Steve Everly Vs. Knoxville Community School District, Musco Sports Lighting, Llc, And Randy Flack

• Court: Supreme Court of Iowa
• Decided: October 16, 2009
• Docket: 06–1695
• Status: Published

Opinion

IN THE SUPREME COURT OF IOWA No. 06–1695

Filed October 16, 2009

STEVE EVERLY,

Appellant,

vs.

KNOXVILLE COMMUNITY SCHOOL DISTRICT, MUSCO SPORTS LIGHTING, LLC, and RANDY FLACK,

Appellees.

On review from the Iowa Court of Appeals.

Appeal from the Iowa District Court for Marion County, Dale B.

Hagen, Judge.

Plaintiff appeals the dismissal of his action and in a certiorari

action to this court challenges the district court’s award of sanctions.

DECISION OF COURT OF APPEALS AFFIRMED IN PART AND VACATED IN PART; DISTRICT COURT JUDGMENT AFFIRMED IN

PART, WRIT SUSTAINED, AND CASE REMANDED.

Kathryn S. Barnhill of Barnhill & Associates, P.C., West Des

Moines, for appellant.

Kimberly J. Walker and Christian S. Walker of Faegre & Benson,

LLP, Des Moines, for appellee Musco Sports Lighting, LLC. 2

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

appellees Knoxville Community School District and Randy Flack. 3

WIGGINS, Justice.

In this case, we must decide if the district court properly dismissed

plaintiff’s cause of action. We also review by certiorari the district court’s

award of sanctions against the plaintiff’s attorney. The court of appeals

affirmed the dismissal and the award of sanctions. Because we agree

with the court of appeals’ and district court’s decisions regarding the

dismissal, we affirm that part of their decisions. However, we disagree

with the court of appeals’ and district court’s decisions on sanctions.

Accordingly, we vacate that part of the court of appeals’ decision dealing

with sanctions, sustain the writ of certiorari, and remand the case to the

district court for further proceedings regarding the award of sanctions

not inconsistent with this opinion.

I. Factual and Procedural Background.

The Knoxville Community School District desired to install

replacement lighting at its football stadium. The school district hired

KJWW Engineering Consultants, P.C. to provide structural and electrical

engineering services for the project. KJWW was responsible for design,

bidding/negotiation, and construction.

Subsequent to the school district providing notice of letting and

advertising for bids, KJWW issued the initial bid specifications for the

project. The school district received four bids on the project. ABC-

Electrical Contractors, LLC submitted the lowest bid using Musco Sports

Lighting, LLC lights. KJWW recommended that the school district accept

ABC’s bid.

Steve Everly filed an action as a taxpayer seeking a temporary

injunction and a writ of certiorari against the school district and the

school district superintendent, Randy Flack. He also joined Musco as an

additional party. He alleged the school district and Flack exceeded the 4

scope of their authority. Further, Everly alleged that awarding the bid to

ABC utilizing Musco lighting products was unlawful “because the

products do not conform to the bid specifications (even as amended) and

are a non-responsive bid.”

Based on these allegations, Everly’s action contains two separate

counts. Count I alleges that the award of a contract “on the basis of bid

specifications that discriminate in favor of one bidder” violates Iowa Code

section 394.99 and is void ab initio. Count II alleges fraud based upon

deceit and deception.

As a result of these claims, Everly prayed that a writ of certiorari

issue to stay the commencement of the project. Everly further asked the

defendants’ act be annulled and decreed void, the project be rebid in

accordance with Iowa public bidding laws, and any money expended by

the school district be returned to it.

The district court held a prompt hearing on the motion for a

temporary injunction and entered an order denying relief. After the court

denied the motion for a temporary injunction, Musco filed a motion to

dismiss the action. With respect to the certiorari claim, Musco argued in

part that it was not a proper party to the action. Musco claimed it was

merely a supplier to ABC, the successful bidder. As a result, Musco

argued that it did not have any contractual relationship with the school

district. Further, Musco claimed that it was not a tribunal, board, or

officer subject to Iowa Rule of Civil Procedure 1.1401. See Iowa R. Civ. P.

1.1401 (stating, “[a] writ of certiorari shall only be granted . . . where an

inferior tribunal, board or officer, exercising judicial functions, is alleged

to have exceeded proper jurisdiction or otherwise acted illegally”). 1

1Iowa Rule of Civil Procedure 1.1401 was amended effective January 1, 2009. It

now states, “A party may commence a certiorari action when authorized by statute or 5

With respect to the common law fraud claim, Musco asserted that

Everly made no claim that a misrepresentation was made to him upon

which he reasonably relied. As a result, Musco argued that the fraud

claim should be dismissed.

Everly filed a resistance to Musco’s motion to dismiss. In addition

to filing a resistance, Everly filed an application for leave to amend his

petition. In his amended petition, Everly sought to bring a class action

on behalf of all taxpayers of the Knoxville Community School District for

damages sustained as a result of Musco’s “fraudulent, deceptive, and

misleading advertising,” which resulted in the award of a contract to a

bidder using Musco’s products. Moreover, the amended petition named

Dennis Fee as an additional plaintiff.

The amended petition named Musco as the only defendant. It did

not name Flack or the school district as a defendant and did not seek a

writ of certiorari against anyone. In the amended petition, Everly now

relied solely on a fraudulent inducement theory. Nonetheless, the

amended petition still asserted that Flack “had actual knowledge that the

Musco product was non-responsive and did not meet the bid

specifications but colluded with Musco so as to award the bid to Musco.”

According to the amended petition, the board of directors of the school

district relied on the misrepresentations and had no way to discover the

truth about the product’s deficiencies.

On August 25, 2006, the court held a hearing on Musco’s motion

to dismiss. At the beginning of the hearing, Everly moved to dismiss the

school district and Flack, without prejudice, as parties, thereby leaving

____________________________ when the party claims an inferior tribunal, board, or officer, exercising judicial functions, or a judicial magistrate exceeded proper jurisdiction or otherwise acted illegally.” 6

Musco as the sole remaining defendant in the certiorari action. The

court granted Everly’s motion to dismiss the school district and Flack as

defendants.

On September 22, 2006, the court entered an order dismissing the

action against Musco. The court noted that Everly had dismissed his

claims against the school district and its superintendent, leaving only a

private entity, Musco, as a party. Further, the district court observed

that Everly had not sued ABC, the successful bidder. While the district

court recognized that generally taxpayers do have the ability to challenge

the legality of a contract entered into by a school district, Everly’s action,

as now postured before the district court, did not challenge the validity of

the contract issued by the school district to ABC. All that was left was a

taxpayer’s claim against a supplier. The district court dismissed this

claim on the ground that a taxpayer cannot sue a private entity, who was

not a party to the allegedly illegal contract at issue. The district court

did not rule on Everly’s application for leave to amend the petition as the

matter had not been set for hearing and the dismissal of the underlying

petition rendered the amendment moot.

In the wake of the dismissal of Everly’s claim, Musco filed an

application for costs and attorneys’ fees under Iowa Rule of Civil

Procedure 1.413(1). This rule allows the court to award attorneys’ fees

and expenses for the filing of a frivolous pleading. Iowa R. Civ. P.

1.413(1). In its application, Musco argued it was not a proper party to

the action because it was merely a supplier to the successful bidder,

ABC. Further, Musco alleged the relief of certiorari could not have been

granted against it because it is a private entity. In support of its

application, Musco provided affidavits indicating that Musco had 7

expended a total of $45,030 in fees and $612 in costs in connection with

the action.

Everly resisted the application. He asserted Musco was a bidder in

the sense that it submitted a bid to ABC and ABC passed the bid on to

the school district. As a result, Musco was a third-party beneficiary of

the contract between the school district and ABC and had a real interest

in the outcome of the case. Further, Everly argued that while, strictly

speaking, only the tribunal whose act is examined is a necessary party in

a certiorari action, other parties may and even must be brought into the

certiorari action if their rights are to be adjudicated.

The district court entered an order granting the award of sanctions

in favor of Musco. The district court held there was no authority for the

proposition that Musco could be joined as a party in a certiorari action.

The district court concluded the lawsuit was “riddled with deficiencies;

deficiencies that should have been apparent to plaintiff from the start.”

The lynchpin of the district court’s analysis was that any claim against

Musco was “bound to fail because Musco simply is not a proper party.”

Because Musco’s attorneys did not present an itemized list of their

billings, the court deferred entering a specific amount as sanctions.

Once the court received itemized attorneys’ fees, the court awarded

Musco the entire amount, or $47,403.87, plus interest, as a sanction

against Everly’s attorney, Kathryn Barnhill.

Everly filed a notice of appeal. We transferred the case to the court

of appeals. The court of appeals affirmed the district court on all issues.

The court of appeals agreed that once Everly dismissed the school

district and the superintendent, Everly’s underlying petition against

Musco seeking certiorari was unfounded. While there may have been a

valid claim against governmental entities, the court of appeals noted that 8

Everly had dismissed those claims at the hearing on the motion to

dismiss. As a result, on the merits the court of appeals affirmed the

district court’s dismissal of the action.

The court of appeals also affirmed the district court on the

question of sanctions. Because the court of appeals found Everly’s claim

after the dismissal of the governmental entities was frivolous, it affirmed

the sanctions awarded by the district court.

In considering an application for further review, we have the

discretion to review all or part of the issues raised on appeal or in the

application for further review. In re Marriage of Becker, 756 N.W.2d 822,

824 (Iowa 2008). In exercising our discretion, we choose only to review

the court-imposed sanctions awarded to Musco by the district court.

Therefore, we will let the court of appeals’ affirmance of the district

court’s dismissal of Everly’s action stand as the final decision of this

court. See Hills Bank & Trust Co. v. Converse, 772 N.W.2d 764, 770

(Iowa 2009).

II. Standard of Review.

The proper means to review a district court’s order imposing

sanctions is by writ of certiorari. Mathias v. Glandon, 448 N.W.2d 443,

445 (Iowa 1989). Thus, although this action is styled as an appeal, we

treat it as a petition for a writ of certiorari to the extent it challenges the

award of sanctions in this matter. See Iowa R. App. P. 6.108.

A district court’s order imposing sanctions under our rules of civil

procedure is reviewable for an abuse of discretion. Mathias, 448 N.W.2d

at 445. We will find an abuse “when the district court exercises its

discretion on grounds or for reasons clearly untenable or to an extent

clearly unreasonable.” Schettler v. Iowa Dist. Ct., 509 N.W.2d 459, 464

(Iowa 1993). Although our review is for an abuse of discretion, we will 9

correct erroneous applications of law. Weigel v. Weigel, 467 N.W.2d 277,

280 (Iowa 1991).

III. Analysis.

A. General Principles Regarding Rule 1.413(1). The Iowa Rules

of Civil Procedure provide in relevant part:

Counsel’s signature to every motion, pleading, or other paper shall be deemed a certificate that: counsel has read the motion, pleading, or other paper; that to the best of counsel’s knowledge, information, and belief, formed after reasonable inquiry, it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and that it is not interposed for any improper purpose, such as to harass or cause an unnecessary delay or needless increase in the cost of litigation. . . . If a motion, pleading, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay the other party or parties the amount of the reasonable expenses incurred because of the filing of the motion, pleading, or other paper, including a reasonable attorney fee.

Iowa R. Civ. P. 1.413(1).

In determining whether a pleading is sanctionable, we must look at

the state of the facts at the time the party filed the pleading. Weigel, 467

N.W.2d at 280–81. The standard we apply is that of a reasonably

competent attorney admitted to practice before the district court. Id. at

281. This test of reasonableness is an objective one, measured by all the

circumstances. Id.

B. Sanctions Arising from the Filing of the Original Action.

The first question we must decide is whether the naming of Musco in

Everly’s original certiorari petition was sanctionable. At the outset, all

parties seem to recognize that taxpayers, in contrast to disappointed

bidders, have standing to challenge a purchasing decision by a 10

governmental entity, ordinarily through a certiorari action. See Elview

Constr. Co. v. N. Scott Cmty. Sch. Dist., 373 N.W.2d 138, 141–42 (Iowa

1985). This case, however, presents a different question. The question

in this case is whether Everly, a taxpayer, could name Musco as a party

in a certiorari action challenging the school district’s purchasing decision

when Musco was only a supplier to the successful bidder, ABC.

The rule in effect at the time Everly filed his petition states: A writ of certiorari shall only be granted when specifically authorized by statute; or where an inferior tribunal, board or officer, exercising judicial functions, is alleged to have exceeded proper jurisdiction or otherwise acted illegally.

Iowa R. Civ. P. 1.1401. In order for a party to seek a writ of certiorari, it

must name, as defendant, a party who is an inferior tribunal, board, or

officer, exercising judicial functions. Id. r. 1.1402(1). Musco is not such

an entity.

Everly claims existing law, or a good faith argument for the

extension of existing law, warrants joining Musco as a party to a

certiorari action. He contends that although, strictly speaking, only the

tribunal whose act is examined is a necessary party in a certiorari action,

other parties may and even must be brought in to the certiorari action if

their rights are to be adjudicated. The district court and the court of

appeals rejected this argument.

While it is true that a certiorari action must be brought against a

government tribunal, this case as originally filed involved a substantially

different question. The question that arises from the original filing in

this case is whether a supplier that allegedly conspired with a

government entity may be joined as a party in a certiorari petition

brought by a taxpayer against the government entity and its appropriate

official. The issue is not whether a government entity or official 11

exercising judicial functions must be joined, but whether a private party

allegedly in league with the unlawful conduct of the government entity or

official may be joined as an additional party.

Although there is no Iowa law directly on this point, case law in

Iowa and from other jurisdictions supports Everly’s claim. One Iowa

case that lends credence to Everly’s claim is Sear v. Clayton County

Zoning Board of Adjustment, 590 N.W.2d 512 (Iowa 1999). There, the

Sears obtained a variance from the board of adjustment allowing them to

place a mobile home upon their agricultural land. Sear, 590 N.W.2d at

513. An adjoining landowner, Metzger, did not want the Sears to have a

mobile home on their land and filed a petition for writ of certiorari

challenging the board’s actions in the district court. Id. Metzger did not

join the Sears as parties to the certiorari action. Id. In Sear, we held the

rules of joinder apply to certiorari actions. Id. at 517–18. We further

held because the Sears’ rights may be affected by the ruling in the

certiorari action, they were indispensible parties to the certiorari action

and should be joined as parties. Id. Although Sear is not factually

identical to the present case, it indicates that our rules of civil procedure

may allow the joinder of a party to a certiorari action whose rights may

be affected by adjudication of the action.

There is at least some support in the case law from other

jurisdictions for naming additional parties in a certiorari petition. In

certiorari actions involving the district court, it has been held that the

usual practice is to name all parties who are likely to be affected by the

judgment. Hilton v. Second Judicial Dist. Ct., 183 P. 317, 319 (Nev.

1919); Hilton Bros. Motor Co. v. Dist. Ct., 25 P.2d 595, 597 (Utah 1933).

Indeed, there is authority for the proposition that in a certiorari action

challenging the ruling of a district court, the real party in interest must 12

be brought into the certiorari action, as the district court is only a

nominal defendant. Lally v. Dorchester Div. of the Dist. Ct. Dep’t, 531

N.E.2d 1275, 1278 (Mass. App. Ct. 1988).

There are a number of potential reasons for allowing the joinder of

a private party with a real interest in a certiorari action against a

government entity or official. While a government entity may have

formally approved a bid, the party with the most tangible interests in

defending the bid is not ordinarily the government entity but the

successful bidder. A government entity with no real “dog in the fight”

might decide it is more convenient to “roll-over and die” in order to avoid

the time and expense of litigation. Further, by joining a private party

with a real interest in the action, a plaintiff-taxpayer can establish the

judicial framework and enforcement mechanisms by which the

government entity will be repaid the funds that were unlawfully obtained

by the interested private party.

In this case, because Everly dismissed the school district and its

superintendant from the lawsuit prior to the final resolution of the suit,

we need not, and will not, decide whether a supplier to a successful

bidder, who has a tangible financial interest in the successful bidder’s

contract with the governmental entity, can be joined as a party in a

certiorari action. However, up to the time when Everly dismissed the

school district and its superintendent from his suit, a reasonably

competent attorney could argue under existing law, or make a good faith

argument for the extension of existing law, that such a party may be

joined in a certiorari action. Therefore, we conclude as a matter of law,

the naming of Musco as a party in the original petition along with the

school district and its superintendent was not so far off the mark as to 13

be sanctionable at the time the original pleading was filed. 2 See Bellville

v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 485 (Iowa 2005) (holding

no action for bad faith will exist if, as a matter of law, the decision of the

company was fairly debatable).

C. Sanctions Arising After the Dismissal of the School District

and the Superintendent. Prior to the date set for the hearing on

Musco’s motion to dismiss, Everly filed his “Amended Petition.” Prior to

the hearing on the motion to dismiss, the district court had taken no

action on the amended petition. At the beginning of the hearing on the

motion to dismiss, Barnhill clearly and unequivocally moved that the

school district and the superintendent be dismissed without prejudice.

At this point, the landscape materially changed. There was no

longer a government entity before the court, but only a private party.

Everly, however, was not entitled to recover directly from Musco even if

he proved that the underlying contract was illegal. In a certiorari action

against a government entity, the government entity is a necessary party.

See Iowa R. Civ. P. 1.1401. Thus, at this point, as found by the district

court and the court of appeals, there was no basis for proceeding solely

against Musco.

The narrow issue that emerges is whether at this point in the

proceedings, Barnhill crossed the line established by Iowa Rule of Civil

Procedure 1.413(1) by continuing to press her claim solely against

Musco. We know of no authority for the proposition that a disappointed

taxpayer can bring a certiorari action solely against a supplier to a

successful bidder who allegedly improperly procured a government

2It is possible that the original pleading could be sanctionable because of lack of a good faith factual basis or because it was motivated to achieve an improper purpose. See Iowa R. Civ. P. 1.413(1). Musco, however, did not make these claims before either the district court or the court of appeals. As a result, we do not consider them. 14

contract without naming a government entity. We conclude that the

district court did not abuse its discretion by sanctioning Barnhill for her

actions after the dismissal of the government entity and official.

IV. Remand Directions.

Because the district court sanctioned Everly’s attorney for the

original filing of his certiorari petition, we must reverse its decision doing

so. On remand, the district court should determine the appropriate

sanction for the continuation of Everly’s certiorari action against Musco

after he voluntarily dismissed the school district and the superintendent

from the action. In determining the proper sanction, the district court

should make specific findings as to “ ‘(1) the reasonableness of the

opposing party’s attorney’s fees; (2) the minimum to deter; (3) the ability

to pay; and (4) factors related to the severity of the . . . violation.’ ”

Barnhill v. Iowa Dist. Ct., 765 N.W.2d 267, 277 (Iowa 2009) (quoting In re

Kunstler, 914 F.2d 505, 523 (4th Cir. 1990)). In weighing the severity of

the violation, the district court should consider the American Bar

Association factors we set forth in the Barnhill decision. Id. at 276–77.

V. Disposition.

We affirm the decisions of the court of appeals and the district

court dismissing Everly’s petition for writ of certiorari against Musco. As

to the sanctions, we vacate the decision of the court of appeals, and

sustain the writ of certiorari. Additionally, we remand the case to the

district court for further proceedings regarding the award of sanctions

DECISION OF COURT OF APPEALS AFFIRMED IN PART AND

VACATED IN PART; DISTRICT COURT JUDGMENT AFFIRMED IN

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