IN THE SUPREME COURT OF IOWA
No. 21–0098
Submitted March 23, 2022—Filed May 27, 2022
KENDALL J. MEADE, Individually and on behalf of all others similarly situated,
Appellee,
vs.
PETER S. CHRISTIE, STEPHEN A. CRANE, JONATHAN R. FLETCHER, and GRETCHEN H. TEGELER,
Appellants,
and
EMC INSURANCE GROUP, INC., BRUCE G. KELLEY, and EMCC CASUALTY COMPANY,
Defendants.
Appeal from the Iowa District Court for Polk County, Lawrence P.
McLellan, Business Specialty Court Judge.
Corporate directors seek interlocutory review of the Iowa Business
Specialty Court’s denial of their motion to dismiss a shareholder’s claims for
breach of fiduciary duties. REVERSED AND REMANDED.
McDermott, J., delivered the opinion of the court in which all justices
joined. 2
Michael W. Thrall (argued), Mark C. Dickinson, Lynn C. Herndon, and
Angel A. West (until withdrawal) of Nyemaster Goode, P.C., Des Moines, for
appellants.
Juan Monteverde (argued) of Monteverde & Associates PC, New York, New
York, and Gary Dickey of Dickey, Campbell, & Sahag Law Firm, PLC, Des Moines,
for appellee.
William C. Brown of Brown, Winick, Graves, Gross and Baskerville, P.L.C.,
Des Moines, for amici curiae Iowa Association of Business and Industry and the
Iowa Business Council. 3
McDERMOTT, Justice.
This appeal involves a shareholder’s challenge to a corporate merger
involving the purchase of a publicly traded company’s shares in what’s known
as a “going private transaction.” The shareholder alleges that the corporation’s
directors abdicated their fiduciary duties by agreeing to a flawed merger process
with the acquirer that resulted in too low a price for the minority shareholders’
stock. The corporate directors filed a motion to dismiss the shareholder’s claims,
invoking statutory director protections—known as “director shield” laws—that
prevent holding directors liable for many types of claims for money damages. The
Iowa Business Specialty Court rejected the directors’ arguments and denied their
motion to dismiss. The directors filed an application for interlocutory review,
which we granted. This case presents our court’s first opportunity to examine
Iowa’s director shield protections and the procedural requirements that
accompany them.
I.
A.
Because this case involves an appeal from the denial of a motion to
dismiss, we accept the facts as alleged in the petition as true. McGill v. Fish,
790 N.W.2d 113, 116 (Iowa 2010).
Employers Mutual Casualty Company (EMCC) was founded in 1911 in Des
Moines as a mutual insurance company. A “mutual” company is owned by its
policyholders; a “stock” company, in contrast, is owned by stockholders. 4
EMCC formed EMC Insurance Group, Inc. (EMCI) in 1974 as a special type
of subsidiary called a “downstream subsidiary” that would serve as EMCC’s
holding company. Under this structure, EMCC, the old insurance company,
became a subsidiary of EMCI, the new company. When EMCI became a publicly
traded company in 1982, this structure—EMCI serving as a holding company for
EMCC—enabled EMCC to access public capital markets as a source of funding
for its business while maintaining its status as a policyholder-owned mutual
insurance company. All the while, EMCC owned a majority of the shares in
EMCI, which meant that EMCC controlled its own holding company. EMCI
employed no staff, leased no facilities, and owned no information technology, but
instead relied completely on “EMCC’s employees, facilities, and information
technology to conduct its business.”
Bruce Kelley was EMCC’s president and CEO and served on its board of
directors throughout the events of this case. Kelley was also EMCI’s president
and CEO. EMCI’s shareholders elected its board of directors. Kelley served on
EMCI’s board of directors (at times relevant to this lawsuit) with four other
members: Peter S. Christie, Stephen A. Crane, Jonathan R. Fletcher, and
Gretchen H. Tegeler.
In October 2018, EMCC decided to attempt to purchase the publicly traded
stock of EMCI that it didn’t own, commonly referred to as a “going private
transaction.” EMCC soon retained investment bank Boenning & Scattergood,
Inc., to provide financial analysis and to assist EMCC’s board in the going private
transaction. On November 15, EMCC sent a nonbinding proposal letter to EMCI’s 5
board offering to purchase the EMCI stock that EMCC didn’t already own for $30
per share. The next day, EMCC filed the proposal letter with the Securities and
Exchange Commission (SEC) and issued a press release announcing the offer.
After EMCI’s board received the proposal letter and EMCC made the offer
public, EMCI established a “Special Committee” consisting of its four directors
other than Kelley. In December 2018, the Special Committee retained Willkie
Farr & Gallagher, LLP, for legal representation. The Special Committee also
retained investment bank Sandler O’Neill & Partners, L.P., to act as its financial
advisor. In January 2019, the Special Committee instructed Sandler O’Neill to
perform a due diligence investigation of EMCI, including requesting business and
financial information, and to schedule management meetings to discuss EMCI’s
business and future.
Meanwhile, EMCC had received an unsolicited proposal from a group of
investors proposing a joint venture transaction involving EMCI. EMCC’s board
of directors unanimously rejected the proposal without notifying EMCI’s board.
EMCI’s Special Committee received notice of the proposal on January 24, about
a month after EMCC received it.
The next day, EMCI received notice of a proposal from one of its
shareholders, Gregory Shepard, requesting that he be made a candidate for its
board of directors and a member of the Special Committee. A few days later,
Shepard filed a Schedule 13D (a form required when a person or group acquires
more than 5% of a voting class of a company’s stock) with the SEC, stating that
he owned 5.09% of EMCI’s common stock and that he believed EMCI’s “common 6
stock was significantly undervalued.” On February 25, the Special Committee
decided not to invite Shepard to be a board member of EMCI.
Meanwhile, on January 31, EMCC publicly announced that it would not
“consider any alternative merger or transaction involving a third party” that
would involve EMCC merging with or into a third party.
On February 22, the Special Committee met with Willkie Farr and Sandler
O’Neill and discussed an alternative proposal (prepared by Sandler O’Neill) that
would replace certain insurance pooling agreements between EMCI and EMCC.
The alternative proposal was presented to EMCC’s board in early March. EMCC’s
senior executives met with the deputy commissioner-supervisor of the Iowa
Insurance Division, who informed the executives that the alternative proposal
was unlikely to receive regulatory approval. EMCC’s board rejected the
alternative proposal and kept the $30-per-share proposal on the table.
On March 20, the Special Committee responded to EMCC with a
counteroffer of $40 per share of EMCI stock based on financial projections by
Sandler O’Neill. On March 25, Shepard sent another letter to the Special
Committee raising his concerns about its independence, Kelley’s and EMCC’s
control, and the “gross inadequacy of EMCC’s offer,” and stating his belief that
the fair price was $50 per share.
The Special Committee and EMCC exchanged counteroffers until, on
April 20, the Special Committee accepted EMCC’s offer to buy out the minority
shareholders at $36 per share. The final merger agreement included a “no shop”
provision, which prohibited EMCI from soliciting bids from other potential 7
purchasers. On September 18, EMCI held a special meeting of shareholders to
vote on the transaction. A majority of the minority shareholders—that is, a
majority of the non-EMCC shareholders—voted to approve the merger at $36 per
share. The shareholders were paid cash for their shares the next day and had
their shares canceled.
B.
Kendall Meade, the plaintiff in this case, owned shares of EMCI at the time
of EMCC’s buyout. Meade filed a class action lawsuit on behalf of himself and
the other former owners of common stock of EMCI.
The petition alleges three causes of action. Meade’s first cause of action,
against EMCI’s individual directors (Christie, Crane, Fletcher, Tegeler, and
Kelley), alleges that the directors breached “fiduciary duties of care, loyalty, good
faith, and candor owed to the public shareholders of EMCI.” His second cause of
action, against EMCC, alleges that EMCC breached fiduciary duties it owed to
the minority shareholders of EMCI. And Meade’s third cause of action, against
EMCI, alleges that EMCI aided and abetted the other defendants’ breaches of
fiduciary duties.
EMCC, EMCI, and Kelley filed separate motions to dismiss. The four other
individual directors (Christie, Crane, Fletcher, and Tegeler) filed a joint motion
to dismiss. Each defendant argued that Meade’s claims were derivative rather
than direct and that, because Meade had failed to comply with the Iowa Code’s
requirements for bringing derivative claims, Meade’s claims must be dismissed.
Meade resisted. The business court held that Meade’s claims were direct rather 8
than derivative because the alleged wrongful actions injured the shareholders
rather than EMCI, and the shareholders had suffered separate and distinct
injuries from EMCI.
The four individual directors further argued that Meade failed to plead
around the statutory defenses available to the directors under these
circumstances. The business court rejected this argument, reasoning that Iowa
is a notice pleading state and that Meade’s allegations satisfied the pleading
standard set forth in the statute in any event, and denied the motion.
The business court granted Kelley’s, EMCC’s, and EMCI’s motions to
dismiss. Those issues are not before us on this appeal. The only defendants not
dismissed by the business court were the EMCI directors other than
Kelley: Christie, Crane, Fletcher, and Tegeler. These four defendants (whom for
simplicity we will refer to simply as “the directors” in this opinion even though
Kelley isn’t included among them) filed an application for interlocutory appeal. A
week later, the directors filed an answer denying liability. We granted the
application and stayed further proceedings in the case.
II.
The directors in this appeal raise two issues: (1) that Meade failed to
affirmatively plead facts showing that Iowa’s director shield statute, Iowa Code
§ 490.831 (2019), did not protect the directors against his claims; and (2) that
Meade’s claims were derivative, not direct, and thus could not be brought unless
Meade had complied with our statutory requirements for derivative proceedings, 9
id. §§ 490.740–.747. A finding in the directors’ favor on either issue would entitle
them to dismissal from this case.
We review a district court’s ruling on a motion to dismiss to correct legal
error. Mueller v. Wellmark, Inc., 818 N.W.2d 244, 253 (Iowa 2012). A motion to
dismiss challenges a petition’s legal sufficiency. Shumate v. Drake Univ.,
846 N.W.2d 503, 507 (Iowa 2014). In ruling on a motion to dismiss, the court
considers only “the contents of the petition and matters of which the court can
take judicial notice.” Southard v. Visa U.S.A. Inc., 734 N.W.2d 192, 194
(Iowa 2007). In ruling on a motion to dismiss, the court accepts the facts alleged
in the petition as true, McGill, 790 N.W.2d at 116, and views the allegations in
the light most favorable to the plaintiff, Haupt v. Miller, 514 N.W.2d 905, 911
(Iowa 1994) (en banc). We may dismiss a claim “only if the petition shows no
right of recovery under any state of the facts.” Southard, 734 N.W.2d at 194
(quoting Comes v. Microsoft Corp., 646 N.W.2d 440, 442 (Iowa 2002)).
The parties generally agree that this standard of review applies to the
question of whether Meade’s claims are direct or derivative. But they disagree on
whether this standard applies to claims that trigger enhanced pleading
requirements under Iowa’s director shield statute. Although the directors
contend that the business court’s ruling should be reversed even under the
typical dismissal standard, the directors argue that the unique protections
afforded directors under the director shield statute require us to apply a
“plausibility” standard in evaluating the claims. Because this question largely
merges with the parties’ arguments on the scope and application of the director 10
shield statute, we’ll analyze this issue as part of our substantive analysis of that
statute.
III.
Corporate directors in Iowa must adhere to “standards of conduct” that
require directors to discharge their duties (1) in good faith, and (2) in a manner
that the director reasonably believes to be in the best interests of the corporation.
Iowa Code § 490.830(1)(a)–(b). Directors also, “when becoming informed in
connection with their decision-making function or devoting attention to their
oversight function, shall discharge their duties with the care that a person in a
like position would reasonably believe appropriate under similar circumstances.”
Id. § 490.830(2). These statutory duties generally fall within one of two broad
categories of fiduciary duties—a duty of care and a duty of loyalty—that we’ve
applied to corporate directors under earlier versions of the Iowa Business
Corporation Act. See 6 Matthew G. Doré, Iowa Practice Series: Business
Organizations § 28:3, Westlaw (database updated Nov. 2021) [hereinafter Doré];
see also Cookies Food Prods., Inc. v. Lakes Warehouse Distrib., Inc., 430 N.W.2d
447, 451 (Iowa 1988).
While section 490.830 of the Iowa Business Corporation Act provides the
standards of conduct for directors, section 490.831 sets out when a director can
be liable for money damages. Compare Iowa Code § 490.830, with id. § 490.831.
Section 490.831 states in relevant part: 11
1. A director shall not be liable to the corporation or its shareholders for any decision as director to take or not to take action, or any failure to take any action, unless the party asserting liability in a proceeding establishes both of the following:
a. That any of the following apply:
(1) No defense interposed by the director based on any of the following precludes liability:
(a) A provision in the articles of incorporation authorized by section 490.202, subsection 2, paragraph “d”.
Id. § 490.831(1)(a)(1)(a).
The Code section referenced in the final quoted portion, section
490.202(2)(d), is commonly referred to as the “director shield statute.” It permits
corporations to include in their articles of incorporation provisions that
immunize directors from liability, with some limited exceptions, and in part
states:
A provision eliminating or limiting the liability of a director to the corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for any of the following:
(a) The amount of a financial benefit received by a director to which the director is not entitled.
(b) An intentional infliction of harm on the corporation or the shareholders.
(c) A violation of section 490.832.
(d) An intentional violation of criminal law.
Id. § 490.202(2)(d)(1).
As discussed earlier, when ruling on a motion to dismiss, courts generally
cabin their factual analysis to the claims set forth in the plaintiff’s petition and
the matters on which the court can take judicial notice. Southard, 734 N.W.2d 12
at 194. Meade’s petition makes no reference to EMCI’s articles of incorporation.
But EMCI’s articles are publicly filed with the Iowa Secretary of State. The
directors requested that the business court take judicial notice of them. The
business court, finding EMCI’s articles “capable of accurate and ready
determination from a source that cannot be reasonably questioned,” thus took
judicial notice of EMCI’s articles of incorporation. Meade doesn’t challenge this
determination on appeal.
EMCI’s restated articles of incorporation (on file since 2004) contained
director shield provisions identical to the language set forth in section
490.202(2)(d). EMCI’s directors thus were protected from liability to the full
extent permitted under the Iowa Business Corporation Act with the same four
exclusions. See Iowa Code § 490.202(2)(d)(1).
As relevant in this case, Meade must establish two conditions to avoid the
dismissal of his claims against the directors. First, he must show that the
directors have “interposed” no defense that would shield them from liability. Id.
§ 490.831(1)(a)(1). Second, he must show that the directors’ conduct violated one
of the statutory standards of conduct, meaning that their actions were either not
in good faith, not in the best interests of the corporation, or that the directors
were not reasonably informed about the transaction. Id. § 490.831(1)(b)(1),
(2)(a)–(b).
The director liability statute states that when a shareholder pursues a
claim for money damages against a director, “the party asserting liability in a
proceeding” must establish that “[n]o defense interposed by the director” would 13
shield the director from liability. Id. § 490.831(1)(a)(1). The phrase “by the
director” naturally suggests that the director bears the burden of interposing one
of the defenses to liability listed in the statute. The business court held that the
directors hadn’t actually interposed any defenses to Meade’s claims, and thus
Meade’s claim couldn’t be dismissed based on the director shield protections.
But the statute doesn’t prescribe a particular pleading in which the
defense must be made. Black’s Law Dictionary defines interposition, a noun form
of the verb interpose, as “[t]he act of submitting something (such as a pleading
or motion) as a defense to an opponent’s claim.” Interposition, Black’s Law
Dictionary (11th ed. 2019). The statute doesn’t require interposition in, for
example, a list of affirmative defenses in an answer. The directors didn’t initially
file an answer because they filed a pre-answer motion to dismiss. See
Iowa R. Civ. P. 1.421(1)(f) (permitting a defendant to assert that a plaintiff failed
to state a claim for relief in a pre-answer motion). The directors instead, as part
of their motion to dismiss, asked the business court to take judicial notice of
EMCI’s publicly filed articles of incorporation. The court did. The directors
recited the director shield protections in the articles of incorporation as a defense
to Meade’s claim. This satisfies the directors’ burden to interpose a defense to
liability under section 490.202(2)(d).
The statute then places a burden on “the party asserting liability in a
proceeding”—in other words, the plaintiff—to establish that no defense
interposed by the director protects the director from liability. Iowa Code
§ 490.831(1). The directors suggest that Meade needed to plead in his petition, 14
even before the directors asserted any defense, facts that on their face expressly
referenced and negated the defendants’ defenses and that, having not done so,
Meade’s claim must be dismissed. To be sure, plaintiffs in director liability cases
would be wise to predict and attempt to overcome a director’s defenses in their
petitions, particularly when (as here) the publicly filed articles of incorporation
include director shield protections. But we don’t find that the statute requires
this type of anticipatory pleading. The phrase “interposed by a director” implies
that a director acts in response to some action by a plaintiff. Plaintiffs do not
bear some duty of raising defenses for directors, and thus need not themselves
plead and negate in their petitions each statutory defense that a director might
interpose.
But this doesn’t end our inquiry. Having interposed the judicially-noticed
director shield protections as a defense in their motion to dismiss, the directors
argue that Meade in resistance to their motion needed to draw reasonable
inferences from the petition’s factual allegations to overcome the director shield
defenses. The business court ruled against the directors on this argument,
identifying two grounds. The business court first recited that Iowa courts
generally require only “notice pleading” in a petition and stated that “[t]he court
does not believe the statute requires the plaintiff must set forth facts in its
petition that ultimately establishes the unavailability of each of these defenses”
in the statute. On this point, we disagree with the business court’s interpretation 15
of the statute, and thus its application of the general pleading standard to the
To understand why the statute must be read in the manner that we
suggest, some background on the genesis of the statute is helpful. In the
mid-1980s, alarmed policymakers began enhancing protections for corporate
directors in response to court rulings that expanded directors’ personal liability
for money damages. See Comm. on Corp. L., Changes in the Revised Model
Business Corporation Act—Amendment Pertaining to the Liability of Directors,
45 Bus. Law. 695, 696 (1990) [hereinafter Comm. on Corp. L.]. The claims in
these lawsuits generally arose from unintentional breaches of directors’ duties
of care. Doré § 28:14. One case in particular—Delaware’s Smith v. Van Gorkom
decision—raised particular concerns among directors of increased financial risk
for serving on corporate boards, including concerns “about non-pecuniary costs
of litigation, such as damage to reputation, loss of time, and distraction from
other activities.” Comm. on Corp. L., 45 Bus. Law. at 696; see also Smith v. Van
Gorkom, 488 A.2d 858 (Del. 1985), overruled on other grounds by Gantler v.
Stephens, 965 A.2d 695 (Del. 2009) (en banc). As a result, “outside directors of
many publicly-held corporations resigned, declined to stand for re-election, or
refused nomination—a reversal of a trend encouraged by the Securities and
Exchange Commission, the New York Stock Exchange, and various
commentators.” Comm. on Corp. L., 45 Bus. Law. at 696. As one noted
commentator described it, “The threat of liability for persons serving on corporate
boards suddenly appeared very real.” Doré § 28:14. 16
After Delaware and another state amended their corporate codes to
authorize corporations to include director liability limitations in their articles of
incorporation, “[n]early all states followed suit with similar ‘director shield’ laws,
including Iowa in 1987.” Id. The drafters of the Model Business Corporation Act
(MBCA) have further increased protections for directors over the years. See id.
The Iowa Business Corporation Act’s director shield statute, which was amended
in 2003, is modeled after the one in the MBCA. Id. Effective January 1, 2003,
Iowa replaced its original Delaware-modeled director shield provision with the
MBCA model. Id.
Delaware’s director shield exclusions do not match the MBCA’s (and thus
Iowa’s) director shield exclusions in an important way that enlightens our
analysis of the “intentional infliction of harm on the corporation or the
shareholders” exclusion in section 490.202(2)(d)(1)(b). Delaware’s exclusion will
not preclude liability for “acts or omissions not in good faith or which involve
intentional misconduct.” Del. Code Ann. tit. 8, § 102(b)(7) (2006). Delaware’s
precedent applying its director shield statute makes it clear that the “shield
forecloses claims against directors for gross negligence but does not apply to
‘conduct motivated by an actual intent to do harm’ (subjective bad faith) or to
lesser forms of bad faith, like a director’s ‘conscious disregard for . . .
responsibilities’ or ‘intentional dereliction of duty.’ ” Doré § 28:14 (omission in
original); see In re Walt Disney Co. Derivative Litig., 906 A.2d 27, 64–67
(Del. 2006) (en banc) (“[T]he legislature has also recognized this intermediate
category of fiduciary misconduct, which ranks between conduct involving 17
subjective bad faith and gross negligence.”); see also Lyondell Chem. Co. v. Ryan,
970 A.2d 235, 240–44 (Del. 2009) (en banc). Under Delaware law, actions that
amount to “conscious disregard for responsibilities” or “intentional dereliction of
duty” fall under Delaware’s “bad faith” exception to the director shield—not
under the statute’s “actual intent to do harm” exception. Walt Disney, 906 A.2d
at 64–66; see also Doré § 28:14. In contrast to Delaware’s statute, Iowa’s director
shield statute includes no exception enabling liability for “acts not in good faith.”
Doré § 28:14. Compare Del. Code Ann. tit. 8, § 102(b)(7), with Iowa Code
§ 490.202(2)(d)(1)(b).
The official comment to the MBCA’s director shield provision (the similarly
numbered section 2.02(b)(4)) further supports the notion that claims of reckless
conduct, conscious disregard of a duty, or intentional dereliction of a duty fail to
establish Iowa’s exception for “intentional infliction of harm on the corporation
or the shareholders.” Doré § 28:14. The comment states in relevant part:
The use of the word ‘intentional,’ rather than a less precise term such as ‘knowing,’ is meant to refer to the specific intent to perform, or fail to perform, the acts with actual knowledge that the director’s action, or failure to act, will cause harm, rather than a general intent to perform the acts which cause the harm.
Model Bus. Corp. Act § 2.02, cmt. E (2016 rev. 2017).
The business court determined that Meade sufficiently alleged liability in
his petition under the exclusion to liability in EMCI’s director shield provision
for “intentional infliction of harm on the corporation or the shareholders.”
Iowa Code § 490.202(2)(d)(1)(b). The business court recited allegations in
Meade’s petition alleging misconduct by the directors, including (1) failing to 18
reject EMCC’s merger offer as inadequate and to maintain EMCI as a standalone
company; (2) failing to provide shareholders with Sandler O’Neill’s analysis of the
alternative proposal in the proxy statement; (3) failing to gather information
about or to understand Sandler O’Neill’s analysis; (4) failing to disclose to
shareholders Shepard’s interest in making an offer for EMCI; and (5) generally
engaging in a conflicted and flawed sales process that resulted in an insufficient
sales price that unfairly deprived EMCI’s minority shareholders of the true value
of their shares. The business court also recited Meade’s allegation that the
directors “intentionally failed to act in the face of a known duty to act,
demonstrating conscious disregard for their duties.”
We disagree with the business court’s determination. Accepting Meade’s
allegations as true, we find Meade’s allegations insufficient to establish
“intentional infliction of harm on the corporation or the shareholders” by the
directors. The bulk of the allegations that the business court relies on recite
failures to perform duties or incompetent performance, none of which suffices.
Meade’s allegation that the directors consciously disregarded their duties is
similarly insufficient. The statute, in short, requires a plaintiff to show a
director’s specific intent to harm the corporation or its shareholders, as opposed
to recklessness or dereliction in performing (or failing to perform) their duties.
The statute sets a high bar, no doubt; but its elevated placement has been
determined by the legislature in its choice of language.
In the specific context of claims against corporate directors, complaining
shareholders confront a heightened pleading requirement. This heightened 19
pleading requirement protects directors not merely against having to pay
damages for inadequate claims, but also against the cost and stress of litigation
when plaintiffs are unable to allege claims that would permit them to receive
money damages. Nelson v. Lindamen, 867 N.W.2d 1, 7 (Iowa 2015) (“[S]tatutory
immunity, like common-law immunity, provides more than protection from
liability; it provides protection from even having to go to trial in some
circumstances.” (quoting Hlubek v. Pelecky, 701 N.W.2d 93, 96 (Iowa 2005))).
And those protections would be undermined if defendant directors had to engage
in pretrial discovery to find out exactly what wrong the plaintiff was charging
them with. Cf. Struck v. Mercy Health Servs.-Iowa Corp., ___ N.W.2d ___, ___,
2022 WL 1194011, at *5 (Iowa Apr. 22, 2022) (“A contrary holding would
undermine the legislative goal to enable healthcare providers to quickly dismiss
professional negligence claims that are not supported by the requisite expert
testimony.”).
A lawsuit pursuing claims against a corporate director is the type of case
where a plaintiff can plead himself out of court by alleging facts that show he
has no claim. See Benskin, Inc. v. W. Bank, 952 N.W.2d 292, 306 (Iowa 2020).
“Allegations in a complaint are binding admissions, and admissions can of
course admit the admitter to the exit.” Jackson v. Marion County, 66 F.3d 151,
153–54 (7th Cir. 1995) (citations omitted). When “a provision in the articles of
incorporation” adopted pursuant to Iowa Code section 490.202(2)(d) “shelters
the director from liability for money damages” and when “such defense applies
to all claims in plaintiff’s complaint, there is no need to consider further the 20
application of [Iowa Code section 490.831]’s standards of liability.” Model Bus.
Corp. Act § 8.31(a), cmt. A (2016 rev. 2017). “In that event, the court would
presumably grant the defendant director’s motion for dismissal or summary
judgment (or the equivalent) and the proceeding would be ended.” Id. Because
we find Meade’s allegations insufficient to establish “intentional infliction of
harm on the corporation or the shareholders” by the directors, his claims against
the directors must be dismissed.1
Meade’s appeal brief includes a one-sentence request in the conclusion
asking that if we determine that his claims warrant dismissal, he be permitted
to amend his petition. As a general matter, a party may move to amend a petition
with the court’s permission under Iowa Rule of Civil Procedure 1.402(4).2 But
Meade has failed to share any facts suggesting that he has claims that are not
barred by the director shield provision that would warrant leave to amend.
Meade’s resistance to the motion to dismiss in the district court made no
mention of any request to amend his petition. It is styled simply as a “resistance
to defendants’ motion to dismiss.” A contingent request for leave to amend with
a resistance to a motion to dismiss is permissible and allows courts to provide
leave to amend as an alternative form of relief. Meade accompanied his resistance
1Iowa Code section 490.1302 provides shareholders appraisal rights to obtain payment for the fair value of their shares if they believe a merger buyout price is inadequate. Meade didn’t seek to enforce his appraisal rights and instead pursued a class action lawsuit on behalf of himself and the other former owners of EMCI’s common stock. 2And indeed, Meade could have amended his petition without leave of court any time
before the directors filed a responsive pleading. Iowa R. Civ. P. 1.402(4). The directors didn’t actually file a responsive pleading (their answer) until about a year after they filed their motion to dismiss. Meade made no attempt to amend on his own during that period. 21
with a seventy-eight-page brief explaining how his petition satisfied the legal
requirements to overcome the directors’ motion. The resistance brief, like his
appeal brief, included a single sentence, also in the conclusion, making a similar
request if we ruled against him. Meade failed to request or argue for leave to
amend at the district court’s hearing on the motion to dismiss.
“[A] post-dismissal motion to amend is ‘disfavored,’ independent of any other
consideration.” Plymouth County v. Merscorp, Inc., 287 F.R.D. 449, 464 (N.D.
Iowa 2012) (quoting U.S. ex rel. Roop v. Hypoguard USA, Inc., 559 F.3d 818, 823
(8th Cir. 2009)) (denying a request for leave to amend where the plaintiff “adopted
a strategy of vigorously defending his initial Complaint, despite its . . .
deficiencies [and] now wants a judicial reprieve”). We deny Meade’s request to
amend his petition.
IV.
Because we reverse the business court’s ruling on the directors’ motion to
dismiss for the reasons stated above, and because that holding is dispositive of
this appeal, we need not address the directors’ other arguments seeking
dismissal of the claims. We remand to the business court to enter judgment
consistent with this opinion and for further proceedings in the case.
REVERSED AND REMANDED.