Iowa Supreme Court Awards Attorney Fees in Farm Lease Dispute

On May 28, 2021, the Iowa Supreme Court released an opinion involving a farm lease dispute between a landlord and tenant. The tenant brought this lawsuit claiming breach of contract and sought attorney fees under the terms of the lease. Because the tenant had given the landlord a reasonable opportunity to pay the debt, the Supreme Court affirmed that the tenant, as the prevailing party, was entitled to attorney fees. The Court ruled, however, that the tenant was not entitled to any fees accruing after rejecting a settlement offer from the landlord.

Background

A farm tenant and landlord entered into a one-year farm lease in 2012. The lease gave the tenant a right of first refusal to purchase the leased property and included a provision that the landlord would reimburse the tenant for fertilizer applied to the land if the parties did not renew the lease. The lease also stated that if either party brought a lawsuit to enforce the terms of the lease, “the prevailing party” would be entitled to recover reasonable attorney’s fees.

The lease auto-renewed for several years until the landlord sent termination notice in 2017. The landlord, which was an LLC, refused to reimburse the tenant for the applied fertilizer and distributed parcels of the farm to its members without allowing the tenant to exercise the right of first refusal. The tenant demanded $190,564 in reimbursement costs and filed a two-count petition claiming breach of contract. The tenant also demanded attorney fees under the terms of the lease.

The landlord moved for summary judgment on count II, which alleged that the landlord did not allow the tenant to exercise its right of first refusal. While the motion was pending, the landlord offered to confess judgment for $75,000, which the tenant refused. The district court later granted the motion, finding that the distribution of land by the landlord to its members did not trigger the right of first refusal. After the case went to trial on the remaining claim, a jury found that the landlord breached the lease by failing to reimburse the tenant for the unused fertilizer and awarded $41,454 in damages. Both the tenant and the landlord claimed to be the prevailing party and moved for attorney fees and costs under the lease. The district court awarded $55,000, in fees to the tenant, just under half of the $107,484.50 requested. The landlord appealed to the Court of Appeals, which affirmed that the tenant was the prevailing party, but reversed the district court’s award of attorney fees incurred after the landlord’s settlement offer. Both parties appealed.

Determination of the Prevailing Party

On appeal, the landlord claimed to be the prevailing party because the tenant received a considerably smaller award than originally demanded and the district court granted the landlord’s motion for partial summary judgment. In rejecting this argument, the Court concluded that the prevailing party is determined by which side has received a favorable case outcome overall, rather than which party obtained small rulings in his favor throughout the litigation or the overall damages received. Because the tenant received a monetary judgment against the landlord, the Court affirmed that the tenant was the prevailing party.

Reasonable Opportunity to Pay Debt before Trial

Next, the Court considered whether the tenant provided the landlord a reasonable opportunity to pay the fertilizer reimbursement before initiating the lawsuit. A court may award attorney fees by statute or under contract. Guardianship & Conservatorship of Radda v. Wash. State Bank, 955 N.W.2d 203, 214 (Iowa 2021). However, a plaintiff may not collect attorney fees “if the defendant is a resident of the county and the action is not aided by an attachment, unless it shall be made to appear that such defendant had information of and a reasonable opportunity to pay the debt before action was brought…” Iowa Code § 625.25 (emphasis added).

Noting that it had never applied Iowa Code § 625.25 to cases with contested amounts of unliquidated damages, the Court stated that the focus of the statute is timing. The purpose of § 625.25 is not to give notice of the specific amount of debt, but rather to give notice that the debt exists as well as give an opportunity to avoid attorney fees or a court proceeding.

Although the tenant’s initial demand was much higher than the $136,449 yearly rent or the jury verdict, the Court found that the tenant complied with the statute. Here, the tenant gave the landlord advance notice by sending an invoice for the fertilizer 81 days before filing the lawsuit. Even if the original demand was unrealistic, the Court determined that it could be considered a demand sufficient to allow the tenant to receive attorney fees, if other statutory requirements were met.

Inclusion of Contractual Attorney Fees as Costs

Lastly, the Court determined whether the tenant was entitled to attorney fees incurred after the landlord offered to confess judgment. To reach this determination, the Court examined interplay between Iowa Code § 677.10 and § 625.22. Section 677.10, which does not define “costs,” states, “If the plaintiff fails to obtain judgment for more than was offered by the defendant, the plaintiff cannot recover costs, but shall pay the defendant’s costs from the time of the offer.”

In Brockhouse v. State, the Court ruled that the plaintiff, as the prevailing party, was entitled to recover attorney fees under statute. 449 N.W.2d 380 (Iowa 1989). However, the damages awarded were less than the defendant’s offer to confess. In that case, the Court concluded that “costs” under § 677.10 includes attorney fees awarded under a statute and, thus, the plaintiff could not recover attorney fees after the defendants offer to confess.

Here, the tenant was entitled to recover attorney fees under the terms of the lease. Under Iowa Code § 625.22, the court will tax attorney fees to which a party is entitled under a contract as part of the costs. The Court held that contractual attorney fee awards also qualify as costs under Iowa Code § 677.10. As such, the tenant was not entitled to attorney fees arising after the landlord’s offer to settle. This policy, the Court explains, encourages parties to settle and avoid litigation.

The Court also found that its resolution of the issue did not shift the landlord’s attorney fees to the tenant.  Because the landlord was not a prevailing party under their contract or under Iowa Code § 625.22, the landlord could not recover its post-offer fees from the tenant. The Court also noted that its holding under Iowa Code § 677.10 was limited to attorney fees where the governing statute (here, § 625.22) provided that the attorney fees are to be taxed as costs or included as costs.

Dissent

Justice Appel concurred with most of the opinion, but dissented as to whether attorney fees are “costs” under Iowa Code § 677.10, thereby cutting off the tenant’s right to post-offer attorney fees. Analyzing case law from both Iowa and other states, he wrote that the traditional meaning of the word, “costs” does not include attorney fees, but only administrative costs imposed by the courts. Appel concluded that the majority’s definition may encourage a party to settle for less than the case is worth.