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RSB Entertainment, LLC v. Heritage Bank, N.A.

Court of Appeals of Iowa

January 9, 2020

HERITAGE BANK, N.A., Defendant-Appellee.

          Appeal from the Iowa District Court for Woodbury County, Julie A. Schumacher, Judge.

         RSB Entertainment, LLC and Richard Moores appeal from the district court's summary judgment ruling and dismissal of their claim for damages.

          John S. Moeller of John S. Moeller, P.C., Sioux City, for appellants.

          Sander J. Morehead of Woods, Fuller, Shultz & Smith, P.C., Sioux Falls, South Dakota, for appellee.

          Considered by Vaitheswaran, P.J., Mullins, J., and Gamble, S.J. [*] Schumacher, J., takes no part.

          GAMBLE, Senior Judge.

         RSB Entertainment, LLC (RSB), and its sole shareholder, Richard Moores, appeal from the district court order dismissing an action to recover funds from Heritage Bank, N.A. The dispute stems from a loan from Heritage Bank to RSB personally secured by Moores for the purpose of financing a bowling center. RSB[1]contends the district court erred in granting Heritage Bank's motion for partial summary judgment concluding certain bowling equipment amounted to fixtures to real estate purchased by the bank at sheriff's sale following an earlier mortgage foreclosure decree. RSB also appeals a finding by the district court upon trial of its damage claim that Heritage Bank disposed of other collateral securing the loan in a commercially reasonable manner. We affirm the district court in part and reverse and remand in part.

         I. Facts and Prior Proceedings

         In 2010, RSB obtained a loan from Heritage Bank to purchase Plaza Bowl bowling alley and One Eyed Jack's, an attached restaurant in Sioux City. Pursuant to the loan agreement, RSB executed a promissory note for $1, 525, 000. Moores personally guaranteed the loan. Heritage Bank obtained a mortgage on the real property including fixtures and secured interests in RSB's personal property.

         RSB defaulted on the note. On October 31, 2016, Heritage Bank obtained a decree of foreclosure on the real property. On January 4, 2017, Heritage Bank purchased the real property at a sheriff's sale for $1, 350, 000 leaving a deficiency of $136, 447.53 subject to 6.25% annual interest and costs.

         On January 3, 2017, Heritage Bank filed a replevin action to repossess the personal property subject to the security interest. Heritage Bank attached to its petition a list of personal property obtained from the original appraisal for the loan and obtained a writ of replevin based on the listed property. Following the sheriff's sale and the filing of the replevin action, RSB vacated the premises. On January 5, 2017, Heritage Bank took possession of the property and performed an updated inventory of the personal property surrendered by RSB to the bank. Heritage Bank revised its list of personal property subject to the replevin action consistent with the updated inventory. RSB did not contest the inventory or revised list of personal property in the replevin action. On November 17, 2017, the Court entered a judgment of replevin in favor of Heritage Bank for the personal property listed in the revised list.

         From January 2017 to May 2017, Heritage Bank leased the real and personal property to J&B Investments (J&B) for one dollar per month so long as J&B covered any operating and maintenance associated with the bowling-alley operation. Heritage Bank leased the property to J&B on a short term basis so that the bowling league using Plaza Bowl could finish out the season and the property could be marketed as an ongoing business. Heritage Bank entered into another lease with J&B from August 2017 to May 2018, providing $3200 per month in rent for the real property and use of the personal property inside. It also entered into a lease agreement with Mangos, L.C. to operate One Eyed Jack's restaurant for $3200 per month.

         On June 13, 2017, shortly after Heritage took possession of the property, Vander Werff & Associates appraised the unattached personal property as having a $34, 000 liquidation value.[2] In May 2018, Heritage Bank performed a final walk-through of the property and created a list of personal property for final disposition of the collateral.

         RSB commenced the present proceedings in April 2017 in effort to enjoin Heritage Bank from disposing of the unattached personal property and obtain fair compensation for use of the unattached personal property, including the Plaza Bowl and One Eyed Jack's tradenames. Heritage Bank answered, counterclaimed and sought declaratory judgment that certain items of bowling equipment and machinery are improvements, structures, fixtures, or replacements. Heritage Bank sought partial summary judgment on its counterclaim. The district court granted the bank's motion for partial summary judgment and declared the identified items are "fixtures, improvements, or replacements to the real property."[3]

         Meanwhile, Heritage Bank used a commercial real estate company to market the real and personal property as a going concern for purchase. On April 9, 2018, Heritage Bank and J&B entered into a purchase agreement and specified closing would occur on May 17. Heritage Bank sent notice of disposition to RSB on May 4. The bank attached a list of unattached personal property compiled at the walk-through to the notice of disposition. J&B assigned its purchase rights to Klinger Properties. Klinger Properties then purchased the real property and personal property from Heritage Bank for $850, 000 with $136, 000 allocated to the personal property.

         RSB requested an accounting for Heritage Bank. After applying the proceeds of the sale and proceeds from renting the personal property, a deficiency of $11, 000 remained. In order to clear a lien, Moore paid the remaining balance due to Heritage Bank. At trial, RSB challenged the timing of the notice of disposition, the commercial reasonableness of the sale of the personal property, the amount of rental income produced by the real property, and value and items disposed of in the disposition. RSB sought monetary damages.

         The district court determined notice of disposition was timely and the disposition was commercially reasonable in all respects. The district court dismissed RSB's claim for damages. RSB now appeals the dismissal of their action for ...

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