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Three Minnows, LLC v. Cream

April 10, 2013


Appeal from the Iowa District Court for Polk County, Randy V. Hefner, Judge.

The opinion of the court was delivered by: Vogel, P.J.

Plaintiff appeals the district court's grant of a directed verdict on its contract claims. AFFIRMED.

Considered by Vogel, P.J., and Potterfield and Doyle, JJ.

Plaintiff, Three Minnows, LLC, filed suit against the defendant, CREAM, LLC, for breach of a management contract. At the close of the plaintiff's evidence, CREAM moved for a directed verdict, asserting there were not sufficient facts presented for the jury to find the person who signed the contract had the authority to bind CREAM to the agreement. The district court agreed and directed the verdict for CREAM. We affirm.

I. Background Facts and Proceedings

Looking at the evidence in the light most favorable to Three Minnows, the following occurred. Three Minnows was created in 2009 as a manager-managed, limited liability company (LLC),*fn1 and at the time of the events in question, Dean Quirk owned 99% of the company. Three Minnows owned a bar in Des Moines, called "Drink." CREAM, also an LLC, was formed in 2004 as a manager-managed LLC to purchase and operate "The Union Bar," located in Iowa City. At the time the relevant events transpired, the managing members of CREAM were George Wittgraf III and Jeff Maynes.*fn2 Martin Maynes, Jeff's brother, owned 30% of CREAM as a member, but he was only a manager of the company for a few months in late 2004 or early 2005.

Quirk wanted to contract with an entity to manage the operations of Drink. In December 2009, Quirk met with Martin and Jeff Maynes, Mike Caudle, and David Clark at a restaurant to discuss Drink. Shortly thereafter, Drink was closed for remodeling. The first contract, dated January 3, 2010, proposed by Three Minnows for the management of its Des Moines bar was between Three Minnows and an entity known as GM Investments. The managers of GM are Martin and George Wittgraff III. However, this proposed management contract was never shown to George Wittgraff III nor was it shown to the other manager of CREAM, Jeff Maynes. Martin emailed a counter offer to Quirk and suggested he might use a different LLC Martin owned, EWM LLC, instead of GM Investments. This email stated Martin was "going to have a contract drawn up between CREAM LLC (The Union Bar in Iowa City) and Three Minnows/EWM LLC granting us the rights to use the name The Union Bar."

In addition to a management agreement, for Three Minnows to use the name "The Union Bar," a licensing agreement was needed between Three Minnows and CREAM. None was procured, and when the Des Moines bar was poised to open on St. Patrick's Day 2010 under the name "The Union Bar," members of CREAM objected because of the lack of a licensing agreement. George Wittgraf II then drafted a licensing agreement which allowed the use of The Union Bar name in Des Moines. Martin was given the authority to sign this agreement, and on March 16, Martin signed the agreement on behalf of CREAM as "Martin P. Maynes, Member." This agreement specifically stated if it were to be terminated, notice must be given to George Wittgraf II as the registered agent for CREAM.

On March 29, 2010, Quirk modified the proposed management contract with Martin and GM investments. It included a clause which stated, "This Agreement supersedes and completely replaces the agreement entered into by Three Minnows, L.L.C. and Cream L.L.C. on March 16, 2010. Cream, L.L.C. further waives any notice of termination required by aforesaid agreement." Martin signed the document on behalf of CREAM, though he told Quirk he had no authority to do so. A second management contract purporting to be between Three Minnows and CREAM was entered into on May 11, again, superseding all previous agreements. Martin also signed this contract on behalf of CREAM. Martin testified Quirk told him he needed these agreements signed but they were "strictly to be used to obtain financing [and] [t]hat it was not to be used to bind CREAM in any fashion." Quirk never inquired into Martin's authority to bind CREAM. He testified it had occurred to him to call some other people involved with CREAM to inquire as to what was going on with the management contract, but he never called anyone. Martin never gave the management agreements to any member of CREAM.

CREAM first became aware of the management contract in August 2010 when it-through George Witgraff II as registered agent-received a letter from Three Minnows's attorney claiming CREAM was in breach of the management agreement and owed Three Minnows and Quirk a large amount of money.

Three Minnows filed suit against CREAM for breach of the management contracts. Summary judgment was denied because the district court found there were fact questions regarding the extent of Martin's authority to enter into the management agreement. A jury trial began on January 9, 2012. On the third day, Three Minnows rested its case and CREAM moved for a directed verdict. The district court granted the motion and found it did not "believe that any reasonable juror-there are no inferences that could be drawn from the granting of that authority [for the licensing agreement] that would lead a reasonable person to believe that Martin Maynes was authorized to execute the subsequent [management] agreements."

Three Minnows filed a motion for new trial and sanctions, which was resisted by CREAM, which also requested sanctions. The motion for a new trial alleged that under Iowa Rules of Civil procedure 1.1004(1) and 1.1004(2), a new trial should be granted based upon misconduct and irregularity by the prevailing party, the defendant, CREAM. Three Minnows claimed CREAM's attorney threatened criminal litigation in the civil matter and those actions caused prejudice to plaintiffs, necessitating a new trial. This motion was denied, and Three Minnows appealed challenging the denial of the motion for a new trial "and each and every other order and ruling incurring therein." *fn3

II. Standard of Review and Issue Preservation

Our scope of review for all issues in this appeal challenging the trial court's grant of the motion for directed verdict is for correction of errors at law. Rife v. D.T. Corner, Inc., 641 N.W.2d 761, 766 (Iowa 2002). We consider the evidence in the light most favorable to the non-moving party. Id. "If there is substantial evidence in the record to support each element of the claim, we must overrule the motion." Id. If reasonable minds could reach ...

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