Rowen v. Le Mars Mut. Ins. Co. of Iowa

• Decision Date: 11 July 1979
• Docket Number: No. 61360,61360
• Parties: Marla ROWEN, Mary E. Farnsworth, Charles W. Orr, Douglas L. Tindal, for themselves and all other Policyholders-Members of Le Mars Mutual Insurance Company of Iowa and for themselves and all others similarly situated, Appellees, v. LE MARS MUTUAL INSURANCE COMPANY OF IOWA, Alice Alesch, Executor of the Estate of John Alesch, a/k/a John H. Alesch, Joe L. Alesch, Clyde Eastman, Alice W. Alesch, M. H. Tappan, W. K. Tappan, P. G. Vander Merr, a/k/a P. A. Vander Meer, M. H. Gearke, John M. Vollmar, a/k/a John Vollmar and Burton Dull, and The Iowa Mutual Insurance Company of DeWitt, Iowa, Raymond A. Brown, William Couch, George S. Howes, Carl J. Smith, Carman G. Smith, John R. Wilkinson, J. Ray Judge, D. M. Molyneaux, and W. L. Rutenbeck, and Alesch, Inc., Margaret A. Sevenich, Mary Kay Buffington, and Jane M. Warnock, Appellants.
• Court: Iowa Supreme Court

Page 639

282 N.W.2d 639

Marla ROWEN, Mary E. Farnsworth, Charles W. Orr, Douglas L. Tindal, for themselves and all other Policyholders-Members of Le Mars Mutual Insurance Company of Iowa and for themselves and all others similarly situated, Appellees, v. LE MARS MUTUAL INSURANCE COMPANY OF IOWA, Alice Alesch, Executor of the Estate of John Alesch, a/k/a John H. Alesch, Joe L. Alesch, Clyde Eastman, Alice W. Alesch, M. H. Tappan, W. K. Tappan, P. G. Vander Merr, a/k/a P. A. Vander Meer, M. H. Gearke, John M. Vollmar, a/k/a John Vollmar and Burton Dull, and The Iowa Mutual Insurance Company of DeWitt, Iowa, Raymond A. Brown, William Couch, George S. Howes, Carl J. Smith, Carman G. Smith, John R. Wilkinson, J. Ray Judge, D. M. Molyneaux, and W. L. Rutenbeck, and Alesch, Inc., Margaret A. Sevenich, Mary Kay Buffington, and Jane M. Warnock, Appellants.

No. 61360.

Supreme Court of Iowa.

July 11, 1979.

Supplemental Opinion Sept. 19, 1979.

Thomas L. McCullough of McCullough Law Firm, P. C., Sac City, for Iowa Mutual Insurance Co. of Iowa and Alesch, Inc.

Marvin F. Heidman of Gleysteen, Harper, Eidsmoe & Heidman, Sioux City, for Alice Alesch, individually, and as Executor of the Estate of John Alesch, deceased, Margaret A. Sevenich, Mary Kay Buffington, and Jane M. Warnock.

R. Richard Bittner and Robert D. Lambert of Betty, Neuman, McMahon, Hellstrom & Bittner, Davenport, for D. M. Molyneaux.

James W. Crawford and Gerald T. Sullivan of Keyes & Crawford, Cedar Rapids, for John C. Howes.

Timothy J. Walker and Kermit S. Sutton of Whitfield, Musgrave, Selvy, Kelly & Eddy, Des Moines, for R. A. Brown, William Couch, George S. Howes, Carl J. Smith, Carman G. Smith, John R. Wilkinson, J. Ray Judge, and W. L. Rutenbeck.

James M. McNally & James L. George of McNally & George, Le Mars, for John M. Vollmar, Peter A. Vander Meer, and Clyde Eastman.

Robert E. Beebe of Kindig, Beebe, McCluhan, Rawlings & Nieland, Sioux City, for M. H. Gearke.

Frank Jacobs of Jacobs, Gaul, Nymann & Green, Sioux City, for M. H. Tappan and W. K. Tappan.

Charles R. Wolle of Shull, Marshall & Marks, Sioux City, for Burton Dull.

Robert D. Mishne and A. J. Stoik of Stewart, Hatfield, Klass & Whicher, Sioux City, for Le Mars Mutual Insurance Co. of Iowa.

Raymond E. Franck and Michael R. Mundt of Raun, Franck, Mundt & Nepper, Denison, and David C. Bayne, Iowa City, for appellees.

Richard C. Turner, Atty. Gen., and Bruce W. Foudree, Asst. Atty. Gen., for amicus curiae, Herbert W. Anderson, Commissioner of Ins.

Considered en banc.

LeGRAND, Justice.

This interlocutory appeal is here in a derivative action commenced by two policyholders of Le Mars Mutual Insurance Company (Le Mars) to set aside a contract between Iowa Mutual Insurance Company of DeWitt (Iowa Mutual) and Alesch, Inc. by which control of Le Mars was allegedly illegally transferred to Iowa Mutual. Plaintiffs ask both compensatory and punitive damages and seek general equitable relief.

The defendants are Iowa Mutual and its officers and directors; Alesch, Inc., and its officers and directors; and the officers and directors of Le Mars. Le Mars, the corporation for whose benefit this derivative action was brought, is a nominal defendant.

The trial court found generally for plaintiffs, determined liability of the defendants, reserved the assessment of compensatory damages, and fixed the punitive damages which defendants were to pay. The decree also directed Iowa Mutual to transfer all outstanding stock of Alesch, Inc. to Le Mars. It ordered that Iowa Mutual and Le Mars be "separated," and it provided for the appointment of interim directors and for the ultimate election of new directors for both Le Mars Mutual and Alesch, Inc. under court supervision. Finally the trial court announced its intention to appoint a special master "to make detailed and plenary investigation of all transactions between Le Mars, Iowa Mutual, and Alesch Agency" with authority to hold evidentiary hearings ". . . and prepare proposed findings upon matters of damages for submission to the (trial court)." We modify and affirm in part, reverse in part, and remand for further proceedings.

By an order dated January 5, 1978, we held the trial court decree to be interlocutory and granted defendants permission to take this appeal. This is the second interlocutory appeal in this case. See Rowen et al. v. Le Mars Mutual Insurance Company of Iowa et al., 230 N.W.2d 905 (Iowa 1975). We reserved the question whether Le Mars' separate application to cross-appeal was timely. We need not decide that matter because of the disposition we make of other issues.

The parties raise numerous issues. We discuss separately those necessary to our decision; but, whether discussed or not, we have considered all of them. First we dispose of several preliminary matters.

I. Scope of Review.

We are urged to treat this as an appeal on errors only and not accord it de novo review even though it arises in equity. This, we are told, would conform to the apparent trend in federal courts as exemplified by Ross v. Bernhard, 396 U.S. 531, 90 S.Ct. 733, 24 L.Ed.2d 729, 736-38 (1970). We are not bound by the federal rule, and we believe our own long-established one is preferable. Holi-Rest, Inc. v. Treloar, 217 N.W.2d 517, 523 (Iowa 1974); Holden v. Construction Machinery Co., 202 N.W.2d 348, 354 (Iowa 1972); Des Moines Bank & Trust Co. v. Bechtel & Co., 243 Iowa 1007, 1080-81, 51 N.W.2d 174, 216 (1952); Iowa R.App.P. 4. We consider the matters before us de novo.

II. Status of Le Mars Mutual as Defendant.

The parties disagree over the status of Le Mars Mutual and its right to participate actively in the litigation.

As already mentioned, this is a derivative action brought by two policyholders on behalf of Le Mars Mutual. Under such circumstances, the corporation for whose benefit the suit is brought, although actually the plaintiff, is a nominal defendant. Holi-Rest, Inc. v. Treloar, 217 N.W.2d at 523 and authorities there cited; Holden v. Construction Machinery Co., 202 N.W.2d at 367; Des Moines Bank & Trust Co. v. Bechtel & Co., 243 Iowa at 1083, 51 N.W.2d at 217.

Le Mars Mutual should take no active part in the controversy, merely awaiting the outcome and reaping the fruits of any judgment for plaintiffs; but here the company asserted various cross-claims against the other defendants and took active even aggressive part in the trial over the strenuous objections of the other defendants. In allowing this procedure, the trial court warned that the ruling was subject to reconsideration. Later the ruling was reversed as is shown by this quotation from the decree:

The legal theories and rights to relief asserted by Le Mars Mutual were similar to the amended and recast petition which plaintiffs also asked permission to file. This Court, noting of record the importance of a plenary hearing to avoid retrial of any issues in this costly and protracted litigation, overruled objections and permitted Le Mars Mutual and plaintiffs to assert parallel claims for relief. Now, the submission of this case having been completed, the Court believes that Le Mars Mutual should not be permitted to assert independent claims against Iowa Mutual and other defendants. As nominal defendant in a derivative action, Le Mars Mutual has the duty to maintain strict neutrality in the struggle between policyholders and corporate personnel. Where, as here, the policyholders are represented by able and aggressive counsel, there is no reason to depart from the posture of neutrality. This Court believes that sound principles of judicial administration compel the conclusion that the proper role of independent counsel for Le Mars Mutual is established by the required neutrality of the corporate entity, and that the affirmative cross-claims urged by independent counsel are unnecessary and unwise as precedents for future derivative litigation. Accordingly, the cross-claims of Le Mars Mutual are stricken from the record of this case.

We believe the trial court was right, and we affirm the dismissal of the cross-claims. We believe this makes it unnecessary, too, to decide whether Le Mars Mutual's notice of cross-appeal was timely, a matter reserved in our order of January 30, 1978.

As a related issue arising out of Le Mars Mutual's participation in the trial, the other defendants insist they were prejudiced by having it as an additional foe. We cannot see how defendants can seriously claim prejudice. They were not required to meet any new issues or make any defenses they would not otherwise have made. Neither did they face any evidence which would not have been equally relevant without the participation of Le Mars. Defendants' claim of prejudice is without merit.

III. Admissibility of Testimony of Richard Fischer.

This issue is one raised by Le Mars. Since its cross-appeal has been dismissed, perhaps the matter should be disregarded. However, we elect to state why we believe the trial court was right in refusing to allow Fischer's testimony. We do so because it was a hotly contested issue at trial and was treated extensively in the briefs.

Fischer had not been noted as an expert witness to be used to establish valuation of the stock of Alesch, Inc., although a pre-trial order directed that the names of all expert witnesses should be disclosed. When it was sought to introduce his testimony, the trial court sustained defendants' objections.

The reason for doing so is set out as follows in the decree:

The parties have had more than four years to prepare this case for trial. Under such circumstances, the calling of Fischer without prior disclosure constituted an attempt to evade the spirit and purpose of this Court's order of April 22, 1977. The exclusion of Fischer's testimony is affirmed.

The trial court was well within its discretion in excluding this testimony. Pre-trial procedure is governed by rules 135-39, Iowa R.Civ.P. Rule 138 specifically authorizes the trial court...