Civic Partners Sioux City, LLC v. Main Street Theatres, Inc. (In re Civic Partners Sioux City, LLC)
Docket: No. 15-6024
Court: United States Bankruptcy Appellate Panel for the Eighth Circuit; July 19, 2016; Us Bankruptcy; United States Bankruptcy Court
Civic Partners Sioux City, LLC's chapter 11 bankruptcy case was dismissed by the bankruptcy court on July 8, 2015, prompting an appeal that resulted in a reversal and remand. Civic Partners owns the Promenade in Sioux City, Iowa, and has outstanding mortgages with Northwest Bank and the City, both secured by the Promenade. Main Street Theatres, Inc. occupies most of the Promenade but fell behind on lease payments, impacting Civic Partners' ability to meet its loan obligations.
In 2009, mediation among Civic Partners, Main Street, Bank, and City led to a settlement agreement requiring city council ratification. Under this agreement, the Bank would restructure Civic Partners' loan, the City would lower tax assessments, and Civic Partners would amend its lease with Main Street to reduce rent and forgive back rent. Civic Partners was to finalize agreements with both the Bank and City by January 15, 2010, to validate the amended lease. However, the city council did not ratify the settlement agreement, and Civic Partners was unable to formalize the agreement with the City.
Despite some extensions for declaring the amended lease void, Civic Partners terminated the lease on March 30, 2011, following lawsuits from the Bank and City. Civic Partners then filed for chapter 11 bankruptcy relief. In July 2012, the bankruptcy court ruled that the amended lease remained in effect and could not be terminated without returning a $200,000 restructuring payment to Main Street or obtaining the Bank's consent. Civic Partners' subsequent appeal of this ruling was dismissed due to its interlocutory nature.
In September 2012, Civic Partners submitted a "Second Amended and Substituted Plan of Reorganization" based on an amended lease, arguing for its termination despite prior bankruptcy court rulings affirming its validity. In October 2013, the bankruptcy court denied confirmation of this plan, citing feasibility issues. Following this denial, Bank moved to dismiss Civic Partners' bankruptcy case, which was temporarily paused as Civic Partners appealed various bankruptcy court orders. The appeals were dismissed in late October 2013 due to their interlocutory nature, and the Eighth Circuit Court of Appeals upheld this dismissal in March 2015. After a denied motion for rehearing, the bankruptcy court revisited Bank's dismissal motion, ultimately dismissing Civic Partners' case on July 8, 2015. Civic Partners filed a timely appeal.
The standard of review for the case includes a clear error standard for factual findings, de novo review for legal conclusions, and an abuse of discretion standard for the dismissal decision. The bankruptcy court's interpretation of the amended lease is also subject to de novo review if no ambiguity is present. Under Iowa law, the intent of the parties, as expressed in the lease, governs the interpretation of contracts, focusing on the clear language of the lease itself. The amended lease specifies conditions that Civic Partners must satisfy to uphold their obligations, including obtaining debt restructuring and repairs from the City and Bank. If Civic Partners fails to meet any conditions by January 15, 2010, they may declare the lease null and void by notifying Main Street by January 31, 2010.
Civic Partners has the right to terminate the amended lease and reinstate the Original Lease, treating all payments made by Main Street under the amended lease as applicable to the Original Lease. This action is supported by the clarity and specificity of the lease provisions, as Civic Partners was unable to reach an agreement with the City. The termination does not constitute a rescission but is the exercise of contractual rights, consistent with Iowa law as established in Smith v. Russell.
Main Street is obligated to pay a $200,000 restructuring payment, which is separate from other lease obligations and does not require Civic Partners to return it prior to terminating the amended lease. Additionally, Civic Partners retains the right to apply these payments toward the Original Lease.
Bank, Main Street, and City argue that Civic Partners needed their written consent to terminate the amended lease, but Civic Partners contends that such consent was implicitly granted in prior restructuring agreements. Although Civic Partners did not obtain explicit written consent before the termination, the parties have not shown any provision that would invalidate the termination due to this default. Furthermore, the bankruptcy court noted that Bank may be considered a significant beneficiary of the amended lease.
To assert a breach of contract under Iowa law, a non-party must be a direct beneficiary, classified as either a donee or creditor beneficiary, to seek damages. A donee beneficiary is one for whom a gift is intended, while a creditor beneficiary satisfies an obligation of the promisor to the beneficiary. If neither status is established, the individual is merely an incidental beneficiary with no rights.
In this case, the bankruptcy court correctly found that the Bank was more than an incidental beneficiary of the amended lease but did not qualify as a donee beneficiary since there was no intent to gift. The Bank was recognized as a creditor beneficiary regarding a $200,000 restructuring payment, which grants it standing to claim breach of contract damages. However, no breach by Civic Partners was identified, as the lease allowed for its termination.
The bankruptcy court dismissed Civic Partners' chapter 11 case, citing delays and lack of progress, which were largely due to Civic Partners' unsuccessful appeals against rulings related to the amended lease. The court concluded that the original lease, not the amended one, governs the relationship between Civic Partners and Main Street, and it overlooked the potential for Civic Partners to propose a confirmable plan based on the original lease. Therefore, the dismissal order was reversed and the case was remanded for further proceedings.
Liberty National Bank participated in the mediation process, but its dispute with Civic Partners and the resolution of that dispute are not relevant to the current appeal. While Civic Partners' appeal was pending, the bankruptcy court issued an 'Amended Ruling' concerning Civic Partners' request to reconsider prior rulings related to its plan, which had not been confirmed. Under 11 U.S.C. § 1127, a plan may be modified by its proponent at any time before or after confirmation, with some jurisdictions calling these modified plans "amended plans." The jurisdiction of the court encompasses the events and rulings leading to a final order, as noted in Zahn v. Fink. According to section 30.5 of the amended lease, Iowa law governs the lease's validity and enforcement, a determination for the bankruptcy court if necessary. The decision to remand prevents the court from addressing other issues raised by Civic Partners, and it neither endorses nor dismisses the bankruptcy court's prior rulings on those issues, as referenced in Stalnaker v. Allison.
