Dolphin Residential Cooperative, Inc. v. Iowa City Board of Review

IN THE SUPREME COURT OF IOWA
No. 13–1031

Filed May 15, 2015

DOLPHIN RESIDENTIAL COOPERATIVE, INC.,

Appellee,

vs.

IOWA CITY BOARD OF REVIEW,

Appellant.

Appeal from the Iowa District Court for Johnson County,

Stephen B. Jackson, Jr., Judge.

The Iowa City Board of Review appeals from the decision of the

district court, which ordered the Iowa City Board of Review to reclassify a

multiunit apartment cooperative as residential for property tax purposes.

DISTRICT COURT DECISION REVERSED AND CASE REMANDED

WITH INSTRUCTIONS.

Eric R. Goers, Assistant City Attorney, Iowa City, for appellant.

Dennis J. McMenimen and Dana L. Oxley of Shuttleworth &

Ingersoll, P.L.C., Cedar Rapids, for appellee.
 2

APPEL, Justice.

In this case, the Iowa City Board of Review (Board) appeals from a

district court ruling that ordered the Board to reclassify twenty-two

multiunit apartment buildings as residential property for tax assessment

purposes. Classification of the property as residential would require the

Board to tax the property at residential rather than commercial property

tax rates. The Board appeals, contending Dolphin Residential

Cooperative, Inc. (Dolphin) was not properly organized under Iowa Code

chapter 499A. As a result, the Board argues that Dolphin fails the

organizational test for residential cooperatives adopted by this court in

Krupp Place 1 Co-op, Inc. v. Board of Review, 801 N.W.2d 9 (Iowa 2011).

The Board argues that because Dolphin fails the organizational test, the

subject property should remain classified as commercial for property tax

purposes. For the reasons set forth below, we reverse the summary

judgment entered in favor of Dolphin and remand for the district court to

enter summary judgment in favor of the Board.

I. Background Facts and Proceedings.

Dolphin was created on December 22, 2011, when Dolphin caused

to be filed articles of incorporation with the Iowa secretary of state

seeking to organize as a multiple housing cooperative under Iowa Code

chapter 499A. The articles of incorporation listed attorneys Laurie L.

Dawley and Dennis J. McMenimen as organizers. 1 Both Dawley and

McMenimen signed the articles of incorporation. Both Dawley and

McMenimen are citizens of the state of Iowa and over the age of eighteen.

The articles of incorporation named Vijay J. Bhatt, an out-of-state

1Although the articles of incorporation list Dowley and McMenimen as
incorporators, we assume the term “organizers” is meant. See Iowa Code § 499A.1(1)
(2011).
 3

resident, as the sole initial member of the board of directors. A

document entitled “Consent Resolutions of Directors,” listed Bhatt as

president, vice president, treasurer, and secretary of the cooperative.

The consent resolutions authorized and directed Dolphin to acquire

property located at 2401 Highway 6 East in Iowa City, Iowa, which

contained four hundred apartment units owned by Dolphin

International, LLC (Dolphin International), and RBJ Management, Inc.

(RBJ). Finally, the consent resolutions authorized Dolphin’s issuance of

three hundred ninety-nine membership certificates to Dolphin

International and one membership certificate to RBJ in exchange for

their respective interests in the real estate.

On December 23, the Iowa secretary of state issued a document

entitled “Acknowledgment of Document Filed,” acknowledging receipt of

the articles of incorporation for Dolphin and confirming such articles

were effective as of December 22, 2011. The secretary of state also

directed the recording of the articles of incorporation with the Johnson

County recorder. By two deeds recorded December 27, Dolphin acquired

title to the subject real estate described above and commonly known as

Dolphin Lake Point Enclave (the Enclave). These deeds were from

Dolphin International, an Illinois limited liability company, and RBJ, an

Illinois corporation. The Enclave is an apartment complex in Iowa City

that consists of twenty-two buildings comprising four hundred

residential apartment units. Thereafter, pursuant to Iowa Code section

499A.11 (2011) and as authorized by the board of directors, Dolphin

issued four hundred certificates of membership, one for each apartment

unit at the Enclave. Dolphin issued three hundred ninety-nine

membership certificates to Dolphin International and one membership

certificate to RBJ. Dolphin and Dolphin International then entered into a
 4

proprietary lease for Dolphin International’s three hundred ninety-nine

apartment units, and RBJ did the same for its one apartment unit.

In January 2012, the Iowa City assessor classified the Enclave as

commercial property. Based on the commercial classification for the

Enclave, Dolphin’s real estate taxes for the 2012–2013 fiscal year for the

property were $307,366. Dolphin challenged this classification with the

Iowa City assessor asserting that because it was a multiple housing

cooperative, organized under chapter 499A of the Iowa Code, the Enclave

should have been classified as residential property under Iowa Code

section 441.21(11). This Code section expressly classified as

“ ‘residential property’ . . . all land and buildings of multiple housing

cooperatives organized under chapter 499A.” Iowa Code § 441.21(11)

(emphasis omitted).

In a letter dated April 2, the Iowa City assessor refused to change

the classification of the Enclave to residential. The reason given for the

refusal was that Dolphin failed to satisfy the statutory requirements of

Iowa Code chapter 499A, as interpreted by the Iowa Supreme Court in

the Krupp case, in that it did not pass the organizational test. Dolphin

was advised of its right to appeal the assessment classification to the

Board, which it did.

By notice dated May 25, the Board notified Dolphin that its request

to reclassify the Enclave had been denied. The Board found there was

“[i]nsufficient evidence to prove that the petitioned property is not

assessable, is exempt from taxes, or is misclassified.” Dolphin appealed

the Board’s decision to the district court.

During the course of the appeal, the parties filed cross-motions for

summary judgment on the classification issue, with each party resisting

the opposing motion. Dolphin argued that it satisfied the organizational
 5

test adopted by this court in Krupp because Dawley and McMenimen, as

organizers, satisfied the requirements outlined in section 499A.1(1). See

Iowa Code § 499A.1(1). Additionally, Dolphin took the position that the

Board’s rejection of its classification was an attempt to resurrect the

“actual use” test this court rejected in Krupp. Finally, Dolphin argued

that the majority-citizenship requirement contained in section 499A.1(1),

as interpreted by the Board, would violate the dormant Commerce

Clause of the United States Constitution.

The Board emphasized that Dolphin failed to meet the

requirements set forth in Krupp because Dolphin was not properly

organized under chapter 499A. The Board argued for a “meaningful

organizational test.” Specifically, the Board contended that Dolphin

failed to meet the statutory requirement of members “organizing

themselves,” or the statutory requirement that two adult natural persons

be organizers of the cooperative. The Board argued that the two

purported organizers of Dolphin, Dawley and McMenimen, were not

members “organizing themselves,” as required by section 499A.1(1), as

the two were not members of the Dolphin cooperative. Id. (emphasis

added). According to the Board, Dawley and McMenimen cannot be

considered proper organizers for purposes of satisfying the requirements

of section 499A.1(1). Rather, the Board insisted the proper organizers

under section 499A.1(1) must be the two entities which ultimately

obtained “Certificates of Membership” in Dolphin, Dolphin International

and RBJ. These entities failed the statutory requirements of section

499A.1(1) as they are neither persons of full age, nor citizens of the state

of Iowa. Additionally, the Board argued that before property owned by a

cooperative is entitled to residential tax treatment, chapter 499A requires

the cooperative have as many different members as it has residential
 6

units. Dolphin has only two members having proprietary interests in all

of the cooperative units. Finally, the Board contended the dormant

Commerce Clause is inapplicable to the facts of this case, as apartment

buildings are incapable of crossing state borders in commerce.

On May 29, 2013, after a hearing on the competing motions for

summary judgment, the district court entered its ruling. Relying on the

plain language of Iowa Code section 499A.1(1), the district court

concluded section 499A.1(1) imposed no requirement that the organizers

of a chapter 499A cooperative must also be members of the cooperative.

It held Dawley and McMenimen satisfied the clear statutory requirements

of section 499A.1(1) as they were natural persons of full age and were

citizens of Iowa. The district court also rejected the Board’s argument

that there must be a one-to-one, member-to-unit ratio for ownership of

the units in the cooperative. The district court concluded Dolphin met

the organizational test set forth in Krupp. Consequently, the district

court did not reach the dormant Commerce Clause issue.

The district court granted the summary judgment motion filed by

Dolphin and denied the summary judgment motion filed by the Board. It

ordered the Board to reclassify the subject property as residential

property for tax assessment purposes as of the assessment date

January 1, 2012. The Board appealed the ruling of the district court,

and we retained the appeal.

II. Standard of Review.

Although ordinarily appeals from decisions of the local board of

review are triable in equity, Iowa Code § 441.39, and our review is de

novo, Iowa R. App. P. 6.907, because the district court adjudicated the

issue on appeal by summary judgment, our review is for corrections of

errors at law, Am. Legion, Hanford Post 5 v. Cedar Rapids Bd. of Review,
 7

646 N.W.2d 433, 437 (Iowa 2002). Summary judgment is appropriate

when “there is no genuine issue as to any material fact and . . . the

moving party is entitled to a judgment as a matter of law.” Iowa R. Civ.

P. 1.981(3). In considering a motion for summary judgment that

requires an interpretation of a statute, our review is for correction of legal

error. 2 Jones v. Univ. of Iowa, 836 N.W.2d 127, 139 (Iowa 2013).

III. Discussion of Requirement of Organizers for Residential
Cooperatives.

A. Introduction. This case involves the proper interpretation of

Iowa’s statute regarding the creation of residential cooperatives.

Residential cooperatives have been part of the legal scene for decades.

See Richard Siegler & Herbert J. Cooper-Levy, Brief History of

Cooperative Housing, in General Materials and Information on

Cooperative Housing 1, 1–2 (Nat’l Ass’n of Hous. Coops. 1986) (noting

that although the concept of housing cooperatives has been around for

centuries, “[t]he period of greatest cooperative development . . . occurred

in the aftermath of World War II”). Traditionally, residential cooperatives

are a vehicle designed to allow residents “to own, manage, and operate

residential apartments without anyone profiting therefrom.” 15B Am.
Jur. 2d Condominiums and Cooperative Apartments § 59, at 637 (2011);

see City of Newton v. Bd. of Review, 532 N.W.2d 771, 774 (Iowa 1995),

overruled on other grounds by Krupp, 801 N.W.2d at 13 n.1, 15. In many

jurisdictions, including Iowa, residential cooperatives may receive

favorable tax treatment. See generally Iowa Code § 441.21(9) (directing

the director of revenue to certify annually to each county auditor the

2In this case, the standard of review elaborates upon, but is consistent with

Krupp. See 801 N.W.2d at 13. In Krupp, we interpreted the statute and applied the
standard of review for correction of errors at law. Id. at 13, 14–16. As stated here, this
standard generally applies in reviewing rulings on motions for summary judgment.
 8

percentages of the actual value at which agricultural, residential,

commercial, industrial, railroad, and utility properties are to be assessed

for property taxes). The notion is that while the traditional apartment

building with a landlord owner and renting tenants should be considered

a commercial enterprise, and taxed accordingly, a residential cooperative

should be treated as residential property and subject to the lower tax

rates ordinarily afforded to homeowners.

Since 1947, Iowa has had a statutory framework providing for the

formation of residential cooperatives that are eligible to receive favorable

tax treatment. See 1947 Iowa Acts ch. 250, § 1 (codified at Iowa Code

§ 499A.1 (1950)). This case raises a series of questions of statutory

issues under the Iowa statute.

B. Statutory Framework for Organization of Cooperatives.

Cooperative associations are not a stranger to the Iowa Code. Iowa Code

chapters 497 through 499A relate to various types of cooperatives. Each

chapter has provisions related to formation of the cooperative.

Iowa Code chapter 497 relates to cooperatives for “agricultural,

dairy, ethanol production, mercantile, mining, manufacturing, or

mechanical business” purposes. Iowa Code § 497.1 (2011). Under this

chapter, “Any number of persons, not less than five, may associate

themselves as a cooperative association.” Id. (emphasis added). The next

provision states, “They shall sign and acknowledge written articles”

which are filed with the secretary of state. Id. § 497.2 (emphasis added).

Iowa Code chapter 498 relates to nonprofit cooperative

associations. Iowa Code section 498.2 provides that “[a]ny number of

persons, not less than five, may associate themselves as a cooperative

association . . . for the purpose of conducting any agricultural, livestock,

horticultural[, etc.] business.” Id. §§ 498.2–.3 (emphasis added). As with
 9

Iowa Code chapter 497, the Code provisions that follow provide that

“[t]hey shall sign and acknowledge written articles,” id. § 494.4 (emphasis

added), and that such articles “shall be filed with the secretary of state,”

id. § 498.5.

Iowa Code chapter 499 has similar provisions. Under Iowa Code

section 499.5(1), “Five or more individuals, or two or more associations,

may organize an association.” (Emphasis added.) The next statutory

provision provides, however, that “[a]ll individual incorporators of

agricultural associations must be engaged in producing agricultural

products . . . .” Id. § 499.5(2).

That brings us to the statutory provisions implicated in this

lawsuit. Under Iowa Code section 499A.1(1), “Any two or more persons

of full age, a majority of whom are citizens of the state, may organize

themselves for the following or similar purposes: Ownership of

residential, business property on a cooperative basis.” (Emphasis

added.) 3

Under Iowa Code section 499A.1(1), the organizers are required to

“adopt, and sign and acknowledge the articles of incorporation” of the

3A number of other residential cooperative statutes require more than one
person to organize the entity. For example, in Colorado, “Cooperative housing
corporations may be formed by any three or more adult residents of [the] state
associating themselves to form a cooperative or nonprofit corporation . . . .” Colo. Rev.
Stat. Ann. § 38-33.5-101 (West, Westlaw current through 70th G.A., 1st Reg. Sess.,
assorted chapters (2015)); see also Mo. Ann. Stat. § 357.015(2) (West, Westlaw current
through 2015 1st Reg. Sess., 98th G.A.) (“Any number of persons, not less than five,
may associate themselves together as a housing cooperative . . . .”); N.J. Stat. Ann.
§ 46:7-9(1)(1) (West, Westlaw current through L. 2015, ch. 32) (“That it shall and may
be lawful for any number of persons not less than five, to associate themselves into a
company for the purpose of buying, selling, settling, owning and improving real estate
. . . upon making a certificate in writing under their hands and seals . . . .”); N.C. Gen.
Stat. Ann. § 54-111 (West, Westlaw current through 2015 Reg. Sess., ch. 1, 3–5) (“Any
number of persons, not less than five, may associate themselves as a mutual
association, society, company, or exchange, for the purpose of conducting any . . .
housing . . . business . . . .”).
 10

residential cooperative. The articles of incorporation adopted by the

organizers must state, among other things, the names of the directors for

the first year and the number of directors. Id.

Once the articles of incorporation have been filed with the

secretary of state with the required filing and recording fees, “a certificate

of incorporation as a cooperative not for pecuniary profit” is issued. Id.

The Code further provides that “[u]pon filing such articles the persons

signing and acknowledging the same [the organizers] and their associates

and successors shall become a body corporate” with various enumerated

powers. Id. § 499A.2(1)–(10).

C. Iowa Caselaw Regarding Residential Cooperatives. We have

had few occasions to consider the statutory provisions related to the

formation of residential cooperatives under Iowa Code chapter 499A.

There are two cases, however, in which we considered important issues

related to the chapter that set the stage for our consideration of the

issues in this case.

The first case is City of Newton. The central issue in City of

Newton was whether a multistory building containing sixty-three living

units was properly assessed as commercial property. 532 N.W.2d at

772–73. We recognized the rental of multiunit dwellings is ordinarily

recognized as a profit-oriented enterprise and thus subject to commercial

classification for tax purposes. Id. at 773. The question in City of

Newton was whether the cooperative status of Park Centre Apartments,

the leasee of the building, entitled the residents, and thus Park Centre,

to the tax benefits of then Iowa Code section 499A.14. Id. at 773–74. We

noted the residents in Park Centre did not actually own their apartment

units. Id. at 774. Although the residents were entitled to occupy their

unit, they had “no more ownership interest in the cooperative than an
 11

ordinary tenant.” Id. Further, the residents of Park Centre lacked any

control over the affairs of the cooperative. Id. We concluded that under

the then existing statute, “the fact that the ‘members’ of the cooperative

[had] no rights to ownership or management of the enterprise clearly

defeats the purpose underlying section 499A.14.” Id.

However, as the City of Newton case was pending, the legislative

wheels were turning. Prior to handing down the City of Newton decision,

the legislature amended Iowa Code section 441.21 to provide that

“[b]eginning with valuations established on or after January 1, 1995, . . .

‘residential property’ includes all land and building of multiple housing

cooperatives organized under chapter 499A.” 1995 Iowa Acts ch. 157,

§ 1 (currently codified at Iowa Code § 441.21(11)).

We next considered an appeal of a district court decision that two

multiunit apartment buildings were entitled to favorable tax treatment as

residential cooperatives in Krupp. In Krupp, the residential cooperatives

had only two members, Larry and Connie Krupp. 801 N.W.2d at 11.

Although as the only two members of the cooperatives they had

ownership interests in the cooperatives, they did not reside in the

buildings. Id. at 11. Instead, they subleased the units they owned to

subtenants. Id. The district court found that the cooperatives were

entitled to favorable residential tax treatment, as “the cooperatives had

followed all proper corporate formalities.” Id. at 13. The board of review

appealed and the court of appeals affirmed the district court. Id. We

granted further review. Id.

On appeal, the board conceded the cooperatives were properly

organized under Iowa Code chapter 499A. Id. at 14. The board,

however, asked us to look beyond the filing papers and consider the

actual operation of the property. Id. Based on our review of the relevant
 12

statutes, we rejected an actual use test. Id. at 15. In particular, we

noted the legislative history and language in Iowa Code section

441.21(11) imposes only an “organizational test” with no reference to a

property’s actual use. Id. By adopting an organizational test, we noted

the legislature avoided a fact-intensive actual use test. Id. at 16. We

observed, among other things, that nothing in the current statutes

required member residency to be entitled to favorable tax treatment. Id.

at 15–16.

We further declined the board’s invitation in Krupp to “pierce the

corporate veil.” Id. at 16. We noted that “the doctrine of piercing the

corporate veil is a limited one that is employed only on behalf of creditors

to reach the personal assets of shareholders of corporations.” Id. In any

event, we held there was no evidence in the record that the cooperatives

were operating for a profit and even if there had been such evidence,

there was nothing in chapter 499A that prevented “a member from

leasing out a unit or units with desirable economic terms.” Id.

D. Validity of Organization of Dolphin by Attorneys Dawley

and McMenimen. The first issue raised by the Board in this case is that

attorneys Dawley and McMenimen were not lawful organizers of the

residential cooperative. The Board recognizes that in Krupp we applied

an organizational test rather than an actual use test with respect to

determining proper tax treatment of a residential cooperative organized

under Iowa Code chapter 499A. See id. at 15–16. The Board maintains,

however, that although we adopted an organizational test in Krupp, any

residential cooperative seeking favorable tax treatment must be properly

organized under Iowa Code chapter 499A. According to the Board,

because Dawley and McMenimen were not organizing themselves for

purposes of “[o]wnership of residential, business property on a
 13

cooperative basis” as required by Iowa Code section 499A.1(1), Dolphin

was not a properly organized residential cooperative and is not entitled to

favorable tax treatment.

Dolphin responds that once the papers were filed and approved by

the secretary of state, Dolphin came into existence as a residential

cooperative and that is the end of the matter under the Krupp

organizational test. See 801 N.W.2d at 15–16. It asserts that organizers

may be “[a]ny two or more persons of full age, a majority of whom are

citizens of the state” under Iowa Code section 499A.1(1) and that

attorneys Dawley and McMenimen plainly qualify. Dolphin notes there is

no requirement anywhere in Iowa Code section 499A.1 that organizers be

“members” and that, indeed, at the time of the filing of articles of

incorporation, there are no members.

A threshold question is whether Krupp precludes us from

considering whether Dawley and McMenimen were qualified organizers of

the residential cooperative. We conclude that it does not. In Krupp, the

parties stipulated that the residential cooperative was properly organized

under Iowa Code chapter 499A. Id. at 14. While Dolphin cites authority

for the proposition that we are not bound by the parties’ stipulation of

law, see Sanford’s Estate v. Comm’r, 308 U.S. 39, 51, 60 S. Ct. 51, 59, 84

L. Ed. 20, 26 (1939), or fact, see Krupp, 801 N.W.2d at 13 n.1, it is

apparent from Krupp, that in that case, we did not consider the issue of

proper organization at all, but focused only on the question of whether

the subsequent operation of the residential cooperative had any impact

on the availability of favorable tax treatment under Iowa Code section

441.21, see Krupp, 801 N.W.2d at 15–16. Thus, we think the Board may

challenge whether Dolphin was properly organized at its inception.
 14

We now turn to the merits of the Board’s argument. We begin our

analysis with the language of the statute. There is no dispute that

Dawley and McMenimen are persons of full age and that they are citizens

of the state of Iowa. See Iowa Code § 499A.1(1). However, Iowa Code

section 499A.1(1) requires more. They must “organize themselves” for

“the following or similar purposes: [o]wnership of residential, business

property on a cooperative basis.” Id. This language must be given

meaning. See Neal v. Annett Holdings, Inc., 814 N.W.2d 512, 520 (Iowa

2012) (noting “each term [in a statute] is to be given effect, and we will

not read a statute so that any provision will be rendered superfluous”

(citation omitted) (internal quotation marks omitted)). The plain

language suggests the organizers cannot organize others, but must

organize themselves for purposes of ownership of residential property or

a similar purpose. See State v. Royer, 632 N.W.2d 905, 908 (Iowa 2001)

(noting statutory language is given its plain and ordinary meaning).

The notion that organizers are not just any person of full age who

are citizens is supported not only by the direct language of Iowa Code

section 499A.1(1), but also by the language in Iowa Code section 499A.2.

This provision states, in relevant part: “Upon filing such articles the

persons signing and acknowledging the same [the organizers] and their

associates and successors shall become a body corporate with the name

therein stated and shall have [enumerated powers].” Iowa Code

§ 499A.2.

Thus, from Iowa Code section 499A.2, it is clear that organizers,

along with associates and successors, become the body corporate. This

provision is consistent with an interpretation of Iowa Code section

499A.1(1) that the organizers must “organize themselves” for purposes of

residential ownership. See Mall Real Estate, L.L.C. v. City of Hamburg,
 15

818 N.W.2d 190, 198 (Iowa 2012) (noting statutes must be read in

conjunction with other parts of chapter).

In addition, considered in context, it is clear that “organizers” are

not merely professional facilitators. As noted above, the organizers cause

the articles of incorporation to be filed with the secretary of state. Iowa

Code § 499A.1(1). The organizers further name the directors for the first

year. Id. The organizers thus have substantial power to direct the affairs

of the residential cooperative during the first year through their drafting

and appointment power. The initial directors have authority to

promulgate bylaws, which in turn must provide for the “election of a

president, vice president, treasurer, and secretary by the board of

directors.” Id. § 499A.2A(2)(b). Indeed, in this case, the lawyer

organizers appointed one person, Vijay Bhatt, as the sole member of the

initial board of directors, and that one-person board then promulgated

bylaws, pursuant to which the sole director named himself as president,

vice president, treasurer, and secretary. It is thus entirely reasonable to

require that organizers with such important powers should have a direct

interest in the residential cooperative itself rather than be a bystander

with no direct interest in the enterprise. 4

While Dolphin insists that its lawyers may be organizers even

though they have no putative interest in the cooperative, the requirement

of two organizers is inconsistent with that theory. If lawyers can be

organizers under Iowa Code section 499A.1(1), why are two needed?

4Dolphin attacks the Board’s position that organizers must be members of the
residential cooperative because members are not admitted until after the residential
cooperative has been formed by the filing of the articles of incorporation with the
secretary of state. Dolphin’s point may be well taken in the sense that organizers
cannot be formal members until after the filing of the articles, but they can be putative
members with an interest in organizing themselves into a cooperative at the time of
filing.
 16

Indeed, under Iowa Code section 498.2, “not less than five [persons] may

associate themselves as a cooperative association.” Under Dolphin’s

theory, five lawyers could band together to form the cooperative under

Iowa Code section 498.2. Of course, having multiple persons form

cooperatives who are interested in directly participating in the

subsequent organization makes sense, because by definition cooperatives

involve multiple ownership. It makes little sense, however, to require

multiple lawyers to associate together to merely accomplish incorporation

formalities.

The facts of this case also illuminate the nature of the legal

requirements for residential cooperatives. The record reveals that two

entities, Dolphin International, an Illinois limited liability company, and

RBJ, an Illinois corporation, are the owners of the Enclave, the

apartment buildings in question. They understandably seek to convert

their holdings into a residential cooperative in order to receive favorable

tax treatment.

At the time of the attempted conversion, however, there were

potential legal problems with Dolphin International and RBJ acting as

organizers. First, the statute requires that the organizers be “persons of

full age.” Id. § 499A.1(1). Although corporations are said to be a person

within the meaning of the chapter, id. § 499A.1(1), one might wonder

whether this general principle would be applied to organizers in light of

the “full age requirement.” Ordinarily, corporations do not mature to

“full age,” only living, breathing persons do. Second, even if corporate

entities could be organizers, it was doubtful at all times relevant here

that Dolphin International, a limited liability company, would qualify as

an organizer. Arguably, the statute, which expressly authorized

corporations to be persons but did not mention limited liability
 17

companies, impliedly rejected them as persons. See Kucera v. Baldazo,

745 N.W.2d 481, 487 (Iowa 2008) (discussing the rule of expressio unius

est exclusio alterious); see also 2014 Iowa Acts ch. 1095, § 1, eff. July 1,

2014 (codified at Iowa Code § 499A.1(1) (2015)) (amending section

499A.1(1) to include a limited liability company as a person under the

statute). A third potential legal problem was the statutory requirement

that a majority of organizers under the statute be citizens of Iowa. While

the citizenship requirement might be challenged under the dormant

Commerce Clause, it is doubtful that Dolphin International or RBJ,

organized in Illinois, could meet this statutory qualification. To avoid

these legal pitfalls, Dolphin appears to have attempted to work around

the statutory limitations in Iowa Code section 499A.1(1) (2011) by using

attorneys Dawley and McMenimen as organizers. However, these lawyers

were not organizing themselves for purposes of “[o]wnership of

residential, business property on a cooperative basis.” Iowa Code

§ 499A.1(1).

As a result, Dolphin was not properly established under Iowa Code

section 499A.1(1). The district court therefore erred when it granted

summary judgment to Dolphin and denied summary judgment to the

Board. Because we conclude that Dolphin was not properly organized on

this ground, we do not address the alternative arguments raised by the

Board on this appeal.

IV. Challenge Under the Dormant Commerce Clause.

Dolphin asserts that the Board understands Iowa Code chapter

499A to impose a residency requirement, namely, that a majority of the

initial members must be Iowa residents and that this provision violates

the dormant Commerce Clause. Dolphin cites cases that stand for the

general proposition that if a statute discriminates against interstate
 18

commerce, it may be constitutionally infirm. See Brown-Foreman

Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 578–79, 106 S.

Ct. 2080, 2084, 90 L. Ed. 2d 552, 559 (1986); Smithfield Foods, Inc. v.

Miller, 367 F.3d 1061, 1064–65 (8th Cir. 2004); S.D. Farm Bureau, Inc. v.

Hazeltine, 340 F.3d 583, 592–93 (8th Cir. 2003). Dolphin urges us to

avoid an interpretation that gives rise to potential constitutional

infirmities. See Simmons v. State Pub. Defender, 791 N.W.2d 69, 88

(Iowa 2010).

We do not base our decision, however, on the citizenship

provisions of Iowa Code section 499A.1(1) or any “residency

requirement.” Cf. Jones v. Gale, 470 F.3d 1261, 1269 (8th Cir. 2006)

(finding prohibition of corporations from farming in Nebraska invalid

when there was evidence of discriminatory intent against out-of-state

corporations). Instead, we base our decision on our interpretation of the

“organize themselves” provision of the statute. Iowa Code § 499A.1(1).

While Dolphin in its briefing challenges any residency requirement as

violating the commerce clause, our “organize themselves” interpretation

does not require residency. In Krupp, we expressly stated there is no

requirement that members occupy their units. 801 N.W.2d at 15–16.

We have held, however, that organizers must have some skin in the game

when they organize residential cooperatives. No party claims that such

an interpretation runs afoul of the dormant Commerce Clause, and in

any event, such a challenge does not discriminate against interstate

commerce and would thus lack merit under dormant Commerce Clause

analysis.
 19

V. Conclusion.

For the foregoing reasons, we reverse the summary judgment

entered in favor of plaintiff Dolphin and remand for the district court to

enter summary judgment in favor of defendant the Board.

DISTRICT COURT DECISION REVERSED AND CASE

REMANDED WITH INSTRUCTIONS.

All justices concur except Mansfield, J., who concurs specially, and

Zager and Waterman, JJ., who dissent.
 20

#13–1031, Dolphin v. Bd. of Review

MANSFIELD, Justice (concurring specially).

I join in the majority opinion and write separately only because I

would go farther. In my view, Krupp was wrongly decided and should be

overruled. See Krupp Place 1 Co-op, Inc. v. Bd. of Review, 801 N.W.2d 9

(Iowa 2011).

Let’s begin with the underlying reality of what is going on: An

Illinois-based commercial landlord is leasing out 400 apartment units in

several buildings for profit. Seeking a fifty percent reduction in its

property tax bill, that landlord has taken on some of the trappings of an

Iowa cooperative. But none of the members of the cooperative actually

resides in any of the apartment buildings. Rather, the so-called

cooperative, Dolphin Residential Cooperative, Inc. (the Dolphin

cooperative), has two “members”—Dolphin International, LLC, which has

been assigned 399 of the apartments, and RBJ Management, Inc., which

has been assigned the one remaining apartment. All three entities are

under the direction of the same person—Vijay Bhatt. Bhatt is the sole

director, president, vice president, treasurer, and secretary of the

Dolphin cooperative, the manager of Dolphin International, and the

president of RBJ.

As the majority opinion explains, two attorneys from the same

Cedar Rapids law firm organized the Dolphin cooperative. That law firm

apparently represents all three entities—the Dolphin cooperative,

Dolphin International, and RBJ. Once the Dolphin cooperative was

formed, Dolphin International and RBJ deeded the real estate to it, which

then turned around and leased the real estate back to Dolphin

International and RBJ.
 21

This commercial enterprise under the direction of a single person

is totally different from what we would normally call a “cooperative.” The

classic cooperative involves independent persons such as farmers

forming a jointly owned entity in order to accomplish something as a

group that no one person could do as effectively on his or her own (e.g.,

buy supplies, market grain, obtain electricity). See, e.g., Merriam-

Webster’s Collegiate Dictionary 275 (11th ed. 2003) (defining a

cooperative as “an enterprise or organization owned by and operated for

the benefit of those using its services”). Instead, we have here the

opposite: a single economic enterprise purporting to be divided into

independent units in order to get favorable tax treatment. The

independent units exist on paper only, and none of the users of services

have an ownership interest in the entity.

Does this underlying reality matter? I believe it does. There is a

well-established doctrine in federal tax law that transactions undertaken

only for tax purposes and otherwise lacking economic significance should

be disregarded. As the United States Supreme Court has summed up,

This Court, almost 50 years ago, observed that
taxation is not so much concerned with the refinements of
title as it is with actual command over the property taxed-the
actual benefit for which the tax is paid. In a number of
cases, the Court has refused to permit the transfer of formal
legal title to shift the incidence of taxation attributable to
ownership of property where the transferor continues to
retain significant control over the property transferred. In
applying this doctrine of substance over form, the Court has
looked to the objective economic realities of a transaction
rather than to the particular form the parties employed. The
Court has never regarded the simple expedient of drawing up
papers as controlling for tax purposes when the objective
economic realities are to the contrary. In the field of
taxation, administrators of the laws and the courts are
concerned with substance and realities, and formal written
documents are not rigidly binding.
 22

Frank Lyon Co. v. United States, 435 U.S. 561, 572–73, 98 S. Ct.

1291, 1298, 55 L. Ed. 2d 550, 560 (1978) (citations omitted)

(internal quotation marks omitted).

[W]here . . . there is a genuine multiple-party transaction
with economic substance which is compelled or encouraged
by business or regulatory realities, is imbued with tax-
independent considerations, and is not shaped solely by tax-
avoidance features that have meaningless labels attached,
the Government should honor the allocation of rights and
duties effectuated by the parties.

Id. at 583–84, 98 S. Ct. at 1303–04, 55 L. Ed. 2d at 567.

Frank Lyon involved a transaction that did have sufficient

economic substance, according to the Supreme Court (although two

justices dissented). Id. There, a state bank (Worthen) wanted to erect a

multistory bank and office building but could not borrow the funds

because of state and federal banking regulations. Id. at 563–64, 98

S. Ct. at 1293–94, 55 L. Ed. 2d at 554–55. Worthen entered into a sale-

and-leaseback arrangement with a separate company (Lyon), which in

turn took out a mortgage. Id. at 564–68, 98 S. Ct. at 1293–96, 55 L. Ed.

2d at 555–57. The Court found that this transaction had enough

economic substance because “the lessor [Lyon] retain[ed] significant and

genuine attributes of the traditional lessor status.” Id. at 584, 98 S. Ct.

at 1304, 55 L. Ed. 2d at 567.

It is true that Lyon’s majority shareholder also happened to serve

on Worthen’s board of directors. Id. at 563, 98 S. Ct. at 1293, 55 L. Ed.

2d at 554. Yet there was no dispute as to “Lyon’s substantiality and its

independence from Worthen.” Id. at 582, 98 S. Ct. at 1303, 55 L. Ed. 2d

at 566 (footnote omitted). Nor was it disputed that Lyon had assumed

significant risk and that both entities had valid nontax reasons for
 23

engaging in the transaction. Id. at 582–83, 98 S. Ct. at 1303, 55 L. Ed.

2d at 566–67.

Here, by contrast, there are no genuine third parties. The putative

cooperative, directed by Bhatt, consists of a 99.7 percent interest held by

one Bhatt-directed entity and a .03 percent interest controlled by another

Bhatt-directed entity. The three entities have been separated purely for

tax reasons, and the ersatz cooperative has no reason for being other

than tax reduction. 5

The economic substance doctrine has been recognized by state

courts. See TD Banknorth, N.A. v. Dep’t of Taxes, 967 A.2d 1148, 1157

(Vt. 2008). In TD Banknorth, the taxpayer established three holding

companies for the sole purpose of reducing Vermont tax liability. Id. at

1150–51. In holding that the companies should not be treated as

separate for tax purposes, the court emphasized both the taxpayer’s

motivation and the holding companies’ lack of any independent business

activity apart from holding certain assets for tax reasons. Id. at 1157–

58; see also Shuwa Invs. Corp. v. County of Los Angeles, 2 Cal. Rptr. 2d

783, 784–86, 796 (Ct. App. 1991) (finding that a stepped transaction

intended to avoid property tax reassessment lacked economic substance

and would be treated as a single sale); Comptroller of the Treasury v. SYL,

Inc., 825 A.2d 399, 415–16 (Md. 2003) (finding that subsidiary

corporations were formed solely for tax purposes, lacked economic

substance, and would be disregarded); Sherwin–Williams Co. v. Comm’r,

778 N.E.2d 504, 512 (Mass. 2002) (“Massachusetts recognizes the ‘sham

transaction doctrine’ that gives the commissioner the authority to

disregard, for taxing purposes, transactions that have no economic

5As noted, the tax benefits do not even accrue to Iowa residents.
 24

substance or business purpose other than tax avoidance. The doctrine

generally works to prevent taxpayers from claiming the tax benefits of

transactions that, although within the language of the tax code, are not

the type of transactions the law intended to favor with the benefit.”

(Footnote omitted.) (Citation omitted.) (Internal quotation marks

omitted.)).

Our court has also followed substance-over-form in the field of

taxation. For example, in Parshall Christian Order v. Board of Review, we

upheld a county’s determination that a religious organization comprised

of a single family was not entitled to a property tax exemption. See 315

N.W.2d 798, 805 (Iowa 1982). The facts of that case were as follows:

In December 1975, the Parshalls founded the Parshall
Christian Order (PCO), a religious order dedicated to the
advancement of biblical teachings. PCO consists of Robert
Parshall, denominated as its chief steward, Joyce Parshall,
assistant steward, and the two sons, who are referred to as
members. No other person has been a member of PCO or
applied for membership. Robert Parshall testified that new
members would be welcome to join PCO if they were willing
to abide by its rules and take the required oaths. Nothing in
the record, however, suggests that PCO has made any effort
to recruit additional members. The members of PCO are
thus identical to the members of the Parshall family.

Id. at 799.

We explained our reasoning in this way:

Nothing in these definitions suggests that a religious
society can consist solely of the members of a nuclear family.
Inherent within those definitions is the notion that the
various individuals composing a religious society have
become associated only through their mutual desire for
worship and religious education. Were it not for that desire
the association of those particular individuals would not
have occurred. Such is obviously not the case with PCO.
The members of the Parshall family are not associated only
because of their desire for mutual worship; they are
associated as a family. They will continue as a group
regardless of any religious beliefs they may possess.
Because the predominant reason for the Parshalls’
 25
association is not religious pursuit, we conclude that PCO is
not a religious institution or society as contemplated by
section 427.1(9) [now section 427.1(8)].

Id. at 802. In summary, we said, “Granting tax exempt status to PCO

would exalt form over substance . . . .” Id. at 805. 6

No detailed study of chapter 499A is needed to conclude that a

purported cooperative arrangement which lacks economic substance

does not fall within the purview of the chapter and should not qualify for

the Iowa Code section 441.21(11) tax benefit. Section 499A.1(1)

authorizes “[o]wnership of residential, business property on a cooperative

basis.” Iowa Code § 499A.1(1) (2011) (emphasis added). If ownership is

not, in reality, on a cooperative basis, the tax benefit does not accrue.

Just as Iowa Code section 427.1(8) does not define “religious institution

or society,” so too Iowa Code chapter 499A and section 441.21(11) do not

define the term “cooperative.” But in the same way that taxing entities

are entitled to look behind the labels to determine whether an entity is

actually a religious institution, likewise they can examine whether the

entity is, in practical terms, a cooperative. A de facto single-member

cooperative has no more validity for tax purposes than a religious order

limited to one nuclear family. See Parshall Christian Order, 315 N.W.2d

at 805.

Indeed, a hallmark feature of cooperatives is that they bring

together multiple “persons.” See Iowa Code § 499A.1(1) (stating that

“[a]ny two or more persons” may organize themselves to form a

6In Parshall Christian Order, we determined that the taxpayer was not a
“religious institution or society” without reaching the question whether the taxpayer’s
property was used solely for the purposes of a religious institution or society. See 315
N.W.2d at 801. Thus, we applied an economic substance test to the issue of whether
the taxpayer was a particular type of entity, not needing to consider the uses served by
that entity. Cf. Krupp, 801 N.W.2d at 15 (indicating that Iowa Code section 427.1(8)—
unlike section 441.21(11)—expressly incorporates an actual use test).
 26

cooperative). But when, as here, the so-called cooperative lacks

members who are economically distinct from each other, it is missing

this essential feature.

Iowa Code section 499A.11 gives additional force to this point. It

provides that

each member has an exclusive possessory interest in an
apartment unit and a possessory interest in common with all
other members in that portion of the cooperative’s real and
personal property not constituting apartment units, and
which creates a legal relationship of landlord and tenant
between the cooperative and member.

Id. § 499A.11. In addition, section 499A.18A makes each member

“responsible for maintenance and repair of the person’s apartment unit.”

Id. § 499A.18A. While I agree that it may be over-reading chapter 499A

to hold that each member can only have an exclusive interest in one unit,

and I do not believe chapter 499A prohibits members from subleasing

their units, the section clearly contemplates that a cooperative would be

comprised of multiple members who are economically independent of

each other.

I acknowledge that Krupp presented a similar situation: The only

members of the purported cooperative were the Krupps—presumably a

husband and wife—who together owned the entire twenty-four-unit

apartment complex. 801 N.W.2d at 11. Hence, as in the present case,

there was a unitary economic entity that engaged in legal mitosis purely

for tax reasons. As here, the transactions in Krupp lacked economic

substance. Krupp, however, rejected the economic substance test in a

footnote. Id. at 15 n.2. For these reasons, I believe Krupp should be

overruled.

Krupp gave considerable weight to language in Iowa Code section

441.21(11) which provides that “ ‘residential property’ includes all land
 27

and buildings of multiple housing cooperatives organized under chapter

499A . . . .” Id. at 15 (second emphasis added) (quoting Iowa Code

§ 441.21(11) (2007)). In the court’s view, this language unambiguously

established an “organizational test” as the only standard a cooperative

must meet to receive preferred tax treatment. Id. It thus foreclosed any

reliance on whether the so-called cooperative actually operated as a

cooperative. Id.

While this is not an unreasonable interpretation of section

441.21(11), it does not persuade me. I think the phrase—“organized

under chapter 499A”—was simply intended by the legislature to nail

down the type of cooperative being referred to. I am not convinced that

by using this rather plain vanilla phrase “organized under,” which

appears in hundreds of Iowa statutes, the legislature specifically meant

to establish a limited “organizational test” as the entire test for whether a

cooperative qualified for residential tax treatment. To put it another way,

I view the phrase “organized under” as being a floor, i.e., the cooperative

had to have been organized under chapter 499A, rather than a ceiling,

i.e., the cooperative would always get the tax benefit as long as it was

organized under chapter 499A.

To bolster its conclusion, the Krupp court suggested that when the

legislature enacted section 441.21(11) in 1995, see 1995 Iowa Acts ch.

157, § 1, it may have been weighing in on a controversy raised by the

then-pending case of City of Newton v. Board of Review, 532 N.W.2d 771

(Iowa 1995), overruled on other grounds by Krupp, 801 N.W.2d at 13 n.1.

See Krupp, 801 N.W.2d at 16. City of Newton involved a retirement home

that was owned by one entity (WRS) and leased by it to another entity

(Park Centre, the purported cooperative). 532 N.W.2d at 772. The

residents of the retirement home had entered into agreements with WRS
 28

that provided them with life estates. Id. at 772–73. However, in rejecting

Park Centre’s request for residential tax treatment as a cooperative, we

indicated that one should look at “the purpose underlying” the tax

benefit. Id. at 774. The members of this cooperative had “no rights to

ownership or management of the enterprise.” Id.

While City of Newton was pending but before it was decided, the

legislature enacted what is now Iowa Code section 441.21(11). See 1995

Iowa Acts ch. 157, § 1. If the legislature was weighing in, it is important

to note the legislature effectively ruled against Park Centre; that entity

would have lost the case under section 441.21(11) just as surely as it lost

under the reasoning of City of Newton. That is because the legislation

required the cooperative to own the land and buildings—i.e., “all land

and buildings of multiple housing cooperatives”—which Park Centre

didn’t do. Thus, the legislation would have enabled the questionable

Park Centre-type of cooperative to be nipped in the bud.

To read this legislation as undermining the ensuing City of Newton

decision seems misguided to me. In all likelihood, if we believed our City

of Newton decision was a dead end due to the recent enactment of

section 441.21(11), we would have said so in City of Newton. We did not.

Hence, I read the phrase “organized under chapter 499A” in

section 441.21(11) not as drawing a technical distinction between how a

cooperative was initially organized and how it operates, but simply as

importing chapter 499A’s overall requirements into section 441.21(11).

Another important point is that the legislature said “organized under

chapter 499A,” not “organized under section 499A.1.” This certainly

implies that sections other than 499A.1, the only section dealing with

initial organization, are relevant to the inquiry.
 29

Additionally, as the debate between the majority and the dissent in

this case illustrates, it is difficult to draw a line between organization and

operations. They blend into each other. Is a cooperative validly

organized under section 499A.1(1) if there never was an intent to operate

“on a cooperative basis” as provided in section 499A.1(1)? Organization

and operations to me are two sides of the same coin.

In the dissent’s view, favorable tax treatment is simply a matter of

getting some paperwork in order. Once the cooperative has been

established with the usual boilerplate filings executed by two

strawperson nominees, the organizational test has been met and

everything else is irrelevant. That can’t be right. If the dissent were

correct, the cooperative would never have to advance beyond its initial

formation and would never have to have any members. It could totally

flaunt the other requirements of chapter 499A so long as the

requirements of section 499A.1 were satisfied. After all, the dissent

would say, the cooperative was “organized” properly and that is the only

thing that matters. Everything else concerns operations.

Note that the dissent is consistent and would give the owner of the

real estate favorable residential tax treatment even if the “cooperative’s

plans fall through . . . , it never builds residential units, and it never

admits members to the cooperative.” With respect, I think the members

of the general assembly would drop their jaws when considering this

outcome. This would mean an ordinary commercial developer could get

a fifty percent tax break merely by filing technically compliant section

499A.1 paperwork—without ever following through on anything. The

developer would not even have to pretend to establish a cooperative-type

arrangement, as here. That is not what the general assembly intended.
 30

Yet the dissent has a valid point. Normally we allow new entities to

be formed with the aid of organizers or incorporators who serve a largely

ministerial role, before being quickly replaced. Doing it any other way is

often impractical, because until the entity is up and running it may be

unclear who is going to be involved with it. The irony is that under the

majority’s view of the organizational test, it will be harder for bona fide

cooperatives to qualify than for Potemkin cooperatives such as Dolphin.

It is easier for a faux cooperative to organize itself, as the majority

demands, than for a real one to do so.

In sum, I agree with the majority that the cooperative here fails

even a limited organizational test. However, going beyond the majority, I

would also hold that any such cooperative should be disregarded for tax

purposes because it fails the economic substance test. Without doubt,

this cooperative was set up only for tax reasons, and it lacks an essential

attribute of a chapter 499A cooperative, namely, that its members be

economically independent. For these reasons, I would reverse the

summary judgment entered by the district court. 7

7I recognize that stare decisis is a reason not to overrule Krupp. However, Krupp
was decided only four years ago, and this is the first time we have been called upon to
apply it. See 801 N.W.2d at 9. For reasons discussed above, I believe Krupp’s rejection
of an actual use test for cooperatives is not merely an incorrect reading of the statute,
but also leads to an unworkable distinction between a cooperative’s organization and its
operations.
 31

#13–1031, Dolphin v. Bd. of Review

ZAGER, Justice (dissenting).

I respectfully dissent. In my opinion, Dawley and McMenimen

were qualified to act as the organizers of Dolphin Residential

Cooperative, Inc. (Dolphin) and satisfied the requirements of Iowa Code

section 499A.1(1) (2011). Thus, Dolphin was properly organized under

chapter 499A and is entitled to favorable tax treatment by virtue of its

status as a residential cooperative. I would affirm the decision of the

district court.

The statutory language the majority concentrates on is “organize

themselves for the following or similar purposes: Ownership of

residential, business property on a cooperative basis.” Iowa Code

§ 499A.1(1). According to the majority, this language suggests the

organizers cannot organize others, but instead must organize themselves.

Thus, it concludes Dawley and McMenimen cannot serve as the

organizers of Dolphin because they did not intend to have a future

interest in the cooperative. In other words, the majority injects an intent

requirement into our meaningful organizational test that has no basis in

the statute or our caselaw. In effect, the majority’s analysis imposes a

new requirement that the organizers of a residential cooperative also

form its initial membership base. In my opinion, these requirements are

not supported by the plain and ordinary language of the statute and are

further undermined by a broader examination of chapter 499A as a

whole. Moreover, these requirements are wholly illogical and contrary to

our decision in Krupp Place 1 Co-op, Inc. v. Board of Review, 801 N.W.2d

9 (Iowa 2011).

The plain language of the statute provides: “Any two or more

persons of full age, a majority of whom are citizens of the state, may
 32

organize themselves . . . .” Iowa Code § 499A.1(1) (emphasis added).

Webster’s Third New International Dictionary defines “any” as “one

indifferently out of more than two : one or some indiscriminately of

whatever kind.” Webster’s Third New International Dictionary 97 (unabr.

ed. 2002). As we have previously noted, “ ‘A more comprehensive word

than “any” could hardly be employed. It means indiscriminate, or

without limitation or restriction.’ ” Iowa-Ill. Gas & Elec. Co. v. City of

Bettendorf, 241 Iowa 358, 364, 41 N.W.2d 1, 4–5 (1950) (quoting

Commonwealth v. One 1939 Cadillac Sedan, 45 A.2d 406, 409 (Pa. Super.

Ct. 1946)). Given the legislature’s use of the broad term “any,” I cannot

conclude the statute requires inquiry into the intent of a cooperative’s

organizers.

Moreover, read in its entirety, chapter 499A clearly does not

require the organizers of a residential cooperative to have any direct

interest in the cooperative either at the time of its organization or at

some point in the future. See Miller v. Marshall County, 641 N.W.2d 742,

749 (Iowa 2002) (“We must read each provision of a statute together,

without according undue importance to any single provision.”). Nor does

the statute in any way contemplate the de facto member-organizer

requirement now imposed by the majority. Chapter 499A clearly

distinguishes between organizers, directors, and members, establishing

different roles for each. The legislature’s use of distinct terms to refer to

different classes of persons who take part in the process of forming,

operating, and participating in a chapter 499A cooperative manifests its

intent that these participants serve different functions. See Miller, 641

N.W.2d at 749 (“We assume the legislature intends different meanings

when it uses different terms in different portions of a statute.”). The

legislature also clearly demonstrated its ability to differentiate between
 33

these participants and established different rights and duties for each

distinct class. See, e.g., Iowa Code §§ 499A.1(1) (establishing organizers’

duty to “adopt, and sign and acknowledge the articles of incorporation”),

.2A (establishing directors’ duty to adopt initial bylaws), .3C (establishing

members’ right to vote), .19 (establishing members’ right to elect

directors). Had the legislature intended to require that the organizers of

a residential cooperative possess an interest in a chapter 499A

cooperative or that they ultimately become members of the cooperative, it

could have stated as much as it has in other contexts. See, e.g., id.

§ 496C.6 (“One or more individuals having capacity to contract, each of

whom is licensed to practice in this state a profession which the

professional corporation is to be authorized to practice, may act as

incorporators of a professional corporation.” (Emphasis added.)); id.

§ 499.5(2) (“All individual incorporators of agricultural associations must

be engaged in producing agricultural products . . . .” (Emphasis added.)).

But nothing in chapter 499A requires the organizers of a residential

cooperative to have any interest in the cooperative or to become members

of the cooperative. We should not, under the pretext of construction,

read these requirements into the statute. Bank of Am., N.A. v. Schulte,

843 N.W.2d 876, 880 (Iowa 2014) (“Under the pretext of construction, we

may not extend a statute, expand a statute, or change its meaning.”).

Significantly, nothing in chapter 499A requires the organizers of a

residential cooperative to continue with the organization in any capacity

after they file the articles of incorporation with the secretary of state and

the cooperative becomes a corporate body. Under the statute, organizers

serve a largely administrative function. Iowa Code section 499A.1(1)

defines the function of organizers:
 34
The organizers shall adopt, and sign and acknowledge the
articles of incorporation, stating the name by which the
cooperative shall be known, the location of its principle place
of business, its business or objects, the number of directors
to conduct the cooperative’s business or objects, the names
of the directors for the first year, the time of the cooperative’s
annual meeting, the time of the annual meeting of its
directors, and the manner in which the articles may be
amended.

Further, outside of section 499A.1(1), chapter 499A makes no further

reference to the organizers whatsoever. See Iowa Code §§ 499A.2–.25.

The majority conflates the duties of a cooperative’s organizers with

those of its directors and, by extension, its members. The majority

states, “It is thus entirely reasonable to require that organizers with such

important powers should have a direct interest in the residential

cooperative itself rather than be a bystander with no direct interest in the

enterprise.” (Emphasis added.) But are the administrative powers listed

above all that important? More significantly, where has the legislature

made this judgment in the statute? The answer, of course, is that it

hasn’t.

More fundamentally, under the statute once the cooperative comes

into existence, its initial members need not, and perhaps cannot, be

ascertained. Thus, it is illogical to read the statute as requiring that the

organizers of a cooperative possess an interest in the cooperative, that

members be organizers, or that all organizers become members. In fact,

after the articles of incorporation are filed with the secretary of state, and

before membership certificates are ever issued, Iowa Code section 499A.2

provides that the organization “shall become a body corporate” and “have

power . . . [t]o purchase, take, receive, lease . . . , take by gift, devise or

bequest, or otherwise acquire, and to own, hold, use and otherwise deal

in and with any real or personal property or any interest therein.” Id.

§ 499A.2(4). Section 499A.2A further provides that the initial bylaws of
 35

the cooperative shall be adopted by the cooperative’s board of directors.

Id. § 499A.2A. It also provides that “[p]rior to the admission of members

to the cooperative, the power to alter, amend, or repeal the bylaws or

adopt new bylaws is vested in the board of directors.” Id. § 499A.2A.

These sections plainly contemplate a period in which a chapter 499A

cooperative may have no members yet nevertheless legally operate.

Problematically, the majority’s logic applies to any two or more

individuals who decide to organize themselves as a cooperative, not just

these attorney organizers. The purpose of the cooperative may be to

purchase undeveloped real estate, build an apartment complex on the

real estate, and sell each of the residential units. Perhaps the

cooperative’s plans fall through after acquiring the real estate, it never

builds residential units, and it never admits members to the cooperative.

Are we to conclude that the cooperative was not properly organized? Is

the cooperative not entitled to favorable tax treatment with respect to

property acquired and held during that period simply because its plans

were unsuccessful? Maybe the organizers never intended to build the

apartments, but instead intended to hold the real estate for investment

purposes. The point is, in determining whether the cooperative was

properly organized, we wouldn’t look back and make a judgment about

the original motive and intent of the organizers. Neither should we make

an inquiry about the original motive and intent of the organizers as part

of our meaningful organizational test here.

Finally, the majority’s interpretation of the statute in essence

requires that we revive the “actual use” test we explicitly rejected in

Krupp only four years ago. See 801 N.W.2d at 16 (“By enacting the

amendment with an organizational test, the legislature avoided a fact

intensive ‘actual use’ test . . . .”). Take the previous example of the
 36

cooperative that has its building plans fall through after acquiring some

undeveloped real estate. How would the majority decide whether that

cooperative was properly organized under chapter 499A? It never got to

the membership phase; thus, we can’t compare its members to its

organizers. The only way to determine whether the property it holds is

entitled to favorable tax treatment is to look to its actual operation

during the interim period and ask: Was it actively making plans to go

forward with what looks like a cooperative? This is plainly inconsistent

with Krupp, in which we held that “[t]he only fact finding required under

[Iowa Code] section 441.21(11) is whether the property is owned by an

entity organized under chapter 499A” and declined to look at the actual

use of the property in classifying it for tax purposes. Id. at 15–16. In the

future, courts will have to take a fact-intensive look behind the curtain

and consider who the cooperative’s organizers were, who its initial

members were, who the members are now, what the organizers and

initial members’ intentions were, and how the cooperative is operating.

This patently contradicts both the holding and spirit of Krupp.

The statute and our decision in Krupp plainly do not contemplate

the requirement that an organizer have a direct interest in the

cooperative or the de facto member-organizer requirement now imposed

by the majority. Thus, in my opinion, Dawley and McMenimen were

qualified to act as the organizers of the Dolphin cooperative. Further,

Dawley and McMenimen satisfied the organizational requirements of

section 499A.1(1). Section 499A.1(1) requires: 1) that there be “two or

more persons of full age”; 2) a majority of those persons must be “citizens

of the State”; 3) those persons must “adopt, and sign and acknowledge

the articles of incorporation,” which must contain specific information;

and 4) those persons must follow delineated procedures in filing the
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articles of incorporation with the secretary of state. See Iowa Code

§ 499A.1(1). Here, it is undisputed that Dawley and McMenimen are

persons, there are two of them, and they are both over the age of

eighteen. It is undisputed that they are both citizens of Iowa. It is

undisputed that they adopted, signed, and acknowledged the articles of

incorporation and that the articles contained the necessary information.

It is undisputed that they filed the articles with the secretary of state on

December 22, 2011, and that on December 23 the Iowa secretary of state

issued a document entitled “Acknowledgment of Document Filed,”

confirming Dolphin’s articles of incorporation were effective as of

December 22. Consequently, Dawley and McMenimen clearly satisfy our

meaningful organizational test. See Krupp, 801 N.W.2d at 15 (“[C]hapter

499A imposes only an ‘organizational test,’ with no reference to the

property’s actual use.”). Dolphin was properly organized and is entitled

to favorable tax treatment by virtue of its status as a residential

cooperative.

There is no statutory or logical basis for inquiring into the motive

or intent of the organizers of a cooperative, or for considering whether the

organizers have some direct interest in the cooperative either at the time

of its organization or at some point in the future. Neither is there any

statutory or logical basis for the de facto member-organizer requirement

now imposed by the majority. The majority’s new requirements are not

supported by the statute and are plainly inconsistent with our holding in

Krupp. These considerations should have nothing to do with our

analysis.

The elephant in the room is that the majority, and the local taxing

authorities, don’t like the loss of tax revenue resulting from the

conversion of property from a commercial to a residential tax status. But
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the impression that these property owners are somehow taking

advantage of the law should not really be our concern. The legislature

made the policy decision to tax residential cooperatives more favorably.

If people are upset about this, they should make their concerns known to

the legislature, which has the power to correct this perceived injustice. I

don’t believe it is for this court to arbitrarily adopt additional

requirements not provided for in the statute to achieve this result.

Dolphin was properly organized. I would affirm the decision of the

district court.

Waterman, J., joins this dissent.