Ditto, Incorporated v. Heather Davids, Chris Davids and Revive Lee's Summit, LLC, F/K/A Ditto Lee's Summit , 2014 Mo. App. LEXIS 1256 ( 2014 )

In the
Missouri Court of Appeals
Western District
DITTO, INCORPORATED, )
)
Appellant, ) WD77297
)
v. ) OPINION FILED:
) November 12, 2014
HEATHER DAVIDS, CHRIS DAVIDS )
AND REVIVE LEE'S SUMMIT, LLC, )
F/K/A DITTO LEE'S SUMMIT, LLC, )
)
Respondents. )
Appeal from the Circuit Court of Jackson County, Missouri
The Honorable James F. Kanatzar, Judge
Before Division Three: Karen King Mitchell, Presiding Judge, Cynthia L. Martin, Judge
and Gary D. Witt, Judge
Ditto, Inc. ("Ditto") appeals the trial court's grant of summary judgment in favor of
Heather Davids ("Heather"), Chris Davids ("Chris"),1 and Revive Lee's Summit, LLC
f/k/a Ditto Lee's Summit, LLC ("Revive") (collectively "the Defendants") on Ditto's
breach of contract claim. Ditto asserts that the grant of summary judgment was
erroneous because: (1) the contract between Ditto and the Defendants had a definite term
1
Because Heather Davids and Chris Davids share the same surname, we refer to each by their first name for
purposes of clarity. No familiarity or disrespect is intended.
and was not terminable at will as a matter of law; (2) summary judgment should not have
been granted based on the affirmative defense of equitable estoppel when the Defendants
did not properly plead that defense; and (3) alternatively, material facts remained in
genuine dispute regarding the affirmative defense of equitable estoppel preventing the
entry of judgment as a matter of law. We reverse and remand.
Factual and Procedural History
Ditto is a Missouri corporation that was formed in 2005. So Yun ("Yun") is the
sole shareholder and president of Ditto. Ditto owns and operates used clothing stores
throughout the Kansas City metropolitan area.
Yun approached Heather, a frequent customer, about the possibility of
collaborating to open a Ditto store in Lee's Summit. Ultimately, Ditto and Heather
executed a contract denominated a "Joint Venture Agreement" ("JVA") in March or April
2010.2 The JVA outlined the parties' obligations with respect to opening and operating a
Ditto store in Lee's Summit in leased space identified by address and square footage. The
lease anticipated by the JVA was referenced as Exhibit B ("Lease"). The JVA was
effective upon its execution, and provides in Article 4 that it will "continue in full force
and effect until the Parties' obligations as set forth in this JVA have been completed." At
or near the time the JVA was signed, the Lease was signed by Heather as the tenant and
by Ditto as the guarantor.
2
The JVA is not dated. However, the Lease anticipated by the JVA is dated April 27, 2010. For purposes
of this opinion, we have accepted the parties' characterization of their relationship as a "joint venture," without
independently determining whether the relationship satisfies the legal definition of that term. As discussed, infra,
even if the parties have mistakenly characterized their business relationship as a joint venture (which we do not and
need not determine), our analysis regarding the duration of the JVA is unaffected, as the legal principles applicable
to that determination apply evenly to all contracts.
2
Heather and her husband Chris thereafter began operating the Lee's Summit Ditto
store through an entity known as Ditto Lee's Summit, LLC, a limited liability company
("Ditto LLC"). Ditto LLC was wholly owned by Chris. However, the JVA was never
formally assigned to Ditto LLC, and Heather remained the obligor under the JVA.
In September 2012, Heather and Yun met to discuss the business relationship with
Ditto, as Heather had become dissatisfied with the relationship. According to Yun:
[A]t that time [Heather] asked about the ending to the Joint Venture
Agreement. I told her there was no end date; it's an ongoing agreement as
long as she was using the Ditto name. At that point she stated that she did
not agree with that, and she and her husband discussed the current situation
and wanted to end the relationship and re-brand.
....
I said that was not an option, and if that is what she wanted to do then we
needed to contact our attorneys.
Following that meeting, attorneys for Ditto and Heather began negotiations to see if an
agreement could be reached to terminate the JVA.
In connection with those negotiations, Ditto's attorney sent Heather's attorney a
letter on September 12, 2012. The letter acknowledged Heather's desire to terminate the
JVA. The letter asked Heather to propose terms for terminating the JVA. Heather's
response does not appear in the record. However, the record does contain a letter from
Ditto's attorney to Heather's attorney dated September 20, 2012,3 rejecting terms
proposed by Heather. In that letter, Ditto's attorney indicates that "my client is satisfied
with continuing the JVA as it currently stands" and that "Ditto is entitled to payments of
3
The letter is actually dated 2013, though no one contests this was a typographical error.
3
6% until July, 20124 and 5% of the gross receipts monthly, which would continue
indefinitely."
Heated communications continued between the parties' attorneys regarding,
among other things, whether the JVA constituted a franchise agreement and whether
Heather was in breach of the JVA. On November 12, 2012, Ditto's attorney sent
Heather's attorney an email which claimed that the JVA "is of unlimited duration," and is
thus terminable at will. Ditto's attorney threatened that if an agreement regarding
termination of the JVA could not be reached, Ditto "will be forced to terminate the at-will
contract and take over the store."
Heather's attorney responded with an email dated November 19, 2012 which
stated:
[W]e agree with your assertion that the Joint Venture Agreement between
Ditto, Inc. and Heather Davids is terminable at will.
Accordingly, Heather Davids hereby terminates the Joint Venture
Agreement effective January 15, 2012. Ms. Yun is a guarantor on the
commercial lease between Heather Davids and Lee's Summit Investors-98.
My clients will make best efforts to facilitate the cancellation of Ms. Yun's
. . . guarantee on that lease.
My client acknowledges the license extended by Ditto, Inc. to use its
"DITTO" trademark will also terminate with the agreement. Therefore, my
client will cease using the Ditto mark in its business and return the "Seller's
Guide" to Ms. Yun. My client will terminate the use of the "DITTO"
trademark for all other purposes and cease any related advertising and
marketing identifying it as the "DITTO" brand. She will also change the
name of the company to one that does not include the name "DITTO". Ms.
Yun may purchase the "DITTO" store signage from my client at fair market
value if the parties can agree to a price. Otherwise, the signage will be
destroyed.
4
The JVA anticipated a monthly payment of a graduated percentage of gross sales to Ditto that decreased
over time.
4
Of course, with the termination of the agreement, the royalties paid
pursuant to paragraph 1.7 of the Joint Venture Agreement will cease as of
January 15, 2013, as well, and my client will provide the final royalty
payment on February 15, 2013 as required by the agreement.
Ditto's attorney claims to have advised Heather's attorney on or about November 30,
2012 "that Ditto, Inc. disclaimed any contention or belief that the Joint Venture
Agreement was of indefinite duration and, as a result, 'terminable at will' by Heather
Davids." Consistent with this contention, Ditto filed a lawsuit on November 30, 2012
against Ditto LLC and Heather seeking, among other things, to enjoin termination of the
JVA.5
Notwithstanding Ditto's disclaimed contention and the pending lawsuit seeking to
enjoin termination of the JVA, Heather terminated the JVA on February 1, 2013. The
Defendants changed the name of the Lee's Summit store to "reVive Upscale Resale
Clothing," and made their last payment to Ditto for a percentage of gross sales at the store
on or about February 15, 2013. Heather was not able to secure Ditto's release as a
guarantor on the Lease.
Ditto filed the instant suit against the Defendants on February 6, 2013. The
petition asserted two claims: that the Defendants breached the JVA by terminating the
JVA, and that the Defendants breached a fiduciary duty owed to Ditto. The Defendants
filed an answer in which they asserted, among other things, an affirmative defense that
Ditto's "claims are barred, in whole or in part, by waiver, release, laches, estoppel,
disclaimer, novation, lack of consideration, and/or overreaching." The Defendants also
5
That lawsuit was subsequently dismissed by Ditto without prejudice on February 14, 2013.
5
asserted counterclaims against Ditto for unjust enrichment and for money had and
received.
After significant discovery, and in the time frame anticipated by the trial court's
scheduling order which imposed a firm jury trial date, the parties filed competing motions
for summary judgment. The Defendants filed two motions. The first was a motion for
partial summary judgment which argued that the JVA had an indefinite term and was
therefore terminable at will, requiring judgment in the Defendants' favor on Ditto's breach
of contract claim as a matter of law. The second was a motion for summary judgment
which asserted: (i) the alternative argument that Ditto was equitably estopped to assert its
breach of contract claim because Heather detrimentally relied on Ditto's representations
that the JVA was indefinite in its term and terminable at will; and (ii) that no fiduciary
relationship existed between Ditto and the Defendants warranting the entry of judgment
on Ditto's fiduciary duty claim in the Defendants' favor as a matter of law. Ditto filed a
competing motion for partial summary judgment which argued in opposition to the
Defendant's motion for partial summary judgment that the JVA had a definite term that
was co-extensive with the express 63-month term of the Lease and was therefore not
terminable at will. Ditto thus sought judgment in its favor as a matter of law on its
breach of contract claim.
The trial court issued an "order and judgment" on January 16, 2014. The order
granted both of the Defendants' motions for summary judgment, and denied Ditto's
motion for partial summary judgment. The order concluded that the JVA "is clear and
unambiguous and created an agreement of indefinite duration" permitting the JVA to be
6
terminated at the will of either party. The trial court thus concluded that the Defendants
were entitled to judgment on Ditto's breach of contract claim as a matter of law. The trial
court alternatively concluded that the Defendants were also entitled to judgment on
Ditto's breach of contract claim because the uncontroverted facts established that Ditto
was equitably estopped to contend that the JVA was of a definite duration because
Heather detrimentally relied on Ditto's representations that the JVA was of an indefinite
duration, "subject[ing] Defendants to the cost of defending this legal action." Finally, the
trial court's order concluded that the Defendants were entitled to summary judgment on
Ditto's breach of fiduciary duty claim because the uncontroverted facts established that
the relationship between the parties was not in the nature of a partnership, and that no
fiduciary relationship existed between the parties.
Following entry of the trial court's order and judgment, the Defendants voluntarily
dismissed their counterclaims leaving no issues to be determined by the trial court, and
rendering the order and judgment a final judgment resolving all matters in dispute. Ditto
thereafter filed this timely appeal claiming error in the grant of summary judgment in
favor of the Defendants on Ditto's breach of contract claim.6
Standard of Review
Our Supreme Court set out the standard of review for the grant of summary
judgment in Goerlitz v. City of Maryville:
The trial court makes its decision to grant summary judgment based on the
pleadings, record submitted, and the law; therefore this Court need not
6
Ditto has not appealed the grant of summary judgment in favor of the Defendants on Ditto's breach of
fiduciary duty claim.
7
defer to the trial court's determination and reviews the grant of summary
judgment de novo. ITT Commercial Fin. Corp. v. Mid-America Marine
Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993); Rule 74.04. In
reviewing the decision to grant summary judgment, this Court applies the
same criteria as the trial court in determining whether summary judgment
was proper. Id. Summary judgment is only proper if the moving party
establishes that there is no genuine issue as to the material facts and that the
movant is entitled to judgment as a matter of law. Id. The facts contained
in affidavits or otherwise in support of a party's motion are accepted "as
true unless contradicted by the non-moving party's response to the summary
judgment motion." Id. Only genuine disputes as to material facts preclude
summary judgment. Id. at 378. A material fact in the context of summary
judgment is one from which the right to judgment flows.
A defending party . . . may establish a right to summary judgment by
demonstrating: (1) facts negating any one of the elements of the non-
movant's claim; (2) "that the non-movant, after an adequate period for
discovery, has not been able and will not be able to produce sufficient
evidence to allow the trier of fact to find the existence of any one" of the
elements of the non-movant's claim; or (3) "that there is no genuine dispute
as to the existence of facts necessary to support movant's properly pleaded
affirmative defense." Id. at 381. Each of these three methods individually
"establishes the right to judgment as a matter of law." Id. . . .
. . . "The record below is viewed in the light most favorable to the party
against whom summary judgment was entered, and that party is entitled to
the benefit of all reasonable inferences from the record." . . . Hammack v.
Coffelt Land Title, Inc., 284 S.W.3d 175, 177-78 (Mo. App. W.D. 2009)
(internal quotations and citations omitted). See also ITT Commercial Fin.,
854 S.W.2d at 376.
333 S.W.3d 450, 452-53 (Mo. banc 2011).
Analysis
Ditto asserts three points on appeal. First, Ditto argues that the trial court erred in
granting the Defendants' motion for partial summary judgment and in denying Ditto's
8
motion for partial summary judgment7 on Ditto's breach of contract claim because the
JVA had a definite term and was therefore not terminable at will. Second, Ditto argues
that the trial court erred in granting the Defendant's motion for summary judgment on the
breach of contract claim based on the affirmative defense of equitable estoppel because
that affirmative defense was not properly pled. Third, Ditto alternatively argues that
genuine issues of material fact remain in dispute with respect to establishing the
affirmative defense of equitable estoppel preventing the entry of summary judgment on
the basis of that defense as a matter of law.
Point One--Duration of the JVA
Defendants' and Ditto's competing motions for partial summary judgment require
us to determine whether the JVA was of indefinite duration and thus terminable at will.
"Ordinarily an agreement providing for a joint []venture which fixes no specific
termination date either expressly or by necessary implication remains in effect until the
purpose of the agreement is accomplished or until it is ascertained that the purpose cannot
be accomplished." Morrison v. Caspersen, 323 S.W.2d 697, 702 (Mo. 1959) (emphasis
added). "Where, however, the joint venture agreement which fixes no specific
termination date [either expressly or by necessary implication] is a contract for the
7
Ordinarily, the denial of a motion for summary judgment is not appealable. Sauvain v. Acceptance Indem.
Ins. Co., 339 S.W.3d 555, 568 (Mo. App. W.D. 2011). However, it is widely understood that "'the denial of a
motion for summary judgment may be reviewable when . . . the merits of the motion for summary judgment are
intertwined with the propriety of an appealable order granting summary judgment to another party.'" Id. (quoting
Schroeder v. Duenke, 265 S.W.3d 843, 850 (Mo. App. E.D. 2008). When reviewing Ditto's motion for partial
summary judgment, there can be no doubt that it is intertwined with the grant of the Defendant's motion for partial
summary judgment, as both motions turn on whether the JVA is of an indefinite duration, and thus terminable at
will. The Defendants' assertion in their Brief that Ditto's appeal should be dismissed because Ditto improvidently
seeks appellate review of the denial of its partial motion for summary judgment is plainly without merit given the
circumstances in this case.
9
continuing operation of a general business for an indefinite period, the joint venture
should be and usually is terminable at the will of any party to the agreement." Id.8
(emphasis added). Morrison thus directs that the first step in addressing whether a joint
venture agreement is terminable at will is to determine whether the agreement fixes a
specific termination date "either expressly or by necessary implication." Id.
There is no dispute that the JVA does not "expressly" fix a specific termination
date. Rather, the JVA states only that it will remain "in full force and effect until the
Parties' obligations as set forth in this JVA have been completed." (Emphasis added.)
As crafted, at least, this provision fixes a specific termination date by necessary
implication, as it ties termination of the JVA to the completion of obligations therein
defined. However, the provision cannot operate to in fact fix a specific termination date
by necessary implication unless the time for completion of the obligations set forth in the
JVA is susceptible of calculation.
To make that determination, we turn to the language of the JVA. "'The cardinal
rule in the interpretation of a contract is to ascertain the intention of the parties and to
give effect to that intention. Where there is no ambiguity in the contract the intention of
the parties is to be gathered from it and it alone, and it becomes the duty of the court and
not the jury to state its clear meaning.'" Preferred Physicians, 961 S.W.2d at 102
(quoting J.E. Hathman, Inc. v. Sigma Alpha Epsilon Club, 491 S.W.2d 261, 264 (Mo.
8
This legal principle is not unique to joint venture agreements and is of equal application to all contracts.
See, e.g., Armstrong Bus. Servs., Inc. v. H&R Block, 96 S.W.3d 867, 874-78 (Mo. App. W.D. 2002) (addressing
whether a franchise agreement was of indefinite duration and thus terminable at will); Preferred Physicians Mut.
Mgmt. Grp., Inc. v. Preferred Physicians Mut. Risk Retention Grp., Inc., 961 S.W.2d 100, 102-03 (Mo. App. W.D.
1998) (addressing whether a contract to provide management and operational services was of indefinite duration and
terminable at will); Paisley v. Lucas, 143 S.W.2d 262, 270-71 (Mo. 1940) (addressing whether a contract between
an insurance company and an insurance agent was of indefinite duration and terminable at will).
10
banc 1973)). "'[T]he intention of the parties with respect to duration and termination of
their contract is to be determined from the surrounding circumstances and by application
of a reasonable construction of the agreement as a whole; and the duration of a contract
may be implied from the nature of the contract or from the circumstances surrounding
it.'" Union Pac. R.R. v. Kansas City Transit Co., 401 S.W.2d 528, 534 (Mo. App. 1966)
(quoting 17A C.J.S. Contracts section 385(1)).
The JVA sets out the obligations of the parties in Articles 1 and 2. Heather's
obligations are set forth in Article 1 as follows:
1.1 To "secure leased space in retail space located at 609-613 NW
Murray Road, Lee's Summit, Missouri 64081, which consists of
approximately 2,967 gross rentable square feet of space (the Retail Space)."
1.2 To "secure and pay for all build-outs for the Retail Space."
1.3 To "secure and pay for all fixtures for the Retail Space."
1.4 To "secure and pay for all inventory and supplies for the Store."
1.5 To "secure and pay for all employees at the store," and "timely pay
and remit all" taxes "applicable to such employees," and to "indemnify
Ditto for any unpaid taxes for which the Store may become liable."
1.6 To "timely remit all state and local sales taxes," and to "indemnify
Ditto for any unpaid portion," and to provide Ditto monthly with "all sales
tax reporting forms."
1.7 To "pay Ditto the following percent of the gross sales for the Store
on a monthly basis by the 15th day of each month for the prior month:
For the first year of this agreement: 10%
For the second year of this agreement: 8%
For the third year of this agreement: 6%
For each subsequent year of this agreement: 5%"
11
1.8 To "adhere to the provisions of the Dittos Sellers Guide, a copy of
which is attached hereto and incorporated herein."
1.9 To "execute a Promissory Note in the amount of $15,000 concurrent
with this agreement, attached as Exhibit A and incorporated herein, the
terms of which shall be understood to constitute a lien of all fixtures and
inventory located at the Store."
1.10 To "maintain insurance compliant with the terms of the Lease for the
Store Location and to protect the fixtures and inventory at the Store,"
providing Ditto with a copy of the renewal "on an annual basis."
1.11 To "agree[] that Ditto will have the right to assume control of and
operate the Store" if Heather "defaults on the terms of the Note or the
Lease."
1.12 To "contribute pro rata to any marketing campaign conducted by
Ditto for the mutual benefit of Ditto and the Store."
Ditto's obligations are set forth in Article 2 as follows:
2.1 To "lend [Heather] $15,000 to assist with start-up costs for the Store,
according to the terms of the Promissory Note attached as Exhibit A and
incorporated herein."
2.2 To "permit the use of the name . . . by [Heather]."
2.3 To "provide consultation and assistance by its president [Yun] as
needed by [Heather]."
2.4 To "provide its Seller's Guide for the assistance of [Heather] in
operating the Store."
2.5 To "guarantee the Lease of the Store Location."
2.6 To "assume control of the operations of the Store and fulfill the
obligations of the Lease" should Heather default "in the terms of this
Agreement, the Lease, or the Promissory Note."
Some of the obligations set forth in the JVA are drafted in a manner which renders their
completion susceptible of determination. For example, it can be easily ascertained
12
whether a lease has been secured, build-outs in the leased space have been secured and
paid for, or a Note has been signed. However, other obligations set forth in the JVA are
not drafted in a manner which renders their completion susceptible of determination. For
example, Heather's obligations to pay for inventory and supplies for the Store, to pay
Ditto 5% of gross sales "for each subsequent year of this agreement," and to pay all
employees as well as sales and local taxes, are continuing obligations of apparent
unlimited duration based solely on the language of the JVA. Similarly, Ditto's obligation
to consult with and advise Heather is also not plainly susceptible of completion and
appears to be of unlimited duration.
Ditto argues, however, that to determine the time frame for performance of the
obligations set forth in Articles 1 and 2, we must consult not only the JVA, but also the
Lease. Ditto argues that the Lease, which is expressly referenced in, required by, and
identified as Exhibit B to, the JVA is the core operative document around which all of the
JVA performance obligations revolve. As a result, according to Ditto, obligations in the
JVA that appear to be of unlimited duration are in fact limited in their duration by
reference to the Lease which has a fixed specific term of 63 months.
It is well established that when several instruments relating to the same subject are
executed at the same time, "the documents will be construed together, even in the
absence of explicit incorporation, unless the realities of the situation indicate that the
parties did not so intend." Johnson ex rel. Johnson v. JF Enterprises, LLC, 400 S.W.3d
763, 767 (Mo. banc 2013) (emphasis and internal quotation marks omitted). "Whether or
not the documents are treated as a single contract depends on the intent of the parties, but
13
even where not part of a single contract, courts will consider the instruments together
to determine the parties' intent." Id. (emphasis added.)
Here, the JVA unambiguously addresses the cooperative agreement of Ditto and
Heather to operate a retail store in leased premises. The JVA identifies the leased space
by size and location, and references the Lease both parties agreed to sign and to perform.9
The JVA unambiguously requires performance of several obligations directly related to
operation of the store in the leased space. And the JVA unambiguously obliges Ditto to
assume and fulfill Heather's obligations under the Lease should Heather default under the
JVA, the Lease or the Promissory Note. It is plain that the "realities of the situation" do
not indicate the intent to read the JVA and the Lease separately. In fact, unless the JVA
and the Lease are construed together as part and parcel of a single agreement, the JVA is
rendered a hollow agreement with no purpose. State ex rel. Riverside Pipeline Co., L.P.
v. Pub. Serv. Comm'n, 215 S.W.3d 76, 84 (Mo. banc 2007) (holding that we do not
construe contract provisions in a manner that would render them meaningless).
We are thus required to construe the JVA and the Lease together. That requires us
to read the portions of the JVA setting out the performance obligations of the parties in a
manner that is in harmony with the Lease. The Lease has a fixed duration of 63-months.
The obligations in the JVA that otherwise appear to be of unlimited duration are, in fact,
limited in their duration to the time frame within which the parties anticipated the retail
store to operate in the leased space. Stated differently, the term of the JVA, defined as
9
Heather agreed to sign the Lease as the tenant. Ditto agreed to sign the Lease as a guarantor. Heather
agreed to perform the Lease. Ditto agreed to perform the Lease if Heather defaulted on the Lease.
14
ending upon completion of the obligations therein set forth, is necessarily co-extensive
with the term of the Lease. Once the Lease term expires, the "purpose of the [JVA] is
accomplished." Morrison, 323 S.W.2d 702. Thus, the obligation to buy supplies and
inventory for the store in the leased space, to hire and pay taxes on employees for the
store in the leased space, to pay a percentage of sales from the store in the leased space,
to consult in the operation of the store in the leased space, and to do all other things
associated with the operation of the store in the leased space, will be completed, fixing a
specific term of the JVA by necessary implication.
The Defendants argue that we are not permitted to consider the Lease in
construing the duration of the JVA because although the Lease is anticipated by the JVA
and referenced as an Exhibit to the JVA, the JVA does not expressly incorporate the
Lease by reference. The Defendants point out that in contrast, the JVA does expressly
incorporate the Promissory Note and the Ditto Sellers Guide by reference.
It is true that an instrument may incorporate the whole or any part of another
instrument by reference. Wilson Mfg. Co. v. Fusco, 258 S.W.3d 841, 845 (Mo. App. E.D.
2008). And it is true that "matters incorporated into a contract by reference are as much a
part of the contract as if they had been set out in the contract in hac verba." Jim Carlson
Constr., Inc. v. Bailey, 769 S.W.2d 480, 481 (Mo. App. W.D. 1989). Thus, when another
instrument is incorporated by reference, the original instrument and the incorporated
instrument must be construed together. Wilson Mfg., 258 S.W.3d at 845. The application
of this principle here requires reading the JVA, the Ditto Seller's Guide, and the
15
Promissory Note together because the latter two documents were incorporated in the JVA
by express reference.
It is not true, however, that documents can only be construed together if they are
expressly incorporated by reference. Johnson plainly holds otherwise, requiring that
documents that are contemporaneously executed as a part of the same transaction be
construed together "even in the absence of explicit incorporation." 400 S.W.3d at 767
(emphasis added). Thus, the Defendants' reliance on Dunn Industrial Group, Inc. v. City
of Sugar Creek, 112 S.W.3d 421 (Mo. banc 2003), for the broad proposition that a
document attached to, but not incorporated by reference into, a contract cannot be read
together with the contract is misplaced. In Dunn Industrial Group, the Supreme Court
was required to determine whether the guarantor of a construction contract was bound to
an arbitration provision in the construction contract. Id. at 435. The guaranty referred to
an attached construction contract. Id. at 436. The Supreme Court concluded based on the
facts of that case that "[m]ere reference to the construction contract in the guaranty [was]
insufficient to establish that [the guarantor] bound itself to the arbitration provision of the
construction contract." Id. The Supreme Court did not hold, however, that reference to a
separate agreement in a contract can never support reading the agreements as together.
Rather, Dunn is nothing more than a rare example of the exception to the general
rule which requires contemporaneous documents related to the same transaction to "be
construed together, even in the absence of explicit incorporation, unless the realities of
the situation indicate that the parties did not so intend." Johnson, 400 S.W.3d at 767
(emphasis added) (emphasis and internal quotation marks omitted. In contrast to Dunn,
16
the Supreme Court in Johnson construed and harmonized a contemporaneously executed
arbitration agreement and installment contract together, even though the installment
contract contained a merger clause, and even though neither agreement was attached to
the other, expressly referred to in the other, or expressly incorporated by reference into
the other. Id. at 767-68.
The JVA and the Lease were contemporaneously executed as a part of the same
transaction. Performance of the JVA plainly required the Lease to be executed by
Heather and guaranteed by Ditto. Many of the parties' obligations set forth in the JVA
refer to operation of the store in the leased space. Johnson requires the JVA and the
Lease to be read together and harmonized. Thus, obligations set forth in the JVA that
appear at to be of unlimited duration are all related to operation of the store in the leased
space and are thus limited in duration by the fixed specific term of the Lease. The JVA
thus has a fixed specific termination date by necessary implication as the parties'
obligations set forth in the JVA will be completed when the Lease term ends. The JVA is
not of indefinite duration, and is thus not terminable at will, as a matter of law.
The trial court erred in concluding to the contrary, and thus erred in granting
judgment in the Defendants' favor on Ditto's breach of contract claim in response to
Defendants' motion for partial summary judgment. The trial court correspondingly erred
when it denied Ditto's competing motion for partial summary based on the erroneous
conclusion that the JVA was terminable at will. However, Ditto is not entitled to the
grant of summary judgment on its breach of contract claims at this stage of the
17
proceedings.10 In addition to a determination that the JVA was not terminable at will,
Ditto's motion for partial summary judgment sought the corresponding determination
that, as a matter of law, Heather breached the JVA by prematurely terminating same, and
a calculation of Ditto's damages for breach. Though we have concluded as a matter of
law that the JVA is not terminable at will because its term is fixed by necessary
implication to be co-extensive with the term of the Lease, that determination at best lays
the foundation for Ditto's claim of breach of contract, and does not establish all of the
essential elements of the claim as to permit the entry of judgment in Ditto's favor as a
matter of law.
Point One is granted.
Point Two--Whether the Affirmative Defense of Equitable Estoppel was Properly Pled
The trial court also granted the Defendants' second motion for summary and thus
alternatively entered judgment in the Defendants' favor on Ditto's breach of contract
claim because it concluded that the claim was barred as a matter of law by the affirmative
defense of equitable estoppel. Ditto's second point on appeal complains that this was
error because the affirmative defense of equitable estoppel was not properly pled. We
agree.
The parties do not dispute that equitable estoppel is an affirmative defense. See
White v. White, 293 S.W.3d 1, 16 (Mo. App. W.D. 2009) ("The doctrine of equitable
estoppel . . . is an affirmative defense. (internal quotation marks omitted)). Equitable
10
In fact, though Ditto appropriately sought review of the denial of its motion for partial summary
judgment, see supra note 7, Ditto has not asked us to enter judgment in its favor against the Defendants on Ditto's
breach of contract claim, recognizing that other matters essential to the entry of judgment in its favor on that claim
remain to be determined on remand.
18
estoppel is an assertion "'that even if the allegations in the plaintiff's petition are
established, the plaintiff cannot prevail because additional facts exist which avoid the
legal responsibility of the defendant.'" Belt v. Wright Cnty., 347 S.W.3d 665, 669 (Mo.
App. S.D. 2011) (quoting Rodgers v. Czamanske, 862 S.W.2d 453, 459 (Mo. App. W.D.
1993)). In a breach of contract case, "equitable estoppel seeks to foreclose a party from
denying its expressed or implied admission that has, in good faith and pursuance of its
purpose, been accepted and relied upon by another." Back Ventures, LLC v. Safeway,
Inc., 410 S.W.3d 245, 255 n.10 (Mo. App. W.D. 2013).
For summary judgment to be granted to a defendant on the basis of an affirmative
defense, the movant must establish "that there is no genuine dispute as to the existence of
each of the facts necessary to support movant's properly-pleaded [sic] affirmative
defense." ITT Commercial, 854 S.W.2d at 381 (second emphasis added). Rule 55.08
requires a party to "set forth all applicable affirmative defenses," including equitable
estoppel, in a responsive pleading. "A pleading that sets forth an affirmative defense . . .
shall contain a short and plain statement of the facts showing that the pleader is entitled to
the defense . . . ." Rule 55.08. Bare legal assertions are insufficient to plead an
affirmative defense. ITT Commercial, 854 S.W.2d at 383. Instead, "[a]n affirmative
defense is asserted by the pleading of additional facts not necessary to support a
plaintiff's case which serve to avoid the defendants' legal responsibility even though
plaintiffs' [sic] allegations are sustained by the evidence." Id. (internal quotation marks
omitted). In other words, the factual basis for an affirmative defense must be set forth in
the same manner prescribed for pleading claims. Curnutt v. Scott Melvin Transp., Inc.,
19
903 S.W.2d 184, 192 (Mo. App. W.D. 1995). "'A pleading that makes a conclusory
statement and does not plead the specific facts required to support the affirmative defense
fails to adequately raise the alleged affirmative defense, and the alleged affirmative
defense fails as a matter of law.'" Delacroix v. Doncasters, Inc., 407 S.W.3d 13, 38 (Mo.
App. E.D. 2013) (quoting Echols v. City of Riverside, 332 S.W.3d 207, 211 (Mo. App.
W.D. 2010)).
Here, the Defendants' answer alleged that "[Ditto's] claims are barred, in whole or
in part, by waiver, release, laches, estoppel, disclaimer, novation, lack of consideration,
and/or overreaching." There were no factual allegations accompanying this statement of
affirmative defenses. The assertion is thus a bare conclusory statement that "does not
plead the specific facts required to support the affirmative defense[s] [and thus] fails to
adequately raise the alleged affirmative defense[s], [causing] . . . the alleged affirmative
defense[s] [to] fail[] as a matter of law." Delacroix, 332 S.W.3d at 38 (internal quotation
marks omitted).
We reached a similar conclusion in Century Fire Sprinklers, Inc. v.
CAN/Transportation Insurance Co., 23 S.W.3d 874 (Mo. App. W.D. 2000). There, the
trial court granted summary judgment in favor of the defendant insurer based on a policy
exception that was not pled as an affirmative defense. Id. at 875. After concluding that
an insurance policy exception is an affirmative defense that must be pled under Rule
55.08, we reversed the trial court's entry of summary judgment. Id. at 879-80. Similarly,
in State ex rel. Nixon v. Consumer Automotive Resources, Inc., 882 S.W.2d 717, 720-21
(Mo. App. E.D. 1994), summary judgment was affirmed notwithstanding the defendant's
20
assertion of an affirmative defense in its reply to the motion for summary judgment
because the affirmative defense was not properly pled in the defendant's answer as
required by Rule 55.08.
The Defendants do not contest that they failed in their answer to pled the
affirmative defense of equitable estoppel in the manner required by Rule 55.08. Nor do
the Defendants contest that summary judgment can only be granted based on a properly
pled affirmative defense. Rather, the Defendants claim that Ditto is foreclosed from
raising this claim of error because Ditto previously sought (and was denied) the relief of
either having the defense stricken from the Defendants' answer or more definitely stated.
The Defendants' argument is disingenuous.
Ditto did, in fact, file a motion to strike the Defendants' affirmative defenses or, in
the alternative, to require a more definite statement of the defenses. The Defendants filed
suggestions in opposition to the motion wherein the Defendants acknowledged that the
affirmative defenses were insufficiently pled:
Discovery has just commenced in this action. Once discovery concludes,
Defendants may be in a position to provide more details in support of their
affirmative defenses in this matter. However, at the present time,
Defendants cannot provide any more information than that which has
already been provided.
The Defendants thus asked the trial court to "grant Defendants a period of time in which
to conduct discovery and schedule depositions in order to obtain sufficient information to
plead more specifically its Answer and Affirmative Defenses [and] provide a date certain
in which Defendants must make said amendment to the Answer." (Emphasis added.)
21
The trial court denied Ditto's motion without comment or discussion, and without setting
a deadline to amend the Defendants answer.
However, the trial court did enter a scheduling order that, inter alia, established a
deadline of August 15, 2013, to seek leave to amend pleadings. The Defendants never
sought leave to amend their answer, and thus never remediated the defective manner in
which the affirmative defense of equitable estoppel was pled despite their represented
intent to do so. The trial court's denial of Ditto's motion to strike did not relieve the
Defendants of their obligation to comport with the pleading requirements set forth in
Rule 55.08, particularly in light of the fact that the Defendants agreed they needed to do
so in response to Ditto's motion to strike.11
Ditto objected to the Defendants' second motion for summary judgment on the
basis that the affirmative defense of equitable estoppel had not been properly pled, and
was thus not a proper basis upon which summary judgment could be granted as a matter
of law. We agree. The Defendants' conclusory assertion of the affirmative defense of
equitable estoppel in its answer was insufficient to satisfy the requirements of Rule 55.08.
The effect of a deficiently pled affirmative defense is the same as if no attempt is made to
allege a defense--the matter is not properly pled. Issues not properly raised in an answer
are not preserved for determination in a lawsuit. Green v. City of St. Louis, 870 S.W.2d
794, 797 (Mo. banc 1994). Consistent with this fact, we held in Day v. DeVries &
Associates, P.C., 98 S.W.3d 92, 95 (Mo. App. W.D. 2003), that the non-movant "would
11
The Defendants' Brief attempts to recast Ditto's second point on appeal as a claim of error in denying
Ditto's motion to strike subject to review for an abuse of discretion. We disagree. Ditto has not sought review of the
trial court's denial of Ditto's motion to strike, but has instead sought review of the trial court's grant of summary
judgment based on a deficiently pled affirmative defense. Our review is de novo.
22
have been justified in arguing that [the defendants] were not entitled to summary
judgment on the defense of limitations" where the defense was alleged in the answer in
only a bare, conclusory fashion, and thus was not properly pled in the manner required by
Rule 55.08.
The Defendants argue on appeal that the deficiency of their answer can be
overlooked because "[a]ll of the facts upon which [the Defendants] relied in asserting the
equitable estoppel defense in the second motion for summary judgment were set forth in
[the Defendants'] first motion for summary judgment." [Defendants' Brief, p. 30] The
Defendants offer no authority for the proposition that facts alleged in summary judgment
pleadings can substitute for the responsive pleading requirements of Rule 55.08. In fact,
they cannot. In Jones v. Landmark Leasing, Ltd., 957 S.W.2d 369, 375-76 (Mo. App.
E.D. 1997), the Eastern District rejected the argument that facts sufficiently pled to
support an affirmative defense in summary judgment pleadings can cure the failure to
properly plead the defense in an answer. Similarly, we held in Chouteau Auto Mart, Inc.
v. First Bank of Missouri, 148 S.W.3d 17, 26 (Mo. App. W.D. 2004), that raising an
affirmative defense in summary judgment pleadings fails to satisfy the pleading
requirements set forth in Rule 55.08, and does not operate to amend an earlier filed
answer. The holdings in these cases merely align with the unambiguous dictate of Rule
55.08 that all applicable affirmative defenses be pled in a responsive pleading along with
"a short and plain statement of the facts showing that the pleader is entitled to the
defense."
23
The Defendants' affirmative defense of equitable estoppel was not properly pled.
Thus, equitable estoppel was not an issue in the case. The trial court erred as a matter of
law when it granted granting summary judgment in the Defendants' favor on Ditto's
breach of contract claim on the basis of the affirmative defense of equitable estoppel.
Point Two is granted.
Point Three--Whether Genuine Issues of Material Fact Remain in Dispute Precluding
the Entry of Judgment on the Basis of the Defense of Equitable Estoppel
Ditto's third point on appeal, alternatively argues that genuine issues of material
fact prevented entry of judgment based on the defense of equitable estoppel. Technically,
we are not required to address this point on appeal as we have already concluded that the
Defendants did not properly plead the affirmative defense of estoppel, rendering the grant
of summary judgment on the basis of that defense error as a matter of law. We elect,
however, to address the merits of Ditto's third point on appeal as on remand, the trial
court will be free "to exercise its sound discretion . . . to allow [the Defendants] to . . .
amend" their answer to properly plead the affirmative defense of equitable estoppel in the
manner required by Rule 55.08. Century Fire Sprinklers, 23 S.W.3d at 880.
Equitable estoppel arises from the unfairness of allowing a party to
belatedly assert known rights on which the other has, in good faith, relied
thereby and become disadvantaged. This defense consists of three
elements: 1) an admission, statement, or act by the person to be estopped
that is inconsistent with the claim that is later asserted and sued upon, 2) an
action taken by a second party on the faith of such admission, statement or
act, and 3) an injury to the second party which would result if the first party
is permitted to contradict or repudiate his admission, statement or act.
Shores v. Express Lending Servs., Inc., 998 S.W.2d 122, 127 (Mo. App. E.D. 1999); see
also Back Ventures, LLC v. Safeway, Inc., 410 S.W.3d 245, 255 n.10 (Mo. App. W.D.
24
2013). "The party who asserts equitable estoppel must establish each element by clear
and satisfactory evidence and we restrict the application of the doctrine to cases in which
each element clearly appears. Estoppel is not a favorite of the law and will not 'arise
unless justice to the rights of others demands it.'" Id. (citation omitted) (quoting Peerless
Supply Co. v. Indus. Plumbing & Heating Co., 460 S.W.2d 651, 666 (Mo. 1970)).
The Defendants' motion for summary judgment argued that Ditto was equitably
estopped to claim that the JVA had a fixed duration when it earlier made "repeated
representations that the [JVA] was ongoing, indefinite, and terminable at will." The
Defendants' statement of uncontroverted facts in support of its summary judgment motion
identified two representations on which Heather purportedly relied, to her detriment: (1)
Yun's statement in September 2012 when she and Heather met to discuss Heather's
dissatisfaction with the business relationship that the JVA had "no end date," and was "an
ongoing agreement as long as [Heather] was using the Ditto name"; and (2) A
November 12, 2012 e-mail from Ditto's litigation counsel stating that the JVA is of
"unlimited duration" and thus "terminable at will." These "representations" do not
qualify as an admission, statement, or act supporting the defense of equitable estoppel as
a matter of law. "Equitable estoppel applies to the misrepresentation of a material fact,
and not to a mere expression of opinion." 31 C.J.S. Estoppel and Waiver section 115, p.
471 (2008); see also Hanna v. Nowell, 330 S.W.2d 595, 602 (Mo. App. 1959) (holding
that a party is ordinarily not estopped by a mere expression of opinion). "[F]or equitable
estoppel to apply, the false representation must be one of existing material fact, and not
25
of intention, nor may it be a conclusion from facts or a conclusion of law." 31 C.J.S.
Estoppel and Waiver section 115, p. 471.
Thus, in Biggs v. Woodmen of America, 82 S.W.2d 898, 907 (Mo. 1935), our
Supreme Court held that a statement regarding the effect of a bylaws change on the
obligation to continue to pay monthly assessments to maintain insurance was "hardly . . .
more than an expression of an opinion" as to the meaning of the bylaws, precluding
estoppel. The Court cited with approval State ex rel. Thomas v. Trimble, 259 S.W. 1052,
1057 (Mo. 1924), where the Court stated that "[w]e certainly have never held that a
statement made by a general agent . . . expressing an opinion as to the legal effect of the
provisions of [a contract] was, absent fraud, binding . . . on the ground of estoppel."
Similarly, in Rechow v. Bankers' Life Co., 73 S.W.2d 794, 801-02 (Mo. 1934), the court
held that an insurance company's statement following a change in organization of the
company about how the change would affect assessments "hardly amounts to more than .
. . an expression of opinion relative to the meaning of plaintiff's contract as affected by
the reorganization," precluding estoppel.
The statements by Yun and counsel on Ditto's behalf about the duration of the
JVA are plainly expressions of opinion about the effect of the provisions of the JVA, and
are thus conclusions of law that cannot support the defense of equitable estoppel. An
exception to this legal principle exists where an opinion about a matter of law is "made
under circumstances that render . . . repudiation inequitable, as where a confidential
relation exists between the parties, or in a case of actual or professed special knowledge."
31 C.J.S. Estoppel & Waiver section 115, p. 471. That exception plainly does not apply
26
here, particularly in light of the fact that the Defendants sought and secured summary
judgment on Ditto's breach of fiduciary duty claim on the basis that no special or
confidential relationship existed between Ditto and Heather.
Even if Ditto's statements could be construed to be representations of fact, (which
they cannot), the facts viewed in the light most favorable to Ditto establish that the
"representations" were expressly disclaimed by Ditto when it initiated a lawsuit on
November 30, 2012, in an effort to enjoin Heather from following through on her
November 19, 2012 notice of intent to terminate the JVA effective January 15, 2013.
Heather was plainly on notice that Ditto disclaimed either party's ability to terminate the
JVA at will. Any action taken by Heather after that date, including the decision to follow
through with termination of the JVA on February 1, 2013 (a decision which prompted the
instant lawsuit), cannot be said to have been taken in reasonable reliance on the faith of
Ditto's statements as a matter of law. Moreover, we question how either party could
claim to have reasonably relied on the faith of "legal positions" exchanged in heated and
protracted negotiations over how to terminate the JVA.
The trial court's grant of summary judgment in favor of the Defendants based on
the affirmative defense of equitable estoppel, even assuming same to have been properly
pled, was erroneous as the Defendants did not establish two of the essential elements of
that defense as a matter of law.
Conclusion
We reverse the trial court's grant of summary judgment in favor of the Defendants
on Ditto's breach of contract claim because the JVA has a definite term that is co-
27
extensive with the express term of the Lease and is not terminable at will. We reverse the
trial court's alternative grant of summary judgment in favor of the Defendants on Ditto's
breach of contract claim because the affirmative defense of equitable estoppel is not
properly pled in the Defendants' answer, and in any event, the Defendants did not
establish all of the essential elements of the affirmative defense of equitable estoppel as a
matter of law. The trial court's grant of summary judgment in favor of the Defendants on
Ditto's claim for breach of fiduciary duty was not appealed, and remains in force and
effect.
We remand this matter for further proceedings consistent with this Opinion.12
__________________________________
Cynthia L. Martin, Judge
All concur
12
The Defendants' Brief asks us to dismiss Ditto's appeal because Ditto's first and second points relied on
are multifarious in violation of Rule 84.04(d) as they claim error both in the grant of the Defendants' motions for
summary judgment and in the denial of Ditto's motion for summary judgment. The Defendants' Brief further asks us
to dismiss Ditto's appeal because Ditto relied on its guaranty of the Lease to urge that the JVA term was co-
extensive with the Lease term in its arguments before the trial court, and on appeal relies on the language of the
Lease itself. The Defendants' requests are without merit and are denied.
The Defendants also argue in their Brief that Ditto's appeal is frivolous entitling them to damages pursuant
to Rule 84.19. Ditto's appeal is plainly not frivolous, as we are reversing the trial court's judgment. The Defendants'
request for damages for frivolous appeal is denied.
After the conclusion of briefing, Ditto filed a motion for sanctions enumerating several alleged briefing
violations by the Defendants. Ditto's motion is without merit and is denied.
28