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.
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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
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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
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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
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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));
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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
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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
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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
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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.
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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
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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
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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.