On January 7, 2026, the Iowa Court of Appeals ruled that minority shareholders in a family farming corporation did not prove oppression or breach of fiduciary duty by the majority shareholders. These are important issues for many family farming entities, and this case provides a solid review of applicable Iowa law. The case is Herrick, et al. v. 21st Century Farms, et al., No. 25-0377 (Iowa Ct. App. January 7, 2026).
Background Facts
The case involved a family farm corporation that had experienced “37 years of corporate harmony” before the trouble arose. The corporation was created in 1986 to repurchase five tracts of family farmland lost during the farm crisis. The corporation is currently owned by three siblings—Jane, Tom, and George—and their first cousin, Greg. All shareholders own 65 shares, except for Jane who owns 32.5. Half of her original shares were repurchased from her former spouse by the corporation after a divorce. During its history, dividends had been paid to the shareholders only once, in 2012.
In 2017, Greg told the other shareholders that he wanted the corporation to purchase his shares. The shareholders did not reach a deal. During the 2021 shareholder meeting, Greg suggested that the corporation buy him out using the same methodology it used in 2004 to buy out the shares of Jane’s former spouse. In that purchase, the corporation had used the middle of three fair market value appraisals, none of which factored in transaction costs or discounts for lack of marketability or minority status. At the meeting, Greg did not present a formal proposal, and the matter was discussed but shelved. At the 2023 meeting, Jane and Greg both asked the corporation to buy their shares. Jane suggested using the 2004 approach. Although there was a heated discussion, the issue did not come up for a vote, and the minutes did not show a formal offer by Jane or Greg to tender their shares. Instead, the minutes, penned by Jane, stated that Jane and Greg “raised the topic of an exit or liquidation strategy.” Representing the majority ownership, Tom and George stated during the meeting that the corporation was not buying any shares.
District Court Action
Three months after the shareholder meeting—without any further discussion—Greg and Jane sued Tom, George, and the corporation for minority shareholder oppression and breach of fiduciary duty. They asked the court to dissolve the corporation under Iowa Code § 490.1430. After a bench trial, the district court dismissed the petition, finding that no oppressive conduct occurred, that judicial dissolution was not an available remedy, and that Jane and Greg did not meet their burden to prove breach of fiduciary duty.
Appeals Court Decision
On appeal, the Iowa Court of Appeals affirmed the district court’s ruling. The primary issues on appeal were the questions of minority shareholder oppression and breach of fiduciary duty. The opinion provides a great summary of these areas of law.
Oppression and Reasonable Expectations
The court began by explaining that “majority shareholders owe fiduciary duties to the company and its shareholders, which includes the duty to conduct themselves in a manner that is not oppressive to minority shareholders.” This legal doctrine was solidified in Baur v. Baur Farms, Inc., 832 N.W. 2d 663 (Iowa 2013), Iowa’s seminal case on this topic. Oppressive conduct, the court stated, is subject to a “reasonableness” standard. The question is “whether the reasonable expectations of the minority shareholders have been frustrated under the circumstances.” Id. at 674. On this question, the Baur court had ruled that “majority shareholders act oppressively when, having the corporate financial resources to do so, they fail to satisfy the reasonable expectations of a minority shareholder by paying no return on shareholder equity while declining the minority shareholder’s repeated offers to sell shares for fair value.”
The district court had rejected the claim of oppression after examining the reasonable expectations of these shareholders. It concluded that the purpose of the corporation was to save the family farm from foreclosure and that a regular return on the investment was neither expected nor experienced by the shareholders.
The court found no fault in the district court’s analysis. Reviewing the factors set forth by the Iowa Supreme Court in Barkalow v. Clark, 959 N.W.2d 410, 418 (Iowa 2021), the court affirmed the district court’s analysis of reasonable expectations. To determine whether an expectation is reasonable, the Barkalow court ruled that a court should ask whether the expectation:
- Contradicts any term of the operating agreement or any reasonable implication of any term
- Was central to the shareholder’s decision to become a member of the entity or for a substantial period of time has been centrally important to continued ownership
- Was known to other members, who expressly or impliedly acquiesced in it
- Is consistent with reasonable expectations of all the members, including expectations pertaining to the shareholder’s conduct
- Is otherwise reasonable under the circumstances
Here, the court determined that the district court properly applied this standard while finding that the reasonable expectations of the minority shareholders were not frustrated.
Oppression and the Business Judgment Rule
Next, the court found that the district court properly applied the business judgment rule to protect the majority shareholders[i] from the claim of oppression. The court found that the method Jane and Greg suggested to buy out their shares would have resulted in a price higher than fair value. There is no liability for directors’ actions if they make decisions, in good faith, that they believe to be in the corporate interest. The court pointed to Guge v. Kassel Enters., 962 N.W.2d 764, 770 (Iowa 2021), to explain that a “net asset value approach” is the proper valuation standard to apply in family farm corporation cases. Under that approach, transaction costs associated with a hypothetical liquidation should be factored in. Tax consequences are not considered unless a sale is imminent. No discounts for lack of marketability or control are applied. The court found that Greg and Jane could not reasonably expect to liquidate the value of their stock above fair value, which they suggested by failing to consider transaction costs. As such, the court found that the business judgment rule protected the majority shareholders.
Oppression in General
The court also agreed with the district court that this shareholder oppression action was filed prematurely. Prior to the petition being filed, the parties had only informal discussions of a buyout. Jane and Greg did not make any formal offers, and the majority shareholders did not formally reject their offers. The court ruled that these facts did not meet the Baur requirement of “minority shareholder’s repeated offers to sell shares for fair value.” The court also stated that it could not evaluate whether a hypothetical offer with no price was an offer for “fair value.”
Breach of Fiduciary Duty
Although agreeing that Tom and George owed fiduciary duties of care and loyalty to the corporation and its shareholders, the court ruled that Greg and Jane did not prove that a breach occurred. Their allegation that Tom and George breached a duty to not act oppressively was contradicted by the reasonable expectations analysis and their other arguments were vague and lacked evidentiary support.
Observations
This case provides a solid review of the rights of minority shareholders in a family farm corporation, as well as the duties of the majority shareholders. One lesson from this case is that minority shareholders wishing to prove oppression should make repeated formal offers to tender their shares for a specific value or to request that a dividend be paid before considering a lawsuit.
[i] It should be noted that Tom and George each owned the same number of shares as Greg. They were considered “majority shareholders” in this case because they voted together to constitute a controlling majority bloc.