Iowa Supreme Court: Force Majeure Suspends Default/Cure Mechanics, and a Contract Breach Alone Cannot Support Tortious Interference with a Third-Party Contract

1. Introduction

In 5th and Walnut Parking, LLC; 5th and Walnut Tower, LLC; 5th and Court, LLC; Justin Mandelbaum; and Sean Mandelbaum v. City of Des Moines (Iowa Supreme Court, June 12, 2026), the court resolved high-stakes litigation arising from the failed “Tower at Fifth and Walnut” redevelopment project in downtown Des Moines. The project was memorialized in a multi-phase, incentive-heavy Development Agreement between the City and a developer group (collectively, the “Developers”).

The dispute turned on who breached first after the Developers missed a contractual “commence construction” deadline (October 31, 2019) for the tower/theater phases, while the parties were negotiating extensions and then COVID-19 upended financing and construction conditions. In June 2020 the City issued its first formal notices of default and elected an “acquire the property and improvements” remedy. The defaults destabilized the Developers’ relationship with their lender (Bankers Trust), precipitating foreclosure and a receivership sale in which the City acquired the parking garage.

The key legal issues included:

• Contract default mechanics: whether the missed commencement deadline was an incurable breach, or whether the City had to give notice of default and allow cure under Section 10.1—and how the force majeure clause (Section 10.4) affected that process once invoked.
• Tort overlay: whether the City’s conduct in issuing default notices—already found to breach the Development Agreement—also amounted to tortious interference with the Developers’ separate loan contract with Bankers Trust.
• Damages and remedies: whether contract damages were limited to tax-increment “special fund” payments; whether title to other parcels should revert; and whether additional claimed damages (lost profits, reliance expenditures, tax “gross-up,” fees) were recoverable.

2. Summary of the Opinion

The Iowa Supreme Court largely affirmed the district court’s fact-bound judgment under a deferential substantial-evidence standard, holding:

• Breach of contract affirmed: the City materially breached the Development Agreement by issuing default notices during a force majeure period and without allowing the contractual notice-and-cure framework to ripen into breach.
• Expectancy damages affirmed: $4,353,677 for breach of contract (principally the lost development fee/savings/interest effects tied to near-completion of the garage).
• Tortious interference vacated: a party’s breach of its own contract—without additional independently wrongful conduct directed at the third-party contract—cannot supply the “intentional and improper interference” element; the court relied on Restatement (Third) of Torts § 17 and emphasized that “an act of negligence or breach of contract” is not an “independent and intentional legal wrong.”
• Other remedies/damages rejected: no additional lost-profit categories, no reliance damages for tower/theater work funded by the loan, no tax gross-up, no foreclosure defense fees (for failure to segregate), and no transfer of tower/theater parcel titles to the City.
• “Special fund” limitation rejected: the contract’s tax-increment finance funding language limited how the City would fund incentive “advances,” not its liability for judicially awarded breach damages; Section 10.1(C) expressly placed the City on the same footing “as a private non-governmental party” for damages.

3. Analysis

3.1. Precedents Cited

A. Standard of review and bench-trial deference

• CMT Highway, LLC v. Logan Contractors Supply, Inc.: The court used this recently decided case as the lodestar for reviewing a bench-tried breach-of-contract dispute: factual findings “have the force of a special verdict” and bind on appeal if supported by substantial evidence, viewed in the light most favorable to the judgment. This framing was outcome-determinative because many disputed points (course of dealing, communications, timing, plausibility of claimed damages) were fact intensive.
• Van Sloun v. Agans Bros., Atl. Veneer Corp. v. Sears, Berry Seed Co. v. Hutchings, and Mosebach v. Blythe: These cases anchored the “law vs. equity” classification. The court treated the matter primarily as a law action because the “beating heart” was money damages for nonperformance—driving the correction-of-errors-at-law standard for most issues.
• Grall v. Meyer, Meyers v. Delaney, and Brokaw v. Winfield-Mt. Union Cmty. Sch. Dist.: These supported the court’s evidentiary posture: construe evidence broadly to uphold the judgment and accept findings a reasonable mind could reach.
• UE Loc. 893/IUP v. State: Cited for the standard of review on remedies for breach of contract (errors at law) and for the general proposition that every breach gives rise to damages in principle, subject to proof and measure.

B. Contract interpretation and default/cure provisions

• Dolly Invs., LLC v. MMG Sioux City, LLC and Genesis Equities, LLC v. Duffield: Both reinforced the proposition that when a contract requires notice of default and an opportunity to cure before a “material breach” can be established, courts enforce that sequencing. This supported the conclusion that the City could not treat the Developers’ missed October 2019 commencement date as an instantly actionable, permanently “banked” breach.
• Pillsbury Co. v. Wells Dairy, Inc.: Central to the court’s interpretive approach: manifestations of intent should be interpreted consistently with course of performance. Here, the City’s repeated statements that letters were “NOT a Notice of Default,” along with trial testimony (including Sanders’s admission that a default “existed” only when declared through the contractual mechanism), supported the reading that a missed deadline triggered default procedures, not automatic breach.
• Iowa Fuel & Mins., Inc. v. Iowa State Bd. of Regents: Cited for the unambiguous-contract principle—enforce as written—used to reject the City’s attempt to convert “special fund” language into an unstated damages limitation.
• Iowa Code § 4.7: Used as a general interpretive canon that the more specific provision controls. The court treated Section 10.1(C) (damages liability “as a private non-governmental party”) as the specific “breach/damages” clause that trumped any generalized funding-source language in Section 9.8.

C. Tortious interference boundaries; contract vs. tort

• Klooster v. N. Iowa State Bank, Grahek v. Voluntary Hosp. Coop. Ass'n of Iowa, Inc., Baysden v. Hitchcock, Tyler v. Percell, and Irons v. Cmty. State Bank: These framed Iowa’s baseline rule: the tort requires a defendant who interferes with a contract “between another and a third person,” and tort remedies are disfavored when contract remedies suffice. The court treated Tyler v. Percell as an exception example—where additional improper acts involving third parties existed—contrasting it with this case where the “interference” was merely incidental to the City’s own breach.
• Larew v. Hope L. Firm, P.L.C.: Provided the contemporary element test for intentional interference with contract and focused the dispute on the “intentionally and improperly interfered” element.
• Restatement (Third) of Torts: Liab. Econ. Harm § 17: The court used § 17 and Comment e to clarify that “wrongful conduct” must be an independent wrong; critically, “It does not include an act of negligence or breach of contract.” This was the doctrinal pivot for vacating tortious interference even while affirming breach.
• Leaf Invenergy Co. v. Invenergy Renewables LLC and Stop-N-Go of Madison, Inc. v. Uno-Ven Co.: Invoked to discuss “efficient breach” and the policy reasons not to expand tort liability for ordinary contract breaches—preserving commercial predictability and parties’ allocation of risks/benefits.
• Clark-Peterson Co. v. Indep. Ins. and Team Cent., Inc. v. Teamco, Inc.: Used to emphasize the “one satisfaction” principle: even if multiple theories fit, plaintiffs cannot obtain duplicative recovery.

D. Damage proof limits: lost profits, new business rule, and certainty

• Conley v. Warne, Northrup v. Miles Homes, Inc. of Iowa, and Conrad v. Dorweiler: These cases set the “reasonable certainty” framework: uncertainty in the amount may be tolerable if there is a rational basis; uncertainty in the fact of damages defeats recovery.
• Dopheide v. Schoeppner and Harsha v. State Sav. Bank: Provided the three-part lost-profits test (contemplation, direct result, reasonable certainty) and explained the “new business rule” caution for speculative profits, while acknowledging it is not absolute if solid factual data supports projections.
• City of Corning v. Iowa-Neb. Light & Power Co.: A foundational articulation of the new business rule: expected profits from a new enterprise often are too remote absent meaningful data.

E. Expectancy vs. reliance; election-of-remedies logic

• Midland Mut. Life Ins. v. Mercy Clinics, Inc.: Used to define “benefit of the bargain” as the ordinary contract measure, supporting the expectancy award tied to completing the garage.
• Scott v. Grinnell Mut. Reins.: Supplied the definition of reliance damages (restore the party to the position as if the contract were never formed) and the limitation that reliance recovery cannot exceed the contract price.
• Mobley v. Boyt Farms Co. and Restatement (Second) of Contracts § 344: Supported the court’s refusal to “mix and match” expectancy and reliance theories in a manner that would overcompensate; expectancy and reliance serve distinct purposes and are generally mutually exclusive pathways.

F. Attorney fees and the American rule; third-party litigation exception

• NCJC, Inc. v. WMG, L.C. and In re Guardianship & Conservatorship of Radda v. Wash. State Bank: Reaffirmed Iowa’s American rule baseline: fee shifting requires contract, statute, or recognized exception.
• N.H. Ins. v. Christy and Turner v. Zip Motors: Cited for the “third-party suit” exception: fees incurred defending litigation caused by the defendant’s breach/tort may be recoverable, but only to the extent properly proven and attributable.
• Dier v. Peters: Used to bar recovery of fees for litigating against the breaching party itself; the exception cannot be used as a backdoor prevailing-party fee clause.
• Boyle v. Alum-Line, Inc.: Supported the requirement of detailed, itemized fee proof—especially to segregate recoverable third-party defense work from nonrecoverable direct litigation.
• Lynch v. City of Des Moines: Reinforced that the claimant bears the burden to prove entitlement and amount of fees.

G. Tax “gross-up” skepticism

• Guge v. Kassel Enterprises, Inc.: A modern Iowa caution against awarding tax-consequence damages as too speculative, which the court treated as analogous to the Developers’ gross-up request.
• Paris v. Remington Rand, Inc.: Provided a classic rationale against tax differentials: the computation “permits wide speculation” because tax posture depends on accounting method, other income, and individualized conditions.

3.2. Legal Reasoning

A. The court’s integrated reading of Sections 10.1 and 10.4

The central contract holding is an operational rule about when a missed performance deadline becomes a breach under a notice-and-cure regime, and what happens when force majeure arises.

1. Section 10.1 makes “breach” a second step, not an automatic status. The agreement distinguishes among (i) a “default,” (ii) a written “Notice of Default,” (iii) a cure/remedy window (45 days, with a possible longer period for nonmonetary defaults requiring more time if promptly and diligently pursued), and only then (iv) a declaration of “breach” if cure is not taken or completed.
2. The City’s own conduct and testimony supported this sequencing. The City repeatedly sent letters saying they were “NOT a Notice of Default,” and Sanders testified that no default “existed” for breach purposes until declared and that the Developers were entitled to an opportunity to cure—evidence the court treated as course of performance under Pillsbury Co. v. Wells Dairy, Inc..
3. Section 10.4 (force majeure) prevents either party from being “considered in breach of, or in default” during an enforced delay, and extends time for performance. COVID-19 conceded as a force majeure event within the clause’s enumerated causes (“epidemics”/“quarantine restrictions”/market collapse), and the Developers timely invoked the clause in writing within 20 days.
4. Timing mattered: the City issued its first Notice of Default only after the force majeure invocation. The court accepted the district court’s reading that once Section 10.4 was properly invoked, the clock on default/cure and performance consequences was effectively suspended/extended during the enforced delay.

The City’s “incurable missed deadline” theory failed because it treated the October 2019 commencement date as an instantly enforceable, forever-available breach trigger—even though the parties’ contract and course of dealing treated missed deadlines as defaults subject to cure mechanics, and even though the contract expressly insulated parties from default/breach status during force majeure.

B. Tortious interference: breach of one contract is not the independent wrong needed to impose tort liability for effects on a different contract

The Developers’ tort theory was intuitive factually: the City knew the Bank relied on City participation, and a default declaration would predictably harden the Bank’s posture and make refinancing or extensions unlikely. But the Supreme Court drew a doctrinal boundary:

• The interference was “merely incidental” to the City’s breach of its own contract.
• Under Restatement (Third) of Torts § 17, the required “wrongful conduct” must be an independent legal wrong; a breach of contract is not enough.
• Iowa precedent generally treats disputes between contracting parties as contract matters; a tort remedy is unnecessary when contract law already provides expectation/consequential damages.

The opinion’s policy discussion is notable: the court explicitly invoked “efficient breach” to warn against converting ordinary breach into open-ended tort exposure, which would undermine predictability and the parties’ ability to price and allocate risk in commercial agreements.

C. Damages: (1) special-fund language is not a damages cap; (2) lost profits and other claimed add-ons failed for lack of certainty

The court enforced the expectancy award tied to the garage because the record supported that the Developers were near completion and that the City’s breach precipitated foreclosure and loss of identifiable contract benefits (development fee, savings, and interest effects). At the same time, the court affirmed denial of expansive lost-profit theories and add-ons:

• “Special fund” argument rejected: Section 9.8 limited the City’s obligation to make certain incentive “advances” from a TIF special fund, but did not mention “breach” or “damages.” Section 10.1(C) expressly made the City liable for breach damages like a private party.
• Parking garage long-term ownership/operation profits denied: projections relied on numerous contingencies (100-year useful life, assumed synergies with tower/theater, Farmers Market revenues) and lacked comparator/historical support under the “reasonable certainty” and “new business rule” framework.
• Reliance damages for tower/theater expenditures denied: those expenditures were funded through the construction loan ultimately paid off when the City acquired the garage; awarding them again would duplicate recovery and risk a windfall—especially where the Developers kept title to the tower/theater parcels.
• Tax gross-up denied: too speculative, particularly given LLC tax elections and absence of tax-return evidence.
• Foreclosure defense fees denied: inadequate proof segregating third-party foreclosure defense work from direct litigation against the City.

3.3. Impact

A. Contract administration in public development agreements: force majeure + notice/cure clauses

This decision will likely be cited heavily in Iowa commercial and municipal contracting disputes because it provides a concrete operational lesson: where an agreement uses a notice-of-default and cure structure and also contains a force majeure clause that prevents a party from being “considered in default or breach” during enforced delay, courts may treat force majeure invocation as suspending the path from default to breach—especially when the notice of default is issued after the enforced delay begins and the invoking party has complied with notice and mitigation duties.

Practically, municipalities and developers alike may respond by:

• drafting more explicit language about whether missed “commence construction” milestones are “time is of the essence” and whether they are curable;
• stating expressly whether force majeure extends only forward-looking deadlines or also affects cure periods for already-existing defaults;
• tightening the definition of “economic or financial market collapse” and proof requirements (letters from lenders, rate/term evidence, etc.).

B. Tort containment: economic tort claims cannot be used to repackage breach-of-contract conduct

The tortious-interference holding is a meaningful limiter on “tort creep” in commercial disputes: even if a breach foreseeably disrupts a plaintiff’s third-party contract (here, a construction loan), tort recovery requires more than the breach itself—some independently wrongful conduct directed at the third-party contract (or other Restatement § 17(2) category).

Litigants can still pursue contract remedies, including consequential damages if proven and within the contract’s contemplation, but this decision resists turning every high-impact breach into a tort case with potentially broader damages theories.

C. Damages discipline: lost profits, tax gross-ups, and fee segregation

The opinion reinforces Iowa courts’ insistence on evidentiary rigor for (i) new-business lost profits, (ii) tax-related add-ons, and (iii) attorney-fee claims under exceptions. Claimants should expect to provide comparator data, detailed financial support, and granular fee documentation that cleanly allocates recoverable versus nonrecoverable work.

4. Complex Concepts Simplified

• Default vs. breach: A “default” is a failure to meet a contract obligation; a “breach” (as used here) is what the contract says occurs after notice and an opportunity to cure have failed.
• Notice-and-cure clause: A contract term requiring the nondefaulting party to give written notice of the problem and allow time to fix it before stronger remedies (termination, damages, forfeiture) become available.
• Force majeure (enforced delay): A clause excusing or extending performance when extraordinary events beyond a party’s control (like pandemics, government restrictions, market collapse) prevent timely performance—usually conditioned on timely notice and mitigation.
• Tortious interference with contract: A tort claim requiring intentional and improper interference with a contract between the plaintiff and a third party. This opinion emphasizes that a mere breach of contract with the plaintiff is not, by itself, the “wrongful conduct” needed to impose tort liability for collateral impacts on another contract.
• Expectation (benefit-of-the-bargain) damages vs. reliance damages: Expectation aims to put the plaintiff where it would have been if the contract was performed; reliance aims to put the plaintiff where it would have been if the contract was never made. Courts generally do not allow both for the same harm.
• New business rule: Lost profits for a new or untested business are often too speculative unless supported by strong data (comparables, credible market evidence, stable inputs).
• Tax gross-up: An additional payment meant to offset taxes on a damages award. Iowa treated this as too speculative here without concrete proof of tax posture and rates.
• American rule on attorney fees: Each party generally pays its own fees. A narrow exception can allow recovery of fees incurred in defending third-party litigation caused by the defendant’s breach/tort—but the claimant must prove and segregate those fees.

5. Conclusion

This opinion delivers two durable rules for Iowa commercial litigation: (1) where a development contract requires notice and cure and includes a force majeure clause preventing parties from being “considered in default or breach” during enforced delay, a municipality cannot treat an earlier missed milestone as an automatically incurable breach—particularly when it delayed issuing a notice of default until after force majeure was invoked; and (2) a defendant’s breach of contract, without an independent wrongful act, cannot be repackaged as tortious interference with the plaintiff’s separate third-party contract merely because the breach incidentally disrupted financing.

Equally important, the court reaffirmed disciplined limits on speculative damages (lost profits, tax gross-ups) and enforced proof requirements for fee shifting, while holding the City to ordinary private-party damages exposure for its breach despite tax-increment funding language.