Michael Holmstedt v. Lexington East Unit One Owners Association Board of Directors

CourtCourt of Appeals of Iowa
DecidedFebruary 11, 2026
Docket24-0320
StatusPublished

This text of Michael Holmstedt v. Lexington East Unit One Owners Association Board of Directors (Michael Holmstedt v. Lexington East Unit One Owners Association Board of Directors) is published on Counsel Stack Legal Research, covering Court of Appeals of Iowa primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Michael Holmstedt v. Lexington East Unit One Owners Association Board of Directors, (iowactapp 2026).

Opinion

IN THE COURT OF APPEALS OF IOWA _______________

No. 24-0320 Filed February 11, 2026 _______________

Michael Holmstedt, Plaintiff–Appellant, v. Lexington East Unit One Owners Association Board of Directors, Defendant–Appellee. _______________

Appeal from the Iowa District Court for Linn County, The Honorable Christopher L. Bruns, Judge. _______________

AFFIRMED IN PART AND REVERSED IN PART _______________

John G. Daufeldt of John C. Wagner Law Offices, P.C., Amana, attorney for appellant.

Matthew L. Roth and Jacob W. Nelson of Simmons Perrine Moyer Bergman PLC, Cedar Rapids, attorneys for appellee. _______________

Considered without oral argument by Greer, P.J., and Buller and Langholz, JJ. Opinion by Langholz, J.

1 LANGHOLZ, Judge.

This appeal arises out of a dispute between a homeowner, Michael Holmstedt, and his condominium-association board, the Lexington East Unit One Owners Association Board of Directors. In the aftermath of the 2020 derecho, Holmstedt became concerned about the Board’s governance of the association and eventually sued the Board. Among other claims no longer at issue on appeal, Holmstedt sought a declaratory judgment that the Board was required by the association’s bylaws to obtain “an audit of the accounts and financial records of the Association” for 2018, 2020, and 2022. The Board moved for summary judgment, arguing that it had already obtained the required audits and that its decision about how extensive an audit to obtain was entitled to deference under the bylaws and the business-judgment rule. The district court agreed with the Board, dismissed Holmstedt’s suit, and awarded the Board $25,948.28 in attorney fees under a bylaws provision that it concluded authorizes attorney fees in any suit in which the Board is a party.

Holmstedt now appeals, challenging only the district court’s summary-judgment ruling on his audit claim and its award of attorney fees. The court did not err in granting summary judgment. While Holmstedt’s interpretation of the bylaws’ audit requirement is not unreasonable, he failed to generate a material factual dispute because the Board’s interpretation is also reasonable and entitled to deference under the bylaws and the business- judgment rule. But we agree with Holmstedt’s challenge to the attorney-fees award. The bylaws provision relied on by the district court—when properly interpreted in its full context—only authorizes attorney fees when the association sues for a money judgment on unpaid assessments or other sums due or to foreclose on its assessment lien. Neither situation exists here. So we reverse the attorney-fees award based on that bylaws provision.

2 I. Factual Background and Proceedings

On August 10, 2020, a powerful derecho swept across Iowa— damaging many properties, including Holmstedt’s home and others that are a part of his condominium association.1 Over the next two and a half years, Holmstedt became increasingly concerned about the association’s response to the derecho damage and the Board’s financial governance of the association more generally. As relevant to the only claim still at issue on appeal, Holmstedt eventually learned that article XII, paragraph 3, of the association’s bylaws requires the Board to “procure an audit of the accounts and financial records of the Association not less than every two (2) years.” He repeatedly requested copies of the most recent audits and was dissatisfied with the Board’s responses.

So Holmsted sued the Board seeking many declaratory judgments. One such claim sought an order “compelling the Board to engage a third- party to investigate and conduct an audit as mandated by [the bylaws] for the years of 2018, 2020, and 2022.” The Board moved for summary judgment, arguing that the claim was moot because the Board had already obtained the required audits for 2018, 2020, and 2022—as well as additional audits above what was required for 2019 and 2021. And the Board requested an award of its attorney fees defending the suit.

In support of its motion, the Board submitted an “Independent Accountant’s Report on Applying Agreed-Upon Procedures” for each of those years that the Board had obtained to satisfy the bylaws’ audit requirement. Each report included similar disclaimers that the accountants

1 See generally NOAA National Weather Service, August 10, 2020, Midwest Derecho: The Costliest Severe Thunderstorm Event in United States History (Aug. 6, 2021), https://perma.cc/8RCR-JWM8.

3 “conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants” but “were not engaged to and did not conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respectively on the revenue, expenses, Board minutes, bank balances and controls over check signing and money transfer.” One version of the disclaimer used the term “audit,” saying: “We were not engaged to, and did not perform an audit, the objective of which would be the expression of an opinion on the financial statement elements, accounts and items and internal control over financial reporting described above.”

The Board also submitted evidence about why it decided to comply with the bylaws’ audit requirement in this way. In an affidavit, the Board’s treasurer said that the Board learned from one of its independent accounting firms that “[a] narrow scope audit can be advantageous to entities comparable in size to [the association] because it is first, cheaper, but second, the audit focuses on certain agreed-upon financial aspects or matters” and that the firm “performed narrow scope audits for other homeowners’ associations and entities comparable to” the association. While this was not “an audit that satisfies the Generally Accepted Auditing Standards,” the Board understood that “[t]he term ‘audit’ is not defined within our governing documents.” The treasurer also testified in her deposition that the Board had received legal advice that the agreed-upon procedures it obtained satisfied the bylaws’ audit requirement. So the Board decided it would be best to proceed with a “yearly narrow scope audit” to satisfy its audit requirements under the bylaws. And the Board argued that all this “warrants application of the business judgment rule and deference to [the Board’s] decision.”

4 Holmstedt resisted summary judgment. On the audit claim, he mainly argued that the financial reports relied on by the Board “are not audits.” He highlighted the disclaimers on each of the documents, his own testimony that the documents are not audits (Holmstedt is an accountant), and purported discrepancies between the treasurer’s affidavit and her deposition testimony as grounds to find a factual dispute about whether the documents are audits. He did not address the Board’s request for attorney fees.

The court granted summary judgment and dismissed Holmstedt’s suit, relying on the business-judgment rule. It noted that nothing in the association’s governing documents “defines ‘audit,’ how an audit must be performed, or what scope the audit shall take” and that the bylaws expressly give the Board the power to interpret bylaws provisions. The court reasoned that the Board exercised this power to decide to obtain a “narrow scope audit” for each of the years for which Holmstedt sought an order requiring an audit. And the court concluded that Holmstedt had not “create[d] a genuine issue of material fact on the question of whether [the Board] was acting in a reasonably prudent manner and in what it believed to be in the corporate interest.”

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Michael Holmstedt v. Lexington East Unit One Owners Association Board of Directors, Counsel Stack Legal Research, https://law.counselstack.com/opinion/michael-holmstedt-v-lexington-east-unit-one-owners-association-board-of-iowactapp-2026.