Amended July 21, 2015 City of Iowa City, Iowa v. Iowa City Board of Review v. Iowa City Board of Review ( 2015 )


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  •                  IN THE SUPREME COURT OF IOWA
    No. 14–0495
    Filed May 15, 2015
    Amended July 21, 2015
    CITY OF IOWA CITY, IOWA,
    Appellant,
    vs.
    IOWA CITY BOARD OF REVIEW,
    Appellee,
    and PRESTIGE PROPERTIES,
    Intervenor.
    _______________________________
    CITY OF IOWA CITY, IOWA,
    Appellant,
    vs.
    IOWA CITY BOARD OF REVIEW,
    Appellee,
    and MYRTLE GROVE HOUSING, INC.,
    Intervenor.
    Appeal from the Iowa District Court for Johnson County, Paul D.
    Miller, Judge.
    A city appeals a decision of the district court affirming a board of
    review’s decision to classify the property owned by eleven multiple
    housing cooperatives as residential properties for purposes of property
    taxes. AFFIRMED.
    2
    Eric R. Goers, Assistant City Attorney, Iowa City, for appellant.
    Charles T. Traw of Leff Law Firm, LLP, Iowa City, for appellee.
    Kirsten H. Frey and Michael W. Kennedy of Kennedy, Cruise,
    Frey & Gelner, LLP, Iowa City, for intervenors.
    3
    WIGGINS, Justice.
    A city’s board of review reclassified eighteen properties held by
    eleven multiple housing cooperatives from commercial to residential for
    property tax purposes.     The city appealed the board’s decision to the
    district court.   The district court affirmed the board’s decision on
    summary judgment. On appeal, we find that two Iowa corporations may
    organize a multiple housing cooperative under Iowa Code chapter 499A
    (2011). 1 We also find the Code does not require a one-apartment-unit-
    per-member ownership ratio for a multiple housing cooperative to be
    properly organized.     Accordingly, these multiple housing cooperatives
    meet the organizational test we announced in Krupp Place 1 Co-op, Inc. v.
    Board of Review, 
    801 N.W.2d 9
    , 16 (Iowa 2011). Therefore, we affirm the
    judgment of the district court that affirmed the decision of the board
    classifying the cooperatives as residential for property tax purposes.
    I. Background Facts and Proceedings.
    The Iowa Code permits the classification of residential property to
    include all land and buildings of multiple housing cooperatives organized
    under chapter 499A. Iowa Code § 441.21(11). On May 25, 2012, the
    Iowa City Board of Review sent notices to eighteen properties indicating
    the   Board   changed    the   classification   for   these   properties   from
    commercial to residential for property tax purposes. The properties were
    reclassified pursuant to Iowa Code section 441.21(11) because they had
    been recently organized as multiple housing cooperatives.          The parties
    agree that two Iowa corporations organized each of the multiple housing
    cooperatives for the purpose of owning residential property in a
    1All  subsequent references to the Iowa Code are to the 2011 Code unless
    otherwise indicated.
    4
    cooperative.    The corporations who organized the cooperatives are still
    involved in the ownership of the cooperatives.
    On June 19, the City of Iowa City filed a notice of appeal with the
    district court, objecting to the Board’s reclassification. The City argued
    the Board’s reclassification of the properties as residential was improper
    because two natural persons, not two corporations, must organize
    multiple housing cooperatives under the Code.       They also argued the
    Code requires a one-apartment-unit-per-member ownership ratio for a
    multiple housing cooperative to be properly organized. The district court
    allowed the multiple housing cooperatives to intervene in the action.
    The Board filed a motion for summary judgment.          The Board
    argued as a matter of law two corporations can organize a multiple
    housing cooperative because section 499A.1(1), which dictates the
    requirements for organizing a cooperative, defines a corporation as a
    person for purposes of chapter 499A. Iowa Code § 499A.1(1).
    The City filed a response and its own motion for summary
    judgment.      The City argued as a matter of law at least two of the
    organizers were required to be natural persons for the cooperative to be
    properly organized. Additionally, the City argued the organizers did not
    properly organize the cooperatives because each cooperative has more
    apartment units than members and Iowa Code section 499A.11 requires
    a one-to-one ratio.
    The intervenors filed a resistance and their own motion for
    summary judgment. The intervenors argued as a matter of law chapter
    499A specifically permits two corporations to come together to form a
    cooperative, not just natural persons.       The intervenors also argued
    chapter 499A does not limit membership to one member per apartment
    unit.
    5
    The district court granted summary judgment in favor of the Board
    and the intervenors.       The district court held section 499A.1(1) defines
    persons to include corporations, and therefore, the general assembly
    intended corporations to be able to act as organizers of a multiple
    housing cooperative.       The district court further concluded nothing in
    section 499A.11 was relevant to the determination of whether the
    cooperative was properly organized. The City appeals.
    II. Issues.
    The first issue in this case is whether the Board correctly classified
    the cooperatives as residential properties when two Iowa corporations
    organized the cooperatives under chapter 499A.                The second issue is
    whether the Code requires a one-apartment-unit-per-member ownership
    ratio for a multiple housing cooperative to be properly organized.
    III. Scope of Review.
    Ordinarily, if an appeal is from a decision of the local board of
    review, the district court hears the appeal in equity. Iowa Code § 441.39.
    However, because the district court adjudicated the issue on appeal by
    summary judgment, our review is for correction of errors at law.                  Am.
    Legion, Hanford Post 5 v. Cedar Rapids Bd. of Review, 
    646 N.W.2d 433
    ,
    437 (Iowa 2002). Summary judgment is proper if there is no genuine
    issue as to any material fact in dispute and the moving party is entitled
    to a judgment as a matter of law. Iowa R. Civ. P. 1.981(3). 2
    IV. The Organizational Test.
    Our most recent case interpreting chapter 499A is Krupp, wherein
    we held the proper test for determining if a property could be classified
    2Here, the standard of review elaborates upon, but is consistent with Krupp. 
    See 801 N.W.2d at 13
    . In Krupp, we interpreted the statute and applied the standard of
    review for correction of errors at law. 
    Id. at 13,
    14–16. As stated here, this standard
    generally applies in reviewing rulings on motions for summary judgment.
    6
    as residential pursuant to Iowa Code section 441.21(11), is whether the
    multiple housing cooperative was properly organized, not the actual use
    of the property. 
    See 801 N.W.2d at 16
    (“We therefore conclude section
    441.21(11) requires property owned by residential cooperatives, properly
    organized under chapter 499A, to be classified as residential and taxed
    at residential property rates.”). Thus, our task is to determine whether
    the issues the City raised on appeal lead to the conclusion that the
    multiple housing cooperatives were not properly organized.
    V. Whether the Board Correctly Classified the Cooperatives as
    Residential Properties When Two Iowa Corporations Organized the
    Cooperatives Under Chapter 499A.
    Organization of a multiple housing cooperative is set forth in Iowa
    Code section 499A.1(1). In relevant part, it provides:
    Any two or more persons of full age, a majority of whom are
    citizens of the state, may organize themselves for the
    following or similar purposes: Ownership of residential,
    business property on a cooperative basis. A corporation is a
    person within the meaning of this chapter.
    Iowa Code § 499A.1(1) (emphasis added).
    The City claims this section requires the organizers of a multiple
    housing cooperative to have at least two natural persons.      Under its
    interpretation of section 499A.1(1), in order for a corporation to be an
    organizer of a multiple housing cooperative, it must join at least two
    natural persons as an additional organizer.         The Board and the
    intervenors take the position that two corporations can organize a
    multiple housing cooperative without natural persons.
    To determine the answer to this issue, we must construe section
    499A.1(1). When confronted with the task of statutory construction, we
    try to determine legislative intent from the words used by the general
    assembly, not from what the general assembly should or might have
    7
    said. Auen v. Alcoholic Beverages Div., 
    679 N.W.2d 586
    , 590 (Iowa 2004).
    We “may not extend, enlarge or otherwise change the meaning of a
    statute” under the guise of construction. 
    Id. When construing
    a statute,
    we are required to assess a “statute in its entirety, not just isolated
    words or phrases.”     Schadendorf v. Snap–On Tools Corp., 
    757 N.W.2d 330
    , 337 (Iowa 2008).       When construing a statute, we avoid a
    construction that makes part of a statute redundant or irrelevant. 
    Id. We try
    to give a statute a reasonable construction “that best achieves the
    statute’s purpose and avoids absurd results.” 
    Id. at 338.
    At first glance, it appears the phrases “persons of full age, a
    majority of whom are citizens of the state” and “[a] corporation is a
    person within the meaning of this chapter” are inconsistent with each
    other. Iowa Code § 499A.1(1). After all, how could a corporation be of
    full age? Nevertheless, we must determine whether the two phrases are
    actually inconsistent with each other.
    When the general assembly first enacted section 499A.1(1), it
    contained the same phrases that are the subject of this litigation.
    Compare 1947 Iowa Acts ch. 250, § 1 (codified at Iowa Code § 499A.1
    (1950)), with Iowa Code § 499A.1(1). A search of the 1946 Code shows
    the general assembly used language similar to section 499A.1(1) in other
    sections of the Code.    See, e.g., Iowa Code § 504.1 (1946) (requiring
    incorporators of nonprofit corporations to be “persons of full age, a
    majority of whom shall be citizens of the state”), repealed by 1990 Iowa
    Acts ch. 1164, § 27.
    The use of the phrase “persons of full age” denotes that the person
    performing the organizing has reached the age of majority and is capable
    of executing a contract. See Martin v. Stewart Motor Sales, 
    247 Iowa 204
    ,
    207–08, 
    73 N.W.2d 1
    , 3–4 (1955) (holding an individual not of full age
    8
    who misrepresents his or her age cannot invoke the defense of infancy to
    void a contract); cf. Black’s Law Dictionary 78 (3d ed. 1933) (“In the old
    books, ‘age’ is commonly used to signify ‘full age;’ that is, the age of
    twenty-one years.”); Black’s Law Dictionary at 827 (defining “full age” as
    “the age of legal majority”).     Even before 1947, when the general
    assembly enacted section 499A.1(1), duly organized corporations had the
    authority to “make contracts, acquire and transfer property,—possessing
    the same powers in such respects as natural persons.”            Iowa Code
    § 491.3(6) (1946) (amended 1970, 1983, 1990, 2002); see also 1947 Iowa
    Acts ch. 250, § 1.
    The phrase “whom are citizens of the state” denotes a person who
    has his or her home and domicile in the state, with the intention of
    remaining in the state, and who has no home, domicile, or right of
    citizenship in another state. Cf. Fuller v. McDonnell, 
    75 Iowa 220
    , 221,
    
    39 N.W. 277
    , 278 (1888) (defining “ ‘citizen of the county’ ” as having “his
    present home and domicile in any county, although it may be for a
    temporary purpose, provided he has a fixed intention of remaining there
    for an indefinite period of time, and has no home, domicile, or right of
    citizenship elsewhere”).   Further, the Code predating the enactment of
    section 499A.1(1) acknowledged both domestic corporations and foreign
    corporations.   Compare Iowa Code ch. 491 (1946) (regulating Iowa
    corporations), with 
    id. ch. 494
    (regulating foreign corporations).
    We believe the legislative intent with the enactment of chapter
    499A was to allow two corporations to organize a multiple housing
    cooperative. We also believe the intent of the general assembly at the
    time it enacted section 499A.1 was to put the same restrictions on
    corporate organizers as it did on persons who organized multiple housing
    cooperatives—the corporate organizers must have the authority to
    9
    organize a multiple housing cooperative and a majority of the corporate
    organizers must be Iowa corporations.
    Had the general assembly intended to adopt the City’s position—a
    corporation cannot organize a multiple housing cooperative without
    having two natural persons—the statute would have read differently.
    The general assembly would have said a corporation could organize a
    multiple housing cooperative only with two or more natural persons.
    Rather, the general assembly equated a corporation to a person by the
    language used.     See 
    id. § 499A.1(1)
    (1950).   Thus, we find the City’s
    arguments unconvincing as to the general assembly’s intent.
    The City makes no claim that the organizers of these multiple
    housing cooperatives were not duly organized Iowa corporations with the
    legal capacity to enter into a contract to organize a multiple housing
    cooperative. Consequently, the district court was correct in finding as a
    matter of law that the Board was correct in holding two corporations can
    organize a multiple housing cooperative.
    VI. Whether the Code Requires a One-Apartment-Unit-Per-
    Member Ownership Ratio for a Multiple Housing Cooperative to Be
    Properly Organized.
    Iowa Code section 499A.1(1) sets forth the legal requirements
    established by the general assembly to organize a multiple housing
    cooperative. The organizers are required to
    adopt, and sign and acknowledge the articles of
    incorporation, stating the name by which the cooperative
    shall be known, the location of its principal place of
    business, its business or objects, the number of directors to
    conduct the cooperative’s business or objects, the names of
    the directors for the first year, the time of the cooperative’s
    annual meeting, the time of the annual meeting of its
    directors, and the manner in which the articles may be
    amended.
    
    Id. § 499A.1(1).
                                         10
    Once the articles are adopted, signed, and acknowledged,
    [t]he articles of incorporation shall be filed with the secretary
    of state who shall, if the secretary approves the articles,
    endorse the secretary of state’s approval on the articles,
    record the articles, and forward the articles to the county
    recorder of the county where the principal place of business
    is to be located, and there the articles shall be recorded, and
    upon recording be returned to the cooperative. The articles
    shall not be filed by the secretary of state until a filing fee of
    five dollars together with a recording fee of fifty cents per
    page is paid . . . .
    
    Id. The general
    assembly did not require the organizers of a multiple
    housing cooperative to be members of the cooperative or own any
    property at the time of organization.      See 
    id. The general
    assembly
    recognized that a properly organized multiple housing cooperative had
    the power to build, purchase, receive by gift, or lease apartments. 
    Id. § 499A.2(3)–(4).
    Thus, to be properly organized it is not necessary for a
    one-apartment-unit-per-member ownership ratio.
    The City argues section 499A.11 requires a one-apartment-unit-
    per-member ownership ratio to be properly organized. Section 499A.11
    provides:
    The cooperative has the right to purchase real estate
    for the purpose of erecting, owning, and operating apartment
    houses or apartment buildings.         The interest of each
    individual member in the cooperative shall be evidenced by
    the issuance of a certificate of membership. The certificate
    of membership is coupled with a possessory interest in the
    real and personal property of the cooperative, entitling each
    member to a proprietary lease with the cooperative under
    which each member has an exclusive possessory interest in
    an apartment unit and a possessory interest in common with
    all other members in that portion of the cooperative’s real
    and personal property not constituting apartment units, and
    which creates a legal relationship of landlord and tenant
    between the cooperative and member. The certificate of
    membership shall be executed by the president of the
    cooperative and attested by its secretary in the name and in
    the behalf of the cooperative.
    11
    
    Id. § 499A.11
    (emphasis added).
    First, section 499A.11 is not an organizational statute.          Under
    chapter 499A, once the articles of incorporation are filed with the
    secretary of state by persons who satisfy the organizer requirements of
    Iowa Code section 499A.1, the cooperative becomes a body corporate and
    is then empowered with all of the powers enunciated in Iowa Code
    sections 499A.2(1)–(10). Accordingly, at least for purposes of meeting the
    organizational test for a cooperative, section 499A.11 is irrelevant.
    Additionally, we do not read section 499A.11 to impose the
    requirement of one-apartment-unit-per-member ownership ratio, as
    asserted by the City. Rather, Iowa Code section 499A.11 only requires a
    coupling of ownership and membership interests.            Put another way,
    while section 499A.11 certainly requires that each apartment be linked
    with a corresponding membership interest, there is nothing in section
    499A.11    prohibiting   one   person     from   holding    ownership    and
    corresponding membership interest in more than one apartment unit.
    Further, this construction comports with the statute as read in its
    entirety and the process of forming multiple housing cooperatives as
    contemplated by chapter 499A.
    Under chapter 499A, a multiple housing cooperative may acquire
    and change its bylaws before the housing cooperative ascertains all of its
    members. See 
    id. § 499A.2(4)
    (permitting the board to “purchase, take,
    receive, lease as lessee . . . and otherwise deal in and with any real or
    personal property” upon filing the articles of organization). Additionally,
    a multiple housing cooperative may acquire and change its bylaws before
    it issues membership certificates. 
    Id. § 499A.2A
    (“Prior to the admission
    of members to the cooperative, the power to alter, amend, or repeal the
    bylaws or adopt new bylaws is vested in the board of directors.”).
    12
    In larger housing cooperatives, the process of preparing apartment
    units for habitation, ascertaining members, leasing or selling units, and
    issuing membership certificates may take significant time and proceed
    on a rolling basis.   During this period, the concentration of leasehold,
    ownership, and membership interests in one individual may be
    necessary to facilitate development and ascertain future members.
    Nothing in chapter 499A precludes a cooperative from obtaining
    advantageous tax treatment during this interim period or suggests a
    cooperative is not properly organized until all the units have been leased
    or sold to different members.
    The City also argues the 1991 amendments to chapter 499A
    indicate legislative intent to prevent members from owning more than
    one apartment.     Prior to the amendments, chapter 499A included a
    provision that stated in relevant part,
    If one member owns more than one apartment that member
    may nevertheless have but one vote at such election. If any
    apartment or room is owned by more than one member they
    may, nevertheless, have but one vote at such election.
    Iowa Code § 499A.19 (1991).      At that time, section 499A.11 provided,
    “The interest of each individual member shall be evidenced by the
    issuance of a certificate of ownership or deed to a particular apartment
    or room therein.” 
    Id. § 499A.11
    .
    The general assembly amended sections 499A.19 and 499A.11,
    striking the language from section 499A.19 regarding voting rights of
    members, and altering part of the language in 499A.11 to read:
    The interest of each individual member in the cooperative
    shall be evidenced by the issuance of a certificate of
    ownership or deed to a particular apartment or room therein.
    Such membership. The certificate of membership is coupled
    with a possessory interest in the real and personal property
    of the cooperative, entitling each member to a proprietary
    13
    lease with the cooperative under which each member has an
    exclusive possessory interest in an apartment unit . . . , and
    which creates a legal relationship of landlord and tenant
    between the cooperative and member.
    1991 Iowa Acts ch. 30, §§ 5, 14 (codified at Iowa Code §§ 499A.11, .19
    (1993)).
    The City argues that by deleting the language “[i]f one member
    owns more than one apartment” from section 499A.19 and adding the
    language “each member has an exclusive possessory interest in an
    apartment unit” to section 499A.11, the general assembly clearly
    manifested its intent to limit a member’s ability to own more than one
    unit.      However, we think these amendments lead to a different
    conclusion.
    Before the amendments, section 499A.19 governed only the
    election of directors.    See Iowa Code § 499A.19 (1991).      The general
    assembly then expanded the scope of the section by creating a section
    governing all matters submitted to a vote of the members. 1991 Iowa
    Acts ch. 30, § 10 (now codified at Iowa Code § 499A.3C). The section as
    amended reads, “Each member is entitled to one vote on each matter
    submitted to a vote of the members.         A membership interest in the
    cooperative jointly owned by two or more persons is nevertheless entitled
    to one vote.”    Iowa Code § 499A.3C. Before the amendments, section
    499A.19 made it clear that, despite the use of these arguably restrictive
    terms, chapter 499A authorized individuals to own multiple units. 
    Id. § 499A.19
    (1991).
    The language regarding joint ownership in a unit remained in the
    statute after the amendment, while that authorizing multiple-unit
    ownership did not.       See 1991 Iowa Acts ch. 30, § 10.     However, the
    general assembly added nothing to the Code to specifically prohibit
    14
    multiple-unit ownership, and it could have made that change at the
    same time it was making these amendments if it had so desired.
    The City argues interpreting the statute in this manner leads to
    absurd     results   because     an   owner’s     financial   share    would   be
    underrepresented in his or her vote.            However, it is recognized that
    membership      voting   in    cooperatives     may    have   a   disproportional
    distribution of ownership to influence.               See U.S. Small Business
    Administration, Choose Your Business Structure: Cooperative, available at
    www.sba.gov/content/cooperative (last visited Apr. 28, 2015) (“While the
    ‘one member-one vote’ philosophy is appealing to small investors, larger
    investors may choose to invest their money elsewhere because a larger
    share investment in the cooperative does not translate to greater
    decision-making power.”). In addition, at any given time, units may be
    unoccupied.      Thus, the cooperative would not issue membership
    certificates for those units and the ownership of those units would
    remain in the cooperative corporation, rather than an individual
    member, until the cooperative issued the certificates pursuant to section
    499A.11.
    Before the 1991 amendments, section 499A.11 used the terms
    “individual” and “a particular apartment” in describing the interests of a
    cooperative’s members.         Iowa Code § 499A.11 (1991).            The general
    assembly then amended this section, and in so doing continued to use
    the term “individual” in section 499A.11 and substituted “an apartment
    unit” for what had previously read “a particular apartment.” 1991 Iowa
    Acts ch. 30, § 5. This use of these similar terms suggests the general
    assembly did not intend to alter the meaning of the provision governing
    issuance of membership certificates, and the absence of any restrictions
    15
    requiring a different member for each apartment unit are more telling
    than the change to these five words.
    Finally, we note that the position taken by the City, in essence,
    would require that we revive the “actual use” test we explicitly rejected in
    Krupp.   
    See 801 N.W.2d at 16
    (“By enacting the amendment with an
    organizational test, the legislature avoided a fact intensive ‘actual use’
    test . . . .”). The organizational process necessarily takes place before the
    cooperative issues membership certificates and before the cooperative
    identifies all of its members.    See Iowa Code § 499A.2A(1).       Looking
    beyond what is required to properly organize the cooperative to how the
    membership certificates are held meanders into the actual use of the
    property—how many apartments each member holds relates to the use of
    the property. This inquiry is not permitted under our decision in 
    Krupp, 801 N.W.2d at 16
    .
    Accordingly, the district court was correct in finding as a matter of
    law the Board did not err in holding the Code does not require a one-
    apartment-unit-per-member ownership ratio for a multiple housing
    cooperative to be properly organized.
    VII. Disposition.
    The Board and the district court were correct in finding as a matter
    of law the organizers properly organized the eleven multiple housing
    cooperatives under Iowa law. Therefore, we affirm the judgment of the
    district court affirming the decision of the Board classifying the property
    held by the cooperatives as residential for purposes of property taxes.
    AFFIRMED.
    All justices concur except Mansfield, J., who concurs specially.
    16
    #14–0495, City of Iowa City v. Iowa City Bd. of Review
    MANSFIELD, Justice (concurring specially).
    I concur in result only.      As I explain in my special concurrence
    today in Dolphin Residential Cooperative, Inc. v. Iowa City Board of
    Review, 
    863 N.W.2d 644
    (Iowa 2015), I believe Krupp Place 1 Co-op, Inc.
    v. Board of Review, 
    801 N.W.2d 9
    (Iowa 2011), was wrongly decided and
    should be overruled. In my view, Iowa law does not extend residential
    property tax benefits to a commercial landlord simply because the
    landlord has performed a paper reorganization into a cooperative. When
    the new entity lacks members that are independent from each other and
    remains in reality the same unitary commercial enterprise as before, the
    economic substance test has not been met and the entity should not be
    recognized as a cooperative for property tax purposes.
    In this case, our record is limited, and the arguments raised are
    equally limited.    The record does show that all of the properties were
    previously commercial rental properties in Iowa City and were taxed as
    such. In late December 2011, following the Krupp decision, cooperatives
    were formed that apparently took over ownership of these properties.
    Each cooperative had two “incorporators” 3—either PP One, Inc. and PP
    Two, Inc., or Myrtle Grove, Inc. and Myrtle Grove 2, Inc. Michael Oliveira
    was the president/secretary of both PP entities, and Michael Hodge was
    the president/secretary of both Myrtle Grove entities. Also, Mr. Oliveira
    was named the initial director of the entities with PP organizers, and Mr.
    Hodge was the initial director of the entities with Myrtle Grove
    organizers. In May 2012, the Iowa City Board of Review reclassified all
    the properties from commercial to residential.
    3The    articles of incorporation use the term “incorporators,” but I assume
    “organizers” is meant. See Iowa Code § 499A.1(1) (2011).
    17
    That’s all we know. For example, we do not know who the present
    members of the purported cooperatives are. Are they the same as the
    organizers? Are Mr. Oliveira and Mr. Hodge still calling the shots? The
    record does not provide answers to these questions.         While I suspect
    these cooperatives are as ephemeral as the purported cooperative in
    Dolphin, the present record is too sparse to allow me to reach that
    conclusion.
    Also, the arguments raised by the City are rather narrow. The City
    argues only (1) corporations cannot be organizers and (2) Iowa Code
    section 499A.11 requires that each member have an interest in only one
    apartment.    I generally agree with the majority’s resolution of these
    points.
    Accordingly, I concur in the judgment in this case.