IN THE SUPREME COURT OF IOWA
No. 20–0817
Submitted January 20, 2022—Filed March 4, 2022
JOSEPH GOCHE,
Appellant,
vs.
WMG, L.C.,
Appellee.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Kossuth County, David A. Lester,
Judge.
Limited liability company seeks further review of court of appeals decision
awarding attorney fees (including “fees on fees”) to a former manager under Iowa
Code section 489.408(1). DECISION OF COURT OF APPEALS VACATED;
DISTRICT COURT JUDGMENT REVERSED.
Waterman, J., delivered the opinion of the court, in which all justices
joined.
2
Philip J. Kaplan of Anthony Ostlund Baer & Louwagie, P.A., Minneapolis,
Minnesota, and Joseph G. Gamble and Wesley T. Graham of Duncan Green,
P.C., Des Moines, for appellant.
Thomas W. Lipps of Peterson & Lipps, Algona, for appellee.
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WATERMAN, Justice.
This appeal presents a question of first impression: whether Iowa Code
section 489.408(1) (2020) allows a manager of an Iowa limited liability company
(LLC) to recover from the LLC the attorney fees incurred litigating against the
LLC, and if so, whether the manager can also recover “fees on fees,” or the
additional fees incurred enforcing the statutory fee claim. The statute requires
the LLC to indemnify a manager for any debt incurred “in the course of the
member’s or manager’s activities on behalf of the company.” Id. (emphasis added).
A member-manager had a falling out with the other members (his siblings) who
had removed him as manager. Multiple lawsuits were filed in which the
now-former manager prevailed on the merits. His fees at issue were incurred
litigating against the LLC.
The district court ordered the LLC to pay its former manager his fees
pursuant to section 489.408(1) but declined to award him fees on fees. He
appealed and the LLC cross-appealed. We transferred the case to the court of
appeals. A two-judge majority determined the LLC must pay its former manager
the fees awarded by the district court and his fees incurred seeking those fees.
The dissenting judge concluded section 489.408(1) limits reimbursement or
indemnity to “activities on behalf of the company” which cannot include fees
incurred litigating against the LLC. We granted the LLC’s application for further
review.
On our review, we agree with the dissent. Under the plain language of
section 489.408(1), a manager or former manager cannot recover from the LLC
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fees incurred litigating against the company, much less fees incurred seeking
such fees. We therefore vacate the decision of the court of appeals and reverse
the district court’s fee award.
I. Background Facts and Proceedings.
WMG, L.C. is an Iowa Limited Liability Company whose members are
Joseph Goche, his brother Michael Goche, and their sisters Jeanne
Goche-Horihan and Renee Afshar. Joseph served as a manager from 2010 to
early 2017. WMG owned 600 acres of farmland in Kossuth County. Beginning
in 2012, WMG leased the farmland to NCJC, Inc., an Iowa corporation owned
solely by Joseph. The lease gave NCJC a right of first refusal to purchase the
land. The lease provided for annual cash rent of $136,449.70 and automatically
renewed each February absent written notice of termination. The lease further
provided that if it is not renewed, WMG would reimburse NCJC for the remaining
benefits of fertilizer NCJC had previously applied to the land.
Relationships soured, and in 2014 Renee sued WMG and its other
members in federal court. At that time Michael and Jeanne were also managers
of WMG. That suit was dismissed for lack of subject matter jurisdiction. Renee
refiled her lawsuit a year later in the Iowa District Court for Kossuth County,
and Jeanne filed a cross-claim against Joseph. The sisters alleged Joseph
breached his fiduciary duties owed to WMG. Renee requested appointment of a
receiver. NCJC intervened in the lawsuit against WMG, seeking money damages
for improvements to the leased property and to enforce its right of first refusal.
Joseph personally asserted claims against WMG, including for indemnification,
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and WMG counterclaimed against Joseph, alleging he breached fiduciary duties
he owed WMG.
In a special meeting in February 2017, Joseph was removed from his
position as a manager of WMG. By majority vote, the managers agreed to the
appointment of a receiver, who prosecuted WMG’s claims against Joseph and
defended WMG against the claims by Joseph and NCJC. In March, WMG
terminated its lease with NCJC, and distributed the farmland to the members
of WMG. NCJC sued WMG for breach of contract in a separate action, seeking
the cost of fertilizer that NCJC had applied to the farmland. The WMG–NCJC
contract provided, “If either party files suit to enforce any of the terms of this
lease, the prevailing party shall be entitled to recover court costs and reasonable
attorney’s fees.” NCJC ultimately prevailed in that litigation, and after litigating
through an appeal to our court, recovered fees it incurred before WMG offered
to confess judgment in that case. NCJC, Inc. v. WMG, L.C., 960 N.W.2d 58, 67–
68 (Iowa 2021). Those fees are not at issue in this appeal.
Meanwhile, the litigation continued between Joseph, WMG, and the other
members. Joseph incurred attorney fees prosecuting his claims against WMG
and his siblings and defending their claims against him. He sought
indemnification for his attorney fees, relying exclusively on Iowa Code section
489.408(1).1 After Renee and Jeanne voluntarily dismissed their claims against
1WMG’s governing documents neither require, nor prohibit, indemnification. The WMG
operating agreement provides, “The Managers shall be indemnified by the Company to the extent
provided in the Company’s Articles of Organization.” The articles of organization are silent as to
indemnification and contain no provision for reimbursing attorney fees.
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Joseph in 2016, he sought to recover from WMG his litigation expenses. The
district court ruled WMG must indemnify Joseph for his fees resulting from
Renee and Jeanne’s claims against him, and calculated that amount as
$51,455. The court denied the receiver’s motion to strike that award, and WMG
paid that amount. Those fees are not at issue in this appeal.
The litigation between Joseph and WMG continued. The district court
granted summary judgment in favor of Joseph, dismissing WMG’s breach of
fiduciary duty claims against him. The district court subsequently granted his
motion for partial summary judgment against WMG. The court ruled that WMG
was “liable to Joseph for indemnification of attorney fees and expenses he
incurred to defend himself against the claims brought against him by WMG for
alleged breach of his duties as a manager of WMG.” The case proceeded to a
bench trial in January 2020 to determine the amount of the award. Joseph
sought $141,451 in attorney fees and litigation expenses,2 which included
$95,231 incurred defending WMG’s breach of fiduciary duty claims and $46,238
incurred prosecuting his indemnification claims against WMG (the fees on fees).
The district court reduced the hourly rate of his lead Minneapolis attorney from
$560 to $300 and lowered that firm’s paralegal hourly rate to $100. The court
then ordered WMG to pay Joseph $68,831 in fees he incurred defending against
its claims. The court declined to award Joseph any amount for fees on fees.
WMG moved under Iowa Rule of Civil Procedure 1.904(2) to further reduce the
2Thatamount is on top of the $51,455 WMG already paid Joseph for defending claims by
Renee and Jeanne.
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hourly rates. The court denied that motion. Joseph appealed seeking fees on
fees and WMG cross-appealed. We transferred the case to the court of appeals.
A divided court of appeals interpreted Iowa Code section 489.408(1) to
allow recovery of attorney fees as “debt,” including fees on fees incurred to
enforce the statutory right. The majority affirmed the district court’s award of
fees Joseph incurred defending WMG’s breach of fiduciary duty claims against
him and remanded the case for the district court to award the fees incurred
enforcing his indemnification claim under that Code provision. A dissenting
judge interpreted the statute to only allow fees incurred on behalf of WMG, not
fees Joseph “incurred while suing WMG” or “defending himself against WMG.”
We granted WMG’s application for further review.
II. Standard of Review.
The fighting issue on appeal is the interpretation of Iowa Code section
489.408(1). We review rulings on statutory construction for correction of errors
at law. NCJC, Inc., 960 N.W.2d at 62.
III. Analysis.
The fees the district court and court of appeals awarded were incurred by
Goche litigating against WMG. “Iowa follows the American rule: ‘the losing
litigant does not normally pay the victor’s attorney’s fees.’ ” Id. (quoting
Guardianship & Conservatorship of Radda v. Wash. State Bank, 955 N.W.2d
203, 214 (Iowa 2021)). “Generally, attorney fees are recoverable only by statute
or under a contract.” Id. (quoting Radda, 955 N.W.2d at 214). The sole basis for
Goche’s fee claim in this appeal is Iowa Code section 489.408(1). We have not
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previously construed this statute, which is in the Revised Uniform Limited
Liability Company Act enacted in 2008. 2008 Iowa Acts ch. 1162, §§ 1–115
(codified at Iowa Code §§ 489.101–.1304 (2009)) (adopting verbatim section 408
of the 2006 uniform act). We begin with its text:
A limited liability company shall reimburse for any payment made
and indemnify for any debt, obligation, or other liability incurred by
a member of a member-managed company or the manager of a
manager-managed company in the course of the member’s or
manager’s activities on behalf of the company, if, in making the
payment or incurring the debt, obligation, or other liability, the
member or manager complied with the duties stated in sections
489.405 and 489.409.
Iowa Code § 489.408(1) (emphasis added).3 Notably, the statute does not
mention attorney fees. We assume without deciding that “debt, obligation, or
other liability” can include attorney fees incurred in “activities on behalf of the
company.” We must decide whether section 489.408 compels WMG to reimburse
Goche for fees he incurred litigating against the company.
The plain meaning of the statute limits WMG’s reimbursement obligation
to Goche’s debts incurred in the course of activities on behalf of the company.
We agree with the dissenting opinion on the court of appeals that litigation
against the company does not constitute an activity on behalf of the company.
Just the opposite. This statute would entitle a manager to recoup expenses
incurred defending the company or prosecuting claims on behalf of the company
3Section 489.405 restricts distributions when the company is insolvent or near insolvency
and that provision is not at issue. Section 489.409 codifies the fiduciary duties of loyalty and
care. Goche argues he satisfies this requirement for indemnification because he won a summary
judgment ruling dismissing WMG’s claims that he breached his fiduciary duties. In our view,
that adjudication does not establish the fees at issue were incurred “on behalf of” WMG, the
opposing party.
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against a third party. But not expenses incurred suing the company or
defending claims brought by the company against the manager.
Goche was suing WMG to get money for himself. He was not bringing
derivative claims against third parties for the benefit of the company, with WMG
merely a nominal defendant. See id. § 489.906(2) (expressly allowing awards of
“reasonable attorney fees and costs” to successful plaintiffs in derivative actions
on behalf of LLCs). To the contrary, as the dissent noted, “All of those fees were
incurred while Goche litigated on his own behalf as WMG’s adversary. . . .
Indeed, isn’t litigation against a company the opposite of ‘activit[y] on behalf of
the company’?” (Alteration in original.)
Goche argues the litigation arose from his activities as a manager on behalf
of WMG, but it is undisputed that he incurred the fees at issue litigating against
WMG. His attorney fee claim is foreclosed by the plain language of section
489.408(1) because the fees were not incurred in activities “on behalf of” WMG.
LLCs under section 489.408(2) can provide liability insurance to protect
managers more broadly against liability claims arising from their status as
managers, without the limitation that their actions giving rise to the liability
claim be on behalf of the company.4 Goche makes no claim that WMG should
4Iowa Code section 489.408(2) provides:
A limited liability company may purchase and maintain insurance on behalf of a
member or manager of the company against liability asserted against or incurred
by the member or manager in that capacity or arising from that status even if,
under section 489.110, subsection 7, the operating agreement could not eliminate
or limit the person’s liability to the company for the conduct giving rise to the
liability.
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have provided him with liability insurance to pay the fees at issue. Reading these
subsections together confirms that the company’s indemnity obligation is
limited to activities on behalf of the company.
The legislature knows how to require an LLC to pay attorney fees to a
prevailing party. It did so with express language in section 489.906(2).5 Such
language is missing from section 489.408(1). That omission is fatal to Goche’s
fee-shifting claim. See Radda, 955 N.W.2d at 209–10 (concluding the
legislature’s selective placement of phrases in one section but not another is
presumed intentional).
We interpret section 489.408(1) against the backdrop of Iowa’s adherence
to the American rule and our precedent requiring clear and unequivocal
language in the statute or contract to force one party to a business arrangement
to indemnify or pay the other party’s attorney fees in litigation between them.
See, e.g., Homeland Energy Sols., LLC v. Retterath, 938 N.W.2d 664, 708 (Iowa
2020) (“We have held that indemnification clauses that use the term ‘indemnify’
and ‘hold harmless’ evidence the parties’ intent to protect a party from claims
brought by third parties. Accordingly, an indemnity clause in a contract cannot
be used to shift attorney fees between the parties ‘unless the language of the
“This subsection’s language is very broad and authorizes an LLC to purchase insurance to cover,
e.g., a manager’s intentional misconduct.” Revised Unif. Ltd. Liab. Co. Act § 408 cmt. subsec. (b)
(Unif. L. Comm’n 2006).
5Iowa Code section 489.906(2) provides:
If a derivative action under section 489.902 is successful in whole or in part, the
court may award the plaintiff reasonable expenses, including reasonable attorney
fees and costs, from the recovery of the limited liability company.
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clause shows an intent to clearly and unambiguously shift the fees.’ ” (citation
omitted) (quoting NevadaCare, Inc. v. Dep’t of Hum. Servs., 783 N.W.2d 459, 471
(Iowa 2010))); Branstad v. State ex rel. Nat. Res. Comm’n, 871 N.W.2d 291, 294
(Iowa 2015) (“The statutory authorization [to recover attorney fees] must be
express and ‘must come clearly within the terms of the statute.’ ” (quoting
Botsko v. Davenport C.R. Comm’n, 774 N.W.2d 841, 845 (Iowa 2009))). “Our
demanding approach is consistent with cases in other jurisdictions which reject
awarding statutory attorneys’ fees by implication and require express language.”
Seeberger v. Davenport C.R. Comm’n, 923 N.W.2d 564, 569 (Iowa 2019) (quoting
Botsko, 774 N.W.2d at 845). These cases foreclose Goche’s expansive reading of
section 489.408(1) to imply fee-shifting on successful litigation against the
company.
Goche relies on caselaw decided under Iowa Code section 490.852, the
indemnity provision in the Iowa Business Corporations Act: In re Internet
Navigator, Inc., 293 B.R. 198, 208–09 (Bankr. N.D. Iowa 2003), and Holden v.
Construction Machinery Co., 202 N.W.2d 348, 367 (Iowa 1972) (en banc). In both
cases the attorney fees at issue were incurred defending the corporation or in
litigation between shareholders or directors; the party was not seeking
reimbursement for fees incurred litigating against the corporation. In re Internet
Navigator, Inc., 293 B.R. at 201 (noting fees were incurred defending corporation
and several directors); Holden, 202 N.W.2d at 351, 367 (involving litigation
between shareholders in which the corporation “CMC is unquestionably a
nominal or passive, though real, party defendant and as such it was required to
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adopt a neutral position with regard to this litigation”). By contrast, Goche
incurred the fees at issue litigating against WMG. Moreover, unlike section
489.408(1), section 490.852 does not expressly limit indemnification to
“activities on behalf of the company.”6 Those cases do not help Goche.
Goche could potentially fare better under the 2013 amendment to section
408 of the Uniform Limited Liability Company Act, which omits the “on behalf
of the company” limitation and expressly mentions attorney fees. The amended
section provides:
(b) A limited liability company shall indemnify and hold
harmless a person with respect to any claim or demand against the
person and any debt, obligation, or other liability incurred by the
person by reason of the person’s former or present capacity as a
member or manager, if the claim, demand, debt, obligation, or other
liability does not arise from the person’s breach of Section 405, 407,
or 409.
(c) In the ordinary course of its activities and affairs, a limited
liability company may advance reasonable expenses, including
attorney’s fees and costs, incurred by a person in connection with a
claim or demand against the person by reason of the person’s former
or present capacity as a member or manager, if the person promises
to repay the company if the person ultimately is determined not to
be entitled to be indemnified under subsection (b).
Unif. Ltd. Liab. Co. Act § 408(b)–(c) (Unif. L. Comm’n amended 2013). But Iowa
has not enacted that provision, and it is not our role to rewrite the Iowa statute
in the guise of interpretation. See Radda, 955 N.W.2d at 214 (“Policy arguments
6Iowa Code section 490.852 provides:
A corporation shall indemnify a director who was wholly successful, on the
merits or otherwise, in the defense of any proceeding to which the director was a
party because the director is or was a director of the corporation against expenses
incurred by the director in connection with the proceeding.
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to amend the statute should be directed to the legislature.” (quoting In re Est. of
Whalen, 827 N.W.2d 184, 194 (Iowa 2013))).
We hold that because the fees and expenses at issue were not incurred on
behalf of WMG, Goche cannot recover them from WMG under section
489.408(1). The district court and court of appeals erred by requiring WMG to
pay Goche’s fees he incurred litigating against the company. Based on our
construction of section 489.408(1), we need not decide today whether fees on
fees could be awarded to enforce indemnification under this statute for attorney
fees incurred on the company’s behalf.7
IV. Conclusion.
For those reasons, we vacate the decision of the court of appeals and
reverse the judgment of the district court awarding Goche attorney fees and
litigation expenses incurred litigating against WMG.
DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT
JUDGMENT REVERSED.
7See generally In re Est. of Bockwoldt, 814 N.W.2d 215, 225–26 (Iowa 2012) (allowing fees
incurred defending application for extraordinary fees under Probate Code); Lynch v. City of
Des Moines, 464 N.W.2d 236, 240–41 (Iowa 1990) (en banc) (allowing recovery of fees incurred
litigating the fee award under the fee-shifting provision of the Iowa Civil Rights Act); see also
Stifel Fin. Corp. v. Cochran, 809 A.2d 555, 560–62 (Del. 2002) (allowing “fees on fees” in action
to enforce indemnity provision in corporate bylaws).