North Skunk River Greenbelt Association, Inc. v. Allen

IN THE COURT OF APPEALS OF IOWA
No. 18-0842
Filed November 27, 2019
NORTH SKUNK RIVER GREENBELT ASSOCIATION, INC.,
Plaintiff-Appellee,
vs.
SCOTT ALLEN, TRAVIS YEGGY, MIKE RIDDLE, STEPHEN L. MAXON as
Administrator of the DORIS E. PARK ESTATE, IRMA ALTENHOFEN, and
FRIENDS OF BUNKER MILL BRIDGE, INC. (a/k/a FRIENDS OF BUNKER MILL
BRIDGE/FRIENDS OF BUNKER MILL BRIDGE ASSOCIATION),
Defendants/Third-Party Plaintiffs-Appellants,
vs.
JULIE BOWERS, as Executive Director of NORTH SKUNK RIVER
GREENBELT ASSOCIATION, INC.,
Third Party Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Washington County, Randy S.
DeGeest, Judge.
The defendants appeal a bench ruling denying their claims and concluding
they were not entitled to indemnification. AFFIRMED IN PART, REVERSED IN
PART, AND REMANDED.
Siobhan Briley of Pugh Hagan Prahm PLC, Coralville, for appellants.
Lanny M. Van Daele of Van Daele Law, LLC, North Liberty, for appellees.
Heard by Bower, P.J., and May and Greer, JJ.
2
GREER, Judge.
I. Background Facts and Proceedings.
This is a classic case in which failed corporate governance led to distrust,
dissention, and disorganization. With all the best intentions aside, had these two
nonprofit entities followed corporate principles and practices likely no lawsuit would
have been filed. It all started in August 2013 when an arsonist burned and badly
damaged the Bunker Mill Bridge, a historic bridge near Kalona, Iowa. When the
Washington County Board of Supervisors announced its intention to demolish the
bridge, Scott Allen, Doris Park,1 and several other local residents loosely formed
Friends of Bunker Mill Bridge (FBMB) in an attempt to save the bridge.2 The North
Skunk River Greenbelt Association, Inc. (NSRGA), an Iowa nonprofit corporation
with a goal of saving historic bridges, learned of FBMB’s efforts to save the Bunker
Mill Bridge and wanted to help.
To make that connection, in September 2013, Julie Bowers, NSRGA’s
executive director, attended a town hall meeting in Kalona and offered NSRGA’s
support and fiscal sponsorship to FBMB’s efforts to save and restore the bridge.
NSRGA/Workin’ Bridges and FBMB signed collaboration agreements.3 Because
FBMB was not a legal entity, NSRGA registered FBMB as a trademark to help with
community recognition and because the bank required that designation to deposit
checks made to FBMB.
1
Park passed away during the pending litigation. Her estate was substituted as a party.
2
Although not incorporated until 2017, FBMB functioned with officers and held meetings.
At one point, Allen acted as “executive director” of FBMB. Defendants described it as an
unincorporated nonprofit association under Iowa Code chapter 501B (2013).
3
“Workin’ Bridges” appears in construction contracts as a division of NSRGA and, along
with construction costs, paid consulting fees to Bowers.
3
With a plan for the bridge restoration in place, the Washington County Board
of Supervisors agreed to transfer ownership of the bridge to FBMB and NSRGA,
vacate existing easements with adjoining landowners to allow the easements to
be granted to FBMB and NSRGA, and donate $80,000 to FBMB in earmarked
demolition funds in two installments to help with the renovation efforts. Although
the collaboration agreement referenced setting up a Kalona bank account for
FBMB and transparency in accounting practices, NSRGA deposited some bridge
funds in its own bank account in Grinnell. FBMB had no access to the Grinnell
account. Along the way, FBMB also gathered $46,000 in donations, which it added
to the bridge restoration effort and deposited into its Kalona account.
Once the county deeded the bridge to NSRGA and FBMB, it became private
property. For that reason, the county no longer required roads to the north and
south of the bridge, and moreover it did not want a public road across a private
bridge for liability reasons. When the county vacated the road to the north and
south of the bridge, this land became the fee simple property of the adjacent
landowners. As a part of that grant of land, the county required those landowners
to negotiate easements with NSRGA and FBMB to allow bridge access.4 Bowers,
on behalf of NSRGA, and with some members of FBMB, negotiated with Rodney
Stumpf, the adjoining landowner to the south of the bridge, a right to install a fence
4
The required access easement granted to both NSRGA and FBMB included “the area
from the end of the Bunker Mill Bridge at the abutment, east 30’ from edge then south 30’,
back 75’ west then north 30’ to waterline, back 45’ to point of origin” and specifically
provided that the grantor “will at no time block said access easement, thereby preventing
access by Grantee to Grantee’s real estate.”
4
between his property and the bridge, which impaired access to the bridge from the
south.
At first, FBMB generally supported Bowers and NSRGA, but this support
eroded over time. One of the main causes of friction between the groups was
Bowers’s poor recordkeeping and financial management skills. In late 2013,
FBMB asked Bowers to provide an accounting to show how the money from the
county was being spent. Bowers refused. This caused tension among FBMB’s
members, leading some to resign. Through all of this tension, FBMB members
Allen and Park continued their support of Bowers. To help with the negative public
relations, in January 2014, Bowers encouraged Allen and Park to join the NSRGA
board of directors and lead a new FBMB committee within NSRGA to provide more
“transparency” about NSRGA’s finances and to act as liaisons between the two
groups and the community. Allen and Park were duly elected to NSRGA’s board
on January 23.
By April 2014, almost all of the $126,000 generated for the bridge
restoration had been spent, but the bridge construction was far from complete.
The project remained at a standstill for most of 2014 and 2015. At the end of 2015,
NSRGA developed a plan to finally complete the bridge project. NSRGA
suggested the FBMB committee raise $20,000 and NSRGA would contribute
another $20,000 to complete the bridge project. Once the funds were raised and
the work was complete, NSRGA planned to transfer ownership of the bridge to a
newly organized FBMB as a separate nonprofit. The FBMB trademark would also
be transferred to the new entity. In spite of this plan, NSRGA alleges the FBMB
5
committee only raised $2000 and NSRGA spent about $50,000 to finish the
project.
In late 2015, another NSRGA board member resigned. The board generally
accepted the resignation but did not identify a replacement until early 2016, when
Bowers invited her daughter, Laran Bowers, to join the board. No NSRGA minutes
reflect an election or approval of Laran to the board in early 2016, but Bowers
added her to the NSRGA board’s Facebook page. Bowers invited her friend Anna
Sutherland to join the NSRGA board in April 2016, yet there was no formal vote or
documentation of a vote until September 2016.
The bridge construction was completed in March 2016. It was at this tipping
point that a dispute about adjoining landowner Stumpf’s planned fence
construction arose between Bowers and the defendants. Allen and Park requested
documentation for approval of a fence that would block access to the bridge.
Bowers provided them with the easement agreement between the landowner with
NSRGA and FBMB.5 After reviewing the filed document, the defendants disagreed
that the easement agreement created a legal right to build a fence that would block
access to the bridge.6 Yet, on at least two occasions, FBMB leadership orally
confirmed the arrangement—both by actions and by words.7 The defendants
believed erecting a fence would prevent the public from using the bridge and
5
Stumpf’s easement grant to NSRGA/FBMB also referenced “a permanent access
easement over and across the real estate owned by grantor, via the lane running
southward from the County road known as Nutmeg Avenue following the real property on
the site 33’ from the centerline, situated in Washington County, Iowa.”
6
No signatures appeared on the writing other than Stumpf’s and the only notation related
to the fence was: “[f]ence to be no less/more than 30’ from south side of bridge.”
7
One FBMB member spoke to the supervisors in support of blocking the south entrance
at Stumpf’s property and another helped define the fence location with spray paint.
6
destroy the goodwill FBMB had created in the community around the bridge
restoration. These defendants were also concerned that NSRGA’s and FBMB’s
board had not approved construction of or payment for the fence. The fence was
not included in the estimates, progress reports, scope-of-work documents, or
project summaries for the bridge. This dispute fractured the relationships between
the remaining FBMB members in NSRGA and Bowers in particular.
Between March 26 and April 1, Allen, Park, and another defendant, Travis
Yeggy, sent multiple emails to Bowers explaining why they did not believe either
NSRGA or FBMB had a legal obligation to build the fence. Nevertheless, Bowers
insisted the fence would be constructed. During a phone call, Allen yelled that he
was “going rogue” to stop Bowers from building the fence. He contacted a
representative of the fence company to convince the company that constructing
the fence was illegal because the board had not approved the construction and it
would violate the easement agreements. In a last-ditch effort to prevent the fence
construction, Allen and Yeggy parked their cars in the easement area to prevent
the construction company from accessing the bridge to install the fence.
Eventually a construction company representative contacted the Washington
County Sheriff who asked Allen and Yeggy to move their cars, and they complied.
Construction of the fence was completed on May 9.
After the “rogue” activity, on September 8, NSRGA had its first meeting of
the year—a special meeting to remove Allen and Park as directors.8 Two directors
8
In early 2016, Bowers blocked Allen and Park from the NSRGA Facebook page where
she claimed all board activity occurred. After allowing them access for 48 hours in May
2016, she noted in a post: “I know that we never did a formal vote on removing the reps
to the board from FBMB—Scott and Doris, although I did my usual asking around before
7
voted to remove. Allen and Park believed they could not vote, but the meeting
minutes state that they voted against removal. Bowers abstained. Laran and
Sutherland voted to remove even though, as the defendants argue, they had not
been properly elected to the board. Allen and Park orally and in writing dissented
from the results of the meeting listing a number of reasons. Three days later,
NSRGA did a “clean-up operation” where it recognized Laran’s and Sutherland’s
previous election to the board.
With that factual history in mind, we summarize the proceedings. To start,
in June 2016, NSGRA applied for a temporary and permanent injunction against
the individual defendants—Allen, Yeggy, Riddle, Park, and Altenhofen—to prevent
them from entering the easement area at the bridge, and asked for the return of
NSRGA’s property and money. In July, the defendants filed a motion to dismiss,
arguing that Allen and Park had not been removed from NSRGA’s board, that
Bowers lacked standing to sue without the approval of a majority of NSRGA’s
board, and that the individual defendants could not be held liable because they
were all volunteers. The district court denied the defendants’ motion to dismiss.
Then, defendants answered in August, raised a number of affirmative defenses,
and counterclaimed for indemnification and for damages based on a breach of
fiduciary duty theory. NSRGA answered, denying all claims. In a third-party
petition, the individual defendants added Bowers to the suit, both as an individual
and in her official capacity as executive director of NSRGA, alleging a breach of
her fiduciary duty.
removing them from our page and our list. This is a formal vote now so check in
below . . . .”
8
On February 4, 2017, the parties entered into a consent decree, wherein
the defendants voluntarily agreed to be temporarily enjoined and to return specific
NSRGA property. Through a separate action filed in Polk County, defendants
sought judicial dissolution of NSRGA. The Polk County case was voluntarily
dismissed so the defendants could bring the claims in this Washington County
action.
On March 10, NSRGA moved to amend the petition to address newly
discovered facts, add FBMB as a potentially liable party, and add twelve additional
counts against all defendants: temporary and permanent injunction, reformation,
quiet title, dissolution, breach of contract, co-tenants/tenants in common
contribution, equitable compensation, unjust enrichment, trademark infringement,
judicial removal of directors, breach of director’s standard of conduct, and breach
of fiduciary duties.
The defendants filed a motion to dismiss the amended petition, which was
denied. In their answer to the amended petition, defendants raised the judicial
dissolution of NSRGA but also added counterclaims about fraudulent inducement,
breach of contract, intentional interference with business relations, conversion,
fraudulent transfer, indemnification, ultra vires acts, breach of fiduciary duty, and
conflict of interest. The defendants asserted that NSRGA misappropriated
$19,500 of the bridge project funds and applied them to other, unrelated projects
without FBMB’s consent or knowledge. The defendants further alleged that
Bowers wrote several checks to herself, withdrew thousands of dollars in cash from
the account, and used NSRGA money to pay for personal traffic fines and personal
expenses.
9
In January 2018, NSRGA moved for summary judgment on all claims, and
the defendants moved for summary judgment on all of NSRGA’s claims and on
some of defendants’ counterclaims. The defendants also sought sanctions against
NSRGA and its counsel. In February, the court denied the defendants’ motion for
summary judgment in full and granted NSRGA’s motion in part. The court
determined that Park and Allen were properly removed as board members of
NSRGA and therefore lacked standing to bring the indemnification, ultra vires acts,
judicial dissolution, breach of fiduciary duty, and conflict of interest counterclaims.
The court dismissed these claims. The court did not address the request for
sanctions.
Before trial, the defendants filed a motion to reconsider the ruling on the
indemnification counterclaim. The district court reversed its ruling and also
considered these other claims at trial: fraudulent inducement, breach of contract,
intentional interference, conversion, and fraudulent transfer. NSRGA’s remaining
claims remained viable but for the request for injunction.9
A four-day, non-jury trial was held from February 27 through March 2. After
the trial, the parties submitted posttrial motions and proposed findings of fact and
conclusions of law.
On March 23, the district court entered its findings of fact and conclusions
of law. To begin, the court confirmed that the Allen and Park removals were valid
and for good cause and that NSRGA and FBMB legally contracted with Stumpf for
a fence. Finding that Bowers “only barely followed the rules,” the court found no
9
NSRGA withdrew claims for injunctive relief during trial.
10
bad intentions or ill motive on her part and that any violations of accepted
standards were minimal. As for the relief requested by NSRGA,10 the court denied
its claim to title in the bridge and transferred ownership of the bridge and the FBMB
trademark to the newly incorporated FBMB. Based on NSRGA’s recordkeeping,
the court found that it failed to prove it was entitled to anything from these
defendants. Thus, the court denied the request for the return of property and donor
recognition items, awarded no funds to NSRGA, and denied NSRGA’s claims for
breach of contract, equitable contribution, and unjust enrichment.
As to defendants’ theories of recovery, the court declined relief for breach
of contract, fraudulent inducement, intentional interference, and conversion. The
court denied Allen and Park indemnification. Finally, the court awarded FBMB
funds held in trust by its counsel and equally split court costs among the parties.
The court did not address the request for sanctions.
The defendants filed a motion to reconsider and referenced the failure to
award sanctions among other issues. The motion was denied. The defendants
appeal, but NSRGA does not.
II. Standard of Review.
The district court tried this case in equity. On appeal, we review a case in
the same manner it was tried before the district court. For that reason, we review
the issues de novo. Iowa R. App. P. 6.907; Schildberg v. Schildberg, 461 N.W.2d
186, 190 (Iowa 1990). In our de novo review, we examine both the facts and the
law and decide the issues anew. SDG Macerich Props., L.P. v. Stanek Inc., 648
10
The parties negotiated a consent decree resolving the temporary injunction matter
before trial. The permanent injunction request was withdrawn at trial.
11
N.W.2d 581, 584 (Iowa 2002). We give weight to the district court's fact findings,
especially those assessing witness credibility, but we are not bound by them. Id.;
see also Jochimsen v. Wapsi Hunting Club, Inc., No. 10-1430, 2011 WL 2695272,
at *4 (Iowa Ct. App. July 13, 2011). The parties both agree on this standard of
review.
III. Analysis.
The defendants raise the following issues on appeal: (1) whether Allen and
Park are entitled to mandatory or permissive indemnification as directors of
NSRGA based on NSRGA’s bylaws and on Iowa law; (2) whether the defendants
proved NSRGA and Bowers converted FBMB funds; (3) whether the defendants
have standing to argue that NSRGA should be judicially dissolved; and (4) whether
the court should impose sanctions on NSRGA and its counsel. We will address
each issue below, but because many issues turn on the director status of Allen
and Park in NSRGA, we first address that determination.
A. Director Status of Park and Allen. In the ruling on defendants’
application for injunctive relief, the district court found that NSRGA legally removed
Park and Allen from the board on September 8, 2016. After four days of trial, the
court also confirmed that the board action to remove Park and Allen complied with
the law and was for good cause. On the surface, the board acted to remove two
“rogue” directors and did so at a special meeting for that purpose. All would seem
fair, yet a deeper dive into the corporate records establishes a pattern of inattention
to the important details established by our Iowa Legislature in Iowa Code chapter
504 (2016). Before we can condone corporate action to remove directors, we
study the process to confirm compliance with the law.
12
Starting with the revisions to chapter 504, we note an increased focus on
directors’ fiduciary duties. In 2004, a governor’s task force was appointed “to
examine and enhance the role of Iowa’s nonprofit organizations in the building of
Iowa communities.” Univ. of Iowa, Larned A. Waterman Iowa Nonprofit Res. Ctr.,
Iowa Principles and Practices for Charitable Nonprofit Excellence ii (Rev. 2016),
https://inrc.law.uiowa.edu/publications/iowa-principles-and-practices-charitable-
nonprofit-excellence [hereinafter Principles and Practices]. The task force’s efforts
led to the development of the Principles and Practices, which were most recently
revised in 2016. Id. The Principles and Practices stresses accountability for
charitable nonprofits, which “takes a variety of forms: good management practices,
legal mandates, and ethical conduct.” Id. at 42. In reviewing this board’s corporate
governance, we emphasize the importance of strict compliance to corporate
bylaws and articles of incorporation, along with the statutory requirements guiding
corporate oversight.
“[An a]ssociation's governing documents are its declaration and bylaws,
which are to be construed as a whole.” Oberbillig v. W. Grand Towers Condo.
Ass’n, 807 N.W.2d 143, 150 (Iowa 2011). Bowers, as executive director of
NSRGA, and her board lacked knowledge of important principles and practices
related to a nonprofit organization. As time went on, the corporate governance
declined so that legal mandates and corporate management became a second
thought. Even the district court referenced, not once but twice, this concern. 11
11
The court noted: “Julie Bowers, simply put, is a very poor business manager. Her
recordkeeping and financial reporting is abysmal. . . . NSRGA’s books and reporting were
a nightmare.”
13
After reviewing the corporate documents, we agree with the district court’s
concern. But as for the removal of the directors, the requisite attention to detail
requires that we reinstate Allen to the board.
In particular, NSRGA significantly reduced the number of meetings it held
after 2010. In 2015, NSRGA only held one meeting at year end. The next formal
meeting in September 2016 resulted in removal of the dissenting directors Park
and Allen. Voting at that September meeting were new directors Laran and
Sutherland. If counted, these directors’ two votes provided the required majority
to remove Park and Allen. There were no formal meetings between 2015 and
September 2016 reflecting an election of Laran and Sutherland to the board.
When pressed about the absence of written documentation of the new
directors’ election to the board, Bowers offered that her daughter was elected on
January 201612 after a board meeting and discussion at a December 2015
meeting. Believing that votes and business could be conducted by Facebook,
Bowers asserted a posting confirmed the election.13 As for Sutherland, the board
confirmed her membership on September 11 as “formally reauthorize, recognize
and welcome” of new members. Likewise, Bowers claimed a Facebook vote in
April 2016 did the deed. Yet that post simply noted her invitation and acceptance
but reflects no vote of any directors confirming her role.14 “It is also a rule
12
In a January 10, 2016 Facebook post, Bowers wrote, “I am inviting Laran to this page
so that she can review notes, posts and files. She has said yes to being on the board and
we can put that on the next agenda.”
13
Bowers could point to no official change to the bylaws that allowed telephonic meetings
but did not reference votes by Facebook. The January post referenced Laran’s interest
to serve but noted she would be voted on at a later meeting—that meeting was September
11, 2016, three days after Park and Allen were removed.
14
In an April 7, 2016 Facebook post, Bowers wrote, “Anna Sutherland was invited to this
board and has accepted a position as one of the newest.”
14
governing corporations that the members of the board cannot agree separately,
and outside of a meeting, and thereby bind the corporation. Nor can a minority of
the board meet and bind the corporation.” Ney v. E. Iowa Tel. Co., 144 N.W. 383,
386 (Iowa 1913). Other than the detailed minutes from the September 11
meeting—after the vote to remove Park and Allen—no board minutes exist that
conform to the actual NSRGA bylaws supporting the election of new directors.
When asked about following the formal rules, Bowers acknowledged the
bylaws were never amended but asserted they needed to be. Directed by the
bylaws submitted at trial, removal of a director required votes in favor by a majority
of the entire board. If we accept the position that Sutherland and Laran were not
officially directors in September 2016, the action of removing Allen and Park fails.
If Allen, Park, Diane Roth, and Jaydine Good were directors, along with Bowers
who abstained from voting, no majority vote occurred favoring removal. While
plaintiff took a contrary position at oral arguments, we find because Bowers
abstained from voting, her vote is considered a “no” vote. “Similar to the IBCA
(Iowa Business Corporation Act), an abstention is treated as a ‘no’ vote.” 6
Matthew G. Dore, Iowa Practice Series: Business Organizations § 40:18 (Nov.
2018 update); see also Iowa Code § 504.825(4)–(5). Thus, the vote to remove
failed.15
15
Roth, Good, and Julie Bowers were legitimately on the NSRGA board. With their votes
and the abstention, the final count was: J. Bowers, Allen, and Park as “No” votes and Roth
and Good as “Yes” votes, leading to a final vote of three to two against removal.
15
In effect, Park and Allen remained directors, and the claims dismissed
pretrial relating to their director status were viable. With the status question
resolved, we examine the ramifications on those claims preserved in this appeal.
B. Indemnification. At trial, the plaintiff raised issues of judicial removal
of directors, breach of director’s standard of conduct, and breach of fiduciary duties
by directors Allen and Park. Allen and Park argued Iowa Code section 504.853
requires NSRGA to indemnify them since they were “wholly successful” in the
defense of claims related to their director status. These directors avoided any
finding of liability against them. A nonprofit corporation must “indemnify a director
who was wholly successful, on the merits or otherwise, in the defense of any
proceeding to which the director was a party because the director is or was a
director of the corporation against reasonable expenses actually incurred by the
director in connection with the proceeding.” Iowa Code § 504.853. “[A] person [is]
considered ‘wholly successful, on the merits or otherwise’ only if the proceeding ‘is
disposed of on a basis which does not involve a finding of liability.’” 6 Matthew G.
Dore, Iowa Practice Series: Business Organizations § 28:16 (Nov. 2018 update)
(quoting Model Bus. Corp. Act § 8.52 cmt. (3d ed. 1985 & Supp.)).
On this issue, the district court determined that Allen and Park were not
wholly successful, thus not entitled to indemnification, because they “did not act in
good faith” and “their conduct was not in the best interests of NSRGA.” This
conclusion arose from evidence related to their “rogue” actions in trying to block
the Stumpf fence construction. But the statute related to mandatory
indemnification applies without consideration to good-faith actions or a
determination of best interests of the corporation. For mandatory indemnification
16
to apply, the key question is whether Allen and Park were wholly successful
defending the claims lodged against them as directors. If the answer is “yes,”
indemnification of those reasonable defense costs is warranted.
Plaintiffs argue that under Iowa Code section 504.859, the NSRGA articles
of incorporation restrict indemnification to a permissible situation. We disagree.
Mandatory indemnification is required by statute where a director establishes
entitlement. Iowa Code §§ 504.853, .855(1)(a). Because we find directors Park
and Allen were wholly successful at trial, we order payment of reasonable fees and
costs associated only with the defense of the director claims urged by plaintiff
against Allen and Park.
C. Conversion of Funds. Defendants argued at trial that the financial
reports Bowers generated were at best unreliable and at worst intentionally false.
Based on information gleaned from discovery, defendants urge that Bowers
misappropriated funds meant for the bridge restoration project. FBMB demands
the return of $19,500 for the bridge project.16 Likewise, Allen asserts Bowers used
the NSRGA checkbook as her personal checkbook. Under this record, NSRGA
operated without corporate protections and oversight. With those concerns in
mind, various board members withdrew early on citing “alarm bells were going off”
based on the lack of accounting of funds.
16
This sum originates from this calculation: FBMB funds of $8000 + $10,000 spent on an
unrelated Alabama project + $1500 discrepancy on payment of construction expense—
allegedly paid $20,000 on an $18,500 invoice.
17
Yet no party presented a full accounting of these funds in this case.17 As
confirmed by the district court, no “simple financial report listing all income received
for the property and listing all disbursements” found its way into the evidence. To
that end, the district court described NSRGA’s reports and books as a “nightmare”
and Bowers’s recordkeeping as “abysmal.” At the same time, defendants
presented no exhibit detailing an accounting of funds or claimed misappropriations.
Still, defendants argued that Bowers, on behalf of NSRGA, misappropriated and
converted at least $19,500 given to FBMB for the bridge project.
“Conversion is the act of wrongful control or dominion over another's
personal property in denial of or inconsistent with that person’s possessory right to
the property.” Ezzone v. Ricciardi, 525 N.W.2d 388, 396 (Iowa 1994). As a starting
point, defendants have the burden to prove a possessory interest in the property
converted. Blackford v. Prairie Meadows Racetrack & Casino, Inc., 778 N.W.2d
184, 188 (Iowa 2010). We agree with the district court’s denial of the conversion
claim and the holding that the evidence did not prove Bowers wrongfully converted
funds. At the heart of a conversion claim is control over another’s property.
NSRGA’s accounting lacks clarity, but defendants shed no helpful light on the
money trail to establish its entitlement to the funds. Under this record, defendants
failed to prove a claim for conversion.
D. Standing to Pursue Dissolution. The trial court made slight reference
to this issue but articulated a lack of evidence to support dissolution. The plaintiff
argued these removed directors lacked standing to request this remedy. Allen and
17
During oral arguments, counsel for defendants conceded an inability to prove that bridge
funds raised were not spent for the renovation.
18
Park argue because they were not legally removed as directors at the September
8, 2016 meeting, they had standing to pursue judicial dissolution of NSRGA. To
support their claim for judicial dissolution, the defendants assert that Bowers
wasted or misappropriated NSRGA assets to the detriment of the bridge project
and FBMB. Focusing on director Julie Bowers, they urge that her control of
NSRGA is illegal along with her use of its assets. “The law commonly describes
the fiduciary duties of corporate directors as twofold, consisting both of a duty of
care and a duty of loyalty.” Cookies Food Prods., Inc. v. Lakes Warehouse Distrib.,
Inc., 430 N.W.2d 447, 451 (Iowa 1988). “[T]he burden is upon a managing officer
or director of a corporation to prove good faith, fairness and honesty in his
transactions with it . . . .” Kurtz v. Oxborrow, 4 N.W.2d 857, 858 (Iowa 1942).
Under Iowa Code section 504.1431(1)(b), corporate members may bring an
action for judicial dissolution of that corporation under specified circumstances.18
Allen and Park argue the NSRGA board’s and Bowers’s lack of financial oversight
supports dissolution.
18
Iowa Code section 504.1431(1)(b) provides,
b. Except as provided in the articles or bylaws of a religious
corporation, in a proceeding brought by fifty members or members holding
five percent of the voting power, whichever is less, or by a director or any
person specified in the articles, if any of the following is established:
(1) The directors are deadlocked in the management of the
corporate affairs, and the members, if any, are unable to break the
deadlock.
(2) The directors or those in control of the corporation have acted,
are acting, or will act in a manner that is illegal, oppressive, or fraudulent.
(3) The members are deadlocked in voting power and have failed,
for a period that includes at least two consecutive annual meeting dates, to
elect successors to directors whose terms have, or would otherwise have,
expired.
(4) The corporate assets are being misapplied or wasted.
19
We do not find that dissolution of NSRGA is a reasonable remedy on this
record. Like the conversion claim, the evidence failed to establish the requisite
failures necessary for dissolution of NSRGA. Even so, we cannot condone the
conduct of the board, its lack of corporate oversight and recordkeeping, the
longstanding history of failure to operate under sound principles and policies
related to legal requirements of the Iowa Legislature, and the exposure of the
potential “tip of the iceberg” inappropriate use of funds by Bowers. While courts
may fashion other reasonable alternatives instead of dissolution, we urge these
directors to attend the available training on the fiduciary duties and role of directors
in a nonprofit corporation. Iowa Code § 504.1431(2)(a) (requiring the court to
consider “reasonable alternative to dissolution”); see also Sauer v. Moffitt, 363
N.W.2d 269, 275 (Iowa 1984) (imposing other equitable relief in a minority
shareholder for profit farm corporation action). We deny the request to dissolve
NSRGA.
E. Request for Sanctions. Finally, defendants argue that sanctions are
appropriate here because neither the plaintiff nor its counsel undertook a
reasonable investigation before initiating this lawsuit and because the lawsuit was
filed in bad faith and for an improper purpose. The district court denied the request
for sanctions reasoning that an earlier ruling in the case disposed of the issue. In
this hard-fought case, defendants take issue with the narrative detailed by Bowers
and her witnesses. In the heat of this battle between the parties, we do not find
that NSRGA or its counsel asserted frivolous positions. Instead, each party’s
version of facts, as often is the case, comes from different perspectives. We review
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this issue for an abuse of discretion. Wemett v. Schueller, 545 N.W.2d 1, 3 (Iowa
Ct. App. 1995). We find no abuse of discretion.
IV. Disposition.
For all of the above-stated reasons, we affirm in part and reverse in part the
district court ruling. We remand for a determination of the reasonable fees and
expenses limited to the defense of plaintiff’s claims against Park and Allen.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.