from the Iowa District Court for Dallas County, Bradley
challenge whether Felt Farms LLC had any members within
ninety days after Richard Felt's death. REVERSED
Richard McConville and Michael J. Carroll of Coppola,
McConville, Carroll, Hockenberg & Flynn, P.C., West Des
Moines, for appellants.
Dodson Critelli and Nicholas Critelli of Critelli Law, P.C.,
Des Moines, for appellees.
by Vogel, C.J., and Mullins and Bower, JJ.
Felt and Susan Kern (née Felt) appeal the district
court ruling, finding a limited liability company (LLC)
formed by their father, Richard Felt, did not dissolve
following his death. We find the contractual requirements for
membership were not met within ninety days of Richard's
death, and the LLC dissolved as a matter of law.
Background Facts & Proceedings
Felt was a third-generation Dallas County farmer. Richard
farmed with his brother and their father after returning from
the Korean War in the 1950s until their father's
retirement, then the brothers continued farming with each
other. When Richard's brother retired in the late 1980s,
they divided their real estate and farming property.
Richard's property included approximately one hundred
acres west of Waukee that held the house he grew up in and
where he and his wife Patricia lived. In 1988, Richard and
Patricia executed wills leaving all their property to each
other, and then equally to their children upon death of the
and Patricia were the parents of three children: Susan,
David, and Daniel. In 1990, David joined Richard in a joint
farming operation. Richard and Patricia purchased an
additional 156-acre farm between Waukee and Adel, which
included a house for David's family to live
As part of their oral farming operation agreement, David
purchased any new equipment needed and paid for repairs for
the farms and the homes. Approximately ten years after David
joined the farming operation, Daniel asked to join the family
business; David told Daniel the farms could not support
another family at that time. Richard and David continued to
farm together, and Daniel did not ask again to join.
mid-2000s, when Richard mostly retired from farming, Richard
and David entered into an oral lease where David paid cash
rent and paid a number of Richard and Patricia's bills.
Patricia died in 2013. Soon after, Richard was diagnosed with
cancer and underwent treatment from late 2013 until shortly
before his death on November 4, 2015.
early 2015, Richard began discussing the creation of a
limited liability company (LLC) with his attorney, Sam
Braland. Richard was interested in potential tax benefits and
wanted to keep the farms in the family. Braland had not
previously formed a LLC, so he studied the Iowa LLC statutes
and obtained a template of a farm LLC from the Iowa State Bar
Association. He did not consult with an attorney with more
LLC experience. Braland drew up a certificate of organization
and an operating agreement. On August 28, Richard signed the
organizational documents and operating agreement for a
manager-managed LLC named Felt Farms LLC. Richard transferred
all his real property to the LLC in exchange for ownership of
100 Class A Units (income units) and 900 Class B Units
(ownership and voting units). Richard and David were appointed
and signed the agreement as managers of the LLC, and Richard
signed separately as its only member.Richard did not change his
will, which continued to leave his property in equal shares
to his children. Richard did not tell Daniel or Susan
anything about the LLC.
also prepared power-of-attorney documents granting David the
authority to make decisions on behalf of Richard. In the
months prior to Richard's death, David took action as
financial power-of-attorney to change several of
Richard's investments to payable-on-death accounts evenly
split among himself and his siblings. He also transferred
some deposits to the LLC to fund its operation. Richard died
on November 4. After Richard's death, David used
Richard's remaining funds to pay funeral and other
outstanding expenses, then split the remainder evenly among
himself and his siblings. Richard's will was not admitted
to probate until September 2017.
Richard's death, David informed Daniel and Susan the
family properties were in an LLC. In December 2015, Braland
wrote to the siblings to provide them documents relating to
Richard's estate. The letter informed the siblings,
With regard to the limited liability company, the three of
you have succeeded in equal shares to all ownership units of
the company. I believe it would be prudent for all of us to
meet in January for the purpose of issuing certificates of
ownership to each of you, and to briefly discuss the
operation of the company, and to answer questions you might
parties did not meet with Braland in January. Effective
January 14, 2016, David obtained liability insurance for Felt
Farms LLC, which he verified covered him and his siblings as
members on May 4, 2016. The named insured parties for the
farms' property insurance was changed to Felt Farms LLC
and David superseded Richard effective November 5, 2015.
Susan and Daniel consulted with their own attorney regarding
the LLC and its implications during this period.
September 2016, Braland consulted with another attorney with
more experience in LLCs. After learning of the distinction
between transferees and members, David issued equal interests
to himself, Susan, and Daniel. On October 18, Daniel and
Susan proposed a member-managed LLC or partition of the land.
David did not agree to the proposed changes.
December 2016, David wrote checks to himself and his siblings
from the Felt Farms LLC checking account. David termed the
payments as 2016 distributions which consisted of cash rent
David had paid the LLC and money in the account prior to
Richard's death. All three siblings cashed their
checks. The LLC provided K-1s to each of the
siblings for tax purposes. In March 2017, David unilaterally under
his authority as manager arranged for a letter of credit for
the LLC, and signed the documents under his authority as
manager of the LLC.
February 21, 2017, Daniel and Susan filed suit challenging
the creation of the LLC and some of Richard's inter vivos
transfers under several theories- including three types of
tortious interference and elder abuse-and requesting
declaratory judgment on the status of the LLC. They alleged
David exercised undue influence on Richard and questioned
Richard's mental competence. In September, Daniel and
Susan filed a motion for summary judgment, in part alleging
the LLC had no members within ninety days of Richard's
death. The court ruled "in the light most favorable to
the Defendants," the LLC had a member, David, within the
ninety day period.
February 19 through 23, 2018, the Daniel and Susan's
claims were tried to the bench with numerous witnesses from
each side. In its ruling, the court dismissed all counts
against David and Felt Farms LLC. The court specifically
found David became a Class A member within ninety days of
Richard's death. On appeal, Daniel and Susan challenge
the district court's interpretation and construction of
the LLC operating agreement and the determination of
David's membership in the LLC following Richard's
Standard of Review
generally review the construction and interpretation of a
contract as a matter of law. Thus, we are not bound by the
construction or interpretation made by the trial court."
Hartig Drug Co. v. Hartig, 602 N.W.2d 794, 797 (Iowa
1999). "Contract '[i]nterpretation involves
ascertaining the meaning of contractual words; construction
refers to deciding their legal effect.'" Payton
v. DiGiacomo, 874 N.W.2d 673, 677 (Iowa Ct. App. 2015).
The construction of a contract is reviewed as a question of
law for the court. RPC Liquidation v. Iowa Dep't of
Transp., 717 N.W.2d 317, 321 (Iowa 2006). The
construction of a contract is controlled by intent of the
parties, which we determine by the language of the contract
itself. Iowa R. App. P. 6.904(3)(n); see Hartig Drug
Co., 602 N.W.2d at 797.