Clarke County Development Corp. v. Affinity Gaming, LLC ( 2016 )

United States Court of Appeals
For the Eighth Circuit
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No. 15-2032
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Clarke County Development Corporation,
lllllllllllllllllllll Plaintiff - Appellant,
v.
Affinity Gaming, LLC; HGI - Lakeside, LLC,
lllllllllllllllllllll Defendants - Appellees.
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Appeal from United States District Court
for the Southern District of Iowa - Des Moines
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Submitted: November 5, 2015
Filed: June 24, 2016
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Before SMITH, COLLOTON, and KELLY, Circuit Judges.
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COLLOTON, Circuit Judge.
Clarke County Development Corporation (“CCDC”) sued Affinity Gaming,
LLC, and its subsidiary, HGI - Lakeside, LLC, (collectively, “Affinity”) to enforce
a memorandum of understanding that was signed after a mediation. The district court
concluded that no contract existed as a matter of law, because the negotiating parties
did not intend the memorandum to be a binding contract, and because approval by the
boards of directors of each party was a condition precedent that delayed enforceability
of any agreement. The court thus granted summary judgment for Affinity. We
conclude that there are disputed issues of material fact concerning the intent of the
parties, so we reverse and remand for further proceedings.
I.
CCDC is a non-profit corporation with a license to conduct gambling games
under Chapter 99F of the Iowa Code. Affinity operates the Lakeside Casino in Clarke
County, Iowa, as a successor to Southern Iowa Gaming Corporation. Southern Iowa
Gaming entered into a management agreement with CCDC in 1997 to operate the
casino.
As of 2012, CCDC and Affinity were embroiled in litigation in state and federal
court. CCDC petitioned in Iowa state court for review of an order of the Iowa Racing
and Gaming Commission that approved a transfer of the license to Affinity from
Herbst Gaming, Inc., a previous successor of Southern Iowa Gaming. CCDC
separately brought a lawsuit in Iowa district court, eventually removed to federal
court, asserting that Affinity could not assign the management agreement without
CCDC’s consent. The parties also disagreed about the percentage of gaming revenue
that Affinity, if a proper licensee, must pay to CCDC or others under the 1997
management agreement and a 2004 agreement among CCDC, Southern Iowa Gaming,
Herbst Gaming, the City of Osceola, and the Osceola Water Works Board of Trustees.
The parties engaged in settlement discussions and exchanged draft settlement
agreements in 2012, but could not resolve their differences.
On June 3, 2013, CCDC and Affinity participated in a mediation. The
discussions resulted in a signed memorandum of understanding that is central to the
dispute in this appeal. The memorandum (sometimes called the “MOU”) included a
paragraph describing its purpose as follows:
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The purpose of this Memorandum is to memorialize the terms of
agreement the parties reached on June 3, 2013, resolving the lawsuits
described in order to provide the parties with additional time to draft and
execute a formal settlement agreement regarding these matters, and to
present such agreement to the Iowa Racing & Gaming Commission for
formal approval.
One of the “Settlement Terms” provided that if Affinity sold its subsidiary or the
subsidiary’s assets in the next five years, then the new owner would pay CCDC three
percent of its adjusted gross revenue, or the minimum required by Iowa law,
whichever was greater. Another term stated that a capital improvement set-off of
0.5% set forth in the September 2004 agreement would also be eliminated in the event
of a sale. The September 2004 agreement called for Affinity’s predecessor to pay one
percent of its annual adjusted gross receipts from the casino to the City of Osceola,
subject to a credit of up to fifty percent (i.e., 0.5%) for expenditures on new capital
improvements.
The last settlement term in the memorandum stated that “[t]he parties will
formalize these terms into a comprehensive settlement agreement for execution and
approval by the Iowa Racing & Gaming Commission, the City of Osceola, the
Osceola Water Works Board of Trustees and the parties’ respective Boards.” The
memorandum was signed by a representative of each party and the mediator.
Four days after the mediation, attorney Nicholas Mauro, on behalf of Affinity,
sent attorney Rachel Rowley for CCDC a draft of a comprehensive settlement
agreement. An Affinity executive then contacted Mauro and expressed concern about
the draft. According to a subsequent e-mail by Mauro, Affinity’s executive intended
that Affinity’s successor would end up paying three percent of its gaming revenue, but
the memorandum of understanding suggested that the new owner would pay a total
of four percent—three percent under the 1997 management agreement and another
one percent to the City under the separate 2004 agreement. App. 454. As a result,
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Mauro sent Rowley an e-mail with proposed revisions to the draft settlement
agreement, but Rowley responded that Mauro’s revisions did not accurately reflect the
memorandum of understanding. The parties reached a standoff, and no
comprehensive settlement agreement was signed or approved by the boards of
directors.
CCDC then sued Affinity in Iowa district court to enforce the memorandum of
understanding. Affinity removed the case to federal court, and both parties moved for
summary judgment. The district court concluded as a matter of law that the
memorandum was not a binding contract. Alternatively, the court ruled that board
approval was an unsatisfied condition precedent to enforcement of any agreement.
The court thus granted summary judgment for Affinity, and CCDC appeals.
Summary judgment is appropriate when there is no genuine issue of material
fact for trial and the moving party is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). We review the
district court’s decision de novo, and in this diversity case, we construe the agreement
according to Iowa law. See Orion Fin. Corp. of S.D. v. Am. Foods Grp., Inc., 281
F.3d 733, 738 (8th Cir. 2002).
II.
CCDC argues that whether the parties intended the memorandum of
understanding to be a binding contract and whether board approval is a condition
precedent are disputed questions of fact. Affinity responds that there was no
enforceable agreement as a matter of law.
Iowa law calls for the use of contract principles to interpret settlement
agreements. Phipps v. Winneshiek Cty., 593 N.W.2d 143, 146 (Iowa 1999). This case
raises the question whether the memorandum of understanding was an enforceable
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contract or merely an unenforceable agreement to agree. Iowa law follows the
Restatement (Second) of Contracts, which provides that:
Manifestations of assent that are in themselves sufficient to conclude a
contract will not be prevented from so operating by the fact that the
parties also manifest an intention to prepare and adopt a written
memorial thereof; but the circumstances may show that the agreements
are preliminary negotiations.
Restatement (Second) of Contracts § 27 (Am. Law Inst. 1981); see Horsfield Constr.,
Inc. v. Dubuque Cty., 653 N.W.2d 563, 570 (Iowa 2002). The Restatement continues
that “if either party knows or has reason to know that the other party regards the
agreement as incomplete and intends that no obligation shall exist until other terms
are assented to or until the whole has been reduced to another written form, the
preliminary negotiations and agreements do not constitute a contract.” Restatement
(Second) of Contracts § 27 cmt. b (Am. Law Inst. 1981). Whether preliminary
negotiations result in a contract depends on the intention of the parties. Severson v.
Elberon Elevator, Inc., 250 N.W.2d 417, 421 (Iowa 1977); Chipokas v. Hugg, 477
N.W.2d 688, 690 (Iowa Ct. App. 1991).
Affinity first contends that no contract exists because the memorandum
unambiguously required action by the board of directors of each party to approve a
comprehensive settlement agreement, and neither board did so. Affinity
acknowledged at oral argument, however, that there is no per se rule that a board
approval clause prevents a binding memorandum of understanding, and we agree.
When a party seeks to withdraw from a memorandum of understanding before a
comprehensive agreement is approved by the boards of directors, there are “difficult
issues of interpretation” concerning the effect of the first agreement. 1 Sarah R. Cole
et al., Mediation: Law, Policy and Practice § 7:4 (2015-2016 ed.).
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In some situations, an agreement with a board approval clause can be a binding
contract even without action by a board of directors. The effect of the agreement
depends on the intent of the parties. One example is the decision in Arnold Palmer
Golf Co. v. Fuqua Industries, Inc., 541 F.2d 584 (6th Cir. 1976). There, the parties
signed a “Memorandum of Intent” that confirmed a “general understanding” about the
acquisition of stock in one party in exchange for stock, cash, and management services
from the other. The memorandum called for the preparation of a “definitive
agreement” with terms as “generally outlined” in an “example” reviewed by the
parties, and said that the obligations of the parties would be subject to the fulfillment
of certain conditions. One condition was preparation of the definitive agreement “in
form and content satisfactory to both parties and their respective counsel.” Another
condition was approval of the definitive agreement by the board of directors for each
party.
The Sixth Circuit addressed the Memorandum of Intent and rejected a
contention that there was no contract as a matter of law. The court acknowledged that
the parties neither prepared the contemplated “definitive agreement” nor secured
board approval of such an agreement. But the court ruled that there was a question
of fact as to whether the parties intended those conditions to operate only if the
definitive agreement was not in conformity with the general understanding contained
in the memorandum. Id. at 590. In other words, the presence of a board approval
clause in the memorandum did not preclude a finding that the memorandum was a
binding contract; there was a question of fact about the intent of the parties. Other
courts similarly have refused to say that a board approval clause in an agreement
arising from settlement discussions unambiguously prevents the formation of a
binding contract. See Unitarian Universalist Church of Minnetonka v. City of
Wayzata, 890 F. Supp. 2d 1119, 1125-26 (D. Minn. 2012); Stephenson v. Young, No.
10–2197–KHV, 2011 WL 2112021, at *3-4 (D. Kan. May 26, 2011).
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In the memorandum of understanding at issue here, the settlement term
contemplating board approval of a comprehensive settlement agreement likewise does
not preclude a binding contract as a matter of law. The memorandum states that its
purpose is “to memorialize the terms of agreement the parties reached” on the date of
the mediation. The memorandum arguably includes sufficient terms to constitute an
enforceable contract if the parties so intended. It states that Affinity will make
discrete payments to CCDC before a specified date, designates a time period during
which CCDC will not unreasonably withhold consent to Affinity’s assignment of the
parties’ management agreement, and sets forth how much revenue a new owner must
pay to CCDC. The plain terms of the memorandum do not reveal whether the parties
intended that board approval could be withheld simply because a board disagreed with
the terms of the agreement reached at the conclusion of the mediation.
Affinity also relies on the history of unsuccessful settlement negotiations and
statements of board members of CCDC to establish that the parties did not intend the
memorandum to be a binding contract. In our judgment, however, there is conflicting
extrinsic evidence concerning the intent of the parties on this point that requires
resolution by a trier of fact.
There was general agreement among the witnesses that the participants in the
mediation had authority to reach a binding settlement agreement. Affinity’s local
counsel, Mauro, testified that Affinity’s general counsel, Marc Rubinstein, “had
authority on behalf of the company to negotiate a resolution.” Rubinstein similarly
testified that he had authority from Affinity’s board of directors “to settle the matter.”
Board member Amy Lampe from CCDC testified that the CCDC negotiating team
“had specific instructions from [their] own board on the levels that [they] could
negotiate to,” and counsel for CCDC believed that the representatives at the mediation
had final settlement authority.
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On the significance of the disputed board approval clause, attorney Mauro
testified about his work for Affinity. When asked about his understanding of the
memorandum of understanding, Mauro explained that “the board would not just be
able to walk away just because it decided” that it did not want to pay a particular
amount (say $3.1 million, in his example) that was specified in the memorandum. This
testimony is important. CCDC’s position is that the parties agreed in the
memorandum that a new owner of Affinity’s assets would pay a particular percentage
of adjusted gross revenue to CCDC, but that Affinity refused to follow through with
a settlement agreement because it later wanted to pay a different percentage. Mauro’s
testimony suggests that the boards of directors did not have unfettered authority to
reject the agreement reflected in the memorandum of understanding. Stated
differently, the testimony supports an inference that the parties intended for the
memorandum to establish certain binding terms. Elsewhere, Mauro testified that a
board could reject a proposed settlement agreement if it included provisions that were
inconsistent with what the parties understood from the memorandum of understanding
or with the law of the Indian Regulatory Gaming Commission. But the testimony
overall could reasonably be understood by a trier of fact to mean that the boards could
not refuse to approve a comprehensive settlement agreement simply because they did
not like the terms of the memorandum.
Testimony from representatives of CCDC on the meaning of the board approval
clause was mixed. The depositions of two board members, ironically, tend to support
Affinity’s position. A third board member was more equivocal and deferred to the
work of counsel, and the two negotiating attorneys for CCDC asserted that the
memorandum was intended as a binding agreement. There is evidence that board
members and attorneys all participated in the settlement negotiations, and it is
appropriate to consider the testimony of each. Under Iowa law, an attorney acting
within the scope of his or her duties can bind a client to any agreement, and there is
a presumption that an attorney acts with authority unless it is overcome by clear
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evidence to the contrary that is not undisputedly present here. See Iowa Code
§ 602.10114(2); Gilbride v. Trunnelle, 620 N.W.2d 244, 251 (Iowa 2000).
Board member Helen Kimes testified that if the CCDC board rejected the
agreement reached at the mediation, then the agreement “would not be valid,” and
there would not be an agreement. Board member Lampe allowed that if either board
rejected a comprehensive settlement agreement, then the parties “would have to go
back and have a similar conversation.” This evidence tends to support Affinity’s
position. But it is disputed by reasonable inferences from Mauro’s testimony and by
testimony from other members of CCDC’s negotiating team.
Board member Wil Reisinger said that he did not understand that CCDC’s
board would approve a formal document, and he did not know the purpose of the term
in the memorandum that included the board approval clause. Reisinger explained that
“the attorneys put it together,” and that the board members “were just there.”
Attorney Doug Gross testified that “[b]oth parties had authority to settle the matter at
the mediation” and that CCDC’s negotiators “didn’t need approval of our board.”
Gross said his “understanding was that we had a deal and the deal wasn’t subject to
anything substantive.” Attorney Rowley testified similarly that “as far as the terms
and the meat of the agreement that we agreed to that day in the MOU,” Affinity’s
general counsel “had the authority to bind and there was no additional authority that
was necessary.” She said that the focus of the clause concerning a formal
comprehensive settlement agreement was “not any further approval, because it was
understood at the time that the parties in the room had authority to enter into this
agreement that day.”*
*
The district court thought Rowley’s testimony was undermined by an e-mail
nine days after the mediation. Rowley wrote that although the memorandum stated
that it did not amend the 1997 management agreement, she did not view this provision
as a commitment by CCDC not to amend the management agreement. She also wrote
that CCDC could enforce the settlement agreement, saying: “We just need to make
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Taking all of this evidence together, we respectfully disagree with the district
court that the intent of the parties to the memorandum of understanding can be
resolved as a matter of law. The inclusion of a board approval clause in the
memorandum does not unambiguously mean that the memorandum lacks binding
force. Testimony of the representatives and negotiators from both parties reasonably
could support competing inferences about the intent of the parties. We therefore
conclude that genuine issues of fact remain concerning whether the parties intended
for the memorandum of understanding to be a binding agreement.
The district court concluded alternatively that even if the memorandum of
understanding is a binding agreement, board approval was a condition precedent that
must be satisfied before the agreement could be enforced. Whether a condition
precedent exists depends on the intention of the parties. Khabbaz v. Swartz, 319
N.W.2d 279, 283 (Iowa 1982).
We conclude that there are genuine issues of fact concerning whether board
approval is a condition precedent that must be satisfied before the parties can enforce
the memorandum of understanding. Unlike the contract in National Farmers
Organization, Inc. v. Lias, 271 N.W.2d 751 (Iowa 1978), cited by Affinity, the
memorandum at issue here includes no provision stating expressly that “no contract
. . . shall be effective or binding” until a particular condition is satisfied. Id. at 753.
Affinity points out that the parties included board approval as a settlement term and
allowed time to formalize a comprehensive settlement agreement. But those features
do not unambiguously demonstrate an intent to preclude enforcement of the
it clear either in the Settlement Agreement or the Management Agreement that the full
3% goes to CCDC.” CCDC asserts that Rowley’s e-mail did not question whether the
memorandum of understanding was a binding agreement, but addressed only whether
the management agreement could be amended to carry out the agreement reached in
the memorandum. Questions about Rowley’s credibility cannot be resolved on
summary judgment.
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memorandum if a board of directors simply refused to approve terms agreed to by the
parties with proper authority at the mediation. That the parties contemplated a
comprehensive settlement agreement to formalize the terms of the memorandum
likewise does not clearly show that board approval was a condition precedent. The
memorandum elsewhere states that it serves to record “the terms of agreement the
parties reached on June 3, 2013, resolving the lawsuits described.” This language
suggests a definitive, enforceable agreement and creates ambiguity when juxtaposed
with the term concerning preparation of a formal settlement agreement and approval
by the boards of directors. As discussed, the extrinsic evidence likewise does not
establish an undisputed intent of the parties. Whether board approval is a condition
precedent thus cannot be resolved as a matter of law, and the case must be remanded
for further proceedings.
CCDC urges that our remand order should limit the scope of further
proceedings. It contends that the remainder of the memorandum of understanding is
unambiguous. From that premise, CCDC argues that the only issue before the district
court should be whether the parties intended the memorandum to be a binding
agreement that can be enforced despite the absence of board approval.
We reject that approach. Assuming for the sake of analysis that the
memorandum of understanding is deemed binding and enforceable, this appeal does
not raise other issues pressed by Affinity, including whether the memorandum
unambiguously specifies the amount of adjusted gross revenue payable by a new
owner in the event of a sale by Affinity. Although the district court did state in
passing that “the terms of the MOU are unambiguous,” any conclusion about the
entirety of the memorandum was not the basis for the district court’s judgment, and
we have no occasion to address it. The district court, moreover, expressly declined
to address Affinity’s alternative contentions that the parties reached no meeting of the
minds or that any agreement was the product of mutual mistake. R. Doc. 75, at 10 n.2.
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We conclude only that summary judgment was not warranted on the grounds stated
by the district court.
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For the foregoing reasons, the judgment is reversed, and the case is remanded
for further proceedings.
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