Court Opinion

ID: 9400152
Source: CourtListenerOpinion
Date Created: 2023-06-07 16:06:18.892293+00
Date Added: 2024-06-11T17:19:42.503178
License: Public Domain

IN THE COURT OF APPEALS OF IOWA

                                    No. 22-0501
                                Filed June 7, 2023

SCOTT POSTMA,
    Plaintiff-Appellee/Cross-Appellant,

vs.

DIANE WEDEBRAND, as Guardian and Conservator of MIKE KATS, ARVIN
BRENNEMAN, HAROLD VANDER VLIET, and DIANE WEDEBRAND,
     Defendants-Appellants/Cross-Appellees,

________________________________________________________________

       Appeal from the Iowa District Court for Sioux County, Patrick H. Tott, Judge.

       The defendants appeal the trial court’s ruling in this declaratory judgment

action finding Scott Postma is a shareholder of Ozone Solutions, Inc. and was

entitled to notice of the meeting held on May 31, 2018. Plaintiff cross-appeals the

court’s rulings on requests for sanctions, which we treat as a petition writ for

certiorari.   AFFIRMED ON APPEAL; WRIT SUSTAINED IN PART AND

REMANDED.

       Jeffrey T. Myers of Goosmann Law Firm and Angie J. Schneiderman of

Moore Corbett Law firm, Sioux City, for appellants/cross-appellees.

       William G. Beck of Woods, Fuller, Shultz & Smith P.C., Sioux Falls, South

Dakota, for appellee/cross-appellant.

       Heard by Bower, C.J., and Tabor and Greer, JJ.
                                         2

BOWER, Chief Judge.

      Diane Wedebrand, Mike Kats, Arvin Brenneman, and Harold Vander Vliet

(collectively, the Defendants) appeal the trial court’s ruling in this declaratory

judgment action finding Scott Postma is a shareholder of Ozone Solutions, Inc.

(Ozone) and was entitled to notice of the meeting held on May 31, 2018. Postma

cross-appeals the court’s rulings on his requests for sanctions.

      Because Postma was a shareholder and received no notice for the May 31,

2018 meeting, the actions taken at that meeting are void. We affirm on the appeal.

      We treat the cross-appeal as a petition writ of certiorari, grant the petition,

and sustain the writ in part. We find no abuse of discretion in the trial court’s

determination sanctions were to be imposed upon Kats alone for the bad faith

presentation of an affidavit under Iowa Rule of Civil Procedure 1.981(7). But,

because the district court employed the wrong standard in determining whether

sanctions should be imposed under rule 1.517(3)(b), we sustain the writ in part

and remand for consideration under the correct standard.

I. Background Facts and Proceedings.

      Prior to the formation of Ozone, Vander Vliet and Brenneman had started

an ozone business. About a year later they met Kats who joined the business.

During this time Kats developed an ozone system that he was using on his farm.

Kats wanted an engineer to look at his ozone system and had his sister, Gina Kats,

approach Postma while he was a senior at Dordt College majoring in mechanical

engineering. After the conversation, Postma began researching ozone and ozone

systems during his final semester of college and, after meeting with Kats, an
                                        3

additional meeting was set up with Brenneman and Vander Vliet as possible

investors.

      Ozone was incorporated on April 15, 1997. The initial incorporators of the

company were Kats, Postma, Brenneman, Vander Vliet, Randy Curry, and Mitch

Gramstead.

      At the organizational meeting of the shareholders and board of directors of

the company on July 1, 1997, Kats was elected president of the company and

Postma was elected as the secretary/treasurer.        At this meeting a buy-sell

agreement between the corporation and its shareholders was approved as were

the corporate bylaws and stock certificate form; it was decided that the business

would be a “Subchapter S” corporation. Ozone was located at 32 Sixth Street NW,

Sioux Center, Iowa.

      The terms of the buy-sell agreement approved at the July 1, 1997 meeting

required a shareholder who wished to sell his shares to first offer those shares to

the company and then to each of the other shareholders of the company on the

terms set out in the agreement before being able to transfer the shares to a third

party. It also provided the terms for the sale and purchase of the shares of a

deceased shareholder. The buy-sell agreement did not contain any provisions

under which a shareholder would be required to sell their shares or surrender their

shares to the company.      The bylaws of the company, among other things,

established shareholder rights, created a board of directors, and designated

officers for the company.    The bylaws made no reference to the manner of

acquiring or transferring ownership of shares of stock of the company. The bylaws

did require notice to be given to all shareholders prior to any meetings or, in the
                                         4

alternative, that the shareholders unanimously agreed in writing to certain action

in lieu of a formal meeting. For board-of-director meetings, regularly scheduled

annual meetings were to be conducted without any additional notice but, for special

meetings, at least one day’s notice was required to be given to all directors.

       At the time of the filing of the Subchapter S election with the Internal

Revenue Service in 1997, the only shareholders of Ozone were Kats, who held

7500 shares, and Postma, who held 2500 shares.

       On June 21, 2018, Postma filed a petition for declaratory judgment seeking

to void the actions taken by the Defendants at a corporate meeting held on May

31, 2018. That meeting involved the purchase of shares of Ozone owned by

Brenneman and Vander Vliet, the issuance of a loan to Ozone by Wedebrand, a

payment or issuance of shares by Ozone to Kats, and the forgiveness of debts to

Ozone owed by Kats, Brenneman, and Vander Vliet.

       On July 9, 2020, the district court found a number of facts were deemed

admitted by the individual Defendants due to their failure to respond to Postma’s

requests for admissions, including that on January 1, 2013, Kats owned 5414

shares of Ozone, Postma owned 4296 shares, Brenneman owned 340 shares, and

Vander Vliet owned 900 shares and, if called to testify, a custodian of records at

the law offices of Oostra, Bierma, Van Engen & Mouw, P.L.C. would testify that

Kats temporarily removed Ozone’s corporate books and records on March 14,

2006, and permanently removed Ozone’s books and records in 2009.1

1Defendants attempted to admit into evidence a promissory note dated May 8,
2003, which provides in part:
      The undersigned Scott Postma agrees to pay Ozone Solutions, Inc.
      at 789 7th Street NW Sioux City, Iowa 51250. The amount of
                                        5

      A trial to the court was held on October 13-15, 2020, and April 22, 2021.

Postma argued that he remained a shareholder of Ozone as of May 31, 2018, and

as shareholder he was entitled to notice of the May 31 meeting and maintained the

right to vote on the agenda items. Because he had no notice, the actions taken at

that meeting were void.

      For their part, the individual defendants asserted Postma was required to

sell his 4296 shares back to Ozone after his employment was terminated in 2013

(pursuant to the 2003 transaction). The trial court made extensive findings of

fact—all of which are fully supported by the record before us.

             (6) Kats testified that Ozone conducted regular shareholder
      and directors’ meetings pursuant to the company bylaws. He
      indicated that there were both formal and informal meetings and that
      minutes of each meeting were taken by hand during the meetings
      with formal typed minutes prepared which were approved at the next
      meeting. Postma was the secretary of Ozone from 1997 to 2004 or
      2005 and was responsible for preparing and recording these
      minutes. Brad Kats became the secretary in 2005 and Nic Van
      Engen later succeeded Brad as the secretary of the company.
             (7) Over the first four or five years after Ozone was formally
      established, Postma worked on additional research on the ozone
      systems and did extensive travel to visit farmers about the system as
      well as to several major universities to try to get them involved in
      researching the ozone systems.            Ultimately Michigan State
      University agreed to install one of Ozone’s ozone systems at the
      university and to conduct research on the same. During this time
      Ozone moved to 653 1st Ave NE, Sioux Center, Iowa.
             (8) During this time Postma was to receive a salary of $25,000
      per year which would be paid in either cash or shares of Ozone stock.
      Postma indicated that he took little pay as cash and primarily tried to

      $16,389.12 for 3201 Shares at $5.12 a Share. These 3201 shares
      and all remaining unpaid equity is to be returned to Ozone Solutions
      Inc. at any time that Mr. Postma[] decides to leave for voluntary
      reason or his employment is terminated.
Kats contended the promissory note reflects Postma’s agreement to return his
shares to the company if he left the employment of the company. The trial court
found his contention contradicted by other evidence in which Kats and others
acknowledge that Postma’s early shares were earned by sweat equity.
                                         6

      build up his share equity in Ozone. Internal corporate records would
      indicate that as of November 31, 2002, Postma had accumulated
      5466 shares of Ozone stock.
              (9) Shortly after October 8, 2003, Ozone moved to its third
      physical location at 789 7th St. NW, Sioux Center, Iowa. Ozone
      made its first rent payment for this location on November 3, 2003.
      Ozone moved to this location after sales started to pick up and a
      larger space was needed.          At an informal meeting of the
      shareholders and directors of Ozone on November 13, 2003, a
      distribution of 3201 shares of stock was authorized to Postma. At
      this time Kats also received 3417 shares after converting his loan for
      his pickup and equipment into shares.
              (10) On February 17, 2005, Lloyd Bierma who was the
      attorney for Ozone sent a letter to Kats and Postma setting out the
      stock ownership of Ozone as of that time. Mr. Bierma’s records
      indicated that as of February 17, 2005, Kats owned 6767 shares;
      Postma owned 4500 shares[2]; Mitch Gramstead owned 1110
      shares; Vander Vliet owned 1125 shares; and Brenneman owned
      425 shares.
              (11) As Ozone continued to grow, discussions were held
      about letting new employees buy into the company. By that time Joel
      Leusink, Brad Kats, and Adam Bradshaw had been hired as
      employees of Ozone. At an informal meeting of the board of
      directors and shareholders of Ozone on December 31, 2005, it was
      agreed that existing shareholders would sell 20% of their existing
      shares back to the company and that the employees of the company
      would then be able to purchase those shares. As a shareholder,
      Postma was also able to purchase these shares. After the
      transaction was completed, Postma held 4296 shares and Joel
      Leusink, Brad Kats, and Adam Bradshaw each held 696 shares
      respectively. As a condition for the purchase of these shares, the
      new “shareholder employees” had to agree to sign a Customer Non-
      Compete Agreement and a Stock Buy-Sell Agreement. The shares
      issued pursuant to this arrangement would have full voting rights as
      of January 1, 2006. Joel Leusink, Bradley Kats, and Adam Bradshaw
      signed an “Addendum to the Agreement to Buy and Sell Stock” and
      agreed to join and consented to the terms of the Buy-Sell Agreement
      dated July 1, 1997. Postma’s percentage ownership of Ozone went
      from 32.31134% in 2005 to 31.63942% in 2006 as is reflected in the
      2005 and 2006 K-1’s from Ozone received by Postma.[3]

2 Bierma’s letter indicated that Postma’s shares were acquired as follows: 1000
shares on July 1, 1997; 299 shares on August 26, 1998; and 3201 shares on
November 13, 2003.
3 A “K-1” is an IRS schedule used to report a partner’s share of income, deductions,

credits, and other items. Partner’s Instructions for Schedule K-1 (Form 1065),
                                        7

             (12) Postma’s percentage ownership interest in Ozone
     ranged from 31.29% to 33.4538% between 2007 and 2013 as shown
     on the Ozone K-1’s issued to him those years. Each year during this
     period Postma had income reported to him on each K-1 for which he
     paid income taxes.
             (13) In August 2008, Ozone moved its physical location to 439
     Black Forest Road, Hull, Iowa, as the company had outgrown the 7th
     Street facility.
             (14) ln 2013, Kats, Vander Vliet, and Brenneman had decided
     that they wanted to allow Brenneman’s shares to be jointly owned
     with his wife Lorna and that the three of them wanted to purchase
     Mitch Gramstead’s shares in the company without offering those
     shares first to the company or to the other shareholders pursuant to
     the Buy-Sell Agreement. Postma indicated that he was not in
     agreement with either of these items. On July 19, 2013, Kats,
     Vander Vliet, and Brenneman met with Postma and told him that they
     were going to give him a two-week break. Postma indicated that he
     sat by for a month or two thinking they would let him back into the
     operation of Ozone but that this never happened. After it became
     clear to Postma that the other owners of Ozone were not going to let
     him back into the day-to-day operations of the business, Postma
     started his own ozone company called Big Foot Ozone LLC. In
     essence, Postma was terminated from his employment with Ozone
     effective August 2013. Kats indicates that he fired Postma in 2013
     for what he described as “lack of performance” but did not provide
     any specific details.
             (15) ln response to Postma forming Big Foot Ozone LLC,
     sometime around October 21, 2013, Ozone caused to be drafted a
     Petition for Temporary and Permanent Injunction which sought to
     enjoin Postma and Big Foot Ozone LLC from competing with Ozone.
     A draft of said petition was forwarded to Postma but apparently the
     petition was never filed. At paragraph 4 of the petition it asserts that
     Postma as a stockholder and former employee of Ozone owns
     roughly 30% of the outstanding shares of Ozone. As a result of the
     threatened lawsuit, Postma indicated that he gave up Big Foot
     Ozone and decided to wait things out a bit. During this time, Kats
     indicated that then counsel for Ozone, Scott Rhinehart, requested
     copies of the corporate records for the company and it was
     discovered that the corporate records from 1997 to 2013 were
     missing.
             (16) On November 19, 2013, Postma received an email from
     Brad Kats in which Brad forwarded an email Mike Kats had sent
     earlier that day to four other persons including Brad, Joel Leusink
     and Lorna Vander Vliet. The email sent by Mike Kats included two

Department of the Treasury, Internal Revenue Service (Jan. 17, 2023),
https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf.
                                        8

      proposed amendments to Ozone’s [1997] Buy and Sell Agreement.
      The first proposed amendment would require the sale of any shares
      in the company to be first offered in equal shares to Kats, Vander
      Vliet, and Brenneman. The second proposed amendment indicated
      that should an employee shareholder be terminated without cause,
      that the employee would have to surrender their shares to the
      company and be paid out at the current value for those shares. If an
      employee was terminated with cause, they would likewise have to
      surrender their shares but they would receive no pay-out for their
      shares unless it was approved by a majority of the remaining
      shareholders.
              (17) On December 6, 2013, Postma, along with five other
      individuals, received an email from Kats regarding a special
      shareholders meeting to be held on December 16, 2013. This email
      set forth the agenda and items to be voted on, which included
      resolutions to approve the following:
                  (a) to allow joint ownership of Harold’s stock in Ozone by
              Harold and Lorna;
                  (b) to allow Kats, Brenneman, and Vander Vliet to
              purchase Mitch Gramstead’s shares in Ozone;
                  (c) to define who the attorneys for Ozone are;
                  (d) whether the corporation should relinquish and redeem
              the corporate shares of Postma;
                  (e) whether the shares redeemed from Postma be offered
              to Kats, Brenneman, and Vander Vliet;
                  (f) to authorize legal action against Postma to recover
              Postma’s shares of Ozone;
                  (g) to authorize legal action to recover corporate
              documents from Postma.
              (18) Prior to the December 16, 2013 meeting, Postma
      received an email from Joel Leusink, which had attached to it an
      email received from the De Koster law firm to Ozone. Said letter
      warned Ozone that actions proposed to be taken at the
      December 16th meeting may be in violation of the law as they were
      not aware of any corporate documents that would require a
      shareholder to sell their shares back to the company and that other
      proposed transactions were not in compliance with Ozone’s 1997
      Buy-Sell Agreement. As a result, the De Koster law firm advised that
      the taking of such action could result in Ozone having liability for
      damages to Postma. A copy of this letter was given to all
      shareholders of Ozone.[4]

4 De Koster Law Firm was terminated by Ozone in April 2014. Phil De Koster
testified that he believed the primary reason his firm was terminated was that Kats
wanted “baseless” claims advanced against certain persons and that Kats would
need to find new counsel for Ozone as a result.
                                 9

        (19) A shareholder meeting was held on December 16, 2013.
At that meeting Kats, Vander Vliet, and Brenneman voted in favor of
all the proposed resolutions listed in paragraph 17 above. Postma
voted against all the resolutions and the three remaining
shareholders voted against all of the resolutions except the one
allowing Harold and Lorna to jointly own Harold’s shares in Ozone.
        (20) On February 18, 2014, Postma received an email from
Lorna Vander Vliet with the agenda for the February 20, 2014 Board
of Directors meeting attached. Said agenda included, among other
things, the dividend distribution schedule and the percentage of
profits to be distributed as dividends. The agenda included Postma
as a voting participant in the meeting.
        (21) During 2014, Brad Kats and Nic Van Engen quit as
employees of Ozone and voluntarily sold their shares back to the
company. ln all, a total of four shareholder/employees left Ozone
over time and all four voluntarily sold their shares back to the
company. . . .
        (22) On or about May 15, 2014, Postma received a letter from
Marc Cord III who was acting as the corporate attorney for Ozone.
ln the May 15, 2014 letter, Postma was advised that a special
meeting of the shareholders of Ozone had been scheduled for
June 9, 2014. Included with the letter was a notice of the June 9,
2014 meeting which indicated that the purpose of the meeting was
to vote on a proposed amendment to Ozone’s bylaws to reduce the
number of board members to three, with the three remaining board
members being Kats, Brenneman, and Vander Vliet.
        (23) On March 12, 2015, a shareholder meeting was held at
which Postma did attend. Per the minutes of this meeting, Postma
was elected to the Board of Directors.
        (24) On June 16, 2015, Postma received an email from Lorna
Vander Vliet informing him, as well as Kats and Brenneman, that a
shareholders meeting had been rescheduled for June 23, 2015, to
discuss shares of the company.
        (25) On February 22, 2016, a shareholders meeting was
purportedly held, although the only persons participating were Kats,
Brenneman, and Vander Vliet. Minutes of this meeting reflected
discussion of missing corporate records, the removal of Postma as a
director, and the need to resolve shareholder disputes primarily
dealing with Postma.
        (26) On August 4, 2016, another purported shareholders’
meeting was held which again was only attended by Kats,
Brenneman, and Vander Vliet. The minutes of this meeting reflect
that the purpose for the meeting was to attempt to resolve the
ownership termination and payout to Postma. The minutes indicated
that a payout of $378,250 to Postma had been unanimously
approved at the August 14, 2015 meeting and that as of August 4,
2016, Postma had not deposited the $378,250 payout. The minutes
                                  10

also indicated that it was approved to “update all buy-sell and
corporate books” to alleviate any and all past misunderstandings.
The minutes [signed only by Kats] also reflected that Postma’s
“board positions or any involvement are now voted unnecessary in
any obligation and unanimously voted to be completely terminated.”
        (27) Despite these minutes of action by the shareholders,
Postma received a K-1 from Ozone for tax year 2016 showing
Postma to have a 39.23431% ownership interest in Ozone and
distributing income to him.
        (28) On February 10, 2017, Postma received an email from
Kats regarding Kats’ dissolution of marriage from his former wife
Lorinda. Per the email, Kats indicated to Postma that he would have
to be responsible, along with Vander Vliet and Brenneman, to pay
over 50% of his alimony obligation because of Postma’s testimony in
his divorce. ln November 2019, Kats wrote a check on Ozone’s
account at American State Bank for $51,600.22 to his ex-wife for
payment of alimony and attorney fees through December 2018. The
bank contacted Kevin York, the CEO of Ozone, prior to cashing the
check.
        (29) The 2017 and 2018 K-1’s received by Postma continued
to show his ownership interest in Ozone at 39.23431% and continued
to distribute income to him.
        (30) On May 1, 2018, Brenneman executed an “Offer to sell
owner equity of Ozone Solutions.” This offer stated Brenneman’s
desire to sell 100% of the shares of Ozone owned by him. His offer
specifically stated that “[A]ll transfer of stock must be done in
compliance within the current rules outlined within the Agreement to
Buy and Sell Stock, dated July 1, 1997.” The offer then provided
Ozone with the right to exclusively buy his shares for the 30-day
period after May 1, 2018. The offer further provided that should
Ozone not exercise its rights within [thirty] days to buy his shares, he
requested that each shareholder exercise their right to purchase
pursuant to the Agreement to Buy-Sell Stock.
        (31) Ozone issued Board of Director Minutes for a special
meeting of the board of directors held on May 31, 2018. Postma was
not invited to nor given notice of this meeting. At this meeting the
board of Ozone purportedly approved the purchase of the shares of
Vander Vliet and Brenneman by Ozone, to accept a loan from Diane
Wedebrand to assist in paying for Brenneman’s shares and to pay
Kats a consulting fee of $5000 per month from Nov[ember] 2017 to
June 2018. The minutes from this purported meeting were signed
on June 5, 2018, by Kats, Vander Vliet, and Brenneman. After this
meeting Ozone did in fact purchase the shares of Brenneman and
entered into the loan agreement with Wedebrand to fund the
purchase of those shares.
        (32) On September 20, 2018, counsel for Postma received an
email from Ozone corporate counsel indicating that American State
                                  11

Bank was demanding that Postma provide certain identifying
information as a person with a greater than 20% ownership interest
in the company to extend the company’s operating loan. ln response
to this email, Postma provided the requested information. American
Bank also sought additional clarification as to the ownership of
Ozone in light of the purported sale of Brenneman’s stock to the
corporation.
         (33) On November 8, 2018, Kevin York, the manager for
Ozone, sent an email to Postma and others regarding a Special
Shareholders Meeting to be held on November 27, 2018. Attached
to the email was a “Call and Notice” for said meeting. The notice
provided that the purpose of the meeting was to determine the
current members of the board since the redemption of Brenneman’s
shares, to discuss reformation of the current Agreement to Buy and
Sell dated July 1, 1997, and to discuss litigation options against
Postma. Postma testified that he was at the location for this meeting
but was not allowed to attend.
         (34) Kats, Vander Vliet, and Brenneman signed a “Resolution
Adopted by the Board of Directors of Ozone Solutions, lnc.” on
November 9, 2018. Said resolution indicated that the Board of
Directors of Ozone had confirmed the company’s right to reacquire
and redeem outstanding shares of employee-owners once
employment with the company ended. The resolution further
provided that the company elected to exercise that right as it related
to Postma’s shares and authorized the company to demand the
relinquishment of Postma’s shares and authorized the company to
accept a loan from Vander Vliet in the amount of $206,752.00 to
facilitate the reacquisition of Postma’s shares. As a result of this
resolution, Ozone advised American State Bank that Postma was no
longer a shareholder of Ozone and that Postma would no longer
receive K-1’s from the company. American State Bank did not
accept that explanation and indicated that it still viewed the situation
regarding Postma’s ownership of stock as being unresolved.
         (35) A new CPA, Matthew Kelderman, performed the
corporate tax returns for Ozone. Kelderman had previously done
accounting and tax work for Kats. For the 2018 Ozone corporate
return, Postma was issued a “Final K-1” showing ordinary business
income of $7887.00.         Said return also reflected loans from
shareholders; in particular, a loan from Vander Vliet to the company
to fund the buyout of Postma’s shares. Mr. Kelderman indicated that
Postma’s K-1 was issued as a Final K-1 as corporate counsel for
Ozone had advised him that Postma’s shareholder rights had been
terminated.
         (36) Ozone’s CPA, Todd Van Bruggen, testified that he did
the corporate tax returns for Ozone through 2017. Based on his
representation of the company, he testified that he was not aware of
any agreement regarding what happened if a shareholder left the
                                        12

      company other than the original 1997 Buy-Sell Agreement. He
      testified that he was aware that efforts had been made to amend the
      Buy-Sell Agreement through his review of materials from Ozone’s
      counsel but had never been advised that any amendments had been
      approved.

      The trial court found “overwhelming” evidence Postma continued to own

4296 shares of Ozone stock on May 31, 2018, and the 1997 buy-sell agreement

did not contain any provisions requiring a shareholder to sell or surrender their

shares.

      The court rejected the Defendants’ assertion that at the time Postma

acquired 3201 shares of stock in 2003, he agreed to sell his shares back to the

company if he decided to leave the company for any reason or his employment

with the company was terminated. The court explained:

      The individual defendants assert that this agreement was set forth in
      a purported Promissory Note dated May 3, 2003, in which they claim
      funds were “loaned” to Postma by Ozone for his purchase of 3201
      shares, the note purportedly being signed by Kats and Postma. . . .
      [T]he Court finds this assertion of the individual defendants not
      credible. While Postma admits to receiving a check for $16,389.12
      from Ozone at this time and that he returned the same amount to
      Ozone a few days later, that does not overcome the highly suspicious
      circumstances surrounding the “discovery” of this note during these
      proceedings and the numerous inconsistencies involving the note
      discussed [previously]. . . . [I]t is much more likely that the exchange
      of the checks was simply a paper trail to reflect the value of Postma’s
      “sweat equity” that he had used to acquire ownership interest in the
      company during the early years. lt also appears that these 3201
      shares were not actually issued by Ozone to Postma until November
      2003, six months after the purported Note.
              Even if the Promissory Note was a valid transaction, the
      Promissory Note is not an amendment to the 1997 Agreement to Buy
      and Sell Stock. For any amendment to that agreement to be valid, it
      must be agreed to by all of the persons who held stock at the time of
      the amendment to the agreement. As indicated above, even if the
      Promissory Note was valid, it was only signed by Kats and Postma
      and as such did not include all of the existing shareholders at that
      time as would be required to effectively amend the Buy-Sell
      Agreement.
                                        13

      The court found the actions taken at the May 31, 2018 board of directors

meeting “were self-serving actions that directly benefit the three members of the

board.” Particularly noted were the price of the shares authorized, the terms of

payout, and the payment of “consulting fees” to Kats. The court concluded, “As

self-dealing transactions, the resolutions should have also been approved by the

shareholders of the company.”

      The court explained:

      Brenneman and Vander Vliet were having their shares purchased by
      the company at a price in excess of the last determined share price
      made by the shareholders. Section 3 of the 1997 Agreement to Buy
      and Sell Stock provided that the value of the stock would be
      determined at each annual meeting of the shareholders. Last share
      price so determined was $150 per share at the stockholder meeting
      held on March 12, 2015. As such, the purported sale price of $170
      per share had not been previously established by the shareholders
      as required by the Agreement to Buy and Sell Stock. . . . As Postma
      was a shareholder he should have been involved in the decision
      making as to what the proper share price for the stock should have
      been.
              The resolutions were further self-serving in that the payout
      approved for Brenneman’s shares called for an immediate payment
      of the full $57,800 sale price while Vander Vliet was to be paid in full
      within 60 days. The terms of the Agreement to Buy and Sell Stock
      provided that if insurance proceeds were not available to pay the
      purchase price, 20% would be paid at the time of closing and balance
      would be paid out in not more than four equal annual installments,
      the first of which was to be paid one year after the closing. . . .
              Further self-dealing involved in the May 31, 2018 resolution
      involves the payment of “consulting fees” to Kats of $5000 a month
      for the months of November 2017 to June 2018. Also Kats,
      Brenneman and Vander Vliet forgave any debts owed by them to
      Ozone. All of these actions affect the financial health of the company
      and as a result would have a direct impact on the shareholders of the
      company.

      The trial court provided this declaratory ruling:

           (1) That Postma is the owner of 4296 shares of stock of
      Ozone Solutions, Inc. and was an owner thereof on May 31, 2018.
                                        14

             (2) That the following actions taken by Ozone in reliance on
      the resolutions “approved” by the Board of Directors on May 31, 2018
      are void:
                     A. Accepting the offer to purchase the shares offered
             for sale from Vander Vliet and Brenneman to Ozone
             Solutions, lnc.
                     B. Paying Brenneman on June 5, 2018, $170 a share
             for his 340 shares for a total of $57,800.
                     C. Accepting a loan from Diane Wedebrand for
             $57,800 to pay for Brenneman’s shares.
                     D. Entering a loan agreement with Wedebrand.
                     E. Paying Vander Vliet on before July 31, 2018, $170
             a share for his 900 shares for a total of $153,000.
                     F. Paying Kats consulting fees of $5000 per month for
             the period of November 2017 to June 2018.
                     G. All financial debts due to Ozone from Brenneman,
             Vander Vliet, and Kats are forgiven purportedly in exchange
             for the work and services they have performed for the
             company.

      The court imposed a sanction pursuant to Iowa Rule of Civil

Procedure 1.981(7) against Kats only “for the bad faith presentation of the

affidavits at summary judgment claiming the validity of the Promissory Note as well

as additional expenses incurred to combat said assertion at trial.” The court

declined to impose any sanction pursuant to rule 1.517(3)(b).

      The Defendants appeal, and Postma cross-appeals.

      On their appeal, the Defendants assert the trial court erred in finding Postma

was entitled to notice of the May 31, 2018 meeting, Postma is barred by laches

from claiming he was entitled to notice, the court abused its discretion in not

accepting as credible evidence two exhibits—the purported May 2003 Promissory

Note and unsigned minutes of a June 19, 2006 meeting of directors and

shareholders, and the court erred in concluding the buy-sell agreement was not

otherwise modified by Ozone’s course of dealing with other employees.
                                         15

       On cross-appeal, Postma contends the court erred in not assessing fees as

a sanction against Wedebrand and Vander Vliet for their “sham” affidavits in

support of the “discovered” Promissory Note. He also asserts the court employed

the wrong standard in ruling on his motion for sanctions under Iowa Rule of Civil

Procedure 1.517(3)(b).

II. Scope and Standard of Review.

       “Our standard of review in a declaratory judgment action usually depends

on how the case was tried in the district court.” McNaughton v. Chartier, 977

N.W.2d 1, 8 (Iowa 2022). Both sides assert our review is for correction of errors

at law; the court ruled on objections. We agree with the parties that this action was

tried at law; so we are bound by the district court’s findings of fact if supported by

substantial evidence. Grinnell Mut. Reins. Co. v. Recker, 561 N.W.2d 63, 68 (Iowa

1997). “Evidence is substantial if reasonable minds would find it adequate to reach

a conclusion.” Id. But we are not bound by the district court’s conclusions of law,

and “we may inquire into whether the court’s ultimate conclusions were materially

affected by improper conclusions of law.” Id. We give weight to the trial court’s

findings when it comes to the credibility of witnesses. City of Cedar Rapids v. Leaf,

923 N.W.2d 184, 196 (Iowa 2018).

III. Discussion.

A. Appeal.

       1. Laches. The Defendants assert that Postma should not be allowed to

bring his claim on the equitable doctrine of laches. “Laches is an equitable doctrine

premised on unreasonable delay in asserting a right, which causes disadvantage

or prejudice to another.” First Fed. Sav. & Loan Ass’n v. Blass, 316 N.W.2d 411,
                                           16

414 (Iowa 1982). “The party asserting the defense has the burden to establish all

of the essential elements thereof by clear, convincing, and satisfactory evidence.

Prejudice is an essential element of laches.” Id. at 414–415 (internal citation

omitted). “Prejudice cannot be inferred merely from the passage of time.” Cullinan

v. Cullinan, 226 N.W.2d 33, 36 (Iowa 1975).

       Defendants note, “[Postma] did not receive any notices of shareholder

meetings even though he knew meetings were taking place and the company was

still operating” and Postma did not request he be provided notice. They claim they

were “entitled to rely on their belief that [Postma] did not want to receive notice.”

       They are wrong. Defense counsel acknowledged at trial that the bylaws

require notice be given. Ozone was required to provide notice to its shareholders.

As the trial court noted, a shareholder does not have to request notice when they

are entitled to it under the corporation’s bylaws. The parties were not functioning

under an informal relationship, and the Defendants cannot evade the corporate

bylaws when it is convenient for them.

       2. Proffered exhibits. The defense asserts the court abused its discretion in

rejecting their proposed exhibits with which they attempted to prove the 1997 buy-

sell agreement had been amended. “We review evidentiary rulings for an abuse

of discretion[, that is,] when the trial court exercises its discretion in grounds clearly

untenable or to an extent clearly unreasonable.” See In re Condemnation of

Certain Rights in Land, 974 N.W.2d 103, 111 (Iowa 2022) (internal quotation marks

and citation omitted).

       The court noted, and the Defendants acknowledge, “The bylaws did require

notice to be given to all shareholders prior to any meetings or in the alternative that
                                         17

the shareholders unanimously agreed in writing to certain action in lieu of a formal

meeting.”5

       “The ‘Best Evidence’ rule requires production of original documents unless

their absence is sufficiently explained.” State v. Khalsa, 542 N.W.2d 263, 268

(Iowa Ct. App. 1995); see Iowa R. Evid. 5.1002 (“An original writing, recording, or

photograph is required to prove its content . . . .”). With respect to a purported

2003 amendment via the promissory note, the Defendants claim the proffered

exhibit is a “duplicate promissory note in place of the lost original.” Iowa Rule of

Evidence 5.1001(e) states: “A ‘duplicate’ means a counterpart produced by a

mechanical, photographic, chemical, electronic, or other equivalent process or

technique that accurately reproduces the original.” The proffered exhibit is not a

duplicate.   Kats testified the exhibit was a November 2003 recreation of a

purported transaction several months prior—on May 8, 2003, which he prepared

“to clarify the paper trail of the checks for $16,389.12 and a loan that I gave to

Ozone Solutions for $17,000.”

       The trial court expressed significant concern for the authenticity of the

proffered document in light of the “highly suspicious circumstances surrounding

the ‘discovery’ of this note during these proceedings.” It found the proposed exhibit

lacked sufficient credibility to be received.   It specifically found the individual

5 See Iowa Code § 490.732(2) (2022) (“An agreement authorized by this section
shall satisfy all of the following requirements: (a) Be as set forth in any of the
following: (1) The articles of incorporation or bylaws and approved by all persons
who are shareholders at the time of the agreement. (2) A written agreement that
is signed by all persons who are shareholders at the time of the agreement and is
made known to the corporation. (b) Be subject to amendment only by all persons
who are shareholders at the time of the amendment, unless the agreement
provides otherwise.”).
                                         18

defendants’ assertion that the 2003 promissory note amended the 1997 buy-sell

agreement was “not credible.”      The trial court did not abuse its discretion in

rejecting the exhibit.

       The Defendants also contend the court erred in concluding the buy-sell

agreement was not amended by a June 2006 shareholder meeting, relying on

“unsigned minutes of the June 19, 2006” meeting to support this claim. The trial

court did not admit the proposed exhibit, noting:

       Kats asserts that in June 2006 a meeting of shareholders was held
       to amend the company Buy-Sell Agreement to address what would
       happen if shareholder employees were to leave their employment.
       Kats testified that the meeting was specifically to address employee
       Adam Bradshaw. Likewise, Vander Vliet and Brenneman testified
       that they remember discussions involving buy-sell terms in 2005 or
       2006, although their recollection of specifics was very limited. It is
       likely [they were] recalling the discussions involving the new
       employee shareholders at that time. In any event, no written records
       of this meeting were produced nor was evidence of notice of the
       meeting to substantiate what was discussed or voted on at any such
       meeting.

       The trial court concluded, “[N]o credible evidence has been presented to

indicate that the original 1997 Agreement to Buy and Sell Stock has ever been

effectively amended.” We agree. The reasons provided by the trial court in

rejecting the Defendants’ proposed exhibits are neither unreasonable nor

untenable.

       3. Course of dealing. Defendants also assert they can show the buy-sell

agreement was amended by course of dealing with other employee-shareholders.

Defendants offer no authority for this claim. See Iowa R. App. P. 6.903(2)(g)(3)

(“Failure to cite authority in support of an issue may be deemed waiver of that

issue.”). By failing to cite authority, Defendants have waived this claim.
                                         19

B. Cross-appeal.6

       In his post-trial brief to the trial court, Postma complained Defendants’

failure to admit certain facts and their presentation of “sham” affidavits supported

his request that sanctions be imposed against all individual defendants pursuant

to Iowa Rules of Civil Procedure 1.981(7)7 and 1.517(3)(b).8 Postma contends the

court erred in imposing sanctions only on Kats under rule 1.981(7). He also

contends the court employed the wrong standard in ruling on his request for

sanctions under rule 1.517(3)(b).

             We treat this [cross-]appeal as a petition for writ of certiorari.
       Everly v. Knoxville Cmty. Sch. Dist., 774 N.W.2d 488, 492 (Iowa

6 Defendants have filed no response to Postma’s cross-appeal. That failure does
not entitle Postma to reversal as a matter of right. See Bowen v. Kaplan, 237
N.W.2d 799, 801 (Iowa 1976). However, we confine our consideration to issues
raised in Postma’s cross-appeal. See id. We will not search the record for a theory
upon which to affirm the trial court. Id.
7 Rule 1.981(7) provides:

               Affidavits made in bad faith. Should it appear to the
       satisfaction of the court at any time that any of the affidavits
       presented pursuant to this rule are presented in bad faith or solely
       for the purpose of delay, the court shall forthwith order the party
       employing them to pay to the other party the amount of the
       reasonable expenses which the filing of the affidavits caused that
       party to incur, including reasonable attorney’s fees, and any
       offending party or attorney may be adjudged guilty of contempt.
8 Rule 1.517(3)(b) provides:

               Expenses on failure to admit. If a party fails to admit the
       genuineness of any document or the truth of any matter as requested
       under rule 1.510, and if the party requesting the admissions
       thereafter proves the genuineness of the document or the truth of the
       matter, the requesting party may move for an order requiring the
       other party to pay the reasonable expenses incurred in making that
       proof, including reasonable attorney’s fees. The court shall make the
       order unless it finds any of the following:
               (1) The request was held objectionable pursuant to rule 1.510.
               (2) The admission sought was of no substantial importance.
               (3) The party failing to admit had reasonable grounds to
       believe that the party might prevail on the matter.
               (4) There was other good reason for the failure to admit.
                                           20

       2009) (“The proper means to review a district court’s order imposing
       sanctions is by writ of certiorari.”); see Iowa R. App. P. 6.108. “We
       review a district court’s order imposing sanctions under our rules of
       civil procedure for an abuse of discretion.” Rowedder v. Anderson,
       814 N.W.2d 585, 589 (Iowa 2012). A district court abuses its
       discretion when it “exercises its discretion on grounds or for reasons
       clearly untenable or to an extent clearly unreasonable.” Id. [(citation
       omitted)]. “An erroneous application of the law is clearly untenable.”
       Id.

First Am. Bank v. Fobian Farms, Inc., 906 N.W.2d 736, 744 (Iowa 2018).

       1. Rule 1.981(7) sanction against Kats only. In its final ruling, with respect

to the affidavits the trial court ruled:

       [I]mposition of sanctions pursuant to Rule 1.981(7) would be
       appropriate for the bad faith presentation of the affidavits at summary
       judgment claiming the validity of the Promissory Note as well as
       additional expenses incurred to combat said assertion at trial. The
       court specifically finds that said sanctions should be imposed upon
       Kats in his individual capacity as it appears clear to the court that he
       was the driving force behind this activity and that to impose sanctions
       against Ozone Solutions, lnc. would only cause to harm the
       shareholders in general, including Postma. As no affidavit regarding
       attorney fees incurred by Postma has been presented to the court at
       this time, the court finds that a hearing should be set to determine
       the amount of the sanction to be imposed against Kats under
       rule 1.981(7).

       While Postma’s brief sought sanctions on all individual defendants, his

complaints mentioned only Kats’s conduct, Kats’s affidavit, and Lorna Vander

Vliet’s affidavit. Postma’s post-trial brief states, “[T]he court should fashion a

sanction commensurate with the seriousness and magnitude of the misconduct.”

The court did what was requested; it fashioned a sanction it found commensurate

with misconduct.

       Rule 1.981(7) states, “Should it appear to the satisfaction of the court at any

time that any of the affidavits presented pursuant to this rule are presented in bad

faith or solely for the purpose of delay, the court shall forthwith order the party
                                        21

employing them to pay to the other party the amount of the reasonable

expenses . . . .” (Emphasis added). Giving weight to the trial court’s finding that

Kats was the “driving force” behind the sanctionable conduct, we cannot conclude

it exercised its discretion on grounds or for reasons clearly untenable or to an

extent clearly unreasonable in imposing sanctions on Kats alone.

      2. Rule 1.517(3)(b). Postma requested the individual defendants admit

three requests, which he contends would have obviated the need for trial. He

asserts the individual defendants refused to admit: (1) the buy sell was a complete

and correct copy of the buy sell agreement, (2) the buy sell agreement governs

transfer of stock, and (3) none of the individual Defendants provided Postma

“notice of the meeting of Mike Kats, Arvin Brenneman, and Harold Vander Vliet

that took place on or about May 31, 2018.”

      The court concluded:

      ln this case there was no objections raised to the requests for
      admission and the requests dealt with matters of substantial
      importance to this litigation. However, there was at least a colorable
      basis for the denials made regarding whether the 1997 Agreement
      was the full agreement as it does appear that some conditions were
      established when shares were issued to three employees involving
      their rights to their shares (dealing with non-compete language, etc.)
      that was not part of the 1997 Agreement. As such, the responses on
      this issue were not necessary completely incorrect. Likewise,
      regarding the request involving notice to Postma of a meeting on
      May 31, 2018, the request was sufficiently vague that the response
      was not necessarily completely inaccurate in that the “meeting” was
      not completely identified. For instance, it was not referenced as a
      board meeting, Shareholder meeting or any other type of specific
      meeting. lt is also possible that Kats, Brenneman, and Vander Vliet
      had more than one meeting during the time frame on or about May
      31, 2018. Accordingly, the Court declines to impose any sanctions
      under rule 1.517(3)(b) at this time.
                                           22

       Postma contends the court’s reliance on the defendants’ “colorable claim”

is contrary to the rule. He argues the court thus erroneously applied the rule and

the defendants had no reasonable basis to deny the requests for admissions.

       Because there is to be a hearing for sanctions for rule 1.981(7) (bad faith

affidavit attorney fees), we vacate the court’s conclusion under rule 1.517(3)(b)

and remand for the court to reconsider the motion using the correct “reasonable

grounds” standard and determination of appropriate sanctions, if any.

IV. Conclusion.

       We affirm on appeal. We treat the cross-appeal as a petition for writ of

certiorari, grant the petition, and sustain the writ in part.

       AFFIRMED ON APPEAL; WRIT SUSTAINED IN PART AND REMANDED.