from the Iowa District Court for Polk County, Michael D.
agency appeals from the district court's reversal of its
decision to revoke an award of tax credits.
J. Miller, Attorney General, Jeffrey S. Thompson, Solicitor
General, and David L.D. Faith II, Assistant Attorney General,
Everett of Whitfield & Eddy, P.L.C., Des Moines, for
appellee Ghost Player, LLC.
Richard O. McConville of Coppola, McConville, Coppola,
Hockenberg & Scalise, P.C., West Des Moines, for appellee
CH Investors, LLC.
Iowa Department of Economic Development (IDED) appeals from a
district court's reversal of the agency's May 26,
2016 decision to revoke tax credits that had been previously
awarded by IDED to Ghost Player, LLC (Ghost Player), on
February 22, 2012. The district court had held that the
IDED's 2016 action revoking the tax credits was an
invalid collateral attack on the agency's 2012 action and
was barred under the doctrine of claim preclusion.
IDED appealed. On appeal, the IDED asserts that the district
court erred because the elements of claim preclusion as
applied to administrative actions have not been met. Even if
the elements of claim preclusion were met, the "scheme
of remedies" exception should apply to enable it to
impose remedies for breach of contract.
reasons expressed below, we reverse the decision of the
district court and remand the case.
Factual and Procedural Background.
2007, the Iowa legislature passed the Film, Television, and
Video Project Promotion Program (Film Program). 2007 Iowa
Acts ch. 162, §§ 1-13. The legislature repealed the
Film Program in 2012. 2012 Iowa Acts ch. 1136, § 38. The
purpose of the Film Program was to encourage film,
television, and video projects to be produced in Iowa. Iowa
Code § 15.392 (2009). The statute establishing the Film
Program required projects seeking to receive tax credits to
register with the IDED, and IDED rules required the IDED and
the project to enter into a contract containing terms and
conditions for the receipt of tax credit benefits.
Id. § 15.393(1); Iowa Admin. Code r. 261-36.5
(eff. July 15, 2009).
Ghost Player and the IDED Agreement and Request for Tax
January 8, 2009, Ghost Player entered into an agreement with
the IDED to produce a documentary project originally entitled
Field of Dreams Ghost Players. The agreement provided that
upon the completion of the project and after "submittal
and approval by IDED of Recipient's qualified project
expenditures (as submitted in Form Z, Schedule of Qualified
Expenses), IDED will issue to each Investor a tax credit
certificate." The agreement defined a "qualified
expenditure" as "a payment to an Iowa resident or
an Iowa-based business for the sale, rental, or furnishing of
tangible personal property or for services directly related
to the registered project, including, but not limited to [26
enumerated items]." The agreement provided that the
total tax credit award would not exceed twenty-five percent
of qualified expenditures for the project.
event of a default, the agreement provided that IDED would
give Ghost Player at least thirty days to cure the default.
If the default was uncured, Ghost Player would be required to
repay all or a portion of the tax credits. The agreement
provided that a material misrepresentation would be an event
of default. The agreement defined a material
misrepresentation as when
[a]ny representation or warranty made by the Recipient in
this Contract or in any statement or certificate furnished by
it pursuant to this Contract, or made in its Application, or
in connection with any of the above, proves untrue in any
material respect as of the date of the issuance or making
October 22, 2009, the IDED requested a status update with
respect to the project and an itemization of total expenses
and qualified expenditures incurred up until September 18. On
December 10, Ghost Player provided a draft of Form Z, a
budget summary, and a report on the project. In the budget
summary, Ghost Player listed $625, 000 spent on in-kind
promotions. The Louisville Slugger Museum & Factory
(Louisville Slugger), Ringor, and the Cedar Rapids Kernels
(Kernels) were not listed as sponsors of in-kind promotions.
In the report on the project, however, Ringor and Louisville
Slugger were listed as providing grants to the project.
of 2010, Ghost Player submitted its final Form Z to the IDED.
The list of expenditures now included in-kind payments of
$25, 000 to Ringor, $25, 000 to the Kernels, and $200, 000 to
Louisville Slugger. The total listed as being spent on
in-kind promotions was $900, 000. Ghost Player provided to
IDED what purported to be copies of the "like-exchange
of services" agreements between various other parties
and Ghost Player, none of which were signed or dated. In
total, Ghost Player claimed $2, 034, 227.88 in qualified
expenditures. The IDED sent the financial information to the
Iowa Department of Revenue for a review and audit.
December 20, the IDED sent Ghost Player a "Notice of
Preliminary Tax Credit Determination" for the project.
Of the over two million dollars in qualified expenditures
claimed, the preliminary total of qualified expenditures
allowed was $246, 455.68. The auditor's report explained
that the expenditures for the in-kind contracts would not be
allowed. The auditor wrote, "Iowa Code section
15.393(2)(a)(2) requires 'payments, ' not
promises to pay." Therefore, the auditor categorically
concluded in-kind payments were not "qualified
expenditures." Additionally, the auditor's report
found that DreamCatcher Productions, an entity owned and
operated by the same people who owned and operated Ghost
Player, actually made the payments to vendors. DreamCatcher
Productions then charged Ghost Player for the payments at a
mark-up that was sometimes substantial. The auditor also
found other expenditures that were disallowed.
Player disputed the IDED's preliminary tax credit
determination. While seeming to concede that unreasonable
mark-ups should not be allowed, Ghost Player defended the
payments made by Ghost Player to DreamCatcher Productions,
insisting several times that DreamCatcher was not a shell
company. Ghost Player also argued that the in-kind agreements
should be included as qualified expenditures, asserting that
Ghost Player received valuable goods and services from the
agreements, including sponsorships, advertising, and
IDED sent a "Revised Preliminary Tax Credit
Determination" to Ghost Player in response. The IDED
wrote, "The department stands by its prior determination
that 'in-kind' contributions and 'deferred'
payments are not expenditures for purposes of the
statute." The IDED, however, revised is determination of
qualified expenditures down to $239, 967.41, subtracting the
amount of funds received from the State of Iowa in grants.
Ghost Player disputed the determination.
IDED issued its "Final Tax Credit Determination" on
February 22, 2012. The final tax credit determination
reiterated the conclusion that in-kind contributions were not
payments for the purposes of the statute. The IDED awarded
Ghost Player a tax credit of $59, 991.85, or twenty-five
percent of the total qualified expenditures.
First District Court Action: Breach of Contract Action for
Failure to Issue Appropriate Tax Credits.
with the amount of tax credits granted by IDED, Ghost Player
filed a breach of contract action in district court on
November 6, 2013, claiming that IDED had breached the
contract with Ghost Player by failing to issue tax credits
for all qualified expenditures. Ghost Player, L.L.C. v.
State (Ghost Player I), 860 N.W.2d 323, 325-26
(Iowa 2015). The State filed a motion to dismiss, arguing
that Ghost Player failed to exhaust its administrative
remedies by means of a section 17A.19(7) hearing.
Id. at 326.
State claimed in Ghost Player I that the final tax
credit determination was an "other agency action"
which required Ghost Player to seek judicial review under the
Iowa Administrative Procedures Act. Id. at 327. The
Ghost Player I court discussed applicable caselaw,
noting that when
the action or inaction of the agency in question bears a
discernible relationship to the statutory mandate of the
agency as evidenced by express or implied statutory
authorization, a party must first present the claim to the
agency for other agency action before the party can proceed
to district court.
Id. at 328-29; see Papadakis v. Iowa State Univ.
of Sci. & Tech., 574 N.W.2d 258, 260 (Iowa 1997).
result, the court held that the final tax credit
determination was an "other agency action" and
Ghost Player had failed to exhaust its administrative
remedies. Ghost Player I, 860 N.W.2d at 329. The
Ghost Player I court explained that the legislature
mandated that the IDED verify eligibility for the tax credit
and verify the issuance of credit. Id. The court
further observed that the contract, which declared that
"IDED shall have the authority to reasonably assess
whether the Recipient has complied with the terms of this
Contract, " reinforced the legislative mandate.
Id. at 327, 329. Thus, Ghost Player I held
that the agency's action qualified as an "other
agency action" because it was made subject to express
statutory authorization. Id. at 329.
Second District Court Action: Appeal of the Final Tax Credit
Determination Awarding Tax Credits as an "Other Agency
the decision in Ghost Player I, Ghost Player filed
an action in district court seeking to appeal the February
22, 2012 final tax credit determination. In this action
brought under Iowa Code chapter 17A, Ghost Player sought
discovery both before and after the IDED filed the
administrative record with the agency. The district court
held a hearing on the discovery issue on ...