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
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