Case Summary for January 11, 2012

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Case Summary for January 11, 2012

THE FOLLOWING DOCKET SUMMARIES ARE PREPARED BY THE COURT'S STAFF FOR THE INTEREST AND CONVENIENCE OF THE READER. THE SUMMARIES MAY NOT INCLUDE ALL ISSUES PENDING BEFORE THE COURT AND DO NOT REFLECT ANY OPINION OF THE COURT ON THE MERITS OF A CASE. COPIES OF ALL BRIEFS FILED WITH THE COURT ARE AVAILABLE AT THE SUPREME COURT BUILDING, COURT EN BANC DIVISION. SUMMARIES ARE UNOFFICIAL AND SHOULD NOT BE QUOTED OR CITED.

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DOCKET SUMMARIES
SUPREME COURT OF MISSOURI

9:30 a.m. Wednesday, Jan. 11, 2012

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SC91951
First Bank v. Fischer & Frichtel, Inc.
St. Louis County
Calculation of damages in foreclosure sales

Listen to the oral argument:

Fischer and Frichtel, Inc. was represented during arguments by Tom Avery of Blitz, Bardgett & Deutsch, LC in St. Louis and First Bank was represented by Tom Weaver of Armstrong Teasdale LLP in St. Louis. Judge T. Bennett Burkemper, a circuit judge from the 45th Judicial Circuit (Lincoln and Pike counties), sat in this case by special designation in place of Judge William Ray Price Jr and Senior Judge John Parrish sat in this case by special designation in place of Judge George W. Draper III.

First Bank loaned Fischer & Frichtel Inc. over $2.5 million in exchange for a promissory note agreeing to pay the bank the full amount of the loan plus interest. First Bank created a deed of trust for the loan, and, as collateral, Fischer & Frichtel pledged 21 lots of land it used the loan money to purchase. Fischer & Frichtel paid a portion of the loan with each lot it sold. Fischer & Frichtel defaulted on the payments and First Bank foreclosed on the nine unsold properties, purchasing them at the foreclosure sale. First Bank sued Fischer & Frichtel for damages equal to the amount still due on the loan minus the profits from the foreclosure sale. In accord with Fischer & Frichtel’s jury instructions regarding damages, the jury awarded damages based on the difference between the outstanding loan amount and the fair market value of the property. Fischer & Frichtel filed a motion for judgment notwithstanding the verdict. First Bank filed a motion for a new trial based on damages. The trial court granted First Bank’s motion. Fischer & Frichtel appeals.

Fischer & Frichtel argues that the trial court erred in granting First Bank’s motion for a new trial on the basis of damages. It contends that there were no errors in the jury instructions they offered and that there was sufficient evidence to support the instructions. Fischer & Frichtel asserts that the court also erred in overruling their motions because there was insufficient evidence of the interest Fischer & Frichtel was supposedly liable for. It further argues the court incorrectly rejected a separate jury instruction based on the doctrine of good faith and fair dealing. It contends First Bank violated the duty of good faith and fair dealing by selling the lots for less than their fair market value. Finally, Fischer & Frichtel asserts that the court incorrectly rejected another proffered jury instruction based on the doctrine of commercial frustration because it offered sufficient evidence to prove commercial frustration existed in this situation.

First Bank argues the court properly granted its motion for new trial because the measure of damages in the jury instruction used at trial was incorrect. It contends the court correctly overruled Fischer & Frichtel’s motion for judgment notwithstanding the verdict because Fischer & Frichtel presented sufficient evidence of the proper measure of interest on the remaining loan balance. First Bank further asserts that the amount of interest is moot (not at issue) if a new trial takes place. It argues the trial court correctly rejected Fischer & Frichtel’s proffered instruction regarding good faith and fair dealing. Finally, it contends that the trial court properly rejected Fischer & Frichtel’s proffered instruction regarding commercial frustration because a downturn in the market is not the same as commercial frustration.

The Missouri Bankers Association argues, as a friend of the Court, that this Court should not change the law regarding deficiency actions, as it contends Fischer & Frichtel suggests, to prevent lenders from reselling foreclosed property and collecting the difference from the original borrower. It contends that lenders do not gain windfalls but actually suffer significant losses from foreclosures, whereas borrowers are unaffected by the resale. The association asserts that a change in the law would cause all borrowers – even those who do not default – to suffer higher costs. It argues that any change in the law should be left to the legislature, not decided in the present case.

The Business Bank of St. Louis argues, as a friend of the Court, the trial court was correct in its award of damages because Fischer & Frichtel agreed to a liquidated damages formula, including payment of any deficiencies. It contends the Court should try to preserve the damage clause in the agreement to the extent possible. The bank asserts that the legislature’s refusal to change existing laws regarding foreclosure sales is evidence that changes in the law would be unfavorable. Finally, it argues that First Bank’s rights to liquidated damages have vested and that it would violate the Missouri Constitution to overrule these rights.

SC91897
Bob Degeorge Associates, Inc. and KD Christian Construction Co. v. Hawthorn Bank
Jackson County
Preference between two liens on real property

Listen to the oral argument:

Hawthorn Bank was represented during arguments by Clay Britton of Lathrop & Gage LLP in Kansas City, Bob Degeorge Associates Inc. was represented by Amy Tillery of Horn Alyward & Bandy LLC in Kansas City and KD Christian Construction Company was represented by Diane Lewis of Brown & Ruprecht PC in Kansas City. Judge T. Bennett Burkemper, a circuit judge from the 45th Judicial Circuit (Lincoln and Pike counties), sat in this case by special designation in place of Judge William Ray Price Jr.

Hawthorn Bank loaned money to Blue Springs Xtreme Powersports so Xtreme could purchase property. Xtreme signed a purchase money deed of trust, securing the loan with a lien on the property. Before the purchase, Xtreme had entered into agreement for remodeling on the property with Bob DeGeorge Associates Inc., which subcontracted the work to KD Christian Construction Co. Xtreme failed to pay for labor and materials, and DeGeorge and KD Christian each filed mechanic’s liens against the property. The construction companies filed an action to have a trial court determine which lien took priority. The court found that DeGeorge’s and KD Christian’s liens were filed prior to Hawthorn’s purchase money lien. The bank appeals.

Hawthorn Bank argues the trial court incorrectly granted Degeorge’s and KD Christian’s motions for a ruling based solely on the pleadings. It contends the court instead should have granted Hawthorn’s motion for ruling on the pleadings. Hawthorn asserts that, under the law, its purchase money deed has priority over DeGeorge’s and KD Christian’s mechanic’s liens.

The Missouri Bankers Association argues, as a friend of the Court, that the trial court incorrectly granted DeGeorge’s and KD Christian’s motions and overruled Hawthorn’s motion because Hawthorn’s lien had priority. It contends the law is established that purchase money liens take precedence over mechanic’s liens. The association asserts that the mechanic’s liens are invalid because Xtreme could not enter into a remodeling contract before it recorded the deed conveying the property to Xtreme, which it had not done when the mechanic’s liens were recorded.

The American Subcontractor’s Association and Builders Association argue, as friends of the Court, that the trial court correctly granted the contractors’ motions. It contends that the contractors could not have had notice of the purchase money lien until it was recorded after the remodeling had begun. The associations assert that, under section 429.060, RSMo, mechanic’s liens take priority over all other liens. They argue that requiring purchase money liens to be recorded for them to take priority over mechanic’s liens does not overburden lenders.

SC91880
Fannie Mae v. My Quang Truong and John Doe
Jefferson County
Challenge to validity of foreclosure

Listen to the oral argument:

My Quang Truong and John Doe were represented during arguments by Alicia Campbell of Campbell Law LLC in St. Louis and John Campbell of The Simon Law Firm in St. Louis and Fannie Mae was represented by Tom Walsh of Bryan Cave LLP in St. Louis.

CitiMortgage foreclosed on My Quang Truong’s home loan and sold the house to Fannie Mae, which sued Truong for unlawful detainer soon after to remove Truong from occupying the home. Truong demanded a jury trial but did not receive one. At a hearing before the court’s associate division regarding the unlawful detainer action, Truong argued in part that the foreclosure was unlawful and that he had been prevented from fully defending his home in violation of his equal protection rights. The court granted Fannie Mae’s motion for summary judgment (ruling based on the pleadings) and awarded damages to Fannie Mae for Truong occupying the property after the foreclosure sale. Truong appeals.

Truong argues that section 534.010, RSMo, violates the equal protection clauses of the United States Constitution and Missouri Constitution by preventing parties from filing counterclaims or arguing affirmative defenses. He contends that the statute creates two classes of litigants, one of which is prejudiced greatly in their rights at trial, and that the law is not justified by a governmental interest. Truong asserts that the open courts provisions in the state and federal constitutions are fundamental rights protected by the right to due process and that because section 534.010 is not justified by a government interest, it is not exempt from this requirement. He further argues that the statute violates due process by depriving him of his property interests in his house and that the unlawful detainer hearing did not constitute a meaningful hearing. Truong contends he had a right to inquire whether the foreclosure was filed properly and whether it was ready for litigation under established law and precedent. Finally, he asserts that section 534.010 prevents the procedural rules for counterclaims and affirmative defenses and that these rules have priority over any conflicting statutes.

Fannie Mae argues the appeal should be dismissed because Truong was required to apply for trial de novo (a trial anew, without regard to the associate division’s previous ruling) in the circuit court. It contends this Court does not have jurisdiction to hear an appeal directly from an associate circuit division (rather than the circuit division) regarding an unlawful detainer case. Fannie Mae further asserts Truong brought a counterclaim alleging that his constitutional rights were violated, but failed to name the state as a party or serve the attorney general as required by law. It argues that the trial court correctly granted its motion for summary judgment because section 534.010 does not violate equal protection or due process rights. Fannie Mae contends the trial court correctly ruled on whether Truong had a right to inquire into the foreclosure proceeding. It asserts that this Court does not have jurisdiction to review the foreclosure proceeding or Truong’s standing on the matter.

SC92044
In re: Ronald Kay Barker
Jackson County
Attorney discipline

Listen to the oral argument:

The Office of Chief Disciplinary Counsel was represented during arguments by Kevin Odrowski, a special representative from Region IV in Kansas City and Ronald Kay Barker represented himself.

Jackson County attorney Ronald Barker settled a case for his client, the proceeds of which he deposited into his client trust account. Barker withdrew a portion for his fees, to pay third party creditors, distributed a portion to the client and kept the remainder in his trust account. Over the next year, a regional disciplinary hearing panel found that Barker withdrew portions of the proceeds of the client's settlement for personal use and for refunds to other clients in violation of Rule 4-1.15(f). It further found Barker violated Rule 4-1.15(f), by never providing an accounting of the settlement to his client, and Rule 4-1.15(c) and (a) by not providing an accounting to the executor of the client’s estate after the client died. Finally, the panel found Barker violated Rule 4-1.15(c) by commingling client and personal funds as well as Rule 4-8.4(c) and (d) by failing to repay the estate and attempting to conceal the misconduct. The client’s estate sued Barker, and the trial court ruled in favor of the estate, finding that Barker did not produce evidence showing the client consented to the funds being borrowed. The disciplinary hearing panel recommended disbarment. The chief disciplinary counsel now asks this Court to discipline Barker’s law license.

The chief disciplinary counsel argues this Court should disbar Barker for violating multiple rules of professional conduct. He contends Barker mishandled client funds and did not deliver client property promptly, did not make proper accounting or maintain records of client property, commingled client funds with his own personal funds, and failed to repay a client’s estate promptly. The counsel asserts Barker tried to conceal his misconduct from the estate and the office of chief disciplinary counsel in direct violation of the rules of ethics and discipline. He contends disbarment is the correct remedy in this case because Barker knowingly converted and mishandled more than $93,000 in client funds.

Barker responds that this Court should not discipline him. He argues he did not misappropriate client funds in violation of Rule 4-1.15(f) because the funds were loaned to him. Barker contends he did not fail to provide an accounting of his client’s property in violation of Rule 4-1.15(f) because he offered his client a settlement distribution sheet, which was refused multiple times. He also argues he maintained accurate and complete trust account records in accordance with Rules 4-1.15(a) and 4-1.15(c). Barker contends he did commingle trust and non-trust funds in violation of Rule 4-1.15(c), but he asserts that he promptly repaid his client’s probate estate and did not purposefully attempt to conceal his misconduct in violation of Rule 4-8.4(c) and (d) because he was waiting for the tax identification numbers from his client and the estate to report to the IRS. Finally, Barker responds that disbarment is inappropriate because he did not knowingly convert or misappropriate more than $93,000 in client funds and there is evidence to support this claim.