STATE оf Iowa ex rel. Thomas J. MILLER, Attorney General of Iowa, Appellant,
v.
CUTTY'S DES MOINES CAMPING CLUB, INC., Appellee.
Supreme Court of Iowa.
*520 Thomas J. Miller, Attorney General, and Kathleen Keest and Benjamin Bellus, Assistant Attorneys General, for appellant.
David A. Tank of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, for appellee.
STREIT, Justice.
A Des Moines area campground club waged a tough campaign to compel hundreds of ex-campers to pay it dues. The Attorney General, claiming the campground club was engaging in an "unfair practice" in violation of Iowa's Consumer Fraud Act, filed suit to stop the collection efforts. The district court dismissed the Attorney General's case on the campground club's motion for summary judgment, and the court of appeals affirmed. We conclude dismissal was not proper. We vacate the decision of the court of appeals, reverse thе district court judgment, and remand for further proceedings.
I. Facts and Prior Proceedings
A. The Development of the Campground
In 1980, Cutty's Incorporated ("the Developer") developed a private recreational vehicle park and campground resort ("campground") on approximately eighty acres of land near Des Moines. For six years, the Developer purported to sell "1/3000 undivided interests" in the property to prospective campers. Although we adopt the "undivided interests" terminology in the remainder of this opinion, we do not decide the precise nature of what the buyers actually purchased. Compare Kovach v. Erie Islands Resort & Marina,
*521 Each buyer paid the Developer between $3000 and $5700 for the "1/3000 undivided interest," depending upon whether the buyer paid the Developer up front or financed the purchase through an installment sales contract. The typical installment sales contract stated that upon payment in full, the Developer would deliver to the buyer a deed conveying title to the undivided interest as a tenant in common with all the owners of the other undivided interests.
The undivided interests were subject to a Declaration of Restrictions ("the Restrictions") on the campground property. The Restrictions, which the Developer recorded in 1980, were variously referred to as "covenants," "conditions," and "easements and cross-easements in fee." By their own terms, the Restrictions ran with the land. The Restrictions were "binding upon the present title holder[s] ... and their respective heirs, assigns, and successors...."
Ownership of an undivided interest gave the buyer access to the campground and use of the campground's amenities, which included an indoor pool, whirlpool, sauna, miniature golf course, tennis courts, various "play areas," and a fishing lake with paddle boats. Buyers did not own a specific campsite. Partition of the property was restricted, and some buyers' contracts prohibited them from recording their undivided interests. On the other hand, owners of undivided interests were permitted to sell, give, or devise them to others, so long as they paid a fee to a third party, Cutty's Des Moines Camping Club, Incorporated.
B. The Club
At the same time the Developer recorded the Restrictions and began selling undivided interests, it simultaneously created Cutty's Des Moines Camping Club, Incorporated ("the Club"). The Club was set up to managе and operate the campground. It also had the sole power to assess, collect, enforce, and spend dues for the benefit of the property.
The Club claims the purchase of an undivided interest automatically made a buyer a member of the Club and obligated the buyer, as well as the buyer's grantees and heirs, to pay the Club dues each year for the upkeep of the property.[1] Dues were also necessary because the Restrictions required the Club to pay all property taxes levied on the campground.
The Restrictions and the Club's bylaws contemplated various measures for members who did not pay their annual dues. The Restrictions stated those who did not pay their dues were personally liable for failing to do so. The Restrictions also stated that unpaid dues "shall be a lien upon said Membership and Undivided Interest until paid." Lastly, the Restrictions *522 granted the Club the right to purchase an undivided interest at a discounted price if a membership were "terminated" for failing to pay dues. The Club, however, has never perfected a lien upon an undivided interest and has not purchased a "terminated" member's interest.
The Club's bylaws outlined a more specific procedure for addressing the nonpayment of dues. The bylaws stated that if a member did not pay his dues, the Club was required to notify him that he was a "delinquent member." Upon certification to the Club's five-member Board of Directors that a member was delinquent
by a majority vote of the Board of Directors, such member may be suspended from Membership in the Club. Any voting member so suspended shall not be entitled to vote [or] use Club facilities.... The Membership of any member who remains suspended for a period of six (6) months shall be automatically terminated....
Elsewhere, the bylaws stated that
[t]ermination of a Voting Membership shall constitute a forfeiture, abandonment, surrender, release and relinquishment of all interest of such terminated voting member ... in and to the Club and its Property, and such terminated member shall ... have no rights thereto or therein unless reinstated by the Board of Directors.
The Club did not send out "delinquent member" notices as required in its bylaws. Nor did it ever avail itself of this termination procedure.[2] The Club's longtime manager testified the Club has not terminated anyone's undivided interest in decades, if ever.
In the early to mid-1980s, the Developer sold 2100 of the 3000 undivided interests it had created. In 1986, the Developer stopped selling undivided interests. Today the Developer retains 900. The Club owns another 400 undivided interests. (The Club received most of these interests from former members.) Should the campground ever be sold, proceeds will be divided proportionately based upon the number of undivided interests owned.
Dues are not insignificant. Although in 1980 the dues were $96 per year, today they are nearly $400 per year. For reasons that are not clear in the record, the Developer does not pay dues. The Club's 400 shares do not pay dues, either.
A five-member Board of Directors runs the Club. The Developer controls the Board. (In another lawsuit in California, the owner of the Developer conceded he controlled the Des Moines Club.) Although each owner of an undivided interest is entitled to one "voting membership" in the Club, every election the Developer votes its block of 900 shares by proxy. Because the Club holds 400 non-voting shares and many individual campers do not or cannot vote, the Board is perpetually run by three directors nominated by the Developer. These three Board Members, one of whom is the Developer's owner, live out-of-state and rarely, if ever, visit the campground. Two local campers round out the remaining seats on the Board.
C. The Collection Campaign
In October 2001, the Club initiated an aggressive collection campaign against owners of undivided interests who had not paid their dues over the years. Many of the owners targeted by the campaign had *523 never visited the campground or stopped using it long ago. They stopped paying dues anywhere from four to sixteen years ago, and some heard nothing after they quit paying. Matters of proof were complicated by the fact that a fire in 2000 destroyed the vast majority of the Club's records including copies of dues statements it claims it sent to owners.
The Club maintained the purchase of an undivided interest obligated the buyer to pay annual club dues for life, unless the buyer found someone to purchase (or accept as a gift or devise) the undivided interest. Although some owners have managed to dispose of their undivided interests over the years, others have not been able to do so. At least one owner found a buyer only to have the Club prevent him from selling it; there is also evidence the Club has waged a campaign to stop "cheap membership sales" so as not to bring "undesirable" owners to the RV park and campground. Some owners have tried to give their undivided interests to the Club for free, but the Club would not accept them.[3]
Some owners of undivided interests who purchased from another owner in a resale (as opposed to directly from the Developer) claim they were never told by their seller they could not cancel their memberships and were not provided the documents other owners received that allegedly spelled out their purported obligations. At least one ex-camper, however, claims her undivided interest was "terminated" only to have the Club later seek payment for dues that accrued after that date.
The collection campaign began with an amnesty program. The Club briefly offered to settle some of its claims against certain buyers (some of which were alleged to owe as much as $4000 in unpaid dues) if the buyer paid the Club $350 within thirty days. In exchange for payment, the Club would forgive all past dues and accept a quitclaim deed for the undivided interest, thus canceling all alleged future obligations. Some buyers took advantage of this program, others did not. Not all buyers received notice of the amnesty program.
The Club then sued buyers who still owed dues. The record contains a number of small-claims decisions and appeals in which the Club obtained judgments against owners of undivided intеrests. The judgments were almost uniformly grounded on the theory that the owner of an undivided interest subject to the Restrictions was akin to an owner of a condominium with a covenant. On this theory, Club members, like condominium owners, had to pay dues to support the common areas and, in the case of the owners of undivided interests, a share of the property taxes for the entire project; in either case, the landowner is subject to a covenant that runs with the land. After judgments were obtained, the Club garnished the wages and bank accounts of owners.
D. The Consumer Fraud Lawsuit
In late 2002, the Attorney General, on behalf of the State of Iowa, filed a lawsuit against the Club alleging it had engaged in "unfair practices" in violation of the Iowa Consumer Fraud Act. See Iowa Code *524 § 714.16(2)(a) (2001). The State sought injunctive relief, rеimbursement, and a civil penalty, as well as investigative and attorneys' fees. See id. § 714.16(7), (11). The Club filed a motion for summary judgment. The Club argued the Consumer Fraud Act did not apply to this case, and, in any event, it had not engaged in an unfair practice.
The district court granted the Club's motion for summary judgment.[4] The court reasoned the case was "at its heart a dispute between dues-paying members and nonpaying members of a nonprofit corporation." The court ruled the Act did not apply absent a buyer-seller relationship between the consumer and the defendant. Even if the statute did apply, the court further held there was no "unfair practice" because there was no evidence of unavoidable injury. The court found it was undisputed that an owner's interest could "be sold, willed or given away at any time," and therefore the consumer could avoid the obligation to pay dues in the future. The State appealed.
The court of appeals affirmed, albeit for a different reason. The court held the Act did not apply because "no sale is implicated in the matters complained of here"; the State, it reasoned, was only complaining about "later conduct that is unrelated to the sale." The State sought further review, which we granted.
II. Principles of Review
Actions brought under the Consumer Fraud Act are tried in equity, Iowa Code § 714.16(7), so our review on appeal is ordinarily de novo. See, e.g., State ex rel. Miller v. New Womyn, Inc.,
Summary judgment is proper only if the record shows there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. We view the record in a light most favorable to the nonmoving party and indulge in every legitimate inference that the evidence will bear in an effort to ascertain the existence of a fact question.
Id. at 247-48 (citations and internal quotation omitted).
The State has the burden to prove violations of the Iowa Consumer Fraud Act by a preponderance of clear, convincing, and satisfactory evidence. State ex rel. Miller v. Pace,
III. The Merits: The Iowa Consumer Fraud Act
A. General Principles
The Iowa Consumer Fraud Act deems a variety of bad business practices unlawful. For the purposes of this appeal, an unlawful practice is defined as
[t]he act, use or employment by a person of an unfair practice.... in connection with the ... sale ... of any merchandise....
Id. § 714.16(2)(a). This same section of the Code defines "merchandise" broadly as including "any ... real estate or services." Id. § 714.16(1)(i). Although this definition of "merchandise" is counterintuitive, *525 see Black's Law Dictionary 1008 (8th ed.2004), "the legislature may be its own lexicographer." State ex rel. Turner v. Koscot Interplanetary, Inc.,
What is an "unfair practice"? On its face the term is dizzying in its generality. Guidance can be found, however, in the decisions of other states and in the definitional portion of thе statute. Other courts have pointed out that an unfair practice is nothing more than conduct "a court of equity would consider unfair." S. Atl. P'ship v. Riese,
an act or practice which causes substantial, unavoidable injury to consumers that is not outweighed by any consumer or competitive benefits which the practice produces.
Id. § 714.16(1)(n); cf. 15 U.S.C. § 45(n) (2000) (a practice is unfair if it "causes or is likely to cаuse substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition"). Determining what constitutes an unfair practice is a "highly fact-specific inquiry" that will depend upon the circumstances of each case. See Riese,
At the Club's urging, the courts below have offered three primary reasons why the merits of this lawsuit should not be heard and summary judgment should be granted in favor of the Club as a matter of law. The Iowa Consumer Fraud Act, it was contended, does not regulate the collection camрaign because (1) it is unrelated activity occurring after the sale; (2) the campers did not suffer unavoidable injury; and (3) the Club did not sell the undivided interests. We now examine each of these issues in turn. See Smith v. Shagnasty's Inc.,
B. The Act May Regulate Conduct Occurring After the Sale
The court of appeals held the Iowa Consumer Fraud Act did not regulate the Club's collection campaign because the campaign was "later conduct ... unrelated to the sale." Because the Club's collection campaign may be found to be "an unfair practice... in connection with the ... sale ... of ... merchandise," Iowa Code § 714.16(2)(a), we vacate the court of appeals' decision.
1. Defining "In Connection With" for Purposes of the Act
The Act does not define the phrase "in connection with." As a threshold matter, however, we point out that nothing in *526 the Act places a bright-line temporal limit upon the Act's purview, as the Club contends. The Act merely requires the activity be "in connection with," not "prior to" or "at the time of," the sale of the merchandise. Nothing in the phrase "in connection with" constrains the Act's scope to only those business practices occurring prior to or at the time of the sale. The legislature did not limit the Act in this way for a good reason:
The definitions presented in the Iowa Consumer Fraud Act are broad and comprehensive in order to effect the wide application of the Act.... These broad general definitional guidelines ensure the application of the Act in a wide variety of circumstances.
Note, Consumer Protection Under the Iowa Consumer Fraud Act, 54 Iowa L.Rev. 319, 325 (1968) [hereinafter ICFA Article]; cf. Am. Fin. Servs. Ass'n v. FTC,
In the absence of a legislative definition, we note that the phrase "in connection with" is commonly defined as "related to, linked to, or associated with." Metro. Prop. & Cas. Ins. Co. v. Fitchburg Mut. Ins. Co.,
Other courts have recognized that post-sale conduct may be "in connection with the sale of merchandise." See, e.g., Lony v. E.I. du Pont de Nemours & Co.,
"[D]eceptive and unfair practices are distinct lines of inquiry.... [W]hile a practice may be both deceptive and unfair, it may be unfair without being deceptive." Orkin Exterminating Co. v. FTC,
[d]eception occurs primarily (though not exclusively) at the formation stage of the contract. Conversely, unfairness occurs primarily (though not exclusively), with respect to the substance or performance of a contract.
Michael M. Greenfield, Consumеr Law: A Guide for Those Who Represent Sellers, Lenders and Consumers § 4.1, at 161 (1995). Were we to interpret the phrase "in connection with" as containing an implicit per se rule barring all post-sale activity from the ambit of the Act simply because other courts have interpreted statutes which are directed only at fraudulent practices in such a manner would ignore the plain language of the Iowa statute and thereby eviscerate much of the statute's protection against unfair practices. We will not do so. Once again, the legislature chose broad language for a good reason, and we are compelled to interpret the statute as written.
The foregoing interpretation of the phrase "in connection with" is alsо consistent with prior precedent in this state. In Stromberg Hatchery v. Iowa Employment Security Commission, we were asked to decide whether, for purposes of Iowa's unemployment statute, hatchery employees who were not engaged in the manual process of incubating chicks were performing "agricultural labor."
2. Application of the Facts
The difficult factual question posed in this case is whether the Club's collection campaign, itself admittedly post-sale conduct, is an unfair practice "in connection with" the sale of merchandise. Viewed in a light most favorable to the State of Iowa, we conclude the summary judgment record before us may show one. The State should get its day in court.
A trier of fact could find a nexus between the Developer's sales of the undivided interests in the early 1980s and the Club's collection campaign today. For example, a trier of fact could find the Developer established this entire elaborate arrangement, including continued control over the Club, from the outset to the substantial detriment of consumers. There is evidence in the record the Developer conceived, created, and has retained control over the Club throughout the years to the present day.[5] On this theory of the case, the Club is nothing more than the present-day operating arm of the Developer.
The Developer retains control over the Club because the Developer stopped selling undivided interests in 1986. Later the Developer solidified its control of the Club when the Club, presumаbly at the Developer's direction, started buying them up. By virtue of its controlling share, the Developer is able to maintain a sizeable interest in real estate free of property tax. All property taxes and improvements upon the property are paid for by the owners of all the other undivided interests. In doing so, the Developer and Club have reduced the number of dues-paying interests, thereby increasing proportionally the costs those that did buy must bear. A trier of fact may view this as unfair and in connection with the sale. Importantly, a trier of fact could find that at the time the consumers bought the shares they had every reason to believe all shares would be sold, or at least that any shares the Developer or the Club owned would be dues-paying shares. The documents the consumers received at the time of the sale apparently contemplated as much. In other words, a trier of fact could find the Developer and the Club have a duty to use good-faith efforts to sell their undivided interests. As matters stand, however, the Developer does not pay the Club dues and the Club, controlled by the Developer, does not require the Developer to pay them.
Even if the trier of fact were to take a narrower view, it could find the Club's collection campaign constitutes an unfair practice in connection with the sale of the undivided interest. The connection between the sale and the collection campaign is plain. All the Club's alleged rights vested *529 at the time of the sale and continue to this day on account of that transaction. See Hines,
Our decision today does not mean the Iowa Consumer Fraud Act grants the attorney general broad authority to police bad bargains. We have no quarrel with the fact some campers entered into bad bargains, insofar as they paid thousands of dollars for a small slice of a campground they rarely or never used. See Walker v. Gribble,
C. Unavoidable Injury
The district court determined there was no "unfair practice" because there was no evidence of unavoidable injury. See Iowa Code § 714.16(1)(n) (requiring *530 showing of unavoidable injury). The court found it was undisputed an owner's interest could be "sold, willed or given away at any time," thereby avoiding the obligation to pay any dues in the future.
We disagree and find there is evidence in this summary judgment record that the Club's unfair practice caused unavoidable consumer injury. Contrary to the district court, we find it is not undisputed that all consumers could sell their undivided interests. Moreover, the Club's actions may have had the effect of reducing the price the consumers might otherwise have received for their undivided interests; the Club apparently took active efforts to stop sales. The Club's amnesty program did not forestall substantial injury. Not all owners received the amnesty letters and, in any event, amnesty came with a significant price tag.
A trier of fact could also find consumer injury was unavoidable because the Club and the Developer, acting in concert with one another at the time of the initial transaction, used ambiguous documents to lure unwitting consumers into ownership of what are, in the Club's view, the equivalent of lifetime contracts. Similarly, a trier of fact may find consumers would not have anticipated that the Developer and the Club, again working together, would stop selling undivided interests and actively attempt to accumulate them thereby unfairly reducing the number of dues-paying interests, and thus increasing, proportionally, the costs those who did buy must bear. If it is shown that thе Developer and the Club created the circumstances that led to consumers purchasing 1/3000 undivided interests on the belief that all interests would be sold, a trier of fact could find all holders of undivided interests have suffered an unavoidable injury because the number of dues-paying shares was unfairly reduced.
Unavoidable injury is particularly acute for ex-campers. While the Club sat on its rights and slept, dues increased nearly fourfold and mounted exponentially without the knowledge of the ex-campers, who had long since abandoned the campground. For example, had the Club diligently pursued its rights and begun its collection campaign earlier, Club members may have sold their interests or used the facilities. An analysis that focuses solely on the fact the ex-cаmpers can now sell their interests misses the mark. Even if we were to assume there is a market for the undivided interests, the sale of the interests does not allow the owners to avoid the injuries they have already suffered on account of the Club's delay in prosecution of its alleged claim. As matters stand now a trier of fact could find this delay has "so operated that it will be impossible to place the parties in status quo and enforcement of the [Club's] right would work inequity." Cf. Chadek v. Alberhasky,
D. The Act Does Not Only Apply to Sellers of Merchandise
The district court ruled that because the Developer, and not the Club, sold the undivided interests, the Act could not regulate the Club's collection campaign. We disagree. Even if we were to assume that the Club is not the "sellеr" of the merchandise (our earlier discussion shows why we should not on the facts of this case), we do not take such a narrow view of the statute. The statute simply states "[t]he act, use or employment by a person of an unfair practice ... in connection with the ... sale ... of any merchandise ... is an unlawful practice." Iowa Code § 714.16(2)(a) (emphasis added). The term "person" is a general one that is not on its face limited to sellers, and we *531 see no reason to read such a limitation into the statute. As we recently pointed out, the Act
defines "person" broadly:.... "The term `person' includes any natural person or the person's legal representative, partnership, corporation ..., company, ... [or] business entity or association...."
New Womyn,
IV. Conclusion
The Iowa Consumer Fraud Act may regulate post-sale conduct. A trier of fact should decide whether the Club has engaged in an "unfair practice." Nor does the Act only apply to sellers of merchandise. Dismissal on the Club's motion for summary judgment was not proper.
DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT REVERSED; CASE REMANDED FOR FURTHER PROCEEDINGS.
All justices concur except CARTER and TERNUS, JJ., who dissent.
CARTER, Justice (dissenting).
I dissent.
Perhaps the individual members who have failed to pay the prescribed dues can show a right to equitable relief from that obligation on some legal theory other than Iowa Code section 714.16(2)(a) (2001), but the action that has been brought by the attorney general based on that statute was properly rejected by the district court and the court of appeals.
The statute on which the attorney general's claims are based provides:
The act, use or employment by a person of an unfair practice, deception, fraud, false pretense, false promise, or misrepresentation, or the concealment, suppression, or omissiоn of a material fact with intent that others rely upon the concealment, suppression, or omission, in connection with the lease, sale, or advertisement of any merchandise or the solicitation of contributions for charitable purposes, whether or not a person has in fact been misled, deceived, or damaged, is an unlawful practice.
Iowa Code § 714.16(2)(a) (emphasis added). The key words are "in connection with the lease, sale, or advertisement of any merchandise or the solicitation of contributions for charitable purposes." These words limit the situations in which deceptive practices constitute a violation of the act.
Although I agree with the attorney general's argument that there may be instances in which events оccurring subsequent to the sale or lease of merchandise are so preordained by the sale or lease transaction that they warrant action under section 714.16(2)(a), this is not such a situation. The collection efforts alleged to be improper were prompted by an unanticipated shortfall in dues collections that occurred *532 long after any sale. The collections were undertaken to enable the alleged victims' fellow subscribers to reap the benefit of their bargain. This attempt at collection of monies owed by defaulting members was clearly not undertaken in connection with any sale of merchandise, as required by section 714.16(2)(a).
I would affirm the decision of the court of appeals and the judgment of the district court.
TERNUS, J., joins this dissent.
NOTES
Notes
[1] Some of the legal instruments upon which the Club has relied to support this assertion are somewhat ambiguous. For example, the typical installment sales contract stated:
By virtue of Buyer's ownership of the undivided interest ..., Buyer is eligible for membership in the Club. Buyer agrees to pay to the Club when due, all dues and assessments required by or pursuant to the Bylaws of the Club, or the Declaration [of Restrictions]. (Emphasis added.) Likewise, the Restrictions opaquely stated each buyer would automatically become a member of the Club upon receipt of payment and approval of his or her application for membership by an officer of [the Developer]. (Emphasis added.) On the other hand, elsewhere the Restrictions, as well as the Club's bylaws, plаinly mandated that
[t]he acceptance of a membership or Undivided Interest shall constitute an agreement that these Restrictions, the Bylaws and the Rules and Regulations ... are accepted, ratified and will be complied with.
(Emphasis added.)
[2] Although it appears a member must be suspended before termination occurs, another provision in the Club's bylaws implies that termination automatically occurs upon nonpayment of dues. That provision provides that "[v]oting Membership in the Club of any member shall terminate when a member ... [f]ails to pay his dues or assessments...."
[3] There is also evidence the Developer offered certain owners a "buy back program" at the time of the sale of the undivided interest. The Developer agreed to buy the undivided interest back at a discount, but only if its owner complied with а list of obligations over a seven-year period and then, within a specific thirty-day period, notified the Developer of the wish to do so. At least one owner called the Club to sell her undivided interest shortly in advance of the requisite buy-back period, but the Club did not buy her interest or remind her of this provision in the sales contract.
[4] The court also denied the Attorney General's request for a preliminary injunction. This ruling was not appealed.
[5] At this stage in the proceedings, today's Club should not be viewed in legal isolation from the Developer; pulling back the sheets, a trier of fact may yet find the Developer and the Club in bed together.
[6] We do not mean to suggest that any particular equitable doctrine is a valid defense for individual owners in their small-claims cases; those cases must be considered on their own merits and the doctrine must be carefully construed, where applicable. Here we only draw an analogy to show the Club's delayed collection campaign was arguably not equitable and therefore an "unfair practice" under the Iowa Consumer Fraud Act.
[7] We make no attempt to comprehensively define the parameters of the doctrine of unfair practices at this stage of the proceedings. As the matter progresses to trial, the evidence as developed may show an unfair practice in some other respect. Cf. Estate of Countryman v. Farmers Co-op. Ass'n,