                    IN THE COURT OF APPEALS OF IOWA

                                     No. 15-1433
                              Filed September 28, 2016


FIRST AMERICAN BANK,
     Plaintiff-Appellee,

vs.

MIDWEST CREAMERY, INC., d/b/a COLD STONE CREAMERY, f/k/a CS
CREAMERY, INC.; SCOTT OTIS; JANET OTIS; and JRF, INC.,
     Defendants-Appellants.
________________________________________________________________


      Appeal from the Iowa District Court for Polk County, Douglas F. Staskal,

Judge.



         Midwest Creamery appeals a district court order granting judgment on

three promissory notes and a supplemental order awarding attorney fees.

AFFIRMED.



      Andrew B. Howie of Hudson, Mallaney, Shindler & Anderson, P.C., West

Des Moines, for appellants.

      Christopher K. Loftus, Lynn W. Hartman, and Dawn M. Gibson of

Simmons Perrine Moyer Bergman, P.L.C., Cedar Rapids, for appellee.



      Heard by Potterfield, P.J., and Doyle and Tabor, JJ.
                                           2


TABOR, Judge.

       Midwest Creamery,1 an Iowa corporation operating Cold Stone Creamery

ice cream franchises, appeals a district court order granting judgment in favor of

First American Bank on three promissory notes and a supplemental order

awarding attorney fees. Midwest Creamery contends the district court erred in

(1) finding default under the promissory notes, (2) awarding damages on the

entire third promissory note, and (3) granting excessive attorney fees.

       We find substantial evidence to support the district court’s finding of

default under the promissory notes as well as its determination First American

was entitled to collect the entire amount due on the third note. Although the

attorney-fee award was substantial, in considering the complexity of the litigation,

we find no abuse of discretion in the award. Moreover, we find First American’s

counsel is entitled to recover appellate attorney fees.

I.     Background Facts and Proceedings

       On October 9, 2003, CS Creamery, Inc. borrowed $500,000 from First

American and executed two promissory notes (Note 1 and Note 2), each in the

amount of $250,000. The promissory notes were unconditionally guaranteed by

JRF, Inc., the holding company of CS Creamery, and Scott and Janet Otis, the

sole shareholders of JRF.       At this time, CS Creamery also authenticated a

security agreement granting First American an interest in its assets. The parties

modified the notes more than once in the next several years.              Although the

modification agreements referenced the original notes, they listed Midwest

1
 Guarantors Scott Otis, Janet Otis, and JRF, Inc. are also parties to this action. For
ease of reference, we will use “Midwest Creamery” throughout this opinion to refer to the
defendants-appellants collectively.
                                       3


Creamery, Inc., a corporation under the same ownership as CS Creamery, as the

debtor rather than CS Creamery.

      A little under two years later, Midwest Creamery borrowed $475,000 from

First American and executed a promissory note (Note 3) in that amount. Again,

the Otises and JRF unconditionally guaranteed the note. Note 3 indicated its

guaranteed portion had been sold to a registered agent for value.      Midwest

Creamery authenticated a security agreement granting First American an interest

in some of its assets but excluding “equipment and machinery.”

      Over the next several years, Midwest Creamery was frequently tardy in its

payments on the notes, periodically drifting between thirty and sixty days past

due. Midwest Creamery also failed to provide annual financial statements and

tax returns in accordance with the terms of the notes. Beginning in 2012, the

delinquency worsened, and Midwest Creamery fell perpetually behind in its

payments. Rather than declare Midwest Creamery in default, First American

continued to accept the late payments to allow Midwest Creamery to “work

through” its financial problems. In correspondence between the parties, First

American emphasized the importance of keeping the account under sixty days

past due.

      Midwest Creamery’s financial difficulties worsened. By April 2014, the IRS

had filed several tax liens against Midwest Creamery, and the landlord of its

Johnston ice cream store location had locked Midwest Creamery out of the

property and initiated a lawsuit, alleging delinquency in rental payments.

Although Midwest Creamery and First American worked together to resolve the
                                           4


tax-lien issue, Midwest Creamery failed to inform First American of the lockout.

Only in the course of a routine site visit did First American discover the lockout.

        On April 16, 2014, First American declared default and accelerated the

remaining amounts due on all three notes, demanding full payment within seven

days.    Midwest Creamery failed to make any payments after receiving the

demand letters, and First American filed suit on April 25 to foreclose its security

agreements and obtain a monetary judgment.         First American’s petition alleged

Midwest Creamery was in default for failure to pay in accordance with the terms

and conditions of the notes. The petition further alleged eight additional grounds

of default, including failure to disclose material facts to the lender. After a bench

trial in which First American pursued only a judgment for the remaining balance

due on the notes, the district court ruled in favor of First American, listing several

grounds of default. Shortly thereafter, the district court awarded $81,446.72 in

attorney fees to First American. Midwest Creamery appeals both orders.

II.     Scope and Standards of Review

        We find this case was tried at law, and we review for errors of law. See

Iowa R. App. P. 6.907; see also Van Sloun v. Agans Bros., Inc., 778 N.W.2d 174,

178–79 (Iowa 2010).       The district court’s fact-findings carry the weight of a

special verdict, and if substantial evidence supports those findings, they are

binding on us. Van Sloun, 778 N.W.2d at 179. But we are not bound by the

district court’s conclusions of law. Id.

        We review a grant of attorney fees for an abuse of discretion.

NevadaCare, Inc. v. Dep’t of Human Servs., 783 N.W.2d 459, 469 (Iowa 2010).
                                              5


We will reverse only if the district court based “its ruling on grounds that are

clearly unreasonable or untenable.” Id.

III.     Analysis

A.       Did First American prove Midwest Creamery was in default?

         The district court determined Midwest Creamery had defaulted by failing to

make timely payments on the promissory notes,2 and on additional grounds:

(1) by failing to provide annual financial statements and tax returns; (2) by failing

to pay taxes when due; and (3) by falling behind on rent payments to the extent

of being locked out of a business location, a circumstance implicating multiple

grounds of default. Midwest Creamery contends First American waived its right

to accelerate on the grounds of failing to make payments when due and failing to

pay taxes. We find it unnecessary to reach the issue whether First American

waived its right to accelerate on the grounds of late payments and failure to pay

taxes because we find substantial evidence in the record supporting Midwest

Creamery’s default on the other grounds identified by the court.

         Midwest Creamery argues the record does not support the district court’s

findings of additional grounds of default. Midwest Creamery first challenges the

sufficiency of the demand letters sent by First American, highlighting the fact that

the letters did not specifically mention any grounds of default other than the

failure to make timely payments.            Midwest Creamery claims because First

American “invented these bases for default after it decided to accelerate the

note,” the district court should not have found Midwest Creamery in default.



2
    The notes have identical provisions concerning default.
                                          6


         On April 16, 2014, First American sent Midwest Creamery demand letters

regarding each of the three promissory notes stating “[t]he above loan is in

default which default includes but is not limited to payment default and default

under lease and franchise agreements” and accelerating Midwest Creamery’s

obligations under the notes to become due within seven days of the notice. After

failing to receive any payments from Midwest Creamery, First American filed suit

on April 25, listing nine grounds of default.

         The terms of the notes allowed First American, without providing notice or

demand, to accelerate the balance upon default or to file suit.          In Dunn v.

General Equities of Iowa, Ltd., our supreme court noted acceleration provisions

are not self-executing but rather require the holder “take some positive action to

exercise his option to declare payments due under an acceleration clause.” 319

N.W.2d 515, 516 (Iowa 1982) (quoting Weinrich v. Hawley, 19 N.W.2d 665, 667

(Iowa 1945)). First American took that affirmative action to exercise its option in

the April 16 demand letters.

         Midwest Creamery complains the demand letters were “silent as to why

the bank chose to accelerate the notes. There was no mention of unpaid taxes,

impaired collateral, a dispute with the landlord, or the failure to provide financial

information.” But Midwest Creamery does not cite, nor do we find, any authority

requiring First American to provide a notice to cure in these circumstances,

specifically listing all grounds of default despite the express contrary terms of the

notes.    See Iowa Code § 554.9601(4) (2013) (stating debtor has the rights

provided in the agreement of the parties upon default). Iowa law does provide a

debtor the right to notice of default in certain circumstances. See, e.g., Iowa
                                          7


Code § 537.5110 (providing consumer the right to notice of alleged default and

right to cure in consumer credit transactions); id. § 654.2D (giving borrower a

right to notice of alleged default and right to cure for mortgage of a homestead).

But this is not a consumer credit or homestead transaction. In this commercial

credit situation, we find First American’s letters invoking the acceleration clause

were sufficient.

       Midwest Creamery next argues First American did not prove Midwest

Creamery defaulted in failing to provide financial documents in accordance with

the notes and directs us to conflicting testimony on the issue. Mark Lyons, chief

credit officer at First American, testified financial documents from Midwest

Creamery were missing from First American’s file, while Steven Phipps

acknowledged only that First American generally received Midwest Creamery’s

financial documents late and stated he would “have to look at the files to see if

[First American] ever received” them.         Scott Otis testified he had eventually

produced all financial documents for Midwest Creamery. Otis indicated due to

the time constraints of his CPA, he was unable to provide the financial

information by the deadlines in the notes, but First American knew of the problem

and told him the delay was acceptable.3

       In concluding Midwest Creamery had defaulted on this ground, the district

court stated: “Midwest Creamery was regularly tardy in supplying the business

records and tax returns it is required to provide to First American under the terms

of the Notes. Some of the documents were never supplied.” We agree Midwest


3
 Despite First American’s alleged representations to Otis, Midwest Creamery does not
argue First American waived its right to accelerate on this ground.
                                         8


Creamery was in default for failing to provide financial statements in accordance

with the terms of the notes. Although the record contained conflicting testimony

whether Midwest Creamery had completely failed to provide certain financial

documents, no dispute existed that Midwest Creamery failed to provide the

financial documents within the time periods required by the notes. Therefore, we

affirm on this ground.

        Midwest Creamery also argues the lockout by its landlord in Johnston did

not place it in default. The district court found Midwest Creamery in default on

several grounds due to the lockout and resulting legal proceedings: (1) failing to

preserve or account for collateral, (2) failing to disclose material facts to First

American, (3) becoming subject of a civil or criminal action First American

believed could materially affect its ability to pay, (4) defaulting on loans and

agreements with other creditors to the extent First American believed it could

materially affect its ability to pay, and (5) having an adverse change to financial

condition and business operation First American believed could materially affect

its ability to pay.

        Citing the fact that CS Creamery rather than Midwest Creamery executed

the first two promissory notes and subsequent grant of security interests in its

equipment, Midwest Creamery argues First American did not have a security

interest in the equipment at the location of the lockout and, therefore, Midwest

Creamery had no duty to inform First American of the lockout because it was not

a “material fact”—First American had no danger of losing collateral. Midwest

Creamery also maintains “[b]eing subject to a civil proceeding is insufficient to be

found in default because then, any lawsuit, from a ‘slip and fall’ case brought by a
                                           9


patron could be used to declare Midwest Creamery in default.” Lastly, Midwest

Creamery contends that even if we find it was in default, First American waived

its right to declare default by failing to act on its knowledge of the lockout for

several months.

       We find it unnecessary to address whether First American had a security

interest in the equipment at the location of the lockout because substantial

evidence supports the other grounds of default found by the district court. At the

time First American discovered the lockout, Midwest Creamery’s financial

difficulties were readily apparent.      Midwest Creamery had been chronically

behind in its payments for two years and was subject to tax liens. Because of

these pre-existing financial concerns, First American was justified in believing the

lockout—which prevented Midwest Creamery from doing business at one of its

locations, arose from delinquency in rent payments, and resulted in litigation—

materially affected Midwest Creamery’s ability to pay on the notes.

       Finally, Midwest Creamery’s waiver claim concerning the lockout is

without merit. A party may waive its rights under a contract, including the right to

accelerate. Dunn, 319 N.W.2d at 516. A pattern of actions or omissions such as

failing to accelerate a debt may constitute a course of performance4 “sufficient to

establish waiver” of the option to accelerate. See id. at 517. We fail to see how




4
   The Dunn court uses the phrase “course of dealing” rather than “course of
performance.” 319 N.W.2d at 517. But in many references, “course of performance” is
the term used to describe “a sequence of conduct between the parties to a particular
transaction,” which would encompass prior acceptance of delinquent installments in a
single transaction. See 13 Williston on Contracts § 39:30 (4th ed. 2015) (noting that by
“regularly accepting late payments” a lender may establish waiver by “course of
performance”). Compare Iowa Code § 554.1303(1), with id. § 554.1303(2).
                                          10


First American waived its right to accelerate on grounds related to the lockout.5

Any delay between First American’s discovery of the lockout and its declaration

of default was minimal and not enough to constitute waiver.6 See In re Prop.

Seized from Sykes, 497 N.W.2d 829, 833 (Iowa 1993) (“Mere passivity may not

support a waiver.”). Therefore, we affirm on this ground.

B.     Was First American required to provide written evidence it had
       repurchased the guaranteed portion of Note 3 to obtain judgment on
       the entire balance of the note?

       In the event we find First American proved Midwest Creamery defaulted

under the notes, Midwest Creamery asks us to limit the bank’s recovery on Note

3. The face of Note 3 indicated the guaranteed portion of the note had been sold

for value. At trial, First American representative Mark Lyons testified the loan

First American issued to Midwest Creamery was guaranteed in part by the Small

Business Administration (SBA), which allowed First American to sell the

guaranteed portion—seventy-five percent of the loan—to an approved third party.

Lyons continued that in accordance with SBA procedure, once Note 3 first went

into default in 2011, First American repurchased the guaranteed portion from that

third party. Although First American was prepared to produce all of the original

promissory notes at trial, it was unable to provide any written documentation of

its agreement to repurchase Note 3.


5
  The notes contained anti-waiver provisions, which stated: “Lender may delay or forgo
enforcing any of its rights without giving up any of them.” Because we find Midwest
Creamery failed to prove waiver, we decline to consider the effect the anti-waiver
provisions would have on Midwest Creamery’s waiver claim.
6
  At trial, Lyons was unsure of when First American became aware of the lockout, stating
he would need to review his notes and it was likely in “January or February of 2014.”
But Phipps, the First American employee who actually performed the site visit, testified
he discovered the lockout in March, approximately one month before First American
declared default.
                                         11


       Midwest Creamery argues First American was not entitled to judgment on

the entirety of Note 3 because First American failed to provide written evidence it

had repurchased the SBA-guaranteed portion of the note. Midwest Creamery

contends the verbal testimony regarding the repurchase of the previously sold

portion from First American representative Mark Lyons was not competent

evidence, hearsay, and violated the parol evidence rule.        Thus, according to

Midwest Creamery, First American’s recovery on Note 3 must be limited to

twenty-five percent—the portion of the note it did not sell—of the unpaid balance.

       First American contends it remained the holder of Note 3 under Iowa’s

Uniform Commercial Code and retained the right to enforce the note in its

entirety because it sold only a portion of the note to a third party. See Iowa Code

§ 554.3203(4). First American further contends it did, in fact, repurchase the

previously sold portion as Lyons testified, and First American owned the entire

note at the time of trial. Finally, First American points out that it surrendered the

original note to the court before the judgment was docketed, proving it was the

owner of the note.

       We find substantial evidence supports the district court’s conclusion First

American owned all of Note 3 and was entitled to enforce it. The holder of a

promissory note, which includes an entity in possession of a note payable to it,

has the right to enforce the note. Id. §§ 554.1201(2)(u), .3301. Here, although

First American transferred a portion of Note 3, it retained possession of Note 3 as

well as all rights and responsibilities associated with it—First American remained

the payee under the loan and kept all servicing responsibilities.           See id.

§ 554.3203(4) (“If a transferor purports to transfer less than the entire instrument,
                                          12


negotiation of the instrument does not occur. The transferee obtains no rights

under this Article and has only the rights of a partial assignee.”). And even if the

partial transfer had granted a third party rights in the note, the testimony of Lyons

at trial and First American’s subsequent surrender of the original note to the court

before entry of judgment indicated First American had repurchased the

transferred portion by the time of trial. Midwest Creamery does not cite, nor do

we find, any case law requiring First American to provide written proof of its

repurchase, and because the evidence presented at trial demonstrated First

American remained the holder of the note throughout the course of the loan, we

decline to require written proof over and above the original promissory note. See

Grimes Sav. Bank v. McHarg, 213 N.W. 798, 799 (Iowa 1927) (noting production

of original note by payee sufficient to establish a prima facie case of ownership).

       Moreover, we are not persuaded by Midwest Creamery’s evidentiary

objections. Midwest Creamery contends Lyons was not competent to testify to

First American’s alleged repurchase of Note 3 because his testimony was “self-

serving.” But testimony is not inadmissible on grounds of competency simply

because it is self-serving. See Iowa R. Evid. 5.601 (“Unless otherwise provided

by statute or rule, every person is competent to be a witness.”); see also Fed. R.

Evid. 601 advisory committee’s note (“Interest in the outcome of litigation . . .

require[s] no special treatment to render [it] admissible . . . .”).7         Midwest


7
  We find the case cited by Midwest Creamery in support of this argument, In re Vargas,
396 B.R. 511 (Bankr. C.D. Cal. 2008), to be readily distinguishable. The Vargas court
found a low-level clerk was not competent on grounds of lack of personal knowledge to
testify as a records custodian when there was no indication of how he had “custody of
any books, records or files of [the company], or . . . any connection” to the company.
396 B.R. at 515. But here, there was no question that either of the First American
representatives who testified at trial had personal knowledge about the promissory
                                       13


Creamery also argues the testimony is hearsay but does not point to any specific

objectionable language. We fail to see how a First American representative’s

testimony that First American repurchased Note 3 involves an out-of-court

statement implicating the hearsay rules. Finally, Midwest Creamery urges us to

find Lyons’s testimony in violation of the parol evidence rule “as it seeks to

modify the written language of Note 3.” Again, we find Midwest Creamery’s

argument unavailing. The parol evidence rule does not apply to subsequent

modifications of a written contract. See Whalen v. Connelly, 545 N.W.2d 284,

291 (Iowa 1996).

      Accordingly, we affirm the district court’s judgment on the entire balance of

Note 3.

C.    Did the district court abuse its discretion in the amount of attorney
      fees it awarded to First American?

      Midwest Creamery’s last challenge is to the district court’s grant of

attorney fees. In its decision granting judgment to First American, the district

court found First American was “contractually entitled” to recover reasonable

attorney fees and expenses. First American subsequently filed an application for

attorney fees, seeking $85,146.72. After a hearing on the matter, the district

court granted attorney fees and expenses in the amount of $81,446.72.

      Midwest Creamery argues the district court abused its discretion in the

amount of attorney fees it awarded to First American because (1) the award

included amounts for time spent before First American declared default and

(2) the complexity of the case did not warrant such an “exorbitant” amount of

notes. Both were relatively high-level employees of First American who worked
extensively on the matter.
                                         14


fees.    First American counters that the award correctly included fees and

expenses beginning in 2011 because the notes expressly allowed attorney fees

to enforce the notes and to protect collateral, regardless of whether those fees

occurred before or after First American declared default.            First American

contends the amount of the award was appropriate considering the extensive

efforts of First American’s counsel and the intricacy of the case.

1.      May the attorney-fee award include amounts accrued before First
        American declared default?

        Without citation to authority, Midwest Creamery argues First American

should not be able to recover any attorney fees and expenses incurred before

First American declared default in 2014.         A party may generally recover

reasonable attorney fees “[w]hen judgment is recovered upon a written contract”

that includes an express attorney-fee provision. Iowa Code § 625.22; see also

NevadaCare, Inc., 783 N.W.2d at 469–70. In construing such a provision, we

look to the plain meaning of the language. See Palo Sav. Bank v. Sparrgrove,

No. 02-1234, 2004 WL 57466, at *3 (Iowa Ct. App. Jan. 14, 2004); see also Fed.

Land Bank of Omaha v. Woods, 480 N.W.2d 61, 66 (Iowa 1992). According to

the terms of the notes, First American was entitled to:

        Without notice and without Borrower’s consent . . .
              ....
              B. Incur expenses to collect amounts due under this Note,
        enforce the terms of this Note or any other Loan Document, and
        preserve or dispose of the Collateral. Among other things, the
        expenses may include . . . reasonable attorney’s fees and costs. If
        Lender incurs such expenses, it may demand immediate
        repayment from Borrower or add the expenses to the principal
        balance.
                                         15


The district court found the legal “services provided before formal default was

declared were reasonably necessary to preserve [First American’s] security

interest, a matter that is within the scope of the contractual agreement to pay

attorney fees.” We agree. The time and expense statements submitted by First

American’s counsel include research regarding priority of First American’s

security interest, drafting and revising a forbearance agreement, and negotiating

lien waivers. The terms of the attorney-fee provision, which included expenses

to enforce the terms of the notes and preserve collateral, were expansive enough

to encompass this activity, so the district court was within its discretion in

including the fees and expenses accrued before First American’s formal

declaration of default. See Woods, 480 N.W.2d at 69–70 (finding lender entitled

to attorney fees “for legal services in establishing its own claim and in defending

against the counterclaims and affirmative defenses” when provision stated

“reasonable attorney fees may be collected as a part of this indebtedness in any

legal proceeding brought to enforce the collection”); Sparrgrove, 2004 WL 57466,

at *3 (finding attorney fee provision stating “if you hire an attorney to collect this

note, I also agree to pay any fee you incur with such attorney plus court costs”

allowed for fees incurred to establish right to recovery and defend against

counterclaims but did not encompass fees incurred to defend its secured position

against claims of third parties).

2.     Was the attorney-fee award unreasonable?

       Under section 625.22, any attorney fee awarded must be reasonable.

Midwest Creamery argues the fee award was unreasonably high considering

“there was limited discovery, and it was a one-day trial that lasted approximately
                                        16


6½ hours.” Midwest Creamery challenges the amount of time First American’s

counsel spent and the number of attorneys who worked on the matter but not the

hourly rate of the attorneys. “A reasonable attorney fee is initially calculated by

multiplying the number of hours reasonably expended on the winning claims

times a reasonable hourly rate.” Boyle v. Alum-Line, Inc., 773 N.W.2d 829, 832

(Iowa 2009) (quoting Dutcher v. Randall Foods, 546 N.W.2d 889, 896 (Iowa

1996)). Whether the hourly rate and time spent are reasonable depends upon

the specific facts of each case. Id. In determining the amount of the award, the

court must consider:

      (1) the time spent; (2) the nature and extent of the services; (3) the
      amount of money involved; (4) the difficulty of handling and
      importance of issues; (5) the responsibility assumed; (6) the results
      obtained; (7) the standing of the attorneys in the profession; and (8)
      the customary changes for similar service.

Dutrac Cmty. Credit Union v. Hefel, No. 15-0143, 2015 WL 7574230, at *9 (Iowa

Ct. App. Nov. 25, 2015). Further, the district court may reduce an award for

unreasonable time spent or duplicative hours. Boyle, 773 N.W.2d at 833. We

consider the district court an expert in determining what constitutes a reasonable

attorney fee. See id. at 832.

      The district court specifically addressed Midwest Creamery’s claim that

the amount sought by First American was excessive:

      [T]hough the amount of the fee sought is in the high range for a
      case that is generically labeled a “collection” case, not all collection
      cases are the same. In the range of loan transactions, this one was
      a complicated, commercial loan transaction involving multiple
      notes, multiple security agreements, multiple guarantors, multiple
      business locations, and several years of close monitoring by the
      plaintiff and negotiation between the plaintiff, the defendant and the
      guarantors as the plaintiff became concerned about repayment.
                                         17


The court also rejected Midwest Creamery’s claim it was unnecessary to have as

many attorneys working on the case as it did, noting First American “reduced its

original fee claim by an amount equal to the fees attributable to the second

attorney who participated in the trial.”8      The district court found no other

duplication of services.

       We agree with the district court’s well-reasoned analysis. Although the

trial itself was brief, the filings throughout the case and the statement of attorney

fees demonstrate the complexity and difficulty of the matter as a whole.        This

case involved multiple guarantors and multiple lienholders. The fee statements

disclose lengthy negotiations between the parties as well as summary judgment

and post-trial briefing.   Although discovery was limited, requests by Midwest

Creamery required First American’s counsel to review thousands of pages of

documents. Therefore, we affirm the district court’s grant of attorney fees in the

amount of $81,446.72.

       Finally, we find First American is entitled to appellate attorney fees

“because the attorney fee language in the note does not prohibit such fees.”

Woods, 480 N.W.2d at 70; see also Soults Farms, Inc. v. Schafer, 797 N.W.2d

92, 111 (Iowa 2011). We award First American $3000 in appellate attorney fees.

       AFFIRMED.




8
 This reduced the original claim of $85,146.72 to $81,446.72—the amount ultimately
awarded by the district court.
