A.Y. McDonald Industries, Inc. v. Michael B. McDonald

• Court: Court of Appeals of Iowa
• Decided: July 21, 2021
• Docket: 20-0766
• Status: Published

Opinion

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. 2

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 3

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 4

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. 5

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, 6

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). 8

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 9

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. 11

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 13

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 14

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. 18

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 19

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.