                    IN THE COURT OF APPEALS OF IOWA

                                  No. 18-0204
                              Filed March 6, 2019


FLIX BREWHOUSE IOWA, LLC,
      Plaintiff-Appellee,

vs.

MERLE HAY MALL, L.P.,
     Defendant-Appellant.
________________________________________________________________


      Appeal from the Iowa District Court for Polk County, Jeanie Vaudt, Judge.



      Merle Hay Mall appeals a district court ruling finding an enforceable

settlement agreement existed between Merle Hay Mall and Flix Brewhouse Iowa.

AFFIRMED.




      Sarah K. Franklin and Elizabeth R. Meyer of Davis Brown Law Firm, Des

Moines, for appellant.

      William B. Serangeli of Dickinson, Mackaman, Tyler & Hagen, P.C., Des

Moines, for appellee.



      Heard by Potterfield, P.J., and Tabor and Mullins, JJ.
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MULLINS, Judge.

       Merle Hay Mall, L.P. (MHM), appeals a district court ruling finding an

enforceable settlement agreement between MHM and Flix Brewhouse Iowa, LLC

(Flix). MHM claims the parties did not reach an agreement on the meaning of the

contract terms in the settlement agreement, so no contract existed. We find an

enforceable settlement agreement existed and affirm the district court.

I.     Background Facts and Proceedings

       On April 4 and May 9, 2013, Flix, as tenant, and MHM, as landlord, entered

into a lease agreement. The lease was negotiated by Elizabeth Holland as CEO

and general counsel for MHM’s management company, Allan Reagan as president

of one of Flix’s management companies, and Matt Silvers as general counsel for

Flix. Holland drafted the lease agreement. The lease covered 37,000 square feet

of space located in Merle Hay Mall. Flix tendered a $1.5 million security deposit.1

MHM spent $12.8 million renovating the property to create appropriate space for

the theater and microbrewery—$5.3 million more than originally budgeted.

       Article 36 of the lease established a landlord’s lien and security interest on

Flix’s personal property. The relevant portions of Article 36 state:

              As further security for Tenant’s performance under this Lease,
       to the extent not expressly prohibited by applicable Law, Subject to
       the provisions set forth in Article 7, Paragraph D, Tenant hereby
       grants Landlord a lien and security interest in all tangible personal
       property existing and after-acquired property of Tenant placed in or
       relating to Tenant's business at the Premises, including but not
       limited to, insurance proceeds from casualty losses to personal
       property, fixtures, equipment, inventory, furnishings and other

1
  The contract provided $500,000 of the security deposit would be released when Flix
opened for business and paid its first month of rent, another $500,000 would be released
at the end of the first full lease year, and the final $500,000 at the end of the second full
lease year unless Flix had an ongoing default.
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       tangible personal property. . . . Tenant agrees to execute such
       financing statements, collateral assignment of rents and subleases,
       and other documents necessary to perfect a security interest, as
       Landlord may now or hereafter reasonably request in recordable
       form. Landlord may at its election at any time execute such a
       financing statement and collateral assignment as Tenant’s agent and
       attorney-in-fact or file a copy of this Lease as such financing
       statement and collateral assignment. Landlord shall be entitled
       hereunder to all of the rights and remedies afforded a secured party
       under the Uniform Commercial Code or other applicable Law in
       addition to any landlord's lien and rights provided by applicable
       Law.
              Provided that Tenant is not then in default of this Lease
       beyond any applicable cure period, Landlord following twenty four
       months (24) of continuous operation by Tenant agrees to execute a
       commercially reasonable subordination of its lien on Tenant's
       property to the lien of any bona-fide third-party lender to Tenant
       providing financing of furniture, fixtures and equipment and other
       removable personalty located at the Premises.           In addition,
       subsequent to the 84th month of the Term, upon Tenant’s written
       request, Landlord agrees to release its lien rights over Tenant’s
       personalty provided that the Lease is then in good standing and
       Tenant is open for business and occupying the Premises for its
       Permitted Use.

       On September 30, 2014, Flix signed a financing lease agreement for

personal property relating to food and drink service with GB Leasing, Inc. (GBL).2

The lease agreement granted GBL a security interest in the fixtures, furniture, and

equipment obtained through the lease. Flix opened for business in December

2014. In February 2015, MHM discovered the GBL lease. The parties did not

agree on the impact of the GBL lease on MHM’s lien subordination rights: MHM

claimed the GBL lease constituted a default under Article 36 of the MHM-Flix lease

and GBL was not a bona-fide third-party lender; Flix asserted Article 36 only




2
  A finance lease is essentially a lease-to-own arrangement, where the lessor finances the
asset and the lessee pays all other costs and has the option of purchasing the asset at
the end of the lease for a nominal price. See Lease, Black’s Law Dictionary (10th ed.
2014).
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applied to property Flix owned or had an interest in. MHM states it believed the

above language made it Flix’s lender and considered it a blanket lien over all of

Flix’s tangible personal property purchased or leased. MHM argued the provision

effectively prohibited finance lease agreements, but Flix did not hold a similar

understanding.

       On March 6, MHM filed a financing statement. On September 2, MHM sent

a letter asserting Flix had defaulted under the lease for failure of GBL to

subordinate its lien rights to MHM’s rights. Flix responded and denied default,

contending the lease did not limit or prohibit the leasing of equipment, which is a

standard practice in the restaurant and cinema industries.

       Flix sent MHM a notice-of-right-to-cure letter on January 13, 2016,

requesting release of the first $500,000 of the security deposit which should have

been released on February 1, 2015, if Flix was not in default. MHM did not

respond. On February 15, Flix sent a notice of default to MHM for its refusal to

release the first $500,000. Flix also sent a notice of right to cure to MHM for the

second $500,000 which should have been released on February 1, 2016. Citing

Article 36’s default provision, MHM refused to release the $1 million from Flix’s

security deposit.

       On April 11, the parties agreed to enter negotiations in an attempt to resolve

their differences. Holland represented MHM, and Flix was represented by Joseph

Borg. On April 27, Borg emailed a settlement proposal to Holland. Holland had

not responded by May 4, so Borg resent the proposal. Holland replied that she

had not received the initial email and would address the proposal the next week;

further communication resulted in a conference call on May 11.
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       The proposed settlement agreement provided Flix would terminate the GBL

lease and listed assets which only MHM held a lien on. MHM would execute the

joint order to release the disputed security deposit funds from the escrow agent

and agree to execute an attached subordination agreement. The subordination

agreement provided MHM would subordinate its lien to GBL beginning December

17, 2016.

       On the May 11 call, Holland stated MHM would agree to subordinate its

interest in Flix collateral after February 1, 2017, if Flix replaced GBL with a bona-

fide third-party lender or provided proof GBL was a true bona-fide third-party

lender. Holland testified during the call she explained her understanding of Article

36 to be that Flix could only finance after-acquired property after twenty-four

months of compliance with the lease—MHM had a full lien for the first twenty-four

months, then a step-down, and a release after eighty-four months.               Borg

understood from the call MHM would not subordinate until February 1 and all

discussions of the provision were in the context of the GBL lease. The next day,

Holland emailed Borg stating MHM only required two things to move forward to

resolution: a subordination from GBL to MHM through February 1, 2017, and

information sufficient to determine GBL was a bona-fide third-party lender.

       Borg sent a second settlement proposal on May 27, 2016. His email stated

“any subordination after February 1, 2017, would be to a ‘bona-fide third-party

lender’ as per the terms of the Shopping Center Lease.” The settlement and

subordination agreements were amended as requested in Holland’s email: moving

the subordination date to February 1, 2017, limiting MHM’s subordination to a

bona-fide third-party lender, changing the bona-fide third-party lien to “all assets
                                         6


owned by Flix” in place of an identified list of assets, and substituting GBL with an

unnamed secured party in the subordination agreement. Borg resent the proposal

on June 3, and received a reply from Holland that MHM was awaiting comments

from local counsel and would then set up a time to discuss.

       Borg followed up on June 16, and Holland responded she was waiting for

answers to a list of questions sent to MHM counsel that week. Borg and Holland

spoke by telephone on June 17; Holland was fine with the changes made and

indicated if GBL remained a secured creditor, MHM would require GBL to

acknowledge its lien rights were subordinate to MHM.

       Borg sent a third proposed agreement on July 1 reflecting his understanding

of Holland’s requested changes. This version included a subordination agreement

with GBL subordinating its interests to MHM’s primary lien. The proposal was sent

again on July 13, at which point Holland asked for a Word version so she could

compare it to a document drafted by her Iowa counsel.            Borg provided the

requested document on July 14, describing the proposed GBL subordination

agreement as a standard subordination agreement following the language of the

lease and noting the subordination agreement previously proposed by MHM was

inapplicable due to the expected termination of the Flix-GBL lease.

       On August 2, in response to a status check by Borg, Holland emailed Borg

stating:

       Our Iowa Counsel has reviewed the document and we will agree that
       provided nothing in our agreement will in any way be construed as
       an agreement that GB Leasing is in fact an arms length third party,
       we can agree to it. Until we are provided with this assurance, we will
       require this proviso.
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Borg added a provision reflecting Holland’s request on August 3, creating the

fourth settlement proposal, which Holland said “looks good.”

       Following Holland’s statements MHM agreed to the document, Flix began

to take steps to comply with its obligations under the settlement agreement. Flix

reached out to GBL and on September 6, GBL agreed to let Flix buy out the lease

agreement with a penalty payment of $15,000. Flix purchased the equipment from

GBL through the use of promissory notes.

       On October 6, Holland emailed Borg asking if the revisions were acceptable

to Flix. She stated, “Please let me know if they are and we can move forward to

execute this document. If it is acceptable, please have Flix execute it and we will

sign second.”    On October 13, Flix and GBL “accepted and executed the

agreement.”

       On October 31, one of Holland’s associates contacted Borg about extending

the letter of credit for the final $500,000 of the security deposit, which was set to

expire on November 6.      Borg testified the associate indicated the settlement

documents were fine, and Flix extended the letter of credit. Borg reached out to

Holland on November 16 for a status update on the settlement documents.

Holland responded and copied her associate asking if the letter of credit had been

extended and stated, “My understanding was that was what we were waiting for.”

       On December 12, four months after approving the document and nearly two

months after stating if Flix executed the agreement MHM would sign second,

Holland left Borg a voicemail message stating the settlement agreement did not

make clear MHM’s lien subordination would be limited to after-acquired property.
                                          8


She requested language be inserted in the agreement clarifying that. Borg did not

respond.

       On December 13, William Serangeli, additional counsel for Flix, sent an

email to Holland demanding receipt of the executed settlement agreement.

Holland executed the Exhibit 4 of the agreement—a joint order for the release of

$1 million of the security deposit held in escrow—and forwarded it to the escrow

agent, who released the funds to Flix.        No other portion of the settlement

agreement was returned to Flix executed by MHM.

       On December 22, Flix filed a petition against MHM to enforce the settlement

agreement. A two-day non-jury trial was held in November 2017. The district court

found Holland’s emails on August 2, 3, and October 6, 2016, could reasonably be

understood by Flix to be assent to the terms of the settlement agreement. The

court found an enforceable settlement agreement existed and MHM was in breach

of the agreement. The court awarded Flix attorney fees as provided in the lease

agreement and settlement agreement. MHM appeals.

II.    Standard of Review

       “Determining the legal effects of a contract is a matter of law to be resolved

by the court.” Galloway v. State, 790 N.W.2d 252, 254 (Iowa 2010). Any disputed

material facts surrounding a settlement agreement are resolved by the finder of

fact. Wende v. Orv Rocker Ford Lincoln Mercury, Inc., 530 N.W.2d 92, 94 (Iowa

Ct. App. 1995). Our review of a contract interpretation is for correction of errors at

law. Iowa R. App. P. 6.907; Schaer v. Webster Cty., 644 N.W.2d 327, 332 (Iowa

2002). The district court’s findings of fact are binding on us if supported by

substantial evidence. Land O’Lakes, Inc. v. Hanig, 610 N.W.2d 518, 522 (Iowa
                                         9


2000). If a reasonable mind would accept the evidence as adequate to reach a

conclusion, we consider it substantial for a finding of fact. Id. “Evidence is not

insubstantial merely because it could support contrary inferences.”       Strong v.

Rothamel, 523 N.W.2d 597, 600 (Iowa Ct. App. 1994). “We view the evidence in

a light most favorable to the trial court’s judgment.” Land O’Lakes, 610 N.W.2d at

522 (citation omitted).

III.   Analysis

       MHM claims no settlement agreement can exist, stating the parties did not

agree on the meaning of the material terms in Article 36 of the lease agreement

and the subsequent settlement agreement. “For a contract to be valid, the parties

must express mutual assent to the terms of the contract.” Schaer, 644 N.W.2d at

338. “[M]utual assent is based on objective evidence, not on the hidden intent of

the parties.” Id. (quoting Hill-Shafer P’ship v. Chilson Family Trust, 799 P.2d 810,

815 (Ariz. 1990)). Assent is normally recognized through offer and acceptance.

Heartland Express, Inc. v. Terry, 631 N.W.2d 260, 268 (Iowa 2001).             The

acceptance must match the offer “in all its conditions, without any deviation or

condition whatever.” Rick v. Sprague, 706 N.W.2d 717, 724 (Iowa 2005) (citation

omitted). “A settlement agreement need not be reduced to a writing before it is

enforceable unless required by statute or court rule.” Wende, 530 N.W.2d at 95.

       The district court found the objective evidence in the record established

mutual assent to the terms of the fourth proposed settlement agreement. We find

substantial evidence supports the district court’s conclusion.

       MHM points to testimony to support its claim the parties never agreed on

the meaning of the settlement agreement’s subordination obligations. Holland
                                        10


testified she viewed the settlement agreement as an either-or between either

termination of Flix’s lease agreement with GBL or its subordination to the MHM

lease agreement. However, from the first proposed settlement agreement, Flix

offered to terminate the lease with GBL. MHM continued to require language

limiting any potential GBL financing. MHM specifically requested changes in the

first version of the subordination agreement which were incorporated.          The

language of the proposed subordination agreement between MHM and an

unidentified bona-fide third-party lender then did not change from the second

proposed settlement agreement provided to Holland in May 2016 through the

fourth version of the settlement agreement as executed by Flix. After the initial

changes requested by MHM, no other modifications were requested to the

subordination agreement until Holland’s December call.

      The objective evidence provided to the court reveals the changes requested

by MHM were accommodated by Flix to the extent MHM clearly communicated its

requests. MHM, through Holland, largely approved the settlement agreement with

the third proposed agreement subject to the addition of a provision noting nothing

in the agreement could be construed as finding GBL qualified as a bona-fide third-

party lender. A provision was added to that effect, and Holland told Borg it looked

good. In October, Holland asked Flix to execute the document and stated MHM

would execute second. Holland did not place any qualifications or conditions

requiring further changes to the documents before execution.

      After Flix executed the document, it performed its obligations under the

settlement agreement. Flix terminated its lease with GBL, incurring a financial

penalty. MHM delayed executing the document until an existing line of credit for
                                          11


the remaining security deposit from Flix to MHM was extended three months. After

the line of credit was extended, and two months after Flix had executed the

agreement she had approved, Holland requested further modification of the

agreement in a way that would limit Flix’s ability to obtain financing and would

modify the plain meaning of the third paragraph of Article 36.           This request

occurred at approximately the same time Flix reached twenty-four months of

continuous operation, when, under Article 36, MHM’s lien would be subordinate to

any bona-fide third-party lender.

       Holland’s December request limiting any subordination to after-acquired

property was a new and unexpected request to Flix. At trial, Holland testified she

had explained her understanding of Article 36 to Borg in the May 11 call, but Borg

recalled the discussion as framed around the timing of MHM’s subordination of

GBL’s lease and objections to GBL as a bona-fide third-party lender. Holland also

testified to only becoming aware Flix did not read Article 36 in the same way as

MHM during pre-trial settlement conversations with Reagan and Silvers.

       A review of the objective evidence supports Flix’s interpretation of the

clause. The language of the third paragraph of Article 36 makes no mention or

implication limiting MHM’s subordination rights after twenty-four months of

operation to after-acquired property, despite the use of the “after-acquired” qualifier

in the previous paragraph. Moreover, in Holland’s email dated May 12, 2016, she

requires “A subordination from GB Leasing to Merle Hay Mall up through February

1, 2017.” The requested subordination did not specify it was limited for any

equipment or property acquired through GBL through February 1; it could be

understood to end the subordination February 1. We also note Holland testified
                                         12


she was aware the limitation she requested in December made the property

lease’s subordination clause “useless” to Flix in obtaining outside financing.

       We consider whether the objective evidence available at the time the

agreement was entered into could support the district court’s findings. In this

analysis we do not consider the hidden intent that may have been later revealed

during the trial process. Furthermore, we recognize that evidence supporting a

contrary inference does not make the evidence insubstantial. See Schaer, 644

N.W.2d at 338; Strong, 523 N.W.2d at 600. Viewing the evidence in the light most

favorable to the district court’s judgment, we find substantial evidence exists to

support a finding of an enforceable settlement agreement between Flix and MHM.

A reasonable person viewing the objective evidence could conclude a mutual

assent to the terms of the contract from Holland’s emails in August and October;

in particular the October statement, “If it is acceptable, please have Flix execute it

and we will sign second,” signaled objective assent to the terms of the agreement

and constituted an offer. Flix then executed the settlement agreement and took

actions to its detriment and for the benefit of MHM in conformance with the terms

of the agreement, constituting acceptance of MHM’s offer. It was only after Flix

had executed the agreement and MHM had accepted the benefits of Flix’s

performance that MHM informed Flix it wanted different terms than the agreement

Flix signed two months earlier at MHM’s urging.

       AFFIRMED.
