Court Opinion

ID: 9889828
Source: CourtListenerOpinion
Date Created: 2023-10-11 17:07:51.651524+00
Date Added: 2024-06-11T12:49:07.575802
License: Public Domain

IN THE COURT OF APPEALS OF IOWA

                                    No. 22-1146
                              Filed October 11, 2023

RAYMOND HEYDE, in his capacity as the Executor of the Estate of Milton
Heyde, Deceased, and REINHOLD HEYDE,
     Plaintiffs-Appellants/Cross-Appellees,

vs.

DIETRICH HEYDE,
     Defendant-Appellee/Cross-Appellant.
________________________________________________________________

      Appeal from the Iowa District Court for Franklin County, Chris Foy, Judge.

      Brothers appeal and cross-appeal the judgment entered by the district court

on a petition for accounting. AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED WITH DIRECTIONS ON APPEAL; AFFIRMED ON CROSS-

APPEAL.

      George A. Cady III of Cady & Rosenberg Law Firm, P.L.C., Hampton, for

appellants/cross-appellees.

      Dietrich Heyde, Williamsburg, Michigan, self-represented appellee/cross-

appellant.

      Considered by Schumacher, P.J., and Chicchelly and Buller, JJ.
                                         2

SCHUMACHER, Presiding Judge.

       Brothers appeal and cross-appeal the judgment entered by the district court

on a petition for accounting and payment due concerning an organic farming

operation. Upon our review, we affirm in part and reverse in part on the appeal

and remand with directions. We affirm on the cross-appeal.

I.     Background Facts and Proceedings

       Brothers Reinhold Heyde and Milton Heyde farmed together on land

recognized by the United States Department of Agriculture (USDA) National

Organic Program as a certified organic operation from 2000 to 2015. Only certified

organic operations may sell, label, or represent products as organic. The process

to become certified involves “two years [of farming] on your own with no prohibitive

inputs” and then “[i]n the third year you would [become certified and] get the

organic price” for the crops. The profit for the organic crops Reinhold and Milton

sold was “twice as high” or “even higher” than the price for conventional crops.

       Reinhold and Milton encountered difficulties with their organic farming

operation in 2015 and lost their license. As a result, they were no longer certified

to sell organic crops. The brothers considered farming on their own “without the

organic license, [but they] would have only received conventional prices.” So

Reinhold and Milton decided “[t]he best option was to try to get . . . somebody to

help [them] out and . . . get [an] organic license” and then they would use that

license to market and sell their crops as organic.

       Reinhold and Milton contemplated using a local farm management

company, but they decided against it as the company would charge a fee of

approximately 7.5 percent of the gross income.        Eventually, another brother,
                                        3

Dietrich, who lived in Michigan, agreed to help. For the 2016 season, Dietrich

obtained his certification as an organic operator. Reinhold and Milton continued

to manage the day-to-day farming operations. The three brothers agreed Dietrich

“would market and sell the organic crops that Reinhold and Milton produced during

the upcoming crop season, deposit the proceeds, pay for the crop inputs and other

expenses of raising and harvesting the crops, and distribute any net profit to

Reinhold and Milton.” They also agreed Dietrich “could use the crop proceeds to

reimburse any out-of-pocket expenses he incurred assisting Reinhold and Milton,

but that Dietrich would not charge any fee for his services.” The terms of the

brothers’ agreement were oral—none of the terms were reduced to writing.

      The brothers initially believed the arrangement would last for one year

because Reinhold and Milton were “to become recertified right away.” But when

this did not happen, the arrangement with Dietrich continued in 2017. Milton’s

health deteriorated and he could not remain as active in the farming operation,

despite historically being “pretty much the farm manager.” So Dietrich stepped in

and assumed more of a role in the day-to-day duties of the farming operation for

2016 and 2017. Dietrich’s additional duties were “completely unexpected” and

required him to travel from Michigan to Iowa to be hands-on with the farming rather

than the anticipated work as an organic operator.

      Milton passed away in February 2018. It is unclear from the record whether

Reinhold continued to farm after Milton’s death. Enter a fourth Heyde brother,

Raymond. Raymond successfully petitioned the court to admit the last will and

testament of Milton to probate and appoint him as the executor of Milton’s estate.
                                           4

After he was appointed as executor, Raymond requested an accounting from

Dietrich of the proceeds Dietrich collected from the farming arrangement.

          When Dietrich failed to produce an accounting, Raymond and Reinhold

(collectively, the Heydes) initiated this action in equity against Dietrich.     The

Heydes alleged a fiduciary relationship existed between the parties; demanded

Dietrich provide an accounting “for all money and property received on [their

behalf] and any expenses [Dietrich] claims were paid pursuant to the agreement”;

and requested judgment “in any sum found to be due from [Dietrich] to [the Heydes]

under the agreement.”

          Dietrich answered, admitting he paid expenses on behalf of the Heydes

under the agreement but stating that any funds not used to pay bills had been

distributed.     Dietrich also asserted a counterclaim against the Heydes for

compensation for “labor he provided to assist with planting, harvesting, field work

and sale of the [Heydes’] crop.”1

          At trial, the court heard testimony from Reinhold, Dietrich, and Raymond;

Maria and Carolyn (the Heyde family sisters); and Jack Ackerson, David Ragsdale,

Robert Erlbacher, Jacob Butson, and Donald Butson, who served as hired farm

help for the Heydes. The court also considered exhibits and the parties’ post-trial

briefs.

          Following trial, the court entered an order for judgment for the Heydes. In

reaching its decision, the court first concluded that Dietrich had not assumed a

1 Dietrich requested compensation for services and costs relating to the 2018 crop

year. The court found “[n]o testimony or evidence was presented in support of
these counterclaims,” so the court “den[ied] Dietrich any recovery on both of them.”
These claims are not raised on Dietrich’s cross-appeal.
                                          5

fiduciary role in his relationship with the Heydes, and therefore the court declined

to impose “a heightened burden of proof on Dietrich” for distributions he made from

the crop proceeds. The court next found Dietrich had failed to properly account

for $213,164.252 of the crop proceeds that came into his hands under the

arrangement he entered into with the Heydes for the 2016 and 2017 growing

seasons but that he had “established a counterclaim against [the Heydes] for

$9000.”3

       But rather than entering judgment for the Heydes in the amount of the

difference, the court determined that because “the purpose of the arrangement”

between the Heydes and Dietrich was a plan “to scam the system,” the court

applied “the equity maxim of clean hands.” The court reduced the judgment for

the Heydes against Dietrich to $74,164.25.4 Dietrich moved for a new trial, which

the court denied. This timely appeal and cross-appeal followed.

II.    Standard of Review

       This proceeding is in equity, so we review the parties’ claims de novo. See

Iowa R. App. P. 6.907; Mlady v. Dougan, 967 N.W.2d 328, 332 (Iowa 2021). “We

give weight to the factual findings of the trial court, but we are not bound by them.”

Mlady, 967 N.W.2d at 332 (citation omitted). “A district court’s order imposing

2 Based on computational error, the court found this amount was $213,164.25.

The correct computation is $212,417.25 ($445,641.93 minus $152,344.89 minus
$2051.35). The difference represents the miscalculation of the lodging expenses,
as detailed in this opinion.
3 Dietrich sought compensation for his labor in the amount of $27,360. The court

found Dietrich was entitled to recovery against the Heydes for his labor at a rate of
“50 days times 9 hours per day times $20 per hour,” which totaled $9000.
4 The court later entered a supplemental ruling “further expla[ining] the manner in

which it calculated the damages due” to the Heydes but declining to apportion the
judgment between them.
                                         6

discovery sanctions will not be disturbed unless the court abused its discretion.”

Troendle v. Hanson, 570 N.W.2d 753, 755 (Iowa 1997).

III.   Fiduciary Relationship

       The Heydes contend the court erred in failing to find a fiduciary relationship

existed between them and Dietrich, which if established, “shifts the burden to

Dietrich to justify the expenses” he alleged to have paid on behalf of the Heydes’

farming operation. To support their claim, the Heydes point to “the broad definition

of a fiduciary relationship, as set forth in Kurth [v. Van Horn, 380 N.W.2d 693 (Iowa

1986)] and Weltzin v. Cobank, ACB, 633 N.W.2d 290 (Iowa 2001),” and argue

these cases “accurately establish[ ] the law to be applied” in determining whether

a fiduciary relationship exists.

       Generally, “[a] fiduciary relation exists between two persons when one of

them is under a duty to act for or to give advice for the benefit of another upon

matters within the scope of the relation.” Kurth, 380 N.W.2d at 695. “Such

relationship exists when there is a reposing of faith, confidence and trust, and the

placing of reliance by one upon the judgment and advice of another.” Weltzin, 633

N.W.2d at 294. Because diverse circumstances give rise to a fiduciary duty, the

individual facts of a case must determine whether a fiduciary duty exists. Kurth,

380 N.W.2d at 696. Indicia of a fiduciary relationship include: “the acting of one

person for another; the having and the exercising of influence over one person by

another; the reposing of confidence by one person in another; the dominance of

one person by another; the inequality of the parties; and the dependence of one

person upon another.” Id. (citation omitted).
                                          7

       Applying these principles to these facts, we cannot find Dietrich controlled

his brothers’ actions or activities; the parties’ agreed Dietrich’s role was simply to

provide a way for the Heydes to market and sell their crops as organic, under

Dietrich’s certification.   Cf. Weltzin, 633 N.W.2d 294–95 (declining to find a

fiduciary relationship despite a possibility the creditor encouraged the debtor to

merge and failed to act to protect the creditor’s interests). And despite testimony

of the close familial relationship the brothers shared, there is no evidence any party

influenced or dominated another or there was inequality or dependence between

the parties. Cf. Kurth, 380 N.W.2d at 694 (finding no evidence the customer “relied

upon the bank for advice” or that the bank “ever acted as an investment advisor”

for the customer).

       The parties agreed Milton historically “made all the decisions” relating to the

Heydes’ farming operation; Dietrich had no expertise the Heydes relied on;5 and

the Heydes hired out for labor and custom farming. See Irons v. Cmty. State Bank,

461 N.W.2d 849, 852–53 (Iowa Ct. App. 1990) (“The various conversations the

customer had with bank officers concerning loan repayments, price and sale of

crops, and other matters certainly do not raise the relationship to the special and

elevated rank of fiduciary.”). The evidence shows Dietrich merely retained the

organic certification for the Heydes, and as the district court noted, “Milton and

Reinhold used Dietrich as a middleman to market and sell their crops.”6 See Linder

5 Indeed, Raymond testified, “Dietrich never sat on a tractor. He never talked about

farming. He didn’t know anything about farming. He didn’t know the business end
of a disk.”
6 As the district court observed,

        In framing the burden of proof Dietrich carries, [the Heydes] cite
        cases that describe what the donee must show to validate a gift
                                           8

v. Midwest Benefits, Inc., No. 00-1658, 2001 WL 541450, at *3 (Iowa Ct. App.

May 23, 2001) (finding no fiduciary duty between the parties, noting, “Linder simply

helped Midwest to make connections with businesses, which allowed its

employees to make sales”). And although the Heydes hoped to sell their crops as

organic under Dietrich’s certification, there was no guarantee their arrangement

would succeed, and in many ways, it didn’t.7 See, e.g., Albaugh v. The Rsrv., 930

N.W.2d 676, 686 (Iowa 2019) (finding no fiduciary relationship between parties

despite a claim a resident “put her confidence in the Reserve to protect her

entrance fee and supplemental amount,” when the application agreement “stated

there was ‘no guarantee [the resident] will recover the entire Entrance Fee, the

entire Supplemental Amount, or such other funds as may have accrued during

[her] residency within the Development’”).

         Upon our review of the indicia of a fiduciary relationship as applied to these

facts, we cannot find Dietrich had a fiduciary duty to the Heydes. We affirm on this

issue.

        made by a person with whom the donee had developed a confidential
        relationship. . . .
               . . . Here, Milton and Reinhold did not make a gift of any kind
        to Dietrich. Instead, Milton and Reinhold used Dietrich as a
        middleman to market and sell their organic crops. The Court finds
        that the role assumed by Dietrich vis-à-vis his brothers was more
        akin to that of a consignee of their crops than as any kind of fiduciary.
7 For instance, Carolyn testified, “Well, in the early fall [2017], when they saw that

the crop was looking bad, then [Milton] and Reinhold decided that they did not want
Dietrich to be the operator for the—for 2018.” Several witnesses agreed Dietrich
“waived his portion of the rent for 2017” “because the crop was so bad.”
                                         9

IV.    Burden Shift

       The Heydes next claim the court “erred in failing to shift the burden of proof

to [Dietrich]” to show by “clear and convincing evidence that he was entitled to

reimbursement for [his alleged] expenses.”       This argument is based on the

presence of a fiduciary relationship between the parties, a claim we found

unpersuasive above. Accordingly, we conclude the district court correctly declined

to “impose a heightened burden of proof on Dietrich.” As the court stated, “So long

as he establishes the validity and necessity of any particular expense or

disbursement by a preponderance of the evidence, the [c]ourt will treat the amount

of that item as properly accounted for by Dietrich.” Even so, we interpret the

Heydes’ claim to include challenges to several expenses claimed by Dietrich,

which we now address under the appropriate standard.

       The parties do not dispute that Dietrich received crop proceeds in a total

amount of $445,641.93 that he needed to account to the Heydes.8 The record

concerning the proceeds and expenses is complicated by the fact that Dietrich did

not use a separate account for the organic farming operation, instead commingling

funds with his business and personal accounts. The parties agreed Dietrich used

$76,583.90 of the crop proceeds to pay third parties for “legitimate and necessary

expenses,” and Dietrich paid $2244.54 to become certified as an organic operator.

The parties also agreed Dietrich distributed $144,954.89 by wire transfer to Milton

from crop proceeds and that Dietrich should receive a credit of $90 for wire transfer

8 Between November 2016 and March 2018, Dietrich received $389,100.33 in

proceeds from the sale of the Heydes’ crops, and he received another $56,541.60
in crop insurance funds.
                                        10

fees he paid. The undisputed payments from crop proceeds totaled $223,873.33,

leaving $221,768.60 remaining for which Dietrich needed to account to the

Heydes. Ultimately, the district court found Dietrich was entitled to credit for an

additional $17,604.35 for expenses, which are challenged on appeal by the

Heydes.

      A.     Cash payments to Milton

      Dietrich claimed he made thirty-four payments to Milton in cash between

June 2015 and January 2018, totaling $50,877. The district court found evidence

to show Dietrich made five cash payments to Milton that he should be credited for,

totaling $7300. The court explained:

      The evidence showed that Milton often conducted business in cash.
      Dietrich testified credibly that he gave Milton cash several times.
      Even so, the Court finds that it is only appropriate to give Dietrich
      credit for those distributions made in cash after he received the first
      crop proceeds check from Pipeline Foods and which have other
      support in the record. The dates and amounts of these distributions
      and the page of the exhibit that the Court found to support the validity
      of each are set out below:

           Date              Amount           Evidence Source

           March 5, 2017     $1000            Exhibit 111, page 6

           April 4, 2017     $500             Exhibit 111, page 2

           June 9, 2017      $4000            Exhibit 111, page 4

           July 12, 2017     $300             Exhibit 111, page 3

           August 4, 2017    $1500            Exhibit 111, page 9

      The Heydes challenge this finding, claiming it “appears to be based solely

on Dietrich’s testimony that he withdrew money from an ATM machine various

times and . . . that he provided the cash to Milton.” That contention misstates the
                                         11

record. Rather, Dietrich specified he only used the ATM to withdraw cash “for [his]

own personal money.” He testified he had used the same “Bank-Genie ATM [his]

whole life,” “because it’s close to work and it’s on [his] way home.” But when he

withdrew cash for Milton, Dietrich stated he “walked into the bank to—to withdraw

cash” “because [he] could withdraw more than from an ATM, plus [he] had a receipt

that [he] gave to Milton.” Exhibit 111 depicts withdrawal slips from Fifth Third Bank,

accurately indicating the dates and amounts Dietrich alleged he withdrew.

       But the Heydes persist, “Milton’s bank records never reflected that he

received any of these cash distributions that Dietrich claimed he paid,” and Milton

did not sign “any receipts for the cash.” Dietrich testified he got a receipt “every

time” he withdrew cash from the bank, which “were in the—the bank cards, the

money cards,” and “[e]very one of them went to Milton.” According to Dietrich,

“Milton logged every one of those, every time” in a durable notebook he kept with

him at all times.9 Milton’s main farm hand, Robert Erlbacher, similarly testified

Milton “wrote down everything” and kept his notebook with him in a leather bag.10

       Dietrich also testified Milton did not deposit the cash but used it to pay

workers or for other expenses; “[h]e dealt with cash, you know, every day.”11

Erlbacher worked “forty-plus” hours each week for Milton and testified he and

Milton “had an agreement” that Milton always paid in cash. According to Erlbacher,

9 According to Dietrich, “[Milton] kept track. Every time I gave him cash, he kept
track; and every time I told him I made a payment to Don Butson or whoever, he
kept track. . . . That logbook was incredibly important.”
10 Unfortunately, Milton’s notebook disappeared and was never produced during

this action.
11 Although Milton paid Don Butson with checks, Butson “always heard he liked

cash.”
                                         12

Milton always carried cash and paid him at the end of each day. Jack Ackerson

similarly testified that Milton “paid [him] cash” for his work on the farm. Erlbacher

also stated he rode around with Milton “every day” and recalled seeing receipts

and bank envelopes “everywhere in his car.” Dietrich testified, “When Milton

passed away, his bedroom had all kind of receipts from Fifth Third [Bank], which

there’s no Fifth Third in Hampton, you know, Iowa. So the money cards were in

there. There was receipts. His dashboard of his truck had all kinds Fifth Third

money cards and receipts.”

       Upon our review, we conclude Dietrich established $7300 in cash payments

to Milton by a preponderance of the evidence.

       B.     Lodging expenses

       Dietrich claimed lodging expenses in the amount of $3722.39 for nineteen

stays at the Gold Key and AmericInn motels in Hampton between June 2015 and

February 2018. The district court found one of the stays (July 20–26, 2017),

totaling $235.74, was for Milton and should be credited to Dietrich. The court

further found Dietrich should be credited for an additional $1068.61 for his stays at

the Gold Key that were “supported by receipts.” The court explained:

               Finally, the Court will give Dietrich credit for $747 in room
       charges he paid the Gold Key Motel to stay there for 15 nights in
       June and early November of 2016, $1068.61 in room charges he
       paid to stay at the Gold Key Motel for 22 nights in June and July of
       2017, and $235.74 in room charges he paid the Gold Key Motel for
       Milton to stay there for 6 nights in July 2017. All of these room
       charges are supported by receipts . . . . The Court specifically finds
       that in both 2016 and 2017, [Dietrich] spent at least 25 days back in
       the Hampton area each year helping Milton and Reinhold with
       planting, harvesting, and other field work. The Court has not given
       Dietrich any credit for room charges he supposedly paid to stay at
       the AmericInn because they are not supported by any receipts. The
                                         13

       room charges for which the Court will give Dietrich credit total
       $1304.35.[12]

       On appeal, the Heydes “have no objection to giving Dietrich credit for paying

for the rooms for Milton, . . . which total $235.74.” But they claim, “The rest of the

room charges appear to have been incurred by Dietrich,” and “[t]he evidence from

all of the [Heydes’] witnesses indicate Dietrich had agreed to not charge for travel

expenses.” The record belies this contention. At trial, Reinhold acknowledged

Dietrich “was supposed to charge us modest fees for traveling and motel

lodging . . . .” We also note exhibit 114 includes receipts from the Gold Key motel,

accurately indicating the dates and amounts of Dietrich’s stays.

       Upon our review, we conclude Dietrich established lodging expenses in the

amount of $2051.35.

       C.     Labor and field work

       In his counterclaim, Dietrich sought compensation for the value of the labor

he provided to help the Heydes with field work during 2016 and 2017. Dietrich

requested $27,360 for 114 “days working in Iowa or spent traveling” at a rate of

$20 per hour for twelve-hour days.       The court found Dietrich was entitled to

recovery of $9000 on his counterclaim, stating as follows:

       Dietrich specifically counterclaimed for the value of the labor he
       provided to help Milton and Reinhold with planting, harvesting, and
       other field work in 2016 and 2017. Dietrich seeks compensation for
       his labor in the amount of $27,360. Dietrich maintains that he spent
       114 days during the relevant time period either helping with field work
       in Iowa or traveling between his home in Michigan and the farm. He
       further maintains that every day that he worked or traveled, he
       devoted 12 hours during that day to the task at hand and seeks to be
       compensated at an hourly rate of $20. Dietrich did not present much

12 The amount of lodging charges is $747 plus $1068.61 plus $235.74, which totals

$2051.35, not $1304.35.
                                          14

       documentation of his days of travel or days of work in Iowa, and his
       testimony at the trial on this subject was not particularly detailed.
       Even so, the Court concludes that Dietrich spent 25 days in 2016 and
       25 days in 2017 helping Milton and Reinhold with field work and
       worked nine hours per day on average. The Court finds the hourly
       rate sought by Dietrich is reasonable given that when he was back
       on the farm he was also helping Reinhold and Milton to manage their
       farming operation. Accordingly, the Court finds that Dietrich is
       entitled to a recovery on his counterclaim against Plaintiffs in the
       amount of $9000 (50 days times 9 hours per day times $20 per hour).
       The Court will offset this amount against the amount Dietrich owes
       Plaintiffs.

       The Heydes challenge this finding, arguing, “Dietrich agreed to help Milton

and Reinhold in their farming operation without compensation,” and “this

agreement never changed from 2016 through 2017.” Several witnesses testified

Dietrich agreed to help for no charge. But the agreement was also only supposed

to be for the duration of one year and limited to marketing and sale of the 2016

crop as the certified organic operator.

       It is undisputed that the deterioration of Milton’s health required Dietrich to

step in tremendously “and do a heck of a lot of farming” over the next several years,

which was “completely unexpected.” Dietrich testified it was never expected that

he would provide labor to the farm. Maria Heyde acknowledged that, after Milton’s

heath took a turn, it was “absolutely [Dietrich’s] job to get the crop planted.” She

estimated Dietrich was at the farm providing labor “maybe eight times in ’16,” which

was “maybe more often than ’17.” The Heydes’ hired help unanimously recalled

that Dietrich regularly worked at the farm. Jacob Butson testified Dietrich “would

come back weekly.” According to David Ragsdale, “I was out there helping and

then he would show up and help during crops. Putting them in, taking them out.”

Erlbacher testified, “When it came crop time, planting, dusting, [Dietrich] was the
                                          15

only one who showed up” from the family; “[h]e was usually there before I was,”

and he helped “[e]very day ‘til he had to go back home.” Even Dietrich’s brother

Raymond, who was critical of Dietrich’s farming capabilities, acknowledged

Dietrich was involved with the field work.

       Upon our review, we conclude Dietrich established his entitlement to

compensation in the amount of $9000 for labor he provided for the Heydes during

the 2016 and 2017 growing seasons.

V.     Clean Hands Doctrine

       As noted above, the district court concluded Dietrich failed to account for

proceeds he received from the Heydes’ crops, but that he had established a

counterclaim against the Heydes for $9000. Rather than simply subtracting $9000

and granting the Heydes judgment for the difference, the court, sua sponte,

invoked the doctrine of “clean hands” to reduce the Heydes’ recovery to

$74,164.25.

       The court found:

               The arrangement Milton, Reinhold, and Dietrich entered into
       is best described as an artifice, a plan intended to deceive. The sole
       purpose of this arrangement was to circumvent the consequences to
       Milton and Reinhold of losing their certification as an organic
       operation. Under federal law, once they lost their certification, Milton
       and Reinhold were prohibited from selling their crops as organic and
       receiving the premium price organic crops command. Rather than
       forego the higher profits that come with selling organic crops, the
       three brothers set out to scam the system.

The court also found, “If the Court were to grant [the Heydes] judgment in any

amount, it would be lending its aid to the deceptive (and arguably illegal) conduct.

At the same time, Dietrich is not wholly innocent in all of this.”
                                         16

       The court determined that under the clean hands doctrine and balancing

the equities of the case, it should “substantially reduce the judgment . . . otherwise

award[ed] [the Heydes] against Dietrich.” The court found Dietrich was responsible

to pay to the Heydes $74,164.25.13

       The Heydes moved to reconsider/amend judgment stating, “the Court’s

ruling includes no analysis or factual findings which would allow the parties to

determine the Court’s methodology of calculating the amount of the Judgment.” In

ruling on the motion, the Court found:

               It is the opinion of the Court that each of the parties was
       equally culpable for the deception practiced on the persons and
       entities who bought the crops of [the Heydes]. Consequently, the
       Court decided that $70,000 of the amount [Dietrich] would have
       otherwise owed to the Estate of Milton Heyde and $70,000 of the
       amount [Dietrich] would have otherwise owed to Reinhold Heyde
       should be “canceled,” and the balance, $74,164.25,[14] should be
       paid by [Dietrich] to [the Heydes]. This result fairly balanced the
       equities of the parties.

The court concluded that this result did not permit Dietrich “to fully escape

responsibility for his failure to account for all the money coming into his hands

under the arrangement with [the Heydes], while at the same time preventing [the

Heydes] from benefiting from their wrongdoing in continuing to sell organic crops

after losing their certification.”

       The Heydes claim the district court improperly determined the clean hands

doctrine should be applied. They point out Dietrich obtained certification that he

13 The award would have been $203,417.25 but for the application of the clean

hands doctrine. The court reduced the judgment by $129,253 to $74,164.25. In
other words, by the court’s action, Dietrich retained an additional $129,253 from
the proceeds he received from the sale of crops.
14 Even using the court’s calculations, the result here would not be $74,164.25.
                                        17

was capable of selling and marketing organic crops. They assert the local USDA

office was notified and Dietrich signed the appropriate papers to become the

operator of the farm. The Heydes contend, “No entity was deceived or taken

advantage of. There is no evidence of any wrongdoing or violation of public policy.”

They state the crops were properly certified as organic.

       “The clean hands doctrine stands for the principle that a party may be

denied relief in equity based on his inequitable, unfair, dishonest, fraudulent, or

deceitful conduct.” Ellwood v. Mid States Commodities, Inc., 404 N.W.2d 174, 184

(Iowa 1987).

               The equity maxim of clean hands expresses the principle that
       where a party comes into equity for relief he or she must show that
       his or her conduct has been fair, equitable, and honest as to the
       particular controversy in issue. A complainant will not be permitted
       to take advantage of his or her own wrong or claim the benefit of his
       or her own fraud or that of his or her privies.
               The maxim means that whenever a party who seeks to set the
       judicial machinery in motion and obtain some equitable remedy has
       violated conscience or good faith, or another equitable principle in
       prior conduct with reference to the subject in issue, the doors of
       equity will be shut, notwithstanding the defendant’s conduct has
       been such that in the absence of circumstances supporting the
       application of the maxim, equity might have awarded relief.

Opperman v. M. & I. Dehy, Inc., 644 N.W.2d 1, 6 (Iowa 2002) (quoting 27A Am.

Jur. 2d Equity § 126, at 605 (1996)). The clean hands maxim need not be pleaded;

it may be applied by the district court sua sponte, as it was here. See Myers v.

Smith, 208 N.W.2d 919, 921 (Iowa 1973).

       The clean hands doctrine should not be applied rigorously and is not

favored by the courts. Cedar Mem’l Park Cemetary Ass’n v. Pers. Assocs., Inc.,

178 N.W.2d 343, 353 (Iowa 1970); see also Hora v. Hora, No. 22-0259, 2023 WL

1809035, at *6 (Iowa Ct. App. Feb. 8, 2023) (noting the clean hands doctrine “is
                                          18

not a favored doctrine of the courts”); JP Morgan Chase Bank, Nat’l Ass’n v.

Ackley, No. 12-1338, 2013 WL 1749783, at *1 (Iowa Ct. App. Apr. 24, 2013) (“The

defense of the clean hands doctrine is not favored by the courts.”); Butler v. Butler,

114 N.W.2d 595, 619 (Iowa 1962) (same).

       “[T]he application of the doctrine is purely discretionary and . . . it should not

be applied where the result would be contrary to public policy.” Cedar Mem’l Park

Cemetary Ass’n, 178 N.W.2d at 353. The doctrine “requires proof that the plaintiff

‘dirtied [his hands] in acquiring the rights he now asserts.’”         Hora, 2023 WL

1809035, at *6 (quoting Anita Valley, Inc. v. Bingley, 279 N.W.2d 37, 41 (Iowa

1979)). A party’s conduct must not only be wrongful but must be “connected with

the present dispute.” Midwest Mgmt. Corp. v. Stephens, 353 N.W.2d 76, 81 (Iowa

1984). “The conduct must appear to have injured, damaged, or prejudiced [the

defendant], or he may not invoke the doctrine.” Id.

       The Iowa Supreme Court has stated:

       Relief is not to be denied because of general iniquitous conduct on
       the part of the complainant or because of the latter’s wrongdoing in
       the course of a transaction between him and a third person. In other
       words, the maxim may not be invoked by reason of acts which are
       not shown to have been connected with the transaction giving rise to
       the suit or otherwise to have been related to the defendant or
       anything in which he was interested. When inequitable conduct is
       shown, the resulting disqualification extends only to the enforcement
       of equities which are founded upon the matter or transaction which
       the conduct involved. The question to be resolved is whether the
       complainant’s wrongful conduct is connected with, or related to, the
       dispute between the complainant and the defendant, and not
       whether the complainant has been guilty of wrongdoing from which
       he was benefited.

Grandon v. Ellingson, 144 N.W.2d 898, 904 (Iowa 1966). “The equitable rule that

a plaintiff asking relief must come into equity with clean hands has reference only
                                         19

to the relation between the parties, and arising out of the transaction.” Id. (quoting

Benson v. Sawyer, 249 N.W. 424, 428 (Iowa 1933)).

         By obtaining an organic certification for their farm through Dietrich, the

Heydes’ conduct did not harm Dietrich. In fact, Dietrich was part of the plan and

was aware of the circumstances that led the Heydes to request him to become a

certified organic operator. We conclude the Heydes did not have unclean hands

as to their brother, Dietrich. For this reason, we find the district court improperly

applied the clean hands doctrine to reduce the judgment of the Heydes. As a

result, we reverse this portion of the district court order and determine judgment

should be entered in favor of the Heydes for the sum of $203,417.25.

VI.      Discovery Sanction

         On cross-appeal, Dietrich argues the court “abused its discretion by

imposing a discovery sanction which excluded from evidence bank account

statements, credit card statements, and other financial records which were

necessary to verify the full and complete accounting of the funds at issue in this

case.”

         As the trial date loomed, the Heydes filed several motions to compel

discovery and for sanctions against Dietrich, arguing that even after a motion to

compel was granted, Dietrich failed to comply with some requests and provided

responses to others just shortly before trial, in violation of the court order. The

court addressed the motions for sanctions at the start of trial. The court allowed

admission of Dietrich’s exhibits 111, 112, 114, 116, 117, and 119, which the parties
                                        20

agreed were submitted before the discovery deadline.15 But the court excluded

exhibits 101 through 110, 113, 115, 118, and 122 “as a sanction” because they

were submitted after the court-imposed deadline. On that topic, Dietrich’s attorney

acknowledged he “underst[oo]d the court’s [discovery] order” and that Dietrich’s

responses “may not [have] compl[ied] exactly with it.” The court noted it would

allow Dietrich “to provide further explanation and ask the Court to reconsider the

exclusion” during his testimony, but no further argument was made.

       In imposing sanctions by excluding several of Dietrich’s proposed exhibits,

the district court acted by its authority under Iowa Rule of Civil Procedure 1.517,

which allows the court to impose sanctions on a party who fails to obey the court’s

order to provide or permit discovery.. We also observe that at trial, when asked,

“And you are satisfied that every expense that you have listed on the exhibits that

have been introduced into evidence on your behalf accurately show legitimate

expenses that you incurred in connection with managing Milton and Reinhold’s

farmland for the two years that you did that?” Dietrich responded, “To the best of

my ability to pull these records together, yes.” Finding no abuse of discretion, we

affirm on this issue.

VII.   Conclusion

       We affirm the district court’s determination that Dietrich was not in a

fiduciary relationship with his brothers and therefore a heightened burden on

Dietrich should not be imposed. On the appeal, we affirm in part, reverse in part,

15 We also note that although the court at first denied admission of exhibit 123,

which was “a summary of the distributions he allegedly made using the proceeds
received from the sale of the crops,” the court later noted “it was error to exclude
any part of Exhibit 123.”
                                      21

and remand with directions to impose judgment in favor of the Heydes in the

amount of $203,417.25. We affirm on the cross-appeal, finding the district court

did not abuse its discretion concerning the discovery sanction against Dietrich.

Court costs in relation to the appeal and cross-appeal are assessed against

Dietrich.

       AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH

DIRECTIONS ON APPEAL; AFFIRMED ON CROSS-APPEAL.