Tracy Barkalow, TSB Holdings, LLC, and Big Ten Property Management LLC, Appellees/Cross-Appellants v. Bryan Clark and Jeffrey Clark, Joseph Clark ( 2021 )


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  •                  IN THE SUPREME COURT OF IOWA
    No. 19–1790
    Submitted April 14, 2021—Filed May 14, 2021
    TRACY BARKALOW, TSB HOLDINGS, LLC, and BIG TEN PROPERTY
    MANAGEMENT, LLC,
    Appellees/Cross-Appellants,
    vs.
    BRYAN CLARK and JEFFREY CLARK,
    Appellants/Cross-Appellees,
    and
    JOSEPH CLARK,
    Appellee/Cross-Appellee.
    Appeal from the Iowa District Court for Johnson County, Paul D.
    Miller, Judge.
    Two members of a limited liability company appeal an order
    judicially dissolving the LLC, while a third member cross-appeals the
    dismissal of his claims alleging oppression and breach of fiduciary duty.
    AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
    Mansfield, J., delivered the opinion of the court, in which all
    participating justices joined. Oxley, J., took no part in the consideration
    or decision of the case.
    Kevin J. Caster (argued) and Laurie L. Dawley of Shuttleworth &
    Ingersoll, P.L.C., Coralville, for appellants/cross-appellees.
    2
    William W. Graham and Wesley T. Graham (argued) of Duncan
    Green, P.C., Des Moines, for appellees/cross-appellants.
    John E. Beasley (argued) and William N. Toomey of Phelan Tucker
    Law LLP, Iowa City, for appellee/cross-appellee.
    3
    MANSFIELD, Justice.
    Hawkeye fans attending football games at Kinnick Stadium may
    sometimes wonder, “Who owns those houses along Melrose Avenue near
    the stadium? They must be pretty valuable.” Some of them, it turns out,
    belong   to   the   limited   liability   company    involved   in   this   case.
    Unfortunately, the members in this LLC seem to have spent more time
    squabbling than enjoying the fruits of their wise investment. Claims and
    counterclaims led to a trial in the Johnson County District Court. After
    the trial, the district court entered an order resolving all claims and
    decreeing dissolution of the LLC.
    The case now comes to us on appeal. For the most part, we conclude
    that the district court properly adjudicated the parties’ rights. However,
    we determine that the court erred in ordering dissolution of the LLC. The
    court failed to give itself credit for having resolved the major controversies
    in the LLC. The LLC can continue to operate profitably, without deadlock,
    and in accordance with its certificate of organization and its operating
    agreement. Dissolution is not needed because it is “reasonably practicable
    to carry on the company’s activities in conformity with the certificate of
    organization and the operating agreement.”          
    Iowa Code § 489.701
    (d)(2)
    (2017). For these reasons, we affirm the judgment of the district court,
    except to the extent it ordered judicial dissolution and, as part of
    dissolution, reclassification of member capital contributions as debt. On
    this point, we reverse the district court.
    I. Facts and Procedural History.
    This case concerns an LLC named Outside Properties. Founded in
    2009 by three brothers and a brother-in-law, the LLC came to own seven
    rental properties, several of them quite near to the University of Iowa
    football stadium.
    4
    A. Formation of the LLC (2009).              Tracy Barkalow has been
    involved in real estate since leaving school. He is the sole owner of two
    companies: Big Ten Property Management, a property management
    company, and TSB Holdings, which owns apartment buildings.
    In August 2009, Barkalow had the opportunity to purchase a rental
    property on Melrose Avenue in Iowa City, but he lacked the required cash.
    He asked Bryan Clark to lend it to him. Bryan was married to the sister
    of Barkalow’s wife, so Barkalow knew him socially and they had a good
    relationship. Barkalow also knew Bryan’s brother Jeff, who was married
    to another sister of Barkalow’s and Bryan’s spouses. Bryan and Jeff had
    supported Barkalow’s borrowing in the past by cosigning loans for him.1
    After holding discussions, Barkalow, Bryan, Jeff, and a third Clark
    brother (Joe) decided to form an LLC to acquire the Melrose Avenue
    property. The LLC became known as Outside Properties. The plan was
    for each of the four to put in $37,500 to cover the $150,000 down payment
    on the property. Because an initial $14,000 installment payment was also
    required, the total capital contribution from each member came to
    $41,000. Barkalow didn’t have the funds for his share, so the Clarks
    loaned it to him on a verbal agreement.
    According to the certificate of organization, the purpose of Outside
    Properties was primarily “to invest in real estate holdings.” Under the
    heading “Additional Liability of Members,” the certificate of organization
    stated, “[N]o additional capital contributions will be required.”            The
    certificate also stated that the members (or managers elected by them)
    would conduct the business of the company and that “[t]he return of
    1Because     this case involves three Clark brothers, we shall refer to them
    individually by their first names.
    5
    capital and the distribution of profits shall be determined from the
    company’s books.”
    Each of the four members also received a management certificate
    which vested the member with a 25% ownership interest but also said,
    The stated capital contribution and proportionate equity
    interest is subject to change and is reflected in the books and
    records of the company that are prepared and kept in
    accordance with the Certificate of Organization and all
    Operating Agreements as may be in force from time to time.
    The operating agreement generally provided for each member to
    have a single vote on management issues.         However, it contained a
    “demand” rule, under which any member could demand that “voting on a
    particular issue shall be in proportion to the capital contributions of each
    member to the company, as adjusted from time to time to reflect any
    additional contributions or withdraw[al]s.” The quorum was also based on
    “a majority of the equity interests, as determined by the capital
    contribution of each member as reflected on the books of the company.”
    The operating agreement required unanimous agreement for the
    distribution of profits.
    B. Expansion of the LLC (2010–11).              Over time, Outside
    Properties acquired six other rental properties in Iowa City. Most of the
    properties were located near Kinnick Stadium.         To cover the down
    payments, the Clarks loaned money to Outside Properties.         Either the
    seller, a bank, or the Clarks financed the remaining balance. Thus, in
    2010, Outside Properties acquired three properties from Ellis Shultz in
    2010 for a total of $1.2 million, with $1,080,000 financed by Shultz. The
    loan provided for a balloon payment due to seller on December 1, 2015.
    The four members performed different roles in the LLC. Barkalow
    provided the day-to-day management of the seven rental properties, which
    6
    together encompassed eleven rental units. Bryan performed maintenance.
    Jeff did some remodeling. Joe was more of an investor. The Clarks were
    responsible   for   arranging   financing   because   Barkalow’s   financial
    resources were limited during much of this time. As Barkalow put it, “It
    was kind of a team effort up to a point on how to get things done.”
    Barkalow, Bryan, and Jeff and their respective sister–spouses also
    socialized together during the 2009 through 2013 time period. They took
    vacations together. Joe was less involved in this social circle.
    In 2010, the members agreed to amend the operating agreement for
    estate tax planning purposes.     Under this amendment, two classes of
    interests were created. The interests of Barkalow, Bryan, Jeff, and Joe
    were recognized as Class A voting interests. However, each was given the
    ability to transfer units to family members who would then become
    nonvoting Class B members.
    After this amendment took effect, Bryan, Jeff, and Joe transferred
    Class A units to their respective children. This reduced each of the Clark
    brothers’ interests in Outside Properties to 11%, while providing each set
    of children with a 14% (nonvoting) interest.
    C. Disagreements Among Members (2013–15).               In 2013, the
    relationship between Barkalow, on the one hand, and Bryan and Jeff, on
    the other, began to deteriorate. Barkalow claimed he had always had an
    oral agreement to buy the entire company at a fee to be set by the Clarks,
    which the brothers denied. Bryan and Jeff were tired of having their funds
    tied up in various loans to Barkalow that he used to sustain his other
    property investments. Also, Barkalow began to question the validity of the
    Clark loans to Outside Properties, taking the position, “no note, no
    mortgage, no payment.”      In 2014, Outside Properties stopped making
    7
    payments on the Clark loans.2 Barkalow also unilaterally halted efforts by
    the LLC to obtain bank financing to replace the Clark loans. Furthermore,
    without approval of the other members, Barkalow arranged for some
    electronic payments totaling $8,000 to be made to Big Ten for management
    fees.    Additionally, Barkalow had never paid for his initial capital
    contribution in Outside Properties, and did not do so until September
    2016.
    Joe avoided these disputes and tried to be a peacemaker between
    his brothers and Barkalow. Yet, the dissension only mounted. Another
    bone of contention was Barkalow’s assertion that each of the Clark
    brothers had reduced his ultimate voting power to 11% by transferring
    interests to his respective children.3
    D. The Disputed Capital Contributions (December 2015–July
    2016). The Shultz balloon payment was due on December 1, 2015, and
    Barkalow refused to cooperate in arranging outside financing to pay off
    Shultz. Shultz was only willing to agree to a minimal extension of the due
    date to December 9. Bryan, Jeff, and Joe did not want to go into default.
    All four members met on December 7 and were unable to resolve their
    differences.
    Accordingly, Bryan, Jeff, and             Joe agreed       to make capital
    contributions of $333,956.62 each to the LLC in order to cover the balloon
    payment and avoid default. Their action was communicated by email on
    December 9 and ratified at a December 17 member meeting attended by
    2By then, loans from the Clarks had replaced all of the LLC’s financing except for
    the Shultz loan.
    3Barkalow pursued this argument at trial and the district court ruled against him.
    The district court found that under the “demand” vote provision in the operating
    agreement, voting is in proportion to “capital contributions,” not units or interests.
    Barkalow has not appealed this issue.
    8
    all four members. Barkalow was given the opportunity to participate in
    the capital contribution and declined to do so.
    At the same time as Barkalow declined to contribute capital to
    Outside Properties, he was expanding his TSB real estate portfolio. As
    Barkalow later testified, “So you’re asking me to deprive myself of gaining
    another company to benefit [Outside Properties], correct, I did not do that
    at the time, correct.”
    On February 19, 2016, another member meeting was held. The
    Clarks made an offer to Barkalow to buy out his interest in Outside
    Properties for the undiscounted fair market value assuming a full 25%
    share.   Barkalow declined that offer.      The discussion then turned
    specifically to the Clark loans, which totaled approximately $950,000. A
    proposal was made to obtain third-party financing of approximately $2
    million to cover both the Clark loans and the December 2015 Clark capital
    contributions, thereby restoring all parties to 25% each.         Barkalow
    declined that proposal as well. Barkalow made it clear he intended to sue
    Bryan and Jeff and was not interested in signing a global release.
    Next, the proposal was made to seek voluntary capital contributions
    to pay off the Clark loans.      This proposal passed three-to-one over
    Barkalow’s “no” vote. Barkalow was given the opportunity to participate
    in the capital contributions, but he made it clear he did not intend to do
    so.
    Bryan and Jeff each made capital contributions in June 2016 to
    cover their respective one-third of the Clark loans. Joe, however, objected
    to Bryan’s and Jeff’s use of a certain Clark-affiliated entity as the source
    of funds. Therefore, despite his earlier “yes” vote in February, he declined
    to participate in funding the payoff of the Clark loans. Bryan and Jeff
    together made up his share.
    9
    E. Further Disagreements (September 2016–June 2017).              In
    September 2016, Barkalow arranged for Outside Properties to pay
    $117,617.70 in retroactive management fees to Big Ten, his solely-owned
    management company. Barkalow also withdrew $27,585.75 for costs of a
    class action settlement. Outside Properties, however, had not been a party
    to that class action case. Barkalow maintained that the Clark brothers
    were indirectly responsible for the settlement payment he had to make in
    the class action because, allegedly, they had insisted he use a legally
    invalid lease form as a condition of lending money to him.
    Relations among the members within the LLC continued to be
    acrimonious. Barkalow objected to the dilution of his interest by the Clark
    brothers’ capital contributions.   Bryan and Jeff objected to Barkalow’s
    unapproved payments to himself.       Joe objected to having his interest
    diluted by the second set of capital contributions. Joe tried to mediate,
    favoring a plan that would restore everyone’s capital account to 25%.
    F. The Litigation in District Court (June 2017–August 2019).
    On June 6, 2017, Barkalow, TSB, and Big Ten filed suit in the Johnson
    County District Court against Bryan, Jeff, and Joe.      As subsequently
    amended, his petition sought an order expelling them as members, an
    order dissolving Outside Properties, an order appointing a receiver for the
    LLC, and damages for breach of contract, breach of fiduciary duty,
    “economic duress,” and civil conspiracy. Bryan, Jeff, and Joe answered.
    Bryan and Jeff also filed a number of counterclaims.         To fend off a
    receivership hearing, the parties ended up reaching an interim agreement
    that Big Ten would provide ongoing management for $900 per month.
    A five-day nonjury trial took place from December 11 to 17, 2018.
    In addition to the four principals, Jason Wagner, the accountant for
    Outside Properties, testified. He attended only one member meeting, in
    10
    April 2015, and recalled “a lot of disagreement.” In general, he felt there
    was considerable animosity between Barkalow and both Bryan and Jeff.
    Wagner testified these disputes made it very difficult for him to do his job:
    Q. . . . And there was disputes over keeping those
    books; correct? A. Correct.
    Q. And there was disputes over who was to provide you
    necessary information so you could do the -- your firm could
    do the accounting for Outside Properties; correct? A. Correct.
    Q. There was disputes over who the tax partners
    should be; correct? A. Correct.
    Q. There were disputes         over   parties’   ownership
    interests; correct? A. Correct.
    Q. And when you have disputes over parties’ ownership
    interests, does it make it almost impossible to complete tax
    returns for the year? A. Very difficult, yes.
    ....
    Q. There’s obviously disputes -- correct? -- on how to
    treat cash infusions; correct? A. Correct.
    Q. There’s been disputes on who should sign the
    checks for the company; correct? A. Correct.
    Q. And, in fact, there’s been disputes on who should
    have possession of the company checkbook; correct?
    A. Correct.
    Q. There’s been disputes on who should sign tax
    returns; correct? A. Correct.
    Q. And with those disputes ongoing within the
    company -- right? -- the fact is it makes your job as the
    company accountant extremely difficult or nearly impossible
    to do properly, doesn’t it? A. Correct.
    However, Wagner did confirm that he recorded Bryan’s, Jeff’s, and Joe’s
    capital contributions as such on the LLC books.
    Joe’s trial testimony, like his actions prior to the lawsuit, tended to
    forge a middle path between Barkalow, on the one hand, and Bryan and
    11
    Jeff, on the other. Joe testified that he favored dissolution of the LLC and
    wanted all four of the original members restored to a 25% capital position.
    Barkalow also supported dissolution. Barkalow vigorously opposed
    any recognition of the 2015 and 2016 capital contributions, which had
    diluted his capital position to below 1% (.595%). Joe, for his part, strongly
    took issue with his brothers’ 2016 capital contributions having the effect
    of diluting his capital position to approximately 20%.
    There was no dispute, however, that Outside Properties was
    profitable and continuing to make money. Its real estate holdings were
    increasing in value. The LLC was estimated to be worth approximately $4
    million at the time of trial. Even if the Clark capital contributions were
    reclassified as debt, there would still be $2 million in returns of capital to
    be distributed to the members in the event of a dissolution. The trial
    testimony indicated that the members had contemplated a long-term
    investment and that dissolution would lead to immediate adverse tax
    consequences.
    On August 8, 2019, the district court entered its findings of fact and
    conclusions of law.     In a detailed thirty-eight page ruling, the court
    generally rejected Barkalow’s trial contentions and adopted those of Bryan
    and Jeff.   Thus, it found that both sets of capital contributions were
    supported by a legitimate business purpose: the Shultz loan was in default
    and no payments had been made on the Clark loans for nearly two years.
    Barkalow, it noted, had been offered the opportunity to participate in both
    sets of contributions and had declined. The court found there had been
    no violation of the terms of the certificate of organization.      Additional
    capital contributions could not be “required,” but the LLC documents
    clearly contemplated the possibility of further capital contributions. The
    2015 and 2016 capital contributions had occurred voluntarily, with due
    12
    approval by votes of the members and with all members invited to
    participate.
    The court denied Barkalow’s claims for dissolution based on
    majority oppression, noting that he had been offered a buyout of his
    interest on the basis of 25% ownership and undiscounted fair market
    value. See Baur v. Baur Farms, Inc., 
    832 N.W.2d 663
    , 676–77 (Iowa 2013)
    (indicating a claim of oppression can arise when a minority shareholder in
    a close corporation is not able to obtain a return on investment or to sell
    their shares for an amount reasonably related to fair value). The court
    added, “It is fair to say that the evidence clearly shows that Tracy was a
    difficult partner.” The court also denied Barkalow’s claims for breach of
    fiduciary duty, civil conspiracy, and breach of contract, specifically finding
    that the buyout option he claimed to have was “too indefinite to form a
    binding contract.” The court further rejected Barkalow’s claims that Bryan
    and Jeff had required him to use a particular lease form in his separate
    apartment rental operations.
    Additionally, the court found there had been an agreement from the
    beginning that each member would provide services to Outside Properties
    free of charge.   Pursuant to that understanding, Bryan and Jeff had
    performed construction and remodeling work without reimbursement.
    There had been no agreement that Barkalow would be paid for property
    management services. With this finding in mind, the court determined
    that Barkalow had wrongfully converted assets of the LLC when he
    transferred a total of $125,617.70 to Big Ten for unapproved management
    fees and $27,585.75 for an unrelated class action settlement. The court
    ordered Barkalow and Big Ten to repay $153,203.45 plus interest at the
    rate of 3.5% from September 15, 2016.
    13
    Yet, in the final section of its ruling, the district court granted
    Barkalow’s request to dissolve the LCC based on the impracticability of
    continuing its business.           See 
    Iowa Code § 489.701
    (1)(d)(2).            The court
    concluded that it was
    not reasonably practicable to carry on the Company’s
    activities in conformity with the certificate of organization and
    operating agreement in light of the intensity, longevity and
    number of disputes and issues existing between Tracy, Bryan
    and Jeff which are fueled by their long time acrimonious,
    bitter, and toxic relationship.
    On this point, the court took particular note of the testimony of Wagner,
    Outside Properties’ accountant. In the course of ordering dissolution, the
    court also used its “equitable powers to fashion a remedy that [it] believe[d]
    [wa]s as fair as possible to all members.” Thus, it directed that the 2015
    capital contributions by Bryan, Jeff, and Joe, and the 2016 capital
    contributions by Bryan and Jeff, be recategorized as debt. This meant that
    all four members would be returned to a 25% equity position.4
    G. This Appeal. Bryan and Jeff appealed, and Barkalow cross-
    appealed. In their appeal, Bryan and Jeff argued that the district court
    erred in ordering dissolution of Outside Properties, a viable and profitable
    enterprise, given that the court’s ruling had resolved the members’
    disputes. They also urged that even if dissolution was proper, the court
    exceeded its statutory and equitable authority by transforming the
    brothers’ capital contributions into debt.                   Barkalow’s cross-appeal
    maintained that the district court should have ordered dissolution based
    on oppression and awarded damages for breach of fiduciary duty.
    We retained the appeal.
    4In   this part of its ruling, the district court essentially adopted Joe’s litigation
    position.
    14
    II. Standard of Review.
    Judicial dissolution is an equitable proceeding and our review is de
    novo.     See Baur, 832 N.W.2d at 668.      The parties have agreed that
    Barkalow’s breach of fiduciary duty claim is also subject to de novo review,
    and we accept that stipulation for purposes of this appeal. However, we
    give weight to the district court’s factual findings for institutional and
    pragmatic reasons.     See Struve v. Struve, 
    930 N.W.2d 368
    , 371 (Iowa
    2019).
    III. Legal Analysis.
    A. Barkalow’s Oppression and Breach of Fiduciary Duty Claims.
    Although Barkalow is not the original appellant, we will address his cross-
    appeal first because it sets the stage for our ruling on Bryan and Jeff’s
    appeal.
    Iowa Code section 489.701(e)(2) authorizes dissolution of an LLC by
    the court, on application by a member, when “those members in control of
    the company . . . [h]ave acted or are acting in a manner that is oppressive
    and was, is, or will be directly harmful to the applicant.” Barkalow argues
    that the Clark brothers engaged in oppressive conduct that directly
    harmed him when they diluted his ownership interest in Outside
    Properties in 2015 and 2016.
    We have said that determining whether the conduct of controlling
    directors and majority shareholders in a close corporation is oppressive
    “must focus on whether the reasonable expectations of the minority
    shareholder have been frustrated under the circumstances.” Baur, 832
    N.W.2d at 674. In Manere v. Collins, the Appellate Court of Connecticut
    applied the reasonable expectations standard to a claim for dissolution of
    an LLC based on oppression. 
    241 A.3d 133
    , 154 (Conn. App. Ct. 2020).
    The court noted that Connecticut had adopted the Revised Uniform
    15
    Limited      Liability   Company     Act   (RULLCA),   and    “the    commentary
    emphasizes that ‘[i]n many jurisdictions the concept [of oppression]
    equates to or at least includes the frustration of the plaintiff’s reasonable
    expectations.’ ” 
    Id.
     (alterations in original) (quoting Rev. Unif. Ltd. Liab.
    Co. Act § 701, cmt., (Unif. L. Comm’n 2006) (amended 2013), 6C U.L.A.
    135) (2016)). Iowa, likewise, has adopted the RULLCA. See 
    Iowa Code § 489.101
    .
    As    the   Manere   court    observed,   according   to     the   RULLCA
    commentary, reasonable expectation factors include
    whether the expectation: (i) contradicts any term of the
    operating agreement or any reasonable implication of any
    term of that agreement; (ii) was central to the plaintiff’s
    decision to become a member of the limited liability
    company or for a substantial time has been centrally
    important in the member’s continuing membership; (iii) was
    known to other members, who expressly or impliedly
    acquiesced in it; (iv) is consistent with the reasonable
    expectations of all the members, including expectations
    pertaining to the plaintiff’s conduct; and (v) is otherwise
    reasonable under the circumstances.
    
    Id.
     at 156–57 (quoting Rev. Unif. Ltd. Liab. Co. Act § 701, cmt., 6C U.L.A.
    135).
    We agree with the district court’s implicit determination that
    Barkalow’s expectations were unreasonable, rather than reasonable. He
    contributed no money to Outside Properties, not even the funds for his
    original capital position.     He expected the Clark brothers to finance
    everything. He blocked efforts to obtain outside financing. He chose to
    pledge his own assets as collateral for an expansion of his personal real
    estate holdings, not for the use or benefit of the LLC in which he was only
    a 25% participant.
    We agree with the district court that Barkalow also misread the
    LLC’s founding documents. Those documents are a major determinant of
    16
    a member’s reasonable expectations. The management certificate and the
    operating agreement made clear that a member’s capital position was
    subject to change. The provision in the certificate of organization that no
    additional capital contributions “will be required” bore the heading
    “Additional Liability of Members.” Thus, it meant that members could not
    be assessed for additional contributions they did not want to make, but
    there was no guarantee that a member’s relative ownership position would
    remain constant if he elected not to make an additional contribution when
    others did.
    The certificate of organization contemplated the acquisition of other
    properties. The stated purpose was “to invest in real estate holdings.”
    (Emphasis added.) So Barkalow should not have been surprised that the
    original capital contributions needed to be supplemented. And, as the
    district court noted, Barkalow refused to accept a buyout of his interest
    for its undiscounted fair market value.              That was the very thing the
    minority stockholder had been unable to obtain in Baur, and which
    undergirded the oppression claim in that case. See 832 N.W.2d at 666–
    67, 676.
    Barkalow devoted considerable trial time attempting to prove that
    Bryan and Jeff harbored a secret intent since 2013 to dilute his interest.
    But he never offered a practical alternative to capital contributions for
    settling the LLC’s outstanding debts to Shultz and the Clarks in late 2015
    and early 2016.5 At most, therefore, Barkalow proved “[w]icked meaning
    5We note that Joe, like Barkalow, argued that each of the four members should
    retain a 25% capital position. Yet, at the same time, Joe acknowledged that he voted for
    capital contributions to pay off both loans and that Shultz needed to be repaid at the
    beginning of December 2015 to protect the LLC from losing those properties. Further,
    Joe’s primary objection to Bryan’s and Jeff’s June 2016 contributions to pay off the Clark
    loans had to do with their source of funding, which was an internal Clark matter, not an
    Outside Properties issue. Joe thus did not offer a practical alternative to capital
    contributions, either.
    17
    in a lawful deed.” William Shakespeare, All’s Well That Ends Well, act 3,
    sc. 7.
    Barkalow wanted the Clarks to maintain their outstanding funding
    of Outside Properties without repayment. His byword was “no note, no
    mortgage, no payment.” In short, Barkalow wanted something from the
    Clarks that would function like a capital contribution without actually
    being a capital contribution. That was not realistic. The district court
    properly rejected Barkalow’s oppression claim and his related fiduciary
    duty claim asserting the same misconduct.        We therefore affirm as to
    Barkalow’s cross-appeal.
    B. Barkalow’s Claim for Dissolution Based on Impracticability.
    We turn now to what we regard as the more difficult issues in the case—
    those relating to Bryan and Jeff’s appeal. Iowa Code section 489.701(d)(2)
    authorizes dissolution when “[i]t is not reasonably practicable to carry on
    the company’s activities in conformity with the certificate of organization
    and the operating agreement.”
    Bryan and Jeff argue that the district court confused past with
    present. Implicitly, Bryan and Jeff concede that during 2015 and 2016,
    Outside Properties was a troubled company.        But they argue that the
    district court’s resolution of the capital contribution controversy and the
    parties’ other claims has set a stable path for the future. Accordingly, they
    believe the district court erred in finding that it was no longer reasonably
    practicable to carry on Outside Properties’ activities in accordance with
    the certificate of organization and operating agreement. In fact, Bryan and
    Jeff note that the LLC has continued to operate and take in rental income
    during the course of this litigation. Even Barkalow acknowledges it has
    been a financial success.
    18
    We have not yet had occasion to interpret Iowa Code section
    489.701(d)(2).   But other jurisdictions have analyzed the question of
    whether it is “not reasonably practicable to carry on” an LLC’s activities.
    Typically, dissolution is ordered when there is actual, unbreakable
    deadlock. See, e.g., Gagne v. Gagne, 
    459 P.3d 686
    , 695 (Colo. App. 2019)
    (affirming judicial dissolution based on “a real and material deadlock”);
    Saunders v. Firtel, 
    978 A.2d 487
    , 536–37 (Conn. 2009) (affirming
    dissolution where each member owned 50% and they “have ceased to have
    any business or personal relationship”); Haley v. Talcott, 
    864 A.2d 86
    , 94–
    95, 98 (Del. Ch. 2004) (ordering dissolution where each member owned
    50% of the LLC, “neither party assert[ed] that any reconfiguration ha[d]
    occurred,” and “the evidence clearly support[ed] a finding of deadlock
    between the parties about the business strategy and future of the LLC”);
    Simmons Fam. Properties, LLLP v. Shelton, 
    705 S.E.2d 258
    , 261 (Ga. Ct.
    App. 2010) (“[T]he members of DDE were effectively deadlocked over
    several issues and . . . the situation appeared unlikely to change.”); In re
    Cat Island Club, L.L.C., 
    94 So.3d 75
    , 79–80 (La. Ct. App. 2012) (upholding
    judicial dissolution where there were four remaining members of the LLC
    divided two-to-two and the situation was at an impasse); Kirksey v.
    Grohmann, 
    754 N.W.2d 825
    , 831 (S.D. 2008) (ordering judicial dissolution
    where the LLC was deadlocked between each half of ownership and the
    deadlock “ certainly impede[d] the continued function of the business in
    conformity with its operating agreement”); 1 Hodge O’Neal & Robert B.
    Thompson, O’Neal and Thompson’s Close Corporations and LLCs: Law and
    Practice § 5:22, Westlaw (rev. 3d ed. Nov. 2020 Update) (“The most
    recurring pattern where courts have found [the not reasonably practicable]
    standard met has been where the parties are split, often 50/50, and there
    is evidence of a breakdown in the relationship between the parties.”).
    19
    In the absence of deadlock, courts have been reluctant to order
    dissolution so long as it is possible to continue to operate the company in
    accordance    with   its   certificate   of   organization   and   management
    agreement. In other words, there has to be either a deadlock or a clear
    inability to fulfill the contracted purposes of the LLC, usually but not
    invariably for financial reasons. See, e.g., Venture Sales, LLC v. Perkins,
    
    86 So.3d 910
    , 917 (Miss. 2012) (affirming judicial dissolution where the
    LLC “has existed for more than ten years and has yet to achieve, or even
    begin fulfilling, its stated purpose”); Mizrahi v. Cohen, 
    961 N.Y.S.2d 538
    ,
    541 (App. Div. 2013) (“Under the circumstances presented, it is not
    reasonably practicable for the LLC to continue to operate, as continuing
    the LLC is financially unfeasible.”).
    Thus, in several notable cases, courts have refused to order
    dissolution based on member disputes. In Dysart v. Dragpipe Saloon, LLC,
    the South Dakota Supreme Court decided a case involving an LLC with
    four 25% owners that owned a bar and real estate. 
    933 N.W.2d 483
    , 484–
    85 (S.D. 2019). Two of the members wanted to sell their interests but a
    couple of proposed transactions faltered. 
    Id. at 485
    . The two members
    then filed for judicial dissolution. 
    Id.
     The trial court ordered dissolution
    on the grounds that the bar was unable to return the members’ original
    capital contributions and that the parties were “at a standstill” on whether
    to sell the property. 
    Id.
     at 485–86.
    The South Dakota Supreme Court reversed. 
    Id. at 484
    . It observed,
    “An involuntary judicial dissolution represents an exceptional level of
    intervention into the otherwise private agreement of an LLC’s members.”
    
    Id.
     at 486–87. It concluded,
    The fact that the Appellees believe it to be a prudent
    time to sell Dragpipe’s real property and realize the gain from
    their investments does not mean Dragpipe is unable to
    20
    continue to operate in accordance with its stated purposes.
    Nor do the historic losses or Dragpipe’s failure to return
    income distributions to its members render its operation
    impracticable. In more recent years, Dragpipe’s performance
    has improved and yielded profitable results, if not large cash
    returns, for its members. . . .
    . . . In the absence of an order directing judicial
    dissolution, Dragpipe will continue to operate more or less as
    it has since its inception. Even if, as the circuit court found,
    the principal means of making money for Dragpipe’s members
    will ultimately be through the sale of the real property, that
    does not mean that the members’ failure to reach a consensus
    about a proposed sale here is likely to frustrate Dragpipe’s
    economic purpose.
    
    Id.
     at 487–88. The court went on to note that under the terms of the
    operating agreement, the two members could resign and receive the fair
    market value of their interests. 
    Id. at 488
    . In closing, the court noted that
    “[t]he members are not effectively deadlocked and have multiple options
    for resolving their disagreement about the sale of Dragpipe’s real estate.”
    
    Id.
     Accordingly, it rejected the “drastic remedy” of judicial dissolution. 
    Id.
    The lesson of Dragpipe is that LLC’s are ultimately member
    contracts, and courts should not be rewriting contracts unless it is truly
    necessary to do so.      While the operating agreement here (unlike in
    Dragpipe) does not have a “put” that allows a member to sell out their
    interest for fair market value, there is no indication in this record that
    such a buyout would not be available. And in some ways, the present case
    is a weaker one for judicial dissolution because the present allocation of
    interests means there will be no tie votes.
    In Dunbar Group, LLC v. Tignor, the Virginia Supreme Court reversed
    an order of judicial dissolution of a software company. 
    593 S.E.2d 216
    ,
    219–20 (Va. 2004). Disputes had arisen between the two 50–50 members.
    
    Id. at 217
    . One member committed a serious of wrongful acts, including
    commingling LLC funds with his own funds; restricting the other member’s
    21
    access to the LLC’s premises, equipment, and the email system; and
    preventing the other member from writing checks on the LLC’s account.
    
    Id. at 218
    . The trial court removed the misbehaving member as an active
    member but then also ordered the LLC dissolved. 
    Id.
     On appeal, the
    Virginia Supreme Court overturned the second half of this judgment,
    reasoning,
    The record here, however, does not show that the
    chancellor evaluated the evidence in light of the fact that
    Tignor was being expelled as a member and manager of Xpert.
    Although Tignor’s actions in those capacities had created
    numerous problems in the operation of Xpert, his expulsion
    as a member changed his role from one of an active
    participant in the management of Xpert to the more passive
    role of an investor in the company. The record fails to show
    that after this change in the daily management of Xpert, it
    would not be reasonably practicable for Xpert to carry on its
    business pursuant to its operating authority.
    
    Id.
     at 219–20. Likewise, here, we believe the district court erred in failing
    to consider the judicial dissolution claim in light of the other matters
    previously resolved by its ruling—namely, the capital contribution
    controversy and Barkalow’s claims that Bryan and Jeff had breached their
    fiduciary duties to him.
    The New York Appellate Division refused to uphold the judicial
    dissolution of an LLC in In re 1545 Ocean Avenue, LLC, 
    893 N.Y.S.2d 590
    ,
    592 (App. Div. 2010).       Although the two 50–50 members were at
    loggerheads, the intended real estate project was “within weeks of
    completion” and the operating agreement allowed unilateral action by one
    of the two member–managers. 
    Id. at 593
    . The court opined,
    After careful examination of the various factors
    considered in applying the “not reasonably practicable”
    standard, we hold that for dissolution of a limited liability
    company pursuant to LLCL 702, the petitioning member must
    establish, in the context of the terms of the operating
    agreement or articles of incorporation, that (1) the
    management of the entity is unable or unwilling to reasonably
    22
    permit or promote the stated purpose of the entity to be
    realized or achieved, or (2) continuing the entity is financially
    unfeasible.
    
    Id.
     at 597–98.
    Neither of the conditions for dissolution identified by the New York
    court is present here. Outside Properties is fulfilling its intended purpose
    of investing in real estate properties, and it is doing so profitably.
    In In re Arrow Investment Advisors, LLC, the influential Delaware
    Chancery     Court    commented,       “Given    its   extreme    nature,    judicial
    dissolution is a limited remedy that this court grants sparingly.” C.A.
    No. 4091–VCS, 
    2009 WL 1101682
    , at *2 (Del. Ch. April 23, 2009). The
    court added,
    [D]issolution is reserved for situations in which the LLC’s
    management has become so dysfunctional or its business
    purpose so thwarted that it is no longer practicable to operate
    the business, such as in the case of a voting deadlock or where
    the defined purpose of the entity has become impossible to
    fulfill.
    
    Id.
     Here, there is no voting deadlock and the defined purpose of the entity
    has not become impossible to fulfill—indeed, it is being fulfilled under an
    interim management agreement during the course of this litigation. See
    also In re Seneca Invests. LLC, 
    970 A.2d 259
    , 263–64 (Del. Ch. 2008)
    (dismissing petition for judicial dissolution where no voting deadlock was
    alleged even though the LLC was functioning only as a passive investment
    vehicle).6
    6A thoughtful note in the Drake Law Review argues for a restrained approach to
    the related issue of member dissociation by judicial order under Iowa Code section
    489.602(5)(c), which employs the same “not reasonably practicable” standard:
    Ultimately, a restrained interpretation of the “not reasonably
    practicable” language in Iowa Code section 489.602(5)(c) by Iowa courts
    advances “legislative deference to the parties’ contractual agreement to
    form and operate a limited liability company.” The Iowa General Assembly
    chose to adopt an LLC statute modeled on a uniform act, which itself
    emphasizes the overarching contractual nature of limited liability
    companies. Thus, adherence to a “robust application of freedom of
    23
    In sum, we are not persuaded that judicial dissolution should have
    been ordered. Dissolution under Iowa Code section 489.701(d)(2) is not a
    wide-ranging mechanism for doing equity, but a drastic remedy to be
    ordered when an LLC is truly in an unmovable logjam or cannot as a
    practical matter carry on its contracted purpose. Neither circumstance is
    present here. Because we reverse the district court’s decision to order
    dissolution of Outside Properties, we also reverse its order recategorizing
    the Clark capital contributions as debt that was part of the dissolution
    decree.
    IV. Conclusion.
    For the foregoing reasons, we affirm the judgment of the district
    court except for its ruling on count II of Barkalow’s amended petition.
    There, we reverse the district court’s order directing dissolution of Outside
    Properties and its recategorization of the Clark capital contributions. We
    remand for further proceedings consistent with this opinion.
    AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
    All justices concur except Oxley, J., who takes no part.
    contract,” both the severe and discretionary nature of judicial expulsion,
    and the risk that feuding LLC members will race to the courthouse rather
    than attempt to reconcile differences, all counsel in favor of a general
    wariness towards judicial dissociation under the “not reasonably
    practicable” standard of Iowa Code section 489.602(5)(c).
    Patrick Shanahan, “Goodbye and Good Luck: Member Dissociation by Judicial Order
    Under Iowa’s Revised Uniform Liability Company Act,” 
    61 Drake L. Rev. 535
    , 587 (2013)
    (footnotes omitted). We think those comments are also apt in the context of judicial
    dissolution.