowa R. Civ. P. 1.301(1). Because we interpret statutes and
court rules so as to harmonize them with one another, we do not view
the jurisdictional prerequisite provision as an effort by the legislature to
alter the method of commencing a civil action for these particular suits.
Cf. Jud. Branch v. Iowa Dist. Ct., 800 N.W.2d 569, 576 (Iowa 2011)
(explaining that when interpreting statutes we seek to harmonize them
with statutes on the same topic). Rather, we view the jurisdictional
prerequisite provision only as requiring a creditor to first comply with the
mandatory mediation requirements before it starts a civil action in the
manner prescribed by the rules of civil of procedure. The provision has
no effect on compulsory counterclaimants, who do not start civil actions.
11We acknowledge the specific definition of “[f]ile” for purposes of chapter 654A,
see Iowa Code § 654A.1(5) (emphasis omitted), but we do not interpret that definition to
apply to “filing” within the jurisdictional prerequisite provision.
18
The mandatory mediation provision displays one final indication it
poses no impediment to a creditor asserting a compulsory counterclaim
to foreclose without first seeking mediation. Section 654A.6(1)(a)
provides that until the creditor receives a mediation release or until a
court determines that the creditor would suffer irreparable harm by
mediating, the “creditor shall not begin the proceeding subject to this
chapter.” Iowa Code § 654A.6(1)(a) (emphasis added). This provision
bars a creditor, like SMP, from starting a proceeding before first
satisfying either of the two conditions to suit. SMP did not seek
mediation and it did not seek a determination that it would suffer
irreparable harm by mediating, but it did not need to. By definition, a
compulsory counterclaim does not begin an action. See Iowa R. Civ. P.
1.241 (requiring a party’s responsive pleading to contain any matured
claim arising out of the same transaction or occurrence not already part
of the pending action); Iowa R. Civ. P. 1.242 (permitting a party to
counterclaim on any matured claim “held by the party when the action
was originally commenced”).
In this case, it was the Schaefers that filed the petition with the
court, thus commencing the action. See Iowa R. Civ. P. 1.301(1).
Nothing in the mandatory mediation provision prohibited the Schaefers
from starting the action because they were borrowers, not creditors. See
Iowa Code § 654A.6(1). Once the action had commenced, nothing in the
statute precluded SMP from raising its foreclosure counterclaim, even
though SMP is a creditor. The mandatory mediation statute requires a
creditor “desiring to” start “a proceeding” to file a mediation request with
the farm mediation service. Id. § 654A.6(1)(a). When SMP filed its
compulsory counterclaim, it did not start the proceeding, nor is there any
indication in the record SMP desired to start such a proceeding until it
19
was confronted with the Schaefers’ initial claim. The statute by its terms
inhibits only a creditor’s ability to initiate a proceeding. See Iowa Code
§ 654A.6(1)(a).
3. Mandatory mediation and subject matter jurisdiction. That
leaves open the question of the effect of the jurisdictional prerequisite
provision in this case. We have never passed on the effect of the
jurisdictional prerequisite provision contained in section 654A.6(1). We
have though reviewed a nearly identical provision in a similar statute,
Iowa Code section 654B.3 (2005). See Klinge, 725 N.W.2d at 17–18. The
general assembly enacted chapter 654B in 1990 because it found the
new chapter “necessary to extend programs enacted in 1986 to provide
legal assistance to farmers suffering financial distress and to provide
farmer-creditor mediation services.” 1990 Iowa Acts ch. 1143, § 1.
The substance of chapters 654A and 654B is similar. Chapter
654B applies to certain types of farm disputes. See Iowa Code § 654B.3.
Section 654B.3(1) prescribes that “[a] person who is a farm resident, or
other party, desiring to initiate a civil proceeding to resolve a dispute,
shall file a request for mediation with the farm mediation service.” Id.
§ 654B.3(1)(a); see also Klinge, 725 N.W.2d at 17–18 (explaining the
consequences of an amendment to section 654B.3(1)). Section 654B.3(1)
prohibits commencing a “proceeding until the person receives a
mediation release,” unless pursuing mediation would cause “irreparable
harm.”12 Iowa Code § 654B.3(1)(a)(1).
Neither chapter 654A nor chapter 654B, as originally enacted,
contained a jurisdictional prerequisite provision. Only after a 1999
12IowaCode section 654B.3(1) permits another exception, which is not available
under chapter 654A and not applicable to this case, if the “dispute involves a claim
which has been brought as a class action.” Iowa Code § 654B.3(1)(a)(2).
20
federal district court ruling did the legislature amend the statutes to
resolve any lingering doubt as to the effects of a litigant’s failure to
comply with the statutes’ mediation requirements. In Rutter v. Carroll’s
Foods of the Midwest, Inc., a group of property owners in Clay County,
Iowa sued Carroll’s Foods of the Midwest, Inc. (CFM), to enjoin the
establishment of a pig nursery and confinement facility. 50 F. Supp. 2d
876, 877–78 (N.D. Iowa 1999). CFM removed the case to federal court
and filed a motion to dismiss for lack of subject matter jurisdiction. Id.
at 878. CFM asserted that the property owners, except for one couple,
failed to comply with the mandatory mediation requirement in chapter
654B, which CFM viewed as a prerequisite to suit. Id. The property
owners resisted. Id.
The federal court first found that the property owners, except for
one couple, failed to fulfill “the prerequisite of obtaining a mediation
release before pursuing this action.” Id. at 880. The court then
examined “whether the mediation release requirement is in fact
‘jurisdictional,’ or merely a condition precedent to suit, and hence
whether failure to obtain such a release requires dismissal for lack of
subject matter jurisdiction, as CFM contends.” Id. at 882. Noting the
national dearth of authority on the specific question, the court “roughly”
analogized the mediation release requirement to the requirement that
employment discrimination plaintiffs first obtain a right-to-sue letter
from the appropriate agency before pursuing a civil suit for
discrimination. Id. Under Title VII, the court found, the right-to-sue
letter is a “ ‘condition precedent’ ” to suit, not a “ ‘jurisdictional
prerequisite’ ” to suit, meaning the defect could be cured after the filing
of a suit. Id.; see also 42 U.S.C. § 2000e-5 (1994). The court also
distinguished Swanger v. Iowa, 445 N.W.2d 344 (Iowa 1989), in which
21
we held that the exhaustion of administrative remedies was
jurisdictional, on the basis that Iowa waives sovereign immunity, “a
jurisdictional matter,” only after the requirements of the relevant statute
have been met. Rutter, 50 F. Supp. 2d at 882 (citing Swanger, 445
N.W.2d at 346–47). “[B]y analogy to comparable cases,” the federal court
concluded that obtaining the mediation release under Iowa Code chapter
654B was a condition precedent to suit, meaning the court did not have
to dismiss the case for lack of subject matter jurisdiction.13 See id. at
882–83 (explaining that the defect of failing to obtain a mediation release
is “curable after suit has been filed”); cf. Walsh v. Larsen, 705 N.W.2d
638, 641–43 (S.D. 2005) (relying on Rutter and concluding that South
Dakota’s mandatory mediation provision in agricultural foreclosure
statute was not jurisdictional).
13Subject matter jurisdiction is “ ‘the authority of a court to hear and determine
cases of the general class to which the proceedings in question belong, not merely the
particular case then occupying the court’s attention.’ ” Christie v. Rolscreen Co., 448
N.W.2d 447, 450 (Iowa 1989) (quoting Wederath v. Brant, 287 N.W.2d 591, 594 (Iowa
1980)). Subject matter jurisdiction is conferred by the constitution or by statute, and
parties cannot confer on a court subject matter jurisdiction. Klinge, 725 N.W.2d at 15.
If a court that lacked subject matter jurisdiction enters a judgment, “the judgment is
void and subject to collateral attack.” Id. at 16.
Subject matter jurisdiction is distinct from a court’s authority to hear a
particular case. See id. (explaining Iowa courts’ increasing care with regard to
distinguishing between subject matter jurisdiction and authority to hear a case). A
court may have subject matter jurisdiction over a case, but nevertheless “may not be
able to entertain the particular case.” Christie, 448 N.W.2d at 450. In such a situation,
and despite having subject matter jurisdiction, the court lacks authority to hear the
case. See id. The distinction is important because a judgment “entered without
authority is voidable rather than void.” Klinge, 725 N.W.2d at 16. Unlike subject
matter jurisdiction, which may not be conferred on a court by the parties, a “court’s
authority can be obviated by consent, waiver or estoppel.” State v. Mandacino, 509
N.W.2d 481, 483 (Iowa 1993). “ ‘Thus if a party waives the court’s [lack of] authority to
hear a particular case, the judgment becomes final and is not subject to collateral
attack.’ ” Klinge, 725 N.W.2d at 16 (quoting In re Estate of Falck, 672 N.W.2d 785, 790
(Iowa 2003)).
22
In 2000, after the Rutter case, the Iowa legislature amended Iowa
Code chapters 654A and 654B. See 2000 Iowa Acts ch. 1129, §§ 1–2
(codified at Iowa Code § 654A.6(1)(b) (2001); id. § 654B.3(1)(b)). The
amendment to chapter 654A, which is nearly the same as the
amendment to chapter 654B,14 clarified that the mandatory mediation
requirements in section 654A.6(1)(a) “are jurisdictional prerequisites to a
creditor filing a civil action that initiates a proceeding subject to this
chapter.” Id. § 1 (codified at Iowa Code § 654A.6(1)(b)). The explanation
that accompanied the introduced version of the legislation states:
This bill amends the mandatory mediation provisions
of two Code sections relating to resolution of farm disputes.
The bill specifies that the mediation requirements in Code
sections 654A.6 and 654B.3 are jurisdictional prerequisites
that must be satisfied before a case can be filed under those
chapters. A 1999 federal district court ruling held that the
current Code language did not prevent the filing of a suit
under chapter 654B prior to mediation of the dispute.
H.F. 2521, 78th G.A., 2d Sess., explanation (Iowa 2000). There were no
relevant amendments before the bill’s enactment.
In 2006, we had the chance to examine section 654B.3 in light of
Rutter and the 2000 amendment. Klinge, 725 N.W.2d at 16–18. In
Klinge, the parties entered into a contract covering the raising and
feeding of pigs. Id. at 14. Klinge sued Bentien for breach of contract in
small claims court, and Bentien counterclaimed for negligence. Id.
Neither party was represented by counsel, and neither party sought
mediation under chapter 654B. Id. After the small claims court entered
judgment in favor of both parties, Klinge appealed to the district court.
14The amendment to chapter 654B clarifies that the requirements of section
654B.3(1)(a) “are jurisdictional prerequisites to a person filing a civil action that initiates
a civil proceeding to resolve a dispute subject to this chapter.” 2000 Iowa Acts ch.
1129, § 2 (codified at Iowa Code § 654B.3(1)(b)) (emphasis added).
23
Id. The district court found a lack of evidence to support either claim,
but because Bentien did not appeal, it ordered that the judgment against
Bentien must stand. Id. at 15.
Bentien’s newly hired attorney then sent the district court a letter
to draw its attention to Iowa Code chapter 654B. Id. The attorney
argued that the court lacked jurisdiction because neither party sought
mediation, but the district court refused to take further action. Id. On
appeal to this court, Bentien sought dismissal and argued both the small
claims court and district court lacked subject matter jurisdiction. Id.
After finding that chapter 654B was applicable to the parties and
to their dispute, we examined the consequences under chapter 654B of
failing to obtain a mediation release prior to bringing suit. Id. at 16–18.
We first explained that in Rutter, the federal district court used terms
different than we would have used to articulate the same legal concepts.
Id. at 17 (citing Rutter, 50 F. Supp. 2d at 882–83). The Rutter court
“used ‘jurisdictional prerequisite’ to refer to subject matter jurisdiction
and ‘condition precedent’ to refer to the authority of a court to hear a
case.” Id. (quoting Rutter, 50 F. Supp. 2d at 882). Instead, “we would
have articulated the issue as a matter of the court’s authority to hear the
particular case rather than a condition precedent to suit.” Id. at 18.
After addressing those semantic differences, we turned to the 2000
amendment to chapter 654B. Id. We viewed the timing of the
amendment, which followed closely on the heels of Rutter, the use of the
phrase “jurisdictional prerequisites” in both Rutter and the 2000
amendment to chapter 654B, and the bill’s explanatory statement as
indicative of the legislature’s intent to guide a different result than that
reached in Rutter. See id. at 17–18 (explaining reasoning behind the
conclusion that “the legislature intended a different result than that of
24
the Rutter decision”). We therefore concluded that, under chapter 654B,
“the legislature intended obtaining a mediation release from the farm
mediation service to be a prerequisite to subject matter jurisdiction.” Id.
at 18. Accordingly, we held the small claims and district court decisions
were void for lack of subject matter jurisdiction. Id. As we noted in
Klinge,
The legislature may create jurisdictional prerequisites to
subject matter jurisdiction. In this case, the parties are not
deprived of their day in court. The legislature has merely
made a policy decision that farm disputes shall be mediated
before a suit is filed.
Id. at 18 n.2.
There is no reason in this case to depart from our holding in
Klinge. A farm creditor’s failure to comply with the mandatory mediation
requirements under Iowa Code section 654A.6(1), as with a litigant’s
failure to mediate under section 654B.3(1), deprives the district court of
subject matter jurisdiction to hear the claim. Compare Iowa Code
§ 654A.6(1)(b), with id. § 654B.3(1)(b); see also Klinge, 725 N.W.2d at 18
(holding failure by the plaintiff to mediate under Iowa Code section
654B.3 deprived the district court of subject matter jurisdiction). As we
explained above, however, the jurisdictional prerequisite provision’s effect
is limited. In amending section 654A.6(1) in 2000, the legislature was
careful to impose a jurisdictional impediment only when a “creditor fil[es]
a civil action that initiates a proceeding.” Iowa Code § 654A.6(1)(b).
Because SMP did not file a civil action, but rather filed a compulsory
counterclaim, the jurisdictional prerequisite provision was not
implicated. Therefore, the district court did have jurisdiction to foreclose
the mortgage on the forty-acre homestead, just as it had jurisdiction to
foreclose the other mortgage at issue in the case.
25
The history and purposes of chapter 654A, both its initial
enactment and subsequent amendment, confirm our view that the
mandatory mediation provision does not require a creditor to mediate
before raising a compulsory counterclaim. The mandatory mediation
provision sensibly slows down the foreclosure process by placing in front
of creditors a procedural hurdle. See Graham, 447 N.W.2d at 399
(explaining the “requirements placed upon creditors by chapter 654A are
procedural, adding an additional step in the process required for
forfeiture”); Heimke, 407 N.W.2d at 346 (explaining the provision adds an
additional procedure in the foreclosure process). The purposes of the
farm mediation statute would not be served by requiring a creditor to
first seek mediation before raising a compulsory counterclaim. Once a
borrower initiates a civil action against a creditor, there is no process to
slow down because both parties are already in court. Once the Schaefers
filed suit against SMP, there was no possibility mediation would ease
tensions between the two parties. The well was poisoned. There is no
reason to expect at that point the Schaefers would have derived any
benefit from a debt adjustment process directed only toward the
mortgage on their agricultural property, especially when as part of the
same case the Schaefers faced foreclosure of another mortgage for which
the mediation statute offered no protection.
Moreover, despite SMP acknowledging in its counterclaim the
applicability of the farm mediation statute, the Schaefers did not move to
have the claim dismissed. They held back their jurisdictional challenge
and reduced a laudable statute, enacted to protect beleaguered farmers,
to a tactic, withheld until the end of trial and only then deployed to
forestall the sale of judicially foreclosed real estate.
26
The Schaefers chose to go on the offensive and litigate against their
creditor, SMP. In doing so, the Schaefers put into issue the very
mortgage over which they now argue they should have had the chance to
mediate. As SMP points out, the Schaefers eschewed the orderly
adjustment process available to them under the voluntary mediation
provision. That provision permits either a borrower “or a creditor of that
borrower” to “request mediation of the indebtedness by applying to the
farm mediation service.” Iowa Code § 654A.5. The choice by a borrower
not to pursue voluntary mediation does not relieve a creditor of its
obligation to mediate when required to do so by the mandatory mediation
provision. Nevertheless, the decision by the Schaefers not to pursue
voluntary mediation demonstrates they did not view the opportunity to
adjust or discuss their debts using that process as useful or beneficial.
If a borrower bypasses voluntary mediation and proceeds directly to
court, and in doing so challenges the enforceability of the very mortgage
that would be discussed in mediation, we see no reason why a creditor
must first pursue mediation before raising its compulsory counterclaim
to enforce that mortgage on the borrower’s agricultural property.
C. Conclusion. After reviewing the statute’s history, the statutory
language, and the circumstances under which it was enacted, we
conclude the legislature did not intend Iowa Code section 654A.6(1) to
require creditors seek mediation before raising a compulsory
counterclaim brought to enforce a debt. SMP was not required to satisfy
the jurisdictional prerequisites as it was not “filing a civil action that
initiate[d] a proceeding” to foreclose the mortgage on the forty-acre
homestead. Id. § 654A.6(1)(b).
27
IV. Disposition.
We vacate the decision of the court of appeals requiring SMP to
seek mediation before raising its counterclaim and affirm the judgment of
the district court on that issue. We affirm the court of appeals decision
and district court judgment on the motion to quash the sale of the
Schaefers’ appeal rights.
DECISION OF COURT OF APPEALS VACATED IN PART AND
AFFIRMED IN PART; DISTRICT COURT JUDGMENT AFFIRMED.