As Amended May 6, 2015.
Appeal from the Iowa District Court for Polk County, Jeffrey D. Farrell, Judge. A bank appeals a district court decision permitting the payment of receivership expenses out of property in which it had a prior perfected security interest.
REVERSED AND REMANDED WITH DIRECTIONS.
Linda M. Kirsch and Kerry A. Finley of, Shuttleworth & Ingersoll, P.L.C., Cedar Rapids, for appellant.
Thomas J. Miller, Attorney General, and Amy C. Licht, Assistant Attorney General, for appellee Iowa Department of Human Services.
Heather L. Campbell and David W. Nelmark of Belin McCormick, Des Moines, for appellee DAC, Inc.
Chet A. Mellema and Donald F. Neiman of Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des Moines, for appellee MorrisAnderson & Associates, Ltd.
Matthew J. Reilly of Eells & Tronvold, P.L.C., Cedar Rapids, for appellee Jackie Scott.
Robert L. Hartwig, Johnston, for amicus curiae Iowa Bankers Association.
All justices concur
except Waterman, J., who takes no part.
This case presents the question whether Iowa Code sections 249A.44(3) and 680.7 authorize the payment of a receiver's expenses out of property in which a secured creditor had a prior perfected security interest. Guided in part by the principle that we avoid interpreting ambiguous statutes in a manner that leads to constitutional difficulties, we hold these sections do not authorize a receiver to be paid out of assets that are subject to a prior perfected lien. Rather, we conclude Iowa follows the common law rule that receivership expenses may be charged to secured property only to the extent the secured creditor has received a benefit from the receivership or the secured creditor has consented to the receivership.
I. Background Facts and Proceedings.
For many years, Community Care, Inc. (CCI), based in DeWitt, operated residential facilities and provided health care services for persons with developmental and intellectual disabilities in eastern Iowa. Payment for CCI's services came in large part from the Medicaid program. DeWitt Bank & Trust Company (the Bank) was CCI's primary lender and held perfected security interests on much of CCI's real and personal property.
In the fall of 2013, following the filing of a qui tam action by a former CCI employee, the Iowa Department of Human Services (DHS) determined there was a credible allegation CCI had committed Medicaid fraud. DHS suspended part of its Medicaid payments to CCI. In return, CCI agreed to appoint a third-party manager for its operations. Eventually the manager resigned.
On March 31, 2014, DHS filed an application in the Polk County District Court for injunctive relief under Iowa Code section 249A.44, which the general assembly had enacted the previous year. See 2013 Iowa Acts ch. 24, § 8 (codified at Iowa Code § 249A.44 (2015)). This provision is entitled " Overpayment -- emergency relief" and, among other things, authorizes DHS to obtain
a temporary restraining order or injunctive relief to prevent a provider or other person from whom recovery may be sought, from transferring property or otherwise taking action to protect the provider's or other person's business inconsistent with the recovery sought.
Iowa Code § 249A.44(1). CCI did not oppose DHS's request for an injunction. On April 3, the district court granted DHS's request and enjoined CCI from " transferring property or otherwise taking any action inconsistent with [DHS's] right to recover
overpayments of medical assistance from CCI," subject to CCI's right to pay expenses or convey assets in the ordinary course of business.
Subsequently, CCI ceased operations. On May 8, CCI leased much of its real and personal property to DAC, Inc. (DAC). DAC began serving the former clients of CCI.
On May 15, DHS and CCI filed a joint motion for appointment of a receiver for CCI. DAC intervened and joined in DHS and CCI's motion. The motion was based on another subsection of Iowa Code section 249A.44, which provides:
If an injunction is granted, the court may appoint a receiver to protect the property and business of the provider or other person from whom recovery may be sought. The court shall assess the ...