ISSUE: Whether the district court erred in granting a directed verdict to Defendant
HOLDING: No, the district court properly granted a directed verdict based on the Defendant’s argument that there were not sufficient facts to find that the person who signed the contract had authority to bind Defendant.
SUMMARY OF FACTS: Plaintiff Three Minnows, owned by Dean Quirk, created an LLC in 2009 that operated the bar “Drink” in Des Moines. Defendant CREAM, owned by George Wittgraf and Jeff Maynes, is an LLC formed in 2004 and operated “The Union Bar” in Iowa City. Martin Mayne also owned 30% of CREAM as a member. Plaintiff’s owner wanted to contract with another company to manage the operations of his bar. He met with several people, including the owners of CREAM. Plaintiff contracted with GM Investments, which is managed by Martin Maynes and George Wittgraff of CREAM. However, only Martin was aware of the proposed management contract. Martin emailed Plaintiff suggesting using a different LLC and also stated that Martin would have a contract created between CREAM and Plaintiff granting CREAM the rights to use the name “The Union Bar.” However, Plaintiff needed a licensing agreement in addition to the management contract in order to legally use the name “The Union Bar.” George Wittgraf drafting the necessary agreement on March 16, 2010 and Martin was given authority to sign on behalf of CREAM. On March 29, 2010, Quirk modified the proposed management contract that purported to supersede the previous March 16 agreement. Martin signed for CREAM, but told Quirk he had no authority to do so. Martin signed yet a second agreement on May 11 on behalf of CREAM. Quirk never inquired into the status of Martin’s authority to bind CREAM.
In August 2010, CREAM owner George Wittgraf first learned of the management contract signed by Martin when he received a letter from Plaintiff Three Minnows claiming that Defendant CREAM breached the management agreement and owed Plaintiff money. A lawsuit was filed against CREAM and a trial began January 2012. At the close of arguments, CREAM moved for a directed verdict. The district court granted the motion based on the fact that the granting of authority to Martin to sign the licensing agreement did not translate to a reasonable belief that he had authority to sign subsequent management agreements. This appeal followed.
The Court of Appeals affirmed, holding that Quirk had access to CREAM’s articles of organization to learn the extent of authority of a member of CREAM to bind the company and he did not do so. The Articles clearly state that a non-manager member does not have actual authority. In addition, Martin informed Quirk that he did not have authority to bind CREAM when signing the management contract. Therefore, the Court held that Quirk had sufficient information to know that Martin did not have authority to bind CREAM and refused to allow Quirk the advantage of binding CREAM to the management agreement.