IN THE SUPREME COURT OF IOWA

No. 14–1522

Filed April 10, 2015

IOWA DEPARTMENT OF HUMAN SERVICES,

Plaintiff-Appellee,

vs.

COMMUNITY CARE, INC.,

Defendant,

and

DEWITT BANK & TRUST COMPANY,

Intervenor-Appellant,

DAC, INC. and JACKIE SCOTT,

Intervenors-Appellees,

MORRISANDERSON & ASSOCIATES, LTD.,

Receiver-Appellee,

BANK IOWA,

Intervenor.

Appeal from the Iowa District Court for Polk County, Jeffrey D. 

Farrell, Judge.

A bank appeals a district court decision permitting the payment of 

receivership expenses out of property in which it had a prior perfected 

security interest. REVERSED AND REMANDED WITH DIRECTIONS.
2

Linda M. Kirsch and Kerry A. Finley, Shuttleworth & Ingersoll, 

P.L.C., Cedar Rapids, for appellant.

Thomas J. Miller, Attorney General, and Amy C. Licht, Assistant 

Attorney General, for appellee Iowa Department of Human Services.

Heather L. Campbell and David W. Nelmark, Belin, McCormick,

Des Moines, for appellee DAC, Inc.

Chet A. Mellema and Donald F. Neiman, Bradshaw, Fowler, Proctor 

& Fairgrave, P.C., Des Moines, for appellee MorrisAnderson & Associates, 

Ltd.

Matthew J. Reilly, Eells & Tronvold, P.L.C., Cedar Rapids, for 

appellee Jackie Scott.

Robert L. Hartwig, Johnston, for amicus curiae Iowa Bankers 

Association.
3

MANSFIELD, Justice.

This case presents the question whether Iowa Code sections 

249A.44(3) and 680.7 authorize the payment of a receiver’s expenses out 

of property in which a secured creditor had a prior perfected security 

interest. Guided in part by the principle that we avoid interpreting 

ambiguous statutes in a manner that leads to constitutional difficulties, 

we hold these sections do not authorize a receiver to be paid out of assets 

that are subject to a prior perfected lien. Rather, we conclude Iowa 

follows the common law rule that receivership expenses may be charged 

to secured property only to the extent the secured creditor has received a

benefit from the receivership or the secured creditor has consented to the 

receivership.

I. Background Facts and Proceedings.

For many years, Community Care, Inc. (CCI), based in DeWitt,

operated residential facilities and provided health care services for

persons with developmental and intellectual disabilities in eastern Iowa. 

Payment for CCI’s services came in large part from the Medicaid 

program. DeWitt Bank & Trust Company (the Bank) was CCI’s primary 

lender and held perfected security interests on much of CCI’s real and 

personal property.

In the fall of 2013, following the filing of a qui tam action by a 

former CCI employee, the Iowa Department of Human Services (DHS) 

determined there was a credible allegation CCI had committed Medicaid 

fraud. DHS suspended part of its Medicaid payments to CCI. In return, 

CCI agreed to appoint a third-party manager for its operations. 

Eventually the manager resigned.

On March 31, 2014, DHS filed an application in the Polk County 

District Court for injunctive relief under Iowa Code section 249A.44, 
4

which the general assembly had enacted the previous year. See 2013 

Iowa Acts ch. 24, § 8 (codified at Iowa Code § 249A.44 (2015)).1 This 

provision is entitled “Overpayment — emergency relief” and, among other 

things, authorizes DHS to obtain 

a temporary restraining order or injunctive relief to prevent a 

provider or other person from whom recovery may be sought, 

from transferring property or otherwise taking action to 

protect the provider’s or other person’s business inconsistent 

with the recovery sought.

Iowa Code § 249A.44(1). CCI did not oppose DHS’s request for an 

injunction. On April 3, the district court granted DHS’s request and 

enjoined CCI from “transferring property or otherwise taking any action 

inconsistent with [DHS’s] right to recover overpayments of medical 

assistance from CCI,” subject to CCI’s right to pay expenses or convey 

assets in the ordinary course of business.

Subsequently, CCI ceased operations. On May 8, CCI leased much 

of its real and personal property to DAC, Inc. (DAC). DAC began serving 

the former clients of CCI.

On May 15, DHS and CCI filed a joint motion for appointment of a 

receiver for CCI. DAC intervened and joined in DHS and CCI’s motion. 

The motion was based on another subsection of Iowa Code section 

249A.44, which provides:

If an injunction is granted, the court may appoint a receiver 

to protect the property and business of the provider or other 

person from whom recovery may be sought. The court shall 

assess the costs of the receiver to the provider or other 

person.

Iowa Code § 249A.44(3).

1All subsequent Iowa Code references are to the 2015 Code, unless otherwise 

indicated.

 
5

Another financial institution, which was familiar with DHS’s 

position that receiver fees and expenses could be paid out of property 

despite the existence of prior liens, but which had a smaller security 

interest at stake,2 moved to intervene in the action. A hearing was held 

on July 9. The court noted the other institution’s claimed security 

interest was limited to property with an estimated value of $229,528.81,

and CCI’s total assets were estimated to be $7,636,033.23. It appointed 

the requested receiver, expressly giving the receiver “super-priority status 

on the vast majority of the assets.” The court also approved 

compensation for the receiver at the rate of $325 to $400 per hour, plus 

six percent of the value received or debt assumed in any transaction and

travel reimbursements at the rate of $170 per diem and $.56 per mile.

The Bank was not formally served with the motion for appointment 

of a receiver and did not participate in the July 9 hearing. The court’s 

order seemingly provided that the receiver’s compensation could be paid 

out of CCI assets in which the Bank had a prior perfected security 

interest. On July 15, the Bank filed a motion to intervene and for 

clarification. In the motion, the Bank explained that it had a number of 

perfected liens, including five mortgages, securing a total debt of 

approximately $2,965,000. The Bank did not object to the receiver’s

appointment, but sought clarification that the receiver’s fees and 

expenses would not be paid out of property in which it had prior lien 

interests. Meanwhile, concerns were developing that CCI’s earlier 

valuations had been overstated and there would be insufficient assets to 

2The other bank held a mortgage on one of CCI’s buildings located in Chickasaw 

County.

 
6

cover receivership expenses unless the Bank’s security interests could be 

overcome.

On August 22, 2014, the district court granted the Bank’s motion 

to intervene but denied the substantive relief it had sought. It held that 

Iowa law required “the expenses of the receiver to be paid before the 

creditors, including secured creditors.” The Bank applied to this court 

for interlocutory review. We granted the application and expedited the 

appeal.

II. Standard of Review.

Receivership proceedings are equitable, and we therefore review 

them de novo. See Fed. Land Bank of Omaha v. Heeren, 398 N.W.2d 

839, 841 (Iowa 1987); see also Iowa R. App. P. 6.907 (“Review in equity 

cases shall be de novo.”). We review questions of statutory interpretation 

for correction of errors at law. State v. Olsen, 848 N.W.2d 363, 366 (Iowa 

2014).

III. Analysis.

During the 2013 legislative session, the general assembly enacted 

and the governor approved a new law “relating to Medicaid program 

integrity.” See 2013 Iowa Acts ch. 24, preamble. The legislation 

contained several provisions relating to recovery of Medicaid 

overpayments made to health care providers. See id. §§ 2–7 (codified at 

Iowa Code §§ 249A.2(11), .39–.43). The legislation further provided:

Overpayment — emergency relief.

1. Concurrently with a withholding of payment, the 

imposition of a sanction, or the institution of a criminal, 

civil, or administrative proceeding against a provider or other 

person for overpayment, the director or the attorney general 

may bring an action for a temporary restraining order or 

injunctive relief to prevent a provider or other person from 

whom recovery may be sought, from transferring property or 
7

otherwise taking action to protect the provider’s or other 

person’s business inconsistent with the recovery sought.

2. To obtain such relief, the director or the attorney 

general shall demonstrate all necessary requirements for the 

relief to be granted.

3. If an injunction is granted, the court may appoint a 

receiver to protect the property and business of the provider 

or other person from whom recovery may be sought. The 

court shall assess the costs of the receiver to the provider or 

other person.

Id. § 8 (codified at Iowa Code § 249A.44(1)–(3)).

Iowa also has a longstanding general statute regarding receivers, 

which provides in part:

680.7. Claims entitled to priority.

When the property of any person, partnership, 

company, or corporation has been placed in the hands of a 

receiver for distribution, after the payment of all costs the 

following claims shall be entitled to priority of payment in 

the order named:

1. Taxes or other debts entitled to preference under 

the laws of the United States.

2. Debts due or taxes assessed and levied for the 

benefit of the state, county, or other municipal corporation 

in this state.

3. Debts owing to employees for labor or work 

performed or services rendered as provided in section 

626.69.

Iowa Code § 680.7. In Bahndorf v. Lemmons, we interpreted section 

680.7 to mean that expenses of the receiver would be paid ahead of the

three categories of listed debts. 525 N.W.2d 404, 408 (Iowa 1994).

The Bank argues that nothing in section 249A.44 or section 680.7 

authorizes expenses of a receiver to be paid out of property subject to

prior perfected liens. In its view, section 249A.44(3) simply provides that 

the receivership costs are “assess[ed]” to CCI. See Iowa Code 

§ 249A.44(3). It does not enable CCI to avoid third-party liens in order to 
8

pay the receiver ahead of the lienholder. And section 680.7, according to 

the Bank, simply addresses priority among unsecured claims. See id.

§ 680.7. The Bank further argues that its liens are property interests

and that it would be deprived of property without due process of law if 

those liens could be avoided by a later unsecured claim.

DHS responds that Iowa Code section 249A.44(3) allows the 

receiver’s expenses to be recovered from any property to which the health 

care provider (CCI) holds legal title, even if such property is subject to a 

prior lien. DHS further maintains that Iowa Code section 680.7 gives the 

receiver’s expenses priority over all claims, both secured and unsecured. 

Lastly, DHS argues that Medicaid recovery statutes should be broadly 

construed. See In re Estate of Melby, 841 N.W.2d 867, 876 (Iowa 2014). 

According to DHS, if we adopt the Bank’s legal interpretation, persons 

will be unwilling to become receivers of health care providers that are

highly leveraged with secured debt for fear of not having their expenses 

paid.

Upon our review, we think the Bank has the better argument. To

begin with, we do not believe the express language of either section 

249A.44(3) or section 680.7 provides the answer here. Section 

249A.44(3) states, “The court shall assess the costs of the receiver to the 

provider or other person [from whom recovery will be sought].”3 Iowa 

Code § 249A.44(3). To “assess” in this context means “to subject to a tax 

[or] charge,” or “to impose (as a tax [or charge]) according to an 

3The “other person” language has no applicability here. See Iowa Code 

§ 249A.44(3). DHS does not maintain that it has the ability to pursue the Bank for 

repayments it claims CCI owes. See id. § 249A.46(1) (providing, in section entitled 

“[l]iability of other persons — repayment of claims,” that DHS “may require repayment 

of medical assistance paid from the person submitting an incorrect or improper claim, 

the person causing the claim to be submitted, or the person receiving payment for the 

claim”).

 
9

established rate.” See Merriam-Webster’s Collegiate Dictionary 74 (11th 

ed. 2003). However, the mere fact that CCI will be charged with the costs 

of the receiver does not tell us where those charges are prioritized in 

relation to other debts. The district court rightly found that section 

249A.44(3) is not determinative here.

The district court found, however, that section 680.7, part of the 

general law relating to receiverships, governs here. It provides that when 

property has been put into the hands of a receiver, certain claims “after 

the payment of all costs” are entitled to payment priority—specifically, 

taxes and debts owed the United States, taxes and debts owed state and 

local government, and wage claims. See Iowa Code § 680.7. But that 

provision is silent on the subject of secured claims; a logical inference is 

that it does not address their priority. If DHS were correct that such 

claims are actually covered by the statute, then not only receivership 

expenses (assuming “all costs” in Iowa Code section 680.7 refers to costs 

of the receivership) but all Medicaid-related claims and even unsecured 

claims of former CCI employees would have to be paid out of the Bank’s 

security before the Bank could access it. See Iowa Code § 249A.53(1)

(classifying Medicaid claims as having tax status); id. § 680.7(2) 

(providing for priority of state taxes for property held by a receiver); id.

§ 680.7(3) (providing for recovery of employee claims after payment of 

taxes for property held by a receiver).4 This interpretation seems to us 

clearly wrong.

4For example, we have previously stated, “The general policy of this state . . . in 

receivership matters is to prefer taxes over other claims.” State ex rel. Mitchell v. Nat’l 

Life Ins. Co., 223 Iowa 1301, 1314, 275 N.W. 26, 33 (1937). Under DHS’s 

interpretation, its Medicaid claims, treated like taxes, would receive priority to be paid 

in full before the Bank’s prior security interest could even be considered.

 
10

DHS invokes language from our decision in Bahndorf interpreting 

section 680.7, Bahndorf, 525 N.W.2d at 408, yet we do not believe that 

case addresses the relative priority of secured claims and receivership 

expense claims either. Bahndorf involved a dispute over whether certain 

taxes should have been paid ahead of receiver expenses. Id. There were 

no security interests at issue in Bahndorf. See id. There we said,

It is true, as the partners argue, that taxes are entitled 

to priority in a receivership. But that principle does not help 

them here. Expenses of a receivership (which, of course, 

would include receiver’s fees) are to be paid first.

Id. We then proceeded to quote Iowa Code section 680.7. Id. In context, 

we were only indicating in Bahndorf that receivership costs are to be paid 

ahead of taxes—i.e., as between taxes and receivership costs, the latter 

get paid first. See id. We were not saying that receiver costs can be paid 

by invading a secured creditor’s previously perfected security interest.

We agree with the Bank that Iowa Code section 680.5 rather than

section 680.7 governs priority of secured claims. It states, “Persons 

having liens upon the property placed in the hands of a receiver shall, if 

there is a contest as to their priority, submit them to the court for 

determination.” Iowa Code § 680.5. This provision dates back to 1897. 

See Iowa Code § 3825 (1897) (now codified at Iowa Code § 680.5). In an 

early case, we cited it for the proposition that “[t]he receiver takes the 

debtor’s property subject to the payment of all valid prior liens.” Smith v. 

Sioux City Nursery & Seed Co., 109 Iowa 51, 55, 79 N.W. 457, 458

(1899).5

5Another of our other early cases supports the idea that prior liens take priority 

over receiver costs. See Andrew v. Union Sav. Bank & Trust Co. of Davenport, 225 Iowa 

929, 938, 282 N.W. 299, 303 (Iowa 1938) (“A receiver takes the property subject to 

existing liens and equities and his exclusive possession thereof does not interfere with, 

or disturb, any pre-existing liens, preferences, or priorities . . . .” (Internal quotation

 
11

In 1906, the general assembly added what is now Iowa Code 

section 680.7. See 1906 Iowa Acts ch. 156, § 1 (codified at Iowa Code 

§ 3825-a (Supp. 1907)). Still, the legislature left the existing counterpart 

to section 680.5 in place. See Iowa Code § 3825 (Supp. 1907). This 

supports the inference that section 680.7 was not intended to disturb the 

existing law regarding the relative priority of secured and unsecured 

claims. Rather, it was designed to address the separate subject of 

priority among unsecured claims.

Notably, the priority provision in the Federal Bankruptcy Code 

takes an approach analogous to section 680.7 and gives a first priority to 

“administrative expenses” without mentioning secured claims. Compare

11 U.S.C. § 507(a)(1)(C) (2012), with Iowa Code § 680.7. Yet, it is clearly 

understood as a matter of bankruptcy law that secured claims come 

ahead of administrative expenses with respect to assets covered by the 

security interest. See 11 U.S.C. § 506(d)(2) (providing that a secured 

claim retains secured status even if the secured creditor does not file a 

proof of claim); H.R. Rep. No. 95-595, at 357 (1977), reprinted in 1978 

U.S.C.C.A.N. 5963, 6313 (“Subsection (d) [of 11 U.S.C. § 507] permits 

liens to pass through the bankruptcy case unaffected.”). Perhaps even 

more noteworthy is the fact that the priority provision in the 1898 

Federal Bankruptcy Act was silent on the subject of secured claims as 

well. See Bankruptcy Act of 1898, ch. 541, § 64, 30 Stat. 544, 563 

(repealed 1978). Nonetheless, at the time, secured claims generally took 

priority over administrative expenses. See Mills v. Va.-Carolina Lumber 

Co., 164 F. 168, 171 (4th Cir. 1908) (holding that a secured creditor 

marks omitted.)); see also Citizens Banking Co. v. Monticello State Bank, 143 F.2d 261, 

265 (8th Cir. 1944) (applying Iowa law and stating that “a receiver takes the property 

subject to all liens and incumbrances”).

______________________
12

should not “be required to pay any part of the costs of administration of 

[a] bankrupt’s estate” but rather, should be paid in full first). 

Additionally, the 1898 Act was adopted around the same time as Iowa 

Code section 680.7’s predecessor. Compare Bankruptcy Act of 1898, ch. 

541, § 64, 30 Stat. 544, 563, with 1906 Iowa Acts ch. 156, § 1.

Furthermore, adopting DHS’s position that it can charge the costs 

of a receivership against a secured creditor’s collateral without any 

showing of benefit to the secured creditor (and without even notifying the 

secured creditor) would raise serious constitutional concerns. A security 

interest is a form of property protected by the Fifth and Fourteenth 

Amendments to the United States Constitution and article I, section 18 

of the Iowa Constitution. See United States v. Sec. Indus. Bank, 459 U.S. 

70, 76, 103 S. Ct. 407, 411, 74 L. Ed. 2d 235, 241 (1982) (stating that 

despite the government’s contention to the contrary, the interest of a 

secured party is an interest in property); Ford Motor Credit Co. v. NYC

Police Dep’t, 503 F.3d 186, 191 (2d Cir. 2007) (holding that “a security 

interest is indisputably a property interest protected by the Fourteenth 

Amendment” and that it is “the property right to the collateral that 

secures the debt in the event of non-payment”). In this case, DHS’s 

approach could effectuate an unconstitutional taking, especially given 

that the perfected security interests in this case predate the 2013 

enactment of Iowa Code section 249A.44(3), the source of DHS’s 

authority for appointment of the receiver. See 2013 Iowa Acts ch. 24, 

§ 8(3). “The doctrine of constitutional avoidance suggests the proper 

course in the construction of a statute may be to steer clear of 

‘constitutional shoals’ when possible.” State v. Iowa Dist. Ct., 843 

N.W.2d 76, 85 (Iowa 2014); see also Iowa Code § 4.4(1) (“In enacting a 
13

statute, it is presumed that: (1) Compliance with the Constitutions of the 

state and of the United States is intended.”).

DHS counters with a policy argument that it will be difficult to hire 

receivers for financially leveraged health care providers if secured assets

cannot be used to compensate the receivers. See Iowa Code § 4.4(3) 

(noting the further presumption that with respect to statutory 

enactments, “[a] just and reasonable result is intended”); In re Det. of 

Stenzel, 827 N.W.2d 690, 698–99 (Iowa 2013) (applying this principle). 

There are several answers to this argument. For one thing, many 

government objectives could be achieved more easily if the government 

were not required to honor private property rights. Also, we do not 

foreclose the possibility that DHS could demonstrate a superior right to a 

health care provider’s assets, such as through an equitable lien, to the 

extent those assets are traceable to a DHS overpayment. Finally, as we 

now discuss, the law generally allows receiver expenses to be charged 

against a secured creditor’s collateral to the extent it can be 

demonstrated that the creditor benefited from or consented to the 

receiver’s appointment.

Around the country, the general rule is that receivership expenses 

may be paid out of encumbered property only to the extent the lien 

creditor benefits from or consents to the receivership. See, e.g., SEC v. 

Elliott, 953 F.2d 1560, 1576, 1578 (11th Cir. 1992) (stating that 

“[s]ecured creditors should only be charged for the benefit they actually 

receive” and remanding for “a fuller and more accurate inquiry into the 

services the Receiver provided to these secured creditors”); Gasser v. 

Infanti Int’l, Inc., 358 F. Supp. 2d 176, 182 (E.D.N.Y. 2005) (“[W]hen there 

is a specific lien on the [receivership] property at the time it comes into 

the receiver’s hands, that lien has priority over the receiver’s fees and 
14

expenses . . . .” (Second alteration in original.) (Internal quotation marks 

omitted.)); Dir. of Transp. v. Eastlake Land Dev. Co., 894 N.E.2d 1255, 

1262 (Ohio Ct. App. 2008) (“It is well-settled law that neither the 

mortgagee nor the mortgaged property is liable for a receiver’s fees and 

expenses unless the mortgagee has acquiesced in the receivership 

proceedings.”); S. Cnty. Sand & Gravel Co. v. Bituminous Pavers Co., 274 

A.2d 427, 430 (R.I. 1971) ( “[A] judicial rule has evolved which permits 

receivership expenses to be taxed against encumbered property when the 

secured creditor or his property has been benefited or otherwise 

advantaged by the receivership proceedings and then only in proportion 

to the extent of the benefit or advantage conferred. In addition, and in 

appropriate circumstances, the encumbered property may similarly be 

entrenched upon if the secured creditor has expressly or impliedly either 

acquiesced in or consented to the receivership proceedings . . . .”); Chase 

Manhattan Bank v. Bowles, 52 S.W.3d 871, 880 (Tex. Ct. App. 2001) 

(stating that “a lienholder’s interest in property held in a receivership has 

priority over costs and expenses incurred in the administration and 

operation of the receivership” unless the receivership is “formed at the 

instigation of the lienholder, or the lienholder acquiesces to the 

receivership and seeks its benefits,” or the lienholder “knows of and 

consents to the receivership, and fees, expenses, and debts are incurred 

from a receiver’s operation of a business important to the public”

(internal quotation marks omitted)); 65 Am. Jur. 2d Receivers § 246, at 

797–98 (2011) (“It is indispensable to the preference over existing liens of 

any claim based on operating expenses of a receivership . . . that it be 

founded upon property furnished or services rendered to the business, 

which either preserved or enhanced the value of the security of the 

mortgage or secured debt, and thereby inured to the benefit of the 
15

mortgagee or other lienee . . . .”);6 75 C.J.S. Receivers § 361, at 597

(2013) (“Mortgaged or encumbered property or the proceeds thereof are 

not chargeable with receivership expenses where the receiver was not 

appointed at the instance or in the interest of the mortgagee or 

encumbrancer and where no service was rendered to such property.”); 

Annotation, Liability of Mortgagee or Mortgaged Property for Expenses of 

Receivership Not Sought by Him, or for Expenditures by Receiver in 

Connection with the Property, 104 A.L.R. 990, 991 (1936) (“Without 

attempting at this point to distinguish between different types of 

expenses involved, it may be stated as a general rule that neither a 

mortgagee nor the mortgaged premises are liable for receivership 

expenses not sought or acquiesced in by him; at least where he receives 

no benefit therefrom.”). DHS cites no recent authority to the contrary.7

The leading treatise on receivers, although by now somewhat long 

in the tooth, is to the same effect:

When a court appoints a general receiver of the 

property of an individual or a corporation, . . . part or all of 

this property may be covered by liens or mortgages. The 

general purpose of a general receivership is to preserve and 

realize the property for the benefit of creditors in general. No 

receivership may be necessary to protect or realize the 

interests of lienholders. In such cases the mortgagees and

6A different section of this treatise states, with respect to counsel for the 

receiver, “Such counsel fees are classed as receiver’s expenses and, like other expenses 

of administration, take precedence over preexisting liens on the funds or property in 

receivership.” 65 Am. Jur. 2d Receivers § 225, at 780. We quoted this sentence in 

dictum in Foxley Cattle Co. v. Midwest Soya International, Inc., 585 N.W.2d 231, 233 

(Iowa 1998). Regardless, we do not believe this passing statement in section 225 

vitiates the treatise’s more detailed treatment of the subject of receiver expenses in 

section 246.

7Generally speaking, the Federal Bankruptcy Code follows the same equitable 

approach found in the common law. Thus, it provides that the bankruptcy trustee, who 

is analogous to the receiver, “may recover from property securing an allowed secured 

claim the reasonable, necessary costs and expenses of preserving, or disposing of, such 

property to the extent of any benefit to the holder of such claim.” 11 U.S.C. § 506(c).

 
16

lienholders cannot be deprived of their property nor of their 

property rights and the receivership property cannot as a 

rule be used nor the business carried on and operated by the 

receiver in such a way as to subject the mortgagees and 

lienholders to the charges and expenses of the receivership. 

A court under such circumstances has no power to authorize 

expenses for improving or making additions to the property

or carrying on the business of the defendant at the expense 

of prior mortgagees or lienholders without the sanction of 

such mortgagees or lienholders.

. . . .

If a lienor avails himself of the receivership, or if the 

activities of the receiver have been of benefit and advantage 

to the lienor, it is but right and fair that he should be 

required to pay his just burden of the costs, including 

allowances to the receiver.

A lienor consenting to appointment of receiver and, 

therefore, to a liquidation of the insolvent’s affairs through 

the receivership instrumentality, is an exception to rule that 

receiver’s allowances are not entitled to outreach the priority 

of existing liens.

2 Ralph E. Clark, A Treatise on the Law and Practice of Receivers § 638, 

at 1070–72 (3d ed. 1959) (footnotes omitted).8

DHS responds that this general rule, if it is a general rule, has not 

been adopted in Iowa. It cites an 1898 case where we held the district 

court could order the expenses of a receiver to be paid out of assets that 

were subject to prior liens, after noting that “[n]o question was made as 

to the legality and propriety of the appointment of this receiver.” 

Gallagher v. Gingrich, 105 Iowa 237, 239, 74 N.W. 763, 763 (1898). We 

8DHS directs us to some old authority to the effect that funds advanced for the 

operational costs of a railway, as a quasi-public entity, can take priority over prior liens. 

See, e.g., Union Trust Co. of N.Y. v. Ill. Midland Ry. Co., 117 U.S. 434, 455–56, 6 S. Ct. 

809, 820–21, 29 L. Ed. 963, 970 (1886). DHS asserts that Medicaid providers are 

quasi-public entities. This principle appears to be limited to railroads by the weight of 

authority. See Lewis & Dalin, Inc. v. E.H. Clarke Lumber Co., 204 P.2d 130, 133 (Or. 

1949) (noting this principle “evolved in railway receiverships” and declining to apply it 

to “a purely private corporation”). We are not aware of it having been applied to other 

types of entities (or even to railroads in the recent past).

 
17

went on to say, “The contention is that [payment of the receiver’s 

expenses] must be deferred to the payment of existing liens, but such is 

not the law.” Id.

Standing on its own, our decision in Gallagher might have 

considerable persuasive force; however, we believe much of that force has 

been drained by the following year’s decision in Smith, 109 Iowa at 55, 79 

N.W. at 458, and by another decision we rendered just six years later,

Frick v. Fritz, 124 Iowa 529, 536–37, 100 N.W. 513, 515–16 (Iowa 1904). 

In Frick, we held that chattel mortgage holders could not be required to 

pay out of their secured property for the expenses of a receiver of cattle, 

noting, “We find no merit in the contention for plaintiff that interveners 

have been benefited by the receivership, and should bear the expense 

thereof.” Id. at 536, 100 N.W. at 515. We added,

Had it been made to appear that in making claim to the 

proceeds of the property realized by means of the 

receivership they had availed themselves of any benefits 

resulting from such receivership, they might, no doubt, have 

been properly required to submit to an equitable 

apportionment of the costs in accordance with the benefits 

received. But no showing for an equitable apportionment of 

costs is made, and under the record we think that no such 

showing could be made.

Id. (citations omitted).

Based on the foregoing, we hold that neither Iowa Code section 

249A.44(3) nor Iowa Code section 680.7 authorizes the expenses of a 

receiver appointed under section 249A.44(3) to be charged against a 

secured creditor’s collateral. Instead, our state follows the general 

equitable rule on receiverships, under which the costs of a receiver may 

be charged against a third party’s security interest only to the extent the 
18

secured party has been shown to benefit from the receiver’s services or in 

the event the secured party has consented to the receiver.9

As an alternative ground for affirmance, DHS argues that the Bank 

consented to the receivership. The record shows otherwise: The Bank 

was not formally notified of the proceedings and took action as soon as it 

became potentially clear that its security interests were threatened. The 

Bank has consistently objected to the payment terms for the receiver. 

However, on remand we leave open the question of whether the Bank has 

received a benefit from the receiver’s work and if so, how much.

IV. Conclusion.

We reverse and remand for further proceedings consistent with 

this opinion. Costs on appeal are taxed against DHS.

REVERSED AND REMANDED WITH DIRECTIONS.

All justices concur except Waterman, J., who takes no part.

9We do not think Medicaid’s principle of “broad recovery so as to promote the 

future provision of services,” see Estate of Melby, 841 N.W.2d at 880, overrides the 

considerations we have noted here. This priority contest is between a court-appointed 

receiver for a Medicaid provider and a prior secured lender to the same provider. It is 

not clear that favoring the former over the latter will lead to greater availability of 

Medicaid services. If DHS’s position were to prevail, lenders might be reluctant to make 

credit available in the future to entities that provide Medicaid services, since they could 

not be assured of the priority of their liens. This could potentially limit the availability 

of Medicaid services.

Regardless, DHS is not without potential options. As noted here, DHS can 

charge receivership expenses against assets covered by a third-party security interest to 

the extent the secured creditor is benefiting from the receivership. Also, nothing we 

have said herein forecloses the possibility that DHS could assert an equitable lien on 

former Medicaid funds traceable to the hands of a health care provider or “other person” 

or could enter into an arrangement under which it receives some lien protection for 

future Medicaid payments. Those issues are not before us. What DHS cannot do is 

simply charge the costs of a receivership to assets covered by a preexisting security 

interest.