Kersten Co., Inc. v. Department of Social Services

LeGRAND, Justice.

This is an appeal under rule 332, Rules of Civil Procedure, from a denial of defendants’ special appearance, which was based on the defense of governmental immunity from suit for alleged breach of contract. We affirm the trial court, and in doing so we necessarily overrule Megee v. Barnes, 160 N.W.2d 815 (Iowa 1968).

The parties agree this is a suit against the State and agree, too, a special appearance properly raises the question now confronting us. See Marquardt v. Maucker, 184 N.W.2d 684, 685 (Iowa 1971).

Until now we have said governmental immunity is firmly entrenched in our law and any change in its doctrine must come from the legislature. However, we are unwilling to continue that position under the facts alleged by plaintiff, and we therefore invoke our right to judicially renounce a rule which we judicially created. Our decision is based on a finding the State has impliedly waived its immunity to suit in this case.

This statement from Stone v. Arizona Highway Commission, 93 Ariz. 384, 381 P. 2d 107, 113 (1963) perhaps best expresses our philosophy:

“It has been urged by the adherents of the sovereign immunity rule that the principle has become so firmly fixed that any change must come from the legislature. In previous decisions * * * this court concurred in this reasoning. Upon reconsideration we realize that the doctrine of sovereign immunity was originally judicially created. We are now convinced that a court-made rule, when unjust or outmoded, does not necessarily become with age invulnerable to judicial attack. This doctrine having been engrafted upon Arizona law by judicial enunciation may properly be changed or abrogated by the same process.”

It is conceded we must overrule Megee v. Barnes, supra, if we are to affirm the trial court. Since we have determined to follow that course, we think it important to detail our reasons for doing so.

The facts in Megee are indistinguishable from those here. In Megee we held a university professor who alleged her contract of employment had been breached could not maintain an action for damages against the State because of governmental immunity. In the present case the Department of Social Services (hereafter called department) entered into an oral lease with plaintiff, who alleges the terms have been breached. The department’s special appearance challenges the jurisdiction of the court solely on governmental immunity.

Once more we are squarely faced with the argument — repeatedly urged in the past and repeatedly rejected — that the rule of governmental immunity should be abrogated. The doctrine has long been attacked as unsound, unconscionable, and unworthy of a system of government dedicated to protecting the rights of its citizens. One by one, states have defected from its banner to join jurisdictions aligning themselves on the side of governmental responsibility rather than governmental immunity. It is nevertheless true a number of courts still adhere to the general rule of state immunity from suit in contract cases, and until now this court has been one of them.

However, our allegiance has not come easily. It has been marked by sharp disagreement among the members of the court, both past and present. Boyer v. Iowa High School Athletic Association, 256 Iowa 337, 127 N.W.2d 606 (1964) maintained the doctrine as to tort liability by a narrow five-to-four margin. (Tort liability, of course, was later legislatively treated in chapters 25A and 613A, The Code.) Megee v. Barnes, supra, was adopted in 1968 by a six-to-three margin, with one of the concurring judges expressing dissatisfaction with the principle and agreeing with the result only because of his conclusion relief could come only from the legislature.

Today’s decision forsakes that rationale and adopts the rule espoused by many jurisdictions and most graphically described by the Supreme Court of Washington when abrogating its charitable immunity rule in 1953, “We closed our courtroom doors without legislative help, we can likewise open them.” Pierce v. Yakima Valley Memorial Hospital Assn., 43 Wash.2d 162, 260 P.2d 765, 774.

As an examination of the authorities hereafter cited will disclose, sometimes the reasons expressed by such courts have been constitutional, either due process or the taking of property without just compensation; sometimes consent to suit has been found in a statute specifically authorizing the contract in question; and sometimes such consent has been assumed simply from the action of the state in voluntarily entering into a contractual relationship.

For reasons we elaborate on later, we say the State has waived its right to assert governmental immunity as a defense to plaintiff’s claim; or, to put it another way, the State has impliedly consented to this suit.

We should point out we are not now concerned with the merits of the controversy nor with the authority of the department to enter into the lease for the State. Those matters can be fought out at trial. We decide only that plaintiff is not shut off from that opportunity because its contract is with the State.

While the real defendant is the State, its obligation depends upon the actions of the Department of Social Services. We quickly discuss the authority of this state agency.

The Department of Social Services was established by chapter 209, Laws of the Sixty-second General Assembly, Regular Session (1967). The statutes relating to the department are carried as chapters 217 and 218 in The Code. Its authority is broad and its operations diverse and far flung. According to the preamble, the act was passed for the purpose of “combining the present functions of board of social [service], department of social welfare, board of parole, board of control of state institutions and other state agencies and divisions.”

Among other duties, it has jurisdiction over 16 designated state institutions in addition to “camps” and “other facilities * * * as program developments require.” Section 218.1, The Code.

Its appropriated funds for each year of the biennium ending June 30, 1971, amounted to more than $78,000,000. Chapter 57, Laws of the Sixty-third General Assembly, First Session (1969). For the present biennium the appropriation for each year is approximately $100,000,000. Chapter 65, Laws of the Sixty-fourth General Assembly, First Session (1971).

The appropriations are for “all purposes” of the department “including public assistance, salaries, support, maintenance, repairs, replacement, alterations, equipment, and miscellaneous purposes for the department’s general administration, bureau offices, institutions, welfare services and parole services.”

An examination of the responsibilities with which the department is burdened under chapters 217 and 218, The Code, and a review of the purposes of the appropriations as set out above demonstrate to a certainty the department cannot function without countless day-to-day contractual dealings. Of course, the State expects the other contracting parties to honor these obligations. It can — and does — seek redress when they fail to do so.

Just as certainly they expect faithful performance by the State; but they have been left without adequate recourse when these expectations are unfulfilled. We do not consider a request for legislative allowance to be a satisfactory remedy for breach of a contractual duty. We agree with those courts which say the State, by entering into a contract, agrees to be answerable for its breach and waives its immunity from suit to that extent. To hold otherwise, these courts say, is to ascribe bad faith and shoddy dealing to the sovereign. They arc unwilling to do so; and we are too.

Among the cases supporting this view are George and Lynch, Inc. v. State, 197 A.2d 734, 736 (Del.1964); Na-Ja Construction Corp. v. Roberts, 2S9 F.Supp. 895, 896 (D.C.Del.1966); Todd v. Board of Education, 154 Neb. 606, 48 N.W.2d 706, 710 (1951); P. T. & L. Construction Company v. Commissioner of Department of Transportation, 60 N.J. 308, 288 A.2d 574, 575, 578 (1972) ; Grant Construction Company v. Burns, 92 Idaho 408, 443 P.2d 1005, 1009, 1010 (1968); Carr v. State, 127 Ind. 204, 26 N.E. 778, 779 (1891); Regents of University System of Georgia v. Blanton (1934), 49 Ga.App. 602, 176 S.E. 673, 675; Ace Flying Service, Inc. v. Colorado Department of Agriculture, 136 Colo. 19, 314 P.2d 278, 279-281 (1957); V. S. DiCarlo Construction Company, Inc. v. State (Mo.1972), 485 S.W.2d 52, 54.

The principle has been expressed in different ways, and we set out a few excerpts from opinions of other courts to illustrate the basis for our decision.

In George and Lynch, Inc. v. State, supra, we find this statement:

“It follows, therefore, that in authorizing the State Highway Department to enter into valid contracts the General Assembly has necessarily waived the State’s immunity to suit for breach by the State of that contract.

“Any other conclusion would ascribe to the General Assembly an intent to profit the State at the expense of its citizens. We are unwilling to assume that the General Assembly intended the State to mislead its citizens into expending large sums to carry out their obligation to the State and, at the same time, deny to them the right to hold the State accountable for its breach of its obligations. To state the proposition is to demonstrate its injustice; indeed, so unjust is it that it might amount to the taking of property without due process of law. * * * ”

The Colorado Supreme Court in Ace Flying Service v. Colorado Department of Agriculture, supra, said this:

“Once entered into [contracts by the state] are binding upon the state as well as upon the other contracting party. To hold that the state may enter into a contract by which the other party is compelled to expend large sums in acquiring material, machinery and personnel to enable it to perform its obligation, and then arbitrarily repudiate the contract relegating the injured party to the doubtful remedy of appealing to the legislature for justice in the form of a bill for relief, would be to sanction the highest type of governmental tyranny.”

Perhaps one of the best, as well as one of the earliest, statements of the rule is found in Carr v. State, supra, in which the Indiana Supreme Court made this observation :

“In entering into the contract [the State] laid aside its attributes as a sovereign, and bound itself substantially as one of its citizens does when he enters into a contract. Its contracts are interpreted as the contracts of individuals are, and the law which measures individual rights and responsibilities measures, with few exceptions, those of a state whenever it enters into an ordinary business contract. * * * It cannot be true that a state is bound by a contract, and yet be true that it has power to cast off its obligation and break its faith, since that would invoke the manifest contradiction that a state is bound and yet not bound by its obligation.

Just recently Missouri took the path we follow today. In the 1972 case of V. S. DiCarlo Construction Company, Inc. v. State, supra, the Supreme Court of that state had this to say:

“Can it properly be said that by this [legislative approval of a construction contract] the General Assembly consented that the State should be bound by the terms of the construction contract and that it might be sued for any breach thereof? We answer these questions in the affirmative. * * * [Our decision] is based on the conclusion that when the State enters into a validly authorized contract, it lays aside whatever privilege of sovereign immunity it otherwise possesses and binds itself to performance, just as any private citizen would do by so contracting.”

Other authorities may be found in the dissenting opinions in both Boyer v. Iowa High School Athletic Association, supra, (although a tort case), and Megee v. Barnes, supra. For a general discussion of the problem see “The Sovereign Immunity of the States: The Doctrine and Some of Its Recent Developments,” 40 Minn.Law Review 234 (1955).

Much of the State’s argument urges us to decide this dispute on stare de-cisis. What we have already said probably disposes of that argument. We have not been reluctant in the past to overrule prior decisions when we conclude they are wrong. Stare decisis is a valuable legal doctrine which lends stability to the law, but it should not be invoked to maintain a clearly erroneous result simply because that’s the way it has been in the past. Certainly we should be as willing to correct our own mistakes as we are those of others. State v. Brustkern, 170 N.W.2d 389, 393, 394 (Iowa 1969); State v. Johnson, 257 Iowa 1052, 1056, 135 N.W.2d 518, 521 (1965); Stuart v. Pilgrim, 247 Iowa 709, 714, 720, 74 N.W.2d 212, 216, 219 (1956); State v Machovec, 236 Iowa 377, 382, 383, 17 N.W.2d 843, 846 (1945); Montanick v. McMillin, 225 Iowa 442, 459, 280 N.W. 608, 616 (1938).

One other matter should be mentioned. The State argues the trial court preempted the function of this court by overruling Megee v. Barnes, supra. It is not clear if the State wants us to reverse on that ground; but if so, the premise is clearly wrong.

Without retreating from what we rather testily said in State v. Eichler, 248 Iowa 1267, 1270, 83 N.W.2d 576, 578 (1957), (“If our previous holdings are to be overruled, we should ordinarily prefer to do it ourselves.”) or from the statement in the dissent in Boyer v. Iowa High School Athletic Association, 256 Iowa 337, 358, 127 N.W.2d 606, 618 (1964), (“* * * the able trial court * * * was duty bound to follow precedent.”), that is not a persuasive argument for continuing a rule we have now decided is unsound and should be abandoned.

If trial courts venture into the business of predicting when this court will reverse its previous holdings — an exercise which has long exasperated the lawyers of this state — they are engaged in a high-risk adventure which we strongly recommend against. However, when their judgment proves prophetic, we should not refuse to affirm simply to demonstrate our final authority.

Perhaps we should temper the above by this statement from the dissenting opinion of Judge Learned Hand in Spector Motor Service, Inc. v. Walsh, 2 Cir., 1943, 139 F. 2d 809, 823:

“It is always embarrassing for a lower court to say whether the time has come to disregard decisions of a higher court, not yet explicitly overruled, because they parallel others in which the higher court has expressed a contrary view. I agree one should not wait for formal retraction in the face of changes plainly foreshadowed. * * * Nor is it desirable for a lower court to embrace the exhilarating opportunity of anticipating a doctrine which may be in the womb of time, but whose birth is distant; on the contrary I conceive that the measure of its duty is to divine, as best it can, what would be the event of an appeal in the case before it.”

In conclusion we now overrule Me-gee v. Barnes, supra, and hold the State, by entering into a contract, waives its defense of governmental immunity and consents to be sued for breach thereof.

The ruling of the trial court is affirmed.

Affirmed.

MOORE, C. J„ and MASON, REES and HARRIS, JJ., concur. RAWLINGS and UHLENHOPP, JJ., dissent. REYNOLDSON and McCORMICK, JJ., take no part.