Albaugh v. The Reserve

Decision Date28 June 2019
Docket NumberNo. 18-1037,18-1037
Citation930 N.W.2d 676
Parties Cheryl ALBAUGH, Appellant, v. THE RESERVE, Appellee.
CourtIowa Supreme Court

Jason M. Craig and Emily A. Kolbe of Ahlers & Cooney, P.C., Des Moines, for appellant.

William J. Miller of Dorsey & Whitney, LLP, Des Moines, for appellee.


On behalf of her mother, Cheryl Albaugh challenges the district court’s grant of summary judgment in favor of a "senior adult congregate living facility" as defined in Iowa Code chapter 523D. Iowa Code § 523D.1(11) (2016). She sued the facility after it would not return her mother’s entrance fee or supplemental amount when her mother had to vacate the facility for health reasons. Albaugh argued the agreement between her mother and the facility violated Iowa Code chapter 562A, the Iowa Uniform Residential Landlord and Tenant Act (IURLTA). She also presented several other claims, including consumer fraud, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, and unconscionability. The district court granted the facility’s motion for summary judgment, concluding the IURLTA did not apply to the facility and the facility was entitled to judgment as a matter of law on all other claims. We affirm the district court judgment on appeal for the reasons discussed below.

I. Background Facts and Proceedings.

Cheryl Albaugh holds power of attorney for her mother, Shirley Voumard, a former resident of The Reserve on Walnut Creek (Reserve) from October 2007 to September 2014. The Reserve is a member-owned, nonprofit senior adult congregate living facility in Urbandale, Iowa, that is governed by a board of directors and "offers residents the opportunity to enjoy retirement without the hassle of home ownership." It provides housing and supportive services to its residents with periodic charges in consideration of an entrance fee. These supportive services include various home healthcare services, maintenance, communal activities, security, transportation, and dining options.

To become a member of the Reserve, "an individual or couple must be 60+ years old, of sufficiently good health to live an independent life, and must be able to meet certain minimum financial requirements." Voumard entered into a contract with the Reserve called an "application agreement" (agreement) on September 27, 2007, to obtain a membership interest in the Reserve and the right to occupy a two-bedroom apartment there. Voumard agreed to pay certain fees to cover the Reserve’s operation expenses. She agreed to pay a $64,975 entrance fee and a $63,557 supplemental amount upon signing the agreement.1 She also agreed to pay a varying monthly fee that was originally set at $1078 "in advance of the first day of each succeeding month until such Resident’s Residential Membership is transferred as detailed in these Covenants of Occupancy." In doing so, Voumard agreed to pay the monthly charges "until the earlier of (i) the date [her] Residential Membership is transferred as provided in Article 7, or (ii) the date [her] Residential Membership is terminated as provided in Article 12."

This agreement contained the following bold-faced language:

i. Upon disbursement of such Entrance Fee and such Supplemental Amount to the uses and purposes of the Corporation the Corporation will have no further obligation to refund or return such Entrance Fee or such Supplemental Amount to Applicant.
ii. Applicant’s ability to recover such Entrance Fee and such Supplemental Amount will depend entirely on the Applicant’s ability to assign or transfer his Membership in the Corporation to another person or persons.
iii. The Monthly Charge is subject to fluctuation.
iv. Upon the transfer of Applicant’s Membership in the Corporation to another person or persons there is no guarantee the Applicant will recover the entire Entrance Fee, the entire Supplemental Amount, or such other funds as may have accrued during Applicant’s residency within the Development pursuant to Article 7 of the Covenants of Occupancy.
v. Should Applicant default under the terms of the Covenants of Occupancy, which default is not cured in a manner deemed satisfactory by the Corporation, Applicant’s Residential Membership shall be terminated and all of Applicant’s right, title and interest in and to such Entrance Fee, such Supplemental Amount, and such other funds as may have accrued during Applicant’s residency within the Development pursuant to Article 7 of the Covenants of Occupancy shall be forfeited by Applicant and become the sole and separate property of the Corporation, and the Corporation shall have the right and authority to transfer Applicant’s Apartment to an assignee or transferee. Upon such transfer, the Corporation, in its sole discretion, shall have the right to deduct all Monthly Charges by Applicant and other expenses due and payable upon transfer.

(Emphasis omitted.)

Just above the signature line, the agreement stated, "This Agreement will supersede any prior understandings and agreements and constitutes the entire agreement between us, and no oral representations or statements shall be considered a part hereof." Voumard elected Albaugh as her personal representative on the agreement. Thus, pursuant to the agreement, Albaugh was appointed to receive copies of the agreement, "the [Reserve’s] Articles of Incorporation, Bylaws, Covenants of Occupancy and all other notices, disclosures, or forms required to be delivered to [Voumard] under Chapter 523D of the Iowa Code."

In August 2014, the Reserve began contacting Albaugh about Voumard’s inability to care for herself. The Reserve contacted Albaugh multiple times, and Voumard was subsequently diagnosed with dementia. After Voumard’s doctor determined she could no longer live independently, Albaugh notified the Reserve that Voumard would be vacating her unit as of September 13, in order to move into an assisted living facility.

Albaugh has not sold or transferred Voumard’s unit either to a third party or to the Reserve. In accordance with the agreement, the Reserve has continued to bill Voumard pursuant to the agreement after she moved out of the Reserve. Albaugh has requested the Reserve refund Voumard’s entrance fee and supplemental amount. The Reserve continues to deny this request. On February 5, 2015, the Reserve sent Albaugh a notice of default informing her that Voumard’s rights under the agreement would be terminated and her entrance fee and supplemental amount would be deemed forfeited if Voumard’s unpaid charges were not paid within thirty days. Voumard’s unpaid charges totaled $5132 at the time the Reserve sent the notice. Albaugh disputed these charges and requested a refund of Voumard’s entrance fee and supplemental amount as a rental deposit pursuant to the IURLTA.

In March, the Reserve’s elected board of directors announced a change to the Reserve’s financial structure due to the increase in "Type A" units the Reserve owned through default or donation. Type A units came with a higher monthly fee than Voumard’s "Type B" unit. Due to the Reserve’s increase in Type A units, the Reserve allowed these units to be transferred for an entrance fee of $5000. The Reserve did not change the monthly charges for these units, and the board of directors declared, "Please be assured that there will be no ‘steering’ of prospects away from member-owned units up for transfer, and we'll continue working hard on moving all available units."

The Reserve subsequently implemented a leasing program in July to allow members to lease their units to qualified individuals and to allow the Reserve to lease Reserve-owned units "at market-competitive lease rates." According to the Reserve’s marketing director, this program has increased demand and led to a waiting list for units at the Reserve. Though Albaugh communicated with the Reserve’s marketing director about marketing and transferring Voumard’s membership interest, the record is unclear concerning the extent of these marketing efforts. Since Voumard vacated her unit at the Reserve, Albaugh has repeatedly requested a full refund of Voumard’s entrance fee and supplemental amount. The Reserve continues to deny these requests, and it declared Voumard in default on March 8, 2016.

On August 24, Albaugh filed a lawsuit in district court against the Reserve in which she presented seven claims. First, she argued the agreement between Voumard and the Reserve violated the IURLTA. Second, Albaugh claimed the Reserve violated Iowa Code chapter 523D, governing retirement facilities. Third, she alleged the Reserve engaged in consumer fraud in violation of Iowa Code chapter 714H. Fourth, Albaugh maintained the Reserve breached its fiduciary duties to Voumard. Fifth, Albaugh maintained the Reserve breached the implied covenant of good faith and fair dealing. Sixth, she argued Voumard should no longer be held to the terms of her agreement with the Reserve due to impossibility of performance or frustration of purpose. Finally, Albaugh challenged the enforceability of the agreement, claiming it was unconscionable. The Reserve brought in the Essex Corporation as a third-party defendant in its capacity as the former manager of the Reserve to seek indemnity and contribution.

Albaugh filed a motion for partial summary judgment on December 11, 2017, requesting the district court enter judgment that the agreement between Voumard and the Reserve is subject to the IURLTA and relief consistent with that judgment. The Reserve filed a motion for summary judgment on December 20, arguing the agreement is not subject to the IURLTA and challenging Albaugh’s other claims as a matter of law. The Essex Corporation filed a motion for summary judgment in which it argued it had no liability to the Reserve to the extent the Reserve had no liability to Albaugh and, alternatively, the undisputed facts fail to establish a basis for a claim of contribution or indemnity as a matter of law.

On May 26, 2018, the district court denied Albaugh’s ...

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