Crest Construction II, Inc. and Metro Energy, Inc. v. John A. Hartia

MISSOURI COURT OF APPEALS
WESTERN DISTRICT
CREST CONSTRUCTION II, INC. )
AND METRO ENERGY, INC., ) WD78135
)
Appellants, ) OPINION FILED:
v. )
) April 19, 2016
JOHN A. HART, ET ALIA, )
)
Respondents. )
)
Appeal from the Circuit Court of Clay County, Missouri
Honorable Janet Lodwick Sutton, Judge
Before Division Three:
James Edward Welsh, P.J., Thomas H. Newton, and Gary D. Witt, JJ.
Crest Construction II, Inc. and Metro Energy, Inc. (collectively Crest
Construction) appeal a judgment awarding them $4.1 million in actual and special
damages against Mr. John Hart and Ms. Dee Hart and their business entities, On Time
Auto Sales and Financing LLC, Fidelity Three, Inc., and Northland Auto Brokers,
LLC (collectively On Time Auto), and dismissing with prejudice the first amended
petition for breach of contract, fraud, conversion, and civil conspiracy as to Mr. Larry
Myers, Ms. Connie Myers, Northland II, Inc., Northland Auto Sales & Leasing LLC,
Northland Auto Sales LLC, Mr. Buddy Taylor, and Ms. Hilda Marie Chaddock
(Defendants). We affirm. 1
The issues arise out of a state petition that was filed after the applicable statute
of limitations had expired. The state petition was filed after a federal court had
dismissed a complaint raising similar claims over which the court declined to
exercise pendent jurisdiction. To the extent that Crest Construction pleaded the same
claims both in federal and state court, we find, as elaborated more fully below, that a
federal statute tolled some of the claims as to some of the parties . We also find that
the tolled state claims fail because Crest Construction failed to show either that they
fell within the partial performance exception to the statute of frauds or were
sufficiently pleaded.
Viewed in the light most favorable to the first amended petition, the facts
allege a business deal with its inception in late 2003 involving On Time Auto’s sales
and resales of used vehicles to third parties, financed by relatively high -interest loans
that would be assigned “with recourse” to Crest Construction, which purchased the
sales agreements and promissory notes by paying the sales price to On Time Auto,
less the down payment. Crest Construction was then to receive, on a weekly basis,
the loan payments made to On Time Auto and the Defendants by the car buyers on
their contracts. Crest Construction was allegedly promised twenty-four-percent
interest on its investment with one-hundred-percent recovery of investment principal.
While Crest Construction refers throughout its pleadings to terms to which the parties
“agreed” and to an “agreement,” no writing executed by the parties setting forth these
1
Judge Gabbert, who presided over this matter before he was appointed to the Missouri Court of
Appeals for the Western District, has taken no part in the consideration of this case.
2
terms exists. Between December 2003 and December 2004, Crest Construction
allegedly paid some $1.6 million for 268 vehicle loan accounts. Crest Construction
received approximately $400,000 from payments on these accounts. It alleges that
On Time Auto and Defendants fraudulently used the same loan agreements assigned
to Crest Construction and either sold them to or obtained loans from other financial
entities, thus putting its collateral at risk, and failed to pay Crest Construction the
loan payments that were made on the loans purchased by Crest Construction. Crest
Construction further alleges that Mr. Myers converted for his own use a “reserve
account,” established to guarantee Crest Construction payment for bad loan accounts.
Crest Construction also allegedly paid $200,000 for a twenty-five-percent equity
interest in On Time Auto, which funds were supposed to be, but were not, used to pay
off On Time Auto’s entire business debt.
We dismissed an earlier appeal in this matter because the trial court had not
issued a final judgment. Crest Constr. II, Inc. v. Hart, 439 S.W.3d 246 (Mo. App.
W.D. 2014). The concise procedural summary therein sets the stage for the issues
raised in this appeal.
On October 4, 2007, Crest Construction filed a six-count
complaint in the United States District Court for the Western District of
Missouri. The counts were Count I (Breach of Contract), Count II
(Breach of Contract), Count III (Fraud), Count IV (Conversion), Count
V (Civil Conspiracy), and Count VI (RICO). All conduct allegedly
committed by any defendants occurred from December 2003 through
December 2004.
On August 27, 2010, the district court dismissed Count VI
(RICO), which had provided the basis for federal jurisdiction. The
district court declined to exercise supplemental jurisdiction under 28
U.S.C. § 1367(c)(3) over the remaining claims, finding that the case was
“a garden variety fraud and breach of contract case that should be heard
in Missouri state court.” The court dismissed all of Crest Construction’s
3
claims without prejudice. On November 4, 2010, the district court
denied Crest Construction’s motion to set aside the court’s judgment
and allow it to amend the complaint. On appeal to the Eighth Circuit
Court of Appeals, Crest Construction submitted an amended complaint.
The Eighth Circuit rejected the amended complaint and affirmed the
district court’s judgment on October 31, 2011.
On September 24, 2010, within thirty days of the federal district
court’s dismissal, Crest Construction filed its petition in the Circuit
Court of Clay County. Crest Construction amended its petition on
December 15, 2011. The amended petition brought the following
claims: Count I (Breach of Contract), Count II (Breach of Contract),
Count III (Fraud), Count IV (Conversion), and Count V (Civil
Conspiracy). In its amended petition, Crest Construction alleged that it
entered into a business relationship with [On Time Auto and] some of
the Defendants to purchase vehicle sales contracts and promissory notes
obtained by those companies from third-party customers. The claims
stem from this relationship and the subsequent events that Crest
Construction alleged transpired from December 2003 through 2004.
On October 26, 2011, the trial court entered a default judgment
for Crest Construction against [On Time Auto]. In its judgment, the
court cited Rule 74.05(b), the rule addressing the entry of interlocutory
default judgment. The docket sheet also reflects that the default
judgment was interlocutory.
On August 29, 2012, the circuit court held a hearing on the
remaining Defendants’ joint motion to dismiss. On September 28, 2012,
the circuit court granted Defendants’ motion. The circuit court found
that Crest Construction’s claims were barred by the statute of
limitations, that the alleged contract could not be enforced because it
violated the statute of frauds, and that Crest Construction’s petition
failed to properly plead a claim or cause of action as to each of the
Defendants. On June 28, 2013, the circuit court entered its judgment
dismissing Crest Construction’s first amended complaint with pre judice
as to “all defendants.” The court, however, specifically stated in its
judgment:
Defendants John D. Hart and Dee Hart did not
appear personally nor were they represented by counsel the
Court having entered judgment previously in favor of
Plaintiffs against Defendant John Hart and Dee Hart and
their business entities on October 26, 2011, and this
Judgment does not address that Interlocutory judgment.
Id. at 248-49.
4
We dismissed the appeal because no damages had been awarded, and thus the
trial court had not resolved all of the issues as to all of the parties. Id. at 249.
Thereafter, the trial court conducted a hearing on damages , during which Crest
Construction’s owner, principal shareholder, and primary officer Mr. Randall L.
Robb testified, and issued a final judgment on October 9, 2014, awarding Crest
Construction $4.1 million in damages against Mr. and Ms. Hart and their business
entities. Finding that Crest Construction’s amended petition was barred by the statute
of limitations, the alleged agreement did not comply with the statute of frauds, and
the petition failed to properly plead the elements of common law fraud and civil
conspiracy, 2 the trial court again dismissed the petition as to Defendants with
prejudice. Crest Construction filed this appeal.
The parties have cited the standard applicable to appellate review of a trial
court’s ruling on a motion to dismiss. And while the trial court here decided the
matter on the basis of the Defendants’ joint motion to dismiss, it did not confine itself
to the pleadings in making its determination. 3 The Defendants attached exhibits to
their joint suggestions in support of that motion, includi ng the federal criminal docket
in a mail fraud case against Mr. and Ms. Hart, Crest Construction’s original federal
complaint, the district court’s ruling, and the Eighth Circuit’s opinion. Crest
Construction attached documents to its response, including an affidavit and a
spreadsheet purportedly reflecting its losses and, as noted above, introduced evidence
during a damages hearing. “Where, as here, both parties introduce evidence beyond
2
Crest Construction has not challenged the court’s civil conspiracy ruling in this appeal .
3
Note also that the Defendants’ joint motion to dismiss inco rporates by reference Ms. Chaddock’s
motion for summary judgment, which challenged Crest Construction’s failure to allege sufficient
facts to support any claims as to her individually.
5
the pleadings, a motion to dismiss is converted to a motion for sum mary judgment,
and the parties are charged with knowledge that the motion was so converted.”
Thomas v. Grant Thornton LLP, 478 S.W.3d 440, 444 (Mo. App. W.D. 2015).
Accordingly, we review the trial court’s judgment de novo and consider the record in
the light most favorable to the party against whom judgment was entered, giving the
non-mover the benefit of all reasonable inferences from the record. Woodson v. City
of Independence, 124 S.W.3d 20, 26 (Mo. App. W.D. 2004). The circuit court enters
summary judgment when “‘the motion, the response, [and] the reply . . . show that
there is no genuine issue as to any material fact and that the moving party is entitled
to judgment as a matter of law.’” Id. (quoting Rule 74.04(c)(6)).
Legal Analysis
In the first point, Crest Construction contends that the trial court erred by
concluding that the federal litigation between the parties did not toll the statute of
limitations under 28 U.S.C. § 1367(d) (2006). This point raises an issue of first
impression in Missouri. Section 1367(d) tolls state statutes of limitations during the
time that supplemental state-law based claims are pending in civil actions brought in
federal district court and up to 30 days after the federal action is dismissed where the
court decides not to exercise jurisdiction over the supplemental claims. The statute
reads as follows:
The period of limitations for any claim asserted under subsection
(a), and for any other claim in the same action that is voluntarily
dismissed at the same time as or after the dismissal of the claim under
subsection (a), shall be tolled while the claim is pending and for a
period of 30 days after it is dismissed unless State law provides for a
longer tolling period.
6
Id. Here, the dismissed federal complaint included supplemental claims for breach of
contract, fraud, conversion, and civil conspiracy over which the federal court
declined to exercise supplemental jurisdiction. The applicable Missouri statute of
limitations for these claims is five years. § 516.120. Because the relevant events
arising out of the business relationship at the core of the f ederal complaint allegedly
occurred no later than December 31, 2004, the state-law based claims would have
been extinguished on December 31, 2009, while the claims were pending in federal
court. If the claims in the federal complaint were the same as thos e Crest
Construction asserted in its state-court petition, as amended, which it filed within
thirty days of the federal district court’s August 27, 2010, dismissal, the statute of
limitations would have been tolled under section 1367(d).
A comparison of the federal complaint and the first amended state petition is
required, because, for purposes of tolling, we must determine whether each claim
filed in federal court is the same as each claim filed in state court. 28 U.S.C. §
1367(d). 4 This comparison would have been less onerous had Crest Construction
simply changed the caption from the federal complaint and removed the RICO claim
when filing its petition in state court. It did not do so. To aid our review, Crest
Construction sets forth a brief comparison of the first amended federal complaint and
the first amended state petition to demonstrate that all the claims are the same and
4
We have found no Missouri court opinion addressing the appli cation of 28 U.S.C. § 1367(d), but
other courts, to which Crest Construction has drawn our attention, have determined that state -law
claims are tolled “only when a party seeks to refile in the state court the same state-law claims the pa
rty asserted in federal court.” Rester v. McWane, Inc., 962 So. 2d 183, 186 (Ala. 2007) (emphasis ad
ded). During oral argument, Crest Construction cited In re Vertrue Inc. Marketing & Sales Practices
Litigation, 719 F.3d 474 (6th Cir. 2013), to emphasize that courts look only to the titles for each caus
e of action when comparing the complaints under section 1367(d). We disagree that this case support
s such a legal principle.
7
were thus tolled. Because the federal courts did not allow Crest Construction to file a
first amended complaint, we turn instead to the original complaint to make that
comparison.
Crest Construction also argues that it included additional facts in the petition
filed in state court because Missouri is a fact-pleading jurisdiction, while federal
courts require notice pleading. This is not quite accurate. Under Bell Atlantic Corp.
v. Twombly, 550 U.S. 544, 570 (2007), and Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949
(2009), the U.S. Supreme Court adopted a plausibility pleading standard in the
federal courts, requiring that a complaint state a claim for relief plausible on its face
and set forth well-pleaded facts that permit the court to infer more than the mere
possibility of misconduct. Under this standard, simply giving notice of a cause of
action is no longer sufficient; more detailed factual allegations must be included to
render the claim for relief plausible and thus actionable. Crest Construction also
contends, without elaboration, that the changes in the first amended state petition
reflect newly discovered evidence. 5
The Defendants rely on case law pertaining to the amendment of pleadings and
the relation back of amendments under Rule 55.33(c). In this regard, they cite
Troxell v. Welch, 687 S.W.2d 902, 908 (Mo. App. W.D. 1985), in which the court
determined that when a plaintiff brings “in new facts, new events and new
occurrences, that were not noticed to the defendant by the original plea dings[, t]hese
5
Because Crest Construction neither raised the issue of newly discovered evidence in its point on
appeal nor briefed why newly discovered evidence may be asserted in a petition filed after the statute
of limitations expires, we do not consider this argument further. See Stickley v. Auto Credit, Inc., 53
S.W.3d 560, 563 (Mo. App. W.D. 2001) (noting that the argument section of an appellate brief must
restate the points relied on and discuss the argument as to each point, court states, “The argument is
limited to only those errors asserted in the points relied on”).
8
events could not relate back to avoid the statute [of limitations].” According to
Troxell, “One is left with the impression it would just be unfair to allow this plaintiff
many years, many trial settings, and many utilizations of discovery later, to bring up
new incidents that happened so close in time and that so directly involved
[Appellant].” Id. at 909. Unfortunately, Troxell relied on Laux v. Motor Carriers
Council of St. Louis, Inc., 499 S.W.2d 805 (Mo. 1973), to support its Rule 55.33(c)
interpretation. The Missouri Supreme Court noted in Koerper & Co., Inc., v. Unitel
International, Inc., 739 S.W.2d 705, 706 (Mo. banc 1987), that Laux had been
abrogated with the adoption of Rule 55.33(c). In Koerper & Co., the supreme court
said that the rationale for the rule is “the concept that a party who is notified of
litigation concerning a given transaction or occurrence has been given all the notice
that statutes of limitation are intended to afford.” See also Thompson v. Brown &
Williamson Tobacco Corp., 207 S.W.3d 76, 116 (Mo. App. W.D. 2006) (noting that
“rule is to be liberally applied, and is based on the concept of whether a defendant
has been given notice sufficient to defend against claims relating to a p articular
transaction or occurrence”). Inasmuch as this case is not about the relation back of
an amended pleading, we find the relation-back principle useful but not necessarily
controlling to inform our comparison of the pleadings in federal and state c ourt.
Res judicata principles may also guide our analysis, to the extent that the
courts have attempted to discern whether a cause of action has previously been
decided and may not be re-litigated. For purposes of res judicata, “to have identity of
the cause of action, the actions do not have to be identical, but the claims must have
arisen out of the ‘same act, contract or transaction.’” Jordan v. Kansas City, 929
9
S.W.2d 882, 886 (Mo. App. W.D. 1996) (citing Andes v. Paden, Welch, Martin &
Albano, P.C., 897 S.W.2d 19, 23 (Mo. App. W.D. 1995)). Further elaborating this
concept, the Southern District stated,
“[T]he phrase ‘cause of action’ and the word ‘transaction’ both
have broad meanings. The former does not refer to the form of action in
which the claim is asserted, but to the cause for action, i.e., the
underlying facts combined with the law giving the party a right to a
remedy of one form or another based thereon. And the latter word
(“transaction”) has an even broader meaning. It has been defined as
including the aggregate of all the circumstances which constitute the
foundation for a claim, counterclaim, etc.”
Barkley v. Carter Cty. State Bank, 791 S.W.2d 906, 912 (Mo. App. S.D. 1990)
(quoting Grue v. Hensley, 210 S.W.2d 7, 10 (Mo.1948)) (emphasis added).
While the trial court acknowledged that both the federal complaint and first
amended state petition included breach of contract, fraud, conversion, and civil
conspiracy counts, it agreed with the Defendants that the new facts alleged in the
state action “fundamentally change the causes of action alleged” in federal court.
The court also observed, “This was not the first time that the plaintiffs have
attempted to change the causes of action after the record has moved from o ne court to
the next.” The trial court indicated that the Eighth Circuit Court of Appeals had
chastised Crest Construction for asserting facts on appeal not presented to the district
court in an apparent effort to demonstrate an association among the defendants.
While the factual allegations certainly factor into the cause of action because they
underlie a party’s right to a remedy, simply adding facts may, but does not
necessarily, change the cause of action.
First, we note that the parties are not the same in both actions. The federal
complaint includes more entities as defendants. Hart Family Motors, Inc., AAJD
10
Investments LLC, Kearney Land Acquisitions LLC, Northland Auto Brokers LLC,
HOMES 4 LESS LLC, and Estate of Harvey Chaddock are named in the federa l
complaint, but are not named in the first amended state petition. 6 Still, as to the
parties named as defendants in the first amended state petition, they were also named
in the federal complaint, so if the claims are the same, section 1367(d) toll s the
claims as to these defendants. We would also note that the claims in both federal and
state court arise from the same alleged business relationship with On Time Auto and
some of the Defendants, as well as alleged activity that occurred between December
2003 and December 2004 involving the purchase of vehicle sales contracts and
promissory notes obtained by those Defendants from third-party customers.
Next, an examination of the first paragraph in each pleading common to all
counts reveals significant differences between the two in terms of parties specifically
named as participants.
Federal complaint:
During the period December 2003 through January 2004 Randal
L. Robb [sic] d/b/a Crest Construction II, Inc. entered into an ongoing
oral agreement (hereinafter referred to as the “Operating Agreement”)
and a continuing business relationship with Defendants John Hart, Dee
Hart and Larry Myers, and others doing business as On Time Auto a/k/a
Hart Family Motors Inc., to purchase auto vehicle sales contracts and
promissory notes (hereinafter referred to as “loan accounts”) from
Defendant On Time Auto, obtained by On Time Auto from third party
customer(s). Randall L. Robb, principal of Plaintiff Crest, was
contacted by Defendant Larry Myers on numerous occasions by
telephone to schedule meetings at his office, at restaurants and the
offices of Defendant John and Dee Hart where On Time Auto conducted
its business. There were in excess of six meetings between Randall L.
Robb and Defendants John Hart, Dee Hart and Larry Myers wherein the
parties discussed the investment and purchase of loan accounts of On
6
Mr. Hart is named John D. Hart in the federal complaint; he is named John A. Hart in the first
amended state petition. This Court has already acknowledged that discrepancy and tre ated it as
immaterial. Crest Constr. II, Inc. v. Hart, 439 S.W.3d 246, 248 n.1 (Mo. App. W.D. 2014).
11
Time Auto by Randall L. Robb or his designated legal entity, Plaintiff
Crest.
First amended state petition:
During the period December 2003 through January 2004 Randall
L. Robb d/b/a Crest Construction II, Inc. entered into an ongoing and
continuing business relationship with Defendants John Hart, Dee Hart,
Larry Myers, Connie Myers, Buddy Taylor and others doing business as
On Time Auto, Northland Auto Brokers and Fidelity III d/b/a On Time
Auto to purchase auto vehicle sales contracts and promissory notes
(hereinafter referred to as “loan accounts”) from Defendants On Time
Auto, Northland Brokers and Fidelity III d/b/a On Time Auto obtained
by On Time Auto, Northland Brokers and Fidelity III d/b/a On Time
Auto Northland Brokers and Fidelity III d/b/a On Time Auto from third
party customer(s). In approximately July or August 2003 Defendant
Connie Myers, who had known Randall Robb of Plaintiff Crest for 20
years, called Randall Robb to inquire about a property he owned and
introduced her husband Larry Myers to Randall Robb, which resulted in
a real estate transaction for the benefit of Defendants Larry Myers and
Connie Myers. During these meetings, Larry Myers asked Robb about
investing in an alleged “lucrative” operation wherein Robb would make
24% interest on his money and recover his investment principal. The
investment would be with On Time Auto, owned by John and Dee Hart.
It was later learned that Larry and Connie Myers and Buddy Taylor
became “silent partners” in On Time Auto. Sometime in late 2003,
Defendant Connie Myers and Larry Myers introduced Randall Robb of
Plaintiff Crest to John Hart and Dee Hart and approached Randall Robb
(through Plaintiff Crest) to purchase retail vehicle loans which were
held in the name of Northland Auto Brokers in 2003 and converted to
On Time Auto in January 2004. These business introductions further
cemented the relationship to On Time Auto as sponsors by Defendant
Connie Myers and Larry Myers. Defendant Larry Myers who proposed
the deal and on numerous later occasions Larry Myers, called Randall
Robb by telephone to schedule meetings at his office, at restaurants and
the offices of Defendant John and Dee Hart where On Time Auto
conducted its business. There were in excess of six meetings between
Randall L. Robb and Defendants John Hart, Dee Hart and Larry Myers
wherein the parties discussed the investment and purchase of loan
accounts of On Time Auto by Randall L. Robb or his designated legal
entity, Plaintiff Crest. During these meetings, Defendants Larry Myers
and John Hart represented to Randall Robb that On Time Auto was
owned, controlled and managed by Defendants John Hart, Dee Hart,
Larry Myers, Connie Myers and Buddy Taylor. During the later [sic]
part of 2003, Defendant Connie Myers contacted Randall Robb to
12
determine if Robb or a Robb entity was going to purchase auto loans
from Harts’ auto entities and stated to Robb that she thought it was a
good deal. These introductions, sponsorship, representation and
meetings were used by the Defendants to induce Plaintiff Crest into
purchasing auto-vehicle loan accounts and were part of a continuing
conspiracy to defraud.
While Ms. Myers and Mr. Taylor were named defendants in the federal
complaint, it is unclear whether Crest Construction would have had a remedy against
them relating to any of the conduct alleged in this paragraph, because they were not
specifically named as participants in the federal complaint. While they may come
within the phrase “others doing business as On Time Auto a/k/a Hart Family Motors,
Inc.,” we do not learn until the state pleading was filed that Ms. Myers and Mr.
Taylor were allegedly either silent partners in or owned, controlled, and managed On
Time Auto. The federal complaint first mentions Mr. Taylor by name in paragraph
22, where Crest Construction raises allegations pertaining to the company’s alleged
agreement to purchase a twenty-five-percent equity interest in On Time Auto and
how its investment was intended to be used. This is also the first time we learn that
Mr. Taylor had an alleged ownership interest in On Time Auto and was one of “the
original three owners (John and Dee Hart, Larry Myers and Buddy W. Taylor).”
In the final paragraph of the federal complaint’s “common to all counts”
section, Crest Construction alleges that Mr. Myers “unilaterally withdrew from the
day to day operations of On Time Auto, and Defendant Larry Myers converted the
entire ‘Reserve Account’ in the approximate amount of $40,000.00 to his own use.”
Not only does the first amended state petition contain two additional paragraphs in
13
the “common to all counts” section, 7 the paragraph regarding Mr. Myers’s unilateral
withdrawal includes allegations that the $40,000 was removed from an “Escrow
Account” for the benefit of both Mr. and Ms. Myers and that $5,000 was removed
from a “payable account” for their benefit. While the overall underlying transaction
is common to both complaints, these added factual allegations alter any alleged
liability in a fundamental way by pertaining to two defendants rather than just one , as
well as the remedy available to the plaintiffs.
A comparison of the two pleadings under the first breach of contract count also
shows discrepancies in those parties specifically named and asserts, in the case of the
state pleading, an additional alleged breach. Also note that the final sentence in each
pleading asserts a contradictory allegation.
Federal complaint:
In June of 2004, Defendants breached its [sic] agreement with
Plaintiff Crest under the “Operating Agreement” when Defendant Larry
Myers withdrew from the oversight of On Time Auto, as agreed to by
the parties. Defendant Larry Myers withdrew from the oversight of On
Time Auto with the consent of Defendants John Hart and Dee Hart, and
without the consent of Plaintiff Crest. The withdrawal of the oversight
of On Time Auto by Defendant Larry Myers further breached the
agreement by unilaterally converting the entire reserve account in the
approximate amount of $40,000.00 to his own use. Said reserve account
was established for the benefit of Plaintiff Crest and said conversation
[sic] of the reserve account was without the consent of Plaintiff Crest.
Defendant Larry Myers further advised Plaintiff Crest of his intention to
forfeit Defendant Larry Myers’s equity interest in on Time Auto.
First amended state petition:
7
In one of those added paragraphs, the names Harvey Chaddock and Hilda Marie Chaddock appear
for the first time as participants in the entire alleged fraudulent enterprise. As mentioned above ,
neither Harvey Chaddock nor his estate is a named defendant in the first amended state petition.
Even if he were alive, he could not be found liable and no remedy could be afforded to Crest
Construction due to his alleged participation in the enterprise , because he was not a party.
14
In June of 2004, Defendants breached its [sic] agreement with
Plaintiff Crest” when Defendant Larry Myers withdrew from the
oversight of On Time Auto, as agreed to by the parties. Defendant
Larry Myers withdrew from the oversight of On Time Auto with the
consent of Defendants, John Hart, Dee Hart, Larry Myers, Connie Myers
and Bud Taylor but without the consent of Plaintiff Crest. The
withdrawal of the oversight of On Time Auto by Defendant Larry Myers
was a material breach of the agreement with Plaintiff Crest. In June of
2004, Defendant Larry Myers further breached the agreement by
unilaterally converting the entire “Escrow” account in the approximate
amount of $40,000.00 plus an additional $5,000 from “Accounts
Payable” to his own use. Said reserve account was established for the
benefit of Plaintiff Crest and said conversion of the reserve account was
without the consent of Plaintiff Crest. Defendant Larry and Connie
Myers never advised Plaintiff Crest of their intention to forfeit
Defendant Larry Myers’s equity interest in on Time Auto.
Again, it is unclear whether Crest Construction would have had a remedy for
breach of contract against Ms. Myers and Mr. Taylor when the federal complaint was
filed in that the allegations in that pleading pertain, for the most part, to Mr. and Ms.
Hart, Larry Myers, and On Time Auto. In addition, because the $5,000 in accounts
payable is absent from the federal complaint, the remedy available to Crest
Construction has been altered because the factual basis has been altered.
A final example will indicate how Crest Construction further altered its
allegations, including an apparent attempt to extend the statute of limitations. The
federal complaint’s fraud count relies on the common facts, including the pertinent
timeframe of 2003 to 2004, while the first amended state petition alleges in paragraph
34 (pertaining to fraud), “During the period December 2003 through January 2008
and continuing to date, Plaintiffs have been the victims of an ongoing scheme
concerning the purchase of vehicle sales contacts [sic] and prom issory notes (‘loan
accounts’) sold to third party customers by On Time Auto and a fraudulent scheme by
15
Defendants.” This is followed by nearly twenty pages of single-spaced allegations
concerning specific vehicles, sold, repossessed, resold, and sold aga in, some through
2008, and on which Crest Construction had purportedly been assigned the original
loan account. None of these detailed allegations appears in the federal complaint,
which claims losses in excess of $2.2 million, while the first amended sta te petition
claims losses in excess of $3 million. By expanding the time during which Crest
Construction had allegedly been victimized, the remedy available to Crest
Construction has been drastically altered from the federal to the state pleading.
The legal theories may be the same, but the parties and facts and allegations
have been so altered from the federal complaint’s filing in 2007 to the state petition’s
filing in 2010 that it cannot be said with any confidence that the causes of action
“‘derive from a common nucleus of operative fact.’” Jinks v. Richland Cty., S.C.,
538 U.S. 456, 464 (2003) (quoting United Mine Workers of Am. v. Gibbs, 383 U.S.
715, 725 (1966)). 8 In United Mine Workers, the U.S. Supreme Court discussed the
concept of pendent jurisdiction, which allows federal courts to consider state -law
based claims when they have jurisdiction over a related federal claim , and, in this
regard stated, “[i]ts justification lies in considerations of judicial economy,
convenience and fairness to litigants.” 383 U.S. at 726. Nothing is fair about
allowing a plaintiff to identify new parties and add new facts out of time to specific
allegations underlying a particular count previously pleaded in federal court or to
8
Upholding the constitutionality of section 1367(d), the U.S. Supreme Court observed that the law
eliminated “a serious impediment to access to the federal cour ts on the part of plaintiffs pursuing
federal- and state-law claims that ‘derive from a common nucleus of operative fact.’” Jinks v.
Richland Cty., S.C., 538 U.S. 456, 464 (2003) (quoting United Mine Workers of Am. v. Gibbs, 383 U
.S. 715, 725 (1966) (discussing pendent jurisdiction, Court addresses what constitutes a cause of ac
tion, noting that, while the facts “do not constitute the cause of action, . . . they show its existence by
making the wrong appear.” Id. at 724.). The alleged wrongs of Ms. Myers and Mr. Taylor plainly w
ould not have appeared on the basis of the facts alleged in the 2007 pleading.
16
extend the running of the statute of limitations by alleging in state court events and
activity occurring even before the federal complaint, which lacks these allegations, is
filed.
Still, if we view the first amended state complaint stripped of the added facts,
we find some claims that could be tolled. The federal complaint and first amended
state petition allege two counts of breach of contract against the defendants,
specifically, Mr. and Ms. Hart, Mr. Myers, and On Time Auto. Crest Construction
claims that they breached the agreement when Mr. Myers withdrew from the
oversight of On Time Auto and allegedly converted the reserve account of $40,000 to
his own use. 9 Crest Construction also claims that the “Defendants” (presumably Mr.
and Ms. Hart, Mr. Myers, and On Time Auto, because they are the parties named in
the “common to all claims” allegations of the federal complaint), breached the
agreement by failing to pay and stopping all payments to Crest Construction for the
amounts collected from third-party customers on the assigned auto loan accounts.
The final breach of contract in the first count common to both pleadings concerns Mr.
Hart’s alleged sale of Crest Construction’s loan accounts to a third-party group in
Florida and the alleged failure of Mr. and Ms. Hart, Mr. Myers, and On Time Auto to
pay Crest Construction amounts due “when said loan accounts were paid off by third
party customers, vehicles were repossessed and resold by On Time Auto or when On
Time Auto received damage payoffs from insurance companies.”
The second breach-of-contract count claims that the Defendants (presumably
Mr. and Ms. Hart, Mr. Myers, On Time Auto, and Mr. Taylor, because, as noted
9
It is nevertheless unclear how the additional defendants breached the contract as a result of Mr.
Myers’s purported unilateral acts.
17
above, he was named in the federal complaint’s allegations pertaining to Crest
Construction’s effort to buy an equity interest in On Time Auto) failed to pay
plaintiff Metro Energy for the purchase of a one-third equity interest in On Time
Auto and have refused to refund any and all payments for this interest. The date that
this alleged breach occurred may or may not be material to the claim. In the federal
complaint, Crest Construction alleges that the breach occurred in December 2004. In
the first amended state petition, this breach allegedly occurred in June 2004. Thus, as
to the breach-of-contract claims, some but not all of the allegations were tolled. As
to the allegations set forth in these counts in the first amended state petition, but n ot
in the federal complaint, we find that the trial court did not err in finding that section
1367(d) did not toll the statute of limitations. We affirm the trial court’s disposition ,
however, as to the untolled breach-of-contract claims, because, as further discussed
below in relation to the second point, Crest Construction has failed to show partial
performance under the statute of frauds.
As indicated earlier, the fraud count was vastly expanded in the first amended
state petition. At its core, however, it alleges a scheme and pattern of fraudulent
activities specifically as to the actions of Mr. and Ms. Hart, Mr. and Ms. Myers, and
others doing business as On Time Auto arising out of their alleged breach of the
agreement with Crest Construction. Notably, in the federal complaint, this is the first
mention of Ms. Myers. This count also alleges the use of U.S. mail and interstate
telephones in furtherance of the fraud and claims that Mr. and Ms. Hart, Mr. Myers,
“and others doing business as On Time Auto, made false and fraudulent
misrepresentations in concert with other Defendants concerning the organizational
18
structure, guarantees, standard operational procedures, oversight by Defendants, and
the conduct of the day to day operations of the business affairs of On Time Auto and
other enterprises.” Crest Construction alleges ignorance of the truth or falsity of the
representations and that it relied on them. As to Mr. and Ms. Hart, Mr. Myers and On
Time Auto, the claims are the same in both pleadings a nd, as such would have been
tolled. As to the allegations set forth in the fraud count in the first amended state
petition, but not in the federal complaint, we find that the trial court did not err in
finding that section 1367(d) did not toll the statute of limitations. We affirm the trial
court’s disposition, however, as to the untolled fraud claims; as further discussed
below in relation to the third point, Crest Construction did not plead fraud with
sufficient particularity.
The conversion count common to both pleadings names Mr. and Ms. Hart and
Mr. and Ms. Myers, doing business as On Time Auto, and other entities for allegedly
converting money due to Crest Construction for the auto loan accounts it purchased. 10
To the extent that the state pleading adds Mr. Taylor and Ms. Chaddock to the claim,
it was not tolled by section 1367(d). It is also questionable whether this count as to
Ms. Myers was tolled because nothing in the preceding paragraphs sets forth facts
that would support her participation in any alleged conversion. As to the allegations
set forth in the conversion count in the first amended state petition, but not in the
federal complaint, we find that the trial court did not err in finding that sectio n
1367(d) did not toll the statute of limitations. We affirm the trial court’s disposition,
however, as to the untolled conversion claims; as further discussed below in relation
10
Among the named entities in the conversion count of the first amended state petition are Northland
Auto Brokers LLC, Homes 4 Less LLC, and Hart Family Motors, Inc. While these entities are named
as defendants in the federal complaint, Crest Construction did not sue them in state court.
19
to the second point, because Crest Construction has failed to show partial
performance under the statute of frauds, it cannot show an essential conversion
element, i.e., that “the plaintiff had a right to possess the property at the time of the
alleged conversion.” Capitol Indem. Corp. v. Citizens Nat’l Bank of Fort Scott, N.A. ,
8 S.W.3d 893, 899 (Mo. App. W.D. 2000); see also Williams v. City of Kansas City,
841 S.W.2d 193, 196 (Mo. App. W.D. 1992) (stating, “A conversion must constitute
an invasion of plaintiff’s legal rights”). And, finally, while certain of the civil
conspiracy allegations in both pleadings are the same, because the trial court
dismissed these claims due to Crest Construction’s failure to plead them with
sufficient particularity and Crest Construction has not challenged this ruling on
appeal, we affirm the court’s disposition of the tolled civil conspiracy claims.
In the second point, Crest Construction argues that the trial court erred by
ruling that the contract did not come within the “partial performance” exception to
the statute of frauds. Crest Construction has abandoned one of the bases for its
argument before the trial court that a writing existed, i.e., that each assignment of a
loan account represented a written agreement in compliance with the statute of
frauds. This was the ground that the trial court considered and rejected. Crest
Construction claims before this Court, as it did before the trial court, that the alleged
contract came within a statute of frauds exception because the oral contracts were
partially performed. While the trial court did not address this basis for Crest
Construction’s statute of frauds argument, because our review is de novo, we may
affirm “on any ground supported by the summary judgment record, even if different
20
than the one posited by the trial court.” Dilley v. Valentine, 401 S.W.3d 544, 551
(Mo. App. W.D. 2013).
At issue was an alleged agreement that could not be completed within one
year; accordingly, the statute of frauds required that it be in writing. § 432.010.
Partial performance is one of the permissible equitable exceptions to the statute of
frauds, and its three elements must be established to avoid the statute’s effect. Piazza
v. Combs, 226 S.W.3d 211, 222 (Mo. App. W.D. 2007). Those elements require
proof of (1) the proponent’s actions, “which are cogent evidence of the existence of
the pleaded contract”; (2) “clear, cogent, unequivocal, and convincing testimony” as
to the verbal contract’s terms; and (3) the proponent’s actions , which were taken in
reliance on the contract, and, as a result, “the positions of the parties were so changed
that to permit the other party to rely on the statute of frauds would result in a grossly
unjust and deep-seated wrong, constituting fraud or something akin thereto.” Id.
While Crest Construction sets forth the elements recited above, it fails to argue
in its brief in any detail how they were established. In this regard, Crest Construction
states, in total, as follows:
In all facets of their relationship, Mr. Robb relied on the
representations the defendants made to him and the complete terms of
the agreement were understood. Mr. Robb spent considerable time and
resources obtaining the loan accounts. He expended funds in
furtherance of the venture. He entered into these agreements with the
defendants for the purpose of obtaining a specific return on his
investment. Mr. Robb held up his end of the agreement to the fullest
extent possible, and he reasonably expected the defendants to hold up
their portion of the agreement.
We do not believe that these conclusory statements sufficiently explain to this Court
how the first amended petition set forth sufficient facts for Crest Construction to
21
show that its partial performance took the verbal agreement outside the statute of
frauds. Still, because “our general statute of frauds only bars contract actions and
does not apply to actions sounding in tort,” Mika v. Central Bank of Kansas City, 112
S.W.3d 82, 91 (Mo. App. W.D. 2003), we might have been constrained (if Crest
Construction had raised the issue) to grant this point as to the non-contract-based
causes of action asserted in the first amended petition. This point is denied.
As to the final point, i.e., that the trial court erred by finding the fraud claims
stated with insufficient particularity, Crest Construction contends that the
uncontested evidence introduced by Mr. Robb’s testimony during the September 25,
2014, damages hearing, in addition to the pleading, provided sufficient detail as to
the fraud allegations against Mr. Myers. Although section 509.500 allows issues
tried by express or implied consent of the parties to be treated as if they had been
raised in the pleadings, we agree with the Defendants that the damages hearing was
specifically limited by the parties’ consent to the submission of damages on th e
default judgment against Mr. and Ms. Hart. Because counsel for the Defendants did
not consent to any testimony involving their clients before leaving the damages
hearing, testimony on which Crest Construction intends to rely to bolster its
pleadings as to any but the Harts and their business entities cannot be said to have
been tried by consent. We do not consider Mr. Robb’s testimony further on this
issue. 11
11
In addition, as noted by counsel during oral argument, Mr. Myers had already been dismissed with
prejudice from the case when the damages hearing took place. Crest Construction does not provide
any authority for the proposition that dismissed claims can be amended by the express or implied
consent of the parties.
22
Fraud has nine essential elements, and a failure to establish any one of them is
fatal to recovery. Trimble v. Pracna, 167 S.W.3d 706, 712 (Mo. banc 2005). The
nine essential elements are stated as follows:
(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker’s
knowledge of its falsity, or 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) the hearer’s right to rely thereon; and (9) the hearer’s consequent
and proximately caused injury.
Id. at 717 n.5. The trial court determined here that Crest Construction failed to show,
as to the Defendants, “a clear indication of the statements actually made by any
defendant,” “the existence of a false representation,” or any representation by the
Defendants “that would demonstrate a proximate cause of any harm suffered.”
Reviewing the first amended petition in the light most favorable to Crest
Construction, we agree with the trial court that the company failed to plead fraud
with sufficient particularity. If we examine two alleged representations—that Mr.
Myers apparently promised Crest Construction that it would make twenty-four
percent on its investment and recover the investment principal in full and his promise
that he would be personally involved in the day-to-day operations of the enterprise—
we find that Crest Construction pleaded reliance on these guarantees. 12 We also find
that Crest Construction alleged that Mr. Myers’s purpose was to “defraud” Crest
Construction. As to the remaining elements, the petition states that the
representations,
12
It is somewhat difficult to identify any additional particular representation attributable to any
particular defendant. The first amended complaint lacks specificity as to who actually said what and
when it was said.
23
were material, were false as more fully set out herein, were known to be
false or were recklessly made without knowledge of the truth or falsity
and were made with the intent that it [sic] should be acted on in a
manner reasonably contemplated by Plaintiff Crest.
The petition further summarily states that Crest Construction was ignorant of the
truth or falsity of the representations and had a right to rely on them and did rely on
them. And finally, the petition states,
As a direct and proximate result of the wrongful actions and
representations of the Defendants as alleged herein, Plaintiffs have
sustained, and will continue to sustain, damage in an amount to be
proven at the time of trial.
Simply reciting the legal elements for fraud is insufficient to plead it. See Hanrahan
v. Nashua Corp., 752 S.W.2d 878, 882-83 (Mo. App. E.D. 1988); see also Citizens
Bank of Appleton City v. Schapeler, 869 S.W.2d 120, 126 (Mo. App. W.D. 1993)
(noting that “the fraud must clearly appear from the allegations of fact, and be
independent of conclusions”). For example, what right would an apparently
experienced businessman—Crest Construction owner and president Mr. Robb—have
to rely on an unwritten “promise” that his investment in the loans used to purchase
used autos would be returned in full in addition to making him a twenty-four percent
return? The first amended petition does not answer that question. While Mr. Robb
allegedly respected Mr. Myers and was reassured about the “safety” of his investment
in reliance on Mr. Myers’s alleged promise to be involved in the day-to-day
operations of the enterprise, how this particular representation was false when made
is not pleaded. In fact, from the beginning of the enterprise in late 2003 or early
2004, Mr. Myers was involved in the day-to-day operations and only allegedly
withdrew on July 8, 2004. Crest Construction has not pleaded that Mr. Myers knew
24
he would withdraw when he made the representation at the enterprise’s inception.
Nor does the petition set forth the causal link between this alleged misreprese ntation
and the losses Crest Construction purportedly incurred. Rather, Crest Construction’s
inability to make the profits promised appears to be directly related to all of the
Defendants’ alleged acts of taking its money and returning li ttle of it. How the
company’s losses were proximately caused by Mr. Myers’s failure to remain directly
involved in the day-to-day operations is something the court can only guess at,
because it is not pleaded. This point is denied.
Conclusion
Because Crest Construction has failed to show trial court error in dismissing its
petition, we affirm.
/s/ T HOMAS H. N EWTON
Thomas H. Newton, Judge
Welsh, P.J., and Witt, J. concur.
25