Urbandale Best, LLC v. R & R Realty Group, LLC, Paragon Best, LLC, and Highland Pointe Office Park Owners' Association

IN THE COURT OF APPEALS OF IOWA
No. 13-1879
Filed February 25, 2015
URBANDALE BEST, LLC,
Plaintiff-Appellant,
vs.
R & R REALTY GROUP, LLC, PARAGON
BEST, LLC, and HIGHLAND POINTE
OFFICE PARK OWNERS’ ASSOCIATION,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Robert J. Blink,
Judge.
The non-managing member of an operating agreement to develop
commercial property appeals the district court’s ruling in favor of the managing
member. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Michael A. Dee and Haley R. Van Loon of Brown, Winick, Graves, Gross,
Baskerville & Schoenebaum, P.L.C., Des Moines, for appellant.
George A. LaMarca and Philip D. De Koster of LeMarca & Landry, P.C.,
Des Moines, for appellees.
Heard by Danilson, C.J., and Doyle and Tabor, JJ.
2
TABOR, J.
This case involves differing interpretations of a 2008 real estate operating
agreement between the two fifty-fifty members of Paragon Best, a limited liability
corporation developing agricultural land into the Highland Pointe Office Park in
Urbandale. Under the Paragon Best operating agreement, R&R Realty Group,
LLC is the managing member in charge of the day-to-day business operations,
and Urbandale Best, LLC is the non-managing member and investor whose role
is limited to approving “major decisions.” Urbandale Best is a wholly owned
subsidiary of Kansas City Life Insurance Company.
During the development process, R&R executed a series of documents
setting up the governance of the Highland Pointe Office Park and giving its
officers a majority vote. R&R then conveyed a deed to the new owners’
association for a storm water detention pond on Outlot A. Urbandale Best
believed those unilateral actions constituted “major decisions” under the
operating agreement, which required its approval. To enforce its belief,
Urbandale Best sued for breach of contract, seeking declaratory and injunctive
relief. R&R filed a counterclaim for breach of contract, alleging Urbandale Best
acted in bad faith and obstructed R&R’s performance. The district court ruled in
favor of R&R; Urbandale Best appeals.
Our de novo review of the record shows Urbandale Best’s challenge to the
Outlot A deed is without merit. As to the governance documents, when we look
at the parties’ course of dealings evidenced by their 2006 email/letter agreement,
we find both parties intended and acted to implement the prior operating
3
agreements and the challenged agreement without engaging in a hypertechnical
interpretation of the “major decision” matrix. Rather, consistent with the general
practices in commercial real estate, the parties expected R&R to unilaterally
execute the governance documents and other deeds and easements that are
“ministerial” or “ancillary” and “necessary to make the bigger deal go forward” in
the ordinary course of business. But because the district court reached beyond
the request of R&R, we vacate its sua sponte listing of other actions it found did
not constitute major decisions. We agree with the district court that Urbandale
Best failed to prove its entitlement to injunctive relief. But unlike the district court,
we conclude R&R is not entitled to relief on its counterclaim and vacate the
award of damages.
I. Background Facts and Proceedings
After carefully scrutinizing the record, we find it supports the following
facts. Kansas City Life and R&R entities have a history of working together on
real estate developments; since 2005 they have entered into seven joint real
estate ventures, with Kansas City Life investing around $50 million in equity in
those projects. Generally, the developments start with raw land located in Polk
County, and the land is developed into office parks and warehouses, as well as
hotel and retail space. The name for each joint venture starts with the word
Paragon and is differentiated by the second term, for example, Paragon East,
LLC or Paragon Best, LLC. On these ventures, different wholly-owned
subsidiaries of Kansas City Life contracted with either R&R Real Estate
Investors, LLC (“RREI”—2006 operating agreements) or R&R Realty Group, LLC
4
(“R&R”—2008 operating agreement). The Kansas City Life subsidiary for each
joint venture used a name starting with the word Urbandale and the name
identifying the joint venture, i.e., Urbandale East, LLC and Urbandale Best, LLC.
The Kansas City Life subsidiaries and the R&R entities perform the same
roles in the development projects, i.e., the West Des Moines-based R&R entity is
the “managing member” in the ventures’ operating agreements and acts as the
“boots on the ground” for the real estate developments. The “Urbandale ____”
subsidiary, for example, plaintiff Urbandale Best, acts as the “non-managing
member” or “equity participant.” While the parties share fifty/fifty in the economic
interests of the joint ventures, the R&R entities are the sole “managing
members.”
Des Moines attorney William Bartine served as entity counsel for the
Paragon Best joint venture, as well as for the other Paragon joint ventures.
January 2006 Operating Agreements—Paragon Office Park. After
extensive negotiations over the course of several months in 2005 and early 2006
involving experienced parties and their attorneys, operating agreements for
Paragon entities other than Paragon Best were signed at the end of January
2006 between RREI and Kansas City Life subsidiaries for the development of the
Paragon Office Park. During negotiations in November 2005, Steve Gaer,
executive vice president and general counsel of R&R, e-mailed Tracy Knapp,
chief financial officer for Kansas City Life, and attached a draft operating
agreement. Included in “Article IV Management of Company” was a major
decision matrix with four major decisions, such as refinancing “any indebtedness
5
affecting one or more of the Projects” and “expansion or new construction of or
on one or more of the Projects.” These two provisions remained in the final
version of the Paragon operating agreements.
Relevant to those two major decisions, Knapp testified that while the
parties were negotiating development opportunities, a contract was signed to
develop the Citigroup building on a portion of the Paragon East Central land.
Knapp believed the Citi building was completed immediately before the January
2006 closings on the joint operating agreements. Wells Fargo provided the
construction financing for the Citi building, and MassMutual Life Insurance
Company provided the permanent financing.
Knapp responded to Gaer’s draft in mid-December 2005 with a redlined
version of the operating agreement. Knapp added the language “unanimous
approval” to the major-decisions process and included other major decisions. At
trial, Knapp explained an expanded major-decision matrix was important to
Kansas City Life because “when you’re involved in raw ground for future
development, there are often differences.” Knapp testified:
It’s vital for both members to have protection of their interests so
that . . . joint development can occur as both members would like or
that it not occur. And it provides incentive for both members to
come to an agreement and work together . . . . [W]hile you can’t
identify all situations where decisions would need to be made, this
clearly tries to lay out the preponderance of those things that might
occur and have occurred in our experience in joint ventures, the
decisions that need to be made.
RREI and Kansas City Life agreed to a matrix containing twenty-three
major decisions. Gaer testified R&R entities are not a party to any other joint
ventures with an operating agreement including this many major decisions. The
6
same matrix was included in the currently disputed 2008 Paragon Best operating
agreement. Knapp explained there were no additional negotiations concerning
the matrix before R&R and Urbandale Best signed the 2008 operating
agreement.
The 2006 and the 2008 operating agreements are fully integrated,
providing: “This Agreement and the exhibits hereto contain the entire
understanding and agreement between the Members and supersede any prior
understandings and agreements between them respecting the subject matter
hereof.”
Article IV “Management of Company.” Under section 4.1 of the
operating agreements, the managing member (RREI or R&R) was to conduct the
daily business of the company and to “regularly consult” with the Urbandale ____
entity, the non-managing member, about matters that would arise “outside the
ordinary course of business” and “the decisions, if any, which the Managing
Member has made or intends to make with respect to any such matters.” Section
4.2, performance standards, required the managing member to “use all
commercially reasonable efforts to efficiently, prudently, and profitably operate
the Company’s business and the Projects so as to achieve the profit goals of the
Company and a commercially reasonable return on the Members’ equity.”
Thus, the Paragon joint ventures are limited liability companies that, unlike
a partnership, have “designated only one of its members as the managing
member.” At trial, R&R presented evidence the Paragon joint ventures had
generated a profitable return on Kansas City Life’s equity, ranging from seven to
7
sixteen percent. At no point did Kansas City Life seek to remove RREI or R&R
as the managing member.
Section 4.4A, major decisions, stated: “Neither the Company, nor any of
the Members acting alone, nor the Managing Member, shall take any of the
actions (each a ‘Major Decision’) set out below without first obtaining the
unanimous approval of all of the Members[.]” Relevant to this dispute, the matrix
included as major decisions contracts for longer than one year and conveyances
of an interest in land, specifically:
(13) Any transaction not in the ordinary course of business
or affairs of the Company;
....
(21) Entering into a contract, agreement or obligation that is
for longer than one (1) year, other than leases that do not require
unanimous approval of all Members . . . ;
(22) Granting or conveying any interest in property or any
right to use or occupy any property other than leases that do not
require unanimous approval of all Members . . . .”
Bartine testified Kansas City Life never proposed including the owners’
association articles of incorporation/bylaws or the declaration of covenants,
conditions, and restrictions (CC&Rs) in the major decision matrix. Bartine stated
those documents are created in the ordinary course of business of a commercial
real estate development and, as such, are used in all of the R&R entities’
commercial real estate developments.
In its request for injunctive relief below, Urbandale Best pointed to two
actions taken by R&R that allegedly contravened the section 4.4A requirement of
major decisions being approved by the non-managing member. First, Urbandale
Best argued R&R’s execution of three governing documents, referred to as the
8
Highland Pointe documents, constituted a major decision reached without
approval of the non-managing member. The Highland Pointe documents include
(1) articles of incorporation of the Highland Pointe Office Park owners’
association (filed with the Iowa Secretary of State), (2) bylaws of the owners’
association, and (3) CC&Rs for the Highland Pointe Office Park (recorded with
the Polk County Recorder). The documents assigned two seats to Urbandale
Best and three seats to R&R on the association’s board of directors and
architectural review committee. Urbandale Best alleged the structure of the
owners’ association created obligations that would last for more than one year
(major decision 4.4A(21)), which should have been approved by both members
under the Paragon Best operating agreement. It also alleged the majority vote
for R&R in the owners’ association stripped Urbandale Best of its governing
authority under the operating agreement.
Second, Urbandale Best argued R&R’s execution of a warranty deed
transferring ownership of a land parcel known as Outlot A to the Highland Pointe
Owners’ Association for purposes of a storm water detention pond constituted a
major decision under subsection 4.4A(22) because it conveyed an interest in
property to a separate entity.
Course of Dealing. As the parties were getting ready to proceed in 2006,
a sewer easement issue arose. Bartine understood such an easement would
require the conveyance of an interest in land. On March 9, 2006, Bartine sent an
email to Kansas City Life counsel Karen McConnell and Gaer to determine
whether the Urbandale entities wanted to sign such documents as required under
9
a literal reading of the major decision matrix (major decision 4.4A(22)). Bartine’s
email began: “[W]e need to discuss the circumstances under which [RREI] can
act as the Managing Member of Paragon East Central. That is, when can [RREI]
sign documents that bind the Paragon ___, LLCs without a signature by the
corresponding Urbandale ___, LLC.” Bartine testified his email was intended to
be “a go-forward comment and understanding” and “relationship-wide
agreement” as shown by the “fill-in-the-blank” language. Thus, although the
email first raised the sewer easement, Bartine then listed several other examples
of “ministerial” or “ancillary” documents for the parties to discuss, stating:
[RREI] has always used the rule . . . that it wants its
partners to sign significant loan documents, purchase agreements,
deeds, settlement agreements, etc. Most of the time [RREI] will
talk to their partners before they sign the specific document, or any
general class of documents. But in this instance, the City of
Urbandale is asking for a sewer easement over Paragon North’s
land as a condition to filing the plat . . . . In your opinion, should
Urbandale North, LLC sign this easement? To my way of thinking,
this [easement] fits into a category that I call “ministerial” or
“ancillary” documents that are necessary to make the bigger deal
go forward, but which don’t really affect the major terms of the deal.
Another example is a deed to the City for dedication of right-of-way
in a platting proceeding. That issue does not present itself in the
Paragon Office Park Plat 1 context, but we will face it as the
balance of Paragon Office Park is platted. A final example would
be routine title affidavits, and perhaps closing settlement
statements like the one that the Borrower will be requested to sign
in connection with the MassMutual closing.
Bartine explained his email’s purpose was to obtain an understanding
about the wording in the operating agreements regarding deeds and
conveyances and to determine what deeds and conveyances would not require
joint signatures under the ordinary-course-of-business concept (major decision
13). He testified the R&R entity in other developments “always had an
10
understanding . . . that ministerial-type acts would be in the jurisdiction of the
managing member.” For example, “in platting proceedings, the city requires
streets to be dedicated by deed, and that’s just [a] part of the process.” Bartine
testified his email was “meant to cover future projects,” including Paragon Best.
The next day, March 10, 2006, William Schalekamp, then senior vice
president and general counsel of Kansas City Life, and McConnell came to Des
Moines and met with Gaer and Bartine to discuss the email. Gaer testified: “[W]e
had a general discussion about how we wanted to make sure we function going
forward as far as day-to-day operation of these entities,” and “Schalekamp said
we agree to these guidelines, and he wrote the sentence on the bottom and
signed it.”
Schalekamp testified Bartine asked McConnell, “Does everything that
needs to be signed have to go to Kansas City for signature?” Schalekamp
explained the context of the question was Kansas City Life’s relationship with
R&R focusing “on those things that the R & R side of the venture would be doing
in its capacity as managing member” and “how are we going to operate day-to-
day?” He testified that at the time of this meeting, Kansas City Life had been in a
similar, profitable real estate development in Arizona for twenty years in which
the managing member made “day-to-day ministerial decisions” and ran the
“property on a day-to-day basis” while providing Kansas City Life with “decision-
making authority on non-day-to-day matters.” On Bartine’s e-mail, Schalekamp
wrote: “These general guidelines are acceptable to the Urbandale LLCs and
Kansas City Life.” Schalekamp, at the time he signed, understood Bartine’s
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examples were general guidelines and “not meant to be all-inclusive” because
other matters would fall within those general guidelines and be acceptable to
Kansas City Life even though not specified in the email.
On appeal, Urbandale Best points out Schalekamp testified he did not
have the authority, nor would he have been willing to bind future unknown
entities, such as 2008 Urbandale Best, and he believed the parties’ March 2006
agreement concerning “ancillary” documents only bound then-existing Paragon
entities.1 But on cross-examination Schalekamp admitted (1) he signed on
behalf of Kansas City Life, (2) at the time he signed, in addition to the already-
existing developments, Kansas City Life and R&R were discussing other
developments in the greater Des Moines area, (3) he did not tell anyone at the
meeting his signature “only relates to existing joint ventures, not to the ones we
are contemplating,” (4) he did not include any language limiting his agreement to
then-existing joint ventures, and (5) he never notified anyone at R&R he “did not
want the agreement [he] entered into on behalf of Kansas City Life to apply to
Urbandale Best or any of the other on-going joint ventures between the parties.”
Bartine testified after Schalekamp signed, “there had been established a
basis of understanding as to which conveyances and other documents” the R&R
1
Urbandale Best contends the March 2006 email/letter agreement is not relevant to this
dispute because RREI, the party identified by Bartine in the email, is a different legal
entity than R&R, the entity joining with Urbandale Best to form Paragon Best. Noting
Schalekamp’s testimony on cross-examination and the fact he signed the email on
behalf of Kansas City Life and not on behalf of any specific Urbandale ___ subsidiary,
we are not persuaded. We also note Gaer’s November 2005 email to Knapp attaching
the first draft of the 2006 operating agreements was signed by Gaer as executive vice
president/general counsel of R&R, even though RREI entered into those agreements.
Finally, Schalekamp testified he was not consulted with regard to the March 2006 letter
agreement before Urbandale Best filed this lawsuit.
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entity “alone could execute.” Three days later, March 13, 2006, Bartine, as the
incorporator, filed the articles of incorporation for the Paragon Office Park
owners’ association. Article VII, board of directors, provided the owners
association’s affairs shall be managed by a board of directors and named three
directors—Daniel P. Rupprecht, Steven K. Gaer, and Mark Rupprecht. The only
signature on the document belonged to Bartine as incorporator, and neither
Kansas City Life nor its subsidiaries objected to this filing.2 This owners’
association document governed a large amount of land on six sites from
“proprietors” Paragon West, Paragon North, Paragon West Central, Paragon
East Central, City I, and Paragon South.
Gaer explained, generally owners’ association boards focus on
maintaining the development’s common areas; “the detention ponds of the
development”; snow removal on the private roads; “the collection of assessments
that the other third-party owners need to pay as a part of that maintenance; and
enforcement of the excusive-use provisions of the park.” Gaer explained no
“other joint venture entity” has ever asked to be represented on the board of
directors of the owners’ association or to be represented on the architectural
review committee in R&R’s numerous other joint ventures.3
2
The fact no objection was lodged to this unilateral action undercuts Schalekamp’s
testimony that at the time he signed Bartine’s email, he did not consider articles and
bylaws creating an owner’s association “would fall within the ministerial duties” that did
not require Kansas City Life’s approval.
3
We find credible Gaer’s testimony the R&R officials met and performed the functions
required of the Paragon Office Park owners’ association board of directors and the
CC&R-created architectural review committee. We do not find credible Knapp’s
testimony these joint ventures did not have a functioning board of directors/architectural
13
Thereafter, according to Bartine, “on a regular basis” RREI—as the sole
managing member and pursuant to the 2006 email letter agreement—
“unilaterally” prepared and executed “a variety of contracts, agreements, or
obligations for longer than one year” but necessary to make the bigger deal move
forward (major decision 4.4A(21)). In support of his testimony Bartine prepared
Exhibit E, a listing of transactions in which an R&R entity “acted as a sole
managing member for a Kansas City Life affiliate project” without objection by
Kansas City Life or its subsidiary. For example, RREI unilaterally prepared
numerous easements in 2007 and 2008. In August 2008 RREI, on behalf of
Paragon North, entered into an agreement with the City of Urbandale. In March
2009 RREI filed an owners’ consent to plat Paragon Office Park Plat 3.
Bartine explained other unchallenged actions/documents listed in Exhibit
E were the same transaction as the now-challenged deed for Outlot A (Paragon
Best to the Highland Pointe Owners’ Association). Specifically, in February 2010
RREI unilaterally filed the Paragon Office Park Plat 3 storm water management
facility maintenance covenant and permanent easement agreement. The next
month RREI unilaterally filed a warranty deed from Paragon West to the Paragon
Office Park Owners’ Association. Kansas City Life did not complain about these
unilateral actions nor assert the actions were major decisions under a literal
reading of the operating agreement.
Finally, Bartine testified RREI’s unilateral actions and filings in Exhibit E
were a common course of business in commercial real estate developments. As
review committee and instead items needing to be accomplished occurred by everyone
agreeing on everything.
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such, similar deeds and conveyances “were prepared, filed, and unilaterally
recorded” by R&R entities on developments with its other joint venture partners.
Paragon Office Park CC&Rs. Returning to the 2006 timeline, in March
2006 a new mortgage between Citi I, LLC and MassMutual was filed with the
Polk County Recorder.4 One dispute herein is the fact Urbandale Best did not
sign the Highland Pointe CC&Rs before they were recorded, unlike in April 2006
where both RREI, Kansas City Life, and the Kansas City Life subsidiaries signed
the original Paragon Office Park CC&Rs.5 The grantors of the Paragon Office
Park CC&Rs were six limited liability corporations: Paragon West, Paragon
North, Paragon West Central, Paragon East Central, City I, and Paragon South.
The Paragon Office Park CC&Rs were recorded on April 24, 2006, about five
weeks after the MassMutual mortgage was recorded.
At trial, Knapp testified the April 2006 CC&Rs were not required as part of
the March 2006 MassMutual refinancing. Schalekamp testified that when he
signed Bartine’s email, he did not consider CC&Rs to be “ministerial duties.”
Bartine testified “other reasons” explained why the Paragon Office Park 2006
CC&Rs and the later March 2010 amended CC&Rs were signed by Kansas City
Life entities. Bartine first noted the last paragraph of his March 2006 email, “a
borrower will be requested to sign in connections with the MassMutual closing.”
Bartine then explained:
4
Under the mortgage, notices to the borrower needed to be sent to City I, LLC, c/o R&R,
Attention: Gaer with copies to Knapp at Kansas City Life and Bartine.
5
Daniel Rupprecht signed the CC&Rs on behalf of the five Paragon LLCs and RREI. He
also signed for City I, LLC. William Schalekamp signed on behalf of the Urbandale LLCs
and Kansas City Life.
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My recollection and my records would indicate that at that
time we had a major expansion going on at the Citi building, and it
involved amendments to . . . the substantial loan obligations. And
in any deal that I’ve done with R&R since 1993 . . . when there is
financing involved, everybody’s going to sign . . . . So if you’re
going to present a stack of mortgage documents to Kansas City
Life to sign, another document that is going on at that time is the
[CC&R’s], why not get them to sign it? It is good practice.
[Second,] at the time of the first amendment to those
[CC&Rs in 2010,] we did those in conjunction with the Dahl’s
exchange. And again, when you are talking about a transaction of
that scope, why not put another document in front of the partner to
have them sign. I don’t think it was ever a concession that these
[CC&Rs] were anything other than day-to-day real estate
development documents. But that is . . . the reason that they were
signed by Kansas City Life, because it was, frankly, convenient to
do it.
Paragon Office Park. In March 2008 Gaer went to Kansas City to meet
with Schalekamp. Gaer told Schalekamp “our relationship between R&R and
Kansas City Life has become almost adversarial on these developments.” Gaer
gave two examples. First, by objecting to leases to smaller tenants, Kansas City
Life “has basically eliminated 58% of our tenant base.” Second, Kansas City Life
“did not like governmental entities as tenants. And they’re fantastic tenants.”
Gaer stressed to Schalekamp “we’ve got to get by these issues, because we
can’t run our business, and what you’re suggesting we do is economically
disadvantageous to both of us.”
Operating Agreement for Paragon Best. On August 27, 2008,
Urbandale Best and R&R entered into the Paragon Best operating agreement at
issue. Under the agreement, both members hold an equal ownership interest,
each making a capital contribution of $2,973,195.81. This venture is much
smaller than the 2006 Paragon Office Park joint ventures and involves
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approximately thirty to forty acres of agricultural property slated for long-term
development into the Highland Pointe Office Park. The 2008 operating
agreement was “amended and restated” from the 2006 operating agreements
originally negotiated by the related,6 but differently titled entities in 2006.
As in the earlier Paragon Office Park developments, R&R undertook
unilateral actions on the behalf of Paragon Best to advance the development of
Highland Pointe Office Park. As specifically detailed in Exhibit E, in April 2011
R&R signed a development agreement between Paragon Best and the City of
Urbandale (filed November 2011). On July 12, 2011, R&R unilaterally executed
numerous documents: owner’s consent to plat Highland Pointe Office Park Plat
1, the easement for sanitary sewer right-of-way, three easements for storm
sewer and surface water flow, and an easement for access (all filed March 2011).
On September 28, 2011, R&R executed an easement for ingress/egress (filed
March 2011). None of these unilateral actions drew an objection from Urbandale
Best or Kansas City Life on the grounds that these actions were “literally” major
decisions under sections 4.4A (21), (22) of the operating agreement.
The unchallenged, unilateral actions of R&R emerged from the following
chronology of events. The business relationship between Kansas City Life and
R&R—dating back to 2005—had grown adversarial. The parties clashed over
the design of the Dice Building in the Paragon South development. The current
litigation, commenced in spring 2012, is the third lawsuit “with a Kansas City Life-
6
The 2008 operating agreement defined “Related Company” as “[a]ny of the following
limited liability companies, so long as the Members or their Affiliates each hold a 50%
interest in such limited liability company: Paragon West, LLC; Paragon West Central,
LLC; Paragon East Central, LLC; Paragon South, LLC; Paragon East, LLC.”
17
related entity and R&R.” Previously, the parties had been litigating how much
R&R would pay to buy out Kansas City Life subsidiary Urbandale East Central in
the Paragon East Central joint venture.7
Rezoning and Highland Pointe Documents. Returning to facts
specifically related to Paragon Best, Gaer explained the parties had rezoned
fifteen acres of the overall land to retail. After the rezoning, Kansas City Life and
R&R “knew that we were going to sell those parcels off, because we really aren’t
retail developers.” Knowing sales would be forthcoming, Gaer asked Bartine to
draft the Highland Pointe documents and suggested Bartine base them on the
235-acre “Paragon Office Park documents since those have been in existence
since 2006.” On March 19, 2012, Gaer asked Bartine for an update, noting the
documents needed to be “finalized and recorded as soon as possible since our
team is now out marketing the retail land for sale. I want to make sure all of
these documents are in the public record so any potential purchaser is on actual
notice.”
7
Gaer described the disagreement leading to a buyout. R&R had a parcel of land it
wanted to develop into a warehouse. R&R shared market and financial budget
information with Kansas City Life for building a 140,000 square foot warehouse. With
Kansas City Life’s consent, R&R hired engineers to lay the warehouse out on the site.
“And out of the blue,” Knapp and Greg Galvin, Kansas City Life vice president for real
estate, “show up one morning and hand me a development proposal where Kansas City
Life was going to build two 60,000 square foot warehouses on that parcel.” Further,
Kansas City Life planned to “use a construction company that was not an R&R
construction company. They were going to use a leasing company that was not an R&R
leasing company. And they were going to use a property management company that
was not an R&R leasing company.” Knapp and Galvin asked me “if R&R would like to
be a 50% owner in that.” Gaer responded, “what would . . . motivate you to think that
[R&R wants] to own 50% of two buildings that we don’t build, manage, or lease in the
middle of our 2 million square feet of construction of our buildings.”
18
Bartine drafted the documents and sent a copy to Kansas City Life vice
president Galvin and counsel Matthew O’Connor in a May 25, 2012 email,
stating: “I am attaching the ‘association documents’ for Highland Pointe Office
Park (articles of incorporation; bylaws; declaration of covenants; deed conveying
storm water detention area to the association).” Bartine noted “significant
changes” from the Paragon Office Park documents, including: “The documents
tighten up the approval process for development, and give the Architectural
Review Committee broader authority by adopting a ‘sole and unfettered
discretion’ standard for most decision-making.” Bartine believed the “unfettered
discretion” standard was consistent with section 4.4 of the operating agreement.
In early June Knapp responded to Mark Rupprecht, stating Urbandale
Best’s disapproval and belief the “documents include authorities that are Major
Decisions in the [operating agreement] and the proposed draft documents would
circumvent KCL’s authorities as 50% owner.” Knapp objected to the “deeding
any land, such as proposed Outlot A, to any other parties unless R&R and KCL
have agreed to this Major Decision.”
A few days later, the parties participated in a conference call and
discussed Knapp’s concerns. Knapp testified Gaer understood his concerns but
“also expressed that he wanted to make sure that the roles of the members in the
operating agreement were not changed.” Knapp responded the first draft was
“completely at odds with the consistency of the operating agreement with regard
to each member’s rights.”
19
On August 28, 2012, Knapp and O’Connor held a conference call with
Bartine. Knapp recalled again stating Urbandale Best’s desire for equal
representation on the board of the owners’ association and the architectural
committee should those documents go forward.
The next day Knapp sent an email to Mark Rupprecht and Gaer and
included an attachment of “redline changes” to the Highland Pointe documents.8
Knapp stated: “Most of the redline edits are reflective of changes to provide for
equal participation by R&R and KCL, consistent with the phone conversation that
we had back in June on this topic.”9 Gaer testified Urbandale Best’s desire for
equal representation on the board of directors and architectural committee was
“an unusual request.” Also:
Q. Despite it being an unusual request, did you give it
serious consideration? A. We did . . . . [W]e’ve always wanted
input from KC Life, but when it came time to make the ordinary
decisions that we needed to make as the managing member, if we
didn‘t agree with what their suggestion and advice was, we made
the decision as the managing member that we thought was in the
best interest of the real estate investment business pursuant to our
standard in 4.2 of the operating agreement.
8
Also on August 29, 2012, O’Connor sent a follow up e-mail to Bartine attaching the
redlined versions of the Highland Pointe documents. We note the redlined versions did
not change the signature block that contained only Gaer’s signature on behalf of R&R for
Paragon Best, i.e., signatures from Kansas City Life or Urbandale Best were not
required in Urbandale Best’s redlined versions.
9
The redlined document stated the “Architectural Review Committee” (ARC) shall be
composed of four individuals, two selected in the sole discretion of Kansas City Life and
the other two selected in the sole discretion of R&R. “Unless these CCR are amended,
each member of the ACR must be an officer or employee of KCL or R&R respectively.”
The document listed the initial members of the committee as Daniel P. Rupprecht and
Mark A. Rupprecht (R&R) and Tracy W. Knapp and Gregory M. Galvin (KCL). “No
action of the ARC is considered approved unless approved by unanimous consent of the
ARC.” The redlined document also added language stating: “No action of the [owners’
association] Board is considered approved unless approved by the unanimous consent
of the Board.”
20
R&R met internally and discussed the redline changes the day after
receiving Knapp’s email. A copy of the redline changes—bearing notes
handwritten by Gaer on August 30, 2012—was turned over to Urbandale Best
during this litigation. Gaer’s notes captured the views of R&R officers on the
Urbandale Best proposals. There were several “OK” notations, including: “The
sole Member of the Association is Paragon Best, LLC.” In several cases the
notes suggested contacting Bartine for his opinion. As to Urbandale Best’s total
deletion of the section regarding “Powers Regarding Retail Site,” the notes
stated: “Need this so people buying retail sites are ‘on notice.’” Also, some of the
“no” notations were followed by, “we are setting out specific provisions of
§ 504.901” or “follow the language of the statute.”
The notes included the following comment, “KCL can’t ‘control’ [with an
arrow to the word ‘unanimous’] the decisions (we are the managing member),
incorporate what we agree with, delete balance of changes and record (wait to
‘resolve’ this once we have closed on Paragon East Central, LLC”)10—attributed
to R&R founder Dan Rupprecht. A second note, again referencing the word
“unanimous” and in the section discussing the developer’s [Paragon Best’s]
reserved rights and powers “to sell” building sites, stated: “See operating
agreement, section 4.4A(22). Keep consistent with that.”
Next to Knapp’s proposal for equal representation on the board of the
owners’ association, the notes stated: “No” and “operating agreement § 4.4A
10
Knapp explained R&R’s plan to “wait to ‘resolve’ this” referenced the ongoing litigation
and settlement talks concerning the value of R&R’s buyout of the Paragon East Central
Project, which closed on December 26, 2012—four months after the internal R&R
meeting.
21
Major Decisions, not a major decision.” Similarly, next to “Board of Directors,
Selection, Term of Office,” the notes stated: “No, ‘outside’ the operating
agreement. R&R needs to have ‘control’ other than for Major Decisions per
§ 4.4A of operating agreement.” On the page defining the architectural review
committee, Gaer jotted the following note: “KCL must be minority of bd.”
At trial, Knapp admitted the handwritten notes do not show any intent on
the part of R&R to circumvent the operating agreement. Gaer testified Kansas
City Life had never asked for representation on the board of directors of the
owners’ association or the architectural committee in the earlier development of
Paragon Office Park. Bartine testified R&R entities filled the board and
architectural committee roles in all of R&R’s developments and historically, the
non-managing members did not play a role in either the board or committee.
October 2012 Quarterly Meeting and Closing of Sale of Paragon East.
Representatives from Urbandale Best and R&R met in Des Moines for a regular
quarterly meeting on October 3, 2012. The agenda listed eight items, including
the marketing efforts for Highland Pointe, Paragon East Central purchase and
sale agreement, and covenants for Highland Pointe. Galvin recalled a “very brief
discussion” by Gaer of the need for the articles, by-laws and declarations to
follow the Iowa not-for-profit association statutes. Anticipating a broader
discussion of the documents, Galvin brought copies to the meeting but never
took them out of his briefcase. Galvin left the meeting believing his company’s
comments were still under review.
22
Knapp recalled Gaer explaining his concern that Urbandale Best’s
proposed changes would alter the roles of the members in the operating
agreement and Knapp’s response their version “had nothing to do with altering
the impact or roles of the members under the operating agreement.” But Gaer,
according to Knapp, did not share the level of disagreement reflected in the R&R
meeting notes. Knapp also recalled Gaer stating his concerns about the Iowa
not-for-profit statute and his plan to ask Bartine for further analysis of the
interplay between the proposed changes and the statute.
In contrast, Gaer recalled stating:
[First], some of the changes [you are seeking] change the
statutory language of the Iowa not-for-profit law. And they said,
well, [O’Connor] shouldn’t have done that . . . . [W]e understand
that we can’t change what the Iowa law says.
[Second], as we read some of these changes, you . . . are
trying to change the roles of KC Life and R&R vis-à-vis the
operating agreement. And [Knapp] said, well, we shouldn’t be
doing that. So at that time I suggested [getting Bartine] on the
phone, he was the agreed-upon entity attorney, and let’s go
through these so we can finalize them.
On October 12, 2012, Gaer sent an email to O’Connor to follow up on the
“discussion we had last Wednesday with [Knapp and Galvin] when they were in
town.” He wrote, “please let me know a couple of dates and times that you guys
are available for a conference call with us and Bill Bartine so we can finalize” the
Paragon Best “owners’ association documents and CC&Rs.” Starting in October
2012, the monthly reports from R&R to Kansas City Life noted R&R was waiting
for dates/times from Kansas City Life for a joint conference call with Bartine to
finalize the Highland Pointe documents. Gaer testified: “At no time did they ever
get back to us and take us up on our request to have a conversation to finalize”
23
the Highland Pointe documents. Knapp admitted Urbandale Best did not
respond to Gaer’s request to provide its conference call availability to finalize the
Highland Pointe documents.
On December 26, 2012, R&R’s buyout of Urbandale East Central’s
interest in the Paragon East Central development closed.
January 2013 Quarterly Meeting. On January 10, 2013, Kansas City
Life officers Galvin and Knapp again met with Gaer in Urbandale. Gaer testified
the parties discussed the sale of the Paragon Best retail land—the locations to
sell, the size of the parcels to sell, and the selling price. Knapp testified similarly.
Knapp and Gaer both testified that Gaer reminded Urbandale Best “we need to
get the CC&Rs and the owners’ associations finalized, because we’re very close
to signing purchase agreements on two transactions to sell land in Paragon Best”
to parties in competition to build a hotel.
Bartine’s Preparation of the Highland Pointe Documents. Gaer and
Bartine both testified R&R did not seek to circumvent the Paragon Best operating
agreement. Specifically, Gaer testified to his instructions to Bartine regarding
drafting the Highland Pointe documents:
I’m asking you as the entity counsel to go through all the
changes requested by Kansas City Life, and what I’m asking you to
do is make whatever changes you think are in the best interest of
Paragon Best, LLC, as the entity counsel, with the exception that
we fundamentally have an agreement with KC Life that any
changes that change the Iowa not-for-profit laws won’t be made,
and any changes that change the roles of the parties, vis-à-vis the
operating agreement, will not be changed.
With those exceptions, I need you to finalize these, and I
need you to record them so I can get them to the buyers.
Bartine testified:
24
Q. . . . When you were making changes and resolving the
discussions and input you had from the two owners of Paragon
Best to what eventually became [the Highland Pointe documents,]
your number one goal was to follow the operating agreement and
not to take specific suggestions from either party; is that correct?
A. That is not only correct, but that is the specific discussion I had
with Mr. Gaer. He said, “You make the changes in compliance with
the operating agreement.”
Bartine also testified he came to the conclusion in early January 2013 that
Urbandale Best did not have the right to consent to the three Highland Pointe
documents because the documents were not major decisions. On January 25,
2013, R&R signed the first Paragon Best purchase agreement with a hotel
developer. Bartine recalled “Gaer specifically came to my office saying we need
to get this stuff done and get it out of here, and you need to get Kansas City Life
notified of this.”
On January 28, 2013, R&R unilaterally issued a warranty deed on behalf
of Paragon Best that conveyed Outlot A to the Highland Pointe owners’
association (recorded in February 2013). That same day, R&R signed the
second Paragon Best purchase agreement with another developer. The
purchase agreements specifically stated the buyer acknowledges their purchase
is subject to the Highland Pointe Office Park Association and CC&Rs, referenced
as an exhibit. Gaer explained the signed agreements “had nothing attached”
because the documents had not yet been finalized.
On January 29, 2013, Bartine filed the final Highland Pointe homeowner’s
association articles and bylaws. On January 30, 2013, Bartine recorded the
Highland Pointe CC&Rs. Bartine testified the timing was a “practice glitch” and “I
25
wish I had gotten them out sooner . . . . But . . . I got them out as quickly as I
could.”
Bartine Letter—Highland Pointe Documents. On February 14, 2013,
Bartine first informed Urbandale Best the Highland Pointe documents had been
finalized, filed, and recorded. Bartine testified he had other big financing projects
going on at the time and
if I was a procrastinator . . . so be it . . . . I don’t want this to be
about a matter of disrespect for Kansas City Life; that is not what
this is at all. This is a matter of I made the judgment that this was a
document that is in the ordinary course of real estate development,
and I didn’t think I needed to consult with anybody other than . . .
the managing member on it.
....
Q. Did R&R tell you not to inform Urbandale Best about your
opinion on these documents or the form that they were going to be
filed until after they filed them? A. Quite the contrary. I was
getting frequent calls, emails from Mr. Gaer saying this needs to get
out. This needs to get out to Kansas City Life. So . . . on the timely
issue of this, if there is anybody who has to have broad shoulders,
it’s me.
In the February 2013 letter to O’Connor, Bartine specifically stated the
“Developer’s power to sell lots is subject to section 4.4A” of the operating
agreement. Bartine detailed his efforts “to reconcile” the Highland Pointe
documents with the 2008 Paragon Best operating agreement, with his “primary
directive” being to “have the provisions of the association documents line up with
the general management duties of the Managing Partner” in the 2008 operating
agreement.
As I read section 4.4A . . . the Members have stated that the
Managing Member should have the authority to make all non-major
decisions because it has expertise in the local commercial real
estate market. In other words, if the matter does not fall in a Major
Decision Category, let the Managing Member manage. However, it
26
is also essential that the KC Life entity should have a voice at the
table by assigning board seats to KC Life, allowing KC Life input on
decisions.
So to make the office park regulatory documents consistent
with the [2008 operating agreement,] we need to look at section
4.4A, . . . which provides that neither Member acting alone, nor the
Managing Member, may make specifically enumerated “Major
Decisions” (sometimes “MD”) without the unanimous written
approval of all of the Members.
Next, Bartine analyzed section 4.4A to determine “if the proposed actions
in connection with the current hotel transactions and the finalization and filing of
the business park regulatory documents” (the Highland Pointe documents),
“might be characterized as ‘Major Decisions’ requiring all members to consent, or
‘Not-Major Decisions’ that the Managing Member can initiate, structure, and
close/finalize.” He then discussed the “authority” of the managing member to
enter into the Highland Pointe documents and concluded nothing in the major
decision matrix in section 4.4A limits the ability of the Managing Member to
execute and file organizational documents and to promulgate bylaws, “provided
the documents are crafted to give the Managing Member the flexibility to make
decisions. In the case of the subject documents, they provide the non-managing
member with a seat on the various boards and an ability to be present as the
matters are discussed.”11
11
Bartine described the changes to the final “Articles of Incorporation of Highland Pointe
Office Park Owners’ Association” as including five board members/directors, three from
R&R and two “as the KC Life members”—the “theory here is to give KC Life access to
the information and discussions that lead up to decisions, but to have the majority of
votes vested in the Managing Member’s representatives”—(amendments require a
majority vote). He also described the bylaws as the board directors being “appointed by
R&R and KC Life (and their respective affiliates).” Finally, Bartine described the CC&Rs
as including a five-member architectural review committee “with three selected by the
R&R parties and two by KC Life and its affiliate,” with decisions by a majority.
27
Bartine likewise concluded 4.4A(21) and (22) did not limit R&R’s actions
as to the CC&Rs, noting: “[W]hat is more clearly fitted into the Managing
Member’s market expertise than the form of restrictions that will allow fair
management and maintenance of the office park without over-restricting and
devaluing the property and its uses.” Bartine stated he was “also comforted by
the fact that the proposed association documents AND the CC&Rs are based on
the Paragon Office Park model documents, so there is a course of dealing in that
area.”
Finally, Bartine stated: “I have spent quite a bit of time considering section
4.4A of the [operating agreement,] and I believe that these changes to the
association documents are materially consistent with the powers allocated to the
Managing Member and those retained by both Members to act on ‘Major
Decisions.’”
O’Connor and Gaer Letters. On March 15, 2013, O’Connor reacted to
Bartine’s letter by sending a letter to R&R’s Daniel Rupprecht stating the finalized
documents were filed “without the consent of KCL” and “wholly ignore” its
comments as “sent to William Bartine via email on August 29, 2012, and which
were discussed by the parties at length in a subsequent conference call, in an
October 3, 2012 meeting, and in a January 10, 2013 meeting.” O’Connor also
wrote, this “correspondence constitutes KCL’s notice that, by having filed these
three documents, R&R, acting as the Managing Member, may be in material
breach” of the operating agreement.12
12
The Paragon Best operating agreement’s “major decision” section provides:
28
On March 20, 2013, Gaer responded to O’Connor’s letter because
Rupprecht was out of the office. Gaer understood O’Connor was objecting to the
Highland Pointe documents. Gaer stated he believed Bartine’s February letter
addressed the concerns O’Connor raised and R&R believed the recording of the
Highland Pointe documents was in compliance with the operating agreement.
“We were concerned that any further delay in recording those documents would
have been detrimental to the owners of Paragon Best, LLC due to the pending
sales of two (2) retail sites and could have placed R&R in violation of Section
4.02 of the operating agreement.”
Gaer noted the owners’ association/CC&Rs were based on the 2006
documents. Also, R&R had received “KCL’s suggested changes” to the
documents three months after Bartine sent out a draft “for review and comment.”
Gaer then noted the documents were an agenda topic at the October 3 meeting
and during the conversation Knapp and Galvin “agreed that KCL’s changes
should not vary the Iowa statutory provisions applicable to not-for-profit entities
nor should the changes alter the parties’ respective responsibilities and duties” in
the operating agreement. Gaer reminded O’Connor of Gaer’s follow-up email
“asking for KCL to provide me with a couple of dates and times for a conference
A Member shall be deemed to have Approved any such Major
Decision in the event that such Member does not Approve or disapprove
such Major Decision in writing to the Managing Member within thirty (30)
days . . . after notice of a pending Major Decision is sent to such Member
by the Managing Member.
The district court ruled that Urbandale Best did not provide timely notice to R&R under
this provision because O’Connor’s letter mentioned only Kansas City Life. We disagree
with the district court on the notice issue, but ultimately hold R&R did not breach the
operating agreement.
29
call with Bill Bartine to finalize” the Highland Pointe documents. “At no time did
KCL provide us with any dates or times for a conference call to further discuss”
with Bartine the Highland Pointe documents.
Gaer stated at the January 10 meeting, Knapp and Galvin “acknowledged”
that “we needed to finalize and record the Owners’ Association/CC&Rs before
closing on either of those sale transactions to ensure that those parcels and their
subsequent owners would be subject to the Owners’ Association/CC&Rs.” Gaer
concluded: “Because of the pending sales and no timely response back from KC
Life, we asked [Bartine] to finalize the drafts based on the discussion and
philosophical agreement reached between R&R and KC Life at our October 3,
2012 meeting.”
District Court Proceedings. On April 1, 2013, Urbandale Best filed suit
alleging R&R breached the operating agreement, asking for a declaration
vacating the Highland Pointe documents, and seeking temporary and permanent
injunctions barring R&R from taking action allegedly authorized by those
documents that otherwise required the unanimous consent of the parties. R&R
filed an answer and counterclaim, alleging Urbandale Best breached the contract
by preventing R&R from managing Paragon Best.
The district court held a temporary injunction hearing on June 13, 2013.
O’Connor, Bartine, and Gaer testified. At issue was whether Paragon Best and
R&R should be stayed from proceeding pursuant to the Highland Pointe
documents until the court had made a final determination on whether the
30
Highland Pointe documents are major decisions.13 Using the Dice Building as an
example, O’Connor testified to the “irreparable harm” causing it to seek an
injunction:
Under the previous operating agreements, if one party wants
to propose a build opportunity and the other party does not agree
with that build opportunity, the proposing party has the opportunity
to purchase the other member’s interest. That occurred regarding
a proposed build opportunity for [the] Dice Building.
Urbandale interest disagreed with that. So we agreed to the
buyout . . . . [A Planned Urban Development was in place.] The
PUD required that any construction on Paragon South to be of
generally brick material, earth-tone, neutral colors, landscaping to
provide for a homogenous development.
....
And so once we agreed to let them buy us out on the
proposed Dice building, they had control of the PUD. They then
changed the standards for brick buildings and things like that and
directed a single-story white building that has black glass
throughout the middle of it . . . . It is not consistent [with] the master
plan for the original Paragon properties.
And the concern for irreparable harm is that if Urbandale is
not represented equally on the boards . . . that the same situation
could occur again, where we pass on a building opportunity and
then smack-dab potentially in the middle of the rest of the land we
are going to be stuck with a building such as the Dice building,
which could cause irreparable harm in the sense of development
opportunities that others pass on because of the existence of this
building.
(Emphasis added.) The district court questioned O’Connor to clarify Urbandale
Best’s position:
THE COURT: Did [Kansas City Life] participate in any of the
actions before the city with regard to a change in the design or
appearance of the [Dice building].
O’CONNOR: No.
13
Bartine acknowledged if the court later determined the Highland Pointe documents do
constitute “major decisions,” the documents could be refiled or amended with the
consent of both parties.
31
THE COURT: So you’re complaining about it now, but you
did not involve yourself in the actions before the city that might
have precluded a different appearance?
O’CONNOR: That is correct. And the reason being, by that
time we were in the process of liquidating our assets in . . . the
Paragon developments except for the unimproved land for Paragon
West and North.
....
THE COURT: You had a remedy to try and prevent the
construction of a building that you thought was inconsistent with the
plans then existing for the whole development?
O’CONNOR: Correct.
THE COURT: You just did not?
O’CONNOR: Yes.
THE COURT: Would the same opportunity be available to
you in the [Paragon Best] agreement if you did not believe that a
building constructed pursuant to a buyout was consistent with the
overall plans of the development?
....
O’CONNOR: That is an option that we could pursue.
The district court balanced the equities and concluded “Urbandale Best
has not met its burden to justify issuance of a temporary injunction.” The court
concluded an “injunction at this time would harm both parties by delaying the
closing of the first sale of land at Paragon Best.”
In August 2013, the district court held a three-day bench trial. The parties
stipulated the temporary-injunction proceedings were a part of the trial record.
Gaer testified that at the time R&R signed the Paragon Best operating
agreement, it did so with the understanding that the matters agreed upon in the
2006 Bartine email/letter agreement were a part of the intent of the parties upon
signing. Further:
Q. And at the time R&R signed [the Paragon Best operating
agreement], did it do so with the understanding that there had been
since [the Bartine email/letter agreement] actual examples in
conformance with [it]. A. Yes.
32
Q. . . . [W]as that course of conduct such that it formed part
of the intent of R&R at the time it signed [the Paragon Best
operating agreement]? A. Yes.
Q. Without the understanding in [the Bartine email/letter
agreement], would R&R have signed the Paragon Best, LLC,
operating agreement . . . ? A. If Kansas City Life wanted as much
control and authority as they claim to want today, we would have
never brought them in as a partner.
Q. Why not? A. Because we can’t operate our business.
This is our hometown. We’ve got six-million square feet of
commercial real estate, and we need to be able to operate our
business here and to protect the reputation and the integrity of
R&R.
Q. Can you envision anything that R&R would do as the
sole managing member of Paragon Best that would not be also in
the same interest, good or bad, for Urbandale Best? A. No,
because we’re 50/50 partners in that land, and R&R has another
two-million square feet in Urbandale. So the last thing [R&R is]
going to do is create problems for ourselves in developments in
[Urbandale, where we are the biggest taxpayer].
Further, Gaer testified the Highland Pointe documents “fall under the
rubric of what the managing member’s responsibilities were going to be” and are
not major decisions based on the “custom and usage of the real estate
development market” and the parties “past course of conduct.”
In October 2013 the district court ruled Urbandale Best failed to meet its
burden to secure a permanent injunction or declaratory relief because R&R did
not breach the operating agreement. The court based its ruling on “the custom
and practice in the industry, the course of dealing between the parties, and the
express purpose of the parties’ letter agreement [from 2006].” Although R&R did
not request the district court do so, the court also listed eight matters that did not
constitute major decisions under the operating agreement. On R&R’s
counterclaim, the court ruled Urbandale Best breached the operating agreement
“by making R&R’s performance impossible” and determined $23,122.50 was “an
33
appropriate measure of damages” considering the time expended on the litigation
by R&R personnel.
Urbandale Best now appeals.
II. Standards of Review
Urbandale Best’s request for declaratory judgment and injunctive relief
invoked the district court’s equitable jurisdiction. See Iowa R. Civ. P. 1.1501.
We review the district court’s ordering denying Urbandale Best’s request for relief
de novo. See City of Okoboji v. Parks, 830 N.W.2d 300, 304 (Iowa 2013). The
district court’s findings of fact are not binding, but we give weight to its
assessment of witness credibility. Id.Because R&R’s counterclaim for breach of contract was tried in the same
equity proceeding, we also review it de novo. Rector v. Alcorn, 241 N.W.2d 196,
199 (Iowa 1976) (“[O]nce equity has obtained jurisdiction of a controversy, it will
determine all questions material or necessary to accomplish full and complete
justice between the parties, even though in doing so it may be required to pass
upon some matters ordinarily cognizable at law.”).
Urbandale Best urges us to apply an additional layer of scrutiny to the
district court’s decision. It asserts the court’s ruling so closely tracks the
proposed findings and conclusions submitted by R&R that the independence of
the court’s reasoning deserves a closer look on appeal. See In re Marriage of
Siglin, 555 N.W.2d 846, 849 (Iowa Ct. App. 1996) (“[T]he proposed decision
should be a guide, with selected portions incorporated into the independent
thoughts of the trial judge.”). R&R responds that “[t]he fact that the district court
34
requested both parties to submit proposed findings does not negate the fact that
the district court heard all of the evidence and was the judge of the credibility of
the witnesses.”
Our supreme court has recognized “counsels’ submission of proposed
findings of fact and conclusions of law can be extremely valuable in assisting the
district court, especially in highly technical or complicated cases.” See
NevadaCare, Inc. v. Dep’t of Human Servs., 783 N.W.2d 459, 465 (Iowa 2010).
But the supreme court has discouraged district courts from adopting verbatim the
proposed findings and conclusions prepared by counsel for one of the parties,
lest it appear the court has abdicated its responsibility to reach an objective
determination. Id. at 465–66; see Rubes v. Mega Life & Health Ins. Co., 642
N.W.2d 263, 266 (Iowa 2002) (“[T]he customary deference accorded trial courts
cannot fairly be applied when the decision on review reflects the findings of the
prevailing litigant rather than the court’s own scrutiny of the evidence and
articulation of controlling legal principles.”).
In this case, the district court ruling does borrow liberally from R&R’s
proposed findings of fact and, to a somewhat lesser extent, from its conclusions
of law. But that drafting issue alone does not signal the district court’s abdication
of its independent decision making. The transcripts of the injunction hearing and
the bench trial show the court was keenly interested in the factual background
and legal issues and engaged in its own questioning of witnesses for both parties
in an effort to clarify the record. While Urbandale Best has raised legitimate
concerns, we believe the district court decision was the product of independent
35
judgment. See Siglin, 555 N.W.2d at 849. Finally, “in equity actions such as this
we review the evidence anew, disconnected, ultimately, from the trial court
findings.” Id.III. Principles of Contract Interpretation and Construction
In contract cases, our supreme court has described interpretation as
determining the meaning of words in a contract and construction as deciding the
legal effect of such words. Fausel v. JRJ Enterprises, Inc., 603 N.W.2d 612, 618
(Iowa 1999). The “cardinal rule” of contract interpretation is to decipher the intent
of the parties at the time they entered into the agreement. See Pillsbury Co. v.
Wells Dairy, Inc., 752 N.W.2d 430, 436 (Iowa 2008). If we can ascertain the
principal purpose of the parties, we give it great weight. Id. We can consider
extrinsic evidence to help us in the process of interpretation. Id. Because
“meaning can almost never be plain except in a context,” we determine the
meaning of contract provisions in the light of all relevant evidence, including the
situation and relations of the parties, their prior course of dealing, and usages of
the trade. Fausel, 603 N.W.2d at 618 (stating the rule that words “are interpreted
in the light of all the circumstances is not limited to cases” where ambiguity
exists). We use these rules to determine “what meanings are reasonably
possible” and also to deduce our choice “among possible meanings.” Pillsbury,
752 N.W.2d at 436. “‘But after the transaction has been shown in all its length
and breadth, the words of an integrated agreement remain the most important
evidence of intention.’” Fausel, 603 N.W.2d at 618 (quoting Restatement
(Second) of Contracts § 212, cmt. b, at 126 (1981)).
36
IV. Application of Principles to Paragon Best Operating Agreement
R&R and Urbandale Best present competing views of the Paragon Best
operating agreement and under what circumstances it would require R&R, as the
managing member, to obtain the agreement of Urbandale Best, the non-
managing member, under “Article IV Management of Company.” Urbandale Best
contends R&R unilaterally entered into three contracts (owners’
association/CC&Rs/Outlot A deed) that stripped Urbandale Best of its
management rights under the operating agreement’s major decision matrix. R&R
responds the March 2006 Bartine email/letter agreement reflected the intent of
the parties about how the relationship would proceed and now, mid-game,
Urbandale Best “seeks to change the rules or suggest they never applied.”
A. Deed. Our de novo review of the record shows Urbandale Best’s
challenge to the Outlot A deed is without merit. We give no credence to Knapp’s
testimony that at the time of the deed’s execution Kansas City Life might have
preferred another location for the detention pond. As explained below, we agree
with the district court’s statement the “suggestion that Urbandale Best would not
have signed the deed to the detention pond because it would have selected other
means for storm water detention is patently incredible.”
Two years before the deed was recorded, in 2010, R&R sent Urbandale
Best the master grading plan that showed the dimensions and location of the
storm water facility. The accompanying email told Knapp and Galvin: “We need
to start the project now in order to get the grading completed.” The email also
stated the City had agreed to pay for the grading of a street to be completed the
37
next year and the City was considering R&R’s request for rezoning to retail.
Thereafter, the City agreed to R&R’s retail proposal, and R&R and Urbandale
Best shared fifty/fifty in the $1,073,605 grading cost. As graded, ninety percent
of the elevation contours on the site plan are sloped toward the detention pond
on Outlot A.14
Gaer testified Paragon Best “could not change this grading plan without
going back to the City [of Urbandale] and getting their permission to do it.
There’s no guarantee they would have given us permission to change it.” Gaer
also stated it likely would cost Paragon Best another million dollars to change the
grading and put the detention pond on a different site. Gaer explained any
change to the storm water plan would disrupt the highly favorable agreement
R&R had negotiated with the City by agreeing to the City’s proposed location and
funding of Plum Drive. By agreeing, Paragon Best received the City’s permission
to zone fifteen acres as retail and the retail-zoned property has a higher market
value per square foot than when it was commercially zoned.
In July 2011, nine months before the deed, R&R unilaterally filed the
Highland Pointe Office Park Plat 1 storm water management facility maintenance
covenant and permanent easement agreement, which required the transfer of the
storm water detention pond to the owners’ association. Urbandale Best did not
14
Schalekamp testified:
Q. And if . . . a storm water detention pond [was] required by the
agreed-upon site plan and planned unit development master plan that
had been agreed upon by the joint venture parties, that is Kansas City
Life and R&R, then that detention pond would be a necessary element of
that development, would it not? A. Yes.
38
object to this covenant and easement agreement. Finally, the deed itself is
identical to an unchallenged deed in an earlier Paragon development.
Urbandale Best now asserts it would consider spending an additional
million dollars pursuing an “alternative” to a development plan that had long been
in place and was significantly completed. Its assertion is unbelievable. R&R did
not breach the operating agreement by executing and recording the deed to
Outlot A. Rather R&R acted in conformity with its obligations under the operating
agreement as the managing member.
B. Owners’ Association/CC&Rs. With the above contract-law principles
in mind, we turn to the language of the operating agreement that bears on the
intent of the parties as to the owners’ association/CC&Rs. Section 4.1 of the
operating agreement requires the managing member, R&R, to “conduct the
business of the Company on a day-to-day basis” but also to regularly consult the
non-managing member, Urbandale Best, concerning “matters that may arise
outside the ordinary course of business.” Section 4.2 sets performance
standards for the managing member, requiring it to “use all commercially
reasonable efforts to efficiently, prudently, and profitably” operate the business to
achieve its profit goals and a commercially reasonable return on the members’
investments. And section 4.4A lists twenty-three “major decisions” which require
unanimous written approval of all members, including requiring R&R to seek
39
approval from Urbandale Best for “any transaction not in the ordinary course of
business.”15
Urbandale Best contends (1) the text of the fully integrated operating
agreement “best represents the parties’ intent that Urbandale Best be involved in
making major decisions, and (2) the Highland Pointe documents are exactly the
sort of items encompassed by the major decisions” matrix. Urbandale Best
points to Bartine’s trial testimony that the challenged documents are agreements,
create obligations, and transfer property—which qualify them as major decisions
under sections 4.4A(21) and (22) of the operating agreement.
Urbandale Best is unconvincing in its reliance on a sliver of Bartine’s
testimony. His additional discussion concerning the parties’ intent when they
entered into the 2008 operating agreement does not support Urbandale Best’s
position. It is important to look at the parties’ course of dealings in the context of
the 2006 e-mail/letter agreement. See Alta Vista Props., LLC v. Mauer Vision
Ctr., PC, 855 N.W.2d 722, 727 (Iowa 2014) (considering communications
between the parties as an aid to contract interpretation). When we allow that
extrinsic evidence to aid in our interpretation of the major decision matrix, we
conclude both parties intended and acted to implement the prior operating
agreements16 and the challenged agreement without a hypertechnical reading of
15
The record shows the content of the “major decisions” was vigorously negotiated
between the parties in 2006 and remained in the revised operating agreement signed in
2008.
16
Kansas City Life never objected to its lack of representation on the owners’
association board/committee at Paragon Office Park, thus further showing the
board/committee did not make major decisions and the managing member was free to
operate the board/committee.
40
each major decision category. Rather, consistent with the general practices in
the commercial real estate field, including Kansas City Life’s own experiences in
a prior Arizona development, the parties expected R&R to unilaterally execute
documents and deeds in the ordinary course of business that are “ministerial” or
“ancillary” and “necessary to make the bigger deal go forward.”17
Bartine testified to the practical need of the managing member to be able
to manage and explained the challenged documents are “excepted” from the
matrix because they are “just every day ordinary course of business documents.”
Specifically:
Q. And so your testimony . . . has been that if a document
falls within the ordinary course of business, it’s not a major
decision, isn’t that right? A. That would be how I see it, yes.
....
Q. . . . [I]f you come to the determination that a document is
within the ordinary course of business within section 4.4A(13) but
might also fall within one of the other major decisions in section
4.4A, it’s not a major decision because it doesn’t apply here? A. It
can’t produce a ridiculous result . . . .
Q. [Your actions were taken] because you thought these
documents were within the ordinary course of business under
section 13 regardless of whether they might have fallen within one
of the other [major decision] sections. True or not true. A. That’s
true. But how important are these documents? Really, where is
the materiality in these documents? Because I see these as
documents that a real estate developer would put in place to control
the development and drive the value up on the properties. . . . And
R&R is just not going to do documents like this that are going to
cause problems or decrease the value of the development period.
Q. Even if the operating agreement requires them to do so?
A. You have to look at the whole operating agreement and you
have to look at the context of the negotiations and of the
17
The act of notifying Urbandale Best of the recording of the documents does not
change the document’s status or the parties’ intent upon signing the 2008 operating
agreement. The other circumstances under which a Kansas City Life entity signed
CC&Rs were different from the current situation. The prior circumstances involved
financing and a major land swap and neither circumstance is presented herein.
41
relationship. And in this one you have [the 2006 email/letter
agreement] floating around out there where we had this
understanding. I always had this understanding with these folks.
Attorney Bartine brought more than three decades of experience in
commercial real estate to his position as entity counsel. Like the district court,
we find credible his opinion that the challenged documents did not constitute
major decisions.
Accordingly, we find at the time the parties entered into the 2008 operating
agreement, as to R&R’s managerial actions, the parties intended to follow both
their prior course of dealing and the customs in the commercial real estate
industry. In 2008 they intended for R&R, as the sole managing member, to make
managerial decisions and to take unilateral actions required in the ordinary
course of business to “make the bigger deal go forward.” In fact, after signing the
Paragon Best operating agreement, R&R so acted without complaint by
Urbandale Best.18 We therefore conclude R&R’s unilateral actions, given the
parties’ intended latitude for R&R as the managing member, did not constitute a
breach of the 2008 Paragon Best operating agreement.19
C. District Court’s Sua Sponte List. At the conclusion of its ruling, the
court listed eight matters “outside the Major Decisions of Section 4.4 of the
Paragon Best Operating Agreement, and within the exclusive rights and
18
In 2011, R&R unilaterally prepared and signed numerous easements within Highland
Pointe, a warranty deed for a road right-of-way, and an owner’s consent to plat.
Urbandale Best did not claim these actions were major decisions requiring its agreement
before R&R could act.
19
Because we conclude R&R’s role as managing member encompassed all of the
actions it took, we find no merit to Urbandale Best’s claim R&R’s actions violated major
decision “(5) Any act in contravention of the Agreement or the Article of Organization of
the Company.”
42
responsibilities of R&R as sole Managing Member.” Urbandale Best claims the
actions are too broad and strip it “of all rights to participate in the
management/governance of Paragon Best” including “the right to approve or
disapprove the sale of lots.” R&R responds the district court acted appropriately
under its inherent equitable powers.
Upon our de novo review, we recognize the district court was attempting
to list actions regarding plating, easements, and deeds that R&R previously had
undertaken without challenge during the parties’ prior course of conduct in the
Paragon developments. In the spirit of judicial restraint, we vacate the court’s
specific list, which was not requested by R&R. Instead, we expect the parties to
conduct their future business in accordance with this opinion and in accordance
with their prior course of conduct in all of the Paragon developments.
V. Denial of Injunctive Relief
Urbandale Best filed an action alleging R&R had contravened the
operating agreement, but did not seek damages. Instead the company asked for
a declaratory judgment and injunctive relief. Injunctive relief is an extraordinary
remedy—granted with caution and only when required to avoid irreparable
damage. Skow v. Goforth, 618 N.W.2d 275, 277–78 (Iowa 2000). The party
seeking an injunction, here Urbandale Best, bears the burden to show (1) an
invasion or threatened invasion of a right, (2) substantial injury or damages will
result unless an injunction is granted, and (3) no adequate legal remedy is
available. See id. On appeal, Urbandale Best argues its claim for irreparable
harm was “the loss of its contractual right to manage the business.”
43
We reach the same result as the district court on the issue of injunctive
relief, but for different reasons. In our de novo review of the record, we find no
evidence that R&R’s action in recording the Highland Pointe documents resulted
in a material change in the managing structure envisioned by the parties when
they signed the operating agreement. We are persuaded by testimony from
attorney Bartine concerning the anticipated impact of the CC&Rs and the owners’
association documents on the relative roles of the two members of Paragon Best.
Bartine testified nothing in the CC&Rs would circumvent the major decision
criteria in section 4.4A of the operating agreement. He testified regardless of the
membership in the owners’ association, R&R would be required to follow the
operating agreement with regard to major decisions. When asked if the owners’
association board or the architectural review committee could do anything to
contravene Paragon Best’s operating agreement, he replied: “I’m having trouble
thinking through what might be a major decision that would face those people.”
Bartine further testified if an unexpected scenario occurred where they were
faced with a major decision, he “would advise them to involve the major decision
process” under the operating agreement.
Given this testimony, we conclude Urbandale Best has not met its burden
to show irreparable harm in the form of losing its contractual right to manage the
major decisions of the business.
VI. R&R’s Counterclaim
The district court concluded R&R proved by a preponderance of evidence
that Urbandale Best breached the operating agreement by making R&R’s
44
performance impossible. The court based its conclusion on “actions by Kansas
City Life affiliates [which] have thwart[ed] the joint ventures’ success.” The court
also opined: “A further breach of this obligation is imminent if Urbandale Best
does not allow the closing of the hotel property to proceed and the development
plan for Highland Pointe Office Park to go forward.” The court further determined
Urbandale Best breached its duty of good faith and fair dealing and ordered the
company “henceforth to act . . . consistent with its contractual obligations in the
Operating Agreement for an Major Decision as interpreted by the Court.” The
court calculated damages based on time spent preparing for trial by R&R
personnel and by Bartine and awarded R&R $23,122.50.
On appeal, Urbandale Best asserts it cannot be held responsible for the
alleged actions of other affiliates of Kansas City Life, and further points out prior
disputes between a different Kansas City Life affiliate, RREI, were settled and
should not be considered as part of R&R’s counterclaim. In addition, Urbandale
Best contends its filing of this lawsuit “cannot, as a matter of law, serve as a
basis for a claim of breach of the covenant of good faith and fair dealing.”
R&R’s counterclaim boils down to two questions: (1) Did Urbandale
Best—by attempting to enforce the “major decision” provisions of the operating
agreement—prevent R&R from completing its obligations? (2) Did Urbandale
Best breach an implied covenant of good faith and fair dealing by filing this
lawsuit? We will address each of these questions in turn.
First, R&R contends “it is a term of every contract that one party shall not
prevent the other party from performing its obligations”—citing Employee
45
Benefits Plus, Inc. v. Des Moines General Hosp., 535 N.W.2d 149, 155 (Iowa Ct.
App. 1995). R&R is correct that our courts have recognized an implied term that
one party will not prevent the other from complying with the contract conditions.
But R&R obscures the consequence of that action. Employee Benefits Plus
explains: “[I]f one party to a contract prevents the other from performing a
condition or fails to cooperate to allow the condition to be satisfied, the other
party is excused from showing compliance with the condition.” Id. (Emphasis
added). If Urbandale Best’s actions prevented R&R from complying with a term
of the operating agreement, R&R would be excused from compliance with the
term, but the fact of an excuse does not provide R&R with its own cause of action
for breach of contract by Urbandale Best. See id.Second, R&R contends Urbandale Best’s decision to seek declaratory and
injunctive relief constituted a breach of the implied covenant of good faith and fair
dealing. R&R claims the buy-out rights and other provisions provided in the
operating agreement are the sole remedies available to Paragon Best members.
Both R&R and the district court reach into the business history of the two entities
to support the finding that Urbandale Best was following an obstructionist
strategy.
We recognize an implied duty of good faith and fair dealing in all contracts.
Bagelmann v. First Nat’l Bank, 823 N.W.2d 18, 34 (Iowa 2012). “Good faith
performance or enforcement of a contract emphasizes faithfulness to an agreed
common purpose and consistency with the justified expectations of the other
party.” Restatement (Second) of Contracts § 205, cmt. a, at 99. “[B]ad faith may
46
be overt or may consist of inaction, and fair dealing may require more than
honesty.” Id. at cmt. d. When agreeing to contract, the parties enter an implied
covenant not to act in a way that will destroy or injure the rights of the other party
to receive the fruits of the contract. Am. Tower, L.P. v. Local TV Iowa, L.L.C.,
809 N.W.2d 546, 550 (Iowa Ct. App. 2011). But the implied covenant does not
“give rise to new substantive terms that do not otherwise exist in the contract.”
Bagelmann, 823 N.W.2d at 34. Rather, the duty of good faith offers the parties
“what they would have stipulated for at the time of contracting if they could have
foreseen all future problems of performance.” Am. Tower, 809 N.W.2d at 550.
We are skeptical that filing a lawsuit to enforce a literal reading of
provisions of the operating agreement, even if that literal reading is not the
interpretation ultimately given the contract by the court, could constitute a breach
of the entity’s duty of good faith and fair dealing. See generally Klein v. Freedom
Strategic Partners, LLC, 595 F. Supp. 2d 1152, 1162 (D. Nev. 2009) (concluding
filing a lawsuit to enforce a partnership agreement, misconstruing the agreement,
and thereby frustrating the other party’s ability to govern was “not a breach of the
duties of loyalty and care”).
We disagree with the district court’s conclusion that R&R proved
Urbandale Best breached the operating agreement by seeking clarification of its
terms in this lawsuit. Neither do we find support in the record for the court’s
statement that further breach of its obligation is imminent if Urbandale Best
47
delays the closing of the hotel property.20 Accordingly, we reverse the district
court’s ruling on R&R’s counterclaim and vacate the award of damages.
We remand for entry of an order and judgment in accord with this opinion.
Costs are taxed one-half to each party.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Doyle, J., concurs; Danilson, C.J., concurs in part and dissents in part.
20
At trial, Bartine testified the hotel franchisers asked for a different configuration of the
lot and that request was under discussion at the time of the trial and no closing was
imminent on the hotel deal.
48
DANILSON, C.J. (concurring in part and dissenting in part).
I concur in the majority’s decision to reverse the district court’s ruling on
R&R’s counterclaim and to vacate both the damage award as well as the district
court’s listing of non-major decisions. I dissent in part as I would reverse the
district court’s denial of the relief sought by Urbandale Best.
Once the maze of complex and confusing facts is traversed, the question
is whether R&R made or authorized itself to make major decisions without
Urbandale Best’s equal participation. Urbandale Best contends it did and
thereby usurped the power of Urbandale Best to jointly make major decisions.
Thus, Urbandale Best contends R&R breached the parties’ operating agreement.
There is no dispute that both parties invested an equal, substantial sum of funds
into a joint venture and “major decisions” were to be made on a joint basis.
As the majority noted, the operating agreement provides:
Neither the Company, nor any of the Members acting alone, nor the
Managing Member, shall take any of the actions (each a ‘Major
Decision’) set out below without first obtaining the unanimous
written Approval of all of the Members:
....
(13) Any transaction not in the ordinary course of business or
affairs of the Company;
....
(21) Entering into a contract, agreement or obligation that is for
longer than one (1) year, other than leases that do not require
unanimous approval of all Members . . . ;
(22) Granting or conveying any interest in property or any right to
use or occupy any property other than leases that do not require
unanimous approval of all Members . . . .
The dispute arose because the articles and bylaws clearly permit the transfer of
real estate by the owner’s association and such decisions may be made by five
49
directors, three individuals from R&R and two from Urbandale Best. Clearly the
operating agreement requires a joint agreement for the transfer of real estate.
Urbandale Best relies upon the terms of the operating agreement to
interpret the meaning of the term “major decisions” and argues that the articles
and bylaws are in clear contravention of the parties’ operating agreement. R&R
relies upon a course of business from prior business relationships, customs of
the commercial real estate business to interpret the same term, and paragraph
13 of the operating agreement to support its actions.
One problem with R&R’s reliance upon a “course of business” from prior
relationships is that all prior relationships dealt with different entities, although
formed by some of the same principals. R&R has not provided any authority in
this scenario for reliance upon the prior course of conduct of different entities.
Moreover, R&R attempts to use past history and customs of the
commercial real estate business to vary unambiguous terms in the contract.
Thus, the better view is that R&R is attempting to use the past course of
business to support the waiver of specific terms in the parties’ operating
agreement. See Margeson v. Artis, 776 N.W.2d 652, 659 (Iowa 2009) (noting
parties may waive terms of their agreement).
Further, even if the past course of conduct between the principals or the
customs in commercial real estate business may be supportive of Urbandale
Best’s waiver of their joint decision making authority in subsequent subsidiaries’
articles of incorporation and bylaws, here there was no waiver. Our supreme
court has stated,
50
Waiver is defined as the voluntary or intentional relinquishment of a
known right. The essential elements of a waiver are the existence
of a right, knowledge, actual or constructive, and an intention to
relinquish such right. Waiver can be express, shown by the
affirmative acts of a party, or implied, inferred from conduct that
supports the conclusion waiver was intended. Generally, the issue
of waiver is one for the jury; when the evidence is undisputed,
however, the issue is one of law for the court.
Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. v.
Federated Mut. Ins. Co., 596 N.W.2d 546, 552 (Iowa 1999) (internal citations and
quotations omitted).
As the majority noted, the relationship between the principal, Kansas City
Life, and R&R that began in 2005 “had grown adversial,” and at least one of the
issues between them was R&R’s sole decision to permit a design of a building in
another development, a design found objectionable to Kansas City Life. As a
result, the parties had discussions and negotiations regarding the meaning of
“major decisions” and R&R’s authority as the managing member under the
instant operating agreement.
More significantly, when the articles of incorporation and bylaws were
shared with Urbandale Best before their filing, Knapp responded by sending an
email to Mark Rupprecht and Gaer with various redline changes intending to
modify their terms to be consistent with equal participation in major decisions.
However, Gaer asked attorney Bartine to prepare and file the articles and bylaws
as initially prepared without the changes sought by Urbandale Best.
Under these facts, Urbandale Best did not consent to a modification of the
terms of the operating agreement nor waive their applicability. Even if Kansas
City Life has previously waived similar rights or authority in other development
51
entities, it clearly sought and put R&R on notice that it intended to exercise its
authority during all stages of their relationship with perhaps one exception. I
would agree R&R’s execution of an easement for Outlet A for a storm water
detention pool did not constitute a breach as Urbandale Best or its principals
impliedly consented to R&R’s action by sharing the substantial grading cost of
the site plan that incorporated the storm water detention pool.
Any authority afforded to R&R to prepare and file the articles of
incorporation and bylaws for the owners association because of the course of
conduct of the parties, customs in the commercial real estate industry, or
paragraph 13 of the operating agreement did not permit it to revise the terms of
the parties’ operating agreement as it did here.
I agree with Urbandale Best that the owners’ association’s articles of
incorporation and bylaws filed by R&R have caused Urbandale Best to lose its
contractual right to jointly share in the major decisions of the real estate
development and it is entitled to injunctive relief.