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IN THE COURT OF APPEALS OF IOWA No. 6-221 / 05-0308 Filed June 14, 2006 PAUL L. DENNISON and JOYCE E. DENNISON, Plaintiffs-Appellees/Cross-Appellants, vs. MEDIACOMM, INC., a/k/a MEDIACOMM, INC., Defendant-Appellant/Cross-Appellee, U.S. BANK, N.A., successor in interest to FIRSTAR BANK, N.A., f/k/a FIRSTAR BANK IOWA, N.A., successor in interest to FIRSTAR BANK MT. PLEASANT, and JOHN KUHENS, Defendant-Appellee, And DIXIE BURKHART, Defendant-Cross-Appellee. ________________________________________________________________

Appeal from the Iowa District Court for Henry County, Mary Ann Brown, Judge. A minority shareholder appeals the district court's ruling in a corporation's derivative action for breaches of fiduciary duties. appeal. AFFIRMED. Michael L. Noyes and Stacey Hawke of Lane & Waterman, L.L.P., Davenport, for appellant Burkhart. Paul D. Burns, Vernon Squires, and Kevin C. Papp of Bradley & Riley, P.C., Cedar Rapids, for plaintiffs-appellees/cross-appellants. John Kuhens, Mr. Pleasant, pro se. Secured creditors cross-

Heard by Vogel, P.J., and Zimmer and Vaitheswaran, JJ.

2 VAITHESWARAN, J. This appeal raises several issues arising from a creditor's attempt to enforce a security interest against a corporation and the corporation's derivative lawsuit alleging breaches of fiduciary duty. We affirm. I. Background Facts and Proceedings Paul and Joyce Dennison owned a radio station in Mt. Pleasant, Iowa, known as KILJ. They agreed to sell their stock in the station to a corporation called MediaComm. They further agreed to finance the transaction.

MediaComm pledged its shares of KILJ stock as collateral for the loan. In mid-2003, MediaComm began defaulting on its $11,119.55 monthly payments to the Dennisons. The Dennisons sent the company notices of default which were not cured. In August 2003 the majority shareholder and director of MediaComm, John Kuhens, took action to have the KILJ stock transferred to the Dennisons. That action was rescinded after MediaComm's attorney advised

Kuhens that it violated statutory requirements. MediaComm remained in default on its loan payments to the Dennisons. Towards the end of the year, Kuhens retained Paul Dennison to generate advertising revenue for MediaComm. The stated hope was that this revenue would be sufficient to cover MediaComm's outstanding expenses. In return for his services, Dennison was to receive $3000 per month plus a twenty percent commission, with the payments going to a management company formed for this purpose. From January through August 9, 2004, the management company

received approximately $61,000.

3 Meanwhile, Dixie Burkhart, a minority shareholder of MediaComm, personally paid the Dennisons $88,000 to cure MediaComm's pre-2004 defaults. The company again defaulted in January 2004. Following this default, the Dennisons sent MediaComm a notice of right to cure dated January 27, 2004. The notice specified two defaults: (1)

MediaComm's failure to make the $11,119.55 loan payment due on January 25, 2004, and (2) MediaComm's payment of more than $25,000 to Burkhart in October and November 2003. MediaComm did not cure these claimed defaults. The Dennisons sued MediaComm and others for foreclosure of their security interest in the KILJ stock and for execution against the collateral. Burkhart filed an answer and counterclaim on behalf of MediaComm in a derivative capacity. She alleged that MediaComm had sufficient funds to cure the default. She also alleged that Kuhens, with the knowledge and approval of the Dennisons, purposely refused to cure the default. Kuhens's motivation, in her view, was to allow the Dennisons to reacquire ownership of the KILJ stock and release him from a personal guaranty he made when the stock transaction was financed. The Dennisons countersued Burkhart. They alleged she intentionally

interfered with the performance of a contract. They requested an order requiring her to pay their attorney fees. In a preliminary ruling, the district court concluded the Dennisons were entitled to repossess the KILJ stock, but also concluded repossession might cause MediaComm irreparable harm. The court enjoined the stock transfer,

subject to the posting of a bond by Burkhart and MediaComm. The bond was not

4 posted and the stock was released to the Dennisons. acquired ownership of the stock at a foreclosure sale. The case proceeded to trial. In a final ruling, the district court (1) rejected Burkhart's primary claim that Kuhens engaged in self-dealing by agreeing to turn over the KILJ stock to the Dennisons; (2) rejected additional contentions that (a) Kuhens breached a fiduciary duty to the corporation by retaining Dennison to sell advertising for the radio station and (b) Dennison aided and abetted this violation; (3) found Kuhens breached a fiduciary duty by paying personal legal fees with corporate assets and by failing to collect rent payments from KILJ; (4) concluded Kuhens incurred liability by allowing $22,000 of MediaComm money to be turned over to the Dennisons at the time they reacquired the KILJ stock; (5) denied the Dennisons' request for attorney fees from Burkhart based on their claim of intentional interference with the performance of a contract; and (6) declined to rescind the foreclosure sale. Burkhart appealed and the Dennisons cross-appealed. Our review of the issues raised on appeal is de novo. Iowa R. App. P. 6.4. II. Mootness, Estoppel, Lack of Prejudice As a preliminary matter, the Dennisons maintain that Burkhart cannot now complain about the transfer and disposition of the KILJ stock "because the transfer occurred only after she failed to exercise her right to enjoin it." They assert that the doctrines of mootness, estoppel, and lack of prejudice foreclose the relief Burkhart is now seeking on appeal. Assuming without deciding that the Dennisons were required to preserve error on this argument and that error was indeed preserved, we find the argument unpersuasive. They subsequently

5 A court action on a request for a temporary injunction "does not deprive the parties of the right to a trial on the merits of their petition seeking or resisting a permanent injunction, nor is it an adjudication for or against such right." PIC USA v. North Carolina Farm P'ship, 672 N.W.2d 718, 724 (Iowa 2003). A party may appeal as a matter of right from a ruling on a request for a permanent injunction. Id. at 723 (citation omitted). In its final ruling, the district court denied Burkhart's request for rescission of the foreclosure sale. Burkhart challenges that aspect of the ruling on appeal. She has a right to do so, notwithstanding her failure to post a bond that would have prevented the sale. Accordingly, we proceed to the merits. III. Claimed Breach of Fiduciary Duty in the January 2004 Default Corporate directors owe a fiduciary duty to the corporation. Cookies Food Prods., Inc. v. Lakes Warehouse Distrib., Inc., 430 N.W.2d 447, 451 (Iowa 1988). This duty includes a duty of care and a duty of loyalty. Id. "The duty of care requires each director to perform the duties of a director . . . in good faith, in a manner such director reasonably believes to be in the best interests of the corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances." Id. (quoting Iowa Code

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