United States District Court, N.D. Iowa, Cedar Rapids Division
COLLEGE PARK TIC 1, LLC, a Delaware limited liability company et al., Plaintiffs,
WILLIAM J. CARDEN, Defendant.
MEMORANDUM OPINION AND ORDER ON CROSS-MOTIONS FOR
Leonard T. Strand, Chief Judge.
before me are cross-motions for summary judgment. Plaintiffs
College Park TIC 1, LLC, et al. (plaintiffs),  were
tenant-in-common owners and lessors of a student housing
project called College Park Apartments, located in Cedar
Rapids, Iowa (College Park or the Property). Defendant
William J. Carden (Carden) is an individual who acted on
behalf of a non-existent corporation, American Spectrum
Management Co., Inc., a putative Texas corporation (ASM
their complaint (Doc. No. 3), plaintiffs allege that Carden
and ASM Texas assumed lessee responsibilities for the
Property pursuant to a lease assignment agreement. They
further allege that Carden acted as the
promoter of ASM Texas and is personally liable for
any breaches of the lease. They argue that Carden breached
the lease by failing to pay rent and mortgage payments for
the Property. Plaintiffs contend that this caused a
foreclosure on the Property, resulting in the loss of their
interests and investments in the Property.
their motion for summary judgment (Doc. No. 32), plaintiffs
argue that they have proven that the lease assignment was
effective, that the lease agreement was breached, and that
Carden is personally liable to them for that breach. In his
motion for summary judgment (Doc. No. 31), Carden argues that
the lease assignment was invalid. Alternatively, he argues
that he is not personally liable because the lease had been
assumed by a different entity at the time the assignment was
motions are fully submitted and ready for decision. Although
both parties have requested oral argument, I find that oral
argument is not necessary.
following facts are undisputed except where noted otherwise:
In 2007, Evergreen Realty Group, LLC (Evergreen), a real
estate investment company, sponsored a private placement
offering for the sale of tenant-in-common interests in
College Park. The College Park student housing complex
consisted of 25 buildings, 340 units and 750 beds located on
about 21 acres in Cedar Rapids. Doc. No. 3 at 7. Evergreen
then formed College Park Acquisitions, LLC (CP Acquisitions),
in order to purchase and sell the tenant-in-common interests.
To carry out the sale, multiple limited liability companies,
including the plaintiffs, were formed.
point, either on or before November 1, 2007, CP Acquisitions
entered into a Master Lease Agreement (Master Lease) with
College Park Leasing, LLC (CP Leasing). CP Acquisitions
acted as the landlord/lessor and CP Leasing acted as the
tenant/lessee. Also on November 1, 2007, CP Acquisitions
entered into a mortgage loan agreement with Citigroup Global
Markets Realty Corp. (Citigroup) to finance the purchase of
the Property and, along with CP Leasing, delivered to
Citigroup a Multifamily Mortgage, Assignment of Leases and
Rents, Security Agreement and Fixture Filing (Citigroup
Mortgage). Plaintiffs then assumed CP
Acquisitions' rights and responsibilities and became the
landlord/lessors. CP Leasing remained as the tenant/lessee
and had sole authority for the management and operation of
the Master Lease, CP Leasing was obligated to pay its monthly
rent in a split fashion. Basically, it was required to pay
the mortgage principal and interest directly to Citigroup out
of the base rent and was then required to pay the balance of
the base rent to plaintiffs. Doc. No. 31-3 at 89. The parties
refer to the portion of the rent that was payable to
plaintiffs as the “Investor Payments.” It appears
to be undisputed that between December 1, 2007, and February
28, 2009, CP Leasing made the required rent payments.
March 16, 2009, Evergreen sent a letter to plaintiffs
regarding a 90-day suspension of the Investor Payments that
CP Leasing was required to pay under the Master
Lease. Evergreen also sought to amend the Master
Lease payment requirements, which plaintiffs rejected. On May
26, 2009, Evergreen told plaintiffs that CP Leasing could
make only partial distributions of the Investor Payments. On
October 15, 2009, Evergreen announced that the Investor
Payments would be suspended effective December 1,
December 15, 2009, Evergreen entered into a Purchase
Agreement with American Spectrum Realty, Inc., a Maryland
corporation, and American Spectrum Management Co., LLC, a
Delaware limited liability company (together the ASM Parties)
for the sale of a number of assets. Carden executed the Purchase
Agreement on behalf of the ASM Parties. On January 17, 2010,
American Spectrum Realty Management (ASM Realty) took over as
property manager. Evergreen and the ASM Parties then began a
lengthy process of assigning and transferring all the assets
purchased under the Purchase Agreement.
November 18, 2011, CP Leasing entered in the College Park
Master Lease Assignment (Lease Assignment) with American
Spectrum Management Co., Inc., a Texas corporation (ASM
Texas). Under the assignment, ASM Texas assumed all of CP
Leasing's rights and responsibilities relating to College
Park. Carden executed the Master Lease Assignment on behalf
of ASM Texas and represented his title as
“President.” However, ASM Texas is a company that
has never existed. The Lease Assignment identifies CP Leasing
as assignor and ASM Texas as assignee. It also states that
“[t]he American Spectrum Parties have nominated
Assignee to accept the assignment of the Evergreen
Parties' rights, title, and interest in and to the
[College Park Master] Lease.” Doc. No. 32-6 at 70. The
Lease Assignment identified January 17, 2010, as the
effective date of the assignment.
November 19, 2012, plaintiffs provided the ASM Parties with
notice that they were in breach of the Master Lease for
failure to pay rents. The notice purported to terminate
occupancy and right of possession, but not terminate the
Master Lease. In December 2012, the mortgage payment was not
made. On January 10, 2013, a foreclosure action was filed and
on March 7, 2014, the Property was foreclosed on. The parties
agree that plaintiffs have not been paid any of the rent or
assessment payments due under the Master Lease since December
facts will be discussed below, as necessary.
SUMMARY JUDGMENT STANDARDS
party may move for summary judgment regarding all or any part
of the claims asserted in a case. Fed.R.Civ.P. 56(a). Summary
judgment is appropriate when “the pleadings,
depositions, answers to interrogatories, and admissions on
file, together with affidavits, if any, show that there is no
genuine issue of material fact and that the moving party is
entitled to a judgment as a matter of law.” Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986).
material fact is one that “‘might affect the
outcome of the suit under the governing law.'”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). Thus, “the substantive law will identify which
facts are material.” Id. Facts that are
“critical” under the substantive law are
material, while facts that are “irrelevant or
unnecessary” are not. Id.
issue of material fact is genuine if it has a real basis in
the record, Hartnagel v. Norman, 953 F.2d 394, 395
(8th Cir. 1992) (citing Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 586-87 (1986)), or
when “‘a reasonable jury could return a verdict
for the nonmoving party' on the question.”
Woods v. DaimlerChrysler Corp., 409 F.3d 984, 990
(8th Cir. 2005) (quoting Anderson, 477 U.S. at 248).
Evidence that only provides “some metaphysical doubt as
to the material facts, ” Matsushita, 475 U.S.
at 586, or evidence that is “merely colorable” or
“not significantly probative, ”
Anderson, 477 U.S. at 249-50, does not make an issue
of material fact genuine.
such, a genuine issue of material fact requires
“sufficient evidence supporting the claimed factual
dispute” so as to “require a jury or judge to
resolve the parties' differing versions of the truth at
trial.” Anderson, 477 U.S. at 248-49. The
party moving for entry of summary judgment bears “the
initial responsibility of informing the court of the basis
for its motion and identifying those portions of the record
which show a lack of a genuine issue.”
Hartnagel, 953 F.2d at 395 (citing Celotex,
477 U.S. at 323). Once the moving party has met this burden,
the nonmoving party must go beyond the pleadings and by
depositions, affidavits, or otherwise, designate specific
facts showing that there is a genuine issue for trial.
Mosley v. City of Northwoods, 415 F.3d 908, 910 (8th
Cir. 2005). The nonmovant must show an alleged issue of fact
is genuine and material as it relates to the substantive law.
If a party fails to make a sufficient showing of an essential
element of a claim or defense with respect to which that
party has the burden of proof, then the opposing party is
entitled to judgment as a matter of law. Celotex,
477 U.S. at 322.
determining if a genuine issue of material fact is present, I
must view the evidence in the light most favorable to the
nonmoving party. Matsushita, 475 U.S. at 587-88.
Further, I must give the nonmoving party the benefit of all
reasonable inferences that can be drawn from the facts.
Id. However, “because we view the facts in the
light most favorable to the nonmoving party, we do not weigh
the evidence or attempt to determine the credibility of the
witnesses.” Kammueller v. Loomis, Fargo &
Co., 383 F.3d 779, 784 (8th Cir. 2004). Instead,
“the court's function is to determine whether a
dispute about a material fact is genuine.” Quick v.
Donaldson Co., Inc., 90 F.3d 1372, 1376-77 (8th Cir.
cross motions for summary judgment, the “court must
rule on each party's motion on an individual and separate
basis, determining, for each side, whether a judgment may be
entered in accordance with the Rule 56 standard.” 10A
Charles Alan Wright, Arthur R. Miller & Mary Kay
Kane, Federal Practice and Procedure § 2720 (3d
ed. 1998). Because the parties seek summary judgment on some
of the same issues, I will consider all the parties'
arguments as to each issue, keeping in mind the separate
inferences that are to be drawn from each motion. See
Wright v. Keokuk Cnty. Health Ctr., 399 F.Supp.2d 938,
946 (S.D. Iowa 2005).
parties agree that the Master Lease is, by its express terms,
governed by Iowa law. In order to prevail on a breach of
contract claim under Iowa law, the plaintiffs must show: (1)
the existence of a contract, (2) the terms and conditions of
the contract, (3) the plaintiffs have performed their duties
under the contract, (4) the defendant breached the contract
and (5) the plaintiff suffered damages as a result of that
breach. Molo Oil Co. v. River City Ford Truck Sales,
Inc., 578 N.W.2d 222, 224 (Iowa 1998); Iowa
Arboretum, Inc. v. Iowa 4-H Found., 886 N.W.2d 695, 706
argue that the lessee's rights and obligations under the
Master Lease were effectively assigned to ASM Texas. They
contend that they performed their required duties under the
contract by providing ASM Parties with notice of default, but
that Carden, as promoter of ASM Texas, breached the Master
Lease by failing to pay the required rent. Doc. No. 32-1 at
14-16. They argue that Carden caused CP Leasing to assign the
Master Lease to ASM Texas and that he is personally liable
for breach of contract as President of a non-existent
company. Id. at 24. Plaintiffs claim they suffered
lost rents totaling $15, 641, 657.26 and lost investments
totaling $10, 823, 270.00, equaling over $25 million in
damages. Id. at 17.
outset, there is a dispute between the parties about whether
the Master Lease was subleased to ASM Texas or, instead,
assigned. Doc. No. 37 at 8; Doc. No. 40 at 3. An assignment
transfers the lessee's entire interest without retaining
a reversionary interest. Duck Creek Tire Serv., Inc. v.
Goodyear Corners, L.C., 796 N.W.2d 886, 893-94 (Iowa
2011). In a sublease, the lessee reserves a reversionary
interest by transferring the interest for a period less than
the entire term. Id.; see also 17 Ia.
Prac., Real Estate Law and Practice General aspects of
the landlord-tenant relationship-Assignments and
subleases § 4:3 (2016-2017).
the Lease Assignment “assigns, sells, transfers, sets
over and delivers to Assignee 75% of Assignor's estate,
right, title and interest in and to the Lease and Assignee
hereby accepts such assignment as of the Effective
Date.” Doc. No. 32-6 at 70. Nothing in the Lease
Assignment suggests that CP Leasing, as the assignor,
retained a reversionary interest in the portion of the
interest that it transferred to ASM Texas. The assignment did
not, for example, expressly expire at some point in time
prior to the end of the lease term set forth in the Master
Lease. Based on the express terms of the Lease Assignment, I
find that it was, in fact, a permanent assignment of 75% of
CP Leasing's rights and interests in the Master Lease,
rather than a mere sublease.
next address the elements of a breach of contract claim under
Existence of a Contract
argue that a contract exists between them and Carden because
(a) the Master Lease was properly executed and created by CP
Acquisitions and CP Leasing (Doc. No. 32-1 at 14) and (b)
there was a subsequent, valid Lease Assignment between CP
Leasing and ASM Texas that made Carden, as promoter of ASM
Texas, the principal lessee under the Master Lease contract.
Doc. No. 32-1 at 15.
The Consent Requirement for Assigning the Lease
Was the Lease Assignment void or merely
The Parties' Arguments
first argues that he is not personally liable because the
assignment of the Master Lease was void due to the lack of
the lessors' consent. Doc. No. 35-6 at 3-4. He notes that
the language of the Master Lease requires the lessors'
consent for any assignment. Id. at 3; Doc. No. 31-1
at 5. Because plaintiffs, as lessors, did not consent to the
assignment of the Master Lease, Carden argues that the
assignment was void and, therefore, that no contract exists
between he and the plaintiffs. Doc. No. 35-6 at 10-11.
Plaintiffs respond by arguing they merely had the option to
object to the assignment and did not do so. Doc. No. 37 at 2.
As such, they contend that the assignment is valid.
Master Lease addresses assignments as follows:
Except as herein expressly provided, the prior written
consent of the Landlord and its lender under the Permitted
Mortgage, which consent may be withheld for any reason or no
reason, shall be required in order for Tenant to sell,
assign, transfer or otherwise dispose of this Lease or any
interest of Tenant in this Lease or in any sublease or in any
subrents whether by operation of law or otherwise.
No. 31-3 at 100. Under Iowa law, restrictions on assignments
set forth in lease agreements are enforced when the language
is plain and unambiguous. In re Owen's Estate,
259 N.W. 474, 476 (Iowa 1935). However, the Iowa Supreme
Court has held that such restraints are not favored and
should be construed strictly against the lessor because of
the limitations they impose on the transfer of property.
Id. In Owen's Estate, the Court held
that if an assignment is made by operation of law, rather
than through a voluntary transaction, a covenant in the lease
against such an assignment is not breached. Id. at
sides cite Snyder v. Bernstein Bros., 208 N.W. 503
(Iowa 1926), in support of their arguments. Carden relies on
Snyder to argue that consent restrictions are valid
and enforceable, such that any assignment without consent is
void. Doc. No. 31-1 at 5. Plaintiffs cite Snyder in
support of their contention that the lease's assignment
restriction simply gives them, as landlords, the option of
rejecting or accepting the assignment. Doc. No. 37 at 7. In
Snyder, defendants were tenants who assigned the
lease to another group of tenants. The plaintiff was the
landlord who served a notice of forfeiture on the second
group of tenants. 208 N.W. at 504. The lease agreement stated
that if the lease was assigned without the written consent of
the landlord, “the tenancy should at once terminate,
and the lessor ‘may then, if he so elects, treat and
declare this lease void and at an end.'”
Id. The Court held that the consent requirement was
valid and that the original tenants' breach gave the
landlord the right to forfeit the lease. Id. at 504.
Central State Bank v. Herrick, 240 N.W. 242, 243
(Iowa 1932), the Iowa Supreme Court addressed a situation in
which a lease was assigned multiple times before being
assigned to the defendant. The defendant failed to pay a
portion of the rent during the time he remained on the
premises and the lessors took action to recover those rents.
Id. The Court explained that even though the lessors
did not consent in writing to the assignment when it was
made, as required by the lease, they “acquiesced
therein and by implication consented” to the
assignment. Id. at 245. The Court went on to state,
[the] [assignee] at this time cannot say that the lease was
not properly assigned. Whatever restriction there may have
been in the lease against its assignment without the
lessors' written consent has been waived by the lessors.
Under those circumstances, the lessee is in no position to
say that the transfer of the lease to him was invalid.
v. Ridgway, 140 N.W.2d 95 (Iowa 1966), also presented a
situation in which the lease prohibited the lessee from
assigning the lease without the lessors' consent.
However, because the landlords accepted rent from the
assignee without objection to his occupancy, the Court found
that both parties were “acting pursuant to the
lease.” Id. at 97.
when a lessor refuses to give consent, he or she can waive
the consent requirement by subsequent conduct. See Colton
v. Gorham, 33 N.W. 76, 77 (Iowa 1887). In
Colton, the Court found that the lessor knew of the
assignment of the lease and the assignee's occupancy of
the property for at least two years, accepted rent payments
from the assignee, and even made repairs on the property at
the assignee's request. Id. at 76. The lessor
did not demand rent from the original lessees during the time
the assignee occupied the property. Id. Under these
facts, the Court found that the lessor authorized the
assignment and accepted the assignee as tenant, discharging
the original lessee's duties. Id.
noted above, the Master Lease states, in relevant part, that
“[e]xcept as herein expressly provided, the prior
written consent of Landlord and its lender under the
Permitted Mortgage, which consent may be withheld for any
reason or no reason, shall be required in order for Tenant to
. . . assign . . . any interest of Tenant.” Doc. No.
31-3 at 100. It is undisputed that plaintiffs, as landlords,
did not give written consent for the assignment and, indeed,
did not receive any documents evidencing the assignment. Doc.
No. 37-1 at 31. Nonetheless, Iowa law recognizes that lessors
can waive their right to object to an assignment made ...