Adair Benev. Soc. v. State, Ins. Div.

• Decision Date: 22 July 1992
• Docket Number: No. 91-1077,91-1077
• Citation: 489 N.W.2d 1
• Parties: ADAIR BENEVOLENT SOCIETY, Appellant, v. STATE of Iowa, INSURANCE DIVISION of the State of Iowa, Appellee.
• Court: Iowa Supreme Court

Page 1

489 N.W.2d 1

ADAIR BENEVOLENT SOCIETY, Appellant, v. STATE of Iowa, INSURANCE DIVISION of the State of Iowa, Appellee.

No. 91-1077.

Supreme Court of Iowa.

July 22, 1992.

Martin L. Fisher, Adair, for appellant.

Fred M. Haskins, Asst. Atty. Gen., Ins. Div., for appellee.

Considered by McGIVERIN, C.J., and CARTER, LAVORATO, NEUMAN, and SNELL, JJ.

LAVORATO, Justice.

Iowa Code chapter 512A (1989) regulates benevolent associations and prohibits their incorporation after July 1, 1988. In this judicial review proceeding, a benevolent society alleged that chapter 512A is unconstitutional because it (1) is an ex post facto law, and (2) impermissibly impairs the right to contract. The district court disagreed and upheld the administrative agency's decision. We affirm.

I. Factual Background.

The Adair Benevolent Society was founded in 1941 by chiropractor B.L. Meurer. It is a sole proprietorship family business. Originally located in Adair, Iowa, the Society's headquarters were moved to Orange City, Florida, in 1963.

The business is currently owned by Meurer's daughter-in-law who lives in Georgia. Meurer's grand-daughter-in-law manages the business.

The Society has about 1500 members who are Iowa residents. The Society functions as a clearinghouse for disbursing assessments from members to beneficiaries of deceased members.

Members are divided into clubs based on age at the time of membership. When a club member dies, the Society assesses each surviving member of the club one dollar plus a thirty-cent handling fee. The Society forwards the assessments received to the decedent's designated beneficiary or beneficiaries. The amount a beneficiary receives ranges from $750 to $1500, depending upon the club the deceased had joined.

Such assessments have occurred as recently as 1990. The Society may send assessment notices as often as once every six weeks, depending upon the death rate of each club's membership. The Society sends no more than six individual assessments ($7.80) in each notice.

Although it has been doing business continually in Iowa since its inception in 1941, the Society is not an authorized benevolent association under Iowa law. Nor is it a registered insurance company in this state.

II. Procedural Background.

On June 13, 1990, the insurance division of the state of Iowa filed an administrative notice of hearing. The notice alleged that the Society was an insurer and was not licensed for that purpose under the Unauthorized Insurers Act, Iowa Code chapter 507A. The notice further alleged that the Society was an unauthorized benevolent society, in violation of chapter 512A. The division requested (1) entry of a cease-and-desist order (2) transfer of existing members to licensed benevolent associations, and (3) imposition of a civil penalty under chapter 507A.

At the administrative hearing, the Society alleged that chapter 512A was unconstitutional because it (1) is an ex post facto law, and (2) impairs the right to contract. On these bases the Society asked for alternative forms of relief: (1) allow the Society to continue in business as it had in the past, or (2) allow it to incorporate and become a licensed benevolent association.

The administrative law judge (ALJ) entered an order in which he stated he was not empowered to rule on constitutional issues. The ALJ went on to rule that the Society was an unauthorized insurer and ordered the Society to cease doing business in Iowa. In addition, the ALJ ordered the Society to turn over its Iowa membership rolls to the division so that the division could place them with benevolent societies licensed to do business in Iowa.

The Society appealed to the district court for judicial review. The district court reached the constitutional issues the Society had earlier raised, decided those issues against it, and affirmed the ALJ's decision.

The Society appealed, again raising the same constitutional issues.

III. Scope of Review.

A district court's review of agency action is restricted to determining whether the petitioner's substantial rights have been prejudiced because the agency action violates one of seven criteria set out in Iowa Code section 17A.19(8). The issues in this case involve application of one of those criteria: whether the agency action was in violation of constitutional provisions. See Iowa Code § 17A.19(8)(a). In our review of the district court's decision, we apply section 17A.19(8)(a) to the agency action complained of to determine whether our conclusions are the same as those of the district court. Norland v. Iowa Dep't of Job Serv., 412 N.W.2d 904, 908 (Iowa 1987). If our conclusions are the same, we affirm; if they are not, we reverse. Id.

Usually when fact questions in a contested case are involved, we apply the substantial evidence standard under section 17A.19(8)(f). But because constitutional issues are raised here, our review is de novo. Knepper v. Monticello State Bank, 450 N.W.2d 833, 835 (Iowa 1990).

When the legitimacy of a statute is questioned, we presume the legislature intended the statute to comply with the state and federal constitutions. See Iowa Code § 4.4(1). Because the constitutionality of legislative acts is presumed, the Society bears the heavy burden of proving the challenged provisions of chapter 512A are unconstitutional beyond a reasonable doubt. Federal Land Bank of Omaha v. Arnold, 426 N.W.2d 153, 156 (Iowa 1988). Moreover, "[i]t is our duty to construe acts of the legislature, where it can reasonably be done, so that their constitutionality will be upheld." Spurbeck v. Statton, 252 Iowa 279, 285, 106 N.W.2d 660, 663 (1960).

For reasons that follow, we are not convinced that the Society has met this burden on either constitutional claim.

IV. The Challenged Statutory Provisions.

Iowa Code chapter 512A became effective July 1, 1967. See 1967 Iowa Acts ch. 368. Three sections of this chapter are relevant here. The first describes the incorporation requirement:

512A.3 Incorporation mandatory.

Before a benevolent association shall operate in this state it shall first incorporate in accordance with the laws of this state....

Iowa Code § 512A.3.

The second prescribes the consequences for failing to incorporate:

512A.8 Penalties.

Except as otherwise provided by law, it shall be unlawful for any person or corporation to operate a benevolent association in this state except as provided for in this chapter. Any person violating the provisions of this chapter shall be guilty of a serious misdemeanor.

Iowa Code § 512A.8.

The last section--enacted in 1988--sets a time limit on when a benevolent association may incorporate:

512A.9 Incorporation of benevolent associations prohibited.

Notwithstanding any provision of this chapter to the contrary, a benevolent association shall not be incorporated or reincorporated in this state on or after July 1, 1988. A benevolent association incorporated before July 1, 1988, continues to be subject to the provisions of this chapter.

Iowa Code § 512A.9.

We now turn to the Society's constitutional claims.

V. The Ex Post Facto Claim.

The gist of the Society's first challenge is that the quoted sections of chapter 512A violate the ex post facto provisions of the federal and state constitutions. The federal Constitution contains two ex post facto clauses: one that applies to the states and one that applies to the federal government. See U.S. Const. art. I, § 10, cl. 1 ("No State shall ... pass any ... ex post facto Law."); U.S. Const. art. I, § 9, cl. 3 ("No ... ex post facto Law shall be passed."). Our ex post facto provision simply provides that "[n]o ... ex post facto law ... shall ever be passed." Iowa Const. art. I, § 21.

On a number of occasions this court has held that legislation violates the ex post facto clauses of both the federal and Iowa constitutions when it

punishes as a crime an act previously committed, which was innocent when done, which makes more burdensome the punishment for a crime, after its commission, or which deprives one charged with crime of any defense available according to [the] law at the time when the act was committed.

State v. Soppe, 374 N.W.2d 649, 652 (Iowa 1985) (quoting Beazell v. Ohio, 269 U.S. 167, 169-70, 46 S.Ct. 68, 68, 70 L.Ed. 216, 217 (1925)); State v. Anderson, 338 N.W.2d 372, 375 (Iowa 1983); see also In re Ponx, 276 N.W.2d 425, 428 (Iowa 1979); State v. Quanrude, 222 N.W.2d 467, 469-70 (Iowa 1974).

We recently applied this rule in State v. Kaster, 469 N.W.2d 671, 673-74 (Iowa 1991). There, while the defendant's criminal case for fishing violations was under submission, the legislature increased the fine that could be imposed for the number of fish illegally taken. The district court on sentencing used the enhanced fine. We recognized the enhanced fine as punitive which brought it clearly within "the rule prohibiting ex post facto enhancement of fines." Kaster, 469 N.W.2d at 674.

The only question involved here is whether or not the statute punishes an act which was legal when committed. We believe the Society is not being punished for any acts prior to the enactment of chapter 512A in 1967. Only its acts since that date are being challenged. The United States Supreme Court long ago determined that the ex post facto clauses of the federal Constitution do not prevent a legislature from imposing a penalty for continuing once lawful conduct that the legislature has subsequently declared illegal. Samuels v. McCurdy, 267 U.S. 188, 193, 45 S.Ct. 264, 265, 69 L.Ed. 568, 570 (1925) (statute making possession of liquor lawfully acquired unlawful is not ex post facto so far as it affects continued possession in the future).

VI. The Impairment of Contract Claim.

The Society's second constitutional claim is that the challenged provisions of chapter 512A impair its ability to contract guaranteed it under the federal and state constitutions. The federal Constitution provides that "[n]o State shall ... pass any...