City of Iowa City, Iowa v. Iowa City Board of Review v. Iowa City Board of Review , 863 N.W.2d 663 ( 2015 )

IN THE SUPREME COURT OF IOWA
No. 14–0495
Filed May 15, 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 (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.
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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.
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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.”).
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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
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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, ___ N.W.2d ___ (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.