Postma v. Wedebrand
| Docket Number | 22-0501 |
| Decision Date | 07 June 2023 |
| Parties | SCOTT POSTMA, Plaintiff-Appellee/Cross-Appellant, v. DIANE WEDEBRAND, as Guardian and Conservator of MIKE KATS, ARVIN BRENNEMAN, HAROLD VANDER VLIET, and DIANE WEDEBRAND, Defendants-Appellants/Cross-Appellees, |
| Court | Iowa Court of Appeals |
Appeal from the Iowa District Court for Sioux County, Patrick H Tott, Judge.
The defendants appeal the trial court's ruling in this declaratory judgment action finding Scott Postma is a shareholder of Ozone Solutions, Inc. and was entitled to notice of the meeting held on May 31, 2018. Plaintiff cross-appeals the court's rulings on requests for sanctions, which we treat as a petition writ for certiorari. AFFIRMED ON APPEAL; WRIT SUSTAINED IN PART AND REMANDED.
Jeffrey T. Myers of Goosmann Law Firm and Angie J Schneiderman of Moore Corbett Law firm, Sioux City, for appellants/cross-appellees.
William G. Beck of Woods, Fuller, Shultz &Smith P.C., Sioux Falls, South Dakota, for appellee/cross-appellant.
Heard by Bower, C.J., and Tabor and Greer, JJ.
Diane Wedebrand, Mike Kats, Arvin Brenneman, and Harold Vander Vliet (collectively, the Defendants) appeal the trial court's ruling in this declaratory judgment action finding Scott Postma is a shareholder of Ozone Solutions, Inc. (Ozone) and was entitled to notice of the meeting held on May 31, 2018. Postma cross-appeals the court's rulings on his requests for sanctions.
Because Postma was a shareholder and received no notice for the May 31, 2018 meeting, the actions taken at that meeting are void. We affirm on the appeal.
We treat the cross-appeal as a petition writ of certiorari, grant the petition, and sustain the writ in part. We find no abuse of discretion in the trial court's determination sanctions were to be imposed upon Kats alone for the bad faith presentation of an affidavit under Iowa Rule of Civil Procedure 1.981(7). But, because the district court employed the wrong standard in determining whether sanctions should be imposed under rule 1.517(3)(b), we sustain the writ in part and remand for consideration under the correct standard.
Prior to the formation of Ozone, Vander Vliet and Brenneman had started an ozone business. About a year later they met Kats who joined the business. During this time Kats developed an ozone system that he was using on his farm. Kats wanted an engineer to look at his ozone system and had his sister, Gina Kats, approach Postma while he was a senior at Dordt College majoring in mechanical engineering. After the conversation, Postma began researching ozone and ozone systems during his final semester of college and, after meeting with Kats, an additional meeting was set up with Brenneman and Vander Vliet as possible investors.
Ozone was incorporated on April 15, 1997. The initial incorporators of the company were Kats, Postma, Brenneman, Vander Vliet, Randy Curry, and Mitch Gramstead.
At the organizational meeting of the shareholders and board of directors of the company on July 1, 1997, Kats was elected president of the company and Postma was elected as the secretary/treasurer. At this meeting a buy-sell agreement between the corporation and its shareholders was approved as were the corporate bylaws and stock certificate form; it was decided that the business would be a "Subchapter S" corporation. Ozone was located at 32 Sixth Street NW, Sioux Center, Iowa.
The terms of the buy-sell agreement approved at the July 1, 1997 meeting required a shareholder who wished to sell his shares to first offer those shares to the company and then to each of the other shareholders of the company on the terms set out in the agreement before being able to transfer the shares to a third party. It also provided the terms for the sale and purchase of the shares of a deceased shareholder. The buy-sell agreement did not contain any provisions under which a shareholder would be required to sell their shares or surrender their shares to the company. The bylaws of the company, among other things, established shareholder rights, created a board of directors, and designated officers for the company. The bylaws made no reference to the manner of acquiring or transferring ownership of shares of stock of the company. The bylaws did require notice to be given to all shareholders prior to any meetings or, in the alternative, that the shareholders unanimously agreed in writing to certain action in lieu of a formal meeting. For board-of-director meetings, regularly scheduled annual meetings were to be conducted without any additional notice but, for special meetings, at least one day's notice was required to be given to all directors.
At the time of the filing of the Subchapter S election with the Internal Revenue Service in 1997, the only shareholders of Ozone were Kats, who held 7500 shares, and Postma, who held 2500 shares.
On June 21, 2018, Postma filed a petition for declaratory judgment seeking to void the actions taken by the Defendants at a corporate meeting held on May 31, 2018. That meeting involved the purchase of shares of Ozone owned by Brenneman and Vander Vliet, the issuance of a loan to Ozone by Wedebrand, a payment or issuance of shares by Ozone to Kats, and the forgiveness of debts to Ozone owed by Kats, Brenneman, and Vander Vliet.
On July 9, 2020, the district court found a number of facts were deemed admitted by the individual Defendants due to their failure to respond to Postma's requests for admissions, including that on January 1, 2013, Kats owned 5414 shares of Ozone, Postma owned 4296 shares, Brenneman owned 340 shares, and Vander Vliet owned 900 shares and, if called to testify, a custodian of records at the law offices of Oostra, Bierma, Van Engen &Mouw, P.L.C. would testify that Kats temporarily removed Ozone's corporate books and records on March 14, 2006, and permanently removed Ozone's books and records in 2009.[1] A trial to the court was held on October 13-15, 2020, and April 22, 2021. Postma argued that he remained a shareholder of Ozone as of May 31, 2018, and as shareholder he was entitled to notice of the May 31 meeting and maintained the right to vote on the agenda items. Because he had no notice, the actions taken at that meeting were void.
For their part, the individual defendants asserted Postma was required to sell his 4296 shares back to Ozone after his employment was terminated in 2013 (pursuant to the 2003 transaction). The trial court made extensive findings of fact-all of which are fully supported by the record before us.
(6) Kats testified that Ozone conducted regular shareholder and directors' meetings pursuant to the company bylaws. He indicated that there were both formal and informal meetings and that minutes of each meeting were taken by hand during the meetings with formal typed minutes prepared which were approved at the next meeting. Postma was the secretary of Ozone from 1997 to 2004 or 2005 and was responsible for preparing and recording these minutes. Brad Kats became the secretary in 2005 and Nic Van Engen later succeeded Brad as the secretary of the company.
(7) Over the first four or five years after Ozone was formally established, Postma worked on additional research on the ozone systems and did extensive travel to visit farmers about the system as well as to several major universities to try to get them involved in researching the ozone systems. Ultimately Michigan State University agreed to install one of Ozone's ozone systems at the university and to conduct research on the same. During this time Ozone moved to 653 1st Ave NE, Sioux Center, Iowa.
(8) During this time Postma was to receive a salary of $25,000 per year which would be paid in either cash or shares of Ozone stock. Postma indicated that he took little pay as cash and primarily tried to build up his share equity in Ozone. Internal corporate records would indicate that as of November 31, 2002, Postma had accumulated 5466 shares of Ozone stock.
(9) Shortly after October 8, 2003, Ozone moved to its third physical location at 789 7th St. NW, Sioux Center, Iowa. Ozone made its first rent payment for this location on November 3, 2003. Ozone moved to this location after sales started to pick up and a larger space was needed. At an informal meeting of the shareholders and directors of Ozone on November 13, 2003, a distribution of 3201 shares of stock was authorized to Postma. At this time Kats also received 3417 shares after converting his loan for his pickup and equipment into shares.
(10) On February 17, 2005, Lloyd Bierma who was the attorney for Ozone sent a letter to Kats and Postma setting out the stock ownership of Ozone as of that time. Mr. Bierma's records indicated that as of February 17, 2005, Kats owned 6767 shares; Postma owned 4500 shares[2]; Mitch Gramstead owned 1110 shares; Vander Vliet owned 1125 shares; and Brenneman owned 425 shares.
(11) As Ozone continued to grow, discussions were held about letting new employees buy into the company. By that time Joel Leusink, Brad Kats, and Adam Bradshaw had been hired as employees of Ozone. At an informal meeting of the board of directors and shareholders of Ozone on December 31, 2005, it was agreed that existing shareholders would sell 20% of their existing shares back to the company and that the employees of the company would then be able to purchase those shares. As a shareholder, Postma was also able to purchase these shares. After the transaction was completed, Postma held 4296 shares and Joel Leusink, Brad Kats, and Adam Bradshaw each held 696 shares respectively. As a condition for the purchase of these shares, the new "shareholder employees" had to agree to sign a Customer NonCompete Agreement and a Stock Buy-Sell Agreement. The...
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