Weltzin v. Nail

• Decision Date: 11 October 2000
• Docket Number: No. 98-2114.,98-2114.
• Citation: 618 N.W.2d 293
• Parties: Roger WELTZIN, Arnold Noe, and Roland Riensche, For themselves and all other shareholders of Laporte City Cooperative Elevators, Appellants, v. Michael NAIL, James E. Johnson, Gary Wilt, Greg Wellman, Steve Vaughn, Rory Brown, Ron Bader, Marvin Brecher, John Lee, Gary Blocker, Nick Meier, Cobank, ACB, Kenneth Grant, and Laporte City Cooperative Elevators, Appellees.
• Court: Iowa Supreme Court

618 N.W.2d 293

Roger WELTZIN, Arnold Noe, and Roland Riensche, For themselves and all other shareholders of Laporte City Cooperative Elevators, Appellants, v. Michael NAIL, James E. Johnson, Gary Wilt, Greg Wellman, Steve Vaughn, Rory Brown, Ron Bader, Marvin Brecher, John Lee, Gary Blocker, Nick Meier, Cobank, ACB, Kenneth Grant, and Laporte City Cooperative Elevators, Appellees.

No. 98-2114.

Supreme Court of Iowa.

October 11, 2000.

Morris L. Eckhart, Vinton, for appellants.

Kelly R. Baier and Paul D. Burns of Bradley & Riley, P.C., Cedar Rapids, for appellee Michael Nail.

Gregory M. Lederer of Simmons, Perrine, Albright & Ellwood, P.L.C., Cedar Rapids, for appellees James E. Johnson, Gary Wilt, Greg Wellman, Steve Vaughn, Rory Brown, Ron Bader, Marvin Brecher, John Lee, Gary Blocker, and Nick Meier.

John M. Wharton of Peddicord, Wharton, Thune and Spencer, P.C., Des Moines, for appellees Cobank, ACB, and Kenneth Grant.

Gregory B. Wilcox of Nyemaster, Goode, McLaughlin, Voigts, West, Hansell & O'Brien, A.P.C., Des Moines, for appellee LaPorte City Cooperative Elevators.

Considered en banc.

SNELL, Justice.

This is an interlocutory appeal from the Black Hawk County District Court. The appellant shareholders contend that their demand for a jury trial in their derivative suit was improperly stricken. We granted review and affirm the district court's ruling.

I. Background Facts and Proceedings

The plaintiffs/appellants in this case are shareholders of LaPorte City Cooperative Elevators. On behalf of the company, they brought a shareholder's derivative lawsuit against its directors and officers. A derivative lawsuit is unique in that the shareholders allege the company's directors have directly harmed it by their acts and omissions such that the company has suffered a loss. The shareholders indirectly assert their rights through the rights of the company.

In the present suit, the shareholders assert that the company's former directors and officers committed multiple breaches. Specifically, the shareholders allege former manager Michael Nail committed a negligent breach of his fiduciary duties and made fraudulent misrepresentations. They seek compensatory and punitive damages from Nail for his actions. The shareholders also contend that several former directors and the company's loan officer committed negligence in the performance of their duties. For these actions, the shareholders seek money damages. Although in equity, the shareholders filed a demand for jury trial with their petition.

In response to the petition, Nail answered with the affirmative defense of comparative fault, including a failure to mitigate damages, and asserted he was immune from liability for actions taken in performance of his duties. See Iowa Code § 499.59 (1997). Similarly, the other defendants asserted their immunity under section 499.59. All defendants joined in a motion to strike the jury demand made by the shareholders.

It is from this backdrop that the issue of the present appeal stems. The district court sustained the defendants' motion to strike the plaintiffs' demand for a jury trial. The court explained that a shareholder's derivative lawsuit could only be brought in equity and, therefore, no jury was warranted. While the court recognized that several claims and defenses were legal ones, because "the underlying essential character of the action [was] equitable in nature ... plaintiffs [were] not entitled to a jury trial."

The shareholders then timely filed an application for interlocutory appeal on the jury issue. The shareholders argue that because their suit raises legal issues and remedies they are entitled to a jury determination. Specifically, the issue is: Under Iowa law, do shareholders in a derivative lawsuit have the right to a jury, when several claims are legal in nature, all affirmative defenses are legal, and Iowa recognizes the general inviolate right to a jury trial, but the overall nature of the action is equitable?

II. Scope of Review

An interlocutory appeal from a court in equity is reviewed de novo. Sear v. Clayton County Zoning Bd. of Adjustment, 590 N.W.2d 512, 515 (Iowa 1999); see Iowa R.App. P. 4. This court should "examine the entire record and adjudicate anew the rights on the issues properly presented." In re Marriage of Maher, 596 N.W.2d 561, 564 (Iowa 1999). Weight may be given to the court's findings, however, this court is not bound by them. Sear, 590 N.W.2d at 515. While de novo review allows the appellate court to consider the facts and issues in their entirety, the court can only review issues properly preserved. In re Marriage of Hitchcock, 265 N.W.2d 599, 606 (Iowa 1978). Error was preserved by the shareholders' timely application for interlocutory appeal on the jury issue.

III. Issue on Appeal

Whether the plaintiff in a shareholder's derivative suit is entitled to a jury is a fairly unsettled question across the country. Compare Nelson v. Anderson, 72 Cal.App.4th 111, 84 Cal.Rptr.2d 753, 760 (1999)

("A minority shareholder's action for damages for the breach of fiduciary duties of the majority shareholder is one in equity, with no right to a jury trial."), with Rocha Toussier y Asociados, S.C. v. Rivero, 201 A.D.2d 282, 607 N.Y.S.2d 282, 282 (1994) (holding that the plaintiff in a shareholder's derivative suit was entitled to a jury where demand for relief was legal in nature although it also contained equitable demands).

While never addressing the derivative suit issue, we have recognized that there is no right to a jury trial generally in cases brought in equity. Moser v. Thorp Sales Corp., 312 N.W.2d 881, 896 (Iowa 1981). "Generally, if the cause of action is equitable in character, even in part, and equity jurisdiction once attaches, full and complete adjustment of the rights of all parties will be properly made in the suit." 27A Am.Jur.2d Equity § 5 (1996). Other legal sources have reached a similar conclusion specifically regarding shareholder's derivative suits. See generally 19 Am. Jur.2d Corporations § 2373 (1986) ("[I]n the absence of statutory provisions to the contrary, ... in such a suit in state court, the stockholders are not entitled, as a matter of right to a trial by jury."). The shareholders here urge us to attach the right to a jury trial in equity because several of their claims and remedies are legal. They further argue that legal defenses raised should be heard by a jury.

A. Iowa Jurisprudence

Iowa has previously addressed the issue of jury trials in an equity case involving a trust. Carstens v. Cent. Nat'l Bank & Trust Co., 461 N.W.2d 331 (Iowa 1990). As is the case here, Carstens came before this court on interlocutory appeal after the plaintiffs' jury demands were denied. See id. at 332. However, the trust case was originally brought at law. Id. We held that because the trust beneficiaries' rights had not yet vested, the suit could only be brought in equity, and thus, plaintiffs were not entitled to a jury determination. Id. at 333-34. The relevant portion of the opinion is the court's discussion of the distinction between equity and law suits. Id. at 333. We stated: "The commencement of an action at law or an action in equity does not provide or deprive a party of the right to a jury trial of issues ordinarily triable to a jury." Id. This statement was made in the context of a case improperly filed at law.

That being said, we later concluded that no jury was warranted because the action was actually one in equity. Id. at 334. The court also stated: "We look at the essential nature of the cause of action, rather than solely at the remedy, to determine if a party is entitled to a jury trial." Id. at 333 (emphasis added); see Moser, 312 N.W.2d at 895

(finding that the fact the remedy is legal in nature does not automatically take the case out of the purview of the equity court). This suggests that the remedy sought is of minimal importance—it is the nature of the cause of action, i.e., where the case is properly docketed, that is the deciding factor.

It should be noted that in Carstens there was a dispute about what type of action the trust claim was, legal or equitable. See Carstens, 461 N.W.2d at 332-34

. Here, it is clear that the nature of a shareholder's derivative suit is equitable only. See Holi-Rest, Inc. v. Treloar, 217 N.W.2d 517, 523 (Iowa 1974) ("A shareholder's derivative action is equitable in nature."). This fact is admitted by the shareholders. Likewise, there is no common law counter-part to a derivative suit available to shareholders. The derivative suit exists only in equity. Moreover, because the nature is known here, Carstens has bearing on the present case only to the extent that the court held the remedy sought is not the deciding factor to obtain a jury. See Carstens, 461 N.W.2d at 333.

1. The Effect of Legal Remedies Sought on the Equitable Claim

In their brief, the shareholders urge us to accept the proposition that "[t]he essential character of a cause of action to determine whether the right to jury trial exists is the relief it seeks." In support of this statement, the shareholders cite Carstens. This is a misstatement of the court's holding in that case. As noted earlier, the court explained that it was the nature of the case itself rather than solely the remedy that tips the balance in favor of or against providing a jury. Id. The court found that even though the trust beneficiaries were seeking money damages, a legal remedy, because the case could only be founded in equity, there was no right to a jury. Id. at 333-34 ("Generally, the remedies of a beneficiary against the trustee are exclusively equitable.... The district court correctly sustained the motion to strike the demand for jury.").

2. The Effect of Legal Defenses Asserted on the Equitable Claim

The shareholders also assert that a jury should hear legal defenses raised. Regarding legal defenses in equity, several Iowa cases have held:

We have

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