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McFadden v. Baldwin

Court of Appeals of Iowa

March 6, 2019

STEVEN MCFADDEN; GOOD STUFF L.L.C. d/b/a SHOTGUN BETTY'S, A NOMINAL PLAINTIFF;
v.
THOMAS BALDWIN, ANNA MARY MARGARET BALDWIN, and TBJ, LLC, Defendants-Appellees. BOOM GOES THE DYNAMITE L.L.C. d/b/a MICKEY'S IRISH PUB, A NOMINAL PLAINTIFF; POKE THE BEAR, L.L.C. d/b/a BARCADIUM, A NOMINAL PLAINTIFF; STAT PROPERTIES, L.L.C., A NOMINAL PLAINTIFF; and BBMG MILLS CIVIC PARKWAY, L.L.C., Plaintiffs-Appellants,

          Appeal from the Iowa District Court for Polk County, Robert A. Hutchinson, David N. May, and Arthur E. Gamble, Judges.

         A former owner of two limited liability companies appeals orders relating to their dissolution.

          John R. Walker, Jr. of Beecher, Field, Walker, Morris, Hoffman & Johnson, P.C., Waterloo, for appellants.

          Thomas D. Hanson and Bryan P. O'Neill of Dickinson, Mackaman, Tyler & Hagen, P.C., Des Moines, for appellees.

          Heard by Tabor, P.J., Bower, J., and Carr, S.J. [*] Gamble, S.J., takes no part.

          TABOR, PRESIDING JUDGE.

         Bar owner Steven McFadden challenges the process approved by the district court for dissolving and liquidating two limited liability companies (LLCs), doing business as Shotgun Betty's and Mickey's Irish Pub (Mickey's). McFadden contends the district court ignored equitable principles in not compelling Tom Baldwin and Annie Baldwin, [1] his former business associates, to assign the Mickey's lease to McFadden as part of the pub's liquidation. McFadden also contends the district court acted inequitably by permitting Tom to profit from a violation of his fiduciary duty to the Shotgun Betty's LLC.

         We find no failure by the district court to do equity; substantial evidence supports its rationale for not requiring the Baldwins to assign the Mickey's lease to McFadden as part of the liquidation. We decline to consider his allegation of a breach of fiduciary duty in the Shotgun Betty's dissolution because McFadden did not preserve that claim in the settlement agreement. Accordingly, we reject McFadden's appellate claim for damages.

         I. Facts and Prior Proceedings

         McFadden and the Baldwins spent nearly twenty years in a turbulent business relationship. They launched several bar and restaurant projects together in the Des Moines metro area, but their alliance was an uneasy one.

         Independent of his business ventures with McFadden, Tom was the sole owner of TBJ, LLC. TBJ owned and leased real estate in Des Moines, including a downtown property on Third Street where his wife, Annie, managed a bar called Party Cove. Party Cove was not particularly successful, so Annie discussed joining forces with McFadden in hopes of establishing a more profitable business. McFadden and Annie organized a St. Patrick's Day event at the Third Street property-and it was a hit. Building on that spark, McFadden and Annie opened Mickey's. Mickey's outdoor patio became a popular downtown destination. In April 2013, Mickey's renewed its lease with TBJ for ten years.

         At the same time in West Des Moines, McFadden and Tom were equal owners and managers of Shotgun Betty's bar. MRES West Glen, LP was the landlord of Shotgun Betty's.

         McFadden's relationship with the Baldwins soured in 2014 when they clashed over several business and personal decisions. The rancor peaked in June 2014 when the parties met at the office of their business lawyer. McFadden threw a pop can across the table at Tom, the men wrestled, and their wives had to break up the fight.

         One year later, in June 2015, McFadden petitioned to dissolve the LLC known as Boom Goes the Dynamite (doing business as Mickey's) and another LLC known as Good Stuff (doing business as Shotgun Betty's). McFadden alleged the Baldwins breached their fiduciary duties to Mickey's and Shotgun Betty's by making improper distributions, hiring employees without McFadden's consent, and wrongfully withholding financial information from him. McFadden asked the court to judicially dissolve the LLCs, citing a permanent breakdown in his relationship with the Baldwins, irrevocable deadlock, and oppressive conduct by the Baldwins, concluding the parties were unable to continue properly carrying out joint business activities. The Baldwins made several counterclaims.

         The parties tried to resolve their disagreements outside the courtroom but were unsuccessful. In February 2016, the Baldwins petitioned the court for judicial dissolution of Mickey's and Shotgun Betty's. In May 2016, the district court ruled on pending motions. The court considered McFadden's new argument against dissolution-contrary to his position in his petition-and in favor of an alternative equitable remedy, [2] but concluded dissolution was mandatory under Iowa Code section 489.701(1)(d) (2015).[3] The court distinguished the code provisions applicable to LLCs from those applicable to corporations. The court ordered Mickey's and Shotgun Betty's dissolved. And, under section 489.702(5)(c), the court appointed Paul Juffer-who was nominated by McFadden-as the liquidator to wind up the LLCs.

         Juffer determined the value of Shotgun Betty's and Mickey's would be maximized if sold for "going concern"[4] value. Juffer proposed the liquidation plan include a minimum acceptable going-concern bid of $200, 000 for Mickey's and $24, 000 for Shotgun Betty's.[5]

         The court approved Juffer's proposed plan to hold a private auction for each property sale.[6] Juffer's liquidation plan recognized "Going Concern Bids will require the bidder to obtain a lease assignment from the landlord." Accordingly, Juffer planned to select the highest bid for each LLC and request the landlord consent to assignment of the lease to said bidder, while providing the landlord information regarding the bidder's financial ability to fulfill the terms of the lease. And if the landlord declined to assign the lease to the highest bidder, Juffer would ask the landlord to assign the lease to the second-highest bidder.

         Juffer held the private auction for Shotgun Betty's on June 17, 2016. The liquidator received three bids for the going-concern value-McFadden bid $210, 000; Brady Moss bid $205, 000; and Tom bid $24, 000-and two bids for tangible assets-Tom bid $43, 000 and McFadden bid $42, 000. Per the liquidation plan, because McFadden was the highest bidder for the going-concern value of Shotgun Betty's, Juffer mailed a letter to MRES requesting consent to assignment of the lease to McFadden.[7] On June 24, 2016, MRES declined Juffer's request to assign the Shotgun ...


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