Richard C. Lehman and Michelle D. Koo v. Automotive Investments, LLC, Donald M. Davis, and Michael Shanahan, Jr. ( 2020 )

In the Missouri Court of Appeals Eastern
District
DIVISION TWO
RICHARD C. LEHMAN AND ) No. ED107864
MICHELLE D. KOO, )
)
Respondents, )
) Appeal from the Circuit Court of
) St. Louis County
v. ) Cause No. 16SL-CC04425
)
AUTOMOTIVE INVESTMENTS, LLC, )
DONALD M. DAVIS, AND ) Honorable Brian H. May
MICHAEL SHANAHAN, JR., )
)
Appellants. ) Filed: July 14, 2020
OPINION
Michael Shanahan, Jr. (“Shanahan”), Donald M. Davis (“Davis”), and Automotive
Investments, LLC (“AI”) (collectively, “Appellants”) appeal the trial court’s judgment entered in
favor of Richard C. Lehman (“Lehman”) and Michelle D. Koo (“Koo”) (collectively,
“Respondents”). Appellants raise seven points on appeal.1 Both parties filed motions for
appellate attorney fees, which were taken with the case. We affirm the judgment of the trial
1
Shanahan was the only appellant to file an appellant’s brief or reply brief; Davis and AI adopted Shanahan’s briefs
as their own.
court. Additionally, we grant Respondents’ motion for attorney fees on appeal and remand to the
trial court for the sole purpose of determining reasonable appellate attorney fees.
BACKGROUND
AI is a limited liability company, co-founded in March of 2009, by Lehman and another
member for the purpose of investing in automotive dealerships. Davis was admitted as a
member in May of 2009. Shortly after AI was founded in 2009, it invested in Gateway Buick
GMC, Inc. (“Gateway”; f/k/a Ken Behlmann Automotive Services, Inc.). In 2012, Lehman
acquired his co-founder’s interest in AI so he and Davis were the only members. Shanahan was
admitted as a member in 2013, and Davis became “dealer operator” of Gateway, which entailed
him managing the day-to-day business of the dealership. In May of 2015, Lehman transferred
his interest in AI to himself and Koo (his wife), as joint tenants by the entireties.
On or about August 11, 2015, the parties executed a Membership Interest Purchase and
Redemption Agreement (“Purchase Agreement”), in which it was agreed Respondents would sell
their interest in AI to Shanahan (making Shanahan and Davis AI’s sole members) and AI would
pay the amount of $4.8 million to Respondents. The Purchase Agreement provided for AI to pay
a lump sum of $1.35 million. In addition, AI executed a Promissory Note (“Note”) that set forth
the terms of AI’s payment of the $2.85 million balance. Shanahan and Davis also executed an
Unlimited Joint and Several Guaranty (“Guaranty”), in which Shanahan and Davis “jointly and
severally and absolutely and unconditionally” guaranteed payment of the amounts agreed to
under the Purchase Agreement and Note.
On November 29, 2016, after Appellants failed to make any payments, Respondents filed
their petition asserting claims related to the Purchase Agreement, Note, and Guaranty, and
subsequently filed their first amended petition on May 24, 2017. In their first amended petition,
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Respondents asserted AI had breached the Note (Count I), AI had breached the Purchase
Agreement (Count II), and Shanahan and Davis had breached the Guaranty (Count III). In
response, Appellants raised numerous affirmative defenses. Relevant to this appeal, Appellants
argued they were not liable under the terms of the Purchase Agreement, Note, and Guaranty
because the Purchase Agreement, which was incorporated in the Note and Guaranty, was “null
and void ab initio” because the consent of General Motors, LLC (“GM”) for the transaction had
not been obtained before December 31, 2015, as required by Section 7 of the Purchase
Agreement.
A bench trial was held on the matter on January 9, January 15, and January 30, 2019. It
was undisputed Appellants failed to pay Respondents pursuant to the Purchase Agreement or
Note; rather, the trial focused on Appellants’ affirmative defenses why they were not liable for
the agreed-upon amounts under the terms of the Purchase Agreement, Note, and Guaranty.
The trial court entered judgment in Respondents’ favor on March 27, 2019, concluding
AI had breached the Note and Purchase Agreement and Shanahan and Davis had breached the
Guaranty. The court rejected Appellants’ affirmative defense that the Purchase Agreement was
null and void ab initio because GM’s consent to the transaction was not obtained by December
31, 2015. Specifically, the court found it was Shanahan’s and Davis’ obligation under Section 7
to use “commercially reasonable efforts” to obtain GM’s consent prior to the deadline and they
failed to do so. As a result, the trial court concluded that, because it was Appellants’ obligation
to use commercially reasonable efforts to obtain GM’s consent to the transaction, “they cannot
now rely on their own breach as the basis to relieve them of further obligations.” The court
further concluded Shanahan and Davis had breached the terms of the Guaranty, in which they
“jointly and severally and absolutely and unconditionally” guaranteed payment of the amounts
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promised under the Purchase Agreement and Note and agreed that no act but full payment would
alter their liability for the amounts. Thus, the court held Respondents were entitled to recover
the full amount due pursuant to the terms of the Purchase Agreement and Note, as well as
statutory and contractual interest. Respondents were also awarded attorney fees under the terms
the Purchase Agreement, Note, and Guaranty.
This appeal follows.
DISCUSSION
Appellants assert seven points on appeal. In sum, Appellants argue: the trial court
erroneously declared the law in placing the burden of proof on Appellants to show they made
commercially reasonable efforts to obtain GM’s consent (Point One); the trial court’s finding that
Appellants did not make commercially reasonable efforts to obtain GM’s consent was both
unsupported by substantial evidence and against the weight of the evidence (Points Two and
Three); the trial court’s finding that Appellants, and not Lehman, were the first to breach the
Purchase Agreement was unsupported by substantial evidence (Point Four); the trial court’s
finding that Appellants were estopped from arguing the Purchase Agreement was void was
unsupported by substantial evidence (Point Five); and the trial court misapplied the law in
excluding Davis’ testimony on GM’s approval process because of a lack of foundation and in
excluding Shanahan’s testimony on an attorney’s statements to him regarding GM’s consent
because it was hearsay (Points Six and Seven). Appellants’ Points One through Five are related,
so we address those points collectively and thereafter address their Points Six and Seven.
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Points One – Five: Appellants’ Breach of the Purchase Agreement and Affirmative Defenses
Standard of Review
Generally, we will affirm the judgment of the trial court in a court-tried case unless the
judgment is unsupported by substantial evidence, is against the weight of the evidence, or
erroneously declares or applies the law. Nicolazzi v. Bone, 564 S.W.3d 364, 370 (Mo. App. E.D.
2018) (citing Ivie v. Smith, 439 S.W.3d 189, 198–99 (Mo. banc 2014)); Murphy v. Carron, 536
S.W.2d 30, 32 (Mo. banc 1976). We view the evidence in the light most favorable to the
judgment, accepting all evidence and inferences favorable to the judgment as true and
disregarding all contrary evidence and inferences. O’Gorman & Sandroni, P.C. v. Dodson, 478
S.W.3d 539, 542 (Mo. App. E.D. 2015). “We defer to the trial court’s judgment on contested
issues of fact, but we review issues of law de novo.” Central Parking System of Mo., LLC v.
Tucker Parking Holdings, LLC, 519 S.W.3d 485, 493 (Mo. App. E.D. 2017). Ultimately, when
reviewing an appeal of a court-tried case, we are primarily concerned with “the correctness of the
result, not the route taken to reach it,” and we will therefore not disturb a trial court’s correct
ruling even where the trial court may have provided a wrong or insufficient reason for it. Id.; see
also O’Gorman & Sandroni, P.C., 478 S.W.3d at 543.2
Analysis
On appeal, it is undisputed Appellants failed to comply with the contract and obtain
GM’s consent to the transfer of Respondents’ interest by December 31, 2015. However,
Appellants assert that it was somehow Respondents’ responsibility to meet the burden of proof
for their affirmative defense that AI, Gateway, Shanahan, and Davis used commercially
2
The trial court arguably may have mischaracterized the evidence in its findings of fact as to whether some facts
were or were not disputed, but those inaccuracies do not affect our conclusion in this case, as there was substantial
evidence upon which the court could have decided the disputed facts as further discussed, herein.
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reasonable efforts to obtain GM’s consent and that Shanahan specifically did everything he
personally could to do so. These arguments are wholly unpersuasive.
First, “[a]n affirmative defense seeks to defeat or avoid a plaintiff’s cause of action, and
alleges that even if plaintiff’s petition is true, plaintiff cannot prevail because there are additional
facts that permit the defendant to avoid legal responsibility.” Templeton v. Cambiano, 558
S.W.3d 101, 104 (Mo. App. W.D. 2018) (internal quotations omitted). “Defendants carry the
burden of proof on all affirmative defenses.” TA Realty Assocs. Fund V, L.P. v. NCNB 1500,
Inc., 144 S.W.3d 343, 347 (Mo. App. E.D. 2004); see also Black & Veatch Corp. v. Wellington
Syndicate, 302 S.W.3d 114, 127 (Mo. App. W.D. 2009).
Moreover, if the terms of a contract are “unequivocal, plain, and clear, the court is bound
to enforce the contract as written.” HCI Investors, LLC v. Fox, 412 S.W.3d 424, 440 (Mo. App.
W.D. 2013) (quoting Malan Realty Investors, Inc. v. Harris, 953 S.W.2d 624, 626–27 (Mo. banc
1997)). “It is the most basic principle of contract law that parties are bound by the terms of the
contracts they sign and courts will enforce contracts according to their plain meaning, unless
induced by fraud, duress, or undue influence.” Smith v. Keystone Mut. Insur. Co., 579 S.W.3d
275, 280 (Mo. App. E.D. 2019) (quoting Nitro Distrib., Inc. v. Dunn, 194 S.W.3d 339, 349 (Mo.
banc 2006)).
Section 5(a) of the Purchase Agreement clearly identifies Shanahan and Davis as the
“Members” referenced within the Purchase Agreement, specifically stating, “Davis and
Shanahan (‘Members’) both agree . . . .” Section 7 (entitled “Required Consents”) then goes on
to state:
AI, Gateway, and the Members shall use commercially reasonable efforts to obtain
any and all consents of third parties necessary for the effectiveness of the
transactions contemplated hereby (the “Third Party Consents”), including without
limitation the consent of General Motors, LLC, as required pursuant to that certain
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Dealer Sales and Service Agreement 2010 Standard Provisions, on or before
December 31, 2015. In the event that all Third Party Consents are not obtained on
or before December 31, 2015, this Agreement shall be deemed to be null and void
ab initio. . . .
At trial, Appellants asserted that their failure to obtain GM’s consent by December 31,
2015, was an affirmative defense to Respondents’ suit because such failure caused the entire
transaction contemplated by the Purchase Agreement to be null and void ab initio, per Section 7
of the Purchase Agreement. However, the trial court specifically found that, “[a]side from
relying on others to obtain GM’s consent, neither Shanahan nor Davis presented any evidence
that they, or their agents, made any efforts to obtain the consent of GM on or before December
31, 2015” (emphasis added).
This conduct contravenes the plain and unambiguous language of Section 7 of the
Purchase Agreement, which unequivocally obligated Appellants to use commercially reasonable
efforts to obtain GM’s consent in order to invoke the provision’s protection and deem the
transaction null and void ab initio if such consent was not obtained by December 31, 2015. See
HCI Investors, LLC, 412 S.W.3d at 440. Furthermore, Section 7 imposes absolutely no
responsibility on Respondents. Appellants failed to meet their burden of proof for an affirmative
defense as set forth in Section 7. See TA Realty Assocs. Fund V, L.P., 144 S.W.3d at 347; Black
& Veatch Corp., 302 S.W.3d at 127. Merely showing GM’s consent was not obtained is
insufficient absent proof Appellants used commercially reasonable efforts to obtain that consent.
Thus, Appellants attempt to rely on the benefit of this particular term without fulfilling their
responsibility.
Shanahan essentially argues throughout the first, second, and third points on appeal that
he should be personally protected because it was not proven he individually failed to use
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commercially reasonable efforts to obtain GM’s consent pursuant to Section 7 of the Purchase
Agreement. However, Shanahan overlooks two key facts that defeat his claim.
First, Section 7 of the Purchase Agreement required AI, Gateway, Shanahan, and Davis
collectively to use commercially reasonable efforts to obtain GM’s consent. The testimony of
both Davis and Shanahan is abundantly clear that no actions were actually taken to contact GM
and obtain its consent to the transaction contemplated by the Purchase Agreement before
December 31, 2015. Shanahan testified he could only rely upon Davis to obtain GM’s consent
because he did not have access to the GM portal, and that Davis assured him GM’s consent
would be obtained by the December 31, 2015 deadline.3 Davis testified he told Shanahan that
GM’s consent would be obtained, but he just assumed Shanahan was already “approved” from
when he previously became a member of AI, so he took no further action to obtain GM’s consent
by December 31, 2015. Shanahan’s belief that his inability to access the GM portal—
necessitating his reliance on Davis—somehow allows him to personally invoke the protection of
Section 7 ignores the plain terms collectively obligating him, Davis, and AI.
Second, and relevant to Shanahan’s argument that he may escape personal liability, is the
fact that he is jointly and severally liable with Davis for the amounts to be paid to Respondents
under the Purchase Agreement and Note pursuant to the Guaranty they executed, which is
incorporated into the Purchase Agreement and Note.
Combined, these facts defeat Shanahan’s argument that he could not be held liable in this
case because he used “commercially reasonable efforts” by doing everything he personally could
3
Although Shanahan also contends AI’s attorney emailed he and Davis indicating GM had consented, review of that
email shows such a contention is a striking mischaracterization. The subject email to which Shanahan directs our
attention never mentions GM’s consent or approval, and instead addresses the contractual structure of the
transaction and how the Purchase Agreement, Note, and Guaranty interacted. At the end of the email, AI’s attorney
stated, “This will allow you to move forward with GM immediately.”
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by relying on Davis to obtain GM’s consent. The collective failure of Shanahan and Davis, as
the sole members of AI and in Davis’ capacity as dealer operator of Gateway, to actively seek
GM’s consent by December 31, 2015, precludes Appellants from effectively asserting the
Purchase Agreement was null and void ab initio. Therefore, AI breached the Purchase
Agreement and Note by failing to pay the agreed-upon amounts to Respondents.
As a result of AI’s breach of the Purchase Agreement and Note, Shanahan and Davis are
jointly and severally liable to Respondents pursuant to the Guaranty they executed in conjunction
with the Purchase Agreement and Note. This means either or both Davis and Shanahan could be
held personally liable for the amounts promised if payment was not made to Respondents under
the terms of the Purchase Agreement or Note. The fact that Davis did not follow through on
obtaining GM’s consent to the transaction (as he was de facto the only one who could do so)
does not relieve Shanahan of liability. Thus, Shanahan is hoisted upon the petard of Davis’
failure to obtain GM’s consent. Consequently, Shanahan is still personally liable to
Respondents.
In Point Four, Appellants argue they should not be held liable for breach of the Purchase
Agreement in this case because Lehman was the first to breach. Specifically, Appellants contend
Lehman breached Sections 4 and 10 of the Purchase Agreement by failing to obtain GM’s
consent to the transfer of his interest and pursuant to the Dealer Agreement that Lehman signed
in 2009. This claim must also fail.
Lehman signed the Dealer Agreement, which requires AI to obtain GM’s consent to
future transfers of ownership interest, in his capacity as a member of AI. Thus, as is consistent
with Section 7 of the Purchase Agreement, AI was obligated to obtain GM’s consent to the
transaction contemplated by the Purchase Agreement—not Lehman personally.
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Further, Sections 4 (stating that Respondents would transfer their ownership interest “free
and clear of any liens, security interests or encumbrances whatsoever (except those arising under
this Agreement)”) and 10 (requiring the parties to the Purchase Agreement “to immediately take
all actions necessary or appropriate to implement all transactions contemplated hereunder,
including without limitation obtaining any Third Party Consent”) of the Purchase Agreement are
general provisions. However, Section 7, which explicitly obligated AI, Gateway, Shanahan, and
Davis—but not Respondents—to use commercially reasonable efforts to obtain GM’s consent, is
a specific provision governing the issue of who was required to obtain GM’s consent. “When a
provision of a contract deals with a specific situation, it will prevail over a more general
provision if there is ambiguity or inconsistency between them.” Fairmont/Monticello, LLC v.
LXS Investments, Inc., 554 S.W.3d 478, 482 (Mo. App. E.D. 2018) (quoting Five Star Quality
Care-MO, L.L.C. v. Lawson, 283 S.W.3d 811, 815 (Mo. App. W.D. 2009)). Therefore, pursuant
to the specific provisions set forth in Section 7, Respondents did not breach Sections 4 and 10 of
the Purchase Agreement.
Appellants’ Points One, Two, Three, Four, and Five4 are denied because Shanahan and
Davis collectively failed to use commercially reasonable efforts to obtain GM’s consent on or
before December 31, 2015; nor did Respondents breach the Purchase Agreement.
Points Six and Seven: Admissibility of Davis’ and Shanahan’s Testimony on GM’s Consent
Standard of Review
A trial court has considerable discretion in determining whether to admit or exclude
proffered evidence, and we will not reverse the trial court’s determinations on such absent an
4
We decline to adopt Respondents’ assertion that Point Five is dispositive of the other six points on appeal because
we deny Appellants’ first four points, thereby affirming the trial court’s judgment regarding Appellants’ affirmative
defense that the Purchase Agreement was null and void ab initio. Thus, we need not address Point Five.
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abuse of that discretion. Whitmoor Realty, LLC v. Beckerle as Trustee of Delora A. Beckerle
Living Trust Dated June 10, 1999, 588 S.W.3d 573, 577–78 (Mo. App. E.D. 2019). “In
reviewing for an abuse of discretion, we presume the trial court’s ruling is correct, and reverse
only when that ruling is clearly against the logic of the circumstances then before the court and is
so arbitrary and unreasonable as to shock the sense of justice and indicate a lack of careful
consideration. . . .” Portfolio Recovery Assocs., LLC. v. Schultz, 449 S.W.3d 427, 431 (Mo. App.
E.D. 2014). Further, this court will not reverse a trial court’s admission or exclusion of evidence
unless such alleged error materially affected the merits of the action. Whitmoor Realty, LLC, 588
S.W.3d at 578; Shallow v. Follwell, 554 S.W.3d 878, 881 (Mo. banc 2018).
Analysis
Appellants assert the trial court made two erroneous evidentiary rulings: excluding
Davis’ testimony on GM’s internal approval process based on lack of foundation and excluding
Shanahan’s testimony on what an attorney (who Appellants claim represented AI, Gateway, and
Shanahan in the transaction at issue) told him about GM’s consent being obtained because it was
hearsay. Even assuming arguendo the testimony at issue is admissible, we find the testimony
would not have materially affected the case’s outcome. What Appellants claim this testimony
would have shown (details on GM’s approval process and what Shanahan allegedly thought and
was aware of regarding GM’s consent) does not prove facts showing Appellants did not breach
the Purchase Agreement, Note, and Guaranty. Nor does it prove any affirmative defense applies,
including that AI, Gateway, Shanahan, and Davis used commercially reasonable efforts to obtain
GM’s consent by December 31, 2015, because that evidence fails to demonstrate any action by
Appellants to contact GM and obtain its consent. See supra Points One – Five, Analysis.
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Appellants’ Points Six and Seven are denied because the evidentiary errors alleged by Appellants
do not materially affect the merits of the action. See Whitmoor Realty, LLC, 588 S.W.3d at 578;
Shallow, 554 S.W.3d at 881.
Motions for Attorney Fees on Appeal
Both Shanahan and Respondents request attorney fees on appeal based upon the terms of
the Purchase Agreement. Respondents also assert they are entitled to appellate attorney fees
under the terms of the Note and Guaranty. Our court may award appellate attorney fees “if they
are based on a written agreement that is the subject of the issues presented on appeal.”
Jamestowne Homeowners Ass’n Trustees v. Jackson, 417 S.W.3d 348, 359–60 (Mo. App. E.D.
2013) (internal citations omitted); see also Clean Uniform Co. St. Louis v. Magic Touch
Cleaning, Inc., 300 S.W.3d 602, 614 (Mo. App. E.D. 2009).
The Purchase Agreement entitles the prevailing party in any dispute regarding the
Purchase Agreement to recover all “fees, costs and expenses, including [attorney] fees, relating
to such dispute” from each non-prevailing party. Therefore, as the prevailing party on appeal,
Respondents are entitled to recover appellate attorney fees. They are also entitled, as holders of
the Note, to attorney fees incurred in the course of collecting on the Note and pursuant to Section
4 of the Guaranty for attorney fees incurred in enforcing the Guaranty. Thus, we grant
Respondents’ motion for appellate attorney fees and deny Shanahan’s request for such.
While we have the “authority to allow and fix the amount of [attorney] fees on appeal, we
exercise this power with caution, believing in most cases that the trial court is better equipped to
hear evidence and argument on this issue and determine the reasonableness of the fee requested.”
Jamestowne Homeowners Ass’n Trustees, 417 S.W.3d at 360. We therefore remand to the trial
court for the sole purpose of determining Respondents’ reasonable appellate attorney fees.
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CONCLUSION
For the foregoing reasons, we affirm the judgment of the trial court and remand for the
trial court to determine Respondents’ reasonable attorney fees on
appeal.
Lisa P. Page, Judge
Philip M. Hess, P.J. and Kurt S. Odenwald, J., concur.
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