Larry D. Schaefer and Elaine M. Schaefer v. Dale L. Putnam, Putnam Law Office, and SMP, L.L.C., 2013 Iowa Sup. LEXIS 128

Background

Larry and Elaine Schaefer transferred farmland and later faced creditor actions; after bankruptcy, SMP loaned funds to the Schaefers and obtained mortgages, including on a 40-acre homestead.
The Schaefers sued SMP and others seeking declaratory relief claiming mortgages were unenforceable; SMP answered and filed a counterclaim to foreclose its mortgages (including the 40-acre homestead) without first obtaining a farm-mediation release.
The district court tried the case, entered judgment foreclosing SMP’s mortgages, and scheduled a sheriff’s sale; the Schaefers moved to quash the sale arguing the mandatory mediation statute (Iowa Code § 654A.6(1)) deprived the court of subject matter jurisdiction because SMP did not obtain a mediation release before filing its foreclosure counterclaim.
The Iowa Court of Appeals agreed with the Schaefers and reversed the foreclosure, holding the mediation requirement applied to counterclaims; SMP sought further review.
The Iowa Supreme Court examined whether SMP’s foreclosure claim was a compulsory counterclaim and whether § 654A.6(1) requires a creditor to obtain a mediation release before asserting a compulsory counterclaim; it concluded the counterclaim was compulsory and that the mediation/jurisdictional prerequisite applies only to a creditor who files/initiates a civil action, not to compulsory counterclaims.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether SMP’s foreclosure counterclaim was a compulsory counterclaim	Schaefers: foreclosure could be litigated separately; not necessarily compulsory	SMP: foreclosure arises from same transaction and must be raised or be lost	Court: foreclosure counterclaim was compulsory under Iowa R. Civ. P. 1.241
Whether Iowa Code § 654A.6(1) requires a creditor to obtain a mediation release before asserting a compulsory counterclaim to foreclose agricultural property	Schaefers: “desiring to initiate” includes filing a counterclaim; mediation is jurisdictional prerequisite to any creditor enforcement action	SMP: statute applies only to a creditor who initiates/commences the proceeding; compulsory counterclaims are raised in an existing action and thus not covered	Court: § 654A.6(1) applies to creditors who file/commence an action; it does not bar compulsory counterclaims; district court had jurisdiction to adjudicate SMP’s counterclaim
Effect of failure to obtain mediation on subject-matter jurisdiction	Schaefers: failing to obtain release before foreclosure claim deprives court of subject-matter jurisdiction	SMP: not required because it did not initiate the proceeding; alternatively, voluntary mediation available to Schaefers	Court: statute makes mediation a jurisdictional prerequisite only when a creditor files an action that initiates a proceeding; not triggered by compulsory counterclaims
Whether the Schaefers’ delay/strategy affects their jurisdictional challenge	Schaefers: preserved right to attack jurisdiction even if raised late	SMP: challenge raised late and used as tactical device after trial	Court: noted plaintiffs’ tactical delay but decided issue on statutory interpretation; result stands because counterclaim did not initiate the suit

Key Cases Cited

Klinge v. Bentien, 725 N.W.2d 13 (Iowa 2006) (holding mediation requirement in chapter 654B is a jurisdictional prerequisite to filing an initiating civil action)
First Nat’l Bank in Lenox v. Heimke, 407 N.W.2d 344 (Iowa 1987) (discussing legislative intent behind farm-mediation statute to give relief to distressed farmers)
Prod. Credit Ass’n of the Midlands v. Shirley, 485 N.W.2d 469 (Iowa 1992) (explaining § 654A.6 stays proceedings until creditor obtains a mediation release)
Graham v. Baker, 447 N.W.2d 397 (Iowa 1989) (noting statute requires creditor request and participate in mediation)
Sky View Fin., Inc. v. Bellinger, 554 N.W.2d 694 (Iowa 1996) (defining when a claim is mature for purposes of compulsory counterclaims)