review from the Iowa Court of Appeals.
from the Iowa District Court for Story County, Michael J.
agricultural cooperative and its subsidiary seek further
review of a court of appeals decision affirming in part and
reversing in part a judgment entered after summary judgment
and jury trial proceedings.
F. Lorentzen, Thomas H. Walton, Ryan W. Leemkuil (until
withdrawal), and Ryan G. Koopmans (until withdrawal) of
Nyemaster Goode, P.C., Des Moines, and John A. Gerken of
Wilcox, Gerken, Schwarzkopf, Copeland & Williams, P.C.,
Jefferson, for appellants.
D. Vos and John C. Gray of Heidman Law Firm, L.L.P., Sioux
City, and Samuel L. Blatnick, John P. Passarelli, and
Meredith A. Webster of Kutak Rock, LLP, Kansas City,
Missouri, for appellees.
complex dispute involving an agricultural cooperative, a
large customer of the cooperative, and a dishonest salesman
resulted in a three-week jury trial and a substantial damages
verdict in favor of the customer and against the cooperative.
We elect to limit our consideration of the case to the three
matters raised in the cooperative's application for
one of those matters, we conclude the district court properly
denied the cooperative's motion for new trial based on
inconsistent verdicts. We also conclude the district court
did not abuse its discretion in denying the cooperative's
pretrial motion to have equitable issues tried first.
third question is more thorny-relating to the
constitutionality of Iowa Code section 706A.2(5) (2011). The
district court found the section unconstitutional and,
therefore, dismissed the customer's claim under that
section before trial.
determine that Iowa Code section 706A.2(5) unconstitutionally
shifts the burden to the defendant. Specifically, any person
who provides property or services that end up being used to
facilitate "specified unlawful activity" must prove
his or her own lack of negligence to avoid liability.
However, we find the burden-shifting provision contained in
section 706A.2(5)(b)(4) can be severed from the rest
of the statute. Accordingly, while we otherwise affirm the
district court, we reverse the district court's dismissal
of this claim. We thus remand for further proceedings,
without foreclosing the possibility of other defenses to the
customer's section 706A.2(5) claim.
Background Facts and Proceedings.
Central Cooperative is an agricultural cooperative owned by
farmers. Westco Agronomy Co., L.L.C. is a wholly-owned
subsidiary of West Central formed in 2005 for the purpose of
streamlining delivery of agronomy products, including seed,
fertilizer, and chemicals. In 2002, Westco hired Chad Hartzler to
work in the agronomy division selling seed and eventually
chemicals. He was later promoted to sales director but
retained oversight of some of Westco's largest accounts,
including the Wollesens.
Wollesens farm in Lake View. Bill and Kristi Wollesen, along
with their son, John, are partners in Iowa Plains
Farms. During the relevant time period of this
case, the Wollesens farmed more than 6000 acres. The
Wollesens became Westco members in 2001, and Hartzler became
their sales representative in 2005.
parties' accounts differ as to how and when Hartzler
first met the Wollesens. According to Jay Sturtz, the Westco
sales representative before Hartzler, Hartzler met the
Wollesens in the summer of 2003 when Sturtz took Hartzler to
the Wollesens' farm. Hartzler confirmed this timing.
However, Bill Wollesen claimed he did not meet Hartzler until
December 2005 at one of Westco's office locations.
testified he entered into a bribery scheme with Bill Wollesen
in the summer of 2005. According to his testimony,
[Bill Wollesen] said, "How about if I just give you a
little cash to give you a little bit of cash and these beans
are a little cheaper." . . .
So that day, sitting at his table, he walked into his office
and brought out $2, 000 cash as a discount. That was the only
time he ever paid me in cash. But he gave me $2, 000.
He wrote a check to West Central for the amount he paid them.
me $2, 000 cash. Bill Wollesen denied this version of events.
He maintained that he never bribed Hartzler.
next several years until 2011, the Wollesens purchased seed,
fertilizer, and chemicals from Westco at what they understood
to be very reduced prices. For instance, the Wollesens paid
approximately thirty percent less on average for seed corn
than customers with like volume. The Wollesens asserted that
their direct payments to Hartzler were on Hartzler's
instruction as "commission" for his sales and that
the reduced prices were not suspect because Hartzler touted
himself as "the deal maker." After purchasing
products from Westco at reduced prices, the Wollesens-through
their company ByRite Farm Supply-resold many of the products
for a profit.
conceal from Westco his low-price sales to the Wollesens,
Hartzler input higher prices into the sales system than he
actually charged the Wollesens. As a result, Westco
consistently billed the Wollesens more than the Wollesens
actually paid. The effect was a growing deficit in the
Wollesens' account on Westco's books. Although Westco
maintained that it sent regular bills to the Wollesens based
upon the higher prices reflected on its own books, the
Wollesens generally denied having received the statements and
later suggested Hartzler had intercepted them. The Wollesens
also insisted they had been prepaying for product, based on
representations made to them by Hartzler.
early 2011, the Wollesens made payments totaling $2.1
million. They understood this to be entirely a prepayment for
products for the 2011 crop year, whereas Hartzler applied it
to the deficit on the Westco books. This resulted in the
Wollesens' account with Westco having a positive balance.
April 30, 2011, Hartzler suddenly resigned via a brief email
to Westco's chief operating officer. The email said,
"[D]on't deliver any more product to Iowa [P]lains .
. . ." In his attached resignation letter, Hartzler
vaguely admitted wrongdoing and stated that he had "lied
about several things over the past 5 or 6 years to cover up
poor management of [his] divisions" and to hide a
receipt of this letter, Westco management arranged a phone
call with Hartzler. On the call, Hartzler revealed that he
had accepted direct payments from the Wollesens in exchange
for lower prices on Westco products.
2013, Hartzler was charged with wire fraud in the United
States District Court for the Northern District of Iowa.
See 18 U.S.C. § 1343 (2000). The federal
information alleged that Hartzler had engaged in a scheme
with Bill Wollesen to defraud Westco. Hartzler pled guilty
and was sentenced to fifty-one months in prison. None of the
Wollesens, however, were charged.
Westco and the Wollesens blamed each other for Hartzler's
scheme. Westco argued that the Wollesens bribed Hartzler
repeatedly over a period of years to obtain prices below
Westco's own costs. The Wollesens argued that Westco
should have been aware of Hartzler's scheme, that they
themselves were not aware of it, and that they had previously
made clear to Westco they did not want to purchase any
products on credit.
12, 2011, Westco brought suit against the Wollesens and
Hartzler in the Iowa District Court for Story County,
alleging commercial bribery, theft, conversion, breach of
fiduciary duty, breach of loyalty, unjust enrichment,
foreclosure of an agricultural lien, and violations of Iowa
Code chapter 706A. Westco's petition sought damages under
each count, except the foreclosure count. On the ongoing
unlawful conduct count (chapter 706A), Westco requested both
damages and injunctive relief. Westco's petition included
a jury demand. On May 25, Westco amended its petition to add
a breach of contract claim, for which it again sought
November 14, the Wollesens answered, denying liability. They
also filed counterclaims against Westco for breach of
contract, fraud, negligent retention, breach of fiduciary
duty, and violations of Iowa Code section
706A.2(1)(a) and section 706A.2(5).
6, 2013, both sides filed motions for summary judgment.
Thereafter, the district court dismissed all but three of
Westco's claims: breach of contract, breach of fiduciary
duty, and violation of chapter 706A-specifically section
706A.2(1)(a). The district court also dismissed all
but three of the Wollesens' counterclaims: breach of
contract, fraudulent misrepresentation, and violation of Iowa
Code section 706A.2(1)(a). In its summary judgment
ruling, the district court found the provisions of section
706A.2(5) unconstitutional in light of Hensler v. City of
Davenport, 790 N.W.2d 569, 588-89 (Iowa 2010). The court
also determined that severance of the unconstitutional
burden-shifting provision in section 706A.2(5) from the
remainder of the statute was not possible, thus invalidating
the entire claim under this subsection.
17, 2014, Westco moved for equitable issues to be tried in
equity before any jury trial. Westco maintained that the
Wollesens were relying on alleged contracts resulting from
commercial bribery, that those contracts were subject to the
equitable defenses of rescission and restitution, and that
those equitable matters should be heard first.
Simultaneously, although the deadline for amendment of
pleadings had passed weeks before, Westco moved to amend its
petition to seek rescission and restitution as specific
remedies for its existing claims. The district court denied
both motions in a July 1 order. Westco subsequently
voluntarily dismissed its breach of contract claim, leaving
only two of its claims-breach of fiduciary duty and section
case proceeded to trial on July 8. Trial lasted fifteen trial
days. The following instruction was given to the jury as No.
If you find that Bill Wollesen, Kristi Wollesen, John
Wollesen, the Trust, and/or Iowa Plains Farms proved the
following propositions, no judgment may be entered against
such parties, and Westco cannot recover against such parties
on account of its claims against such parties for ongoing
1. West Central possessed the same or greater knowledge as to
the illegality or wrongfulness of the activity giving rise to
such unlawful conduct, or
2. West Central was equally or more culpable than the
respective party against whom the ongoing criminal conduct is
was allowed to make a written record on the jury
instructions. It objected to this instruction as being
"one-sided." Westco's written comments
continued, "In pari delecto is a defense available to
any party against whom a claim is asserted under [chapter]
706A." The district court overruled this objection.
jury was also given a verdict form and special
interrogatories. In its special verdicts, the jury indicated
that Westco had proved both its breach of fiduciary duty
claim and its ongoing unlawful conduct claim under Iowa Code
section 706A.2(1)(a) against Hartzler. The jury thus
found for Westco on its claims against Hartzler and awarded
damages against Hartzler equal to the "commissions"
he had received from the Wollesens: $485, 315.
the jury also indicated that none of the Wollesens had
conspired with Hartzler to breach the duties Hartzler owed to
Westco, and that none of the Wollesens had engaged in ongoing
unlawful conduct. The jury thus declined to award any damages
to Westco against the Wollesens.
Wollesens' counterclaims, the jury found that Westco
committed both breach of contract and fraudulent
misrepresentation. Hence, the jury awarded the Wollesens
$576, 189 in damages against Westco. This amount represented
the cost of replacement product after Westco refused to
deliver any 2011 product to the Wollesens, despite their
earlier $2.1 million payment. ...