Court Opinion

ID: 4374336
Source: CourtListenerOpinion
Date Created: 2019-03-06 17:04:25.622321+00
Date Added: 2024-06-11T14:21:33.628603
License: Public Domain

IN THE COURT OF APPEALS OF IOWA

                                      No. 17-1891
                                  Filed March 6, 2019

STEVEN MCFADDEN; GOOD STUFF L.L.C. d/b/a SHOTGUN BETTY'S, A
NOMINAL PLAINTIFF; BOOM GOES THE DYNAMITE L.L.C. d/b/a MICKEY'S
IRISH PUB, A NOMINAL PLAINTIFF; POKE THE BEAR, L.L.C. d/b/a
BARCADIUM, A NOMINAL PLAINTIFF; STAT PROPERTIES, L.L.C., A
NOMINAL PLAINTIFF; and BBMG MILLS CIVIC PARKWAY, L.L.C.,
     Plaintiffs-Appellants,

vs.

THOMAS BALDWIN, ANNA MARY MARGARET BALDWIN, and TBJ, LLC,
     Defendants-Appellees.
________________________________________________________________

        Appeal from the Iowa District Court for Polk County, Robert A. Hutchinson,

David N. May, and Arthur E. Gamble, Judges.

        A former owner of two limited liability companies appeals orders relating to

their dissolution. AFFIRMED.

        John R. Walker, Jr. of Beecher, Field, Walker, Morris, Hoffman & Johnson,

P.C., Waterloo, for appellants.

        Thomas D. Hanson and Bryan P. O’Neill of Dickinson, Mackaman, Tyler &

Hagen, P.C., Des Moines, for appellees.

        Heard by Tabor, P.J., Bower, J., and Carr, S.J.* Gamble, S.J., takes no

part.

        *Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2019).
                                            2

TABOR, Presiding Judge

       Bar owner Steven McFadden challenges the process approved by the

district court for dissolving and liquidating two limited liability companies (LLCs),

doing business as Shotgun Betty’s and Mickey’s Irish Pub (Mickey’s). McFadden

contends the district court ignored equitable principles in not compelling Tom

Baldwin and Annie Baldwin,1 his former business associates, to assign the

Mickey’s lease to McFadden as part of the pub’s liquidation. McFadden also

contends the district court acted inequitably by permitting Tom to profit from a

violation of his fiduciary duty to the Shotgun Betty’s LLC.

       We find no failure by the district court to do equity; substantial evidence

supports its rationale for not requiring the Baldwins to assign the Mickey’s lease to

McFadden as part of the liquidation. We decline to consider his allegation of a

breach of fiduciary duty in the Shotgun Betty’s dissolution because McFadden did

not preserve that claim in the settlement agreement.            Accordingly, we reject

McFadden’s appellate claim for damages.

I.     Facts and Prior Proceedings

       McFadden and the Baldwins spent nearly twenty years in a turbulent

business relationship. They launched several bar and restaurant projects together

in the Des Moines metro area, but their alliance was an uneasy one.

       Independent of his business ventures with McFadden, Tom was the sole

owner of TBJ, LLC. TBJ owned and leased real estate in Des Moines, including a

downtown property on Third Street where his wife, Annie, managed a bar called

1
  When discussing Tom or Annie Baldwin individually, we refer to them by their first names
for clarity’s sake.
                                        3

Party Cove. Party Cove was not particularly successful, so Annie discussed

joining forces with McFadden in hopes of establishing a more profitable business.

McFadden and Annie organized a St. Patrick’s Day event at the Third Street

property—and it was a hit. Building on that spark, McFadden and Annie opened

Mickey’s. Mickey’s outdoor patio became a popular downtown destination. In April

2013, Mickey’s renewed its lease with TBJ for ten years.

       At the same time in West Des Moines, McFadden and Tom were equal

owners and managers of Shotgun Betty’s bar. MRES West Glen, LP was the

landlord of Shotgun Betty’s.

       McFadden’s relationship with the Baldwins soured in 2014 when they

clashed over several business and personal decisions. The rancor peaked in June

2014 when the parties met at the office of their business lawyer. McFadden threw

a pop can across the table at Tom, the men wrestled, and their wives had to break

up the fight.

       One year later, in June 2015, McFadden petitioned to dissolve the LLC

known as Boom Goes the Dynamite (doing business as Mickey’s) and another LLC

known as Good Stuff (doing business as Shotgun Betty’s). McFadden alleged the

Baldwins breached their fiduciary duties to Mickey’s and Shotgun Betty’s by

making improper distributions, hiring employees without McFadden’s consent, and

wrongfully withholding financial information from him. McFadden asked the court

to judicially dissolve the LLCs, citing a permanent breakdown in his relationship

with the Baldwins, irrevocable deadlock, and oppressive conduct by the Baldwins,

concluding the parties were unable to continue properly carrying out joint business

activities. The Baldwins made several counterclaims.
                                             4

       The parties tried to resolve their disagreements outside the courtroom but

were unsuccessful. In February 2016, the Baldwins petitioned the court for judicial

dissolution of Mickey’s and Shotgun Betty’s. In May 2016, the district court ruled

on pending motions. The court considered McFadden’s new argument against

dissolution—contrary to his position in his petition—and in favor of an alternative

equitable remedy,2 but concluded dissolution was mandatory under Iowa Code

section 489.701(1)(d) (2015).3         The court distinguished the code provisions

applicable to LLCs from those applicable to corporations. The court ordered

Mickey’s and Shotgun Betty’s dissolved. And, under section 489.702(5)(c), the

court appointed Paul Juffer—who was nominated by McFadden—as the liquidator

to wind up the LLCs.

       Juffer determined the value of Shotgun Betty’s and Mickey’s would be

maximized if sold for “going concern”4 value. Juffer proposed the liquidation plan

2
  The court cited McFadden’s affidavit where he swore it was “not reasonably practicable
to carry on the [LLCs’] activities in conformity with the certificate of organization and the
operating agreement.” In light of that affidavit, the court saw “no way for McFadden to
maintain a different position now.”
3
  Iowa Code section 489.701 provides:
                1. A limited liability company is dissolved, and its activities must be
        wound up, upon the occurrence of any of the following:
                ....
                        d. On application by a member, the entry by a district court
                of an order dissolving the company on the grounds that any of the
                following applies:
                                 (1) The conduct of all or substantially all of the
                        company’s activities is unlawful.
                                 (2) It is not reasonably practicable to carry on the
                        company’s activities in conformity with the certificate of
                        organization and the operating agreement.
4
   “Going concern” included tangible and intangible assets, in addition to the operating
lease for each LLC.
                                            5

include a minimum acceptable going-concern bid of $200,000 for Mickey’s and

$24,000 for Shotgun Betty’s.5

       The court approved Juffer’s proposed plan to hold a private auction for each

property sale.6    Juffer’s liquidation plan recognized “Going Concern Bids will

require the bidder to obtain a lease assignment from the landlord.” Accordingly,

Juffer planned to select the highest bid for each LLC and request the landlord

consent to assignment of the lease to said bidder, while providing the landlord

information regarding the bidder’s financial ability to fulfill the terms of the lease.

And if the landlord declined to assign the lease to the highest bidder, Juffer would

ask the landlord to assign the lease to the second-highest bidder.

       Juffer held the private auction for Shotgun Betty’s on June 17, 2016. The

liquidator received three bids for the going-concern value—McFadden bid

$210,000; Brady Moss bid $205,000; and Tom bid $24,000—and two bids for

tangible assets—Tom bid $43,000 and McFadden bid $42,000. Per the liquidation

plan, because McFadden was the highest bidder for the going-concern value of

Shotgun Betty’s, Juffer mailed a letter to MRES requesting consent to assignment

of the lease to McFadden.7 On June 24, 2016, MRES declined Juffer’s request to

assign the Shotgun Betty’s lease to McFadden. The lease provided for a second

5
  Juffer described his considerations in arriving at these amounts: “historical financial
results, including seasonality and other factors; comparable transactions in the bar
industry; remaining terms of leases; trademark rights”; and the fact that the LLCs had been
dissolved and assets were being liquidated.
6
  The court modified Juffer’s proposed timeline with respect to Mickey’s to allow more time
to maximize profits from the auction.
7
  McFadden requested a temporary injunction on June 20 to prevent Tom from conferring
with MRES, but the court denied relief.
                                           6

attempt at assignment negotiations, so McFadden again requested consent.

MRES again refused.

       Juffer held the private auction for Mickey’s on October 5, 2016. Two bids

were submitted—McFadden bid $1,200,031 through his wholly owned LLC, SMF

Bidco, and Annie bid $232,876. Juffer requested TBJ assign the lease for the

Third Street property to McFadden, as the highest bidder. Juffer also provided

information he believed qualified McFadden to fulfill the lease obligations. After

some back and forth, TBJ declined to assign the lease, citing the landlord’s

“experience with McFadden,” as well as            “unverifiable financial data, [and]

contingencies such as [McFadden’s] dissolution [of marriage] proceeding and

multiple lawsuits.”

       On October 17, Juffer requested TBJ’s consent to assign the lease to Annie,

the second-highest bidder. The next day, TBJ consented to assignment to Annie.

But shortly thereafter, Juffer filed a motion requesting the court compel TBJ to

assign the lease to McFadden. Juffer’s motion argued TBJ’s refusal to consent to

assignment to McFadden was commercially unreasonably under Van Sloun v.

Agans Brothers, 778 N.W.2d 174, 180–81 (Iowa 2010).8

       The district court denied Juffer’s motion. In its detailed ruling, the court first

found Van Sloun did not apply because the lease did not contain a clause requiring

8
 Where a lease provided consent to assignment “shall not be unreasonably withheld,” our
supreme court considered the following non-exclusive factors to determine if a landlord’s
refusal to consent was reasonable:
        (1) the financial responsibility of the proposed assignees, (2) the original
        tenant’s failure to comply with the lease conditions, (3) the original tenant’s
        failure to indicate a willingness to remain obligated on the lease, (4) the
        legality of the proposed use and need for alteration of the premises, and
        (5) the nature of the existing use and the proposed use by the new tenant.
Van Sloun, 778 N.W.2d at 180.
                                            7

the landlord’s refusal to consent to assignment be reasonable. The district court

further found, even if Van Sloun required TBJ to act in a commercially reasonable

manner when refusing to consent to an assignment, TBJ’s refusal fit that standard.

       In determining commercial reasonableness, McFadden and Juffer urged

the court to address three factors: (1) McFadden’s financial viability; (2) his ability

to run Mickey’s and pay rent with profits; and (3) the economic benefit to the

Baldwins if Juffer were able to accept McFadden’s bid.

       The district court concluded those financial issues were not “the only

permissible reasons” for TBJ to resist assignment to McFadden. The district court

pointed out the history of physical violence between the parties, McFadden’s

allegations of wrongdoing against the Baldwins, and the permanent breakdown in

their business relationship, which the court concluded even the appointment of an

intermediary would not resolve. The court also noted if Annie no longer owned

Mickey’s, Tom “would receive no vicarious share of the profits.” In the court’s

words, “Mr. McFadden is not only a personal enemy, but also a competitor in the

bar industry. As a result leasing the property to Mr. McFadden would be contrary

to the Baldwins’ commercial interests.” The court likewise found TBJ had no

objective basis to continue renting the Mickey’s property at below-market rate if

Annie was not involved in running the bar.9

9
  McFadden filed a motion to enlarge, arguing the court erred in concluding the silent-
consent clause in the TBJ/Mickey’s lease contained no implied commercial
reasonableness requirement. McFadden cited DeStefano v. Apts. Downtown, Inc., where
the supreme court found an implied reasonableness requirement in the silent-consent
clause of a residential lease. See 879 N.W.2d 155, 184 (Iowa 2016). McFadden also
asked the court to temporarily enjoin the sale of Mickey’s to Annie. In response, the court
distinguished DeStefano as only applying to residential leases and denied McFadden’s
request for an injunction.
                                          8

       So, in accordance with the liquidation plan, Juffer sold Mickey’s to Annie for

$232,876.

       The district court set trial on McFadden’s breach-of-fiduciary-duty claims

against Tom and the Baldwins’ counter claims for October 30, 2017. But one week

before trial, the parties entered into a settlement agreement. Under the settlement

agreement, the parties released each other (in their capacity as members, agents,

representatives, directors, officers, shareholders, etc.)

       from any and all liability, and suits of every kind and nature, known
       or unknown, foreseen or unforeseen, that [McFadden or the
       Baldwins] ha[ve] or could have brought against [the Baldwins or
       McFadden], including the claims made in the Lawsuit and/or arising
       out of any of the subject matter of the Lawsuit, including but not
       limited to (i) property damage or loss; (ii) compensatory,
       consequential, or punitive damages; (iii) costs or expenses; (iv)
       derivative claims; (v) attorney’s fees; (vi) any claim(s) for injunctive
       or declaratory relief; and (vii) any claim for compensation of any kind
       or nature, with the sole and lone exception thereto that McFadden
       reserves his right to appeal the Dissolution Rulings and be entitled
       to any relief awarded to him upon appeal against the Baldwin
       Released Parties which shall not be deemed to be released hereby
       and Baldwins so agree. The court shall enter judgment in Thomas
       Baldwin’s favor on the SGB Fiduciary Duty Claim and such judgment
       entry shall specifically acknowledge McFadden’s reservation of
       rights to appeal the Dissolution Rulings.

       The “dissolution rulings” from which McFadden reserved his right to appeal

included orders in May and June 2016 addressing the business liquidation plan,

the auction procedures, and the bid order, as well as orders from summer 2016

through fall 2017 addressing the sale process and lease assignment for Mickey’s.

       The district court entered a stipulated judgment in favor of the Baldwins on

the claims in McFadden’s third amended petition and in favor of McFadden on the

Baldwins’ counterclaims. McFadden appeals.
                                            9

II.    Standard of Review

       Because the district court heard the case in equity, our review is de novo.

Bauer v. Bauer Farms, Inc., 832 N.W.2d 663, 668 (Iowa 2013).

III.   Analysis

A. Mickey’s Irish Pub

       The first issue in McFadden’s appeal deals with the lease of the Third Street

property from Tom’s company, TBJ, to Mickey’s. McFadden advances several

arguments to reach one conclusion—the district court should have compelled TBJ

to assign the lease to McFadden, who bid highest in the liquidation auction.

       To set the stage, McFadden asserts “the district court failed to consider

fundamental maxims of equity to resolve the dispute” over the liquidation

process.10 At trial, McFadden requested an order of specific performance requiring

TBJ to assign the Mickey’s lease to McFadden.11               “The remedy of specific

10
   McFadden advances two alternative arguments: first, he asserts because he was a
guarantor on the original lease, if his wholly owned LLC took over the lease it would not
be a “true ‘assignment,’” so the court was not bound by the the assignment provision in
the lease. But McFadden does not cite any authority for that proposition; nor does he
explain how it would impact the dispute or our analysis on appeal. Accordingly, we decline
to address it. See Baker v. City of Iowa City, 750 N.W.2d 93, 102 (Iowa 2008) (finding
argument waived where party made only conclusory statements and failed to cite
authority).
         Next, McFadden argues the district court “was wrong to proceed on the
assumption this dispute was governed by the case law on voluntary assignments”
because the assignment was “by order of the court on motion by the [l]iquidator.” See
McDonald v. Farley & Loetscher Mfg. Co., 283 N.W. 261, 264–65 (Iowa 1939). But the
court-approved liquidation plan required consent by the landlord, and McFadden did not
object to the liquidation plan on this ground. The issue is not preserved for our review.
See Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002).
11
   It is not clear whether McFadden claims he is entitled to specific performance as a
damaged bidder or as a damaged member of the LLC. If he is avenging his status as a
damaged bidder, he would have no viable cause of action seeking specific performance
of a contract to which he was not a party. See Khabbaz v. Swartz, 319 N.W.2d 279, 284
(Iowa 1982) (“[I]n order to have standing to assert a breach of contract, a party not privy
to such contract must be regarded as a direct beneficiary to the contract, and not as an
incidental beneficiary.”); see also Iowa Code § 489.104(1) (“A limited liability company is
                                           10

performance, of course, is an equitable remedy governed by equitable principles,

but one coming into a court of equity for specific performance must be prepared to

show that there is equity and good conscience in support of his claim to relief.”

Simpson v. Bostwick, 80 N.W.2d 339, 343 (Iowa 1957).

       Contrary to McFadden’s assertion, the district court considered equitable

principles but decided an order of specific performance would be inappropriate.

The court reasoned specific performance should not be granted “where it would

produce a hardship or injustice on either party.” See Breitbach v. Christenson, 541

N.W.2d 840, 843 (Iowa 1995). The court believed “such ‘hardship or injustice’

would result if TBJ were forced to lease the Mickey’s property to Mr. McFadden.”

As evidence of that hardship, the district court pointed to four circumstances: (1)

“the danger of additional physical violence;” (2) “the risk of additional contentious

litigation;” (3) “the need to move on from a business relationship that is

‘permanent[ly]’ broken down; and” (4) “the legitimate interest in avoiding a new,

an entity distinct from its members.”). If McFadden’s claim is on behalf of Mickey’s for
TBJ’s claimed breach of contract, Mickey’s suffered no damages—TBJ permitted
assignment of the lease, and accordingly, Mickey’s is no longer responsible for the lease.
See NevadaCare, Inc. v. Dep’t of Human Servs., 783 N.W.2d 459, 468 (Iowa 2010) (“An
essential element of a breach of contract claim is that the breach caused a party to incur
damages.” (citing Kern v. Palmer Coll. of Chiropractic, 757 N.W.2d 651, 657–58 (Iowa
2008))); Breitbach v. Christenson, 541 N.W.2d 840, 843 (Iowa 1995) (“The basic
underlying assumption of an action for specific performance is that the contract at issue
was not fully performed, thereby necessitating the court to step in and exercise its
equitable powers to order the defendants to perform on the contract.”). Finally, if the
Baldwins’ alleged breach of fiduciary duties form the basis of McFadden’s injury,
McFadden settled that claim along with the claim discussed infra part B of this opinion.
Additionally, McFadden does not explain how TBJ can be held accountable for the
Baldwins’ alleged misconduct or vice versa. See Iowa Code § 489.104(1); Cunningham
v. Kartridg Pak Co., 332 N.W.2d 881, 883 (Iowa 1983) (“As a matter of general corporate
law, shareholders have no claim for injuries to their corporations by third parties unless
within the context of a derivative action.”). Because we find no merit in his substantive
argument, we assume arguendo McFadden’s claims are procedurally sound.
                                         11

long-term landlord-tenant relationship with a competitor at below-market rent.” The

district court relied on these same factors when deciding TBJ’s refusal to assign

the lease was commercially reasonable under Van Sloun. See 778 N.W.2d at 180

(noting “reasonableness of a landlord’s refusal is a fact question and case

dependent”).

       In our de novo review, we reach the same conclusion as the district court.

Given the circumstances listed above—highlighting their broken business

relationship—McFadden was not entitled to a court order requiring TBJ to

specifically perform by assigning the Mickey’s lease to McFadden. The court

properly balanced the relevant factors and decided landlord TBJ—acting in a

commercially reasonable manner—could permissibly refuse to assign the lease to

McFadden. See id. at 181. The court correctly denied McFadden’s request for

specific performance.

       But even if specific performance remained on the table, McFadden wouldn’t

be satisfied. In a newly minted appellate argument, McFadden claims specific

performance is “no longer a viable remedy” and, therefore, we should remand for

entry of an award of $483,577.50 in damages, representing half the difference

between McFadden’s bid and Annie’s bid for Mickey’s. McFadden offers no factual

basis or legal authority for this request. Accordingly, we decline to consider it. See

Inghram v. Dairyland Mut. Ins. Co., 215 N.W.2d 239, 240 (Iowa 1974) (declining

to “assume a partisan role and undertake the appellant’s research and advocacy”).

B. Shotgun Betty’s.

       McFadden next argues the district court inequitably permitted Tom to profit

from his alleged breach of fiduciary duties during the post-liquidation auction
                                         12

procedures. McFadden insists Tom thwarted McFadden’s ability to negotiate an

assignment of the Shotgun Betty’s lease with landlord MRES.          On appeal,

McFadden contends he is entitled to damages of $83,500 because he “lost out on

the difference” between his bid of $210,000 and the Baldwins’ bid of $43,000.

       The Baldwins counter the Shotgun Betty’s fiduciary claim is not among the

issues reserved for appeal in the parties’ settlement agreement and the

subsequent stipulated entry of judgment resolving the dispute. We agree and

decline to address McFadden’s second claim. See Van Gorden v. Schuller, 185

N.W. 604, 606 (Iowa 1921) (“[I]t must not be overlooked that the decree in one

instant case was entered by and with the consent of the plaintiff, and it is well

settled as a matter of plain reason and of unbroken precedent that such consent

operates as a waiver of the right of appeal.”).

       AFFIRMED.