IN THE COURT OF APPEALS OF IOWA

No. 15-0347

Filed December 9, 2015

KEITH SMITH COMPANY, INC.,

Plaintiff-Appellee/Cross-Appellant,

vs.

DUANE BUSHMAN and SHIRLEY BUSHMAN,

Defendants-Appellants,

and

FARMER GROWN POULTRY, LLC;

DUANE BUSHMAN; SHIRLEY BUSHMAN;

BUSHMAN ORGANIC GRAINS, INC.;

BUSHMAN ORGANIC FARMS f/k/a 

Bushman Family Farms; BUSHMAN 

ORGANIC POULTRY; and

ORGANIC FEED AND GRAINS, LLC;

Defendants/Cross-Appellees.

________________________________________________________________

Appeal from the Iowa District Court for Winneshiek County, Margaret L. 

Lingreen, Judge.

Duane and Shirley Bushman appeal from the district court’s ruling to 

pierce the corporate veil in this breach-of-contract action. Keith Smith Company, 

Inc., cross-appeals from the denial of its alter-ego theory of recovery against the 

remaining defendants. AFFIRMED ON BOTH APPEALS.
2

John S. Anderson and Stephen J. Belay of Anderson, Wilmarth, Van Der 

Maaten, Belay, Fretheim, Gipp & Zahasky, Decorah, for appellants.

Mark D. Walz of Davis, Brown, Koehn, Shors & Roberts, West Des 

Moines, for appellee and cross-appellees.

Heard by Danilson, C.J., and Mullins and McDonald, JJ.
3

DANILSON, Chief Judge.

Duane and Shirley Bushman appeal from the district court’s ruling to 

pierce the corporate veil in this breach-of-contract action. Keith Smith Company, 

Inc., cross-appeals from the denial of its alter-ego theory of recovery against the 

remaining defendants. Viewing the evidence in the light most favorable to 

upholding the judgments, the trial court’s fact findings are supported by 

substantial evidence. Concerning the appeal, the court did not rely solely on the

inadequacy of the capitalization of Farmer Grown Poultry, LLC (FGP); rather, its 

findings support a determination that adherence to the corporate structure would 

promote an injustice to the creditor, Keith Smith, and we therefore affirm. As to 

the cross-appeal, we do not disturb the trial court’s conclusion that Keith Smith 

failed to prove the other Bushman-related entities named as defendants were 

alter egos of FGP, and we affirm on the cross-appeal. 

I. Background Facts and Proceedings.

Duane Bushman and Shirley Bushman are husband and wife. FGP is a

limited liability company. Duane and Shirley Bushman are each fifty-percent

owners of FGP. FGP was created to purchase eggs for hatching, coordinate 

delivery of hatched chicks to contracted growers to feed the birds (Ag Point, LLC 

being the principal grower), and then coordinate the delivery of the grown birds to 

Custom Poultry Processing, LLC (CPP). Once CPP was operational, FGP 

expected to have sales of about $24 million per year, with an average profit 

margin per chicken of $.06.1 

 

1 No formal projections were made. Duane Bushman testified “we’ve been in business 

long enough that you know the business.”
4

Custom Poultry Processing, LLC (CPP). CPP is also a limited liability

corporation. It was formed about August 28, 2009, to purchase, renovate, and 

operate a Charles City facility as a custom processor of poultry. The owners of 

CPP include Duane and Shirley Bushman; Greg DeWeese, Stacy Bushman, and

Chad Bushman, as well as their spouses; and Ag Point, LLC. Only Ag Point, 

LLC, which is a two-percent holder of CPP, is not related to the Bushmans. CPP 

was expected to be operational in September 2010.

The following businesses will be referred to as “Bushman-related entities”:

Bushman Organic Poultry—Bushman Organic Poultry is a sole 

proprietorship of Duane Bushman and is involved in organic farming operations, 

including crop farming, egg production, and poultry production.2

Bushman Organic Grains, Inc.—Duane and Shirley Bushman, as well as 

their children Todd Bushman, Chad Bushman, Stacy Bushman, Shanna 

Schweinefus, and Kimberly DeWeese, are the owners of Bushman Organic

Grains, Inc. This company was formed about May 27, 2008, to handle imported 

organic grains. Records for Bushman Organic Grains were kept by son-in-law 

Greg DeWeese. The operations of Bushman Organic Grains were moved to 

Bushman Organic Farms in January 2011.

Bushman Organic Farms, Inc.—Duane and Shirley Bushman are the 

owners of Bushman Organic Farms, Inc. This business is engaged in marketing 

 

2 Bushman Organic Poultry leases its poultry barns to S & C Organic Farms, LLC—

owned by Duane’s children, Stacy Bushman and Chad Bushman. Six of twelve of the 

barns owned by Bushman Organic Poultry had been purchased in 2010 “to get ready to 

expand into.” S & C Organic Milling, LLC (also owned by Stacy and Chad) produces 

chicken feed. Accountant Dan Volz first testified S & C Milling was a supplier of feed for 

FGP, but later said that was not so because FGP chickens were antibiotic-free but not 

organic, and to have fed them organic feed would not have been cost effective.
5

organic grains. The business was formed to purchase and sell organic grains 

and convert organic soybeans into soybean meal and soybean oil. This entity 

was formerly known as Bushman Family Farms. Dan Volz became the 

accountant for Bushman Family Farms (and later for Bushman Organic Farms) in 

September 2010. Bushman Organic Farms continues to do business in Oregon. 

Organic Feed & Grains, LLC—Organic Feed & Grains, LLC, is a limited 

liability company owned by Duane and Shirley Bushman. The non-west coast

business operations of Bushman Organic Farms have been moved to Organic 

Feed & Grains. Its creation on January 3, 2012, allowed for financing from a 

third party, Lester Feed & Grain.

3

 Volz provides accounting services to Organic 

Feed & Grains via a management fee paid to Bushman Organic Farms on a 

monthly basis. The two entities maintain separate books.

Alleged Breach of Contract. Keith Smith Company, Inc. (Keith Smith), an 

Arkansas corporation, brought this breach-of-contract action against FGP, 

asserting FGP owed $235,704.35 for unpaid invoices under a Hatching Egg 

Purchase Agreement. Keith Smith alleged “FGP is a shell corporation and 

merely the alter ego of Defendants Duane Bushman, Shirley Bushman, Bushman 

Organic Grains, Bushman Organic Farms, Inc. f/k/a Bushman Family Farms, 

Bushman Organic Poultry, and Organic Feed and Grains, LLC.” It asked that the 

Bushmans and the Bushman-related entities be held jointly and severally liable 

for the debt to FGP.

 

3

Lester Feed & Grain owns Ag Point, LLC. Duane Bushman testified that after CPP 

“disaster,” the financial lender for Bushman Organic Farms refused to provide further 

credit. Lester Feed and Grain was willing to provide financing for Bushman but required 

a new entity be formed. 
6

The case was tried to the court sitting without a jury. The evidence 

showed that in early 2010, Stacy Bushman made contact with Eddy Slick, a Keith 

Smith contract sales manager to supply eggs for hatching to FGP. Keith Smith 

sought credit information for FGP. On May 14, 2010, Beth Jones, the

bookkeeper employed by Bushman Organic Farms, provided Bud West an 

“explanation of financial statements” previously sent, which included credit 

references of Bushman-related entities Bushman Family Farms, Bushman 

Organic Poultry, and Bushman Organic Grains.4 Keith Smith’s chief financial 

officer, Ron Fabian, followed upon on the credit references. West then traveled 

to Iowa on July 15, 2010, to meet Duane Bushman, Chad Bushman, and Stacy 

Bushman. While in Iowa, West viewed vacant barns belonging to Stacy and 

Chad and assumed these barns were where FGP chicks would be placed. He 

also viewed the facility that was to become CPP. 

On July 20, 2010, Duane Bushman entered into a Hatching Egg Purchase 

Agreement with Keith Smith on behalf of FGP. West testified he did not know 

FGP had not yet been formed. The Keith Smith hatching agreement provided it 

would supply eggs on a weekly basis and invoices were due within twenty-one 

days of receiving the eggs. FGP would not receive any income for at least ten 

weeks, when the birds could be processed and sold. Over the course of about 

five months, Keith Smith shipped hundreds of thousands of eggs under the 

contract. Keith Smith was paid some $495,234 for the eggs provided to FGP but 

 

4 West testified he was under the impression that Duane Bushman’s larger enterprise 

would be standing behind FGP because FGP had no credit references. 
7

owed more than $248,000 on past due invoices.5 FGP ceased its operations in 

January 2011. Also in January 2011, CPP went into involuntary bankruptcy.

West testified FGP did not inform Keith Smith that its invoices would not 

be paid. He stated:

Well, I got promises and—Duane and Stacy both and Beth but—

constantly promised that the processing plant would open at any 

time; but this investor, Bob Davis, his name and group came up in 

December of 2010, and we were told we would be paid in full and 

not to worry about—He was investing lots of money into the 

company and, you know, they would have the operating capital 

they needed to pay their bills and proceed.

. . . .

Q. Were you surprised to learn from Mr. Bushman’s 

testimony yesterday that the investor was interested in investing in 

Custom Poultry and not Farmer Grown? A. I was a little surprised 

at that. Sure was.

The evidence also showed FGP was organized on August 6, 2010, and 

started doing business August 12, 2010. FGP was formed to “hatch out and 

grow chicken that would be sold to CPP that would be slaughtered.” More 

specifically, it was FGP’s plan that under the hatching agreement Keith Smith 

was to provide broiler hatching eggs to FGP every week. The eggs purchased 

by FGP from Keith Smith would be delivered to a hatchery, where the eggs

would be hatched. From the hatchery, the chicks would be sold to Ag Point or 

other contract growers. The growers, including Ag Point, would then raise the 

chicks. When the chicks reached an appropriate weight, they would be shipped 

to CPP for processing. FGP would repurchase the birds grown by Ag Point 

before processing. 

 

5 S & C Organics made payments to Keith Smith after FGP ceased operations. 
8

Though the owners of FGP, neither Duane nor Shirley Bushman provided 

any capital for the startup of FGP. FGP did not have any assets. It did not have 

employees. Its registered office was the residence of Duane and Shirley 

Bushman. FGP had no line of credit with a financial institution. FGP received 

monies from various Bushman-related entities to assist FGP in paying its bills 

during the five months FGP was in existence. These monies were recorded as 

loans in the books of both the paying entity and FGP. However, no promissory 

notes were signed; “there’s no repayment terms, there’s no term, there’s nothing 

around repayment of the debt.” 

The monies received by FGP from Bushman-related entities were noted in 

its ledgers and include:

$2000 was received from Bushman Organic Poultry to FGP on August 12, 

2010. Bushman Organic Poultry also paid expenses on behalf of FGP in the 

amount of $95,366.94 between August 2 and August 16, 2010, before FGP

opened a checking account. Later, additional expenses aggregating

approximately $48,500 were paid by Bushman Organic Poultry on behalf of FGP.

FGP received the sum of $108,000 from Ag Point on August 12, 2010. 

There were no specific terms on how the monies would be applied by FGP. 

On November 15, 2010, Duane Bushman provided a personal guarantee 

of $600,000 on behalf of FGP for monies FGP owed to the grower, Ag Point.

A total of $253,909.53 was either posted as loans to FGP or invoices paid 

by Bushman Organic Farms for FGP between September 14, 2010, and 

February 4, 2011. 
9

Paul Juffer, a certified public accountant with LWBJ, testified that as part 

of his business, he advised clients on “what’s necessary to capitalize a 

business.” Juffer was hired to analyze the capitalization of FGP. He testified that 

adequate capitalization for FGP would have been at least $1 million and opined 

FGP was not adequately capitalized. Juffer testified the infusion of payments 

from related-party entities was “ad hoc,” made on an “emergency basis,” and was 

not adequate as capital for the startup company. On cross-examination, Juffer 

was asked if CPP had been in a position to buy FGP’s finished birds, the 

business model would have worked; that the problem was a lack of revenue from 

CPP and not a lack of capitalization. Juffer responded, “I think it’s both. I think 

there—there was no capital to support the ramp up of the initial cost and any 

contingency that went with it.”

Duane Bushman could not explain why the first three invoices from Keith 

Smith (totaling 160,000 eggs) were in Bushman Organic Poultry’s name. Duane 

testified Ag Point was FGP’s financial backer.6 Ag Point was to make money on 

feeding the chicks out and by getting a certain amount per dressed meat after 

processing. When FGP ceased doing business in January 2011, it owed Ag 

Point $2.1 million.7 Duane was asked:

Q. Who did Dan Volz report to, if not to you? A. Greg 

[DeWeese].

 

6 Ag Point carried a substantial amount of the debt and financing related to the raising of 

the chicks, and it had not demanded immediate payment when the birds were sold back 

to FGP for processing. 

7 An account payable credit of $2.7 million was extended by Ag Point to FGP. As noted 

above, in November 2010, Duane Bushman gave Ag Point a personal guarantee on 

behalf of FGP in the amount of $600,000. The amount owed Ag Point was reduced to 

approximately $2.1 million when real estate owned by the Bushmans was sold in 

Minnesota and proceeds applied to the Ag Point debt.
10

Q. Greg was involved with Farmer Grown? A. Well, Greg 

kind of oversees everything in our business part of it; but you’re 

asking about day-to-day management, you know, before, but Greg 

looks over—you know, he goes through our books.

Q. And that would be the case with all the companies? 

A. I—I think so. He—I don’t—I don’t—I don’t know if he looks at 

Bushman Organic Poultry or not, because that’s our personal 

farming operation.

Q. All the other companies we’ve talked about, Greg would 

be essentially the chief financial person? A. Yeah, he would—he 

would go through—I never title people, you know . . . .

Duane testified neither he nor Shirley read the certificate for organizing 

FGP. He acknowledged no promissory notes evidence loans to FGP. As for the 

$600,000 personal guarantee Duane made to Ag Point, it was a “gentlemen’s 

agreement” that once the money owed to Ag Point by FGP reached $2 million, 

Duane and Shirley would “put this [Minnesota] farm [they] owned personally up to 

pay off $600,000 of that debt.” When the farm was sold later in 2011 or 2012, Ag 

Point received the $600,000. 

Duane Bushman testified he had no objections to Keith Smith checking 

the financial references provided by Beth Jones. “I would take for granted that 

they did. I mean, that’s pretty normal.” 

Duane also testified as follows:

Q. We heard Mr. Juffer talk about the sole sources of

revenues coming in to Farmer Grown. Is—is he right that the only 

sources of revenue were a combination of that Ag Point money that 

came out about three weeks after the egg was sold when you billed 

Ag Point and then, in addition to that, the money from a processor 

of a grown bird? A. Yeah, I think so.

Q. There wasn’t any other source of money coming in? 

A. No, just those two.

Q. Okay. And—and is it fair to say that that money that 

came in from—from Ag Point was basically a wash because, when 

they sold that bird back to you, they got reimbursed exactly that 

money plus they got reimbursed that feed cost? A. No, but we had 
11

a margin in there on the chicken; and plus we had a margin on 

the—on the—from CPP for doing this.

Q. Right. Your margin from CPP was a half a cent a pound 

of weight of that processed chicken;— A. Ah-huh.

Q. —correct? A. Again, I’d have to look at the thing because 

I’m going by what you just told me, and I don’t know that for sure.

Q. Well,— A. But it sounds right.

Q. They paid you whatever cost you had into raising that bird 

plus a half a cent per pound in addition to that; right? A. That 

sounds right.

Q. And the cost that you had in that bird included a half a

cent a pound that you were paying to Ag Point for the Ag Point 

birds; true? A. No, because we—Farmer Grown got the same 

amount of margin, I thought, as what Ag Point was getting. Farmer

Grown should have had the same margin.

Q. True. But Ag Point gets that half a cent, and that half a 

cent is part of your cost that you’re then getting a half a cent on; 

right? A. Yeah, so you’re saying a penny total from CPP.

Q. A penny total. A. Yeah, there you go. Now, we’re on the 

same page. 

There were no formal projections made for FGP’s startup. Duane testified:

I mean, we’ve been in the business long enough that you know the 

business. I mean, you know—I mean, I know what it cost to 

produce a pound of bird and—and what’s a good feed, you know, 

efficiency, and you just know that; and so when you—you know, 

you do the calculations, it’s not like you want to keep files of it

and—so— 

James Nalley, a business valuation consultant, was hired in 2013 by the 

defendants. Nalley testified there are six factors that can constitute abuse of the 

corporate privilege8and FGP had not violated any of them. He testified FGP

was adequately capitalized with the agreement with Ag Point in the 

way that the financing was going to be handled for the grow out of 

 

8 Nalley testified the six factors were:

One is the corporation is undercapitalized; secondly, the corporation lacks 

separate books; thirdly, the corporation’s finances are not kept separate 

from individual finances or individual obligations are paid by the 

corporation; fourth, the corporation is used primarily to promote fraud or 

illegality; fifth, the corporate formalities are not followed; and, six, the 

corporation is a mere sham.

These factors are referenced in our case law. See Briggs Transp. Co. v. Starr Sales 

Co., 262 N.W.2d 805, 810 (Iowa 1978). 
12

the poultry. Ultimately, in the end, due to other circumstances, that 

was not enough at that point and caused the demise of the 

company. But the initial capital structure seemed adequate for 

what they’d planned to do.

He testified FGP had a “separate set of books from the other entities that had 

some common ownership. They filed separate tax returns, and they have 

separate general ledgers.” He opined the FGP operations were for a legitimate 

purpose and FGP had not abused the corporate privilege. On cross 

examination, Nalley was asked, “In the case of a failure of a business, is money

coming in as borrowed money different than money coming in as infused for the 

ownership of the business?” Nalley responded, “Yes, it is. . . . For an unsecured 

creditor, the equity capital would be better for them.”

Q. And are you equating that the dollars that come in from 

debt financing as being capital because they’re available to pay the 

bills of the business? A. They—they are capital in the sense for 

that reason, yes.

Q. There’s—there’s another sense in which the term capital 

is used, though, is there not, as equating to contribution for the 

equity of a business? A. There is.

Q. Okay. A. Again, capital can be both debt and equity, 

which is essentially what it was in this case. 

The district court concluded FGP had breached its contract with Keith 

Smith and further found Duane and Shirley Bushman should be jointly and 

severally liable for the Keith Smith debt to FGP as the corporate privilege had 

been abused. 

The Bushmans appeal the district court’s decision to “pierce the corporate 

veil.” 
13

The district court, however, rejected the request to hold the other 

Bushman-related entities liable. FGP cross-appeals this aspect of the court’s 

ruling.

II. Scope and Standard of Review.

We review a breach-of-contract action for correction of errors at law. Iowa 

Mortgage Ctr., L.L.C. v. Baccam, 841 N.W.2d 107, 110 (Iowa 2013); see Iowa R.

App. P. 6.907. 

The findings of fact in a law action are binding upon us if supported by 

substantial evidence. Iowa R. App. P. 6.904(3)(a); Baccam, 841 N.W.2d at 110. 

The district court’s legal conclusions and application of legal principles, however, 

are not binding on the appellate court. See Baccam, 841 N.W.2d at 110. If the 

district court has applied erroneous rules of law that materially affected its 

decision, we must reverse on appeal. Land O’Lakes, Inc. v. Hanig, 610 N.W.2d 

518, 522 (Iowa 2000).

III. Discussion.

A. Bushmans’ appeal. The Bushmans argue the district court’s finding of 

fact that FGP was undercapitalized is not supported by the evidence. They also 

contend the court erred in piercing the corporate veil, characterizing the court’s 

ruling as basing its decision to ignore the corporate entity on the single factor that 

FGP was undercapitalized. 

A “limited liability company is an entity distinct from its members.” Iowa 

Code § 489.104(1) (2009). The separate LLC entity enables LLC members to 
14

limit their personal liability. See id. § 489.304.9“The separate corporate 

personality ordinarily enables corporate stockholders to limit their personal 

liability to the extent of their investment.” Briggs Transp. Co, Inc. v. Starr Sales 

Co., 262 N.W.2d 805, 809 (Iowa 1978); see Iowa Code § 489.403(1) (providing a 

“person’s obligation to make a contribution[10]to a limited liability company is not 

excused by the person’s death, disability, or other inability to perform personally. 

If a person does not make a required contribution, the person or the person’s 

estate is obligated to contribute money equal to the value of the part of the 

contribution which has not been made, at the option of the company.”).

But a company’s separate entity—the “corporate veil”—may be “pierced”

under some circumstances.

 

9 Section 489.304 provides:

1. For debts, obligations, or other liabilities of a limited liability 

company, whether arising in contract, tort, or otherwise all of the following 

apply: 

a. They are solely the debts, obligations, or other liabilities of the 

company. 

b. They do not become the debts, obligations, or other liabilities of 

a member or manager solely by reason of the member acting as a 

member or manager acting as a manager. 

2. The failure of a limited liability company to observe any 

particular formalities relating to the exercise of its powers or management 

of its activities is not a ground for imposing liability on the members or 

managers for the debts, obligations, or other liabilities of the company.

10 Iowa Code section 489.102(2) defines “Contribution” as meaning:

any benefit provided by a person to a limited liability company that is any 

of the following:

(a) In order to become a member upon formation of the company

and in accordance with an agreement between or among the persons that 

have agreed to become the initial members of the company. 

(b) In order to become a member after formation of the company 

and in accordance with an agreement between the person and the

company. 

(c) In the person’s capacity as a member and in accordance with 

the operating agreement or an agreement between the member and the 

company.
15

A court may disregard a corporate structure by piercing the 

corporate veil only under circumstances “where the corporation is a 

mere shell, serving no legitimate business purpose, and used 

primarily as an intermediary to perpetuate fraud or promote 

injustice.” C. Mac Chambers Co. v. Iowa Tae Kwon Do Acad[.],

Inc., 412 N.W.2d 593, 597 (Iowa 1987) (quoting Briggs[, 262 

N.W.2d at 810]).

The burden is on the party seeking to pierce the corporate 

veil to show the exceptional circumstances required. C. Mac 

Chambers, 412 N.W.2d at 598. Factors that would support such a 

finding include (1) the corporation is undercapitalized; (2) it lacks 

separate books; (3) its finances are not kept separate from 

individual finances, or individual obligations are paid by the 

corporation; (4) the corporation is used to promote fraud or 

illegality; (5) corporate formalities are not followed; and (6) the 

corporation is a mere sham. Id. (citing Briggs, 262 N.W.2d at 810).

In re Marriage of Ballstaedt, 606 N.W.2d 345, 349 (Iowa 2000). This list is not 

meant to be exhaustive, but to act as a guideline. Boyd v. Boyd & Boyd, 386 

N.W.2d 540, 544 (Iowa Ct. App. 1986). Generally, to pierce the corporate veil, 

the circumstances must indicate that to do otherwise would sanction a fraud or 

promote injustice. Id. (citing 1 Fletcher Cyc. Corp. § 41.30).

In Briggs, the court addressed undercapitalization as follows:

If a corporation is organized and carries on business without 

substantial capital in such a way that the corporation is likely to 

have no sufficient assets available to meet its debts, it is inequitable 

that shareholders should set up such a flimsy organization to 

escape personal liability. The attempt to do corporate business 

without providing any sufficient basis of financial responsibility to 

creditors is an abuse of the separate entity and will be ineffectual to 

exempt the shareholders from corporate debts. It is coming to be 

recognized as the policy of the law that shareholders should in 

good faith put at the risk of the business unencumbered capital 

reasonably adequate for its prospective liabilities. If capital is 

illusory or trifling compared with the business to be done and the 

risks of loss, this is a ground for denying the separate entity 

privilege.

262 N.W.2d at 810 (quoting Henry W. Ballantine, Ballantine on Corporations,

§ 129 (rev. ed. 1946)).
16

The C. Mac Chambers Co. case dealt with a closely held corporation, 

which failed and was immediately supplanted by a separate corporation. Both 

were owned and operated by members of the same family. 412 N.W.2d at 595. 

Creditors of the failed corporation brought actions on several theories, seeking to 

recover against the succeeding corporation and the family member who was its 

sole shareholder and director. Id. The supreme court upheld the district court’s 

ruling of individual liability, noting: 

At no time did Ki Tae Kim offer any consideration for his 

1000 shares of stock in Academy II and by his own admission he 

made no capital contribution to the venture. As stated in Briggs,

shareholders will not escape personal liability by setting up a 

corporation which does not have sufficient assets available to meet 

its debts. 262 N.W.2d at 810. We also note that individual 

obligations of the Kim family were routinely paid by both 

corporations and Kim family finances were not kept separate from 

corporate accounts.

Id. at 598.

Whether the corporate privilege has been abused is a question of fact. 

See Adam v. Mt. Pleasant Bank & Trust Co., 355 N.W.2d 868, 872 (Iowa 1984) 

(subscribing to court of appeals opinion as to generation of fact questions). And 

the district court’s findings of fact are binding upon us if supported by substantial 

evidence. Iowa R. App. P. 6.904(3)(a). Evidence is substantial when a 

reasonable mind could accept it as adequate to reach the same findings.

Waukon Auto Supply v. Farmers & Merchants Sav. Bank, 440 N.W.2d 844, 846 

(Iowa 1989). Evidence is not insubstantial merely because it would have 

supported contrary inferences and, in case of doubt or ambiguity we construe the 

court’s findings of fact to uphold rather than defeat, the judgment. Grinnell Mut.

Reins. Co. v. Voeltz, 431 N.W.2d 783, 785 (Iowa 1988).
17

The trial court made a finding that the hatching agreement was signed 

before formation of FGP. Moreover, 

Prior to forming Farmer Grown, Duane Bushman did not 

prepare any written analysis of the prospective capital needs of 

Farmer Grown. Farmer Grown did not secure any line of credit 

from a bank or other lender. Although Duane Bushman did not 

prepare any written analysis of the prospective capital needs of 

Farmer Grown, Bushman testified he did a projection of expenses 

and profits in his head. He testified he made some notes; however, 

he no longer has those notes.

Farmer Grown did not have any employees. Its registered 

office with the Iowa Secretary of State was the residence of Duane 

and Shirley Bushman. Ultimately, the business operations of 

Farmer Grown were moved to office space located in a barn at Ft. 

Atkinson, Iowa. Business operations of several other Bushmanrelated entities are conducted in this same barn.

Farmer Grown Poultry received advances from various 

Bushman-related companies so Farmer Grown could pay its bills 

during the five months it was in existence. These advances were 

recorded as loans and reflected in the records of both the lender 

and Farmer Grown. No promissory notes were, however, signed. 

. . . 

Farmer Grown received $2000 from Bushman Organic 

Poultry as a loan. The sum of $253,910 was loaned to Farmer 

Grown by Bushman Organic Farms. Farmer Grown Poultry 

received the sum of $108,000 from Ag Point. This was a 

prepayment against invoices when chicks were sold by Farmer 

Grown Poultry to AgPoint. There were no specific terms on how 

the monies would be applied by Farmer Grown. . . . Bushman 

Organic Poultry paid Farmer Grown Poultry’s payables aggregating

$95,366.94 prior to Farmer Grown opening a checking account. 

Later, additional expenses aggregating approximately $48,500 

were paid by Bushman Organic Poultry on behalf of Farmer Grown. 

For a while, Farmer Grown’s bills were paid by Bushman-related 

entities on an as-needed basis.

While finding nothing “improper” about a business being financed through 

debt financing, the trial court noted, “The historical business practice for the 

Bushman-related entities has been to move cash from a centralized account to 

the entity that needed it to pay for operating expenses and/or fund losses.” The 

court also noted Juffer’s opinion that at least $1 million was needed to fund the 
18

anticipated business of FGP “at its inception.” The trial court found that when 

Keith Smith requested financial information, it was provided financial statements

for Bushman-related entities. The court also found: 

Even though Farmer Grown Poultry’s anticipated business 

cycle (time when eggs were acquired and turned into cash) was 

approximately 10 weeks, there was no capital infused into Farmer 

Grown Poultry’s operation, beyond the $2000 loaned from 

Bushman Organic Poultry. Farmer Grown Poultry needed capital to

fund the egg purchases from Keith Smith, to pay the hatcheries, to 

pay barn owners, and to expand operations. Since Farmer Grown 

Poultry was not adequately capitalized, Bushman Organic Farms 

loaned additional monies to Farmer Grown Poultry and Bushman 

Organic Poultry paid certain operating expenses and costs for 

Farmer Grown Poultry on an as-needed basis.

Farmer Grown Poultry’s business cycle was 10 weeks; 

however, Keith Smith was entitled to payment within three weeks of 

each delivery. Capital was needed to fund the initial purchases of 

hatching eggs, in addition to other start-up costs. That capital was 

lacking.

These findings are supported by substantial evidence and do not relate only to 

the inadequacy of the capitalization of FGP.

We point out the Bushmans’ history of moving funds between related 

entities, and the lack of FGP assets and employees, and its failure to reduce 

losses to Keith Smith despite knowing its funding was inadequate. We note, too,

Duane and Shirley Bushman did not read the operating agreement and offered 

no consideration for their ownership of FGP. Cf. Harvey Gelb, Piercing the 

Corporate Veil, 59 Chi.-Kent L. Rev. 1, 13 (1982) (noting the caution with which 

court’s should pierce the corporate veil due to “resulting chilling effect on 

investment” (emphasis added)). There were no assets available to meet the 

debts of FGP. However, Bushman-related entities paid FGP’s obligations for a 

time. See C. Mac Chambers, 412 N.W.2d at 595. The financial life of FGP was 
19

entirely dependent upon the goodwill of the related Bushman entities and nearly 

all of the related entities had a different ownership arrangement than FGP. 

Additionally, submitting the financial statements of the Bushman-related entities 

certainly suggested, as West opined, that the other related-entities would stand 

behind FGP, and is strong evidence that equity should intervene to pierce the 

corporate veil.

We acknowledge that perhaps best practices would have suggested that 

Keith Smith obtain a personal guarantee from one or both of the Bushmans. But 

Keith Smith was provided the financial information of the other Bushman entities 

and had no reason to suspect that they would not amply capitalize this L.L.C.

because the information provided suggested the other entities’ financial status 

were sound. 

The district court concluded:

In the instant case, neither Duane Bushman nor Shirley 

Bushman provided any capital whatsoever for the start up of 

Farmer Grown Poultry. Its only revenue was a $2000 loan from a 

Bushman-related entity. As debts were incurred, Bushman-related 

entities would lend money to Farmer Grown Poultry for payment on 

its debts. Farmer Grown Poultry did not have any assets itself. 

Duane Bushman entered into a contract with Keith Smith, on behalf 

of Farmer Grown Poultry, to purchase hatching eggs. He entered 

into a contract that provided payment would be made to Keith 

Smith within 21 days of receiving the eggs. However, Farmer 

Grown Poultry, at best, would not receive any income for at least 10 

weeks, when the birds could be processed and sold. Farmer 

Grown Poultry continued to accept eggs from Keith Smith in spite of 

the fact Custom Poultry Processing failed to become operational 

until December 2010. Farmer Grown made no attempt to request 

Keith Smith stop egg deliveries and seek another purchaser. This 

could have reduced Keith Smith’s loss.

The Court concludes the “corporate veil” of Farmer Grown 

Poultry, a limited liability company owned by Duane Bushman and 

Shirley Bushman, should be pierced and personal liability be 

imposed on Duane Bushman and Shirley Bushman.
20

The court’s conclusions support a finding that adherence to the corporate 

structure would promote an injustice to the creditor Keith Smith. We affirm on the 

appeal.11

B. Keith Smith’s cross-appeal. Keith Smith asserts in its cross-appeal that 

the district court erred in failing to find it had proved the other Bushman-related 

entities named as defendants were alter egos of FGP. The trial court ruled:

With regard to Bushman-related entities, Defendants 

Bushman Organic Grains, Inc., Bushman Organic Farms, Inc., f/k/a

Bushman Family Farms, Bushman Organic Poultry, and Organic 

Feed & Grains, LLC, the Court finds neither the credible evidence 

nor pertinent law supports entry of judgment against these

Defendants. They were not involved in the creation of Farmer 

Grown Poultry; they operated separately from Farmer Grown 

Poultry. These entities had no obligation to provide sufficient 

capital to Farmer Grown Poultry.

We add that although family members were involved as owners of these entities, 

the ownership structure differed. 

Viewing the evidence in the light most favorable to upholding the 

judgment, we conclude the court’s findings of separateness are supported by 

substantial evidence. We affirm on the cross-appeal.

AFFIRMED ON BOTH APPEALS.

Mullins, J., concurs; McDonald, J., concurs in part and dissents in part.

 

11 Unlike the dissent, we do find this is one of the exceptional cases where the corporate 

veil should be pierced. We acknowledge that not all of the Briggs factors exist, but this 

is not a case of undercapitalization but rather of no capitalization. The related 

corporations provided a funding stream until the rug was pulled out from under Keith 

Smith by the related corporations refusing to continue the funding stream and the 

corporation never being adequately capitalized. 
21

MCDONALD, Judge. (concurring in part and dissenting in part)

I concur in the majority’s resolution of Keith Smith Company’s crossappeal. There is no basis to impose liability under an “alter ego” theory. I 

respectfully dissent from the majority’s resolution of the “veil piercing” issue.

I begin with the standard of review. Controlling case law holds the 

question of whether the corporate veil should be pierced is one at law to be 

decided by the jury. See Team Cent., Inc. v. Teamco, Inc., 271 N.W.2d 914, 923 

(Iowa 1978) (“We mention briefly Team Central’s additional argument that 

whether or not the corporate veil should be pierced is a question of law to be 

decided by the court, not the jury. We do not believe that this is a correct 

statement and several of our cases hold otherwise.”); Spectrum Prosthetics & 

Orthotics, Inc. v. Baca Corp., No. 08-0811, 2009 WL 3337600, at *4 (Iowa Ct. 

App. Oct. 7, 2009) (holding jury instruction was required where there was 

sufficient evidence to support at least one Briggs Factor). No satisfactory 

rationale has been given for the rule. Upon closer examination, the question of 

veil piercing should be an equitable determination for the court subject to de novo 

review rather than a question at law subject to the correction of legal error. See 

Minger Constr. Inc. v. Clark Farms, Ltd., No. 14-1404, 2015 WL 7019046, at *4-9 

(Iowa Ct. App. Nov. 12, 2015) (McDonald, J., dissenting); D.R. Horton Inc. v. 

Dynastar Dev., L.L.C., No. MER-L-1808-00, 2005 WL 1939778, at *22 (N.J. 

Super. Ct. Aug. 10, 2005) (“Indeed, piercing the veil is an equitable remedy, in 

derogation of the statute limiting liability.”); Nw. Cascade, Inc. v. Unique Constr., 

Inc., 351 P.3d 172, 182 (Wash. Ct. App. 2015) (“Veil piercing is an equitable 

remedy imposed to rectify an abuse of the corporate privilege”). The controlling 
22

standard of review is not dispositive of the claim in this case. Substantial 

evidence review “does not preclude inquiry into the question whether, conceding 

the truth of the facts found, a conclusion of law drawn therefrom is correct, nor 

are we bound by [the] trial court’s determination of the law.” Briggs Transp. Co. 

v. Starr Sales Co., 262 N.W.2d 805, 811 (Iowa 1978). 

A court should impose personal liability on a member of an LLC for the 

LLC’s obligations only in the most exceptional of circumstances. See C. Mac 

Chambers Co., Inc. v. Iowa Tae Kwon Do Acad., Inc., 412 N.W.2d 593, 597 

(Iowa 1987). “Plaintiffs bear the burden of proving that exceptional 

circumstances exist which warrant piercing the corporate veil.” Id. at 598. The 

burden is significant. See HOK Sport, Inc. v. FC Des Moines, L.C., 495 F.3d 

927, 935 (8th Cir. 2007) (applying Iowa law and stating that “[d]isregarding the 

entity’s corporate form under either the alter ego doctrine or the remedy of 

piercing the corporate veil is an extraordinary measure that should be reserved 

for exceptional circumstances, . . . and the party seeking to do so bears the 

burden of proof”); see also Wallace ex rel. Cencom Cable Income Partners II, 

Inc., L.P. v. Wood, 752 A.2d 1175, 1183 (Del. Ch. 1999) (“Persuading a 

Delaware court to disregard the corporate entity is a difficult task.”); Morgan v. 

O’Neil, 652 S.W.2d 83, 85 (Ky. 1983) (“Holding a shareholder in a corporation 

individually liable for a corporate debt is an extraordinary procedure and should 

be done only when the strict requirements for imposing individual liability are 

met.”); TNS Holdings, Inc. v. MKI Sec. Corp., 703 N.E.2d 749, 751 (N.Y. 1998) 

(stating that “[t]hose seeking to pierce a corporate veil . . . bear a heavy burden”). 

It is not material whether the legal entity is a corporation or an LLC. See Iowa 
23

Code § 4.1(20) (“‘[P]erson’ means an individual, corporation, limited liability 

company, government or governmental subdivision or agency, business trust, 

estate, trust, partnership or association, or any other legal entity.”). In both 

cases, limited liability is the presumptive rule. See id. § 489.304(1); Wyatt v. 

Crimmins, 277 N.W.2d 615, 616 (Iowa 1979); 5 Matthew Doré, Iowa Practice 

Series: Business Organizations § 15.3(1), at 454 (2014-2015) (stating limited 

liability is the presumptive rule).

Keith Smith has not carried its heavy burden of establishing this is one of 

the exceptional cases in which the statute providing for limited liability should be 

disregarded and personal liability imposed on the members of the LLC. The 

Briggs factors do not support the imposition of personal liability on the 

Bushmans. FGP maintained financial records separate from the Bushmans. 

FGP maintained financial records separate from the related Bushman entities. 

FGP maintained separate finances from the Bushmans. For example, there is no 

evidence FGP paid the Bushmans’ personal obligations. There is no evidence 

FGP was used to promote fraud or illegality. Because the entity at issue is an 

LLC, it is largely immaterial whether FGP followed formalities. See Iowa Code 

§ 489.304(2) (“The failure of a limited liability company to observe any particular 

formalities relating to the exercise of its powers or management of its activities is 

not a ground for imposing liability on the members or managers for the debts, 

obligations, or other liabilities of the company.”). There is no evidence the entity 

was a mere sham. To the contrary, FGP was created to execute a specific 

business plan. While FGP failed and breached its contract with Keith Smith, the 

mere failure to perform a contract is an insufficient reason to impose personal 
24

liability on the Bushmans for FGP’s obligations. See Campisano v. Nardi, 562 

A.2d 1, 7 (Conn. 1989) (holding the mere breach of a corporate contract cannot 

of itself establish the basis for imposing personal liability). The sole basis on

which the district court imposed liability was its finding of undercapitalization. 

However, “[i]nadequate capitalization, by itself, rarely leads to disregard of the 

corporate entity.” 5 Matthew Doré, Iowa Practice Series: Business Organizations

§ 15.4; see In re BH S & B Holdings L.L.C., 420 B.R. 112, 136 (Bankr. S.D.N.Y. 

2009), aff'd as modified, 807 F. Supp. 2d 199 (S.D.N.Y. 2011) (“As an initial 

matter, undercapitalization is rarely sufficient to pierce the corporate veil, 

because otherwise the veil of every insolvent subsidiary or failed start-up 

corporation could be pierced.”); Jeffrey K. Vandervoort, Piercing the Veil of 

Limited Liability Companies: The Need for A Better Standard, 3 DePaul Bus. & 

Com. L.J. 51, 73 (2004) (“Finally, it is important to note that undercapitalization 

has rarely been found to be sufficient by itself to pierce the veil.”).

The majority opinion ignores the most important factors relevant to Keith 

Smith’s request to impose liability on the Bushmans: whether the parties had the 

opportunity to negotiate and allocate the risk of loss prior to the time of contract 

and, if so, whether there is any reason to disturb the bargained-for allocation of 

loss. The answer to the former question is yes; the answer to the latter question 

is no. The parties are sophisticated players in the agribusiness industry with 

equal bargaining power. They engaged in an arms-length commercial 

transaction. Prior to the parties entering into the purchase agreement, Keith 

Smith conducted due diligence. Keith Smith’s representatives met with the 

Bushmans and toured several of the facilities to be used in the processing 
25

operations. At Keith Smith’s request, the Bushmans provided Keith Smith with 

financial statements and credit references. The Bushmans did not make any 

misrepresentations in the financial statements. The financial statements and 

credit references were explained to and reviewed by Keith Smith’s chief financial 

officer, Ron Fabian, and by the account manager, Bud West. The financial 

statements showed FGP had no material assets in light of the endeavor to be 

undertaken. West testified he knew FGP was a “start-up.” The majority’s 

distinction that liability should be imposed here because this is a case of “no 

capitalization” versus inadequate capitalization, ante at 20 n.11, is thus 

immaterial. Keith Smith’s representatives testified that Keith Smith knew, at the 

time of contract, FGP was a newly-formed entity without any assets. 

Nonetheless, Keith Smith chose to enter into the purchase agreement with FGP 

only. Keith Smith did not request personal guaranties from the Bushmans. Keith 

Smith did not request guaranties from any of the other Bushman entities. Keith 

Smith did not request collateral or any other security from the Bushmans or any 

of the Bushman entities. After the parties started performing under the purchase 

agreement, FGP immediately fell behind in its payments. Keith Smith 

nonetheless continued to sell product to FGP without seeking additional security. 

Under these circumstances, there is no reason to reallocate the risk of loss 

contrary to the parties’ agreement.

Generally, “[c]ourts are more willing to disregard the corporate veil in tort 

than in contract cases. The rationale for this distinction follows directly from the 

economics of moral hazard—where corporations must pay for the risk faced by 

creditors as a result of limited liability, they are less likely to engage in activities 
26

with social costs that exceed their social benefits.” Frank H. Easterbrook, Limited 

Liability and the Corporation, 52 U. Chi. L. Rev. 89, 112 (1985). “Contract 

creditors, in other words, are compensated ex ante for the increased risk of 

default ex post.” Id. As one court explained: 

PRES points out, however, that in a number of contexts PRES did 

negotiate personal guarantees from Michaelson, and insists that 

such guarantees weaken MPI’s corporate veil. We think, to the 

contrary, that they fortify it. Courts have been extraordinarily 

reluctant to lift the veil in contract cases, such as this one, where 

the creditor has willingly transacted business with the corporation. 

In other words, courts usually apply more stringent standards to 

piercing the corporate veil in a contract case than they do in tort 

cases. This is because the party seeking relief in a contract case is 

presumed to have voluntarily and knowingly entered into an 

agreement with a corporate entity, and is expected to suffer the 

consequences of the limited liability associated with the corporate 

business form, while this is not the situation in tort cases. Thus, in 

contract cases, where each party has a clear and equal obligation 

to weigh the potential benefits and risks of the agreement, courts 

have emphatically discouraged plaintiffs seeking to disregard the 

corporate form. In such cases, courts have required proof of some 

form of misrepresentation to the creditor: Unless the [corporation] 

misrepresents its financial condition to the creditor, the creditor 

should be bound by its decision to deal with the [corporation]; it 

should not be able to complain later that the [corporation] is 

unsound. . . . Absent some evidence of misrepresentation, courts 

should not rewrite contracts or disturb the allocation of risk the 

parties have themselves established. Parties to a commercial 

transaction must be free to negotiate questions of limited liability 

and to enforce their agreements by recourse to the law of contracts. 

. . . As a matter of contract, then, Michaelson was entitled to 

insulation from personal liability on the claims from the AAA 

partners, and it is not our place to restructure the parties’ 

agreement. From the outset, MPI was a limited liability corporation 

formed for the express purpose of entering joint ventures in real 

estate. The parties in this case expressly put the issue of limited 

liability on the bargaining table, and settled on an agreement that 

required MPI—not Aaron Michaelson—to answer for the debts of 

the partnership. Exceptions to this rule were plainly spelled out by 

the parties in writing. The jury verdict stripped Michaelson of the 

protections against personal liability to which he was entitled under 

the settled corporate law of Virginia. It awarded to PRES a new 

contract—one that bestowed on PRES a personal guarantee on the 
27

part of Michaelson that PRES had been unable to obtain at the 

bargaining table—apparently on the ground that the actual 

agreement resulted in a “fundamental unfairness.” Be that as it 

may, Virginia law plainly says that fairness is for the parties to the 

contract to evaluate, not the courts. Our task is rather one of 

enforcement. In conclusion, PRES is a disconsolate joint venturer 

who now wishes it had been doing business with an individual, and 

not a corporation. That was not the case, however, and, for the 

foregoing reasons, we reverse and remand with directions that the 

district court enter judgment for defendant Michaelson.

Perpetual Real Estate Servs., Inc. v. Michaelson Props., Inc., 974 F.2d 545, 550-

51 (4th Cir. 1992) (internal citations omitted).

I would hold personal liability should not be imposed on members of an 

LLC for the LLC’s obligations on the basis of inadequate capitalization of the LLC 

where the judgment creditor’s claim arises in contract, where the judgment 

creditor had the opportunity to obtain financial statements and other credit 

information prior to entering the contract, where the judgment creditor had the 

opportunity to price and allocate the risk of loss by requesting personal 

guaranties or other security, and where the judgment creditor failed to do so. 

See, e.g., Se. Texas Inns, Inc. v. Prime Hosp. Corp., 462 F.3d 666, 681 (6th Cir. 

2006) (holding plaintiff failed to state a claim where it was a “consensual contract 

setting in which sophisticated parties negotiated and entered into the Lease with 

full knowledge of its terms”); Browning-Ferris Indus. of Illinois, Inc. v. Ter Maat, 

195 F.3d 953, 960 (7th Cir. 1999) (stating “it is hard to see how a voluntary 

creditor can complain if he knows that his debtor lacks sufficient assets to be 

certain to be able to pay the debt when it comes due”); Kinney Shoe Corp. v. 

Polan, 939 F.2d 209, 212 (4th Cir. 1991) (“If such an investigation would disclose 

that the corporation is grossly undercapitalized, based upon the nature and the 
28

magnitude of the corporate undertaking, such party will be deemed to have 

assumed the risk of the gross undercapitalization and will not be permitted to 

pierce the corporate veil.”); United States v. Jon-T Chems., Inc., 768 F.2d 686, 

693 (5th Cir. 1985) (“In a contract case, the creditor has willingly transacted 

business with the subsidiary. If the creditor wants to be able to hold the parent 

liable for the subsidiary’s debts, it can contract for this. Unless the subsidiary 

misrepresents its financial condition to the creditor, the creditor should be bound 

by its decision to deal with the subsidiary; it should not be able to complain later 

that the subsidiary is unsound.”); D.R. Horton Inc., 2005 WL 1939778, at *29 (“In 

the contract setting, at least one not involving an unsophisticated consumer, it 

may be presumed that the parties are aware that they are dealing with limited 

liability entities. They have decided to allocate the risk of non-performance and 

limited liability among themselves. Indeed, often, a creditor dissatisfied with the 

limited liability of a closely held corporation may seek a personal guarantee, raise 

its price, or simply choose not to do business with the corporation.”); Theberge v. 

Darbro, Inc., 684 A.2d 1298, 1301 (Me. 1996) (“When the plaintiff attempts, in the 

context of a contractual dispute, to pierce the corporate veil, courts generally 

apply more stringent standards because the party seeking relief in a contract

case is presumed to have voluntarily and knowingly entered into an agreement 

with a corporate entity, and is expected to suffer the consequences of the limited 

liability associated with the corporate business form.”); Truckweld Equip. Co. v. 

Olson, 618 P.2d 1017, 1022 (Wash. Ct. App. 1980) (refusing to impose liability 

where creditor made no effort to obtain personal guarantee or timely file chattel 

liens and stating it was the creditor’s “failure to utilize these safeguards which 
29

contributed to its loss, not any misconduct or abuse of the corporate form”); 

Bostwick-Braun Co. v. Szews, 645 F. Supp. 221, 227 (W.D. Wis. 1986)

(“Estoppel would appear to be established here by virtue of plaintiff’s unexercised 

right to ascertain the capital structure of the BENNS Corporation coupled with the 

defendants’ continued purchases of merchandise from plaintiff in the 

corporation’s name.”); Law of Corp. Offs. & Dirs.: Rts., Duties & Liabs. § 20:7 

(2015) (“In contract cases, in the absence of fraud or misrepresentation, the 

creditor may be said to have accepted the risk of limited liability in dealing with a 

corporation.”); Robert W. Hamilton, The Corporate Entity, 49 Tex. L. Rev. 979, 

984 (1971) (“Secondly, a major consideration in determining whether the 

shareholders or the third party should bear the loss is whether the third party 

dealt voluntarily with the corporation or whether he is an involuntary creditor . . . . 

In a contract case, the plaintiff has usually dealt in some way with the corporation 

and should be aware that the corporation lacks substance. In the absence of 

some sort of deception, the creditor more or less assumed the risk of loss when 

he dealt with a ‘shell’; if he was concerned, he should have insisted that some 

solvent third person guarantee the performance by the corporation.”). I would 

reverse the district court’s imposition of liability against the Bushmans in their 

personal capacity.

For all these reasons, I respectfully concur in part and dissent in part.