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In re Application of COE College For Interpretation of Purported Gift Restriction

Supreme Court of Iowa

November 8, 2019

IN THE MATTER OF THE APPLICATION OF COE COLLEGE FOR INTERPRETATION OF PURPORTED GIFT RESTRICTION, COE COLLEGE, Appellant.

          Appeal from the Iowa District Court for Linn County, Fae Hoover-Grinde, Judge.

         A college appeals a district court judgment denying its request for declaratory relief as to the terms of a 1976 charitable gift. AFFIRMED.

          Gary J. Streit, Megan R. Merritt, and Teresa K. Baumann of Shuttleworth & Ingersoll, P.L.C., Cedar Rapids, for appellant.

          Thomas J. Miller, Attorney General, and Chantelle Smith, Assistant Attorney General, for appellee.

          MANSFIELD, Justice.

         I. Introduction.

         How permanent is a "permanent home"? This case concerns seven works painted by one of Iowa's best-known artists-Grant Wood. In 1976, a foundation donated the paintings to Coe College in Cedar Rapids. The gift letter stated that the paintings would be given to the college "and that this would be their permanent home, hanging on the walls of Stewart Memorial Library."

         For years, the college treated the paintings on its books as an unrestricted gift that could be sold or otherwise alienated. But in 2016, an auditor determined the paintings should be treated as a restricted gift. This had an adverse impact on the college's endowment fund and led the college to file a petition seeking a judicial interpretation of the gift's terms. Following a hearing on a stipulated record, the district court ruled that there indeed exists a restriction on the alienability of the paintings. The court also ruled that neither Iowa Code section 540A.106, part of the Uniform Prudent Management of Institutional Funds Act (UPMIFA), nor the common law doctrine of cy pres, codified at Iowa Code section 633A.5102, applied; accordingly, the court declined to modify the restriction.

         The college appeals. It argues that the 1976 gift was unrestricted, but if this court finds it to be restricted, we should modify or discard the restrictions. We conclude that the language in the gift letter did restrict the gift. We conclude that the UPMIFA does not apply because these are not "funds" but are instead "program-related assets." Lastly, we find it is premature to consider the application of cy pres because there is no showing the gift restrictions cannot be carried out at present.

         II. Facts and Procedural History.

         In 1932, hotel magnate Eugene C. Eppley commissioned renowned artist Grant Wood to paint a mural in the Hotel Montrose in Cedar Rapids. The mural became known as "The Fruits of Iowa." When the Hotel Montrose was sold in 1957, some fifteen years after Wood's death, Eppley had the mural taken down and separated into seven separate panels. He loaned the paintings to Coe College, a private liberal arts college in Cedar Rapids. The loan was to last indefinitely, with the understanding that the paintings could be taken back at any time after one year passed. The paintings remained on display at Coe College for nearly twenty years.

         At some point in time, the ownership of the paintings moved from Eppley personally to the Eppley Foundation, a charitable institution whose purposes included to

promote the well-being of mankind and to assist the needy and unfortunate, by religious, charitable, scientific, literary or educational activities; and for such purposes to make grants, donations, and contributions to corporations . . . organized and operated exclusively for religious, charitable, scientific, literary or educational purposes.

         In 1976, while winding up its affairs, the Eppley Foundation terminated the previous loan arrangement and donated the paintings to Coe College. The Eppley Foundation's gift letter stated,

The Eppley Foundation Board of Directors [has] approved that the Grant Wood paintings be given to the Coe College and that this would be their permanent home, hanging on the walls of Stewart Memorial Library.
A Plaque to be installed, per attached proposal, was discussed with you when you were here, with a piece of marble and attaching the bust and the letters to the marble, including the two bronze plaques which were outlined on the sketches.
We are again enclosing a picture of how this plaque will look like when it is completed but it will be done in bronze instead of aluminum.
Mr. Christian gave you the name of the Company in Omaha that made this plaque, The J. P. Cooke Co., 1311 Howard Street, Omaha, Nebraska, 68102.
Before this plaque is installed, we want to approve the full[-]scale drawing. Please return the picture of the plaque and also the sketch which is attached when you are through with same.

         The plaque states in relevant part, "In [Eppley's] memory, the Grant Wood Paintings the Fruits of Iowa were given to Coe College by the Eugene C. Eppley Foundation Inc." It includes a bust of Eppley and an inscription with the years he lived. It further states that Eppley's "great wealth" was "to be distributed for the benefit of youth and for the lasting good of mankind."

         The paintings have remained under the ownership of Coe College since then and are among several Grant Wood pieces on display in the Perrine Gallery at Stewart Memorial Library. Coe College occasionally lends them to other institutions for temporary exhibition purposes and to raise funds for the maintenance of the paintings.

         In 1977, the Eppley Foundation was dissolved by the Nebraska Secretary of State for nonpayment of biennial fees, and nothing has been filed since then to revive the Eppley Foundation.

         From 1976 until 2016, Coe College accounted for the paintings as unrestricted assets. In 2016, however, as part of a routine annual audit, the college's auditors determined this previous classification had been a mistake and reclassified the paintings as permanently restricted net assets. This matters to Coe College because the classification of the paintings affects the value of Coe College's endowment fund. Coe College turned to the courts for assistance.

         On February 5, 2018, Coe College filed a petition seeking an interpretation of the Eppley Foundation's gift as unrestricted. If necessary, the petition also sought a lifting of any restrictions accompanying the gift. Coe College argued that the reference to a "permanent home" in the 1976 gift letter was meant to contrast with the prior situation where the paintings had been on loan and thus only on temporary display-and not to serve as a bar to the college selling or otherwise disposing of the paintings. Alternatively, Coe College asked the court to remove the restrictions.

         Since the Eppley Foundation was no longer in existence, Coe College arranged for the attorney general to be served with the petition. Pursuant to Iowa Code sections 540A.106 and 633A.5108, he participated in the district court proceedings, resisting Coe College's petition in each respect.

         Following briefing and a hearing on a stipulated record, the district court issued its ruling on January 2, 2019. It held that "the Eppley Foundation's intent expressed in the February 16, 1976 Gift Letter transferring the Paintings to Coe College was to place a permanent restriction on alienation of the Paintings." The court further found that "the permanent restriction on alienation [did] not merit application of Iowa Code section 540A.106 or the doctrine of cy pres, under Iowa Code section 633A.5102, releasing Coe from said restriction."

         Coe College appealed, and we retained the appeal.

         III. Standard of Review.

         The parties disagree whether this declaratory action is equitable or legal in nature. "Our review of an appeal from a declaratory judgment action is determined by how the case was tried in district court." Clarke Cty. Reservoir Comm'n v. Robins Revocable Tr., 862 N.W.2d 166, 171 (Iowa 2015). Although the attorney general points out that the college filed this case as a law action, an action tried wholly in equity will be subject to a de novo standard of review even if it was filed at law. See Passehl Estate v. Passehl, 712 N.W.2d 408, 413-14 (Iowa 2006). Here, the court did not rule on evidentiary objections; indeed, the court did not need to because the case was tried on a stipulated record. By contrast, in Salsbury v. Northwestern Bell Telephone Co., we reviewed at law a determination that a charitable subscription was binding, where the matter was tried at law- i.e., objections were made and ruled on. 221 N.W.2d 609, 609-11 (Iowa 1974) (en banc).

         In addition, the relief sought by the parties here was equitable- neither party sought damages or a declaration that damages were not due. Cy pres is an equitable doctrine, so in deciding whether it applies, our review is de novo. Kolb v. City of Storm Lake, 736 N.W.2d 546, 552-53 (Iowa 2007). Lastly, the record consists of stipulated facts in any event. For all these reasons, we apply a de novo standard of review here.

         IV. Analysis.

         A. Is There a Restriction on Alienation of the Paintings? In Iowa,

[a] donor of property for a charitable use may impose such conditions as he may choose, including a restraint on alienation. This right is an exception to the ...

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