Court Opinion

ID: 6338313
Source: CourtListenerOpinion
Date Created: 2022-05-06 14:04:05.955973+00
Date Added: 2024-06-11T08:31:15.420903
License: Public Domain

IN THE SUPREME COURT OF IOWA

                                 No. 20–0814

                Submitted January 19, 2022—Filed May 6, 2022

UNION PACIFIC RAILROAD COMPANY and MIDWESTERN RAILROAD
PROPERTIES,

      Appellees,

vs.

DRAINAGE DISTRICT 67 BOARD OF TRUSTEES, GARY RABE, In His
Capacity as a Member of the Board of Trustees, KEITH HELVING, in His
Capacity as a Member of the Board of Trustees, DENNIS PROCHASKA, In His
Capacity as a Member of the Board of Trustees,

      Appellants,

and

BECCA JUNKER, in Her Capacity as Hardin County Drainage Clerk, JESSICA
LARA, in Her Capacity as Hardin County Auditor,

      Defendants.

      On review from the Iowa Court of Appeals.

      Appeal from the Iowa District Court for Hardin County, James A. McGlynn,

Senior Judge.

      Drainage District argues that the cost of repair of a drainage tile arising

from regulatory compliance constitutes a “special benefit” under Iowa Code
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chapter 468. DECISION OF COURT OF APPEALS AND JUDGMENT OF

DISTRICT COURT AFFIRMED.

      Appel, J., delivered the opinion of the court, in which all justices joined.

      David R. Johnson (argued) of the Johnson Law Firm, PLC, Eagle Grove, for

appellants.

      David M. Newman (argued), Omaha, Nebraska, and Keith P. Duffy of

Nyemaster Goode, P.C., Des Moines, for appellees.
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APPEL, Justice.

      In this case, we consider whether a drainage district properly reclassified

benefits in connection with a drainage repair project. After the drainage district

was formed more than a hundred years ago, a railroad that traversed the land

in the district was originally assessed 5.81% of the benefit of installation of tiling

under a recently enacted drainage statute. In 2018, the trustees of the drainage

district determined that substantial repairs were needed to the tiling.

      Rather than following the original classification, the drainage district

sought to reclassify the land in the drainage district to equitably apportion the

cost of the new repairs as permitted by Iowa law. See Iowa Code § 468.65 (2019).

The reclassification commission appointed by the drainage district determined

that one-half of the construction costs of the repair project were a result of the

need to comply with federal regulations applicable to the railroad. As a result,

the reclassification commission recommended that one-half of the repair cost be

assessed to the railroad through the reclassification process. The drainage

district approved the reclassification.

      The railroad brought an action in district court challenging the

reclassification. The railroad argued that the drainage district’s reclassification

conflated costs with benefits, making the assessment inequitable. The trustees

defended the reapportionment in light of the high cost imposed by compliance

with the federal regulations applicable to the railroad.

      Both parties moved for summary judgment. The district court granted

summary judgment for the railroad, and the court of appeals affirmed the district
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court’s judgment. The drainage district sought further review, which we granted.

For the reasons expressed below, we now affirm the judgment of the district court

and the decision of the court of appeals.

      I. Procedural and Factual Background.

      In 1913, Midwestern Railroad Properties (the Railroad), a wholly-owned

subsidiary of Union Pacific Railroad, built a railroad within Drainage District

No. 67 in Hardin County (Drainage District). To promote agriculture, the

Drainage District constructed an artificial drainage tile system, part of which

runs under the Railroad’s right-of-way. The Railroad’s property makes up less

than 5% of the total area in the Drainage District.

      Generally, a drainage district raises funds to pay for the construction and

any repair of tile by apportioning the benefits received by land within the

drainage district from the work and assessing the land according to the

apportioned benefit. In the original apportionment shortly after the Drainage

District was created, the Drainage District assessed the Railroad 5.81% of the

benefit of the installation of tile, which resulted in the Railroad being required to

contribute 5.81% of the total cost of the project.

      In 2018, the board of trustees of the Drainage District conducted a

drainage tile inspection and found that the tile system originally constructed in

1916 needed substantial repair. The investigating engineer concluded that the

tile had exceeded its useful life. He further noted that without the necessary

repair, the main tile would continue to deteriorate and ultimately collapse. If no
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repairs were made, drainage over time would be further reduced and the

Drainage District exposed to potential liability.

      So, plans were made to repair the tile. But circumstances had changed

since the original apportionment of benefits a century ago in one important

respect. Now, in order to comply with the federal safety requirements applicable

to railroads, the repair of the portion of the tile running under the Railroad’s

right-of-way would require the use of costly materials. The Drainage District

received a base bid total of $200,891 for the repair project. Of that figure,

$98,343 was for items that were necessary to prevent erosion at the railroad

crossing—about 49% of the total project cost. Compliance with the federal

regulations applicable to railroads thus nearly doubled the total cost of the

project. The added cost to comply with the regulations, if allocated under the

prior 1916 apportionment, would, to use the district court’s words, “result in

painfully large assessments to the landowners in the district.”

      After receiving an estimate of costs, the Drainage District’s trustees

appointed a reclassification commission to reclassify the benefits. In its report,

the reclassification commission recognized that approximately one-half of the

construction costs of the project arose from compliance with the federal

regulations. As a result, the reclassification commission determined that the

Railroad would receive 100% of the benefit of the cost of compliance with railroad

regulations and recommended apportioning one-half of the total cost of the

repair project to the Railroad.
                                           6

      The Drainage District held a public hearing on the reclassification

commission’s report. The Railroad objected to the reclassification. At the hearing,

the board approved the reclassification of benefits and adopted the report over

the Railroad’s objection. The Railroad appealed the board’s reclassification and

assessment of benefits to the district court under Iowa Code section 468.83. Both

parties moved for summary judgment.

      The Railroad contended that the Drainage District’s reclassification

violates Iowa Code section 468.44 because it improperly determined that the cost

of constructing the tile line was a “special benefit” to the Railroad. The Drainage

District responded that the assessment was equitable and that Iowa Code section

468.65 permits the Drainage District to apportion the cost of repair arising from

the federal regulations to the Railroad.

      The district court granted summary judgment in favor of the Railroad. The

district court found, as a matter of law, that “the Reclassification Commission

and the Board went outside the lines and based their decision on matters which

were not benefits or were otherwise not proper subjects of consideration in

making the reclassification, and in doing so acted inequitably.” Specifically, the

district court found it inequitable for the commission and the board to base their

decision on costs rather than benefits. The district court also rejected the

argument that the costs of complying with federal standards are considered

benefits for the Railroad. As a result, the district court entered an order granting

the Railroad’s motion for summary judgment, declaring the reclassification of

benefits null and void, permanently enjoining the Drainage District “from issuing
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further assessments or demanding payment from the plaintiffs based on the

reclassification of benefits,” reinstating the previous classification of benefits,

exonerating the appeal bond, and assessing costs against the defendant trustees

and the Drainage District.

      The court of appeals affirmed the district court’s decision. The court of

appeals rejected the Drainage District’s argument that federal compliance

constitutes special benefits to the Railroad, and thus was properly considered by

the reclassification commission. Citing United States Railroad Administration v.

Board of Sup’rs, 194 N.W. 365, 366 (Iowa 1923), the court of appeals reasoned

that the sturdier material required for the repair was merely a byproduct of the

repair’s location to prevent a collapse that would render the repair useless.

Therefore, this increased cost provides drainage benefits to all property in the

district, not just the Railroad. See id.

      The Drainage District sought further review from this court. We granted

further review. For the reasons set forth below, we affirm the lower court’s grant

of summary judgment in favor of the Railroad.

      II. Standard of Review.

      Actions involving the direct appeal from the board’s proceedings are tried

as equitable proceedings. Hicks v. Franklin Cnty. Auditor, 514 N.W.2d 431, 435

(Iowa 1994). We review a grant of summary judgment in equity cases for

correction of errors of law. Keokuk Junction Ry. v. IES Indus., Inc., 618 N.W.2d

352, 355 (Iowa 2000) (en banc). Summary judgment is proper when the

undisputed material facts show the moving party is entitled to judgment as a
                                        8

matter of law. Iowa Arboretum, Inc. v. Iowa 4-H Found., 886 N.W.2d 695, 700

(Iowa 2016). A material fact is in dispute if reasonable minds can differ on how

to resolve the issue. Id.

      III. Discussion.

      A. Overview of Statutory Scheme. We begin our discussion on the

statutory scheme of Iowa Code chapter 468. At the beginning of the twentieth

century, the Iowa Legislature, recognizing the importance of proper drainage for

agriculture, enacted Iowa Code chapter 468. Hardin Cnty. Drainage Dist. 55,

Div. 3, Lateral 10 v. Union Pac. R.R., 826 N.W.2d 507, 509 (Iowa 2013). The Code

chapter was designed to provide a statutory framework to ensure efficient

administration of the drainage system. Id.

      The purpose of a drainage district is to “build and maintain drainage

improvements . . . ‘of agricultural and other lands, thereby making them tillable

or suitable for profitable use.’ ” Drainage Dist. 55, 826 N.W.2d at 510 (quoting

Chi., M. & St. P. Ry. v. Mosquito Drainage Dist., 180 N.W. 170, 170 (Iowa 1920)).

Specifically, Iowa Code chapter 468 requires the drainage districts to supervise

and repair any improvements, including those related to drainage tile. See Iowa

Code § 468.126(1). When repairs become necessary, the board of trustees may

consider whether the existing assessments are equitable as a basis for payment

of the expense of the repair. Id. § 468.65(1). If the board finds the original

assessment “generally inequitable,” it shall order a reclassification. Id.

§ 468.65(1)(a). The reclassification should consider “[a]ny benefits of a character

for which . . . drainage districts may be established and which are attributable
                                        9

to or enhanced by the . . . repair.” Id. § 468.65(1)(c) (emphasis added). A

reclassification commission “shall fix the percentage of actual benefits and make

an equitable apportionment of the costs and expenses of such repairs.” Id.

§ 468.67. The board then affirms, increases, or diminishes the percentage of

benefits assessed as it deems just and equitable. Id.

      Benefits determine the apportionment of costs and expenses. Chi. & N.W.

Ry. v. Dreessen, 52 N.W.2d 34, 36 (Iowa 1952). The tract receiving the greatest

benefit bears the heaviest cost assessment in equitable apportionment. Fulton v.

Sherman, 238 N.W. 88, 90 (Iowa 1931). When the district has insufficient funds

to pay for a repair, the board must assess the cost of repairs to the property

located within it in proportion to the benefit the land receives from the

improvement. See Iowa Code §§ 468.39, .127(1). The classification of benefits

remains the basis of future assessments unless the board of trustees reclassifies

the land. See id. § 468.49.

      B. Meaning of “Benefits” Under Iowa Code Section 468.67. We now

turn our attention to what constitutes “benefits” under the reclassification

provision contained in Iowa Code section 468.67. As this court observed more

than a hundred years ago in Chicago & N.W. Ry. v. Board of Sup’rs (The Hamilton

County Case): “We have no precedent which enumerates all the elements which

may be taken into consideration in considering the benefits to a railroad

company . . . , nor have we any recognized or settled rule by which such benefits

may be measured in money with mathematical exactness.” 153 N.W. 110, 111

(Iowa 1915). While the statute does not provide a definition of “benefits,” the
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caselaw shows that benefits could be based on a number of factors including the

mileage of railroad tracks in the district, the past flood damage, the anticipated

flood damage if the channel has not been improved, the interruption of the train

traffic, and the costs of rerouting because of floods. See Dreessen, 52 N.W.2d at

35. In The Hamilton County Case, this court held that in the initial assessment,

      the benefits of the drainage to the railway are to be ascertained by
      reference to the greater ease and lessened expense of maintaining
      the way, the greater permanence and security of the fills and
      embankments, the increased life of ties, posts, and other wooden
      material, the opportunity afforded the railroad company to
      substitute pipe for trestles, and thereby give its track a safer
      foundation with decreased outlay for upkeep, and other things of
      that nature. There was evidence also tending in some degree to show
      the difference which the changed conditions would make in the
      expense of maintaining the road and right of way. That these
      conditions, so far as they are found to exist, do afford a foundation
      for a fair estimate of the benefits, is a reasonable conclusion.
153 N.W. at 111.

      The district court sharply distinguished between “benefits” and “costs and

expenses.” There is statutory support for the district court’s approach. Assessing

benefits and apportioning costs and expenses are distinguished and treated

separately in chapter 468. For instance, Iowa Code section 468.44—which

outlines the report of commissioners—provides that the commissioners shall

make a report on: “The amount of benefits to . . . railroad property . . . and the

apportionment and amount of assessment of cost and expense, or estimated

costs or expense . . . . Any specific benefits other than those derived from the

drainage of agricultural lands shall be separately stated.” Id. § 468.44(2), (4)

(emphasis added). Additionally, Iowa Code section 468.46, promulgating rules

for hearing and determination, states that:
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      At the time of . . . hearing, the board shall . . . fully consider the said
      report, and may affirm, increase, or diminish the percentage of
      benefits or the apportionment of costs and expenses made in said
      report against any body or tract of land in said district as may
      appear to the board to be just and equitable.

(Emphasis added.) It is clear that the benefits a land receives from a drainage

improvement are to be distinguished from the cost and expense associated with

such improvement.

      Specifically, when ordering a reclassification, as in our present case,

subsection 468.65(1)(c) provides that “any benefits of a character” shall be the

proper subject of consideration, not “costs and expenses.” Id. § 468.65(1)(c).

Again, in the procedure governing reclassification, section 468.67 distinguishes

“fix[ing] the percentage of actual benefits” from “mak[ing] an equitable

apportionment of costs and expenses of such repairs.” Id. § 468.67. The language

shows that “benefits” and “costs and expenses” are treated as two separate

concepts.

      In addition to the statutory language, our precedents support the district

court’s approach. We agree with the district court that Pollock v. Board of Sup’rs,

138 N.W. 415, 416 (Iowa 1912), is directly on point in this case. In Pollock, the

plaintiff was assessed more benefits because the elevation of his land was higher

than the surrounding land, causing the cost of construction of the tile across his

land to be twice as much as that of the neighboring lands. Id. The drainage

district believed that since the cost for the tile in the plaintiff’s land was higher

than the tax assessed, the plaintiff had received a greater benefit than the tax.

Id. We rejected this argument and held that “[t]he cost of construction of the
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drain across particular land is by no means the measure of benefit to such land.”

Id.

      The Drainage District points out that in The Hamilton County Case,

expenses were considered in the assessment of benefits. 153 N.W. at 111. In The

Hamilton County Case, this court held that “the benefits of the drainage to the

railway are to be ascertained by reference to . . . the lessened expense of

maintaining the [road and right of] way.” Id. Similarly, in Chicago & North

Western Ry. v. Dreessen, this court also took into consideration the cost of

rerouting the railway due to the floods. 52 N.W.2d at 35.

      However, the costs and expenses discussed in The Hamilton County Case

and Dreessen should be distinguished from the costs of construction of the

drainage improvement. In the assessment of benefits, we look to the benefits, or

advantages, of having a drainage improvement on the property. We consider the

past flood damage, and in times of flood, the anticipated damages and costs of

maintaining the right-of-way without the drainage improvement. See Dreessen,

52 N.W.2d at 35. In other words, the commission should ask: How much money

and effort would a railroad company be saving if it had this improvement—a tile

or a ditch—to divert water out of its way? The Hamilton Cnty. Case, 153 N.W. at

111 (“[T]he greater ease and lessened expense of maintaining the way, the greater

permanence and security of the fills and embankments, the increased life of ties,

posts, and other wooden material, the opportunity afforded the railroad company

to substitute pipe for trestles, and thereby give its track a safer foundation with

decreased outlay for upkeep, and other things of that nature.”).
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      In the foregoing cases, “costs” refer to a benefit to the landowner in the

form of future cost savings; they do not refer to the actual cost of undertaking

the repair. The reapportionment argument advanced by the trustees is not based

on the value of benefits resulting from the repair but focuses solely on the direct

costs of the repair itself. In other words, the trustees’ argument is not based

upon the funds the Railroad would be saving as a result of the project but focuses

instead on the funds the trustees will be spending.

      The Drainage District argues that the Railroad benefits from having the

tile repaired because the tile helps move water from the south side of its tracks

and embankment to the north side, so the water can be discharged into the

neighboring drainage district. It argues that if the tile remains unrepaired and

eventually collapses, surface water would not pass, and in times of heavy rainfall,

the agricultural land on the upgraded side of the railroad tracks would flood. The

Drainage District further cites to cases supporting its assertion that the Railroad

received a benefit from the drainage to its roadbed and track. See The Hamilton

Cnty. Case, 153 N.W. at 111; Chi., M. & S.P. Ry. v. Monona County, 122 N.W.

820, 822–23 (Iowa 1909); Chi. & N.W. Ry. v. Hamilton County (In re Johnson

Drainage Dist. No. 9), 118 N.W. 380, 382–83 (Iowa 1908). Particularly, the

Drainage District points out that in The Hamilton County Case, this court decided

that “[t]he law presumes that all the real property within the district is benefited

by the drainage, and the business of the board is to fix its proportionate liability

for the expense.” 153 N.W. at 111.
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       We think the Drainage District’s emphasis is misplaced. The issue

presented here is not whether the Railroad receives benefits at all; it clearly does.

The issue is whether the reclassification committee properly found that the

benefit the Railroad receives should be increased from the original 5.81% to the

present 100% in light of the cost of compliance with federal regulations.

       C. “Special Benefit” Arising from Regulatory Compliance. The

Drainage District argues that the increased cost associated with the federal law

should be considered a “special benefit” to the Railroad. The district court

disagreed, believing that the federal standard here is analogous to building codes

for the construction of structures. The district court held that “[i]t may be that

compliance with building codes provides a better quality structure for the owner,

but the primary purpose of those codes is the safety of the public.” The court of

appeals, citing United States Railroad Administration v. Board of Supervisors, 194

N.W. 365, reached a similar conclusion.

       In United States Railroad Administration v. Board of Supervisors, a ditch

was constructed to divert the natural flow of the creek away from the railroad

company’s right-of-way. Id. at 365–66. Because the ditch went across a highway,

a new bridge had to be built. Id. at 366. The drainage district assessed the costs

of the new bridge as benefits to the railroad. Id. The railroad challenged the

assessment. Id. The drainage district responded, arguing that the building of the

new bridge would save the railroad from having to maintain an existing bridge,

and therefore, the railroad company received benefits from having such a bridge

built. Id.
                                        15

      We rejected the drainage district’s theory. Id. We held that the benefit to

the railroad company was in the diversion of the water, not the construction of

the bridge. Id. The construction of the bridge did not provide a new “benefit” to

the railroad. Id. It was merely “a necessary incident in the course of the

improvement and was a necessary part of the cost thereof.” Id. Here, the Railroad

does not get additional benefit from the high cost of repair resulting from

compliance with federal regulations. Just as the building of the bridge in United

States Railroad Administration, compliance with the federal standards is merely

a “necessary incident” to the project and does not provide benefits to the

Railroad. 194 N.W. at 366.

      The Drainage District further asserts that the district court’s finding of law

is flawed because it gave the Railroad “carte blanche to demand whatever

specifications they believe are necessary.” The Drainage District additionally

contends that imposing such high costs on landowners would render the repair

unfeasible and could even lead to a petition to dissolve the district under Iowa

Code section 468.250, thereby leading to a chain of undesirable consequences.

      We disagree with the Drainage District’s interpretation of the district

court’s ruling. The district court did not find that any and all repairs must be

made at any cost demanded by the Railroad. Instead, the district court rejected

the Drainage District’s effort to conflate costs with benefits under Iowa Code

section 468.67. The district court properly required the Drainage District in any

reclassification to consider only benefits conferred by the repair project, not the

cost of the repair.
                                        16

      D. Summary. In sum, the Drainage District failed to justify the increased

assessment of “benefits” conferred by the project from 5.81% to 100%. Further,

compliance with expensive federal regulations is not a special benefit that might

be recognized in the reclassification process. Because we conclude that the

reclassification is not supported by benefits and that compliance with costly

federal regulations is not a “special benefit” to be considered under Iowa Code

section 468.67, the apportionment to the Railroad of 50% of the cost of the

project was inequitable and improper.

      IV. Remedy.

      The district court entered an order providing broad remedies to the

Railroad, among which include: declaring the reclassification of benefits and the

assessment made against the plaintiffs void and of no force or effect,

permanently enjoining the defendants and each of them from issuing further

assessments or demanding payment from the plaintiffs based on “the

reclassification of benefits,” and reinstating the previous classification of

benefits.

      The court of appeals modified and eliminated the above-mentioned

remedies from the district court’s order and instead provided that the Railroad’s

property be assessed at its original 5.81% benefit rate. Although not explicitly

stated, it seems that the court of appeals read the district court’s injunction as

overly broad and potentially prohibiting the defendants from issuing any further

assessments, even if they followed the correct interpretation of law.
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      Upon reviewing the district court’s order, we narrowly construe “the

reclassification of benefits” as simply meaning that the injunction applies to

prevent the Drainage District from relying on the specific recent flawed

reclassification process that we have rejected in this appeal. It does not prohibit

the Drainage District from proceeding with a reclassification consistent with this

court’s interpretation of Iowa Code chapter 468.

      V. Conclusion.

      In reclassifying the land in the drainage district, the Drainage District

improperly considered the increased cost of repair necessitated by the

government regulations related to the Railroad’s right-of-way. The Railroad met

its burden of showing the assessment was inequitable and improper as a matter

of law. As a result, we affirm the grant of summary judgment by the district court

in favor of the Railroad and affirm the decision of the court of appeals.

      DECISION OF COURT OF APPEALS AND JUDGMENT OF DISTRICT

COURT AFFIRMED.