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IN THE COURT OF APPEALS OF IOWA No. 1-575 / 10-1754 Filed December 21, 2011

PENFORD PRODUCTS CO., Plaintiff-Appellee, vs. C.J. SCHNEIDER ENGINEERING CO., INC., n/k/a PRAJ SCHNEIDER, Defendant, and LEXINGTON INSURANCE COMPANY, Intervenor-Appellant. ________________________________________________________________ Appeal from the Iowa District Court for Linn County, Robert E. Sosalla, Judge.

Lexington Insurance Company appeals from the district court's denial of its motion to dismiss. AFFIRMED.

Don R. Sampen, Edward M. Kay, Kimbley A. Kearney, and Ilene M. Korey of Clausen Miller, P.C., Chicago, Illinois, and William P. Rector of Bozeman, Neighbour, Patton & Noe, L.L.P., Moline, Illinois, for appellant. Roger W. Stone and Mark A. Roberts of Simmons, Perrine, Moyer & Bergman, P.L.C., Cedar Rapids, for appellee.

Heard by Vogel, P.J., and Potterfield and Danilson, JJ.

2 VOGEL, P.J. I. Background Facts and Proceedings. Penford Products Company (Penford) entered into a contract with C.J. Schneider Engineering Company, Inc. (CJS) for professional services related to the design and construction of an ethanol plant in Cedar Rapids. Penford and CJS's contract provided that all disputes between the parties would be sett led by arbitration, which was later invoked when Penford filed a demand for arbitration asserting claims relating to an alleged defective design of the plant. CJS

tendered its defense to Lexington Insurance Company (Lexington), which had issued a professional liability policy to CJS.1 Lexington claimed there was no coverage under a liability policy and refused to defend CJS. On December 7, 2009, Penford and CJS entered into an Assignment of Cause of Action and Settlement Agreement, in which CJS assigned its rights against Lexington to Penford. On December 14, 2008, an arbitration award was issued in favor of Penford and against CJS in the amount of $7,075,000. On December 28, 2009, Penford filed a petition to confirm the arbitration award in district court. On February 23, 2010, the district court entered judgment in favor of Penford and against CJS in the amount of $7,075,000. In order to collect on the judgment, Penford commenced garnishment proceedings. See Iowa Code ch. 642 (2009) (Garnishment). Penford served a notice of In its answers to the

garnishment and interrogatories on Lexington.

interrogatories, Lexington denied that it was indebted to or had in its possession

1

The policy was issued to Praj Schneider, Inc., which stated it had purchased

CJS.

3 any property of the judgment-debtor (CJS). On April 21, 2010, Penford filed a pleading controverting the garnishee's answers and a jury demand . controverted the following questions: a. "Are you indebted to the Judgment Debtor, or do you owe him money or property which is not yet due?" Garnishee's answer: "No." b. "Do you have in your possession or control any property, rights or credit of the Judgment Debtor?" Garnishee's answer: "No." c. "Do you know of any debts owing the Judgment Debtor, due or not due; or any property, rights or Credits belonging to him and now in the possession or under the control of other?" Garnishee's answer: "No." d. "Do you deny that claim . . . number 030 -264076 is covered under policy number 1205820?" Garnishee's answer: "Yes." e. "With regard to claim number 030-264076 under policy number 1205820, do you claim you owe defendant (Praj Schneider) any sum or obligations arising from this claim?" Garnishee's answer: "No." Penford "contend[ed] the Garnishee [Lexington] was indebted to [the Judgment Debtor] CJS pursuant to the Policy." Lexington answered, denying it was It

indebted to CJS and asserting various defenses. On June 9, 2010, Lexington filed a motion to dismiss, or to stay proceedings and compel arbitration. Lexington denied that Penford's defectivedesign claims against CJS were covered by the policy that Lexington had issued to CJS. It also argued that because there was a disagreement over the

interpretation of the policy and the contract between CJS and Lexington provided for such a disagreement to be submitted to arbitration, Penford was required to arbitrate the dispute of whether the policy provided coverage for Penford's claims against CJS. Subsequently, Penford resisted Lexington's motion and filed a

motion to stay arbitration. A hearing was held in August 2010. On September

4 29, 2010, the district court issued its ruling. It found there was no privity between Penford and Lexington that would require Penford to arbitrate with Lexington. Therefore, the court denied Lexington's motion to dismiss, or stay and compel arbitration. Because of its ruling, the district court found Penford's motion was moot. Lexington appeals. See Iowa Code

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