John Pavone and Signature Management Group, L.L.C. v. Gerald M. Kirke and Wild Rose Entertainment, L.L.C.
801 N.W.2d 477
Iowa
2011
Check Treatment

John PAVONE and Signature Management Group, L.L.C., Appellees, v. Gerald M. KIRKE and Wild Rose Entertainment, L.L.C., Appellants.

No. 08-0180.

Supreme Court of Iowa.

July 1, 2011.

Rehearing Denied Aug. 23, 2011.

WIGGINS, Justice.

Mark McCormick, David Swinton, and David W. Nelmark of Belin McCormick, P.C. (trial and appellate counsel), Des Moines, Brent B. Green and Maridare Thinnes Culver of Duncan, Green, Brown & Langeness (appellate counsel), Des Moines, and Thomas D. Waterman (until withdrawal) of Lane & Waterman LLP (appellate counsel), Davenport, for appel￾lants.

Maurice B. Nieland of Rawlings, Nie￾land, Killinger, Ellwanger, Jacobs, Moh￾rhauser & Nelson, L.L.P., Sioux City, Stanley E. Munger and Jay E. Denne of Munger, Reinschmidt & Denne, L.L.P., Sioux City, and Glenn L. Norris of Haw￾kins & Norris, P.C., Des Moines, for appel￾lees.

A district court jury determined the owners and operators of a casino breached a management agreement and awarded damages to the prospective management team. The owners and operators appealed the verdict. We transferred the case to the court of appeals. The court of appeals reversed the judgment of the district court. On further review, we find the district court did not commit any error in the trial of the matter. Accordingly, we vacate the decision of the court of appeals and affirm the judgment of the district court.

I. Facts.

In 2003 John Pavone returned to Iowa with the intent to manage casinos through his company, Signature Management Ross sent Krambeck a number of “discus￾Group, L.L.C. (SMG). Pavone had exten- sion points” which he believed were the sive experience in the gaming and hospital- terms the parties had agreed to and asked ity/hotel industries. At about the same Krambeck to confirm the generally agreed time, Gerald Kirke and Dr. Michael Rich- upon terms so he could begin to memorial￾ards formed Wild Rose Entertainment, ize the agreement. One of the discussion L.L.C. (Wild Rose), with the intent to ob- points included a right of first refusal in tain gaming licenses, and subsequently, de- favor of SMG with regard to managing the velop and own new casinos throughout Ottumwa casino or any other casino for Iowa. Prior to forming Wild Rose, Kirke which Wild Rose obtained a gaming li￾and Richards had no experience in the cense.

On April 29, 2004,Pavone entered into a consulting agreement with Wild Rose to assist Wild Rose in obtaining gaming li- censes in the counties surrounding the Des Moines area. The consulting agreement also provided, if Wild Rose obtained a gaming license, Wild Rose would engage in good faith negotiations with SMG for SMG to manage the newly developed casino. Thus, with Pavone’s assistance, Wild Rose turned its focus to obtaining gaming licens- es in the state of Iowa.

One city that was interested in providing gaming was the city of Ottumwa. On July 15, Pavone sent an email to Kirke asking to meet with him and discuss their future business relationship should the Ottumwa nonprofit organization seeking the license choose to collaborate with Wild Rose. Sub- sequently, on July 19, Pavone met with Kirke and Richards at a restaurant Kirke owned, and they discussed SMG’s future business relationship with Wild Rose. Pa- vone claims that at this meeting the par- ties generally agreed SMG would manage all casinos Wild Rose operated. Kirke admits the parties discussed an eventual partnership but claims the specific terms of an agreement were not discussed.

After this meeting, Pavone met with his attorney, Ryan Ross, and instructed him to contact Wild Rose’s attorney, Jim Kram- beck, about memorializing the parties’ agreement. Subsequently, on July 28, Ross sent Krambeck a number of “discus￾sion points” which he believed were the terms the parties had agreed to and asked Krambeck to confirm the generally agreed upon terms so he could begin to memorialize the agreement. One of the discussion points included a right of first refusal in favor of SMG with regard to managing the Ottumwa casino or any other casino for which Wild Rose obtained a gaming li- cense.

On August 3, Wild Rose Ottumwa (a subsidiary of Wild Rose) and the Ottumwa nonprofit organization executed three agreements-a memorandum of intent, a gaming development agreement, and an operator’s contract. Within the “scope of work” portion of the memorandum of in- tent it states, “Wild Rose shall manage the facility for a fee equal to 2% of revenue plus 10% of operating income, not to ex- ceed 4% of revenue pursuant to a manage- ment agreement.” In early August, Pa- vone learned of these agreements and was concerned that Wild Rose had named itself manager of the Ottumwa casino rather than SMG. Pavone discussed his concerns with Kirke and Richards and was told not to worry because the parties would exe- cute an agreement ensuring SMG would manage the Ottumwa casino.

Throughout August, September, and Oc- tober, Ross and Krambeck regularly con- versed and exchanged numerous drafts of a proposed agreement between SMG and Wild Rose. Ross’s first draft of the agree- ment was entitled “Letter of Intent.” The draft detailed both Pavone’s provision of future consulting services to Wild Rose as well as Pavone’s management of the Ot- tumwa casino, should Wild Rose obtain a gaming license. On September 20, Kram- beck suggested the parties execute a straightforward consulting agreement as well as a separate letter of intent or option agreement pertaining to the future owner- ship and management arrangements, should Wild Rose receive any gaming li- censes. Krambeck also provided another draft of the agreement with his corrections simply entitled “Agreement.” The parties never executed two separate agreements, and on October 22, 2004, the parties exe- cuted a document, entitled “Agreement,” that is the subject of this lawsuit. The parties to the agreement were SMG, Wild Rose, Pavone, and Kirke.

The October 22 agreement states the material terms and conditions by which Pavone will provide consulting services to Wild Rose through the opening of a casino in Ottumwa, as well as the ownership and management relationship between the par- ties upon the opening of the Ottumwa casi- no and other casino projects within the state of Iowa. The first two paragraphs of the agreement concern the consulting ser- vices Pavone is to provide Wild Rose prior to a license award for the Ottumwa casino and through the opening of the Ottumwa casino. Paragraph three of the October agreement states in pertinent part:

3. Ownership in Ottumwa Project and Management Entity. If Wild Rose is awarded a license to operate a casino in Ottumwa, Iowa, then upon completion of the development of the Ottumwa Project, the parties shall grant and convey an interest to each other as follows:

A. Management Agreement. Upon completion of the Ottumwa Project, Wild Rose shall enter into an exclu- sive management agreement with an entity to be solely owned by Pavone (subject to rights of Wild Rose under paragraph C below) for the manage- ment of the Ottumwa Project. This Management Agreement shall provide for an annual management fee equal to four percent (4%) of the Adjusted Gross Revenue of the Ottumwa Pro- ject. The terms of the Management Agreement shall be similar to the terms of the gaming development agreement between Wild Rose and the City of Ottumwa, Iowa.

Paragraph five of the October agree- ment provides:

5. Future Casino Development Op- portunities.

A. First Look and Good Faith Negotia- tion as to Future Casino Development and Management Opportunities.

i. If Wild Rose has the opportunity to develop or operate any other casino in Iowa, Wild Rose will use good faith best efforts to involve SMG when the oppor- tunity is first known, and to negotiate in good faith a Management Agreement consistent with the terms outlined in Wild Rose’s gaming development agree- ment with the City of Ottumwa, Iowa. It being understood that the award of any management agreement must also be satisfactory to third party community and non-profit organizations. And it be- ing further understood that any casino in the Central Iowa area will likely re- quire the involvement of a management company, other than SMG.

Ross testified the October agreement established a binding consulting and man- agement relationship and established a good-faith relationship between the parties for future projects within Iowa. Conver- sely, Krambeck testified the October agree- ment established a binding consulting agreement and a nonbinding letter of in- tent concerning the parties’ relationship in connection with any future gaming oppor- tunities. Whatever the parties’ true in- tent, Wild Rose placed the October 22 agreement within its application to the Iowa Racing and Gaming Commission (IRGC) for a gaming license in Ottumwa.

On November 2, 2004, the referendum to allow gaming in the counties surround- ing Des Moines failed. The next morning, Pavone met with Kirke, Richards, and oth- ers to discuss their business strategy go- ing forward. They collectively decided to attempt to obtain a gaming license in Em- metsburg in addition to Ottumwa. More- over, Kirke and Richards told Pavone that the October agreement, which originally only covered the Ottumwa casino, would also apply to the Emmetsburg casino. Ac- cordingly, Wild Rose placed the October 22 agreement in its application to the IRGC for a gaming license in Emmets- burg. Kirke claims Wild Rose placed the October agreement in the Emmetsburg application merely to demonstrate to the IRGC that it had a consulting agreement with SMG and intended to enter into a management agreement with SMG for the Emmetsburg casino at a later time.

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