938 N.W.2d 664
Iowa2020Background:
- Steve Retterath, HES’s largest unitholder (~28%), signed a Member Unit Repurchase Agreement (MURA) on June 13, 2013 for HES to buy all his units for $30,000,000 (two installments) with an August 1, 2013 closing; the HES board approved the MURA June 19 but no membership vote occurred.
- Retterath (through counsel) repudiated/revoked the transaction in late June 2013; HES maintained the parties had a binding contract, obtained lender commitments and preparations for financing, but the closing never occurred.
- HES sued for breach and specific performance; Retterath asserted multiple affirmative defenses and demanded a jury (which the district court struck); Jason and Annie Retterath intervened.
- The district court granted summary judgment that membership approval was not required, bifurcated newly amended claims, denied Retterath’s motion to exclude late-produced bank documents or continue trial, held the MURA valid and enforceable, ordered specific performance, and awarded attorney fees under the MURA’s indemnity clause.
- On appeal the Iowa Supreme Court affirmed the court’s procedural and substantive rulings except it reversed the attorney-fee award, concluding the indemnity clause did not clearly and unambiguously shift fees for HES’s breach-of-contract suit.
Issues:
| Issue | Plaintiff's Argument (HES) | Defendant's Argument (Retterath / Intervenors) | Held |
|---|---|---|---|
| Right to jury trial | HES proceeded in equity seeking specific performance; controlling issue is equitable remedy so no jury right | Retterath asserted jury demand for contract issues | Court: action properly in equity; striking jury demand affirmed |
| Bifurcation of trial | Bifurcation proper for judicial economy; specific performance may dispose of entire dispute | Defendants said bifurcation prejudiced their remaining claims | Court: discretionary use of rules 1.914/1.953 permissible; bifurcation affirmed |
| Membership approval under operating agreement | Operating agreement (esp. §5.16) permits board/committee to authorize unit reacquisition without member vote | Retterath/intervenors said §5.6(b)(v), §4.1 or Iowa law required member consent | Court: §5.6(b)(v) does not govern reacquisition of company’s own units; member approval not required; summary judgment affirmed |
| Pretrial sanctions / continuance for late bank documents | HES produced lender/approval documents within procedural time for deposition production; no prejudice | Retterath said docs were late, prejudiced expert prep and trial | Court: production complied with rules and prejudice not shown; denial of sanctions/continuance affirmed |
| Validity/binding nature of MURA (timing of signatures) | HES: MURA became binding as signed and delivered by member before stated deadline; deadline language applied only to member signature/delivery | Retterath: MURA required HES’s full signature/board approval by deadline | Court: deadline language applied to member’s signature/delivery only; MURA valid and binding |
| Entitlement to specific performance | HES: units were unique (board-appointment power) and money damages inadequate; HES was ready, able, and did or could waive conditions; repudiation by Retterath excused HES | Retterath: damages adequate; HES hadn’t met conditions precedent, lacked financing, and acted inequitably | Court: specific performance appropriate—damages inadequate, HES had/secured financing, Retterath repudiated, and HES was ready/willing; remedy affirmed |
| Affirmative defenses (estoppel, mistake, unclean hands, unconscionability) | HES: no evidence of fraud/misconduct, parties were sophisticated, and defenses lack merit | Retterath: HES misled him on tax allocations, acted inequitably, deadline pressure, unfair terms | Court: defenses rejected—no evidence HES intended improper tax allocation at formation; parties were sophisticated; agreement not unconscionable |
| Attorney fees under MURA indemnity (§4) | HES: §4 indemnity ("including reasonable attorneys’ fees") covers fees incurred enforcing the MURA | Retterath: indemnity covers third-party claims, not shifting fees in a direct breach action | Held: indemnity language not sufficiently clear and unambiguous to shift fees for HES’s breach suit; fee award reversed |
Key Cases Cited
- Hedlund v. State, 930 N.W.2d 707 (Iowa 2019) (jury-trial/equity classification principles)
- Weltzin v. Nail, 618 N.W.2d 293 (Iowa 2000) (equity actions and jury issues)
- Van Sloun v. Agans Bros., Inc., 778 N.W.2d 174 (Iowa 2010) (classifying actions when both legal and equitable relief sought)
- Lyon v. Willie, 288 N.W.2d 884 (Iowa 1980) (specific performance ordered for closely held stock; partial final judgment analysis)
- Schmidt v. Pritchard, 112 N.W. 801 (Iowa 1907) (specific performance for withheld stock where market substitute unavailable)
- NevadaCare, Inc. v. Dep’t of Human Servs., 783 N.W.2d 459 (Iowa 2010) (indemnity clause must clearly and unambiguously shift litigation fees)
- Gingerich v. Protein Blenders, Inc., 95 N.W.2d 522 (Iowa 1959) (specific performance and personal property generally)
- Peak v. Adams, 799 N.W.2d 535 (Iowa 2011) (contract interpretation principles)