DEBORAH HAMILTON, Personal Representative of the Estate of Carl D. Jungers, Sr., and MIKE MORGAN, Plaintiffs-Respondents v. JAMES MASSENGALE, JR., and BERT BRIDGES , 2016 Mo. App. LEXIS 82 ( 2016 )

DEBORAH HAMILTON, )
Personal Representative of the )
Estate of Carl D. Jungers, Sr., )
and MIKE MORGAN, )
)
Plaintiffs-Respondents, )
) No. SD33894
vs. ) Filed: February 3, 2016
)
JAMES MASSENGALE, JR., )
and BERT BRIDGES, )
)
Defendants-Appellants. )
APPEAL FROM THE CIRCUIT COURT OF GREENE COUNTY
Honorable Michael J. Cordonnier, Judge
REVERSED AND REMANDED
James Massengale, Jr. (“Massengale”), and Bert Bridges (“Bridges”) (collectively
“Appellants”) appeal from the trial court’s grant of summary judgment in favor of Deborah
Hamilton (“Hamilton”), personal representative of the Estate of Carl D. Jungers, Sr. (“Jungers”),
and Michael Morgan (“Morgan”) (collectively “Respondents”). Appellants assert two points of
alleged trial court error. Because the trial court erred in granting summary judgment, we reverse.
Facts and Procedural History
In this case involving review of a grant of summary judgment, we view the record and all
reasonable inferences therefrom in the light most favorable to Appellants, the non-movants,
subject to the requirements of Rule 74.04. 1 ITT Commercial Fin. Corp. v. Mid–America
Marine Supply Corp., 854 S.W.2d 371, 376, 381–82 (Mo. banc 1993).
At issue in this case is the enforcement of four promissory notes: two of which were
executed by Massengale—one in favor of Jungers and the other in favor of Morgan—with face
values of $54,650 each; and two of which were executed by Bridges—one in favor of Jungers
and the other in favor of Morgan—with face values of $21,860 each (collectively “the
promissory notes”). 2 The promissory notes were executed on February 23, 2011, and specify a
repayment date of August 31, 2011. In addition, the promissory notes reflect that they are
“collateralized by [Appellants’] shares of HHA Holding, Inc.” The remedy sought by
Respondents, however, is limited to the dollar amounts of the promissory notes.
The record reflects no dispute as to any material fact necessary to prove the elements of
Respondents’ causes of action on the promissory notes. 3 Appellants admitted they executed the
promissory notes, they understood the terms of the promissory notes and the terms were not
ambiguous, they received checks for the face values of the promissory notes, they used the funds
received for their benefit, demand for payment was made, and they have not made any payments
1
All rule references are to Missouri Court Rules (2015). All statutory references are to RSMo Cum.Supp. 2001.
2
Initially there were four separate petitions filed on each of the four promissory notes: two by Deborah Hamilton as
the Personal Representative of the Estate of Carl D. Junger, Sr., and the other two by Mike Morgan. These four
cases were eventually consolidated, by agreement of the parties, into case number 1331-CC00119, from which this
appeal arises.
3
Appellants admit each of the thirty-eight facts listed in Respondents’ statement of uncontroverted material facts.
2
on the promissory notes despite demand. 4 However, Appellants allege they were fraudulently
induced by Respondents into executing the promissory notes, thereby precluding enforcement. 5
In support of their claim, Appellants alleged they, along with Jungers and Morgan, were
shareholders of a corporate entity, Bore-Flex Industries, Inc. (“Bore-Flex”), and that the
promissory notes were part of a compensation agreement whereby Jungers and Morgan would
acquire Appellants’ stock in another entity, HHA Holding, Inc. Appellants further alleged that
the promissory notes were utilized to effectuate this agreement so as to avoid setting a value for
the stock being purchased. 6 Appellants assert they received certain assurances by these
representations that they would not have to “pay back” the promissory notes but would only have
to turn over their stock in HHA Holding, Inc. According to Appellants, Respondents have
refused, despite request, to accept Appellants’ shares of HHA Holding, Inc.
During discovery, Appellants deposed Bill Dunton (“Dunton”), Bore-Flex’s accountant,
concerning the purpose of the promissory notes. On the advice of Respondents’ counsel, Dunton
refused to answer all such related questions on the basis of accountant-client privilege.
Appellants then sought a court order compelling Dunton to answer Appellants’ deposition
questions. In support of this motion, Appellants submitted the declaration of Tiffani D. Claussen
(“Claussen”), chief financial officer of Bore-Flex, which generally reiterated Appellants’
fraudulent-inducement allegations. The trial court ultimately denied Appellants’ motion.
4
The elements in an action on a promissory note are: the existence of a valid promissory note signed by the maker;
a remaining balance due on the note; and a demand on the maker for payment has been made and refused, leaving
the maker in default. Mobley v. Baker, 72 S.W.3d 251, 257 (Mo.App. W.D. 2002).
5
Although Appellants only address fraudulent inducement on appeal, Appellants specifically pled, based on the
same set of alleged facts, that Respondents’ claims “are barred by the doctrines of waiver, estoppel, novation,
release, failure of consideration, and/or fraud in the inducement.” Appellants also counterclaimed on the grounds of
fraud and breach of contract.
6
Appellants claim that Jungers and Morgan were negotiating to purchase shares of HHA Holding, Inc., that had
been seized by the United States government.
3
Thereafter, on Respondents’ motion, the trial court granted summary judgment on all
claims. In addition to establishing that there was no dispute of material fact as to their claims on
the promissory notes, Respondents further established there was no dispute among the parties
that any discussions regarding the purpose of the promissory notes, to the extent having taken
place, occurred prior to execution. In their supporting brief, Respondents argued that Appellants
could not establish their “right to rely” on any alleged misrepresentations and that the parol
evidence rule barred any evidence of an agreement that varied or contradicted the terms of the
promissory notes.
Appellants raise two points on appeal: (1) that the trial court’s grant of summary
judgment in Respondents’ favor was erroneous because Respondents failed to negate Appellants’
defense of fraudulent inducement; and (2) the trial court’s denial of Appellants’ motion to
compel deposition answers from Dunton was erroneous because the accountant-client privilege
either does not apply, has been waived, or is subject to exception under the facts of this case.
With regard to Appellants’ first point, Appellants apparently concede that Respondents
established the necessary elements of their claims on the promissory notes. Thus, the only issue
for our determination is whether Respondents also defeated Appellants’ fraudulent-inducement
defense. We find that Respondents failed to do so. Because the first point is dispositive, we
need not address Appellants’ second point. 7
7
Because summary judgment was inappropriate, we must remand. The second point raises claims as to an
interlocutory order of the trial court on a discovery issue. The parties may submit additional evidence on that point,
and the trial court, as well as the parties, will have the parties’ briefs and arguments here, available for any further
rulings required.
4
Point I – Respondents Failed to Demonstrate that Summary Judgment
was Appropriate as to Appellants’ Fraudulent-Inducement Defense
Standard of Review
Our review of a summary judgment is “essentially de novo.” ITT Commercial Fin.
Corp., 854 S.W.2d at 376.
The criteria on appeal for testing the propriety of summary judgment are no
different from those which should be employed by the trial court to determine the
propriety of sustaining the motion initially. The propriety of summary judgment
is purely an issue of law. As the trial court’s judgment is founded on the record
submitted and the law, an appellate court need not defer to the trial court’s order
granting summary judgment.
Id. (internal citations omitted).
When considering an appeal from summary judgment, we review the record in the light
most favorable to the party against whom judgment was entered. Id. Thus, we afford the benefit
of all reasonable inferences to the non-movant. Id.
Analysis
We begin by noting that the trial court’s order on Respondents’ motion for summary
judgment did not state the basis for the court’s decision. Nonetheless, we will affirm the trial
court’s award of summary judgment on any basis supported by the summary judgment record.
Victory Hills Ltd. P’ship I v. NationsBank, N.A., 28 S.W.3d 322, 327 (Mo.App. W.D. 2000).
When a non-movant party pleads an affirmative defense, the party seeking summary
judgment must show more than the elements of its claim to establish a right to summary
judgment as a matter of law. ITT Commercial Fin. Corp., 854 S.W.2d at 383. The party
seeking summary judgment “must also show, beyond any genuine dispute, the nonexistence of
some fact essential to the affirmative defense put forward by the non-moving party or that the
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defense is legally insufficient.” Id. It does not matter that the non-movant will bear the burden
on this issue at trial:
[A] claimant moving for summary judgment in the face of an affirmative defense
must also establish that the affirmative defense fails as a matter of law. Unlike
the burden of establishing all of the facts necessary to his claim, however, the
claimant may defeat an affirmative defense by establishing that any one of the
facts necessary to support the defense is absent. At this stage of the proceeding,
the analysis centers on Rule 74.04(c); it is irrelevant what the non-movant has or
has not said or done.
Id. at 381 (emphasis in original).
Respondents argue that they were entitled to summary judgment for three reasons. First,
Respondents argue that “Appellants failed to properly plead an affirmative defense of fraudulent
inducement.” The parties agree that the elements constituting fraud are:
1) a representation, 2) its falsity, 3) its materiality, 4) the speaker’s knowledge of
its falsity, or his ignorance of its truth, 5) the speaker’s intent that it should be
acted on by the person and in the manner reasonably contemplated, 6) the hearer’s
ignorance of the falsity of the representation, 7) the hearer’s reliance on the
representation being true, 8) his right to rely thereon, and 9) the hearer’s
consequent and proximately caused injury.
Sofka v. Thal, 662 S.W.2d 502, 506 (Mo. banc 1983). As a general rule, “[a] pleader is required
to state only the ultimate facts and it is not necessary to plead the facts or circumstances by
which the ultimate facts will be established.” Smith v. Lewis, 669 S.W.2d 558, 562 (Mo.App.
W.D. 1983). We note that under Rule 55.15, all averments of fraud must state with particularity
the circumstances constituting the fraud, although malice, intent, or other states of mind may be
averred generally. 8
8
We note that Appellants’ fraudulent-inducement affirmative defense and fraud counterclaim can be read
interchangeably. See Rule 55.08 (“When a party has mistakenly designated a defense as a counterclaim or a
counterclaim as a defense, the court may treat the pleadings as if there had been a proper designation.”). We also
note that Respondents did file a Motion for More Definite Statement, pursuant to Rule 55.27(d), with regard to
Appellants’ fraud counterclaim. No such motion, however, was filed with regard to Appellants’ fraudulent-
inducement affirmative defense, thus waiving the particularity requirement of Rule 55.15 as to the defense. Rule
55.27(f); Clark v. Olson, 726 S.W.2d 718, 719 (Mo. banc 1987).
6
We observe that Appellants’ pleadings contain the following specific averments as part of
their affirmative defenses:
At or near the time Bore-Flex Industries, Inc.’s assets were sold to Boreflex, LLC
on January 18, 2011, Morgan and [Jungers] agreed to provide additional
compensation to [Appellants] from [the] sale of Bore-Flex Industries’ assets. The
parties agreed that the additional compensation would include the sale of
[Appellants’] stock in HHA Holding, Inc. to Morgan and Jungers. However, at
that time, Morgan and Jungers were also interested in purchasing Mr. Jeff Miller’s
HHA Holding, Inc. stock which had been seized by the United States government
and they did not want to establish a value for the HHA Holding stock through the
purchase of [Appellants’] shares. As a result, Morgan and Jungers proposed a
plan to purchase [Appellants’] HHA Holding stock in which [Appellants] would
execute Promissory Notes to Morgan and Jungers secured by [Appellants’] HHA
Holding stock. Morgan and Jungers assured [Appellants] that the Promissory
Notes would be executed only so that a value would not be set for the HHA
Holding stock and they promised [Appellants] that [they] would never be required
to pay the Promissory Notes. Instead, Morgan and Jungers promised [Appellants]
that [they] would only be required to turn over [their] HHA Stock to Morgan and
Jungers.
Additionally, Appellants’ fraud counterclaim, in addition to making and incorporating averments
similar to those above, contained the following general allegations: “The representation was
false in that Morgan and/or Jungers had no intention of performing the promise at the time it was
made[]”; “Morgan and Jungers made the representation with the intent to deceive and for the
purpose of inducing [Appellants] to act upon the representation[]”; “[Appellants] did not know,
and could not have known through the exercise of reasonable diligence, of the falsity of
Morgan’s and Jungers’ representation[]”; and “[Appellants] reasonably relied and acted on upon
[sic] Morgan’s and Jungers’ representation.”
Respondents provide only a conclusory argument that the above averments fail to state a
claim of fraud. We are unconvinced and find that Appellants have sufficiently pleaded
fraudulent inducement as a defense to the promissory notes.
7
Respondents next argue that “Appellants could not meet an essential element of the
affirmative defense of fraudulent inducement[]”; specifically, Appellants’ “right to rely” on a
representation that they would not have to “repay” the promissory notes. Respondents premise
this argument on the legal principle that “false representations as to the legal effect of an
instrument are no bar to an action thereon because a party signing such an instrument is
presumed to know its contents and has no right to rely on the representations of the other party as
to its legal effect.” Stein v. Stein Egg & Poultry Co., Inc., 606 S.W.2d 203, 205 (Mo.App. E.D.
1980).
Respondents’ argument is similar to one rejected in Citizens Bank of Appleton City v.
Schapeler, 869 S.W.2d 120 (Mo.App. W.D. 1993). In that case, a plaintiff bank filed suit on a
promissory note for $167,000, which the defendants alleged was procured by fraud. Id. at 123.
The defendants claimed they executed the note as collateral for a business loan agreement
between the plaintiff and the defendants’ son. Id. at 126. In doing so, the defendants alleged
they were told that the purpose of the note was “to satisfy banking examiners” and that “there
would be no expectation that [the d]efendants would ever have to pay such promissory note[.]”
Id. On appeal, the plaintiff argued that this defense failed as a matter of law in that it was a
“misrepresentation as to the legal effect of the written instrument, i.e., that the [defendants]
would never have to repay the note.” Id. at 127. The western district of this court disagreed:
[The plaintiff] mischaracterizes the allegations contained in the
[defendants’] affirmative defense. The essence of the [defendants’] affirmative
defense is that [the plaintiff] represented that the bank examiners were requiring
additional collateral on [defendants’ son’s] notes and that if the $167,000 note
were executed, [defendants’ son] could continue on in his business and have more
borrowing power. This was a factual representation, not a representation of law
as [the plaintiff] contends.
Schapeler, 869 S.W.2d at 127.
8
Respondents likewise mischaracterize Appellants’ allegation in this case. The basis for
Appellants’ affirmative defense is Respondents’ alleged representation that they wanted to
purchase Appellants’ shares of HHA Holding, Inc., using the promissory notes to avoid setting a
value for the stock. As in Schapeler, “[t]his was a factual representation, not a representation of
law[.]” Id. at 127. “A party’s right to rely is ordinarily a question of fact for a jury.” White v.
Bowman, 304 S.W.3d 141, 151 (Mo.App. S.D. 2009). Accordingly, Respondents have not
demonstrated that the “right to rely” element of Appellants’ fraudulent-inducement defense fails
as a matter of law.
Finally, Respondents argue that “[t]he trial court properly applied the parol evidence rule
where Appellants intended the evidence to contradict or vary the stated terms of the promissory
notes.” The parol evidence rule prohibits evidence of agreements that merely tend to vary or
contradict the terms of an agreement. Pacific Carlton Development Corp. v. Barber, 95 S.W.3d
159, 165 (Mo.App. W.D. 2003) (emphasis added). “The parol evidence rule is a rule of law and
not a rule of evidence; evidence offered in violation must be ignored and a decision must be
rendered on the writing alone.” Southgate Bank & Trust Co. v. Axtell, 710 S.W.2d 247, 252-53
(Mo.App. W.D. 1986). Respondents argue the rule is applicable here because any representation
that Appellants did not have to “pay back” the promissory notes directly contradicts the
repayment terms of the promissory notes. Cf. Bank of Kirksville v. Small, 742 S.W.2d 127, 133
(Mo. banc 1987); F.M. Deuchler & Co. v. Hampton, 339 S.W.2d 499, 503–505 (Mo.App.
ST.L.D. 1960) (finding that fraudulent-inducement defense to promissory note, which relied on
oral representation that the note “would not have to be paid,” violated parol evidence rule
because the representation contradicted the repayment terms of the note).
9
Again, we disagree with Respondents’ narrow characterization of Appellants’ defense.
As already stated, the basis for Appellants’ affirmative defense is Respondents’ alleged
fraudulent representation that they wanted to purchase Appellants’ shares of HHA Holding, Inc.,
and that the promissory notes were a means to avoid setting a value for the stock. This defense is
not based upon a claim that the terms and conditions within the notes are incorrect; the crux of
the claim, rather, is that the notes themselves are unenforceable because their execution was
achieved by means of an independent fraudulent representation.
As applicable here,
Generally, the parol evidence rule has no application where there has been
fraud, except under unusual circumstances, and it is well established that, as fraud
vitiates everything which it touches, parol evidence is always admissible to show,
for the purpose of invalidating a written instrument, that its execution was
procured by fraud, or that, by reason of fraud, it does not express the true
intentions of the parties. The defense of fraud may be established by parol, not to
contradict or deny, but to destroy the effect of the instrument.
Pinken v. Frank, 704 F.2d 1019, 1023 n.4 (8th Cir. 1983) (quoting 32 C.J.S. Evidence § 979a
(1964), now at 32A C.J.S. Evidence § 1535)) (emphasis added); accord Dowd v. Lakes Sites,
Inc., 276 S.W.2d 108, 112 (Mo. 1955). Various Missouri cases have found that parol statements
are permissible to establish that a written agreement was fraudulently induced. See generally
Pinken, 704 F.2d at 1022-23 (collecting Missouri cases). 9 In light of the relevant authority,
Respondents have failed to establish that the parol evidence rule defeats Appellants’ fraudulent-
inducement defense as a matter of law.
In sum, after thoroughly reviewing the record before us and applicable legal principles,
we can find no basis (based on Respondents’ arguments or otherwise) to find that Respondents
were entitled to summary judgment on Appellants’ fraudulent-inducement defense. We,
9
We note that Schapeler, discussed supra, is not applicable to this analysis as the court in that case explicitly
indicated that the parol evidence rule was not considered on appeal as the plaintiff had failed to assert the rule before
the trial court. 869 S.W.2d at 127 n.2.
10
therefore, reverse the trial court’s judgment and remand the case for further proceedings not
inconsistent with this opinion.
WILLIAM W. FRANCIS, JR., J. - AUTHOR
DON E. BURRELL, JR., P.J. – CONCURS
GARY W. LYNCH, J. – CONCURS
11