Hawkeye Foodservice Distribution, Inc. v. Iowa Educators Corporation, No. 9-841/08-2056 (Iowa App. 4/21/2010)
| Decision Date | 21 April 2010 |
| Docket Number | No. 9-841/08-2056.,9-841/08-2056. |
| Parties | HAWKEYE FOODSERVICE DISTRIBUTION, INC., Plaintiff-Appellant, v. IOWA EDUCATORS CORPORATION, d/b/a IOWA EDUCATORS CONSORTIUM; KEYSTONE AREA EDUCATION AGENCY, AREA EDUCATION AGENCY 267, PRAIRIE LAKES AREA EDUCATION AGENCY, MISSISSIPPI BEND AREA EDUCATION AGENCY, GRANT WOOD AREA EDUCATION AGENCY, HEARTLAND AREA EDUCATION AGENCY, NORTHWEST AREA EDUCATION AGENCY, LOESS HILLS AREA EDUCATION AGENCY, GREEN VALLEY AREA EDUCATION AGENCY, and GREAT PRAIRIE AREA EDUCATION AGENCY, Defendants-Appellees. |
| Court | Iowa Court of Appeals |
Appeal from the Iowa District Court for Polk County, Robert J. Blink, Judge.
Hawkeye Foodservice Distribution, Inc. (Hawkeye Foodservice) appeals from the district court ruling dismissing its petition for declaratory judgment.
REVERSED AND REMANDED.
Stephen R. Eckley and David W. Nelmark of Belin McCormick, P.C., Des Moines, for appellant.
Jim D. DeKoster and Beth E. Hanson of Swisher & Cohrt, P.L.C., Waterloo, for appellees.
Heard by Vogel, P.J., and Eisenhauer and Potterfield, J.J.
Hawkeye Foodservice Distribution, Inc. (Hawkeye Foodservice) appeals from the district court ruling granting a motion to dismiss its petition for declaratory judgment. It contends the court erred in concluding it lacks standing to challenge the alleged illegal actions of the defendants. Hawkeye Foodservice also contends the court erred in concluding it failed to show the defendants violated Iowa Code chapter 23A (2007). Because the defendants' motion to dismiss was improvidently granted, we reverse and remand.
Hawkeye Foodservice is a wholesale foodservice distributor and consultant. It does business with institutions and has historically provided services to Iowa schools.
In 2000, the fifteen Iowa Area Education Agencies (AEAs) incorporated as a nonprofit corporation known as Iowa Educators Corporation (IEC). The purpose of IEC is to provide a voluntary purchasing program for Iowa schools, which allows the schools to take advantage of aggressive pricing based on a greater purchasing volume. This pricing is offered through prime vendors, selected by IEC. The AEAs are required to purchase at least sixty percent of their foodservice needs from the prime vendor.
IEC selected Martin Brothers Distributing Co. (Martin Brothers) as its prime vendor for foodservice. Martin Brothers is in competition with Hawkeye Foodservice. As a result, Hawkeye Foodservice has lost revenue from customers who purchase foodservice and products through IEC.
On June 17, 2008, Hawkeye Foodservice filed a petition against IEC and the ten AEAs now comprising IEC. Count I alleged the AEAs did not have authority under Iowa Code chapter 273 to form or operate IEC. Count II alleged IEC was created and operates in violation of chapter 28E. Count III alleged the AEAs and IEC violated chapter 23A, which prohibits a school corporation from engaging in "manufacturing, processing, sale, offering for sale, rental, leasing, delivery, dispensing, distributing, or advertising of goods or services to the public which are also offered by private enterprise . . . ." Finally, in Counts IV and V Hawkeye Foodservice alleged IEC violated Iowa's open meeting (chapter 21) and open record (chapter 22) laws. Hawkeye Foodservice sought "[a] declaration that the establishment, exercise, and operation of the IEC are unauthorized under Iowa law," "[e]quitable relief enjoining the AEAs and the IEC from continued operations in violation of Iowa law," and attorney fees and costs.
On August 14, 2008, the defendants filed a motion to dismiss the petition, alleging—among other things—that Hawkeye Foodservice lacks standing to seek dissolution of IEC or to challenge the validity of its actions, the petition failed to demonstrate the defendants operated in violation of chapter 23A, and IEC is not a governmental body subject to Iowa's open meeting and open record laws. Following a hearing, the district court granted the defendants' motion to dismiss in its entirety. It found:
The actions of the AEAs and IEC have resulted in damages to Hawkeye. It has lost and continues to lose substantial revenue from customers who purchase food products and services from IEC's prime vendor. Further, Hawkeye continues to lose out on word-of-mouth advertising and referrals.
However, the court viewed the petition as a request to dissolve the IEC and concluded Hawkeye Foodservice did not have standing to file its claims because it does not fall within the class of persons Iowa law allows to seek the dissolution of a corporation. It further concluded Hawkeye Foodservice failed to show a violation of chapter 23A because it failed to allege the goods offered by IEC's prime vendors are sold to the public, rather than to IEC's members—the AEAs and schools.
Hawkeye Foodservice filed a motion to reconsider the ruling. Following the court's denial of the motion, it filed a timely notice of appeal. On appeal, Hawkeye Foodservice challenges only the dismissal of Counts I, II, and III.
A ruling on a motion to dismiss is reviewed for the correction of errors at law. U.S. Bank v. Barbour, 770 N.W.2d 350, 353 (Iowa 2009). We will affirm a dismissal only if the petition shows no right of recovery under any state of facts. Reiff v. Evans, 630 N.W.2d 278, 284 (Iowa 2001). The district court's decision to grant a motion to dismiss is proper only when the petition, "on its face shows no right of recovery under any state of facts." Id.
We review the petition in the light most favorable to the petitioner. Id. We must accept as true the allegations in the petition. Id. Facts not alleged cannot be relied on to aid a motion to dismiss nor may evidence be taken to support it. Id. We will uphold a district court ruling on a ground other than the one upon which the district court relied provided the ground was urged to that court. Martinek v. Belmond-Klemme Cmty. Sch. Dist., 772 N.W.2d 758, 762 (Iowa 2009).
We first address Hawkeye Foodservice's claim the district court erred in dismissing Counts I and II of its petition on the grounds it lacks standing to obtain the relief sought.
In order to have standing to bring suit, a plaintiff must (1) have a specific personal or legal interest in the litigation and (2) be injuriously affected. Godfrey v. State, 752 N.W.2d 413, 418 (Iowa 2008). Having a legal interest in the litigation and being injuriously affected are separate requirements for standing, both of which must be satisfied. Id. The first element is aligned with the general concept of standing that a party who advances a legal claim must have a special interest in the challenged action, "as distinguished from a general interest." Id. at 419. The second requirement means the plaintiff must be "injured in fact." Id. This requirement recognizes the need for the litigant to show some "specific and perceptible harm" from the challenged action, distinguished from those citizens who are outside the subject of the action but claim to be affected. Id.
The district court concluded Hawkeye Foodservice could not meet the first requirement of showing it had a personal or legal interest in the litigation because it is not within the class of persons the legislature has authorized to seek dissolution of a corporation or to challenge the validity of corporate action. The court noted Iowa Code section 504.1431 provides it may only dissolve a corporation in proceedings brought by the attorney general, members of the corporation, a creditor, or the corporation itself. A party may also bring an action quo warranto against a corporation exercising powers not conferred by law, see Iowa R. Civ. P. 1.301(4), but such actions may only be brought by a county attorney or attorney general. Iowa R. Civ. P. 1.302. Finally, the court noted under the doctrine of ultra vires, a challenge to the validity of a corporation's action may only be brought by the attorney general, a director, or a member. Iowa Code § 504.304.
Hawkeye Foodservice argues it is not seeking judicial dissolution of IEC, but rather it has standing to challenge IEC's illegal actions and to seek an injunction preventing IEC from engaging in continued illegal activity. At this stage of the proceedings, we accept this contention.
We conclude the doctrine of ultra vires does not prohibit a challenge to IEC's actions in violation of chapters 273 and 28E as alleged in Counts I and II of the petition. The doctrine of ultra vires is codified in section 504.304. This court has held this statutory formulation seems unambiguous, and has the clear purpose of protecting shareholders and the corporation from ultra vires acts of corporate officers and directors by creating statutory indemnity for the corporation. LoRang v. Rasmusson Constr. Co., 464 N.W.2d 482, 486 (Iowa Ct. App. 1990).1 In other words, the purpose of section 504.304 is to allow a municipal corporation indemnity where its officers and directors act beyond the scope of their power or authority. It limits the parties who may allege the commission of an act beyond the scope of corporate power to the attorney general, a director, or a member of the corporation. Iowa Code § 504.304. It does not prevent a private entity from seeking to enjoin a municipal corporation from engaging in acts that exceed the law.
Hawkeye Foodservice also argues it has standing to challenge the actions of the individual AEA defendants in violating chapter 273 as alleged in Count I of its petition. The district court did not address this claim in its ruling on the motion to dismiss. Hawkeye Foodservice raised the issue again in its motion to reconsider, which the court denied, but did not address the allegation.
The crux of Hawkeye Foodservice's claim is the AEAs, by forming and operating IEC, violated Dillon's Rule. Dillon's Rule provides municipal corporations possess only the powers the...
To continue reading
Request your trial