Court Opinion

ID: 2762868
Source: CourtListenerOpinion
Date Created: 2014-12-19 15:03:09.963318+00
Date Added: 2024-06-11T10:44:02.915472
License: Public Domain

IN THE SUPREME COURT OF IOWA
                             No. 13–1636

                       Filed December 19, 2014

NORTHEAST COMMUNITY SCHOOL DISTRICT,

      Appellant,

vs.

EASTON VALLEY COMMUNITY SCHOOL DISTRICT,

      Appellee.

      Appeal from the Iowa District Court for Clinton County, Gary D.

McKenrick, Judge.

      A school district appeals a summary judgment ruling finding as a

matter of law a whole grade sharing agreement entered into by a

predecessor school district that merged into the reorganized school

district did not bind the reorganized school.   REVERSED AND CASE

REMANDED WITH DIRECTIONS.

      Andrew J. Bracken of Ahlers & Cooney, P.C., Des Moines, for

appellant.

      Brian L. Gruhn of Gruhn Law Firm, Cedar Rapids, for appellee.
                                       2

WIGGINS, Justice.

       Prior to a reorganization merging two school districts, one of the

two districts entered into a whole grade sharing agreement with a third

district.     On a motion for summary judgment filed by the reorganized

school district, the district court found as a matter of law the whole

grade sharing agreement did not bind the reorganized school district. On

appeal, we find the whole grade sharing agreement can bind the

reorganized school district.       Accordingly, we reverse the judgment

entered by the district court in favor of the reorganized district and

remand the case back to the district court for further proceedings

consistent with this opinion.

       I. Background Facts and Proceedings.

       This case involves three small school districts, two of which

reorganized into one new school district, giving rise to the present

litigation.     Northeast Community School District (Northeast), East

Central       Community   School   District   (East   Central),   and   Preston

Community School District (Preston) were contiguous school districts

located in Clinton County and Jackson County. Beginning in 1986, the

three school districts periodically had discussions regarding a possible

reorganization and merger or whole grade sharing agreements between

two or more of the districts.

       In October 2009, Northeast and East Central held a joint board of

education meeting to discuss the possibility of entering into a whole

grade sharing agreement. By June 2010, the school boards of Northeast

and East Central agreed to begin the process required for a whole grade

sharing agreement, and they held public hearings on the matter.             On

June 23, East Central and Northeast executed a one-way whole grade

sharing agreement (Agreement).       The Agreement provided East Central
                                      3

would send its seventh through twelfth grade students to Northeast for

all classes and extracurricular activities.    In exchange for Northeast

taking these students, East Central agreed to provide transportation to

its students to the neighboring high school, pay the students’ tuition,

and pay a portion of its teacher salary supplement funds to Northeast.

The tuition was approximately ninety percent of the state aid East

Central received for the students at issue. The two school districts also

entered into a facility improvement program agreement on the same day,

wherein East Central agreed to pay a portion of its local option sales tax

to Northeast to benefit the East Central students attending Northeast.

The Agreement became effective at the start of the 2011–2012 school

year.

        The Agreement was to run for three years and renew each year

thereafter, with a three-year term in effect at all times. If either school

board wanted to terminate the Agreement, it could give notice no later

than December 15 and the Agreement would terminate at the end of the

third school year following the notice, or the parties could mutually agree

to terminate the contract at the end of any school year. In August 2011,

the     districts   renewed   and   amended   the   Agreement   to   include

“successors” of East Central in the Agreement.

        At the same time East Central and Northeast were discussing and

entering into the Agreement, citizens from Preston and East Central

began the process to reorganize their districts and merge the districts

together.     On May 3, 2010, the citizens delivered a petition for the

reorganization of Preston and East Central to the Mississippi Bend Area

Education Agency (AEA). The AEA held a public hearing on the petition

on June 16. At the public hearing, the AEA was told East Central and

Northeast had recently held public hearings on the whole grade sharing
                                       4

agreement and were in the process of approving an agreement between

the districts. At the conclusion of the public hearing, the AEA approved

a public vote on the petition for reorganization. Due to litigation between

East Central and the AEA challenging the validity of the petition and its

process, the residents did not vote on the reorganization petition until

September 11, 2012, during the second year of the Agreement.                 The

reorganization passed with a very slim majority in the East Central

district and an overwhelming majority in the Preston district.               The

reorganization created a new school district called Easton Valley

Community School District (Easton). Sometime between September and

December 14, Easton residents elected a new school board, as is

required by Iowa Code section 275.25 (2013).            The new board began

undertaking the tasks necessary to manage Easton.

      On December 14, the Easton school board sent a notification of

cancellation of the Agreement to the superintendent of Northeast. The

letter stated that Easton reviewed the Agreement and determined that

because they were not a party to the Agreement, when East Central

ceased to exist the Agreement was null. Further, Easton used this letter

as a notice of intent to cancel the Agreement as well, while still asserting

the Agreement did not apply to Easton.

      Because of this communication, Northeast filed a petition for

declaratory action and mandamus in February 2013. Northeast asserted

Easton was a successor to East Central and therefore was bound to the

contractual   obligation   of   East   Central   that    remained    after   the

reorganization.     Pursuant     to    Iowa   Code      section   275.24,    the

reorganization became effective July 1.       In August, it became clear to

Northeast that Easton intended to breach the Agreement and Northeast
                                     5

filed an amendment to its petition alleging repudiation of the Agreement

and sought damages.

      Both parties filed motions for summary judgment in the district

court. In its motion, Northeast claims Easton assumed the liability of

East Central after the merger of East Central and Preston. In its motion,

Easton claims as a matter of law East Central did not have the ability to

bind Easton as its successor corporation.      Easton also claimed in its

motion: (1) If the Agreement is binding, the court lacks subject matter

jurisdiction because the Agreement mandates binding arbitration; (2) the

Agreement is not binding because Northeast has unclean hands; (3) the

doctrine of impossibility excuses Easton’s nonperformance; and (4)

Northeast unreasonably assumed the risk and failed to mitigate its

damages and is barred from recovery.

      The district court granted summary judgment for Easton.         The

district court determined as a matter of law that both the Agreement and

the reorganization were valid. However, the district court also found the

two were in direct conflict and the East Central school board did not

have the ability to bind Easton as its successor corporation. Northeast

appeals.

      II. Issue.

      We must determine if the Agreement may be binding on Easton.

On appeal, the only argument made by Easton to affirm the district

court’s ruling is that as a matter of law East Central did not have the

ability to bind Easton as its successor corporation.

      Our cases allow us to affirm the district court on any basis argued

by the appellee in the district court and urged on appeal by the appellee.

In re Estate of Voss, 553 N.W.2d 878, 879 n.1 (Iowa 1996) (citing

Johnston Equip. Corp. v. Indus. Indem., 489 N.W.2d 13, 17 (Iowa 1992));
                                    6

see also Chauffeurs, Teamsters & Helpers, Local Union No. 238 v. Iowa

Civil Rights Comm’n, 394 N.W.2d 375, 378 (Iowa 1986) (stating we may

decide issues on appeal not reached by the district court where they have

been raised in the district court and fully briefed and argued by the

parties on appeal). In its brief, Easton did not argue the four alternative

grounds for summary judgment as additional means to affirm the district

court’s grant of summary judgment.      Therefore, we will not reach the

alternative grounds not urged on appeal, but argued by Easton in the

district court.

      III. Scope of Review.

      We review cases resolved by the district court on summary

judgment for correction of errors at law. Kragnes v. City of Des Moines,

714 N.W.2d 632, 637 (Iowa 2006). Summary judgment is appropriate

where there are “no disputed issues of material fact and the moving party

is entitled to judgment as a matter of law.”     City of Cedar Rapids v.

James Props., Inc., 701 N.W.2d 673, 675 (Iowa 2005) (internal quotation

marks omitted). If the record shows the conflict only “concerns the legal

consequences of undisputed facts” the matter can be resolved on

summary judgment.        Id. (internal quotation marks omitted).        “In

determining whether summary judgment is proper, we examine the

record in the light most favorable to the nonmoving party and we draw

all legitimate inferences the evidence bears in order to establish the

existence of questions of fact.” Kragnes, 714 N.W.2d at 637.

      IV. Analysis.

      A.   Generally.   In Iowa, public agencies are able to enter into

contracts with one another pursuant to a 28E agreement.         Iowa Code

ch. 28E. The purpose of a 28E agreement is to “permit state and local

governments in Iowa to make efficient use of their powers by enabling
                                       7

them to provide joint services and facilities with other agencies and to

cooperate in other ways of mutual advantage.”           Id. § 28E.1.    School

districts, as a political subdivision of the state, fall under the definition of

a public agency for the purposes of a 28E agreement. See id. § 28E.2(2);

see also id. § 274.1 (“Each school district shall continue a body politic as

a school corporation, unless changed as provided by law, and as such

may sue and be sued, hold property, and exercise all the powers granted

by law . . . .”). It is under the authority given by chapter 28E that East

Central and Northeast were able to enter into the whole grade sharing

agreement.     See generally Iowa Department of Education, District

Reorganization, Dissolution, and Sharing Guide (Sept. 2014), available at

https://www.educateiowa.gov/sites/files/ed/documents/Reorg%20

Guide%202014.pdf.

      B.   Whole Grade Sharing Agreements.            Whole grade sharing is

purely statutory and integrates several sections of the Iowa Code. See

Iowa Code § 256.13 (permitting districts to enter into agreements

allowing pupils to take courses in a district outside their residence); id.

§ 280.15 (allowing joint employment and sharing); id. § 282.7 (“The board

of directors of a school district by record action may discontinue any or

all of grades seven through twelve and negotiate an agreement for

attendance of the pupils enrolled in those grades in the schools of one or

more contiguous school districts having accredited school systems.”); id.

§§ 282.10–.11 (defining whole grade sharing agreements and procedure).

The most relevant of these is chapter 282.           A whole grade sharing

agreement “is a procedure used by school districts whereby all or a

substantial portion of the pupils in any grade in two or more school

districts share an educational program for all or a substantial portion of

a school day.” Id. § 282.10(1). The Agreement at issue in this appeal is a
                                    8

one-way whole grade sharing agreement because East Central was

sending its students to Northeast, but Northeast was not sending

students to East Central. Id. § 282.10(2) (defining one-way whole grade

sharing).

      Iowa Code section 282.11 lays out all the procedural requirements

for school districts wishing to execute a whole grade sharing agreement.

The section requires school districts to announce their intentions to

negotiate the sharing agreement at least ninety days before signing the

agreement. Id. § 282.11(2). The section also allows the public to petition

the department of education to conduct a feasibility study on the

potential agreement.    Id.   The boards of the districts engaged in

negotiations must also hold a public hearing on the agreement at least

thirty days before signing the agreement. Id. § 282.11(3). Northeast and

East Central followed all necessary procedures for entering a whole grade

sharing agreement.

      The districts also signed the Agreement well in advance of the time

line detailed in Iowa Code section 282.10(4), which requires a whole

grade sharing agreement be signed “[no] later than February 1 of the

school year preceding the school year for which the agreement is to take

effect.” The whole grade sharing agreement between Northeast and East

Central was a valid contract.    Further, the only provision in a whole

grade sharing agreement the statute specifically addresses is funding of

the exchange, id. § 282.12; the term of years and termination of the

agreement are at the discretion of the boards.

      C.    Can Easton Be Bound by the Agreement?               We have

previously said,

            “A municipal corporation may, by contract, curtail its
      right to exercise functions of a business or proprietary
                                        9
      nature, but, in the absence of express authority from the
      legislature, such a corporation cannot surrender or contract
      away its governmental functions and powers, and any
      attempt to barter or surrender them is invalid. Accordingly,
      a municipal corporation cannot, by contract, ordinance, or
      other means, surrender or curtail its legislative powers and
      duties, its police power, or its administrative authority.”

Marco Dev. Corp. v. City of Cedar Falls, 473 N.W.2d 41, 42 (Iowa 1991)

(emphasis added) (quoting 62 C.J.S. Municipal Corporation § 139, at 281–

82 (1949)). Additionally, in the absence of a statute we do not generally

recognize a distinction between municipal corporation and private

corporation contract liability.    Allis-Chalmers Corp. v. Emmet Cnty.

Council of Gov’ts, 355 N.W.2d 586, 590–91 (Iowa 1984).

      Easton argues two statutes relieve it of its liability because

Northeast is required to participate in negotiations of assets and

liabilities following reorganization.       Easton relies on a statute that

provides:

             Between July 1 and July 20, the board of directors of
      the newly formed school district shall meet with the boards
      of the school districts affected by the organization of the new
      school corporation, including the boards of districts receiving
      territory of the school districts affected, for the purpose of
      reaching joint agreement on an equitable division of the
      assets of the several school corporations or parts of school
      corporations and an equitable distribution of the liabilities of
      the affected corporations or parts of corporations.

Iowa Code § 275.29 (emphasis added). Easton also relies on a statute

that states:

             If the boards cannot agree on such division and
      distribution, the matters on which they differ shall be
      decided by disinterested arbitrators, one selected by the
      initial board of directors of the newly formed district, one by
      each of the boards of directors of the school districts affected,
      and one selected jointly by the boards of directors of
      contiguous districts receiving territory of the school district
      affected.
                                     10

Id. § 275.30 (emphasis added).

      Easton’s reliance on these statutes is misplaced.             In prior

litigation, a dispute arose as to the meaning of the phrase “school

districts affected” in chapter 275.       See Ruthven Consol. Sch. Dist. v.

Emmetsburg Cmty. Sch. Dist., 382 N.W.2d 136, 139 (Iowa 1986).

However, the legislature amended section 275.1.         Id. (recognizing the

legislature defined the phrase “school districts affected” after the dispute

in the Ruthven case arose).     The amendment defined the term “school

districts affected” as “the school districts named in the reorganization

petition whether a school district is affected in whole or in part.” 1984

Iowa Acts ch. 1078, § 1 (codified at Iowa Code § 275(1)(g)).              The

reorganization petition did not name Northeast as a party; thus, it is not

a school district affected by the reorganization.

      We can find no other statute that requires us to treat the

Agreement differently than a contract between two private corporations;

thus, we will analyze the contract as we would any other contract.

Generally, after a corporation purchases the assets of another, the

purchasing corporation

      assumes no liability for the transferring corporation’s debts
      and liabilities. Exceptions arise only in four circumstances:
      (1) the buyer agrees to be held liable; (2) the two corporations
      consolidate or merge; (3) the buyer is a “mere continuation”
      of the seller; or (4) the transaction amounts to fraud.

Pancratz v. Monsanto, Co., 547 N.W.2d 198, 200 (Iowa 1996) (emphasis

added).

      When a city or county merges with another, the consolidation does

not alter any liabilities in effect at the time of the election. See Iowa Code

§ 331.249(4) (“The adoption of a charter for a city-county consolidated

government does not alter any right or liability of the county or
                                         11

consolidated city in effect at the time of the election at which the charter

was adopted.”); id. § 373.6(2)(b) (“The adoption of the consolidated

metropolitan corporation form of government does not alter any right or

liability of any participating city in effect at the time of the election at

which the charter was adopted.”). We see no reason not to apply this

principle to school districts because a school district is a political

subdivision of this state, just as a city or county is a political subdivision

of this state.

         The district court correctly found as a general rule that a successor

corporation in a merger or consolidation is bound by the contracts of the

predecessor corporations.       The district court was unable to harmonize

the   statutes     allowing    reorganization    and     whole    grade    sharing

agreements, as once a reorganization occurred it would likely be

necessary to terminate the whole grade sharing agreement because it

would be unnecessarily costly for the new school district to send its

students elsewhere. However, the district court then determined that by

voting     on    the   reorganization   the   citizens   had     voted    that   the

reorganization was the best way to educate the children.

         The district court’s decision does not address the fact that the

termination or continued existence of the Agreement was not on the

ballot, as the petition could not mention an agreement that did not exist

until a few days after the AEA approved a public vote on the petition. In

addition, the district court turns a blind eye both to the uneven election

results in the two communities and the fact that most of the students, at

least 150, chose to open enroll at Northeast in the year following the

merger rather than attend Easton. There is nothing in the Code or the

Agreement prohibiting the continuation of the whole grade sharing

agreement after reorganization.         The present Agreement is no different
                                   12

from a contract between East Central and a food provider for its

lunchroom services that East Central might have entered into prior to

the reorganization.   After the reorganization, the reorganized school

district would be required to honor the contract, unless the contract

provided otherwise.

      For these reasons, we find the district court erred by finding as a

matter of law Easton was not bound by the Agreement.

      V. Disposition.

      We reverse the summary judgment entered by the district court

and remand the case for further proceedings to determine all remaining

issues.

      REVERSED AND CASE REMANDED WITH DIRECTIONS.