Big A LLC v. Lindworth Investments, LLC

IN THE MISSOURI COURT OF APPEALS
WESTERN DISTRICT
BIG A LLC, )
)
Respondent, )
)
WD77400
v. )
)
OPINION FILED:
)
November 12, 2014
LINDWORTH INVESTMENTS, LLC, )
et al., )
)
Appellants. )
Appeal from the Circuit Court of Pettis County, Missouri
The Honorable Robert L. Koffman, Judge
Before Division II: Victor C. Howard, Presiding Judge, and
Mark D. Pfeiffer and Gary D. Witt, Judges
Lindworth Investments, LLC (“Lindworth”), and Paul Vogel (“Vogel”) appeal the
summary judgment granted by the Circuit Court of Pettis County, Missouri (“trial court”), in
favor of Big A, LLC (“Big A”). On appeal, Lindworth and Vogel claim that the trial court erred
in granting summary judgment to Big A because section 432.0401 does not apply to the
fraudulent misrepresentations that Lindworth and Vogel allege to have been made by Big A‟s
predecessor in interest and upon which Lindworth and Vogel relied in executing the promissory
1
All statutory references are to the Revised Statutes of Missouri 2000 as updated by supplement.
notes that were the subject of Big A‟s lawsuit. We reverse the judgment of the trial court and
remand for further proceedings consistent with this opinion.
Factual and Procedural Background
Viewing the facts in the light most favorable to the non-movants,2 as we must, they are as
follows:
Vogel is the manager of Lindworth, an investment company. Lindworth and/or Vogel
had done business with Excel Bank (“Bank”) in the past and trusted Bank‟s officers. In June of
2010, Shaun Hayes (“Hayes”), an officer and director of Bank, contacted Vogel about an
investment opportunity. Vogel met Hayes and another bank officer named Timothy Murphy
(“Murphy”) in one of Bank‟s offices.
At the meeting, Hayes and Murphy told Vogel that Bank had made certain loans to an
entity known as Eighteen Investments, Inc. (“Eighteen”). The loans were evidenced by
promissory notes (“the Eighteen promissory notes”) and were secured by real property in
Arizona. Hayes and Murphy told Vogel that Bank wanted to get the loans to Eighteen off of its
books for regulatory reasons and that it would sell the notes to Vogel and/or Lindworth for an
amount less than the note balances. They fraudulently misrepresented to Vogel that the value of
the Arizona real estate exceeded the balance due on the notes. They also fraudulently
misrepresented to Vogel that a property manager was managing the Arizona real estate and that
the rents coming in would more than service the debt.
Lindworth and Vogel relied upon these misrepresentations, and on June 29, 2010,
Lindworth, through Vogel, executed promissory notes (“the Lindworth promissory notes”)
borrowing money from Bank with which Lindworth either purchased the Eighteen promissory
2
Because the trial court granted Big A‟s motion for summary judgment, we view any disputed facts in the
light most favorable to Lindworth and Vogel, the parties against whom summary judgment was entered. ITT
Commercial Fin. Corp. v. Mid-Am. Marine Supply Corp., 854 S.W.2d 371, 382 (Mo. banc 1993).
2
notes from Bank or purchased the real property from Eighteen (the pleadings in the record
indicate both scenarios in different places, and the exact sequence of transactions is unclear).
Vogel served as guarantor of the Lindworth promissory notes. The rents for the Arizona
properties were assigned to Bank. A few months later, Bank called Vogel and notified him that
no payments had been made on the Lindworth promissory notes for some time. Vogel learned
for the first time that no property manager handled the Arizona properties, no rent was being
collected and forwarded to Bank, rental income was not sufficient to service the debt on the
Lindworth notes, and the balance due on the Lindworth notes far exceeded the value of the
Arizona property.
Bank subsequently assigned the Lindworth promissory notes to Big A. 3 Big A sued
Lindworth and Vogel, seeking a judgment for the balance due on the unpaid Lindworth
promissory notes plus interest, late fees, collection costs, court costs, and attorneys‟ fees.
Lindworth and Vogel admitted executing and guarantying, respectively, the Lindworth notes. In
their amended answer, however, Lindworth and Vogel pled the affirmative defenses of fraud in
the inducement, negligent misrepresentation, breach of the covenant of good faith and fair
dealing, and unclean hands. Big A filed a motion for summary judgment, arguing, inter alia,
that sections 432.040 and 432.047, each of which is in the nature of a statute of frauds, prohibit
Lindworth and Vogel from relying upon Hayes‟s and Murphy‟s claimed oral fraudulent
misrepresentations regarding the Arizona property to support their affirmative defenses to
Big A‟s suit on the Lindworth notes.
The trial court granted summary judgment to Big A, first concluding that Lindworth‟s
and Vogel‟s affirmative defense of unclean hands failed as a matter of law because unclean
3
Although Big A is the current holder of the Lindworth notes, it does not claim to be a holder in due
course. As such, Big A concedes that it is subject to any defenses that Lindworth and Vogel could assert against
Bank (L.F. 440). See §§ 400.3-302, 400.3-305.
3
hands is an equitable defense unavailable for actions at law.4 The trial court then concluded that
Lindworth‟s and Vogel‟s remaining affirmative defenses were barred by section 432.040,
because the misrepresentations that induced Lindworth and Vogel to enter into the subject
transactions with Bank were not in writing.5 Because the trial court concluded that all of
Lindworth‟s and Vogel‟s affirmative defenses failed as a matter of law, it granted summary
judgment in favor of Big A in the amount of $369,309.88, plus post-judgment interest.
Lindworth and Vogel appeal the trial court‟s summary judgment only as to their affirmative
defense of fraudulent misrepresentation.6
Standard of Review
Appellate review of summary judgment is essentially de novo. Brehm v. Bacon Twp.,
426 S.W.3d 1, 3 (Mo. banc 2014); ITT Commercial Fin. Corp. v. Mid-Am. Marine Supply Corp.,
854 S.W.2d 371, 376 (Mo. banc 1993). Summary judgment is appropriate when “there is no
4
See State ex rel. Diehl v. O’Malley, 95 S.W.3d 82, 89 (Mo. banc 2003) (“If the pleadings do not contain
an equitable claim, the case is not in equity.”); Russell v. Casebolt, 384 S.W.2d 548, 553 (Mo. 1964) (“We find no
justification in Missouri law for applying the equitable doctrine of „unclean hands‟ to enforce the dismissal of an
action at law for personal injuries upon the grounds stated here.”); Swisher v. Swisher, 124 S.W.3d 477, 483 (Mo.
App. W.D. 2003) (“The unclean hands doctrine is not available as a defense to proceedings at law, even though
based on equitable principles.” (citing Karpierz v. Easley, 68 S.W.3d 565, 571-72 (Mo. App. W.D. 2002)).
5
The trial court found that section 432.047, which was an alternate basis for Big A‟s motion for summary
judgment, was inapplicable. We agree. Section 432.047 “is solely a limitation on the ability of a debtor to maintain
an action against a creditor under such an agreement or a limitation upon what defenses may be available to a
debtor.” Bailey v. Hawthorn Bank, 382 S.W.3d 84, 93 (Mo. App. W.D. 2012). This particular statute of frauds
merely sets forth the “minimum requirements [that] must be met before the debtor can proceed with any action or
defense to a credit agreement.” Id. Section 432.047 does not statutorily dictate that the contract itself is valid and
enforceable, only that as to the relevant terms and conditions of the credit agreement, the statute of frauds prohibits
parol evidence to contradict the stated contract terms. See Bancorpsouth Bank v. Paramount Props., LLC, 349
S.W.3d 363 (Mo. App. E.D. 2011); Bison Park Development, LLC v. N. Am. Savings Bank, F.S.B., 399 S.W.3d 877
(Mo. App. W.D. 2013). Here, the alleged false representations by Bank‟s officers do not contradict “the payment of
interest . . . and . . . relevant terms and conditions” of the notes and guaranties which were “in writing” as required
by section 432.047. Instead, the alleged fraudulent misrepresentations challenge the enforceability of the notes and
guaranties, as Lindworth and Vogel claim that the misrepresentations induced them to enter into credit agreements
they would not have entered into but for the misrepresentations.
6
Thus, they have abandoned any claim of error as to the trial court‟s ruling on their remaining claimed
affirmative defenses. See Poplar Bluff Internet, Inc. v. City of Poplar Bluff, 427 S.W.3d 343, 348 n.10 (Mo. App.
S.D. 2014) (claims asserted but ruled unfavorably upon by the trial court and not included in point relied on were
deemed abandoned).
4
genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter
of law.” Rule 74.04(c)(6).
Analysis
In their single point on appeal, Lindworth and Vogel claim that the trial court erred in
granting summary judgment because section 432.040, which served as the basis for the trial
court‟s grant of summary judgment, is inapplicable to the fraudulent misrepresentations that
Bank officers made to Vogel to induce Lindworth to execute the Lindworth promissory notes
and Vogel to serve as guarantor. Section 432.040 states, in its entirety:
No action shall be brought to charge any person upon or by reason of any
representation or assurance made concerning the character, conduct, credit,
ability, trade or dealings of any other person, unless such representation or
assurance be made in writing, and subscribed by the party to be charged thereby,
or by some person thereunto by him lawfully authorized.
(Emphasis added.) “The primary rule of statutory construction is to ascertain the intent of the
lawmakers from the language used, to give effect to that intent if possible, and to consider the
words used in the statute in their plain and ordinary meaning.” Estes v. Cole Cnty., 437 S.W.3d
307, 312 (Mo. App. W.D. 2014) (internal quotation omitted).
Big A argued below, and the trial court agreed, that the alleged oral fraudulent
misrepresentations that Bank officers made to Vogel all concerned the credit of Eighteen, and
therefore, Lindworth and Vogel cannot rely upon them to support their affirmative defenses of
fraudulent inducement and/or misrepresentation. We conclude that Big A and the trial court
have misconstrued the nature and applicability of section 432.040.
First, conspicuously unlike the other statutory provision upon which Big A relied below,
section 432.047.2, which applies to “an action . . . or a defense,” the plain language of section
432.040 limits application to “action[s]” that “shall be brought.” The only action brought in the
5
present lawsuit is Big A‟s action against Lindworth and Vogel to recover on the Lindworth
promissory notes. The claimed fraudulent misrepresentations were not asserted by Lindworth
and Vogel in a counterclaim but, instead, were asserted as support for affirmative defenses to
Big A‟s claims. Big A presents us with no authority, nor have we found any such precedent,
applying section 432.040 to bar a claimed affirmative defense of fraudulent misrepresentation.
Given the plain, ordinary, and unambiguous language of section 432.040, we conclude that
section 432.040 only applies to “actions” and not “defenses.” Thus, we conclude that Lindworth
and Vogel‟s affirmative defense of fraudulent inducement is not barred by section 432.040.
Second, section 432.040 has been held to apply “only to such cases wherein the purpose
of the representation is to enable a third person to obtain credit.”7 Singman v. Kostrean Realty,
Inc., 107 S.W.2d 196, 199 (Mo. App. 1937). Clearly, that is not the present factual scenario.
Eighteen Investments is the entity to whose credit Big A argues that the alleged
misrepresentations relate. But Bank was not attempting to entice Lindworth or Vogel to grant
credit to Eighteen. Eighteen had already obtained the credit it needed to buy the Arizona
properties. Instead, Bank was trying to entice Lindworth and Vogel to execute new promissory
notes with Bank, based upon Lindworth‟s and Vogel‟s own credit, to either purchase the
Eighteen promissory notes from Bank or to purchase the Arizona real property from Eighteen.
In other words, one way or another, Bank used the fraudulent misrepresentations to induce
Lindworth and Vogel to substitute their own good credit for that of the poor credit of Eighteen.
Again, Big A points to no precedent where, with a similar factual scenario, section 432.040 or its
predecessor has been used to prohibit evidence of fraudulent oral misrepresentations made to
entice a party to take on its own debt to the benefit of the party making the false statements.
7
Singman analyzed an earlier version of this provision, codified as section 2970, RSMo 1929. The
relevant language of the present statute does not differ materially from the prior version.
6
Consistent with the ruling in Singman, then, we conclude that section 432.040 does not bar the
claimed affirmative defense of fraudulent misrepresentation under the factual scenario with
which we are presented in this case.
Lindworth‟s and Vogel‟s point on appeal is granted.
Conclusion
The trial court erred in granting summary judgment in favor of Big A. We therefore
reverse the judgment of the trial court and remand for further proceedings consistent with this
opinion.
Mark D. Pfeiffer, Judge
Victor C. Howard, Presiding Judge, and
Gary D. Witt, Judge, concur.
7