                   IN THE COURT OF APPEALS OF IOWA

                                  No. 18-1145
                              Filed March 4, 2020


IOWA FARM BUREAU FEDERATION, an Iowa Non-Profit Corporation,
     Plaintiff/Counterclaim Defendant-Appellee,

vs.

DADEN GROUP, INC., an Iowa Corporation; DANA RUPE, individually; and
WILLIAM GANSEN, Individually,
     Defendants/Counterclaim Plaintiffs-Appellants.
_________________________________

DADEN GROUP, INC., DANA RUPE,
and WILLIAM GANSEN,
     Third-Party Plaintiffs-Appellants,

vs.

ADAM KOPPES,
     Third-Party Defendant-Appellee.
________________________________________________________________


      Appeal from the Iowa District Court for Linn County, Christopher L. Bruns,

Judge.



      Daden Group, Dana Rupe, and William Gansen appeal the findings of the

district court that a subrogation agreement was enforceable, a company and its

principals waived certain defenses, and a director of the company did not breach

a fiduciary duty. AFFIRMED.
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      Kate B. Mitchell and Eric W. Johnson of Beecher, Field, Walker, Morris,

Hoffman & Johnson, P.C., Waterloo, for appellants.

      Jeffrey A. Stone, Roger W. Stone, and Gail Brashers-Krug of Simmons

Perrine Moyer Bergman PLC, Cedar Rapids, for appellee.




      Heard by Vaitheswaran, P.J., Mullins, J., and Potterfield, S.J.*

      *Senior judge assigned by order pursuant to Iowa Code section 602.9206

(2020).
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VAITHESWARAN, Presiding Judge.

      We must decide whether a subrogation agreement was enforceable,

whether a company and its principals waived certain defenses, and whether a

director of the company breached a fiduciary duty.

I.    Background Facts and Proceedings

      A privately held sports and footwear company known as Daden Group,

obtained a business loan from First American Bank. The loan agreement was

signed by Daden’s director, William James Gansen, and its president, Dana Rupe.

The bank took a security interest in “all of [Daden Group’s] assets” and Gansen

and Rupe executed individual guaranty agreements in favor of the bank.

      Iowa Farm Bureau Federation (“Farm Bureau”) was a large investor in

Daden Group. Its investment manager, Adam Koppes, as well as a member of

one of Farm Bureau’s investment funds1 held two of the five seats on Daden

Group’s board of directors. Farm Bureau had an existing relationship with First

American Bank, which was the repository of its wealth management accounts.

      Like Gansen and Rupe, Farm Bureau executed a “limited continuing

payment guaranty” in favor of First American Bank.            Under the guaranty

agreement,    Farm    Bureau    “unconditionally,    absolutely,    and   irrevocably

guarantee[d] to [First American Bank] the full and prompt payment and

performance when due . . . of all Obligations of [Daden Group] to the [bank].” Farm

Bureau’s exposure under the agreement was $4 million.              According to Farm

Bureau’s general counsel, the wealth management accounts served as “[s]ecurity


1According to Farm Bureau’s general counsel, Farm Bureau was the general
partner in the “Rural Vitality Fund.”
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for this [g]uaranty.” Documents indicated the accounts also served as security for

the underlying loan.

        As consideration for Farm Bureau’s guarantee, Daden Group agreed to

pay Farm Bureau fees totaling “approximately $504,000.” Daden Group paid

$75,000 toward the obligation. Daden Group also made the following concession

to Farm Bureau: “In the event that [Farm Bureau] is required to make payment to

First American Bank, or any third party, in fulfillment of the Guaranty, [Daden

Group] covenants and agrees that it shall repay [Farm Bureau] any such amounts

paid by [Farm Bureau.]”

       Daden Group defaulted on its loan. In the words of Koppes, the company

was “under water,” meaning that “its [l]iabilities exceeded assets.”     Farm Bureau

agreed to repay the loan. It executed a subrogation agreement with First American

Bank under which it would be “fully subrogated to the rights of” First American

Bank “upon payment of the indebtedness.” 2

       After paying off Daden Group’s loan, Farm Bureau sued Daden Group,

Gansen, and Rupe. Farm Bureau raised several claims and demanded “judgment

against the defendants together with interest, attorney’s fees, expenses, and

costs.” The defendants filed counterclaims and a third-party claim against Koppes

for breach of fiduciary duty. Following trial, the district court ruled in favor of Farm

Bureau, entering judgment against Daden Group, Gansen, and Rupe for

$3,893.081.14 with interest and granting Farm Bureau other relief. The court




2 Farm Bureau’s general counsel testified Farm Bureau “agreed to provide the
funds immediately in cash in exchange for executing the [subrogation] agreement.”
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denied Daden Group’s counterclaim for breach of fiduciary duty against Koppes

and his employer, Farm Bureau.

      On appeal, Daden Group, Gansen, and Rupe (collectively “Daden”), argue

(A) the subrogation agreement between Farm Bureau and First American Bank

was unenforceable; (B) Farm Bureau was not a subsurety, as the district court

found, (C) the district court should have recognized a claim of lender liability

against Farm Bureau; and (D) the district court erred in denying the claim against

Farm Bureau and its investment manager for breach of fiduciary duty.

II.   Analysis

      A.     Subrogation Agreement

      The subrogation agreement between Farm Bureau and First American

Bank recited that “for . . . good and valuable consideration, the receipt and

sufficiency of which the parties acknowledge,” Farm Bureau would pay the bank

“an amount equal to the amount of [Daden’s] indebtedness” to the bank. The

agreement further provided that “upon payment of the [i]ndebtedness . . . [Farm

Bureau would] be fully subrogated to the rights of [the bank] pursuant to [the] Loan

Documents to the maximum extent provided by applicable law.” The agreement

was one of the bases of Farm Bureau’s claim for money judgment against Daden.

      The district court addressed Farm Bureau’s subrogation claim as follows:

(1) there was consideration for the subrogation agreement; (2) the defendants

executed waivers and acknowledgements indicating they “always intended” to be

“held liable for the full amount of the indebtedness regardless of whether [Farm

Bureau] had paid [First American Bank] on its guarantee”; (3) “[b]ecause [Farm

Bureau] . . . successfully stepped into [First American Bank’s] shoes, it [could]
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enforce those waivers and acknowledgments”; and, accordingly, (4) the

defendants were “jointly and severally liable to [Farm Bureau] for the full amount

of the indebtedness.”

       Daden contends the subrogation agreement was unenforceable because

“[o]nce [Farm Bureau] paid off [First American Bank] in full, [the bank] had no

remaining rights to which [Farm Bureau] could be ‘subrogated.’” Farm Bureau

responds that the argument is “fundamentally at odds with the basic tenets of

subrogation law,” which “typically” afford subrogation rights when a person has

“satisfied an obligation that arguably should have been satisfied by someone else.”

Farm Bureau is correct.

       Subrogation “means to substitute or put in place of another.” Allied Mut.

Ins. Co. v. Heiken, 675 N.W.2d 820, 824 n.1 (Iowa 2004) (citing 4 Rowland H.

Long, The Law of Liability Insurance § 23:01, at 23–2 (1998)). The entity that is

“substituted succeeds to the rights of the other in relation to the debt or claim, and

its rights, remedies, or securities.” Kent v. Bailey, 164 N.W. 852, 853 (Iowa 1917).

Farm Bureau’s discharge of Daden’s obligation to First American Bank allowed

Farm Bureau to pursue its subrogation rights against Daden.               Id. (stating

subrogation “has been styled a legal fiction whereby an obligation which has been

discharged by a third person is treated as still subsisting for his benefit, so that by

means thereof one creditor is substituted to the rights, remedies, and securities of

another”); see also Spreitzer v. Hawkeye State Bank, 779 N.W.2d 726, 743 n.7

(Iowa 2009) (“[A] guarantor is eligible for subrogation only when the underlying

obligation to the creditor has been fully satisfied, regardless of any limit on the

amount of debt the guarantor agreed to pay.”); Hills Bank & Tr. Co. v. Converse,
                                          7


772 N.W.2d 764, 772 (Iowa 2009) (adopting Restatement (Third) of Suretyship &

Guaranty § 22 (1996)); Restatement (Third) of Suretyship & Guaranty § 22(1)(b)

(1996) (stating generally “when the principal obligor is charged with notice of the

secondary obligation it is the duty of the principal obligor to reimburse the

secondary obligor to the extent that the secondary obligor: . . . makes a settlement

with the obligee that discharges the principal obligor, in whole or part, with respect

to the underlying obligation”). By the terms of the subrogation agreement, Farm

Bureau succeeded to the bank’s rights. Daden’s arguments to the contrary are

unavailing. We conclude the district court did not err in finding the subrogation

agreement enforceable. See NevadaCare, Inc. v. Dep’t of Human Servs., 783

N.W.2d 459, 465 (Iowa 2010) (“A breach-of-contract claim tried at law to the district

court is reviewed by us for correction of errors at law.”).

       B.     Subsurety

       In addressing Daden’s argument that the subrogation agreement was

unenforceable, the district court stated the outcome dictated by the agreement was

“consistent with the law of surety . . . because [Farm Bureau] was a subsurety and

Gansen and Rupe were principal sureties.” Daden takes issue with the finding.

       We need not address the merits of Daden’s surety argument because

Gansen’s and Rupe’s guaranty agreements expressly waived “all defenses of

suretyship.” As discussed below, we find the waiver enforceable.

       C.     Lender Liability

       Daden filed a counterclaim against Farm Bureau alleging “[t]o the extent

[Farm Bureau] asserts that it has been subrogated to the rights of [First American

Bank] under the Subrogation Agreement . . . , [Farm Bureau] is subject to the
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obligations of the lender to the same extent as was [First American Bank].” Daden

further alleged Farm Bureau breached its obligation not to increase Daden’s risk

or “undermine the Guarantors’ remedies by releasing the collateral secured by the

[Farm Bureau] Security Agreement.” The collateral Daden referenced were Farm

Bureau’s wealth management accounts at First American Bank.

       The district court found that the wealth management accounts secured

Farm Bureau’s guaranty agreement rather than the underlying loan. Based on this

finding, the court concluded, “Whether the collateral for the guarantee could be

released was a matter solely between [Farm Bureau] and [First American Bank]”

and Daden’s lender liability claim lacked a factual basis.         The court further

concluded that waivers in the loan documents executed by Daden and the bank

allowed the bank to “release, impair, sell or otherwise dispose of any security or

collateral” and the waivers were “sufficient to preclude” the lender liability claim.

       As noted at the outset, the record is conflicting on whether the wealth

management accounts served as security for Farm Bureau’s guaranty agreement

with the bank or whether they served as security for the underlying loan. We need

not resolve the conflict because, whatever the accounts secured, Daden waived

its right to challenge how the accounts were handled. Specifically, the “commercial

line of credit agreement and note” executed by Gansen and Rupe on behalf of

Daden stated Daden “waive[d] . . . any . . . notice and defense due to . . . any

substitution or release of collateral.”       The same language appeared in the

“commercial promissory note.” And Gansen and Rupe individually waived the

bank’s “failure to protect, preserve, or resort to any collateral” and “any defense

that could be asserted by Borrower, including defenses arising out of . . . lender
                                         9


liability.” They also waived “any and all rights, benefits, and defenses . . . that

might operate . . . to limit Guarantor’s liability under, or the enforcement of, this

Guaranty.”

         The waivers were enforceable.       See Farmers State Bank, Grafton v.

Huebner, 475 N.W.2d 640, 646 (Iowa 1991) (enforcing waiver language in a note

and stating party “waived any right to complain”); Palo Sav. Bank v. Sparrgrove,

No. 02-1234, 2004 WL 57466, at *2 (Iowa Ct. App. Jan. 14, 2004) (concluding the

defendant “waived any claims or defense based on the Bank’s application of the

sale proceeds”). Accordingly, we conclude the district court did not err in granting

judgment in favor of Farm Bureau on Daden’s counterclaim based on lender

liability.

         D.    Breach of Fiduciary Duty

         Daden filed a counterclaim alleging Farm Bureau’s investment manager

Adam Koppes breached a fiduciary duty to Daden when he served on its Board of

Directors and Farm Bureau was vicariously liable for his actions. Following trial,

the district court denied the counterclaim, finding no breach or, alternatively, no

causal connection between a breach and damages.

         On appeal, Daden insists Koppes “was not looking out for the interests of

Daden and its shareholders, but rather, for the interests of [Farm Bureau].” Farm

Bureau responds by pointing to the district court’s findings that Daden’s evidence

lacked credibility. Both sides agree our review is de novo. See Iowa R. App.

P. 6.907; Weltzin v. Nail, 618 N.W.2d 293, 300 (Iowa 2000) (“Money damages to

remedy the corporation are not uncommon in derivative suits—yet the case

remains in equity.”); cf. Westco Agronomy Co. v. Wollesen, 909 N.W.2d 212, 226
                                         10


(Iowa 2017) (noting breach-of-fiduciary-duty claim for which damages were sought

was a legal claim).

         The statutory standards of conduct for directors are as follows: “1. Each

member of the board of directors, when discharging the duties of a director, shall

act in conformity with all of the following: a. In good faith. b. In a manner the

director reasonably believes to be in the best interests of the corporation.” Iowa

Code § 490.830(1) (2017). These obligations have been described as a fiduciary

duty owing to a company and its shareholders. Cookies Food Prods., Inc. v. Lakes

Warehouse Distrib., Inc., 430 N.W.2d 447, 451 (Iowa 1988); cf. Hanrahan v.

Kruidenier, 473 N.W.2d 184, 186 (Iowa 1991) (characterizing the statutory

standard as “the business judgment rule,” and stating “[w]hen directors act in good

faith in making a business decision, when the decision is reasonably prudent, and

when the directors believe it to be in the corporate interest, there can be no

liability”).

         Koppes, as a member of Daden’s board, owed a fiduciary duty to Daden.

See Iowa Code § 490.830(1); Cookies, 430 N.W.2d at 451.3 The key question is

whether he breached that duty. Our de novo review of the record discloses the

following pertinent facts.




3At trial, Farm Bureau appeared to argue Koppes owed no fiduciary duty to Daden
because Daden was insolvent. Farm Bureau abandoned the argument on appeal.
Cf. Boyd v. Boyd & Boyd, Inc., 386 N.W.2d 540, 542 (Iowa Ct. App. 1986) (“Iowa
allows an insolvent corporation to prefer its own directors or other officers if they
are bona fide creditors and if the preference is given in return for a
contemporaneous loan or advance to the corporation. . . . In other words, Iowa
prohibits preferences to corporate directors granted to satisfy preexisting debts.”).
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       Gansen and Rupe had an exclusive sales relationship with their footwear

supplier, Caleres.   When they learned Caleres was selling product to other

vendors, they stopped paying Caleres. In time, Daden discussed a proposed “debt

swap” with Caleres to resolve their differences. Rupe testified that, under the “two-

for-one swap,” Caleres was “willing to forgive a dollar of debt” for every dollar paid

down by Daden. She and Gansen “were excited and interested” in the proposal,

but they “need[ed] cash” to implement the agreement.            They discussed the

proposal with Koppes. According to Rupe, “The idea fell flat with him.” Gansen

similarly testified Koppes “slammed the door shut” on the proposal. Nonetheless,

Gansen and Rupe brought the proposal to Daden’s board. Koppes and the other

Farm Bureau-affiliated board member rejected it. Rupe believed the remaining

three members of the board could not override the two votes.

       An amendment to the articles of incorporation supports Rupe’s belief that a

majority of the board members may have had difficulty countermanding the

minority position. But, even if Koppes understood he could unilaterally block the

swap proposal, his decision to do so did not violate his fiduciary duty to Daden.

Rupe admitted the swap required an infusion of cash by Daden. Rupe conceded

Daden was experiencing financial difficulties at the time, and she also conceded

Farm Bureau had the right to elect against injecting additional money. Although

she maintained she and Gansen could have invested their own funds or obtained

funding from other sources but for Koppes’ objection, she acknowledged those

“options were not explored.”

       Even if we assume Koppes was the person who stymied pursuit of other

funding sources as Rupe maintained, there is scant evidence to suggest he did so
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to harm Daden. To the contrary, the record suggests Koppes was aware of

Daden’s financial difficulties and he determined an additional infusion of cash by

Daden would exacerbate those difficulties. See Dennison v. Mediacomm, Inc., No.

05-0308, 2006 WL 1627998, at *4 (Iowa Ct. App. June 14, 2006) (noting “the

company’s long-term prospects were bleak”); Kelly v. Englehart Corp., No. 1-241,

2001 WL 855600, at *7–8 (Iowa Ct. App. July 31, 2001) (noting “a general

downturn” in a company’s business operations did not establish self-dealing).

Notably, Rupe agreed to accept Koppes’ assistance in negotiations with Caleres,

after it became clear Rupe and Gansen had hit a dead end. Contrary to the

assertions of Rupe and Gansen, Koppes testified his goal was not to subvert a

deal with Caleres but to “try[] to keep the relationship [with Caleres] intact.” He

noted that Daden had “a bunch of inventory” and “keeping the relationship intact

in some way, shape or form would have allowed the company to continue to sell”

that inventory.   He did not believe he undermined Rupe and Gansen in his

discussions with Caleres, and he denied telling Caleres that they were out of the

company and the creditors were now in control, as Rupe and Gansen claimed.

       The district court afforded Koppes’ testimony more credibility than the

testimony of Rupe and Gansen. We give weight to the credibility finding, in light

of the court’s first-hand ability to assess demeanor, notwithstanding Koppes’

imprecise recollection of certain events. See In re Marriage of Hoffman, 867

N.W.2d 26, 38 (Iowa 2015) (Waterman, J., dissenting) (noting the difficulty of

assessing credibility from a cold transcript).

       At the end of the day, Koppes made a business decision to work on

salvaging the relationship with Caleres without throwing good money after bad. As
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Farm Bureau stated in its trial brief, his interest aligned with the interests of Rupe

and Gansen insofar as all three wanted Daden to prosper. We agree with the

district court that the decision was made in good faith and Koppes reasonably

believed he was acting in Daden’s best interests. We conclude Koppes did not

breach his fiduciary duty to Daden and the district court acted equitably in denying

relief on Daden’s counterclaim.

       We affirm the district court’s judgment in favor of Farm Bureau.

       AFFIRMED.
