JON STUART SCOLES, CHIEF MAGISTRATE JUDGE, NORTHERN DISTRICT OF IOWA
On the 4th day of August, 2015, this matter came on for hearing on the Motion for Partial Summary Judgment (docket number 37) filed by Plaintiff Acciona Windpower North America, LLC ("Acciona") on June 15, 2015, and the Motion for Summary Judgment (docket number 38) filed by Defendant City of West Branch ("the City" or "West Branch") on the same day. Acciona was represented by its attorneys,
On March 7, 2014, Acciona filed a complaint seeking damages for the City's alleged breach of contract, and seeking specific performance. After its motion to dismiss (asserting a lack of subject matter jurisdiction) was denied, West Branch filed an answer on June 10, 2014.
On July 7, 2014, the Court adopted a proposed Scheduling Order and Discovery Plan submitted by the parties. Also at that time, the case was referred to me for the conduct of all further proceedings and the entry of judgment, in accordance with 28 U.S.C. § 636(c) and the consent of the parties. After consulting with counsel, this matter was set for a non-jury trial beginning on October 19, 2015.
In January 2008, Acciona and the City executed an Amended Tax Increment Development Agreement ("the Agreement"). The Agreement stated that Acciona "intends to expand its business and to thereby generate employment opportunities within West Branch's Urban Renewal Area." Specifically, with the City's assistance in the form of tax rebates, Acciona intended to undertake an urban renewal project which would create a substantial number of new jobs in West Branch.
Amended Tax Increment Development Agreement at 1 (Plaintiff's App. 2).
According to the Agreement, the City determined that "the Project is consistent with the objectives of the Plan for the Urban Renewal Area and that development of the Project Area and the Urban Renewal Area by construction of the Minimum Improvements is in the vital and best interests of the City." Accordingly, the City found that "the use of City funds to finance the City Contribution is in accord with the provisions of the applicable laws under which the Project will be undertaken, including, but not limited to, Iowa Code chapter 403."
Acciona agreed that it "will cause the Minimum Improvements to be constructed in the Project Area" in accordance with the terms of the Agreement. Among other things, the Minimum Improvements required a capital investment of at least $11 million, "[t]he creation of approximately 110 new, full-time jobs within a period of not to exceed five (5) years," and the payment of a median wage for new non-management production jobs of at least $14.57 per hour. The Agreement required that "[t]he Minimum Improvements shall be completed within a five-year period beginning May, 2007." See Plaintiff's App. 3.
In consideration of the Minimum Improvements pledged by Acciona, the City agreed "to assist in the Project by rebating to ACCIONA, or its successor in interest with written consent of the City, that percentage of incremental taxes actually paid with respect to the Minimum Improvements and received under Iowa Code Chapter 403.19 by the City, as set forth in
Amended Tax Increment Development Agreement, Section II (Plaintiff's App. 4).
Steven Cieslak, Director of Finance for Acciona, states in a supporting affidavit that Acciona "completed construction of its facility in March 2009, having spent in excess of $20,000,000 on the building remodeling and on new machinery and equipment for the expanded facility."
In its resistance, West Branch cites the deposition testimony of Joe Baker, who the City identifies as Acciona's former chief executive officer. In response to questioning by the City's attorney, Baker agreed with Cieslak's letter to the city administrator dated May 9, 2013, stating that Acciona had 102 employees as of May 2012.
In a later affidavit, Cieslak clarified that the employment numbers cited in his first
5/12/2012 5/28/2011 5/15/2010 5/30/2009 5/31/2008
Not based in WB 9 13 18 20 21
Permanent in WB 76 84 85 139 119
Based in WB if not at
project 16 14 22 29 27
Total 101 111 125 188 158
Permanent in WB or
Based in WB if not at
project in field 92 98 107 168 146
Affidavit of Steven Cieslak at 2-3, ¶ 5 (Plaintiff's Supp.App. 92-93).
Initially, the City rebated a percentage of the incremental property taxes pursuant to the terms of the Agreement. The City paid Acciona $144,225 in fiscal year 2010, $186,899 in fiscal year 2011, and $113,077 in fiscal year 2012.
On November 5, 2012, the City passed a resolution obligating a rebate to Acciona in the amount of $265,140, representing a percentage of incremental taxes paid by Acciona for fiscal year 2012, to be paid in the fiscal year beginning July 1, 2013 (FY 2014). According to the resolution, "[t]he City Council obligates $302,527
Instead, on April 16, 2013, the West Branch city administrator, Matt Muckier, sent a letter to Acciona, entitled "NOTICE OF INTENT TO CANCEL AGREEMENT."
Steven Cieslak responded to Muckier in a letter dated May 9, 2013, denying that Acciona had failed to meet the Minimum Improvements requirement for job creation. According to Cieslak's letter, "[a]s of May 2012, Acciona employed 102 employees, which while not 110 employees, is `approximately 110' employees, consistent with our obligations under the Development Agreement."
Both parties claim they are entitled to summary judgment. Acciona argues that "[t]his is a straight forward breach of contract action." According to Acciona, the parties reached an agreement and Acciona performed its duties pursuant to the Agreement; but the City failed to rebate a percentage of the incremental property taxes as required by the Agreement and instead wrongfully cancelled the Agreement. Conversely, West Branch argues that Acciona failed to meet its obligations under the Agreement, and the City was authorized to cancel the Agreement pursuant
In order to recover on its claim for breach of contract, it is necessary for Acciona to show: (1) the existence of the contract, (2) the terms and conditions of the contract, (3) that Acciona has performed all the terms and conditions required under the contract, (4) the City breached the contract by failing to perform, and (5) that Acciona suffered damages. Molo Oil Co. v. River City Ford Truck Sales, Inc., 578 N.W.2d 222, 224 (Iowa 1998). It is undisputed the parties executed a written agreement which sets forth its "terms and conditions." Accordingly, it is necessary for Acciona to prove it performed its obligations under the Agreement, West Branch failed to perform, and Acciona suffered damages.
In Section I, paragraph 1 of the Agreement, Acciona agreed to undertake certain "Minimum Improvements," as identified in subparagraphs a-g. Among other things, Acciona agreed the Minimum Improvements would include "[t]he creation of approximately 110 new, full-time jobs within a period of not to exceed five (5) years," and the "[p]ayment of a median wage for the 95 new, full-time, hourly non-management production jobs of at least $14.67 per hour."
In the City's letter to Acciona dated April 16, 2013 — notifying Acciona of the City's intent to cancel the Agreement — the City administrator asserted that "[w]ith the recent layoffs, Acciona has failed to maintain its 110 jobs and continued payment of a median wage for 95 employees, all as required by Section 1 of said Agreement."
According to Steven Cieslak's second affidavit, as illustrated in the table on page 7, Acciona complied almost immediately after the Agreement was executed with the requirement that it create approximately 110 new full-time jobs. By May 31, 2008, Acciona employed 119 workers in West Branch. If employees working in the field (but who were "based" in West Branch) are included, then the number of total employees increases to 146. The number of employees increased the following year. On May 30, 2009, Acciona had 139 employees in West Branch, and an additional 29 "field employees," for a total
The number of Acciona's employees continued to drop. According to Cieslak, by May 28, 2011, there were 84 permanent employees in West Branch, with an additional 14 based in West Branch if not working in the field. That is, the number of Acciona employees having some connection with West Branch had dropped to 98 on May 28, 2011. By May 12, 2012, the number of similarly situated employees had dropped to 92.
One of the fighting issues is whether Acciona was merely required to create approximately 110 new full-time jobs within five years — the language employed in the Agreement — or whether it was required to create and maintain that number of jobs, as asserted by West Branch. Acciona argues that the unambiguous contract terms must be strictly enforced. While it is undisputed that Acciona created more than 110 new full-time jobs, the City argues that its "course of dealing" with Acciona is evidence that "the relevant time period for measuring the number of jobs created required by the Agreement was May 2012."
A resolution of this issue requires the Court to interpret Acciona's obligation for "[t]he creation of approximately 110 new, full-time jobs within a period of not to exceed five (5) years." "The cardinal rule of contract interpretation is to determine what the intent of the parties was at the time they entered into the contract." Pillsbury Co., Inc. v. Wells Dairy, Inc., 752 N.W.2d 430, 436 (Iowa 2008). "Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight." Id. (quoting Fausel v. JRJ Enters., Inc., 603 N.W.2d 612, 618 (Iowa 1999)). However, "[t]hese rules of interpretation are general in character and only serve as guides in the process of interpretation." Id. (citing RESTATEMENT (SECOND) OF CONTRACTS, § 202 cmt. a (1979)).
The City apparently does not argue that Acciona was required to immediately create at least 110 new jobs and then maintain those jobs for the entire five years. Instead, West Branch argues that the target date "for measuring the number of jobs created" was May 2012 (five years after the Agreement was reached).
Such an interpretation would ignore the plain language of the Agreement. The purpose of the Agreement was to incentivize Acciona to locate in West Branch. To provide a tax incentive, however, the City wanted to make sure a significant number of jobs would be created.
The City's argument that the Agreement was modified "by Plaintiff's own course of dealing with the City" is without merit. In support of its "course of dealing" argument, West Branch points to the letter from Acciona to the City on May 9, where Cieslak responded to the City's cancellation letter and asserted Acciona employed 102 employees in May 2012, which was approximately 110 employees "consistent with our obligations under the Development Agreement."
Similarly, the Court rejects the City's argument that the testimony of Plaintiff's expert establishes an obligation by Acciona to create and maintain a certain number of jobs. When asked to explain his understanding of the respective obligations of each party to the Agreement, Mr. Swartzendruber opined that "Acciona was required to create and maintain a certain number of jobs...."
Turning to the second "Minimum Improvement," in its letter to Acciona in April 2013, the City asserted, without any evidence, that Acciona had failed to pay "a median wage for 95 employees." The City renewed that assertion at the hearing on the motions for summary judgment. Acciona provided detailed payroll records, however, and the City has not responded with any evidence to support its allegation that Acciona failed to meet the wage requirement found in the Minimum Improvements.
Even viewing the evidence in the light most favorable to the City, the Court finds that Acciona performed the Minimum Improvements found in the Agreement. Acciona created substantially more than 110 jobs within five years as required by Section I, paragraph 1(c) of the Agreement.
West Branch argues that even if Acciona met all of its obligations under the Agreement, the City cannot be forced to appropriate money to fund a tax rebate to Acciona. Pursuant to the Agreement, "[e]ach rebate payment shall be subject to annual appropriation of the City Council."
Because the payment of a tax rebate is contingent upon an annual appropriation by the City Council, West Branch argues that it is not required to pay Acciona a tax rebate in any given year. Instead, the Agreement only requires that it "consider" such an appropriation. In support of its argument, the City cites Fults v. City of Coralville, 666 N.W.2d 548 (Iowa 2003). In that case, the issue was whether Coralville exceeded the constitutional debt limit placed on municipalities by issuing $20 million in notes and $13 million in bonds. "The notes and bonds were contingent obligations subject to repayment only if the city would annually appropriate the funds necessary for repayment." Id. at 551. The City argued that because the repayment obligation was conditioned on yearly appropriations, it was not a legally cognizable debt, and was not subject to the constitutional debt limitation. Id. at 555-56. The Iowa Supreme Court agreed.
The Fults Court first noted that "[t]he Iowa Constitution imposes a limitation on the amount of debt a political subdivision may create to `prevent the general taxes of a political subdivision from becoming overburdened by obligations.'" Id. at 556. However, "[i]f there is no legally enforceable obligation to continue repayments in the future, such `debt' is not considered constitutional debt." Id.
Fults, 666 N.W.2d at 557 (quoting Burlington Water Co. v. Woodward, 49 Iowa 58, 62 (1878)).
The Court then considered whether the notes and bonds holders could require the City to pay pursuant to the terms of those instruments. The Court concluded that notwithstanding the expectations of the notes and bonds holders that the City would pay pursuant to these instruments, the City had no legal obligation to do so.
Fults, 666 N.W.2d at 559 (emphasis added).
In reaching its conclusion, the Iowa Supreme Court noted the "moral" and "practical" reasons why Coralville would want to pay on the notes and bonds. The property owners argued that from a practical standpoint, nonappropriation by the City Council would have a "disastrous result," including Coralville's inability "to borrow money for even essential city services or of having that money at higher interest rates." Id. at 558. The Court concluded, however, that "a moral obligation is not in and of itself `debt,'" and "[e]ven if the practical effect of these agreements is that the city will repay the notes and bonds, this does not affect our analysis as long as the city cannot be held legally responsible for the debt for a year other than one in which funds have been appropriated." Id.
Like the notes and bonds in Fults, the Agreement in this case does not unconditionally obligate the City to pay a tax rebate to Acciona. Instead, the Agreement provides that "[e]ach rebate payment shall be subject to annual appropriation of the City Council." The Agreement provides that no later than December 1 of each year, "the City Council shall consider the issue of obligating for appropriation" funding for a tax rebate. (emphasis added) There are practical reasons why the City would want to pay a tax rebate if Acciona complied with its obligation under the Agreement. If the City elected not to appropriate a tax rebate notwithstanding Acciona's compliance, then it may be difficult to attract another company to the area under a similar agreement. In addition, it can be argued that the City had a "moral" obligation to meet Acciona's expectation that Acciona would receive a tax rebate if Acciona complied with the terms of the Agreement.
The Court concludes, however, that given the language agreed to by the parties in the Agreement, the City has no legal obligation to appropriate funds for a tax rebate in any given year, despite moral or practical reasons for doing so. That is, each rebate payment was "subject to annual appropriation" by the City Council. The City was not required to appropriate funds in any given year, it was only required to "consider" the appropriation of such funds. Accordingly, if the City had considered and rejected the payment of a tax rebate by December 1 each year, then Acciona would have no legal recourse.
In this case, however, West Branch did not simply consider and reject Acciona's claim for a tax rebate each year. Instead, it cancelled the Agreement based on Acciona's alleged breach of contract.
The City Council voted unanimously to cancel the Agreement.
Acciona argues that the City's cancellation of the Agreement constitutes an anticipatory breach. In response, the City argues that it had the right to cancel the Agreement as a consequence of Acciona's failure to comply with the terms of the Agreement. Section III, paragraph 1 of the Agreement provides that "[i]f Acciona breaches any term of this Agreement and said breach is not cured within thirty (30) days after written notice, the City shall have the right to cancel this Agreement...."
"A party breaches a contract when, without legal excuse, it fails to perform any promise which forms a whole or part of the contract." Royal Indem. Co. v. Factory Mut. Ins. Co., 786 N.W.2d 839, 846 (Iowa 2010) (quoting Molo Oil Co. v. River City Ford Truck Sales, Inc., 578 N.W.2d 222, 224 (Iowa 1998)). As set forth above, Acciona performed its obligations under the Agreement. Acciona was required to create approximately 110 new full-time jobs within five years. It did so. Acciona was required to pay a median wage of at least $14.57 per hour. It did so. The City concedes Acciona complied with the other requirements constituting the Minimum Improvements described in the Agreement.
Conversely, the City failed to meet its obligations under the Agreement. The City was required, prior to December 1 of each year, to consider the issue of obligating for appropriation the funding required for a tax rebate to Acciona. Rather than comply with its obligation, however, the City elected to cancel the Agreement without any legal excuse. This constituted an anticipatory breach of the contract. Lane v. Crescent Beach Lodge & Resort, Inc., 199 N.W.2d 78, 82 (Iowa 1972) ("Anticipatory breach requires a definite and unequivocal repudiation of the contract."). The cancellation provision found in Section III of the Agreement does not provide the City with safe harbor, because Acciona had not "breache[d] any term of this Agreement."
To recover on its claim for breach of contract, it is not enough that Acciona prove that it performed its obligations under the contract, while the City breached the contract by failing to perform. In addition, Acciona must show that it suffered damages. Molo Oil Co., 578 N.W.2d at 224. In its complaint, Acciona seeks compensatory damages (Count I) and specific performance (Count II). Acciona argues that it has been damaged because "[i]t received only three years' worth of tax rebates out of the required eight-year commitment from the City."
"Under Iowa law, when a contract has been breached, the nonbreaching party is generally entitled to be placed in as good a position as he or she would have occupied had the contract been performed." Midland Mut. Life Ins. v. Mercy Clinics, 579 N.W.2d 823, 831 (Iowa 1998) (cited with approval in Shelby County Cookers, LLC v. Utility Consultants International, Inc., 857 N.W.2d 186, 195 (Iowa 2014)). "Under this theory of damages, the nonbreaching party's recovery `is limited to the loss he has actually suffered by reason of the breach; he is not entitled to be placed in a better position than he would have been in if the contract had not been broken.'" Id. (quoting 22 Am.Jur.2d Damages § 45 (1988)) (italics in original). See also DeWaay v. Muhr, 160 N.W.2d 454, 459 (Iowa 1968) ("Of course recovery of the injured party is limited to the loss he actually suffers by reason of the breach; he should not be placed in a better position than he would be in if the contract had not been broken.").
Section III of the Agreement provides that if the City breaches the agreement, Acciona "shall have the right to terminate this Agreement or take any legal or administrative action deemed appropriate to recover damages or enforce the City's performance obligations under this Agreement."
Under the unique circumstances presented in this case, the Court concludes that Acciona is not entitled to compensatory damages but is, instead, entitled to specific performance of the Agreement. Midland, 579 N.W.2d at 831 ("The measure of damages recoverable for a breach of contract in each case must have relation to the nature and purpose of the contract itself, as viewed in connection with the character and extent of the injury."). That is, because Acciona performed its obligations under the Agreement, the City is also required to perform its obligations. This will place Acciona in the same position as it "would have occupied had the contract been performed." Id. In this case, that means the City must, prior to December 1st of each year, "consider the issue of obligating for appropriation to the funding of the payments due in the following fiscal year, an amount of tax increment revenues to be collected in the following fiscal year." As set forth above, however, the City has no legal obligation to appropriate funds for a tax rebate in any given year, despite moral or practical reasons for doing so.
There remains the issue of whether the City has a legal obligation to pay Acciona $265,140, representing a percentage of incremental taxes paid by Acciona for fiscal year 2012, to be rebated in fiscal year 2014. At its meeting on November 5, 2012, the City Council approved resolution 1045, "obligating funds from the urban renewal tax revenue fund for the payment of annual appropriation tax increment financed obligations."
Resolution No. 1045 (Plaintiff's App. 59). Pursuant to the Resolution, the City Clerk (Matt Muckier) provided the required certification to the County Auditor. See Plaintiff's App. 61-64.
The amount "obligated for appropriation" by Resolution No. 1045, and certified by the City Clerk, was never paid. Instead, at its meeting on April 15, 2013, the City Council approved the submission of a letter to Acciona, entitled "Notice of Intent to Cancel Agreement."
In summary, the Court finds, after viewing the evidence in the light most favorable to West Branch, that Acciona performed its obligations under the Agreement. That is, Acciona created approximately 110 new, full-time jobs within a five-year period, and paid a median wage in compliance with the terms of the Agreement. I also find that West Branch breached the Agreement by cancelling the Agreement without legal cause. Because the Agreement only required the City to "consider" the payment of a tax rebate in any given year, however, the Court finds that Acciona is not entitled to compensatory damages. Instead, I conclude that Acciona is entitled to specific performance of the Agreement. That is, prior to December 1st of each year, the City must consider the issue of whether Acciona should be rebated a portion of the tax increment revenues.
Regarding the tax rebate which was obligated for appropriation by Resolution No. 1045 in November 2012, I find there are genuine issues of material fact which preclude summary judgment. That issue will be reserved for trial. The parties' respective motions for summary judgment will be granted in part and denied in part, consistent with these findings.
It is therefore
1. Acciona is entitled to specific performance of the Amended Tax Increment Development Agreement executed by the parties in January 2008. The City of West Branch is required to perform its obligations under the Agreement.
2. This matter will come on for trial, as previously scheduled, on the issue of whether the City has a legal obligation to pay Acciona the rebate which was obligated for appropriation in Resolution No. 1045.
Amended Tax Increment Development Agreement, Section II, paragraph 1 (Plaintiff's App. 4).
Marco, 473 N.W.2d at 42 (quoting 62 C.J.S. Municipal Corporations § 139, at 281-82 (1949)). Stated simply, "[o]ne who contracts with a city is bound at his peril to know the authority of the officers with whom he deals, and a contract unlawful for lack of authority, although entered in good faith, creates no liability on the part of the city to pay for it, even in quantum meruit." Id. at 43. Because the proposed street widening in Marco was a legislative function, "the City was not free to bind itself by contract in the exercise of its legislative functions," and the contract was unenforceable. Id.
Because I find the Agreement does not require payment of an annual tax rebate by the City, I find it unnecessary to address this issue.
