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Jaks Properties, LLC v. St. Croix Hospice, LLC

Court of Appeals of Iowa

November 7, 2018

JAKS PROPERTIES, LLC, Plaintiff-Appellant,
v.
ST. CROIX HOSPICE, LLC, Defendant-Appellee.

          Appeal from the Iowa District Court for Polk County, David M. Porter, Judge.

         JAKS Properties, LLC, appeals from the district court's adverse ruling on cross-motions for summary judgment in its suit against St. Croix Hospice, LLC.

          Justin J. Dalton of Dalton Law, PLC, Urbandale, and David L. Wetsch of Wetsch, Abbot, Osborn, PLC, Des Moines, for appellant.

          Sarah K. Franklin and Elizabeth R. Meyer of Davis Brown Law Firm, Des Moines, for appellee.

          Heard by Danilson, C.J., Potterfield and Doyle, JJ.

          DANILSON, Chief Judge.

         JAKS Properties, LLC (JAKS) appeals from the district court's adverse ruling on cross-motions for summary judgment in its suit against St. Croix Hospice, LLC (St. Croix). We conclude St. Croix did not waive arbitration procedures, St. Jude Healthcare, LLC (St. Jude) is a necessary party to this action, and the proper relief for failing to bring in a necessary party is for the court to order the party brought in. Because the court dismissed the action, we reverse.

         I. Background Facts and Proceedings.

         This is an action filed pursuant to Iowa Code sections 626.33 and 626.34 to require a determination of the nature and extent of a third party's interest in monies in an escrow account for purposes of enforcing a judgment lien arising from the third party's confession of judgment. What initially was a landlord-tenant relationship between the first two "players" identified below became a much more complicated contractual relationship between all three "players." After the initial lease agreement, a sublease of a portion of leased property was executed, and two of the players, St. Jude and St. Croix, entered into an asset purchase agreement and an escrow agreement. In short, JAKS seeks some of the monies existing in the escrow account for payment on its judgment.

         The players:

         (1) JAKS is the successor in interest to the rights of Park Avenue Partners 2 L.C. (Park Avenue) and is the owner of a large commercial office building we will refer to simply as Crossroads.

         (2) St. Jude entered into a ten-year lease (Master Lease) for 13, 710 square feet of Crossroads on July 16, 2014. St. Jude is not a party to this action.

         (3) St. Croix entered into a May 19, 2015 sublease with St. Jude for 3808 square feet of Crossroads (the Urbandale Sublease).

         The prelude:

         St. Croix and St. Jude enter an asset purchase agreement. On May 21, 2015, St. Croix (as buyer) entered into an asset purchase agreement with St. Jude (as seller). Section 9 provided Delaware law governed the agreement and required "[a]ny dispute, controversy or claim arising out of or relating to this agreement or any transaction document, or the breach thereof" was to be settled by binding arbitration.

         Section 10.1(b) of the asset purchase agreement states:

Subject to the other provisions of this Article 10 [relating to indemnification], after the closing, [St. Jude] and the equity holders, jointly and severally, agree to indemnify and hold [St. Croix and its managers, members, officers, directors, partners, affiliates, agents, successors, and assigns] harmless from any and all losses . . . (iv) based upon, attributable to or resulting from or related to the excluded liabilities and the excluded assets.

         Section 2.4 of the asset purchase agreement defined "excluded liabilities." Pertinent portions of that section provide:

Except as and to the extent that specifically set forth in section 2.3, [St. Croix] shall not assume by virtue of this agreement . . . and shall have no liability for, any liabilities, duties, responsibilities or other obligations of [St. Jude] . . . including, without limitation . . . (h) any liabilities with respect to the Master Lease underlying the Urbandale Sublease (other than with respect to the Urbandale Sublease) . . . . The excluded liabilities and excluded assets shall be and remain the responsibility of [St. Jude].

         Section 10.3(e) provides:

In the case of any amount payable to any indemnified party pursuant to Article 10 hereof, the indemnified party shall forward to the indemnifying party notice of any sums due and owing by the indemnifying party pursuant to this agreement with respect to such matter and the claim shall be satisfied as follows:
(i) In the case of any amount payable to [St. Croix and its managers, members, officers, directors, partners, affiliates, agents, successors, and assigns], (i) such amount shall first be satisfied subject to the provisions of the escrow agreement, from the escrow amount . . . .

         The escrow agreement. The escrow agreement with an escrow fund of $900, 000 was executed on May 21 as well. Section 3.1.4 provides, in part:

[I]f on or before the final disbursement date, the escrow agent shall have received from [St. Croix] written notice of any pending claim or claims for indemnification pursuant to Article 10 of the purchase agreement (an "open claim notice"), the escrow agent shall reserve within the escrow fund, and withhold from disbursement to the representative . . . the amount specified in such open claim notice for so long as the open claim notice has not been withdrawn by [St. Croix] . . . .

         Under Section 9.5.2 of the escrow agreement, "Any dispute, controversy or claim arising out of or relating to this escrow agreement, or the breach thereof, shall be settled by binding arbitration" in Delaware, and "[t]he parties and the escrow agent hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction" of the courts in the state of Delaware.

         Section 10.4 provides, "This escrow agreement shall inure to the benefit of, and be binding upon, the parties hereto and their successors and assigns, except as is expressly provided to the contrary."

         The consent to sublease. Also on May 21, 2015, Raymond Gazzo, as managing member of Park Avenue, executed a consent to St. Croix's sublease of a portion of Crossroads, subject to the following conditions:

(1) The lessee as well as the sub-lessee shall remain liable to the lessor for all of the lessee's duties under the [Master Lease].
(2) This consent to sublease shall permit the lessee to sublease to the sub-lessee and to no other person or entity and is not a continuing consent to sub-lease in the event the sub-lease to the sub-lessee is terminated, and the lessee and sub-lessee are prohibited from further sub-leasing all or portion of the premises without the express written consent of the lessor.
(3) The lessee's sub-lease to sub-lessee shall obligate sublessee to adhere to all of the lessee's duties under the lease any breach of which by lessee or sub-lessee shall be a basis for lessor's remedies set out in the lease against both the lessee and sub-lessee.

         Additional pertinent facts.

         On November 19, 2015, Park Avenue sold Crossroads to JAKS and assigned St Jude's lease to JAKS.

         St. Croix placed $900, 000 into the escrow fund. Pursuant to the escrow agreement, an initial disbursement of $360, 000 was made to St. Jude on November 21, 2015.

         On May 20, 2016, JAKS sent a notice of default and opportunity to cure and an accompanying letter to St. Croix and St. Jude in which it stated St. Jude "has failed to make its May rent payment to JAKS and has further informed JAKS that it is insolvent and does not expect to satisfy future rent obligations." Further, the notice stated:

St. Croix is a co-obligor of all lessee obligations under the [Master] Lease. St. Croix is therefore responsible for any default in nonpayment of rents or other lessee obligations under the lease. Any limitation of liability among and between St. Croix and St. Jude under the [Urbandale] Sublease has no bearing on your common obligations to JAKS under the Lease.

JAKS informed St. Croix and St. Jude of a thirty-day opportunity to cure the default. If not cured, "JAKS will then pursue legal action against St. Croix and St. Jude to collect past and future rents, costs of securing a substitute tenant (including Tl build-out costs and broker fees), liquidated damages under the [Master] Lease, property ...


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