Gansen v. Gansen

874 N.W.2d 617

John GANSEN and Elaine Bries, as Trustees of the Frances A. Gansen Declaration of Trust, Appellees,

v.James B. GANSEN, Appellant.

No. 14–2006.

Supreme Court of Iowa.

Jan. 22, 2016.

Andrew B. Howie of Hudson, Mallaney, Shindler & Anderson, P.C., West Des Moines, D. Flint Drake and Samuel M. Degree of Drake Law Firm, P.C., Dubuque, for appellant.

Richard W. Kirkendall and Stephen J. Juergens of Fuerste, Carew, Juergens & Sudmeier, P.C., Dubuque, for appellees.

APPEL, Justice.

In this case, we consider a dispute regarding a lease of land used for agricultural purposes. The substantive legal question presented by the parties is whether the terms of two five-year leases—which automatically self-renewed for four additional five-year terms unless the tenant unilaterally opted out of the lease—offend article I, section 24 of the Iowa Constitution. Article I, section 24 of the Iowa Constitution provides that no lease of agricultural lands "shall be valid for a longer period than twenty years." The district court concluded that to the extent the leases permitted Gansen to continue to lease the property beyond twenty years, the leases violated article I, section 24. Gansen appealed.

Before reaching the substantive legal question, however, we must consider whether the landlord's claim that the leases violated article I, section 24 is barred under principles of claim preclusion arising as a result of prior litigation between the parties involving the same agricultural leases.

For the reasons expressed below, we conclude that claim preclusion does not apply to bar the landlord's constitutional claim in this case. On the merits, we agree with the district court that the leases violate article I, section 24 of the Iowa Constitution to the extent they remain in effect after the passage of twenty years from their inception.

I. Background Facts and Proceedings.

A. The Leases. Frances Gansen created the Charles Gansen Trust (Trust) in December of 1996. The Trust received two tracts of farm land of 120 and 80 acres respectively. The Trust then entered into identical leases with James Gansen (James) for the two tracts commencing on March 1, 1997.

The leases provided an initial term of five years. Each lease, however, contained an "option to renew." The option to renew provided:

This lease shall automatically renew for four additional 5–year terms unless Tenant provides notice to Landlord in writing not less than 180 days before the termination of the then current lease term, or within 30 days of the commencement of the new lease term, with tenant's election not to lease the leased property for any such additional five year term. In the event the lease term is extended pursuant to this paragraph, in all respects the lease shall continue upon the same terms and conditions provided for herein.

The leases also contained a provision related to potential rent adjustment. Specifically, the leases stated,

[T]he annual rental due shall be adjusted each year by the mutual agreement of the parties. If the parties do not mutually agree to such adjusted rental on or before August 1 of any such year, the rental for the previous year shall apply.

Between 1997 and 2007, James rented the two farms from the Trust for $120 per acre.

B. First Round of Litigation. Beginning in 2007, however, the trustee unsuccessfully attempted to negotiate a higher rent from James. After unsuccessful negotiations, the trustee launched the first round of litigation between the parties in 2009.

The trustee filed a declaratory action against James in three counts. Count I asserted that while the leases called for annual reconsideration of the rental rate, James had refused to cooperate in good faith. As a result, the trustee sought a declaration that James was in breach of the lease. In Count II, the trustee asserted that even if James was not in breach of the lease, the court should determine a fair rental for the lease for the year beginning March 1, 2009. Count III asked the court to conclude the leases terminated as of March 1, 2009, for failure of the parties to include a material term in the lease agreement. James filed a series of counterclaims raising issues not germane to this appeal. See In re Gansen, No. 12–0106, 2012 WL 5954584, at *3 (Iowa Ct.App. Nov. 29, 2012).

The district court held pursuant to Count I that James had unreasonably refused to negotiate a reasonable rental rate, but it declined to hold that his refusal to do so constituted a breach of the agreement. With respect to Count II, the district court proceeded to establish what it saw as a fair rental rate for the property. On Count III, the court declined to declare that the leases terminated on March 1, 2009. Id. at *5–6.

James appealed. The court of appeals modified the district court's finding by determining that rent was due only on tillable acres, but it otherwise affirmed the judgment of the district court. Id. at *14.

C. Second Round of Litigation. Once again, the trustee and James could not arrive at an agreement for reasonable rental for the crop year commencing March 1, 2013. The trustee again filed what it styled a petition for declaratory action in November 2013.

Count I alleged that James had breached his duty of good faith by refusing to negotiate a reasonable rent and asked the court to declare reasonable rental rates for 2013 and successive years based upon the annual Iowa State University Cash Rental Rates Survey. In Count II, the trustee alleged that the leases violated the limitation of article I, section 24 of the Iowa Constitution. Count III alleged the court should declare that each of the leases was terminated pursuant to provisional notices of termination filed by the trustee on James.

James filed an answer and counterclaim. In his counterclaim, James alleged that the petition was frivolous. In addition, James claimed Counts II and III of the petition were barred by the doctrine of res judicata.

The trustee moved for partial summary judgment on the ground that the leases violated article I, section 24 of the Iowa Constitution. The trustee asserted that, as a matter of law, the leases must terminate twenty years after their effective date, namely, on February 28, 2017. James opposed the motion, in part on res judicata grounds.

The district court granted the motion, finding that the leases violated article I, section 24 of the Iowa Constitution. The district court did not expressly address, however, the res judicata defense raised by James. James filed a motion to enlarge or amend findings. In his motion, James argued that the trustee's action was barred by res judicata. James also asked the district court to reconsider its ruling on the article I, section 24 issue. The district court denied the motion to enlarge. James appealed.

II. Standard of Review.

We review summary judgment rulings for correction of errors at law. Baker v. City of Iowa City, 867 N.W.2d 44, 51 (Iowa 2015). 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) ; Dolphin Residential Coop., Inc. v. Iowa City Bd. of Review,

863 N.W.2d 644, 647 (Iowa 2015).

III. Application of Claim Preclusion.

A. Positions of the Parties. James argues that the trustee is precluded from bringing an article I, section 24 claim in the second round of litigation between the parties. James asserts that res judicata has three elements: (1) the parties in the first and second action are the same, (2) the claim in the second suit could have been fully and fairly adjudicated in the first suit, and (3) there was a final judgment on the merits. Spiker v. Spiker, 708 N.W.2d 347, 353 (Iowa 2006). He emphasizes that under our caselaw, the second claim is likely to be barred by claim preclusion when the "acts complained of, and the recovery demanded are the same or where the same evidence will support both actions." Arnevik v. Univ. of Minn. Bd. of Regents, 642 N.W.2d 315, 319 (Iowa 2002) (quoting Whalen v. Connelly, 621 N.W.2d 681, 685 (Iowa 2000) ). Applying these principles, James argues that the trustee could have brought the article I, section 24 claim in the prior litigation, that the recovery demanded (i.e., termination of the leases) is the same, and that the same evidence supports both this action and the prior action.

The trustee asserts that the claims are different and that they are based upon different underlying facts. The trustee argues the earlier claims were based upon James's failure to negotiate rent in good faith for rent in 2009, resulting in the trial court entering a rental rate for the years from March 2009 through March 2013. The second round of litigation, according to the trustee, was based upon failure to negotiate reasonable rent for the crop year beginning on March 1, 2014.

The trustee further asserts that the doctrine of res judicata cannot apply to cases involving article I, section 24 of the Iowa Constitution. According to the trustee, res judicata cannot apply to extend a lease term beyond the twenty-year prohibition in the Iowa Constitution. The trustee argues that no court should enforce the terms of an illegal contract.

B. Application of Claim Preclusion to Claim in This Case Under Article I, Section 24 of the Iowa Constitution. We first consider whether the doctrine of claim preclusion applies under the circumstances of this case. Here, the parties are identical, there is no doubt that the article I, section 24 claim could have been brought in the prior proceeding, and there was a final judgment on the merits in the first action. Arnevik, 642 N.W.2d at 319. Further, no additional evidence would have been required to litigate the constitutional question in the first proceeding, in contrast to our other cases allowing parties to litigate separate claims involving the same contract in two proceedings. See Westway Trading Corp. v. River Terminal Corp., 314 N.W.2d 398, 401 (Iowa 1982) (ho...