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Flix Brewhouse Iowa, LLC v. Merle Hay Mall, L.P.

Court of Appeals of Iowa

March 6, 2019

FLIX BREWHOUSE IOWA, LLC, Plaintiff-Appellee,
v.
MERLE HAY MALL, L.P., Defendant-Appellant.

          Appeal from the Iowa District Court for Polk County, Jeanie Vaudt, Judge.

         Merle Hay Mall appeals a district court ruling finding an enforceable settlement agreement existed between Merle Hay Mall and Flix Brewhouse Iowa.

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

          William B. Serangeli of Dickinson, Mackaman, Tyler & Hagen, P.C., Des Moines, for appellee.

          Heard by Potterfield, P.J., and Tabor and Mullins, JJ.

          MULLINS, Judge.

         Merle Hay Mall, L.P. (MHM), appeals a district court ruling finding an enforceable settlement agreement between MHM and Flix Brewhouse Iowa, LLC (Flix). MHM claims the parties did not reach an agreement on the meaning of the contract terms in the settlement agreement, so no contract existed. We find an enforceable settlement agreement existed and affirm the district court.

         I. Background Facts and Proceedings

         On April 4 and May 9, 2013, Flix, as tenant, and MHM, as landlord, entered into a lease agreement. The lease was negotiated by Elizabeth Holland as CEO and general counsel for MHM's management company, Allan Reagan as president of one of Flix's management companies, and Matt Silvers as general counsel for Flix. Holland drafted the lease agreement. The lease covered 37, 000 square feet of space located in Merle Hay Mall. Flix tendered a $1.5 million security deposit.[1]MHM spent $12.8 million renovating the property to create appropriate space for the theater and microbrewery-$5.3 million more than originally budgeted.

         Article 36 of the lease established a landlord's lien and security interest on Flix's personal property. The relevant portions of Article 36 state:

As further security for Tenant's performance under this Lease, to the extent not expressly prohibited by applicable Law, Subject to the provisions set forth in Article 7, Paragraph D, Tenant hereby grants Landlord a lien and security interest in all tangible personal property existing and after-acquired property of Tenant placed in or relating to Tenant's business at the Premises, including but not limited to, insurance proceeds from casualty losses to personal property, fixtures, equipment, inventory, furnishings and other tangible personal property. . . . Tenant agrees to execute such financing statements, collateral assignment of rents and subleases, and other documents necessary to perfect a security interest, as Landlord may now or hereafter reasonably request in recordable form. Landlord may at its election at any time execute such a financing statement and collateral assignment as Tenant's agent and attorney-in-fact or file a copy of this Lease as such financing statement and collateral assignment. Landlord shall be entitled hereunder to all of the rights and remedies afforded a secured party under the Uniform Commercial Code or other applicable Law in addition to any landlord's lien and rights provided by applicable Law.
Provided that Tenant is not then in default of this Lease beyond any applicable cure period, Landlord following twenty four months (24) of continuous operation by Tenant agrees to execute a commercially reasonable subordination of its lien on Tenant's property to the lien of any bona-fide third-party lender to Tenant providing financing of furniture, fixtures and equipment and other removable personalty located at the Premises. In addition, subsequent to the 84th month of the Term, upon Tenant's written request, Landlord agrees to release its lien rights over Tenant's personalty provided that the Lease is then in good standing and Tenant is open for business and occupying the Premises for its Permitted Use.

         On September 30, 2014, Flix signed a financing lease agreement for personal property relating to food and drink service with GB Leasing, Inc. (GBL).[2] The lease agreement granted GBL a security interest in the fixtures, furniture, and equipment obtained through the lease. Flix opened for business in December 2014. In February 2015, MHM discovered the GBL lease. The parties did not agree on the impact of the GBL lease on MHM's lien subordination rights: MHM claimed the GBL lease constituted a default under Article 36 of the MHM-Flix lease and GBL was not a bona-fide third-party lender; Flix asserted Article 36 only applied to property Flix owned or had an interest in. MHM states it believed the above language made it Flix's lender and considered it a blanket lien over all of Flix's tangible personal property purchased or leased. MHM argued the provision effectively prohibited finance lease agreements, but Flix did not hold a similar understanding.

         On March 6, MHM filed a financing statement. On September 2, MHM sent a letter asserting Flix had defaulted under the lease for failure of GBL to subordinate its lien rights to MHM's rights. Flix responded and denied default, contending the lease did not limit or prohibit the leasing of ...


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