Iowa Law Protects LLC’s Owners From Personal Liability

Posted on May 21, 2013 by

Iowa Limited Liability Company - Pierce the Corporate Veil

A February 27, 2013 Iowa Court of Appeals opinion serves as yet another real-world example of how and why taking the time to set up a formal entity – in this case an Iowa LLC – can benefit and provide protection to the LLC’s owners (whether members or managers).  In the February 2013 opinion, the Iowa appellate court upheld a district court’s order that refused to allow a third-party (the plaintiff) to pierce the veil of an LLC in an effort to hold the LLC’s 2 members (50/ 50 owners) personally liable on several claims, including breach of contract and unjust enrichment claims.  Citing to Cemen Tech, Inc. v. Three D Indus., L.L.C., 753 N.W.2d 1, 6 (Iowa 2008), the Iowa Court of Appeals found summary judgment in favor of the LLC’s owners was proper.  Specifically, the appellate court found that despite allegations that the LLC’s tax returns show improper distributions and despite the LLC selling its assets after an administrative dissolution, the LLC’s owners were entitled to limited liability and the protections afforded under the Iowa Limited Liability Company Act.

For more information and to learn how you can seek protection as a business owner, consider contacting a licensed attorney in your jurisdiction.

Legal Disclaimer and Terms of Use

Matthew McKinney, as owner and host of this site, cannot and does not warrant the accuracy or reliability of the information presented on or through this site.  The information on this website does not constitute legal advice and readers should not rely on it to solve problems;   Further, you should seek licensed counsel before taking any action.  Any information provided on this site is presented “As Is” for your personal curiosity and enjoyment.  It is not meant to be relied upon for legal advice, counsel, or for any other purposes.  Such information does not take the place of a lawyer.  Rules and laws differ by jurisdiction and the information contained within this website may not apply in your jurisdiction.  The appearance of articles, listings, or ads, by or for professionals, on this site, does not constitute an endorsement.  In all cases, you are responsible for determining the quality of services, information, and/or advice provided by professionals through, or as a consequence of, your use of this site.  Neither Liability nor responsibility shall arise to any person or entity with respect to loss or damage caused (or alleged to be caused), directly or indirectly, by information posted on this website, or by reason of contact with a professional listed on, or posting information to, this site.  No attorney-client relationship is formed by viewing this website and practice is limited to jurisdiction where lawyers are admitted.  The information furnished on the website is only general and not a substitute for personalized legal advice.   Legal advice cannot be given without full consideration of all relevant information relating to the individual(s) situation.  Laws can change daily and new laws may, and likely will, affect the accuracy of the information herein.  The information herein may be outdated and replaced by new law.

If you are seeking representation, please read the following notice before sending an e-mail:

Sending an e-mail will not make you a client.  Until an agreement regarding representation is reached with you, anything you send will not be confidential or privileged.  Before representation can occur, a lawyer will first take you through the conflict of interest procedure and see that you are put in touch with the lawyer best suited to handle your matter.

If you proceed with an e-mail, you confirm that you have read and understood this notice.

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PART II – 2013 Law Eliminates Statutory Authority to Recover Attorneys’ Fees in Derivative Litigation

Posted on May 18, 2013 by

Court Ordered Derivative Expenses Awarded in Shareholder ProceedingPART II – 2013 Changes to the Iowa Business Corporation Act.

This post addresses yet another substantive change to Iowa law – as adopted by the 2013 legislature – and which relates to the ability to recover reasonable attorneys fees in derivative litigation.  The 2013 bill amends existing Iowa law (Iowa Code Section 490.746) by eliminating a court’s statutory authority to award attorneys’ fees incurred in a derivative proceeding.  The amended subsection (below and redlined) removes all prior references to  recovering attorneys fees and simply permits an award of expenses:

On termination of the derivative proceeding, the court may do either any of the following:

1.  Order the corporation to pay the plaintiff’s reasonable reasonable expenses, including attorney fees if it finds that the proceeding has resulted in a substantial benefit to the corporation.

2.  Order the plaintiff to pay any defendant’s reasonable reasonable expenses, including attorney fees incurred in the proceeding, if it finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose.

Iowa Code Section 490.746.  Prior to the new language reproduced above, this Code section provided statutory authority to a court to award expenses and reasonable attorney fees.  As evidenced above, the 2013 changes eliminate all references to attorney fees, and thereby eliminates a court’s statutory authority under this subsection to award attorneys fees.  Despite the change, a court may still order a corporation to pay the plaintiff’s expenses (defined in Iowa Code Section 490.140) if the court determines that the proceeding has resulted in substantial benefit to the corporation and alternatively may order the plaintiff to pay the defendant’s expenses if it finds the proceeding was commenced without reasonable cause or for an improper purpose (Iowa Code Section 490.746).  As a result of this change, shareholder plaintiffs may think twice about asserting a claim on behalf of their entity to correct wrongdoing as they are no longer able to recover attorney fees (under this subsection) personally expend in prosecuting a lawsuit.

Legal Disclaimer and Terms of Use

Matthew McKinney, as owner and host of this site, cannot and does not warrant the accuracy or reliability of the information presented on or through this site.  The information on this website does not constitute legal advice and readers should not rely on it to solve problems;   Further, you should seek licensed counsel before taking any action.  Any information provided on this site is presented “As Is” for your personal curiosity and enjoyment.  It is not meant to be relied upon for legal advice, counsel, or for any other purposes.  Such information does not take the place of a lawyer.  Rules and laws differ by jurisdiction and the information contained within this website may not apply in your jurisdiction.  The appearance of articles, listings, or ads, by or for professionals, on this site, does not constitute an endorsement.  In all cases, you are responsible for determining the quality of services, information, and/or advice provided by professionals through, or as a consequence of, your use of this site.  Neither Liability nor responsibility shall arise to any person or entity with respect to loss or damage caused (or alleged to be caused), directly or indirectly, by information posted on this website, or by reason of contact with a professional listed on, or posting information to, this site.  No attorney-client relationship is formed by viewing this website and practice is limited to jurisdiction where lawyers are admitted.  The information furnished on the website is only general and not a substitute for personalized legal advice.   Legal advice cannot be given without full consideration of all relevant information relating to the individual(s) situation.  Laws can change daily and new laws may, and likely will, affect the accuracy of the information herein.  The information herein may be outdated and replaced by new law.

If you are seeking representation, please read the following notice before sending an e-mail:

Sending an e-mail will not make you a client.  Until an agreement regarding representation is reached with you, anything you send will not be confidential or privileged.  Before representation can occur, a lawyer will first take you through the conflict of interest procedure and see that you are put in touch with the lawyer best suited to handle your matter.

If you proceed with an e-mail, you confirm that you have read and understood this notice.

Posted in Business Owner, Director, Intra-corporate dispute, Litigation, Manager, Member, New Law, Officer, Partners, Partnership, Shareholder | Tagged , , , , , , , , , , , , , , | Leave a comment

PART I – A Director’s Fiduciary Duty to Question and Disclose Information?

Posted on May 17, 2013 by

Iowa Director's Duty to Question and Disclose Information

PART I – 2013 Changes to the Iowa Business Corporation Act.

This post is the first in a series of posts that will address several changes to the Iowa Business Corporation Act (Iowa Code Chapter 490) as approved by the Iowa legislature and signed by Governor Terry Branstad during the 2013 legislative session.

One many changes to Iowa’s Business Corporation Act relates to a directors’ duty to disclose information in discharging his/her fiduciary duties.  The newly adopted subsection, which amends Iowa Code Section 490.830, states:

In discharging board or committee duties a director shall disclose, or cause to be disclosed, to the other board or committee members information which the director knows is not already known by them but is known by the director to be material to the discharge of their decision-making or oversight functions, except that disclosure is not required to the extent that the director reasonably believes that doing so would violate a duty imposed under law, a legally enforceable obligation of confidentiality, or a professional ethics rule.

Upon first blush, this language may seem fairly straightforward.  In practice, however, and upon deeper analysis, the language may raise several questions and dilemmas.   For instance, when a plaintiff Continue reading →

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Governor Branstad Approves Changes to Iowa’s Business Corporation Act

Posted on May 15, 2013 by

Governor Branstad Signs Changes to Model Business Corporation Act 2013As originally noted here, on March 6, 2013 a bill was introduced in the Iowa legislature to enact several changes to Iowa’s Business Corporation Act (Iowa Code Chapter 490).  After receiving unanimous approval from both the Iowa House of Representatives and the Iowa Senate, the bill was sent to Governor Branstad for signature on April 2, 2013.  Three days later, April 5, 2013, Governor Branstad signed House File 469 in to law.  Click here for a complete copy of the new law.   Sign-up (to the right) and follow this blog for future posts addressing how House File 469 amends Iowa law.

Posted in Business Owner, Director, Intra-corporate dispute, Litigation, Manager, Member, New Law, Officer, Partners, Partnership, Shareholder | Tagged , , , , , , , | Leave a comment

Changes to the Iowa Model Business Corporation Act?

Posted on March 6, 2013 by

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In the 2013 Legislative Session (the 85th General Assembly), which began January 14, 2013, Iowa Legislators introduced new legislation that proposes several changes to Iowa’s Model Business Corporation Act.  As of March 6, 2013, the bill, HSB143, has been introduced, discussed, and voted out of the House Judiciary Committee.  To track and/or read the proposed legislation, please click here:

http://coolice.legis.iowa.gov/Cool-ICE/default.asp?Category=billinfo&Service=Billbook&menu=false&ga=85&hbill=HSB143

Posted in Business Owner, Director, Intra-corporate dispute, Litigation, Manager, Member, New Law, Officer, Partners, Partnership, Shareholder | Tagged , , , , , | 1 Comment

Does Your Business’ Information Qualify for Protection as a Trade Secret? The Iowa Supreme Court Explains.

Posted on July 31, 2012 by

On July 27, 2012 the Iowa Supreme Court published its opinion in Iowa Film Production Services et al. v. Iowa Department of Economic Development, No. 10-1719 (July 27, 2012).  The Iowa Film opinion addresses several issues, including how Iowa courts define trade secrets.  The Court explained Continue reading →

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Does the Lack of a Succession Plan Constitute a Breach of Fiduciary Duty?

Posted on July 26, 2012 by

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On June 21, 2012, in response to Plaintiff alleging HP’s Board of Directors breached their fiduciary duties to the company and its shareholders by failing to implement a succession plan, the Delaware Court of Chancery explained that it is “not aware” of any “Delaware precedent that stands for the proposition that failure to adopt a long-term succession plan amounts to a breach of duty.”  Zucker v. Andresssen, C.A. No. 6014-VCP, p. 28 (Del. Ch. June 21, 2012) (CLICK FOR OPINION).  In support of its opinion, the Court cited another case, acknowledging: “[a]spirational ideals of good corporate governance practices for boards of directors that go beyond the minimal legal requirements of the corporation law are highly desirable, Continue reading →

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