On December 22, 2017, the Iowa Supreme Court issued a decision in a rare type of case involving the civil remedies available under Iowa's Ongoing Criminal Conduct Act, Iowa Code 706A.2(5). That section is unique in the United States. No other state has such a law.
The case, Westco Agronomy Company v. Wollesen, arose out of a complex series of transactions involving an agricultural cooperative, a large customer of the cooperative, and a dishonest salesman. West Central Cooperative is an agricultural cooperative owned by farmers. Westco Agronomy Co., L.L.C. is a wholly-owned subsidiary of West Central formed for the purpose of streamlining delivery of agronomy products, including seed, fertilizer, and chemicals. The Wollesens farm in Lake View. They are members of Westco. In 2005, their Westco sales representative was Chad Hartzler.
The trouble arose because Hartzler began running an illegal scheme, the nature of which differed depending upon which person was asked. Hartzler claimed that Wollesen bribed him in exchange for cheaper soybeans. Wollesen denied ever bribing Hartzler.
For the next several years until 2011, the Wollesens purchased seed, fertilizer, and chemicals from Westco at what they understood to be very reduced prices while continuing to also make direct payments to Hartzler. The Wollesens asserted that their direct payments to Hartzler were on Hartzler’s instruction as “commission” for his sales and that the reduced prices were not suspect because Hartzler touted himself as “the deal maker.”
To conceal from Westco his low-price sales to the Wollesens, Hartzler input higher prices into the sales system than he actually charged the Wollesens. As a result, Westco consistently billed the Wollesens more than the Wollesens actually paid. The effect was a growing deficit in the Wollesens’ account on Westco’s books. Although Westco maintained that it sent regular bills to the Wollesens based upon the higher prices reflected on its own books, the Wollesens generally denied having received the statements and later suggested Hartzler had intercepted them.
Hartzler resigned from Westco in 2011. As part of his resignation he confessed to the scheme he'd been running with the Wollesens' product. Hartzler revealed that he had accepted direct payments from the Wollesens in exchange for lower prices on Westco products.
In 2013, Hartzler was charged with wire fraud in federal court. The government alleged that Hartzler had engaged in a scheme with Bill Wollesen to defraud Westco. Hartzler pled guilty and was sentenced to fifty-one months in prison. None of the Wollesens were charged.
Westco and the Wollesens blamed each other for Hartzler’s scheme. Westco argued that the Wollesens bribed Hartzler repeatedly over a period of years to obtain prices below Westco’s own costs. The Wollesens argued that Westco should have been aware of Hartzler’s scheme and that they were the ones harmed by it.
The competing accusations resulted in a lawsuit in which Westco and the Wollesens made claims against each other. The Woolesens' claims against Westco included an allegation under Iowa Code 706A.2(5). The issue on appeal was whether Iowa Code 706A.2(5) was constitutional. That law states that "[i[t is unlawful for a person to negligently allow property owned or controlled by the person or services provided by the person, other than legal services, to be used to facilitate specified unlawful activity, whether by entrustment, loan, rent, lease, bailment, or otherwise." Numerous civil remedies, including money damages, are available if a violation of 706A.2(5) is proved.
Questions concerning 706A.2(5)'s constitutionality arose because of a portion of it that shifts the burden of proof to the defendant: "The defendant shall have the burden of proof by a preponderance of the evidence as to circumstances constituting lack of negligence and on the limitations on damages in this subsection." The general rule is that such a presumption in a civil case violates the Due Process Clause of the United States Constitution and the Iowa Constitution if it is arbitrary or operates to deny a fair opportunity to rebut it. The Iowa Supreme Court concluded that 706A.2(5)'s requirement that defendants disprove that they were negligent violated the Due Process Clause of the United States Constitution and the Iowa Constitution and was thus unconstitutional.
Even though the court determined that the burden-shifting portion of 706A.2(5) was unconstitutional, it did not invalidate the entire section. Without the burden-shifting presumption, the standard of proof under 706A.2(5) is what's usually found in the law -- The plaintiff has the burden of proving the defendant's negligence and the damages caused by that negligence. Thus the rest of the statute survived and would be available to parties like the Wollesens', but without the benefit of the section that shifted the burden to defendants to prove that they were not negligent.