Court Opinion

ID: 9583574
Source: CourtListenerOpinion
Date Created: 2023-08-21 22:39:58.688691+00
Date Added: 2024-06-11T13:38:58.703144
License: Public Domain

HARRIS, Justice
(dissenting).
The majority does not reach the merits of this important controversy because it concludes error was not preserved on plaintiff’s response to defendant’s affirmative defense of waiver. With all respect to the majority, I am convinced error was preserved and the defendant has failed to bear its burden to establish its affirmative defense. I therefore think the merits can and should be addressed.
On reaching the merits I would grant plaintiffs the relief they seek because I am convinced this crude scheme, which renders Polk County voters liable for what should be a private obligation, is illegal and unconstitutional.
I. The majority’s threshold determination not to reach the merits rests on a twofold conclusion. The • majority finds that the fifteen-day notice of the transaction (1) substantially complied with Iowa Code section 331.443, and (2) was adequate to bar this action. Both findings strike me as dead wrong.
Section 331.443(2) demands that the public be informed of four things:
(1) the amount of the lease-purchase;
(2) the purpose of the lease-purchase;
*654(3) the time of the hearing; and
(4) the place of the hearing.
We have said such a notice is important and “should inform the public definitively about the proposal,” and that the public should not be required to “ferret out information at city hall.” Grove v. City of Des Moines, 280 N.W.2d 378, 386 (Iowa 1979). The notice in this case utterly fails to inform concerning the first and second of these required matters; the notice in fact appears to have been calculated to camouflage both the extent and the purpose of the undertaking. I am dismayed by the majority’s finding of substantial compliance.
Of the four matters of required information, the amount involved in the so-called lease-purchase is mentioned first in the statute. Although the precise amount could not be fixed at the time the notice was published, the maximum amount was known. The extent of the risk was the matter perhaps most likely to arouse public interest. There can be no valid excuse for secreting it from the public.
The notice also succeeded in hiding any information about the real purpose of the agreement. Those publishing the notice had abundant information concerning that purpose, all of it damning. Under any fair reading of the record the purpose was to set up the taxpayers as the principal source of security for the bonds in order to market them, a matter I shall later explain in more detail. The bonds were obviously more attractive to prospective bondholders when the entire risk shifted from them to Polk County’s resident taxpayers. Yet the notice was drafted to appear only as an innocuous proposal by the county to enter a routine lease-purchase agreement.
Defendant’s assertion that it gave the required notice should also fail on a constitutional claim advanced by plaintiffs in their resistance to defendant’s motion to dismiss and for summary judgment. Plaintiffs asserted the notice was constitutionally deficient on the basis of Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865, 873 (1950), which they quoted as follows:
An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. The notice must be of such nature as reasonably to convey the required information, and it must afford a reasonable time for those interested to make their appearance.
(Citations omitted.) See also Mammel v. M & P Missouri River Levee Dist., 326 N.W.2d 299, 301 (Iowa 1982).
Plaintiffs were indeed denied due process on the basis of the notice’s infirmities previously mentioned. The due process challenge is greatly strengthened when the inadequacy of the statutory fifteen-day period is considered. Fifteen days does not allow a reasonable time for taxpayers to react to a proper notice, much less this skimpy and misleading notice. In Miller v. Boone County Hospital, 394 N.W.2d 776, 781 (Iowa 1986), we used an equal protection analysis to strike down a statutory sixty-day notice requirement aimed at tort victims who were fully aware of their injuries. There is considerably less justification for a fifteen-day requirement for unnamed taxpayers who have yet to learn they have been financially hurt by a carefully veiled scheme.
The majority is mistaken when it reaches out for a finding of substantial compliance with the notice requirements. For all practical purposes there was no compliance. The majority is also mistaken in rejecting the constitutional challenge to the notice.
II. Although the majority is prevented by its holding from sharing its views on the merits, it is appropriate for me to state mine. Misguided- public spirit may have deluded the county officials and prompted them to enter this arrangement. Even so, the plan itself was an outrage and in flagrant violation of Iowa Code chapter 419, the chapter that grants general authority to issue bonds for construction of a number *655of public projects, including race tracks. This authority does not extend to assessing the taxpayers for costs of the project; the legislature contemplated that the bonds were to be paid solely from the project’s own revenue-generating ability. The statute could scarcely be more clear. The bonds “shall never constitute an indebtedness of the municipality [in this case county] ... and shall not constitute nor give rise to a pecuniary liability of the municipality or a charge against its general credit or taxing powers.” Iowa Code § 419.3(1).
How then was this prohibited result achieved? We are told to look at legal steps, in isolation and only one at a time. The steps included a bond issuance, a loan of bond proceeds, and a lease-purchase agreement, steps said to be individually in compliance with Iowa Code sections 419.-2(5), 419.2(4), and 419.2(1). But these steps were taken together for purposes of a single project. Taken together they violate Iowa Code section 419.3(1) which demands that the bonds be paid “solely out of the revenues derived from the project....” In other words, defendant would have us pretend an illegal act is rendered legal if it can be achieved by separate acts, each one of which are said to be legal if considered only in isolation.
Assuming the individual steps to be legal,1 the statutory scheme would authorize no more than the following arrangement. The bondholders would finance the construction of Prairie Meadows, but Polk County would own it. Under an authorized financing arrangement bondholders would suffer the risk that Prairie Meadows might not be sufficiently profitable to allow re-coupment of their investment. The taxpayers would invest no money in Prairie Meadows but would benefit from any Prairie Meadows revenues beyond those necessary to repay the bondholders and to pay RACI for its operation of the track.
The actual arrangement under challenge in this litigation was far different. There were two transactions. First, the county loaned the bond revenues to RACI, allowing RACI to build, own and operate Prairie Meadows, subject only to its bond repayment obligations. Second, under the lease-purchase agreement the taxpayers, by way of the county’s general tax fund, are purchasing Prairie Meadows over time from RACI. The taxpayers’ payments under the lease-purchase agreement are exactly equal to RACI’s bond repayment obligations. The lease-purchase payments were obviously structured to satisfy RACI’s bond debts, allowing RACI to pocket any revenues from operation of Prairie Meadows. The lease itself states that the intended purpose of the rent includes the payment of principal and interest on the bonds.
Superficially the challenged plan might appear similar to the authorized one I have described. This is because, either way, the county ends up owning the race track and RACI is receiving payment for operating it. But the differences are crucial. Under an authorized plan the bondholders would supr ply funds to the county for construction and ownership of the track. And because, under Iowa Code section 419.3(1), the county’s bond repayment obligation can be le-*656gaily satisfied only with revenues from Prairie Meadows, the bondholders would incur the risk that the race track will not be sufficiently profitable for them to recoup their investment. Under the actual plan, however, the taxpayers supply the funds for the county’s purchase of Prairie Meadows and in so doing the burden of risk shifts from the bondholders to the taxpayers. This is true because:
(1) The taxpayers, by way of their payments under the lease-purchase agreement, guarantee the satisfaction of RACI’s bond repayment obligations;
(2) The taxpayers have infused funds sufficient to satisfy the bond obligations into Prairie Meadows, which would not have been done under an authorized plan;
(3) The taxpayers, not being bondholders, cannot personally recoup anything repaid on their investments; and
(4) Upon failure of the race track, the bondholders cannot lose because the taxpayers, as sole riskbearers and guarantors of the bonds, will suffer any financial loss resulting from their continued payments under the lease-purchase agreement. While the taxpayers pay any loss, the bondholders will continue to profit from their investment.
Further payments under the lease-purchase agreement should be enjoined.
III. As a political subdivision of the state, Polk County is also subject to section I article VII of the Iowa Constitution:
The credit of the state shall not, in any manner, be given or loaned to, or in aid of, any individual, association, or corporation; and the state shall never assume, or become responsible for, the debts or liabilities of any individual, association, or corporation, unless incurred in time of war for the benefit of the state.
We have never been called upon to apply this provision to counties, but I cannot imagine any serious contention a county can pledge what the state cannot. Other states apply similar provisions to political subdivisions. Myers v. County of Cook, 34 Ill.2d 541, 542, 216 N.E.2d 803, 804 (1966); State v. City of York, 164 Neb. 223, 225, 82 N.W.2d 269, 271 (1957). We defined “credit” in Grout v. Kendall, 195 Iowa 467, 472, 192 N.W. 529, 531 (1923) (secondary liability will become primary upon failure of primary debtor). The plan here was designed for the specific purpose of implicating the public’s credit and was therefore plainly unconstitutional.
I would reverse, enjoining any further payments under the lease-purchase agreement and enjoining any further extension of credit.
LARSON and SNELL, JJ., join this dissent.

. Such an assumption is flawed for a reason outside the issues drawn by the litigants. At least one key step is flagrantly illegal. That key step depends on definitions of "lessee” and "contracting party” in § 419.3(1) ("The principal of and interest on such bonds shall be payable solely out of the revenues derived from the project to be financed by the bonds so issued under the provisions of this chapter including debt obligations of the lessee or contracting party obtained from or in connection with the financing of a project.” (Emphasis added.)). The county's claim of authority is derived from this language.
Although the county must purport to be either lessee or contracting party in order to be authorized under this provision, it in fact qualifies as neither. The statutory definition of "lessee,” under § 419.1(6), includes only single persons, firms and corporations. The county is none of these, obviously not a single person or firm, and cannot be a corporation under the definition of "corporation" in § 419.1(13) (profit or nonprofit corporation "for which the secretary of state has issued a certificate of incorporation or a permit for the transaction of business ..."). Neither can the county qualify as a "contracting party” under § 419.3(1). Section 419.1(10) defines a contracting party as "any party to a sale contract or loan agreement except the municipality." (Emphasis added.) Polk County plainly is excluded by these definitions from drawing the authorization it claims from § 419.3(1).