IN THE SUPREME COURT OF IOWA
No. 22–0259
Submitted February 21, 2024—Filed April 19, 2024
BRIAN HORA and GREGG HORA, Individually and on Behalf of HORA FARMS, INC., and PRECISION PARTNERS, CORP.,
Appellants,
vs.
KEITH HORA and KURT HORA, Individually and in Their Capacity as Shareholders, Directors, Officers, Managers, and Employees of HORA FARMS, INC., HEATHER HORA, and HK FARMS, INC.,
Appellees.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Washington County, Sean W.
McPartland, District Court Judge.
Defendants in derivative shareholder action seek further review of court of
appeals reversal of district court judgment dismissing all claims. DECISION OF
COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED. Oxley, J., delivered the opinion of the court, in which all justices joined.
John F. Lorentzen (argued) of Nyemaster Goode, PC, Des Moines, and
Sarah J. Gayer of Nyemaster Goode, PC, Cedar Rapids, for appellants.
Abram V. Carls (argued) and Stephen J. Holtman of Simmons Perrine
Moyer Bergman PLC, Cedar Rapids, for appellee Keith Hora.
Joseph W. Younker (argued) and Matthew G. Barnd of Bradley & Riley PC,
Iowa City, for appellees Kurt Hora, Heather Hora, and HK Farms, Inc. 2
OXLEY, Justice. Family farms are as Iowan as baseball is American. Passing family farms
on to the next generation takes planning, and structuring a farm into a corpora-
tion with shares that can be gifted and passed down is a common method of
doing so. But with incorporation comes corporate responsibilities to sharehold-
ers. This appeal involves a not-so-uncommon clash between one generation and
the next over the best ways to operate a family farm.
Two brothers brought this derivative action as minority shareholders in a
family farming corporation against their dad and brother, claiming that they
breached fiduciary duties owed to the corporation based on their management
of the farming operation. Following an eleven-day bench trial, the district court
entered a thorough order detailing its factual findings and concluding that nei-
ther defendant breached fiduciary duties owed to the corporation. On its de novo
review, the court of appeals took a very different view of the evidence and re-
versed the district court with respect to two specific issues. On further review,
we vacate the court of appeals decision and affirm the district court.
I. Background.
This case involves members of the Hora family. To keep the players straight, we start with an overview of the Hora family tree. George and his wife
Marie are at the top. They have three children: Keith, Kathy, and Kevin. As rele-
vant to this case, Keith married Celeste, and they have six children: Gregg, Brian,
Kurt, Dana, Darren, and Heidi. Two of those children—Gregg and Brian—are the
plaintiffs. They sued Keith, their father, and Kurt, their brother.
George Hora farmed in Washington County with his son Keith and incor-
porated his farming operation as “Hora Farms, Inc.” (HFI) in 1974. The HFI Ar-
ticles of Incorporation provided for only two directors, and Keith has always been one of them. George served as a director from 1974 until he was replaced by 3
Keith’s wife Celeste in 1977. Celeste served as a director until her cancer diag-
nosis in 1985 when she was replaced by George, who continued to serve as a
director until his death in 1995. After George’s death, Marie (George’s wife and
Keith’s mother) served as a director alongside Keith until her death at the age of
ninety-nine in March 2015. Keith was the secretary of HFI from 1975 until 2016,
and he has been its president since 1995 following George’s death. At all relevant
times, Keith has personally guaranteed HFI’s debts.
Initially, HFI only had one class of shares (Class A), which were voting
shares equally held by George, his wife Marie, his son Keith, and Keith’s wife
Celeste. In 1977, HFI amended its Articles of Incorporation and issued shares of
nonvoting stock (Class B) in equal amounts to George, Marie, Keith, and Celeste.
The Class B shares were issued so they could be gifted to other family members
without affecting control of the corporation.
Kathy and Kevin, Keith’s younger siblings, were gifted Class A and Class
B shares of HFI when their parents passed away. Kathy is not involved in farm-
ing, and Kevin—who is twenty years younger than Keith—farms on his own in
Washington County. Keith’s wife Celeste passed away in 1989, and her will cre-
ated the “Celeste Hora Trust,” naming Keith as its trustee. The Trust’s primary asset is the shares of HFI stock owned by Celeste at the time of her death. Keith
has a life estate in the Trust, and each of Keith and Celeste’s children have re-
mainder interests.
At the time of trial, Keith owned 42% of the Class A voting shares of HFI
individually and controlled an additional 25% of those shares through his role
as trustee of Celeste’s Trust. Kathy and Kevin (Keith’s siblings) each own 16.5%
of the Class A voting shares, which make up the remaining Class A shares not
owned or controlled by Keith. Of the nonvoting Class B shares, Keith owned 24%, Celeste’s Trust owned 24%, Kathy and Kevin each owned 15%, and Keith and 4
Celeste’s six children—including Gregg and Brian—each owned a little over
3.5%.
HFI owns 1,075 acres of farmland where it grows corn and soybeans. HFI
has not raised livestock since the 1980s. Keith’s three oldest sons—Gregg, Brian,
and Kurt—each attended Iowa State University and received agriculture-related
degrees before returning home to farm HFI with Keith. While running their own
farming operations, each son also served as HFI’s operations manager at differ-
ent points in time and received similar benefits from HFI as part of their com-
pensation. They used HFI equipment rent-free for their own operations, they
used HFI corn to feed their own hogs, and they stored their own corn in HFI grain
bins, which was commingled with HFI’s corn. Gregg, the eldest, returned home
from Iowa State University in May 1982. He farmed with Keith until August 1985,
when he moved to Ft. Dodge to farm with his in-laws. Brian, the second eldest,
took over as operations manager after graduating from Iowa State in 1985, and
he continued in that role until 2000. Brian’s personal farming operation is in-
corporated as “Precision Partners Corp.” Following in his older brothers’ foot-
steps, Kurt graduated from Iowa State in 1988 and then worked on the HFI farm
under Brian. Kurt and Brian had a contentious working relationship, which reached a boiling point in the fall of 2000 when they argued about whether Kurt’s
soybeans should be harvested before HFI’s corn. After that argument, Brian quit
as operations manager, and Keith fired Kurt. In early 2001, Keith asked Kurt to
come back to operate HFI, and Kurt agreed on the condition that Brian was not
involved.
From 2001 through 2015, Kurt worked as the operations manager of HFI.
Keith was also heavily involved in the farming operation during that time. Kurt
had his own farming operation with his wife Heather, HK Farms, Inc., where he grew corn and ran a hog finishing operation that raised pigs from weanlings to 5
market weight. During this time, Brian owned and farmed around 850 acres
through Precision Partners and rented another 230 acres of cropland from HFI.
As noted, Gregg was farming near Fort Dodge and was not involved with HFI at
all during this time.
While he was still acting as operations manager, Brian drafted Kurt’s em-
ployment contract for the period of January 1 to December 31, 2000, which Kurt
continued to use as his employment agreement—even after he moved into the
position of operations manager—until a new contract was drafted in 2017. Kurt’s
original employment contract from 2000 was similar to Brian’s previous employ-
ment agreement, and both provided that a portion of their respective compensa-
tion would be “paid in grain used, stored, or sold in employees name.”
In 2015, Brian and Gregg became concerned about the operation of HFI
after they received recent financial information for HFI while assisting Keith with
estate planning. Keith was also working with an estate planning attorney and a
farm business consultant during this time. At Keith’s request, Gregg took over
the open HFI director position in the spring of 2015 following his grandmother’s
death.
When Brian and Gregg started digging into HFI’s finances, they became concerned that Keith and Kurt did not have a good grasp on the farm’s opera-
tions, particularly its poor working cashflow. Recent tax returns showed operat-
ing losses for HFI, and its outstanding loan balances were on the rise. However,
one of the biggest points of contention involved the lack of documentation con-
cerning HFI’s corn inventory.
On May 25, 2015, a family meeting was held to discuss the future of HFI
and quell the rising tensions among family members. At the meeting, Keith re-
viewed the history of the family farm and stressed the importance of the farm’s legacy, which was built on his and his father’s sacrifices and hard work. The 6
family discussed discrepancies in the grain inventories; concerns over operating
losses, rising debt, and insufficient working capital; and concerns about inade-
quate documentation, lack of transparency, and mistrust. These were not new
concerns. As revealed by notes from a 1994 family meeting, Brian had raised
similar complaints about commingling and using HFI corn in other operations
twenty years prior.
The biggest point of contention involved tracking the HFI corn inventory.
As operations manager, Kurt used annual year-end settlement sheets to account
for grain inputs, production, sales, and inventory and to reconcile the use of his
personal equipment and farmhands for HFI’s benefit against expenses paid by
HFI for Kurt’s benefit. As operations manager, Kurt—like Gregg and Brian before
him—commingled his own corn with corn grown by HFI and Kevin (Keith’s
brother) in HFI’s grain bins. Kurt allocated the corn in the bins between the three
of them based on readings from the combines as the corn was harvested from
their respective farms rather than weighing the corn as it was put into the bins.
Also, like his brothers before him, Kurt used some of HFI’s corn to feed his hogs,
which was consistent with the terms of his employment contract. In 2001 and
2002, Kurt recorded the corn he removed from the grain bins to feed his hogs each month by weight. In 2003, Keith agreed to allow Kurt to stop weighing the
corn and instead utilize a formula based on the assumption that Kurt fed nine
bushels of corn to each hog that reached market weight. The nine-bushel as-
sumption came from Kurt’s feed salesperson at Big Grain. Kurt used the nine-
bushel assumption in his year-end settlement sheets from 2003 to 2015. In
2015, Kurt began using a grain cart to weigh the harvested corn before it went
into the grain bins to provide a more accurate accounting. He also began weigh-
ing the grain that he removed from the shared bins to feed to his hogs. 7
Based on documents provided by Keith, Brian calculated that between
2010 and 2015, HFI produced over 200,000 bushels of corn that were not sold
or otherwise accounted for. Kurt attributed the difference to normal corn loss
from things like shrinkage, cleaning, and problems with the grain-handling ma-
chinery. Brian and Gregg, on the other hand, attributed the difference to Kurt’s
theft of HFI corn for his own use.
After becoming a director in the spring of 2015, Gregg attempted to work
with Keith, the farm consultant, and HFI’s lenders to improve HFI’s operations.
Gregg preferred to divide up the farm, sell off the equipment, and cash-rent the
land. Keith wanted to continue the farming legacy he and his dad had built so
he could pass the land to Brian and Kurt to continue farming. By the spring of
2016, Gregg and Brian were contemplating litigation against Keith and Kurt.
Gregg resigned as a director of HFI during an eight-hour shareholder meet-
ing in July 2016, where he unsuccessfully attempted to get his other siblings to
join him and Brian in suing HFI, Kurt, and their father. Gregg’s director position
sat open for a year until the youngest brother, Darren—who was not involved in
the family farming disputes—was elected as the second director in the summer
of 2017. Like his older brothers, Darren graduated from Iowa State University in 1989 and farmed briefly with HFI, but he quit after finding himself stuck in the
middle of a physical altercation between Brian and Kurt that fall. He has worked
in the seed industry since. As a director, Darren helped Keith restructure the
farming operation, more closely track expenses, and keep a more formal monthly
accounting of the corn inventory. HFI reduced its overall debt by $460,000 in
the three years following Darren joining the board in 2017.
As relevant to this appeal, Gregg and Brian, individually and on behalf of
HFI, brought this action against Keith, Kurt, Heather (Kurt’s wife), and HK Farms in August 2017 and filed an amended petition in November 2018 after the case 8
was assigned to the business specialty court. The amended petition asserted
three derivative claims brought by Brian and Gregg as minority shareholders on
behalf of HFI against Keith and Kurt for: breach of fiduciary duties owed to HFI
(count I); fraud, fraudulent concealment, and fraudulent misrepresentation
(count II); and statutory remedies of appointment of an independent custodian
or dissolution of the corporation premised on statutory violations (count III).1
The amended petition alleged that Heather and KH Farms were liable for Kurt’s
breaches on an aiding and abetting or conspiracy theory. Gregg and Brian also
brought a claim as beneficiaries of Celeste’s Trust seeking the removal of Keith
as trustee, as count IV.2
A. District Court Proceedings. The district court held an eleven-day
bench trial. Fourteen witnesses testified, including the parties, banking and ag-
riculture consultants who worked with Hora Farms over the years, and both
sides’ experts. In addition, the parties introduced thousands of pages of exhibits.
Gregg and Brian offered expert testimony from Thomas Schnurr, a finan-
cial consultant with Business Edge, and Terry Bolt, a former IRS fraud examiner
who provides forensic accounting services. Schnurr opined that HFI could have
made a profit by cash-renting its farmland instead of farming it over the 2016 through 2017 timeframe at issue and that HFI’s books reflected unreasonable
deviations. Bolt opined that HFI’s sloppy—and sometimes nonexistent—record-
keeping failed to account for roughly 212,000 bushels of corn between 2006 and
1The request for judicial dissolution of HFI was dropped following presentation of the evidence and before final submission of the case to the district court for decision. 2The amended petition also included count V, which alleged claims by Precision Partners,
Brian’s farm corporation owned with his wife, against Keith for interference with business rela- tions. That count was severed for a separate trial following the bench trial for the remaining equitable claims and is not at issue in this appeal. In addition, the amended petition named LoRee Hora, Keith’s current wife, as a defendant, but Gregg and Brian dismissed their claims against LoRee just prior to the bench trial. 9
2017 that was grown but not sold and that Kurt was the beneficiary of that fail-
ure. Bolt relied heavily on HFI’s tax returns to question Keith’s and Kurt’s com-
pensation, which reflected only compensation paid in cash and failed to account
for any in-kind compensation. Bolt also testified that Keith’s and Kurt’s failures
to adequately inform HFI’s accountant about the in-kind transactions resulted
in the filing of false and fraudulent tax returns, as well as the failure to file cor-
rect W-2 or 1099 forms. Bolt calculated the amount of HFI’s corn he believed
Kurt actually fed to his hogs using assumptions from Iowa State Extension Ser-
vices about feeding hogs to market and applying those assumptions to Kurt’s
records identifying the number of pigs he bought and sold and the number that
died before reaching market weight.
Brian and Gregg also called Alan Buckert and Sue Basten as witnesses.
Both had banking relationships with HFI, Buckert with Farm Credit Services of
America and Basten with Washington State Bank. Each testified about the phone
and email communications they separately received from Gregg about his goals
for HFI while he was serving as a director in 2015 and 2016, which Gregg asked
them to keep confidential from Keith. In those communications, Gregg accused
Keith and Kurt of providing incomplete financial information to the lenders and “willfully and with malice [taking] out of the family farm operation.” Gregg con-
vinced Basten to inform Keith that Washington State Bank would discontinue
extending credit in 2016 for operations if changes were not made because, as
Gregg told Basten, he “wanted to push Keith and [HFI] into making some changes
in the operation.” At the time, Basten thought Gregg’s intentions were to help
HFI, but by the time of trial, she questioned his true intentions.
Kurt and Keith called industry specialists they had worked with over the
years to describe their operations as compared to other farms in the area. Keith also offered expert testimony from Russell Thompson, his tax accountant since 10
1976. Thompson has worked as a corporate tax and estate planning specialist
in the farming industry since the 1970s, and 90–95% of his clients are farmers.
For purposes of trial, Thompson reviewed HFI’s operations between 2010 and
2018 and provided several opinions about the operations. He testified that Keith
leased his personally owned farmland to HFI at significantly below market rates,
benefiting HFI by over $960,000 during the relevant period; that HFI leased some
of its farmland to Brian and to Kurt (separately), also at below-market rates,
which was common in family farms; that Keith’s total compensation received
from HFI was $96,000 less over a seven-year period than it would cost to hire an
outside management company—as Gregg and Brian sought to do; that his com-
parison of HFI’s revenue from grain sales between 2012 and 2018 was “pretty
close to at least the average of what Iowa State was showing” in its statewide
surveys, reflecting—in his opinion—no mismanagement of HFI; and that HFI had
a net worth over $8.9 million as of February 28, 2018, resulting in an annualized
29% growth in the value of HFI since its inception. On cross-examination,
Thompson acknowledged that HFI showed losses on its tax returns each year
between 2010 and 2017 and that its primary asset was its farmland.
At the end of the trial, Brian and Gregg asked the district court to order Keith and Kurt to pay damages to HFI for their breaches of fiduciary duties,
appoint a custodian to manage HFI, remove Keith as trustee of Celeste’s Trust,
order Keith to reimburse HFI for attorney fees paid on his behalf, and order Keith
and Kurt to pay Gregg and Brian’s legal fees.
The district court issued a thirty-seven-page, single-spaced order detailing
its findings of fact and conclusions of law. The court made numerous specific
credibility determinations, including: 11
• Discrediting Brian’s testimony that he could not recall the amount of rent
he paid to lease farmland from HFI against testimony that he received fa-
vorable rates.
• Finding testimony by Alan Buckert, a financial services officer with Farm
Credit Services of America who made loans to HFI, to be “careful, reason-
able, objective, and credible in substance and demeanor.”
• Finding testimony by John McNutt, who was retained by Keith in March
2015 to provide farm consulting services for HFI, to be “careful, reasona-
ble, objective, and credible in substance and demeanor.”
• Finding testimony by Sue Basten, Executive Vice President and senior
lender with Washington State Bank who made loans to HFI, to be “delib-
erate, careful, and credible in substance and demeanor.”
• Finding Thomas Schnurr and Kerry Bolt to be less credible than other
experts who testified.
The district court also made specific fact findings related to disputed is-
sues as supported by credibility findings, including:
• Relying on Basten’s and Buckert’s testimony “to indicate ultimate confi-
dence in the information received from” HFI in continuing to advance loans to HFI from their respective institutions and “to support the financial via-
bility” of HFI.
• Crediting Basten’s testimony that Gregg asked her to send the letter telling
Keith that the bank would stop extending credit over Gregg’s testimony
denying he asked her to write the letter.
The district court concluded that Brian and Gregg failed to meet the re-
spective burden of proof for each of counts I through III, involving fiduciary duty
and fraud-based claims against Keith and Kurt, dismissing those counts. The court also concluded that Brian and Gregg failed to meet their burden of proof 12
with respect to their claim seeking Keith’s removal as trustee of Celeste’s Trust,
dismissing count IV. Having dismissed each of the tried claims, the district court
also denied Brian and Gregg’s request for recovery of their legal fees. The district
court also dismissed any individual claims against Heather, noting that Gregg
and Brian “offered little if any evidence” to establish any grounds to hold her
individually liable.
B. Court of Appeals Proceedings. Brian and Gregg appealed, which we
transferred to the court of appeals. A panel of that court affirmed in part and
reversed in part.
On its de novo review of count I, the court of appeals concluded that Keith
engaged in self-dealing when he used HFI’s credit card to pay his personal ex-
penses, those transactions were not shielded by the business-judgment rule, and
Keith failed to establish the payments were “fair to the corporation and compa-
rable to an arms-length transaction.” The court of appeals also concluded that
“[a]t core, what Keith enabled was civil conversion or criminal theft of HFI corn
by his son Kurt,” which “was not fair to the corporation and was not the equiva-
lent of an arms-length transaction.” The court of appeals affirmed the district
court’s findings with respect to the remaining allegations against Keith “(other than the personal-expenses and misappropriated-corn claims),” concluding the
other allegations were either shielded by the business-judgment rule or not sup-
ported by sufficient evidence in the record.
The court of appeals further concluded that Kurt’s “trusted position as
operations manager of HFI justifies the imposition of fiduciary duties” even
though Kurt was not an officer or director of HFI. On its de novo review, the court
found “Kurt’s repeat misappropriation of HFI corn for his personal use without
reimbursement (which could likely be termed civil conversion or criminal theft) breached his duty” and reversed the district court’s dismissal of count I against 13
Kurt with respect to the corn issue. The court of appeals affirmed the district
court with respect to the other count I claims against Kurt related to crop input
expenses paid by HFI and labor costs for Kurt’s farm hands allocated to HFI,
finding Kurt’s explanations “plausible” and “sloppy” but “lack[ing] the deceptive
conduct” it had found “with regard to the misappropriated corn.” The court of
appeals agreed with the district court that Gregg and Brian failed to prove
Heather or HK Farms facilitated the relevant conduct or acted as co-conspira-
tors.
On count I, the court of appeals reversed and remanded with directions
for the district court to enter judgment for the plaintiffs and determine damages
with respect to: Keith’s personal-expenses self-dealing claim, Keith’s self-dealing
claim for allowing Kurt to misappropriate corn, and Kurt’s misappropriation of
corn claim. The court of appeals affirmed the district court’s statute-of-limita-
tions ruling that damages were limited to those incurred within five years of the
August 2017 petition, but it clarified its finding that all of the disputed corn had
been misappropriated within that timeframe, and it directed the district court on
remand to determine damages related to Keith’s personal expenses consistent
with its opinion. Additionally, the court of appeals provided that the district court could revisit the plaintiffs’ request for trial fees and costs to the extent its opinion
affected the analysis of those issues.
The court of appeals affirmed the district court’s dismissal of count II re-
lated to fraud against both Keith and Kurt based on the high standard required
to prove the fraud-based claims.
With respect to count III, seeking appointment of an independent custo-
dian for HFI, and count IV, seeking removal of Keith as trustee of Celeste’s Trust,
the court of appeals noted that its reversal of three of the underlying breach-of- duty claims impacted the district court’s analysis, so it vacated both counts and 14
remanded “for the district court to decide the question with the correct legal
footing on the underlying claims . . . with the benefit of [its] opinion.”
All parties sought further review, which we granted.
II. Standard of Review.
Brian and Gregg brought counts I through III on behalf of HFI in their
capacity as minority shareholders. Shareholder derivative claims are equitable
in nature, see Weltzin v. Nail, 618 N.W.2d 293, 297 (Iowa 2000) (en banc) (rec-
ognizing that a “derivative suit exists only in equity” and holding that fraud
claims seeking money damages normally brought at law are nonetheless equita-
ble when brought as a derivative claim), and the district court bifurcated them
from count IV, the legal claim brought by Precision Partners against Keith, and
presided over them in a bench trial. “We review decisions in shareholders’ deriv-
ative suits de novo.” Cookies Food Prods., Inc. v. Lakes Warehouse Distrib., Inc.,
430 N.W.2d 447, 448 (Iowa 1988); see also Iowa R. App. P. 6.907 (“In equity
cases review is de novo.”). This case provides us with a good opportunity to re-
view what a de novo review entails.
De novo review means we review the entire record and “decide anew the
issues properly preserved for appellate review.” Struve v. Struve, 930 N.W.2d 368, 371 (Iowa 2019). But when we say a case is reviewed “de novo, this does not
mean that we decide the case in a vacuum[] or approach it as though the trial
court had never been involved.” Davis-Eisenhart Mktg. Co. v. Baysden,
539 N.W.2d 140, 142 (Iowa 1995). To the contrary, while not bound by the dis-
trict court’s findings, we give them weight and “defer[] especially . . . where the
credibility of witnesses is a factor in the outcome.” Cookies Food Prods.,
430 N.W.2d at 448; see also Iowa R. App. P. 6.904(3)(g) (“In equity cases, espe-
cially when considering the credibility of witnesses, the appellate court gives weight to the fact-findings of the district court, but is not bound by them.”). This 15
deference has pragmatic underpinnings. Hensch v. Mysak, 902 N.W.2d 822, 824
(Iowa Ct. App. 2017). It is pragmatic because the district court has a front-row
seat to the live testimony, viewing the demeanor of both the witness as she tes-
tifies and the parties while they listen, whereas our review is limited to reading
black words on a white page of a sterile transcript. See Davis-Eisenhart Mktg.
Co., 539 N.W.2d at 142 (“Thus, ‘[e]ven though a case is tried de novo in this
court, we have nevertheless repeatedly recognized that, where the testimony is
conflicting, great weight is accorded the findings of the trial court, because the
witnesses are before him and he is in a far better position to pass upon their
credibility than is this court, which is limited to the printed record.’ ” (alteration
in original) (quoting In re Brooks’ Estate, 294 N.W. 735, 739 (Iowa 1940))); In re
Marriage of Vrban, 359 N.W.2d 420, 423 (Iowa 1984) (“There is good reason for
us to pay very close attention to the trial court’s assessment of the credibility of
witnesses. A trial court deciding dissolution cases ‘is greatly helped in making a
wise decision about the parties by listening to them and watching them in per-
son.’ In contrast, appellate courts must rely on the printed record in evaluating
the evidence. We are denied the impression created by the demeanor of each and
every witness as the testimony is presented.” (quoting In re Marriage of Callahan, 214 N.W.2d 133, 136 (Iowa 1974))).
With this standard in mind, we review the claims raised on appeal.
III. Analysis.
A. Breach of Duty Claim Against Kurt. We start with the claims against
Kurt because some of the claims against Keith involve his supervision of Kurt’s
actions, specifically related to the corn issue.
Kurt is neither an officer nor a director of HFI, and we reject Gregg and
Brian’s attempt to impose fiduciary duties on him based on his position as op- erations manager. Gregg and Brian cite no authority imposing fiduciary duties 16
on employees merely because they hold management positions, and we are
aware of none. Fiduciary duties are generally reserved for individuals in a posi-
tion of trust, like an agent. See Cemen Tech, Inc. v. Three D Indus., L.L.C.,
753 N.W.2d 1, 13 (Iowa 2008) (“[W]e recognized that ‘fiduciary duty’ is ‘[a] very
broad term [including] . . . informal relations which exist wherever one man
trusts in or relies upon another. One founded on trust or confidence reposed by
one person in the integrity and fidelity of another.’ ” (second alteration in original)
(quoting Kurth v. Van Horn, 380 N.W.2d 695–96 (Iowa 1986))). Although “a prin-
cipal–agent relationship gives rise to a fiduciary duty of loyalty, and an employer–
employee relationship can be closely associated with a principal–agent relation-
ship[,] . . . an employee is not always an agent for the employer.” Condon Auto
Sales & Serv., Inc. v. Crick, 604 N.W.2d 587, 599 (Iowa 1999).
The distinction between an agent and an employee is “based largely on the
degree and nature of service and control.” Id. “An agent usually has greater au-
thority to act for the principal, such as negotiating contracts, while an employee
typically renders services at the direction of the employer.” Id. Thus, whether an
employee is acting in a capacity to give rise to fiduciary duties depends on the
specific circumstances. See Cemen Tech, Inc., 753 N.W.2d at 13 (“The present case is distinguishable from both Kurth[, 380 N.W.2d 693,] and Weltzin [v. Co-
bank, ACB, 633 N.W.2d 290 (Iowa 2001),] because here the employees executed
confidentiality and nondisclosure agreements” from which a jury could find the
employment relationship to be “one based ‘on trust or confidence reposed by one
person in the integrity and fidelity of another.’ ” (quoting Kurth, 380 N.W.2d at
695)).
In none of the disputed circumstances was Kurt acting as an agent for
HFI. Rather, to the extent the parties argue over whether the corn was part of Kurt’s compensation, or whether Kurt inadequately accounted for the corn and 17
other crop inputs, Kurt would have either been acting for his own interests or
performing his duties as an employee. That Kurt was the operations manager
does not elevate the poor performance of his responsibilities into a claim for
breach of fiduciary duties. See Condon Auto Sales, 604 N.W.2d at 600–01 (ex-
plaining that damages incurred when a sales manager “did not diligently perform
his . . . responsibilities as sales manager” were based on the “services performed”
for his employer, which were activities that “fall[] outside the scope of any action
for breach of loyalty”). Kurt was not acting as an agent for HFI, and he owed it
no fiduciary duties. As such, we also reject Gregg and Brian’s attempt to shift to
Kurt the burden of proving the fairness of his actions, which applies only “[w]here
a fiduciary is in a position to take advantage over a principal . . . [and] has closer
access to the facts.” In re Mt. Pleasant Bank & Tr. Co., 455 N.W.2d 680, 685 (Iowa
1990) (emphasis added). The burden remains on Gregg and Brian to prove that
Kurt breached a duty owed to HFI.
Limited then to the common law duty of loyalty owed by an employee,
Gregg and Brian’s claim turns on whether Kurt misappropriated the corn—a fact
the court of appeals found in its de novo review—or merely failed to adequately
document where it all went. See Condon Auto Sales, 604 N.W.2d at 600 (“[T]he duty of loyalty is generally confined to instances of direct competition, misappro-
priation of profits, property, or business opportunities, trade secrets and other
confidences, and deliberately performing acts for the benefit of one employer
which are adverse to another employer.” (emphasis added)). The court of appeals
adopted the view of Gregg and Brian’s expert, Bolt, who concluded that because
Kurt did not report the grain to his accountant to be reported as compensation
for tax purposes, he must have stolen it. Yet, after hearing all the testimony and
reviewing the exhibits as the witnesses explained them, the district court con- 18
cluded that the practice of Kurt taking corn as compensation was a long-stand-
ing approved business practice within HFI and that any “missing” corn was a
matter of poor recordkeeping rather than intentional wrongdoing. In reaching its
findings, the district court expressly discredited Bolt’s view, noting Bolt had no
experience with farm operations. Instead, the district court credited testimony
from McNutt, who regularly consults in the farming industry, that Kurt’s year-
end “settling up” method was not abnormal in a family farm business. Indeed,
according to McNutt, the process of “parties get[ting] together and agree[ing] to
the value of their contributions and who is owed what . . . has been used by
many farms over the years.”
These are the types of credibility determinations deserving of our deference
on a de novo review. See Davis-Eisenhart Mktg. Co., 539 N.W.2d at 142 (giving
weight to district court credibility determinations in a minority shareholder val-
uation suit where “the trial court found certain valuation witnesses more credible
than others”). The district court judge heard the testimony of the expert wit-
nesses and found Keith and Kurt’s witnesses—who had vast farming experi-
ence—more credible than Brian and Gregg’s expert witnesses, who were fraud
investigators with no farming experience. On our de novo review—having re- viewed the record anew while also giving due deference to the district court’s
findings—we conclude that the evidence establishes only that Kurt was sloppy
in his bookkeeping and continued the farming practices of those before him, not
that he intentionally misappropriated corn in violation of the duty of loyalty owed
to HFI as his employer. Notably, Kurt’s employment contract—written by Brian—
expressly recognized that he would be paid in part by corn without identifying a
quantity. So Kurt was clearly allowed to take some corn. The experts’ calculations
established that Kurt’s presumption of nine bushels per hog understated the amount he actually used, and therefore understated the amount by which he 19
was actually compensated. But the president of HFI agreed to the nine-bushel
formula. Further, that Kurt underestimated the amount of corn he used does
not establish that he stole it. It does, however, explain the alleged “missing” corn.
If Kurt used more corn than he recorded using his estimates, it is merely a matter
of math to conclude that corn was unaccounted for—and only in that sense can
the corn be considered “missing.”
The real fighting issue is whether Kurt intentionally took more corn than
he was entitled to with respect to his agreement with HFI, i.e., whether he mis-
appropriated it. That the corporate tax returns failed to report in-kind compen-
sation paid to Kurt does not mean the additional corn was not part of his com-
pensation. The claims in this case involve the appropriateness of transactions
between HFI and Kurt, not whether the transactions were properly reported to
the IRS. As to Kurt’s intent, we agree with the district court that Gregg and Brian
failed to prove that Kurt violated a duty of loyalty by misappropriating corn.
B. Breach of Fiduciary Duties by Keith. As a director and officer of HFI,
Keith owes common law and statutorily defined fiduciary duties to the corpora-
tion. See Iowa Code §§ 490.830(1) (2017) (requiring directors discharging their
duties to act in good faith and “[i]n a manner the director reasonably believes to be in the best interests of the corporation”), .842(1) (requiring officers to act in
good faith and “[w]ith the care that a person in a like position would reasonably
exercise under similar circumstances”). Those duties include “a duty of care and
a duty of loyalty.” Cookies Food Prods., 430 N.W.2d at 451 (“Though the Iowa
legislature has codified these duties, their common law antecedents still guide
the court when interpreting the scope of the statute.” (citation omitted)).
Gregg and Brian’s breach of fiduciary duty claims against Keith revolved
around Keith’s purported lack of oversight over Kurt—which allegedly allowed Kurt to misappropriate corn—and Keith’s failure to ensure HFI maintained a 20
positive cash flow. Gregg and Brian identified specific concerns related to the
amount of corn produced by HFI but not sold or otherwise accounted for, the
amount of crop input expenses paid for by HFI that seemed unusually high for
the amount of acres HFI farmed, and Kurt overcharging HFI when his own farm
hands worked for HFI. In addition, Gregg and Brian challenged Keith’s use of the
HFI corporate bank accounts to pay his personal expenses as a violation of fidu-
ciary duties owed to HFI. Although Keith received only $10,000 as an annual
cash salary from HFI, Kerry Bolt identified $193,223 worth of personal expenses
paid by HFI for Keith over the nine-year period ending in 2019, averaging just
over $21,000 per year.
The district court concluded that Keith’s actions were protected by the
business-judgment rule, “which affords directors the presumption that their de-
cisions are informed, made in good faith, and honestly believed by them to be in
the best interests of the company.” Cookies Food Prods., 430 N.W.2d at 453. It
also concluded that Keith proved the transactions were made in good faith, hon-
esty, and fairness to HFI under the reversed burden that applies when a fiduciary
has a personal interest. Id. at 452 (the common law and predecessor to section
490.830 require directors to show “good faith, honesty and fairness” in self-deal- ing (quoting Des Moines Bank & Tr. Co. v. George M. Bechtel & Co., 51 N.W.2d
174, 216 (Iowa 1952))). The court of appeals disagreed, concluding the chal-
lenged transactions were “conflicting interest transactions,” see Iowa Code
§ 490.861(2), which required Keith to prove the transactions were “fair to the
corporation” as defined in section 490.860(3).
That provision provides in full:
3. “Fair to the corporation” means, for purposes of section 490.861, subsection 2, paragraph “c”, that the transaction as a whole was beneficial to the corporation, taking into appropriate ac- count whether it was all of the following: 21
a. Fair in terms of the director’s dealings with the corporation.
b. Comparable to what might have been obtainable in an arm’s length transaction, given the consideration paid or received by the corporation.
Id. § 490.860(3). The court of appeals acknowledged the fact that the total com-
pensation Keith received “could have been appropriate” but set that aside be-
cause “an arms-length transaction would not include athletic tickets and per-
sonal shopping paid for with crop and infrastructure accounts.” The court of
appeals also found independent harm to HFI from the “false or incomplete busi-
ness tax returns” and concluded that allowing Kurt to essentially steal corn did
not benefit HFI.
Setting aside the fact that the parties did not invoke the “conflicting inter-
est transaction” provisions in district court, the court of appeals misapplied
those provisions here. The overarching determination is whether “the transaction
as a whole was beneficial to the corporation.” Id. With respect to payment of
Keith’s personal expenses, the court of appeals expressly disregarded the fact
that those payments were part of his compensation, which—contrary to the court
of appeals’ analysis—makes the fact that his total compensation was likely “ap-
propriate” significant to the analysis. That Keith used the farm business ac-
counts to pay the personal expenses—including football tickets—reflects his im-
precise recordkeeping; it does not reflect the lack of an “arms-length transac-
tion.”
The relevant question is whether compensating Keith as a director by pay-
ing his personal expenses was fair to HFI. So understood, the relevant question
is the amount of the payment, not the method. See id. § 490.860(3)(b) (requiring
consideration of whether a transaction was “[c]omparable to what might have
been obtainable in an arm’s length transaction, given the consideration paid or received by the corporation” (emphasis added)). Keith received a cash salary of 22
$10,000 per year and payment of his personal expenses of approximately
$21,000 per year. Keith also personally guaranteed HFI’s corporate debt, a fact
that is relevant to Keith’s value to the farm corporation. Like the district court,
we reject Gregg and Brian’s experts’ focus on whether the compensation was
accurately reported to the IRS rather than whether it reflected a fair transaction
for HFI. Even Bolt agreed that recognizing payment of the expenses as salary
“would remedy the problem.” Regardless of who carried the burden, payment of
$31,000 in cash and benefits as compensation to Keith was fair to HFI.
With respect to Keith’s failure to monitor how much corn Kurt took for his
own use, the court of appeals disagreed with the district court that the business-
judgment rule applied, concluding instead that it was a conflicting interest trans-
action because Kurt is Keith’s son. See id. §§ 490.860(2)(c) (defining “[d]irector’s
conflicting interest transaction” to include transactions with the corporation in
which “the director knew that a related person was a party or had a material
financial interest”), .860(5)(b) (defining “related person” to include “[a] child”). As
a conflicting interest transaction, Keith bore the burden of proving fairness to
the corporation. Id. §§ 490.860(3), .861(2)(c). The court of appeals concluded that
Keith effectively enabled Kurt to commit “civil conversion or criminal theft,” which was not fair to HFI.
Under the court of appeals’ theory, Keith’s oversight of Kurt as an em-
ployee of HFI would turn every interaction into a conflicting interest transaction
subject to the obligations of Iowa Code section 490.861(2). But a conflicting in-
terest transaction presupposes a specific transaction: “[a] transaction effected or
proposed to be effected by the corporation.” Id. § 490.860(2). Applying that pro-
vision broadly to Keith’s general oversight of Kurt’s actions as an employee would
subject every family-owned business that employs family members to a height- 23
ened standard for its day-to-day operations. The heightened standard might ap-
ply to specific transactions like the decision to hire Kurt as the operations man-
ager or to execute a specific contract between Kurt and HFI. But we agree with
the district court that the business-judgment rule applied to Keith’s general over-
sight of Kurt as the operations manager for HFI.
Having concluded that Kurt did not misappropriate any corn from HFI, we
agree with the district court that Keith did not violate any fiduciary duties owed
to HFI in his oversight of Kurt. Keith—with each of his sons over the years—
operated his family farm much the way his father before him did. That there are
different or better ways to operate the farm and to account for its transactions
does not mean Keith has violated fiduciary duties owed to HFI. The family mem-
bers’ disagreements about the best methods for operating the family farm reflect
their personal interests more than any detriment to the interests of HFI. Gregg
and Brian failed to prove that Keith violated fiduciary duties owed to HFI.
C. Remaining Claims. Gregg and Brian’s claim for fraud in count II
against Keith and Kurt is premised on essentially the same actions underlying
their breach of fiduciary claims. We agree with the district court and the court
of appeals that that claim, too, fails. For the same reasons, dismissal of the breach of fiduciary duty claim
against Keith precludes the request for the appointment of a custodian over HFI
as well as the request to remove Keith as trustee of Celeste’s trust.
Having dismissed Gregg and Brian’s claims on the merits, we need not
address the remaining issues raised in the appeals.
IV. Conclusion.
Gregg and Brian failed to prove their fiduciary breach claims against Keith
or Kurt. We affirm the district court’s judgment, premised on its detailed findings 24
of facts and conclusions of law.
DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.