Halbur v. Larson

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Todd P. Halbur, Appellee, v. Stephen Larson, in his official capacity as administrator of the Alcoholic Beverages Division, Appellant.

No. 22-2021

Supreme Court of Iowa

December 6, 2024

Submitted September 24, 2024

Appeal from the Iowa District Court for Polk County, David Nelmark judge.

The defendant appeals from a jury verdict finding him liable for wrongful termination in violation of Iowa Code section 70A.28, and the plaintiff crossappeals from the district court's dismissal of his additional claim for wrongful discharge in violation of public policy. Affirmed.

Brenna Bird, Attorney General; Patrick C. Valencia (argued), Deputy Solicitor General; Tessa M. Register (until withdrawal) Assistant Solicitor General; and Christopher J. Deist and Ryan P. Sheahan, Assistant Attorneys General, for appellant.

Stuart L. Higgins (argued) and Grant M. Rodgers of Higgins Law Firm P.L.L.C., West Des Moines, for appellee.

McDonald, J., delivered the opinion of the court, in which Christensen, C.J., and Waterman, Oxley, McDermott, and May, JJ., joined. Mansfield, J., filed a dissenting opinion.

McDonald, Justice.

Todd Halbur was fired from his position as comptroller of the Iowa Alcoholic Beverages Division (ABD). Halbur believed he was fired in retaliation for (1) disclosing to his supervisor, Administrator Stephen Larson, the head of ABD, that ABD was operating in violation of Iowa law and (2) for refusing to engage in illegal acts. Halbur filed this suit against Larson, among others, and asserted a statutory claim for wrongful discharge and a common law claim for wrongful discharge in violation of public policy. The district court submitted the statutory claim to a jury but dismissed the wrongful discharge claim on the ground that the statutory claim was the exclusive remedy allowed under the circumstances. The jury returned a verdict in favor of Halbur and awarded him $1 million in damages, which was reduced pursuant to a statutory cap on damages. In this appeal and cross-appeal, Larson contends Halbur's statutory claim fails as a matter of law, and Halbur contends the district court erred in dismissing his common law claim for wrongful discharge in violation of public policy.

I.

In April 2015, Halbur was hired as comptroller of ABD. ABD "administer[s] and enforce[s] the laws of this state concerning alcoholic beverage control." Iowa Code § 123.4 (2020). Among its many responsibilities, ABD wholesales liquor in the state to licensed retailers. As comptroller of ABD, Halbur managed and advised on a variety of financial and operational matters, including accounting, cash management, inventory control, and auditing. When Halbur was hired, he initially reported to Chief Operating Officer (COO) Tim Iverson. After Iverson left employment with ABD, Halbur started reporting directly to Larson. That reporting change occurred in November 2016.

In August 2017, Halbur raised concerns with Larson that ABD's purchasing, pricing, and accounting practices resulted in ABD selling alcoholic liquor in violation of Iowa law. Specifically, Halbur believed that ABD was exceeding the 50% markup allowed under Iowa law:

The price of alcoholic liquor sold by the division shall include a markup of up to fifty percent of the wholesale price paid by the division for the alcoholic liquor. The markup shall apply to all alcoholic liquor sold by the division; however, the division may increase the markup on selected kinds of alcoholic liquor sold by the division if the average return to the division on all sales of alcoholic liquor does not exceed the wholesale price paid by the division and the fifty percent markup.

Iowa Code § 123.24(4) (2017). The alleged violation was caused by ABD's purchasing, pricing, and accounting practices relating to buyouts of inventory from manufacturers and the amounts paid to manufacturers during temporary price reductions that manufacturers offered to retailers. The details of the purchasing, pricing, and accounting practices related to buyouts and temporary price reductions are not relevant to the resolution of this case, and we need not explain them in any further detail.

Halbur became aware of these issues when he participated in interviews with a consulting firm that ABD had hired to review ABD's practices. While the issues revealed to Halbur through the consulting firm's interview process might have been new to Halbur, the issues were not new to ABD. In 2013, former ABD administrator Lynn Walding expressed concern about whether ABD's purchasing, pricing, and accounting practices resulted in excessive price markups. Walding raised this concern after he had left ABD and was working for an alcoholic beverage company. ABD management investigated and learned that ABD had charged an average annual markup of 50.9%. However, ABD management also determined there was no violation of Iowa Code section 123.24.

It appears that after the investigation and analysis, the markup issue was left alone until Halbur raised it again.

After Halbur reported these issues to Larson, ABD took action to resolve them. Following Halbur's recommendation, ABD ceased the buyout practice in November 2017. In January 2018, an ABD product manager discovered a fix for the accounting issue related to temporary price reductions and sought Halbur's approval to implement it. Halbur allegedly delayed approving the fix until May. Whatever the cause of the delay, the fix was implemented in May 2018. Around this same time, Halbur expressed to Larson that he believed the purchasing, pricing, and accounting practices should be reported to the Governor, auditor of state, attorney general, and legislature. Neither Halbur nor Larson ever contacted any of these officials regarding the issues Halbur raised.

Halbur reported a second alleged violation of Iowa law to Larson in January 2018 relating to public procurement laws. See id. § 8A.311; Iowa Admin. Code rs. 11-117.3, 11-117.5 (2017). In June 2017, Larson, on behalf of ABD, entered into a service contract with Beverage Merchandising, Inc. (BMI) without soliciting competitive bidding. Under the contract, BMI was to provide ABD with a website and certain software services, and ABD was to pay BMI $3,500 per month for the services. As comptroller, Halbur approved payment of four or five invoices BMI sent to ABD before asking to review the contract in January 2018. After reviewing the contract, Halbur concluded the contract was unlawful because it was not procured via competitive bidding and shared this opinion with Larson. In June 2018, Halbur refused to sign off on a payment to BMI and again shared with Larson that he believed the contract was unlawfully procured.

At trial, Larson testified that he drafted the contract with BMI, that he did not believe that he needed to put the project out for public bidding because this was a sole source contract, and that he talked to Karl Wendt at the Iowa Department of Administrative Services (DAS) about the contract with BMI because he wanted to make sure he was complying with the law. He testified that after he spoke with Karl, Karl stated, "It's an agreement you want to do. I don't need to see anything, and neither does DAS." Larson testified that, in his discretion as the head of ABD, he concluded that public bidding was not needed.

Regardless, shortly after Halbur refused to sign off on further payments to BMI and shortly after Halbur reiterated his belief that the contract was procured unlawfully, Larson changed Halbur's reporting relationship. Larson returned Halbur's supervision to the COO of ABD, now Herb Sutton. Larson explained that he changed Halbur's reporting relationship because issues with Halbur's leadership had come to a head due to Halbur's struggles with personnel management. Larson hoped Sutton could improve Halbur's performance.

It was not to be, however. Only a few days after Larson directed that Halbur report directly to Sutton, Sutton decided to terminate Halbur's employment. Sutton made the recommendation to Larson, and Larson did not object. Sutton signed a letter dated July 24, 2018, terminating Halbur's employment and provided it to Halbur around the same time. There was no reason for termination of employment given in the letter.

In December 2019, Halbur filed this suit against the State of Iowa, ABD, and Larson. Halbur alleged his employment was terminated in retaliation for his internal reports regarding the allegedly unlawful price markups and the allegedly unlawful procurement of the BMI contract and in retaliation for his refusal to authorize additional payments to BMI. Halbur asserted claims for: (1) wrongful discharge in violation of public policy against the State of Iowa, ABD, and Larson in his official capacity; (2) wrongful discharge in violation of public policy against Larson in his individual capacity; (3) wrongful discharge in violation of Iowa Code section 70A.28 against the State of Iowa, ABD, and Larson in his official capacity; and (4) wrongful discharge in violation of Iowa Code section 70A.28 against Larson in his individual capacity. In an amended petition, Halbur dropped his statutory claim against Larson in his individual capacity.

We have referred to section 70A.28 as "the whistleblower statute." Hedlund v. State, 930 N.W.2d 707, 712 (Iowa 2019). That section establishes a public policy against retaliatory discharge of public employees and considers the violation of the statute to be a public harm. Id. at 716. Section 70A.28 provides:

2. A person shall not discharge an employee from or take or fail to take action regarding an employee's appointment or proposed appointment to, promotion or proposed promotion to, or any advantage in, a position in a state employment system administered by, or subject to

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