A.Y. McDonald Industries, Inc. v. Michael B. McDonald ( 2021 )

IN THE COURT OF APPEALS OF IOWA
No. 20-0766
Filed July 21, 2021
A.Y. MCDONALD INDUSTRIES, INC.,
Plaintiff-Appellee,
vs.
MICHAEL B. MCDONALD,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Dubuque County, Michael J.
Shubatt, Judge.
Michael McDonald appeals the ruling in favor of A.Y. McDonald Industries,
Inc. and the denial of his counterclaims in a breach of contract case. AFFIRMED
IN PART AND REVERSED IN PART.
Susan M. Hess of Hammer Law Firm, PLC, Dubuque, for appellant.
Brian J. Kane, Todd L. Stevenson, and Nicholas J. Kane of Kane, Norby &
Reddick, P.C., Dubuque, for appellee.
Considered by Mullins, P.J., and May and Greer, JJ.
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GREER, Judge.
All the shareholders of A.Y. McDonald Industries, Inc. (A.Y.) want is the
unpaid money that Michael McDonald (Michael) acknowledged he inappropriately
took when the parties negotiated a restitution agreement in 2012. After several
attempts by Michael to avoid the debt, this collection dispute lands in our court.
Michael challenges the ruling of the district court upholding A.Y.’s claims and
rejecting his two counterclaims. Given the complexities of this contractual
relationship and the legal course of the dispute, we start with a description of the
intricate history.
I. The Contractual Relationship and the Legal Proceedings.
Beginning in 1983 as an employee, Michael started his rise through the
family companies, and by 2012, he served as president and chief executive officer
(CEO) of A.Y.’s subsidiary, A.Y. Manufacturing, and as senior vice president of
A.Y. He participated as a board member for A.Y. and for all the subsidiaries.
Although Michael portrays the findings as “being ambushed by the company,” an
investigation into the private payroll led to a discovery that Michael
misappropriated significant company funds while acting as the manager of payroll
for executive compensation. Because of the misappropriation of company funds,
Michael’s employment was terminated in May 2012. Likewise, he was removed
from his officer roles and required to resign from all board positions within A.Y. and
its subsidiaries. After negotiations over the recoupment of the missing sums
occurred in 2012, Michael signed a restitution agreement (Agreement) and
promissory note in which he agreed to repay A.Y. $2,538,500. The Agreement
required Michael to liquidate certain assets to satisfy the agreed upon amount
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owed, including the balance of his 401(k) plan. As a further protection, the
Agreement required Michael to sign a statement confessing judgment in favor of
the company, to be filed in the event of a default. Michael defaulted on the
Agreement in 2013 after failing to pay A.Y. the funds he withdrew from his 401(k).
As allowed by its terms and because of the default, A.Y. filed the confession
judgment in the amount of $1,325,174.89, plus interest. That judgment remains
unsatisfied.
With the judgment in hand, A.Y. began collection. But with few assets left,
Michael wanted to end A.Y.’s collection activities. One of his remaining assets
was his beneficial interest in two trusts, the J. Bruce McDonald Trust and the Delos
L. McDonald Trust. The parties agree that both trusts contain spendthrift
provisions. So, in 2014, the parties negotiated and then executed an amendment
to the Agreement (Amendment). Under the Amendment, Michael signed a limited
power of attorney (LPOA) authorizing an appointed third-party attorney-in-fact to
receive and then forward payments from spendthrift trust trustees to A.Y. In
exchange for the trust payments, A.Y. agreed to cease all collection activities,
including future collection activities not yet initiated. Payments from the two trusts
under this Amendment commenced in October 2014. But in September 2016,
Michael received a payment from one of the spendthrift trusts when his appointed
attorney-in-fact inadvertently sent him a check. He did not return the money or
notify A.Y. at the time. After A.Y. discovered Michael received and retained the
trust payment, Michael signed an acknowledgment providing
The parties below acknowledge and agree that A.Y. . . . shall
withhold payment in the amount of $6,218.44 from the expected
income tax reimbursement payment it will make to Michael . . . in
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2017 (or thereafter) in order for [A.Y.] to recoup the September 2016
dividend payment of the same amount made by U.S. Bank in its
capacity as trustee of the J. Bruce McDonald Trust, such amount
having been improperly received by [Michael] in violation of his
Restitution Agreement (and First Amendment thereto) with [A.Y.].
(Emphasis added.) Because no trust payments were made since March 2017,1
no income tax reimbursement payments have been calculated by A.Y. Thus the
$6218.44 remains unpaid.
The cessation of trust payments coincided with Michael’s April filing for
Chapter 7 bankruptcy protection, which resulted in an automatic stay of all
collection activities. In response, A.Y. filed a motion for relief from stay as to the
trust distributions and an adversary complaint against Michael seeking a
determination that Michael’s debt was not dischargeable. Shortly after, on May
31, 2017, Michael sent a revocation of power of attorney to A.Y. That action
prompted A.Y.’s filing of a second adversary complaint in the bankruptcy court
seeking an injunction immediately reinstating or otherwise continuing Michael’s
LPOA and for declaratory relief deeming the LPOA irrevocable. Michael
counterclaimed alleging the Amendment violated Iowa Code section 633A.2302(2)
(2017).
Arguing that the material facts were undisputed, A.Y. moved for summary
judgment, asking that its debt not be discharged. The bankruptcy court granted
partial summary judgment for A.Y., holding that Michael’s debt was non-
dischargeable in bankruptcy because it was the result of his fraud while acting in
1Under the terms of the Amendment, until payments ceased, A.Y. received a total
of $167,134.21 from the quarterly trust income payments. No other payments
have been received by A.Y. since March 2017.
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a fiduciary capacity, embezzlement, or larceny. Along with its request involving
debt status, A.Y. included in the summary judgment motion a request for injunctive
and declaratory relief. On those issues, the bankruptcy court denied A.Y.’s
summary judgment motion. The bankruptcy court reasoned that “[t]o find the
[LPOA] irrevocable here would turn a freely given appointment of an attorney-in-
fact into a virtual assignment of [Michael’s] interest in a spendthrift trust. Such an
assignment of interest here would violate [section] 633A.2302(2).” In re McDonald,
586 B.R. 32, 41 (Bankr. N.D. Iowa 2018). On the subject of the injunction, the
bankruptcy court noted because the bankruptcy stay and the revocation of the
LPOA occurred at the same time, A.Y. “lost no collection opportunities.” Id. Thus,
the court reasoned A.Y.’s remedy required no injunction because after the stay
lifted, the company could proceed with collection.
A.Y. appealed the bankruptcy court’s ruling, and in October 2018, the
bankruptcy appellate panel vacated the lower court’s judgment as to A.Y.’s claim
for injunctive and declaratory relief and remanded with instructions to dismiss the
same. In re McDonald, 590 B.R. 506, 510 (B.A.P. 8th Cir. 2018). The appellate
panel found “the contract claims for injunctive and declaratory relief were neither
core proceedings nor non-core related to proceedings. Thus the Bankruptcy Court
lacked jurisdiction to hear A.Y.’s claim for injunctive and declaratory relief.” Id.In November 2018, the bankruptcy court lifted the stay in Michael’s
bankruptcy proceeding as to A.Y. Once the stay lifted, A.Y. filed a petition and
request for injunctive and declaratory relief in the Iowa district court. A.Y. asserted
Michael breached their agreements when he revoked the LPOA. To further protect
its interests, A.Y. also sought injunctive relief to restore and enforce the LPOA,
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prevent Michael from attempting to revoke the LPOA in the future, and resume
collection of funds from the spendthrift trusts. Finally, A.Y. asked the district court
to declare the LPOA to be irrevocable. Along with denying A.Y.’s claims, Michael
counterclaimed for breach of contract and interference with his expectancy interest
as a beneficiary of two spendthrift trusts. Under his contract claim, Michael
asserted A.Y. breached the Amendment by accepting two separate payments in
2016 to release its judgment lien from real estate Michael was selling. The two
properties Michael owned were encumbered by mortgages held by Dubuque Bank
& Trust (DB&T). A.Y. acknowledges it accepted two $5000 payments from DB&T
in exchange for releasing the liens as a courtesy to the bank.2 A.Y. credited the
payments towards Michael’s debt under the Agreement. Michael admitted at trial
he did not raise any concerns at the time A.Y. collected the payments.3
After a bench trial, the district court granted A.Y.’s claim for breach of
contract and awarded attorney fees to A.Y. pursuant to the terms of the
Amendment. The district court further ordered a permanent injunction requiring
Michael to comply with the Agreement, including the LPOA created by the
Amendment, and declared the signed LPOA irrevocable. Finally, the court denied
2 DB&T’s counsel approached A.Y.’s President and chief financial officer, a board
member of both A.Y. and DB&T, about lifting the liens.
3 During the first bankruptcy case, Michael claimed A.Y. solicited payments from
DB&T. The bankruptcy court dismissed this claim on summary judgment, stating:
[A.Y.] does not dispute that it received payments from [DB&T], but
denies soliciting these payments. [Michael] has not provided any
evidence to support his argument that [A.Y.] solicited these
payments. In the absence of evidence to the contrary, the Court
finds that this is not a genuine dispute of material fact.
McDonald, 586 B.R. at 39.
7
and dismissed Michael’s counterclaims with prejudice. Michael timely appealed
the district court’s ruling.
II. Standard of Review and Error Preservation.
The parties agree Michael preserved error on all the issues raised in this
appeal.4 Likewise, they concede the district court tried this case at law rather than
in equity based on the existence of the breach-of-contract claims. Thus, we review
for correction of errors at law. See Iowa R. App. P. 6.907; State ex rel. Dobbs v.
Burche, 729 N.W.2d 431, 435 (Iowa 2007) (“If an injunction is obtained as an
independent remedy in an equitable action, review is de novo; however, if an
injunction is obtained as an auxiliary remedy in an action at law, review is for
correction of errors at law.”). “The district court’s findings of fact are binding on the
court if they are supported by substantial evidence. We view the evidence in the
light most favorable to the judgment when a party argues the trial court’s ruling is
not supported by substantial evidence.” Meincke v. Nw. Bank & Tr. Co., 756
N.W.2d 223, 227 (Iowa 2008) (citations omitted).
III. Analysis.
With a focus on the district court rulings involving A.Y.’s claims against him
and the counterclaims he asserted, Michael appeals. Michael claims the court
erred in (1) finding he, rather than A.Y., breached the agreements; (2) ruling the
LPOA was irrevocable; (3) finding A.Y. did not interfere with his expectancy interest
4 We note a statement that error is preserved by filing an appeal is not an accurate
statement. See, e.g., Brockman v. Ruby, No. 18-0170, 2018 WL 6338632, at *3
(Iowa Ct. App. Dec. 5, 2018) (explaining the filing of a notice of appeal has nothing
to do with error preservation and ruling error was not preserved though neither
party contested the issue).
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under the trusts; (4) issuing the permanent injunction; and (5) awarding A.Y.
attorney fees. A.Y. resists these claims and raises the affirmative defense of issue
preclusion against Michael’s breach-of-contract issues.
The LPOA and the Spendthrift Limitations.
An answer to the core issue involved here initiates a domino effect in the
resolution of the other concerns. The core issue is whether Michael could revoke
his LPOA at any time and, depending on how that question is answered, can A.Y.
still collect the trust distributions under the Amendment without violating the
spendthrift trust protections under Iowa law? As they say, it’s complicated.
At the onset, all parties agree that the trusts involved here contain
spendthrift provisions. Iowa recognizes the enforceability of spendthrift provisions
in trust agreements and the power of a donor to place conditions on the
disbursement of trust funds. See In re Est. of Bucklin, 51 N.W.2d 412, 414 (Iowa
1952) (defining a valid spendthrift trust as one where the beneficiary is entitled to
the income and “his interest shall not be transferable by him and shall not be
subject to the claim of his creditors” (citation omitted)). As to the restraints on the
spendthrift trust beneficiary, Iowa Code section 633A.2302(2) states:
A beneficiary shall not transfer, assign, or encumber an
interest in a trust in violation of a valid spendthrift provision, and a
creditor or assignee of the beneficiary of a spendthrift trust shall not
reach the interest of the beneficiary or a distribution by the trustee
before its receipt by the beneficiary.
When Michael and A.Y. presented similar issues related to the spendthrift
provisions to the bankruptcy court, it answered some of these questions. First, the
bankruptcy court confirmed Michael could transfer his trust payments through an
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attorney-in-fact to pay A.Y. Before the bankruptcy appeal panel vacated part of
the decision, the bankruptcy court initially found:
In this case, when the trust distributions were made to the
attorney-in-fact, then transferred to [A.Y.], that property
constructively passed through [Michael’s] hands. By freely executing
a [power of attorney] and appointing an attorney-in-fact, [Michael] did
not “transfer, assign, or encumber [his] interest in a trust in violation
of a valid spendthrift provision.” Therefore, neither [Michael] nor
[A.Y.] violated Iowa Code [section] 633A.2302(2) by signing the
Amendment to Restitution Agreement. Since [A.Y.] did not violate
Iowa Code [section] 633A.2302(2), the Court need not consider if
damages are available. [Michael’s] counterclaim is dismissed.
586 B.R. at 40 (citation omitted). We agree with this finding, but we are not bound
by it.5 Michael’s counterclaim involving a breach of expectancy interest was
denied because under contract law, once Michael received his trust payment—
5 A.Y. raised the doctrine of issue preclusion as to this bankruptcy finding. See
Comes v. Microsoft Corp., 709 N.W.2d 114, 117 (Iowa 2006) (preventing parties
from re-litigating issues previously resolved in prior litigation). For issue preclusion
to apply, four prerequisites must be established:
(1) the issue concluded must be identical; (2) the issue must have
been raised and litigated in the prior action; (3) the issue must have
been material and relevant to the disposition of the prior action; and
(4) the determination made of the issue in the prior action must have
been necessary and essential to the resulting judgment.
Clark v. State, 955 N.W.2d 459, 465–66 (Iowa 2021) (citation omitted) (footnote
omitted). Because the contract claims between A.Y. and Michael had no impact
on the core proceeding decided in bankruptcy and those findings were vacated as
a matter of law, issue preclusion is not available to A.Y. The elements of issue
preclusion are not met even though “the issue [was] raised and litigated in the prior
action.” Hunter v. Des Moines, 300 N.W.2d 121, 125–26 (Iowa 1981). The third
and fourth conditions necessary to invoke issue preclusion are not established.
Because the issues raised under the declaratory relief and injunction rubric were
not valid core proceedings, the issues were not “material and relevant to the
disposition” of the bankruptcy court. See id. at 126; see also McDonald, 590 B.R.
at 509 (“A.Y.’s claim for injunctive and declaratory relief is not a core proceeding.
It does not ‘arise under’ title 11 as it does not ‘involve a cause of action created or
determined by a statutory provision of title 11.’” (citation omitted)). As to the fourth
element of the doctrine of issue preclusion, “the determination made of the issue
in the prior action” was not “necessary and essential to the resulting judgment.”
Hunter, 300 N.W.2d at 125–26. Thus, A.Y. cannot access the doctrine in this case.
10
either directly or to his agent—he could agree to transfer or assign the payment to
A.Y. True, “[s]pendthrift protection prevents anticipation of the beneficiary’s rights
but does not extend beyond the point of distribution.” Restatement (Third) of
Trusts § 58, cmt. d (Am. L. Inst. 2003). “More particularly, the beneficiary cannot
transfer [his] right to future payments from the trust, nor can the beneficiary’s
creditors collect future trust payments due to the beneficiary. The creditors can
only collect after the trust has paid or distributed property to the beneficiary.”
Martin D. Begleiter, In the Code We Trust—Some Trust Law for Iowa at Last, 49
Drake L. Rev. 165, 209 (2001). But here, Michael revoked the authority under the
LPOA to pay A.Y., and the attorney-in-fact could no longer access the trust
distributions. Agreeing with A.Y., the district court found Michael could not revoke
the LPOA.
Yet, in favor of Michael’s argument, we note Iowa’s power-of-attorney
statute allows the principal to revoke a power of attorney at any time. See Iowa
Code § 633B.110(1)(c).6 Michael asserts he did so and A.Y. cannot force him to
continue the transfer of trust benefits. Likewise, use of the word “irrevocable” in
the body of the LPOA does not automatically prevent revocation of the instrument.
6 Iowa Code section 633B.110(1) provides:
A power of attorney terminates when any of the following
occurs:
a. The principal dies.
b. The principal becomes incapacitated, if the power of
attorney is not durable.
c. The principal revokes the power of attorney.
d. The power of attorney provides that it terminates.
e. The purpose of the power of attorney is accomplished.
f. The principal revokes the agent’s authority or the agent dies,
becomes incapacitated, or resigns, and the power of attorney does
not provide for another agent to act under the power of attorney.
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See MacGregor v. Gardner, 14 Iowa 326, 340-42 (1862). In MacGregor, the Iowa
Supreme Court held a power of attorney or comparable principal-agent relationship
created as part of a contract to benefit a third party, where a third party gives valid
consideration in exchange, may render the power of attorney irrevocable. See id.;
see also Andrew v. Metro. Life Ins. Co., 233 N.W. 473, 475 (Iowa 1930) (“It is the
general rule of law that an agency coupled with an interest cannot be terminated
at the will of the principal.”). In this context, the phrase “coupled with an interest”
does not mean “an interest in the exercise of power, but an interest in the property
on which the power is to operate.” Taylor v. Burns, 203 U.S. 120, 125 (1906).7
But unlike a general power of attorney, which is revocable at the will of the
principal, Michael gave the LPOA as valuable consideration in exchange for A.Y.
ceasing collection activities. A.Y. characterized the LPOA as a security interest
for payments from the trusts, since the trust proceeds were the only assets Michael
had left to satisfy the judgment. This meets the definition of a power of attorney
“given in exchange for valuable consideration” rendering the LPOA irrevocable by
Michael. See Am./Int’l 1994 Venture v. Mau, 42 N.Y.S.3d 188, 200 (App. Div.
2016). Michael is a sophisticated businessman and admitted at trial to relying upon
irrevocable letters of credit to assure that a customer would not renege on the
agreement to provide monies. He understood what he was agreeing to do, and
until the conditions of the automatic termination occurred, there was no provision
allowing him to revoke the LPOA. A power of attorney must be strictly construed
and will be held to grant only those powers specified. See In re Est. of Crabtree,
7None of the cases cited in this section deal specifically with a trust controlled by
spendthrift clauses.
12
550 N.W.2d 168, 170 (Iowa 1996). Thus, under the negotiated terms of the
contract between these parties, Michael agreed, in exchange for consideration, to
make his LPOA irrevocable. And although section 633B.110 does not specifically
reference this contingency, “[u]nless displaced by a provision of this chapter, the
principles of law and equity supplement” chapter 633B. Iowa Code § 633B.121.
So, we find Michael could agree to an irrevocable power of attorney as
consideration under a contract. But we must still determine whether he did so
under the contract at issue.
This brings us to another finding by the bankruptcy court that we find
compelling. A.Y. argued that once trust income is distributed to Michael or his
attorney-in-fact, the spendthrift protections of Iowa Code section 633A.2302(2) no
longer apply. Thus, A.Y. postures the irrevocable LPOA would be enforceable
against all trust distributions, current and future, even if protected by spendthrift
clauses. By its terms, the LPOA “irrevocably” appointed the attorney-in-fact for
this limited purpose of accepting the trust fund payments and forwarding them on
to A.Y. to satisfy Michael’s debt. The LPOA terms provided for automatic
termination “upon the earliest to occur of the following: (a) the death of
Michael . . . ; (b) upon the satisfaction of judgment . . . ; (c) August 31, 2032.” Yet,
focusing on the impact of an irrevocable LPOA on the spendthrift protections, the
bankruptcy court disagreed with A.Y. and explained:
The Court declines to consider the [power of attorney]
irrevocable here. The present case is distinguishable from the cited
cases because this case involves a spendthrift trust. To find the
[power of attorney] irrevocable here would turn a freely given
appointment of an attorney-in-fact into a virtual assignment of
[Michael’s] interest in a spendthrift trust. Such an assignment of
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interest would violate Iowa Code [section] 633A.2302(2). This
situation is simply not contemplated in either of the cases [A.Y.] cites.
Alternatively, [A.Y.] argues that [Michael’s power of attorney]
functions as a security agreement, securing [A.Y.’s] interest in future
trust distributions. [A.Y.] argues that, because the [power of attorney]
is a security agreement, [Michael] cannot revoke it until the debt
underlying its security interest is repaid. [A.Y.] cites no case law to
support this theory and the Court finds no precedent for it. Moreover,
allowing [Michael’s power of attorney] to function as a security
agreement would again violate Iowa Code [section] 633A.2302(2).
McDonald, 586 B.R. at 41. True, under trust law and as the bankruptcy court
surmised, “spendthrift restraint merely prevents the beneficiary from making an
irrevocable transfer of his or her beneficial interest.” Restatement (Third) of Trusts
§ 58, cmt. d(1). So Michael, as beneficiary of a spendthrift trust, could not
irrevocably transfer or assign his trust distributions.
Where a contract affects a public interest—such as here, allowing a donor
to restrict access of the beneficiary to spendthrift trust proceeds—legislation may
prescribe and limit the “contract even to the extent of fixing the rights of and
obligations to third persons for whose benefit the contract is made.” See In re Est.
of Murray, 20 N.W.2d 49, 55–56 (Iowa 1945). Thus, even though Michael
contracted to bind future distributions of trust funds, legislation specifically
mandates this cannot be done with spendthrift protected funds. While not binding
on us, we again agree with the bankruptcy court reasoning related to the
irrevocable LPOA and the impact upon the spendthrift provision of the trust. Thus,
we find Michael cannot be required to assign or transfer his spendthrift protected
distributions under an irrevocable LPOA.8
8 With this finding, we need not address Michael’s counterclaim argument that A.Y.
breached the Amendment by accepting monies from DB&T to release judgment
liens and, thus, cancelled the consideration given for the power of attorney. A.Y.’s
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Breach of Contract.
We still must answer if Michael breached his agreements with A.Y. and
whether A.Y. can proceed with collection of the trust distributions. The answer is
yes to both questions. Michael agreed to pay A.Y. the trust distributions, through
an attorney-in-fact, once he received them. And Michael directly received a trust
distribution of $6,218.44 in 2016 and failed to pay it to A.Y. in breach of the
Agreement. He confirmed his violation of the Agreement in a signed
acknowledgement. Now Michael has refused to authorize those payments to A.Y.,
believing that A.Y. cannot compel Michael to continue a transfer of future payments
under Iowa law. See Royal Indem. Co. v. Factory Mut. Ins. Co., 786 N.W.2d 839,
846 (Iowa 2010) (discussing elements and required proof to prevail on a breach of
contract claim). By breaching the agreement to turn over the trust distributions
once he received them, Michael opened the door for A.Y. to begin collection
activities against him. The LPOA was executed in exchange for the requirement
that A.Y. “cease and desist from any pending collection activities for so long as
[Michael] complies with the Agreement and all amendments thereto.” While we
determined A.Y. cannot enforce the LPOA,
[i]f the beneficiary of a spendthrift interest purports to transfer it to
another for value but later revokes the assignment and the trustee’s
authority pursuant to it, the beneficiary is liable to that other person.
Although that person cannot reach the beneficiary’s interest under
the trust, satisfaction of the claim can be obtained from other property
of the beneficiary or from trust funds after they have been distributed
to the beneficiary.
acceptance of payments from DB&T in exchange for releasing liens it held on two
of Michael’s properties did not constitute “collection activities” under the amended
restitution agreement and, therefore, was not a material breach of the contract.
We find the district court’s denial of this contract claim was well reasoned.
15
Restatement (Third) of Trusts § 58, cmt. d(1). This is the situation here. So, A.Y.
can pursue collection of trust distributions once received by Michael.
The Injunction.
With the conclusion that A.Y. cannot enforce an irrevocable LPOA
compelling future payments from a spendthrift trust, it follows that A.Y. is not
entitled to an injunction. “Permanent injunctive relief is an extraordinary remedy
that is granted only when there is no other way to avoid irreparable harm to the
plaintiff.” Lewis Invs., Inc. v. City of Iowa City, 703 N.W.2d 180, 185 (Iowa 2005).
It should be granted with caution and only when required to avoid irreparable
damage. Skow v. Goforth, 618 N.W.2d 275, 277–78 (Iowa 2000). Our supreme
court has emphasized, “[A] permanent injunction is a remedy that should be
granted only with caution[;] an injunction is warranted when it is necessary to
prevent irreparable injury to the plaintiff and when there is no other adequate
remedy at law.” In re Langholz, 887 N.W.2d 770, 779 (Iowa 2016). With the ability
to proceed with collection, A.Y. cannot show irreparable injury nor can we mandate
Michael to bind his spendthrift trust distributions.
The Attorney Fee Award.
A.Y. claims entitlement to attorney fees because Michael defaulted under
the terms of the Amendment. After finding Michael breached the agreement, the
district court awarded A.Y. $16,787.35 in attorney fees, plus interest. Ordinarily,
an award of attorney fees is not allowed unless authorized by statute or contract.
See Homeland Energy Sols., LLC v. Retterath, 938 N.W.2d 664, 707 (Iowa 2020).
No statute applies, so we look to the terms of the contract. The terms of the
Amendment are clear:
16
The parties hereby agree that, as of the execution of this
Amendment, any interest or attorney fees which would have
otherwise accrued against [Michael] are hereby waived by [A.Y.].
Furthermore, [Michael] shall not be liable for any interest or [A.Y.’s]
attorney fees unless he defaults on the Agreement and all
amendments thereto after the date of execution of this Amendment.
(Emphasis added.) Under these terms, Michael received the benefit of a waiver
of attorney fees incurred from the previous breach of the Agreement and agreed
to pay future attorney fees if he defaulted on the Agreement or the Amendment.
Here, with the condition of a default satisfied, the contract terms allow for payment
of attorney fees to A.Y., not to Michael. And while Michael requests attorney fees
in his brief, he did not in the district court below. See State v. Rutledge, 600
N.W.2d 324, 325 (Iowa 1999) (“Nothing is more basic in the law of appeal and
error than the axiom that a party cannot sing a song to us that was not first sung
in trial court.”). Nor do we find the contract language allows an award of fees to
Michael even if he proved a breach of contract.
Because Michael breached the terms of the Agreement, A.Y. is entitled to
the reasonable attorney fees ordered. See Van Sloun v. Agans Bros., Inc., 778
N.W.2d 174, 182 (Iowa 2010) (taxing attorney fees where agreement terms
expressly authorized payment). We affirm the award of attorney fees of
$16,787.35 to A.Y.
IV. Conclusion.
We affirm the district court’s order finding Michael in breach of the restitution
agreement and awarding attorney fees to A.Y. We also affirm the ruling that A.Y.
did not breach any agreement with Michael. We reverse the order enforcing the
17
LPOA and its restraint on the spendthrift trust distributions, and we reverse the
grant of A.Y.’s request for a permanent injunction.
AFFIRMED IN PART AND REVERSED IN PART.
May, J., concurs; Mullins, P.J., dissents.
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MULLINS, Presiding Judge (concurring in part and dissenting in part).
I concur on the part of the majority opinion that affirms the district court, and
I respectfully dissent from the parts that reverse the district court.
While employed at A.Y. McDonald Industries, Inc. (A.Y.), Michael McDonald
(Michael) committed “fraud while acting in a fiduciary capacity, embezzlement, or
larceny.” He violated the trust of A.Y. He gamed the business enterprise for his
own substantial, personal gain. After avoiding criminal consequences of his
actions and breaching his subsequent promise to repay over $2.5 million of ill-
gotten funds, he confessed judgment for more than $1.3 million. After that, in order
to stop A.Y.’s collection efforts he voluntarily, and for consideration, agreed to the
arrangement outlined in the majority opinion to appoint a limited power of attorney
to accept his share of spendthrift funds as they were distributed and after
distribution to that agent, the agent/attorney-in-fact would pay the funds to A.Y.
Unsurprisingly, Michael breached that agreement as well by accepting
funds that should have been paid to his attorney-in-fact. Thereafter, he filed for
Chapter 7 bankruptcy. Because the debt to A.Y. resulted from “fraud while acting
in a fiduciary capacity, embezzlement, or larceny,” it was non-dischargeable. A.Y.
then pursued Iowa court enforcement of the agreement, to which Michael agreed
to avoid collection efforts as mentioned above.
Michael defrauded the company for which he was chief executive officer to
the tune of more than $2.5 million. He later confessed judgment for more than
$1.3 million that was at that time still due A.Y. After negotiating a procedure that
caused A.Y. to cease collection activities, while Michael continued to dispose of
assets, he then breached the agreement, filed bankruptcy, and now claims he
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should not be bound by the agreement he negotiated that was supported by
consideration and freely made.
The majority opinion follows a strict, and I believe narrow, reading of
applicable law as applied to this unique set of facts. He gamed his company. He
gamed financial systems and sound business principles. He has been deceitful at
every stage and transaction in this saga. He has now gamed the courts. He should
be held accountable. While justice is blind, it/we should not turn a blind eye. I do
not think the law requires that. I would find the limited power of attorney procedure
to which he agreed, supported by consideration, was and is legally enforceable.
And such a procedure, which had the intent to result in the spendthrift trust make
payments to Michael via his attorney-in-fact, with his agreed direction that the
attorney-in-fact would then pay Michael’s distribution to A.Y., did not violate the
spendthrift provisions of the trust. See generally Iowa Code §§ 633A.1104,
633B.121, 633B.123; MacGregor v. Gardner, 14 Iowa 326 (1862)
I would affirm the order enforcing the LPOA and the grant of A.Y.’s request
for a permanent injunction.