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Hartog v. City of Waterloo

Supreme Court of Iowa

April 26, 2019

CITY OF WATERLOO, IOWA, Intervenor-Appellant.

          Appeal from the Iowa District Court for Black Hawk County, Richard D. Stochl, Judge.

         Taxpayers appeal district court ruling dissolving injunction and denying sanctions for sale of land from discontinued right-of-way.

          Dave Nagle, Waterloo, for appellants.

          Kristine Stone of Ahlers & Cooney, P.C., Des Moines, and David Zellhoefer, City Attorney, for appellee City of Waterloo, Iowa.

          David L. Riley of Swisher & Cohrt, P.L.C., Waterloo, for intervenor-appellee Sunnyside South Addition, LLC.

          WATERMAN, Justice.

         This case returns to our court a third time. See Den Hartog v. City of Waterloo (Den Hartog I), 847 N.W.2d 459 (Iowa 2014); Den Hartog v. City of Waterloo (Den Hartog II), 891 N.W.2d 430 (Iowa 2017). In this latest appeal, we revisit whether the City of Waterloo complied with Iowa Code section 306.23 (2018) to transfer land from an unused right-of-way to a developer of a residential subdivision. The statute provides a preference of sale to the original owners and adjacent owners of the right-of-way and imposes notice and appraisal requirements to help get the best price. The plaintiffs challenging the transfer are adjacent landowners and taxpayers who allege the City violated the statutory requirements.[1] The district court dissolved an injunction that had precluded the sale after ruling that the City ultimately complied with section 306.23. The district court refused to hold the City in contempt. The taxpayers appealed. The district court later dismissed the taxpayers' mandamus claim and application for sanctions, and the taxpayers did not appeal from that ruling. We retained the taxpayers' appeal but do not address the mandamus and sanctions ruling that was not appealed.

         Upon our review, we affirm the district court. The City's appraiser used a permissible method to determine the fair market value of the property, and the taxpayers failed to show the City's notices or bidding requirements violated section 306.23. Accordingly, the district court properly lifted its injunction and denied sanctions, including contempt.

         I. Background Facts and Proceedings.

We repeat our overview of this litigation:
The State of Iowa acquired property in Black Hawk County for purposes of constructing a state highway in 1959. The highway had originally been planned as, and enough land had been acquired for, a four-lane project, but the highway was eventually constructed with just two lanes. In 1983, the state transferred control of the highway and attendant property to the City of Waterloo (the City), in accordance with the terms of Iowa Code chapter 306, entitled "Establishment, Alteration, and Vacation of Highways." After the transfer, the highway property became known as San Marnan Drive in Waterloo. The City has retained jurisdiction and control over the property in the years since and has maintained it with grading, mowing, and weed control.
The City has now indicated its intention to transfer the property to Sunnyside South Addition, LLC (Sunnyside), as part of a development agreement. Under the terms of the agreement, Sunnyside proposes to relocate San Marnan Drive by reconstructing it approximately eighty feet south of its current position and intends to retain the property on which the current San Marnan Drive sits for purposes of residential construction. The City proposes to transfer the highway property to Sunnyside according to the agreement for the sum of $1.00.
Taxpaying residents of Waterloo (the taxpayers) became aware of and objected to the proposed transfer in 2011. They filed in the district court a petition for writ of mandamus and temporary injunction requesting postponement of the sale on the ground the City's proposed transaction failed to comply with certain appraisal, notice, right-of-first refusal, and public bid requirements set forth in chapter 306.

Den Hartog I, 847 N.W.2d at 460-61.

In Den Hartog I,
[t]he fighting issue was whether a statutory preference given to certain persons when unused right-of-way land is intended to be sold appl[ies] not only to land acquired for highway purposes but never used, but also land used for highway purposes that were later discontinued.

Den Hartog II, 891 N.W.2d at 434. "[T]he district court held the statutory preference procedures did not apply to the sale of the right-of-way land in this case and dismissed the motion to enjoin the sale and the petition for writ of mandamus." Id. The taxpayers appealed. While the first appeal was pending,

the City entered into a contract to sell the right-of-way land to Sunnyside. It also entered into a development agreement with Sunnyside. Under the agreement, Sunnyside was required to develop the unused right-of-way, which ran next to a country club and golf course, into lots for residential development. The City also gave Sunnyside a special warranty deed to the land. During the pendency of the appeal, the City platted the land for the development, and Sunnyside relocated San Marnan Drive to the south. Sunnyside also graded the land for the housing development and installed curbs, gutters, storm sewers, utilities, and took other action necessary to complete the development site for home construction.


         We reversed the district court and held "the statutory sales preference did apply to land formerly used for highway purposes." Id. We remanded the case to the district court to impose an injunction. Id. On remand, the district court entered an injunction prohibiting "the City 'from selling or transferring the property in this proceeding without first following the procedures prescribed in Iowa Code section 306.23.'" Id.

         In 2015, the City "proceeded to give the notices of the intended sale under the preference statute. [In response, ] [t]he taxpayers filed an application to find the City in contempt of court for noncompliance with the statutory requirements of the notices." Id. at 434-35. The district court found that the City violated the notice requirement of the statutory sales preference in section 306.23, but "it found the deficiencies in the notices were not willful and did not amount to contempt." Id. at 435.

         In the second appeal, the taxpayers argued that the notices the City sent were deficient in four ways. First, the City sent a notice to Sunnyside, although it was not "a present owner of land adjacent to the right-of-way from which the right-of-way was acquired." Id. at 438. We concluded that "the City should not have sent notices to Sunnyside" because "a sale of the right-of-way land from the City did not make Sunnyside the present owner of land adjacent to the right-of-way." Id.

         Second, the City gave Sunnyside a bid credit, but we did "not address this claim because the record . . . d[id] not support a finding that Sunnyside qualified as a preferential bidder under the statute." Id.

         Third, the taxpayers claimed that the descriptions of the property to be sold were deficient, but we rejected that assertion because the "statute does not specifically require the selling agency to describe the land intended to be sold," and the description that the City did provide was reasonable. Id.

         Fourth, the taxpayers claimed that the notices were deficient because the City used "the fair market value of the right-of-way land in the notices prior to the time the land was improved by Sunnyside." Id. We agreed with the taxpayers and found that

the statutory-notice process implies the fair market value would be the value at or near the time the notice of impending sale is given. Accordingly, the fair market value in this case would include the value of the improvements ...

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