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Cedar Rapids Bank and Trust Co. v. Mako One Corp.

United States Court of Appeals, Eighth Circuit

March 21, 2019

Cedar Rapids Bank and Trust Company Plaintiff - Appellee
v.
Mako One Corporation, et al. Defendant-Appellant

          Submitted: November 13, 2018

          Appeal from United States District Court for the Northern District of Iowa

          Before BENTON, BEAM, and ERICKSON, Circuit Judges.

          ERICKSON, CIRCUIT JUDGE.

         In August 2013, Mako One Corporation ("Mako") acquired the historic Badgerow Jackson Building in downtown Sioux City, Iowa, intending to restore it using state and federal historic tax credits. To help finance the $17 million restoration project, Mako prepared a tax credit bond offering of $6 million. Mako retained the law firm of Winthrop & Weinstine ("Winthrop") to draft the tax credit bond. Nine months later, Cedar Rapids Bank and Trust Company ("CRBT") retained Winthrop to represent it in connection with the Badgerow building tax credit project. In April 2017, after Mako and Badgerow failed to make any payments on the lease, CRBT, through counsel Winthrop, sought to foreclose on the Badgerow Building. Mako retained separate counsel and moved to dismiss for failure to join a necessary party and to disqualify Winthrop as CRBT's counsel. The district court denied both motions and awarded a judgment of $5.2 million in favor of CRBT. Mako appeals the denial of its motions, and additionally appeals the validity of the final judgment. We affirm in part, and reverse in part.

         I. Background

         In August 2013, Mako acquired the historic Badgerow Jackson Building in downtown Sioux City, Iowa. To help finance the $17 million restoration project, Mako, Badgerow, and Bruce DeBolt (president of Mako) prepared a tax credit bond offering of $6 million, to be repaid within one year, which CRBT purchased in entirety. To secure the bond, Mako and Badgerow executed and delivered to CRBT mortgages on the building. Mako leased the building to Badgerow, which subleased it to co-defendant Badgerow Jackson MT, LLC ("MT"), of which Chevron USA, Inc. ("Chevron") owns 99.99%. Pursuant to an agreement between the two Badgerow companies, Chevron promised, upon satisfaction of certain conditions, to make capital contributions to MT for payment of the lease in exchange for any federal tax credits generated by the property.

         When Mako first became interested in purchasing the property in November 2011, it retained the law firm of Winthrop & Weinstine. Winthrop attorney Jon Peterson provided legal services to Mako from November 2011 to May 2012 "in connection with [the] Badgerow Building tax credit project." Nine months later, in February 2013, CRBT sought to retain Winthrop to represent it in connection with the Badgerow building tax credit project. While foreseeing no conflict, Winthrop, exercising "an abundance of caution," prepared a conflicts waiver letter for CRBT and Mako.

         Addressed to both parties, the letter began by noting that "the interests of [CRBT] and Mako One are or may be adverse" with regard to the Badgerow tax credit project. Winthrop then requested consent from both parties with regard to current and future representation of CRBT and Mako One "on matters unrelated to the Transaction" and to Winthrop's "representation of the bank in connection with the Transaction." In accordance with the rules of professional responsibility, the letter then assured both parties that Winthrop "will not use confidential client information to either client's disadvantage" and "will be able to fully and properly represent [CRBT] and Mako One on their separate matters without representation of either client being affected by [Winthrop's] representation of the other client." The letter then requested that Mako agree to Winthrop's representation of CRBT in the transaction and unrelated matters, and promised that "[Mako] will not use the fact of our representation of the Bank as a basis to claim a conflict of interest on the part of [Winthrop], or to seek disqualification of the Firm, in any matter in which [Winthrop] represent[s] the Bank or may represent Mako One, other than the Transaction . . . ." (emphasis added). The letter similarly requested that CRBT agree to Winthrop's "representation of Mako One now or in the future in matters unrelated to the Transaction," and that CRBT would "not use the fact of our representation of Mako One as a basis to claim a conflict of interest on the part of [Winthrop], or to seek disqualification of the Firm, in any matter in which [Winthrop] represent[s] the Bank or may represent the Bank, including the Transaction . . . ." (emphasis added). Finally, the letter states that "[i]n the event that contentious disputes or litigation arise regarding the Transaction or if the Firm determines that continued representation may violate applicable Rules of Professional Conduct, the Firm will withdraw from representation of Mako One or the Bank."[1] The letter was then signed by DeBolt on behalf of Mako One and Gary Becker on behalf of CRBT.

         Winthrop represented CRBT for the remainder of the transaction, and Mako One retained the Heidman Law Firm. After the transaction closed in 2013, the parties negotiated and amended the bond maturity date six times, ultimately extending it to December 2016. Winthrop represented CRBT in all of these subsequent amendments, and Mako was represented by Kutak Rock LLP.

         In April 2017, after Mako and Badgerow failed to make any payments on the lease, CRBT sought to foreclose on the Badgerow Building without redemption in the Iowa state courts. Mako removed the case to the Northern District of Iowa. After suit was filed, DeBolt wrote to Winthrop:

I believe Norm [Jones] has serious conflict issues at this point in time as the firm is required to withdraw from representing the bank. I agreed to his representation of the bank for only so long as there was no adversarial conflict between Badgerow's interests and the bank's interests. As that conflict has now occurred I believe Norm, and the firm, should immediately withdraw entirely from the matter. Norm's actions have already damaged our legal position. The firm may be responsible for losses that are incurred as a result.

         Winthrop partner Norman Jones responded:

On your statement about legal conflict, please review with counsel the conflict waiver letter that Mako One signed as a former client of the firm in early 2013. The letter requires us to withdraw from representing both the bank and Mako One in the case of a contentious dispute. Winthrop's last work ...

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