Urbandale Best, LLC and Urbandale West, LLC, plaintiffs-appellants/cross-appellees v. R&R Realty Group, LLC, R&R Real Estate Investors, LLC, and Pmr Realty Group, LLC, defendants-appellees/cross-appellants.
15-2015
Iowa Ct. App.Jan 25, 2017Background
- Urbandale Best, LLC and Urbandale West, LLC (the Urbandale entities) and R&R-related entities (REI, R&R, PMR) jointly owned two ventures: Paragon West (Urbandale West + REI; REI managing) and Paragon Best (Urbandale Best + R&R; R&R managing).
- Paragon West held a right to repurchase a parcel (the “Dahl’s Property”) if Foods failed to develop a grocery; Foods later indicated it would not build and sold the parcel to PMR (an REI affiliate) without notifying Urbandale West pre-closing.
- Urbandale West sued, alleging REI usurped a corporate opportunity and breached fiduciary duties; REI defended based on contract language, counsel advice, and lack of profit, and offered post-closing to allow Urbandale West to buy-in.
- Paragon Best dispute: R&R proposed a mixed-use project including residential units; Urbandale Best refused, arguing residential development was outside the company’s ordinary course so unanimous consent was required.
- REI counterclaimed that Urbandale West breached good faith by rejecting a long-term financing proposal for a Paragon West retail/office building; Urbandale West cited business reasons (recourse guarantees, interest rate, tenant risk).
- District court found REI breached fiduciary duty (corporate opportunity) but refused to remove REI as managing member (reasoning breach did not involve personal profit and was reasonably cured); held apartment proposal was within Paragon Best’s ordinary course; found Urbandale West acted in good faith on financing; denied attorney fees. Appellate court reversed removal, affirmed other rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether REI breached fiduciary duty by causing PMR to buy Dahl’s Property without notifying Paragon West/Urbandale West | Urbandale: REI usurped Paragon West’s corporate opportunity and violated §7.5/right-to-repurchase obligations | REI: No notice required by plain contract terms; repurchase right not triggered; relied on counsel; duties limited by agreement | Court: REI breached duty of loyalty; Foods’ notice triggered repurchase right and §7.5 applied; breach affirmed |
| Whether REI should be removed as managing member for a breach “involving personal profit” | Urbandale: REI’s breach was closely related to personal profit and thus removal for cause is warranted | REI: No personal profit was gained; district court properly refused removal | Court: “Involving” construed broadly as “closely related”; REI’s breach involved personal profit → removal required (reversed district court refusal) |
| Whether R&R’s apartment/mixed‑use proposal was outside Paragon Best’s ordinary course requiring unanimous approval | Urbandale Best: Operating agreement contemplates office/retail/flex/industrial only; residential is outside ordinary course | R&R: Agreement does not prohibit residential; general purpose is to develop/maximize returns so residential is plausible | Court: Agreement silent on residential; purpose allows developments that maximize returns; apartment proposal is within ordinary course → affirmed district court |
| Whether Urbandale West breached duties by rejecting REI’s financing proposal and whether attorney fees are recoverable | REI: Rejection frustrated financing and breached duty of good faith; Urbandale should pay fees resulting from litigation | Urbandale: Rejection based on valid business reasons (recourse, rate, tenant risk); no contractual fee-shifting clause exists | Court: Rejection was in good faith for valid business reasons; no attorney‑fee provision in contract → affirmed district court |
Key Cases Cited
- NevadaCare, Inc. v. Dep’t of Human Servs., 783 N.W.2d 459 (Iowa 2010) (standard of review for bench trials and attorney‑fee guidance)
- Pillsbury Co., Inc. v. Wells Dairy, Inc., 752 N.W.2d 430 (Iowa 2008) (rules for contract interpretation; parties’ intent governs)
- Fausel v. JRJ Enters., Inc., 603 N.W.2d 612 (Iowa 1999) (interpretation of words and conduct in light of circumstances)
- Wintermute v. Kansas Bankers Surety Co., 630 F.3d 1063 (8th Cir. 2011) (construing “involving” as broader than “in fact” — supporting a broader meaning of “involving” personal profit)
- Kurth v. Van Horn, 380 N.W.2d 693 (Iowa 1986) (definition/recognition of fiduciary relationships)