Court Opinion

ID: 4328541
Source: CourtListenerOpinion
Date Created: 2018-11-07 16:09:22.250377+00
Date Added: 2024-06-11T14:20:31.135231
License: Public Domain

IN THE COURT OF APPEALS OF IOWA

                                       No. 17-1395
                                 Filed November 7, 2018

URBANDALE BEST, LLC,
    Plaintiff,
and
URBANDALE WEST, LLC,
    Plaintiff-Appellant,
vs.
R & R REAL ESTATE INVESTORS, LLC,
      Defendant-Appellee,
and
R & R REALTY GROUP, LLC and PMR REALTY GROUP, LLC,
      Defendants.
________________________________________________________________

       Appeal from the Iowa District Court for Polk County, Paul D. Scott, Judge.

       Plaintiff appeals from the district court’s post-procedendo order and denial

of its motion to file a supplemental pleading. AFFIRMED.

       Shari L. Klevens of Dentons US LLP, Washington, D.C., Michael A. Dee

and Haley R. Van Loon of Brown, Winick, Graves, Gross, Baskerville &

Schoenebaum, PLC, Des Moines, and Lisa Krigsten of Dentons US LLP, Kansas

City, Missouri, for appellant.

       George A. LaMarca and Ryan C. Nixon of LaMarca Law Group, PC, Des

Moines, for appellee.

       Heard by Tabor, P.J., and Mullins and Bower, JJ.
                                         2

MULLINS, Judge.

       Urbandale West, LLC (Urbandale West) appeals the denial of its motion for

entry of final judgment and, in the alternative, its motion to file a supplemental

petition against R & R Real Estate Investors, LLC (REI). Urbandale West asserts

the district court failed to order the enforcement of a default buy-out right as a

remedy for REI’s breach and abused its discretion in denying its request to file a

supplemental petition to include the contractual remedy which allows Urbandale

West to buy out REI’s interest in the venture.

I.     Background Facts and Proceedings

       This case was previously before our court and we summarized the facts

underlying this action as follows:

               Since approximately 2006, the Urbandale entities have been
       joint owners of various real estate development companies with the
       R & R entities. Two jointly-owned entities are relevant to this matter:
       Paragon West, LLC and Paragon Best, LLC. Paragon West, formed
       in 2006, is jointly-owned by Urbandale West and REI with REI
       serving as the managing member. Paragon Best was also formed in
       2006 and is jointly-owned by Urbandale Best and R & R with R & R
       serving as the managing member.
               Paragon West owns real property at the corner of 128th Street
       and Meredith Drive in Urbandale. The land is divided into multiple
       parcels. Paragon West’s predecessor, 128th Street LLC, sold a
       portion of one of the parcels, known as the “Dahl’s Property” to Foods
       Inc., prior to the formation of Paragon West. Foods’s purchase of
       the Dahl’s Property was subject to a developer agreement that
       required the parcel to be developed as a grocery and convenience
       store and included a right of Paragon West to repurchase if Foods
       failed to do so. Urbandale West was aware of this agreement when
       it formed Paragon West with REI.
               In 2012, Foods informed REI that it was not going to develop
       the land as a grocery and convenience store, and REI relayed the
       information to Urbandale West.         Thereafter, Paragon West’s
       potential repurchase of the Dahl’s Property was discussed in
       Paragon West’s quarterly meetings and listed in Paragon West’s
       monthly marketing reports. In April 2014, Foods informed REI they
       needed to sell the Dahl’s Property within the next thirty days. By this
                                         3

      time, the relationship between the Urbandale entities and the R & R
      entities had deteriorated to the point the R & R entities no longer
      wanted to acquire land with the Urbandale entities unless they were
      legally required to.
              In May 2014, PMR, an affiliate of REI, made an offer to Foods
      to purchase the Dahl’s Property. PMR and Foods negotiated over
      the next couple of months, and in June 2014, Foods sold the Dahl’s
      property to PMR. Along with a purchase agreement, the sale
      included a release, which relieved Foods and its successors and
      assigns, including PMR, from any obligation to provide Paragon
      West with a right to repurchase the Dahl’s Property.
              . . . . At no point prior to the sale did REI inform Urbandale
      West that another R & R affiliate was in negotiations to purchase the
      Dahl’s Property. In the May and June 2014 monthly reports for
      Paragon West, REI included the potential Dahl’s Property
      repurchase on the agenda. REI did not disclose that the property
      had been sold until the July monthly report and meeting, which was
      the first monthly report and meeting post-closing.

Urbandale Best, LLC v. R & R Realty Grp., LLC, No. 15-2015, 2017 WL 363239,

at *1–2 (Iowa Ct. App. Jan. 25, 2017) (footnotes omitted).

      In the previous appeal, this court affirmed the district court’s ruling that REI

breached its fiduciary duty by usurping a corporate opportunity of Paragon West

but reversed the district court’s decision refusing to remove REI as a managing

member of Paragon West. In reversing, we found REI “violated its fiduciary duty

of loyalty in appropriating a corporate opportunity of Paragon West by facilitating

the purchase of the Dahl’s property.” Id. at *5. Further, the operating agreement

allows a managing member to be removed for cause, defined, in part, as a breach

of fiduciary duty involving personal profit. Id. at *6. We concluded REI breached

its fiduciary duty “by failing to protect a company opportunity that belonged to

Paragon West and steering that opportunity toward an entity it was affiliated with.”

Id. Because REI’s breach of duty involved personal profit, we concluded the

district court should have removed REI as a managing member of Paragon West
                                         4

for cause. Id. Procedendo issued March 6, 2017 and directed the district court “to

proceed in the manner required by law and consistent with the opinion of the court.”

       The next day, March 7, all parties filed a joint post-procedendo request for

hearing requesting the district court file an order for the “full and complete

implementation of the Court of Appeals’ order and for such other relief as may be

appropriate.” The request indicated the parties had other ongoing issues and

asked the court to order mediation before the entry of final judgment. The district

court ordered mediation1 and scheduled the hearing.           However, mediation

ultimately resulted in an impasse between the parties.

       On June 23, Urbandale West filed a motion requesting entry of final

judgment, including the enforcement of its right to a default buy-out pursuant to

section 7.132 of the Paragon West operating agreement. It also requested, in the

alternative, leave to file a supplemental petition which would expressly reference

the contractual right to the default buy-out remedy. Urbandale West argued this

court’s opinion that REI’s breach of fiduciary duty involved personal profit and

constituted cause triggered its ability to exercise the default buy-out remedy under

section 7.13 in addition to the removal of REI as a managing member under section

4.1 of the operating agreement.3 REI resisted and argued Urbandale West did not

1
  Neither party appealed from this order.
2
  Section 7.13 reads, in part, as follows:
        In the event of any violation, breach, or other act or omission by a Member
        (“Breaching Member”) . . . constituting Cause, the other Member (“Non-
        Breaching Member”) . . . shall have the right to cause the Breaching
        Member to sell the Breaching Member’s interest in the Company to the
        Non-Breaching Member.
3
  Section 4.1 reads, in part, “The Non-Managing Member may remove the acting
Managing Member for Cause upon ten (10) days advance written notice to the Managing
Member.”
                                             5

seek the buy-out remedy at any prior time in this case, and because Urbandale

West had the opportunity to request the remedy earlier and did not do so, it was

consequently prohibited from seeking the default buy-out.

       The court heard the parties’ arguments on June 30.4 The district court then

ordered REI’s removal as the managing member of Paragon West in accordance

with this court’s opinion. The court found claim preclusion did not bar Urbandale

West from seeking a new remedy because final adjudication on the merits had not

yet occurred. However, it denied Urbandale West’s right to exercise the buy-out

right under section 7.13 because “[e]xercising the Buy-Out Right is inconsistent

with removal,” “nothing in the record indicates a buy-out was contemplated by

either party throughout litigation,” and it was “not in the interest of justice to order

enforcement of the Buy-Out Right at this juncture.” The court additionally denied

Urbandale West’s motion for leave to file a supplemental petition, based upon its

finding that “Urbandale West asserts no reason as to why it did not seek to exercise

the Default Buy-Out Right until this point in litigation and points to no new

information, occurrences, or events that happened after the time the petition was

filed that entitles it to new relief.” Urbandale West appeals.

4
  Prior to the June 30 hearing on Urbandale West’s motions, REI filed an action seeking a
declaratory judgment to preclude Urbandale West’s right to a default buy-out claim. The
action was removed to federal court based on diversity jurisdiction. In our ruling, we note,
but do not consider, that on November 6, 2017, the federal court determined Urbandale
West’s attempt to invoke the buy-out clause under Section 7.13 of the operating
agreement was barred by claim preclusion. R&R Real Estate Inv’rs, LLC v. Urbandale
W., LLC, No. 4:17-CV-00243, 2017 WL 5634152, at *5 (S.D. Iowa Nov. 6, 2017). Further,
while the Iowa district court was considering Urbandale West’s motions, REI filed a petition
to expel all of the Urbandale Entities, including Urbandale West, from the remaining
Paragon Entities or, alternatively, a declaratory judgment permitting REI’s enforcement of
its default buy-out rights, as provided for under section 7.13, of the Urbandale entities’
membership interests in Paragon Best, North and West against Kansas City Liability,
which wholly owns the Urbandale entities.
                                          6

II.    Analysis

       The parties disagree as to the correct standard of review we should employ.

We must first consider whether the district court had the authority to consider

Urbandale West’s post-procedendo claim to the section 7.13 default buy-out

remedy without instructions from this court in our earlier opinion. We review this

question on error. See State v. Pearson, 876 N.W.2d 200, 204 (Iowa 2016); MC

Holdings, LLC v. Davis Cty. Bd. Of Review, 830 N.W.2d 325, 328 (Iowa 2013).

       “It is a fundamental rule of law that a trial court is required to honor and

respect the rulings and mandates by appellate courts in a case.” City of Okoboji

v. Iowa Dist. Ct., 744 N.W.2d 327, 331 (Iowa 2008). “Generally, the primary role

of an appellate court is to correct any error in the judgment of the district court,

while the responsibility to award and carry out court judgments is normally

reserved for the district court.” Id. “[A]n opinion issued by an appellate court in the

exercise of its jurisdiction often requires further action to be performed to properly

execute the judgment and decision.” Id. Upon issuance of a procedendo following

an appellate court opinion, the jurisdiction of the case returns to the district court

“for the purpose of doing the act authorized or directed by the appellate court in its

opinion and nothing else.” Id. (citation omitted). “A procedendo is said to be an

order by the appellate court requiring a lower court to proceed to judgment.” State

v. Hawkeye Bail Bonds, Sur., 565 N.W.2d 615, 617 (Iowa 1997). At that point, the

district court’s authority is only “to the extent conferred by the appellate court’s

opinion and mandate.” City of Okoboji, 744 N.W.2d at 331. Therefore, the district

court’s first task “is to determine the precise action directed to be done by the

appellate court. Often, as in this case, the appellate mandate will simply instruct
                                          7

the district court to proceed consistently with the appellate court decision.” Id. at

331–32. A district court can “not read the mandate in a vacuum, but must consider

the full opinion of the appellate court and the circumstances the opinion embraces.”

Id. at 332.    “The letter and spirit of the mandate must be observed and

implemented.” Id.

       In our previous opinion in this case, we affirmed the district court’s decision

except on one discrete issue. We reversed the court’s refusal to remove REI as a

managing member of Paragon West. Nothing else. We did not remand the case

to the trial court with instructions for a new trial or any other proceedings. Though

the district court “retain[ed] jurisdiction during and after appeal from its final

judgment to enforce the judgment itself, the district court [did] not have the

authority to revisit and decide differently issues already concluded by that

judgment.” Franzen v. Deere & Co., 409 N.W.2d 672, 674 (Iowa 1987). Our

previous opinion resolved the issue of the remedy for REI’s breach of fiduciary

duty: removal of REI as a managing member. The intent and mandate of that

opinion is clear: enter an order removing REI as a managing member. Any other

action by the district court would have been null and void. See City of Okoboji,

744 N.W.2d at 331; see also Wellmark, Inc. v. Iowa Dist. Ct., 890 N.W.2d 636,

643–44 (Iowa 2017), as amended (Apr. 27, 2017) (concluding district court had no

power to allow amended claims after procedendo from prior appeal).

       Therefore, we affirm the district court.

       AFFIRMED.