Homeland Energy Solutions, LLC v. Retterath

• Decision Date: 07 February 2020
• Docket Number: No. 18-0950,18-0950
• Citation: 938 N.W.2d 664
• Parties: HOMELAND ENERGY SOLUTIONS, LLC, Appellee, v. Steve J. RETTERATH, Appellant, v. Jason Retterath and Annie Retterath, Intervenors-Appellants, and Patrick Boyle, Maurice Hyde, Christine Marchand, Leslie Hansen, Chad Kuhlers, Walter Wendland, Matthew Driscoll, Edward Hatten, Robert Sieracki, Keith Eastman, Stephen Eastman, Barney Retterath, Randy Bruess, Steven Core, Nick Bowdish, and RSM US LLP (f/k/a McGladrey LLP), Third-Party Defendants.
• Court: Iowa Supreme Court

938 N.W.2d 664

HOMELAND ENERGY SOLUTIONS, LLC, Appellee,

v.Steve J. RETTERATH, Appellant,

v.Jason Retterath and Annie Retterath, Intervenors-Appellants,andPatrick Boyle, Maurice Hyde, Christine Marchand, Leslie Hansen, Chad Kuhlers, Walter Wendland, Matthew Driscoll, Edward Hatten, Robert Sieracki, Keith Eastman, Stephen Eastman, Barney Retterath, Randy Bruess, Steven Core, Nick Bowdish, and RSM US LLP (f/k/a McGladrey LLP), Third-Party Defendants.

No. 18-0950

Supreme Court of Iowa.

Filed February 7, 2020

Rehearing Denied February 26, 2020

Jason W. Miller of Patterson Law Firm L.L.P., Des Moines, for appellants Jason Retterath and Annie Retterath.

William J. Miller and Kirk W. Schuler of Dorsey & Whitney LLP, Des Moines, David Hirsch of Harding Law Office, Des Moines, Brian J. Brislen and Adam R. Feeney of Lamson, Dugan & Murray, LLP, Omaha, Nebraska, and Allen H. Libow, Boca Raton, Florida, for appellant Steve J. Retterath.

Michael A. Dee and Brant D. Kahler of Brown, Winick, Graves, Gross, Baskerville & Schoenebaum, P.L.C., Des Moines, for appellee.

WIGGINS, Chief Justice.

This is a breach of contract case involving the repurchase of all of a limited liability company’s (LLC) member’s membership interests (units). In June 2013, the member and the LLC executed an agreement where the LLC would buy back all of the member’s units. Four days after the execution, the LLC’s board approved the agreement. At no time did the LLC’s membership vote to approve the agreement.

Five days after executing the agreement, the member attempted to revoke his offer to sell his units. The LLC countered that the member could not revoke because they had a binding agreement. The agreement indicated August 1, 2013, as the closing deadline, but the closing did not happen.

The LLC filed a breach of contract claim. It sought specific performance as the remedy as well as attorney fees under the breached contract. The member answered and included a jury demand, which the district court struck. Two other members of the LLC intervened. All three parties disputed whether membership approval of the agreement was required—the member and intervenors argued yes; the LLC argued no. The district court granted summary judgment in the LLC’s favor on that issue.

Afterward, the member and the intervenors sought and the court allowed them to amend their pleadings. However, the district court bifurcated the trial, ordering that trial on the parties’ original pleadings—i.e., the LLC’s breach of contract claim and specific performance remedy, and the member’s affirmative defenses to the agreement—would proceed as scheduled and postponed a trial on all claims arising from the amended pleadings.

Less than two weeks before trial, the LLC produced evidence that the member claimed the LLC had available previously and that he had requested during discovery. He requested the court sanction the LLC by excluding the documents or order a continuance to allow the member time to review the documents. The court denied this motion. After the bench trial, the district court allowed the LLC to supplement the record.

The court issued its ruling several months later, finding there was a binding agreement, holding the member breached the agreement, rejecting the member’s affirmative defenses, and ordering the member’s specific performance under the agreement. Later, it granted the LLC’s request for attorney fees and denied the member’s request for sanctions under Iowa Rule of Civil Procedure 1.413.

The member and the intervenors appealed. On appeal, we affirm the district court’s striking of the jury demand, bifurcation of the issues for trial, determination that membership approval of the repurchase agreement is not required, denial of the member’s motion for evidentiary sanctions or a continuance, determination the repurchases agreement was valid and binding, determination that the LLC is entitled to specific performance, and rejection of the member’s affirmative defenses. We reverse the district court’s award of attorney fees to the LLC, but affirm the denial of the member’s request for rule 1.413 sanctions.

I. Background Facts and Proceedings.

Homeland Energy Solutions, LLC (HES) is an Iowa limited liability company formed in 2006. It has approximately 1200 members, and its principal place of business is in Lawler, Iowa. Its ordinary business activities are producing and selling ethanol.

Steve Retterath grew up in Iowa but later moved to Florida, where he ran a successful construction crane business. He is a sophisticated businessperson who admits to having spent forty-five years negotiating and executing multimillion-dollar contracts on tight deadlines.

In the 2000s, he invested several million dollars in three ethanol plants, one of which was HES. All three of these companies were formed as Iowa LLCs, and the interests in them were divided into units, which their members own. Retterath purchased 25,860 HES units for approximately $26 million during HES’s initial offering of equity securities. This gave him the right to appoint two members to HES’s board of directors. Until June 2013, he always occupied one of those seats. Retterath is HES’s largest unitholder, owning roughly 28% of the units.

The intervenors, Jason and Annie Retterath, are Retterath’s son and daughter-in-law. They own approximately 4% of HES’s units and were voting members of HES at all times relevant to this appeal.

In late 2012, Retterath began efforts to liquidate his investments in the three ethanol companies. He successfully negotiated for the other two companies to repurchase his membership interests in 2012. In both instances, the company and Retterath executed member unit repurchase agreements (MURAs), which are substantially similar to the MURA at issue in this case.

At the December 19, 2012 HES board meeting, Retterath informed the board of an offer from Flint Hills Resources to purchase all of his HES units. He indicated that he wanted HES to have the first shot at buying his shares. The board, without Retterath, discussed the possible repurchase and created a buyback committee to negotiate the repurchase of Retterath’s units.

In early 2013, Retterath offered to sell his units to HES for $2000 per unit. Around that time, the approximate market value of HES units was $1000 per unit. The buyback committee rejected Retterath’s offer.

In February 2013, Retterath lowered his asking price to $1400 per unit. The buyback committee met on February 14 and counteroffered to repurchase Retterath’s units for $28 million total. Retterath did not accept this counteroffer or make another counteroffer. Afterward, negotiations stalled.

Around this time, relations between Retterath, HES employees, and HES board members broke down. Both Retterath and one of his attorneys wrote emails and letters to HES management and the board, criticizing the board’s actions and threatening litigation. Retterath suggested several individuals who were friendly to his interests to the board’s nominating committee, which vets possible candidates for election to the board and then releases a list of candidates for the membership’s vote. And in May 2013, Retterath gave another board member a $100,000 check to entice him to vote with Retterath on board matters.¹ HES’s board launched a bribery investigation following Retterath’s conduct.

In early June, Retterath initiated another round of negotiations by having an intermediary, Ed Hatten, inform several board members that Retterath would be willing to sell his units for $1100 per unit, payable in three annual installments. On June 10, the buyback committee agreed to offer Retterath $1100 per unit, payable in three annual installments, but noted the offer was subject to board and lender approval. On June 11, Pat Boyle, who was a member of the buyback committee as well as chairperson of HES’s board at the time, emailed the offer in the form of a draft MURA to Retterath with a deadline of noon on June 13, 2013, for Retterath to sign and return the agreement.

On June 12, Retterath replied to Boyle’s email with two attachments. The first attachment provided Retterath’s version of events regarding the alleged bribery. In the second attachment, Retterath expressed his concern with an installment plan if HES wanted "an unsecured promissory note which looks like [it] can borrow money while [it] owe[s Retterath] money" and for Retterath to hold it harmless. Instead, Retterath offered to agree to holding HES harmless if HES paid him in one lump sum.

On June 13, at 9:47 a.m., Boyle emailed a revised MURA under which HES would pay Retterath $1100 per unit (or $28,446,000 total) in one lump sum due at closing. The email instructed Retterath that, if the revised MURA was acceptable, to sign and return it by noon that day. At 10:46 a.m., Retterath replied to Boyle’s email with an attached copy of the revised MURA wherein he had crossed out the $28,446,000 number and handwritten in "$30,000,000," initialed the change, initialed each page, and signed on the signature line.

The buyback committee met at 11:30 a.m. to discuss Retterath’s counteroffer and agreed to it. The committee authorized Boyle to accept the counteroffer "of $30 million if he is unsuccessful in negotiating with [Retterath] to accept a payment of $15 million upon closing and another $15 million in a year." But the committee’s meeting minutes indicate the agreement would still require board and lender approval.

Boyle immediately called Retterath and informed him of the committee’s preference of the $30 million payment made in two installments. Retterath agreed. At 12:35 p.m., Boyle emailed Retterath the new MURA with the $30 million total payment, paid in two installments, one due at closing and the other by July 1, 2014. Paragraph 1 of the new MURA included in all caps, bold letters a notice that the agreement would be null and void and no longer binding if not signed by Retterath and delivered to HES prior to 2:00 p.m. local time on June 13, 2013. Boyle...