In 2008, Chad Franklin became a party to several lawsuits related to the “Drive for Life” promotion at his used car dealership, Chad Franklin National Auto Sales North, LLC. A full explanation of the details of the “Drive for Life” promotion can be found within a previous BSCR blog post here. At the time, Franklin was insured by Universal Underwriters Ins. Co. (“Universal”). Universal denied defense and coverage for the claims. Franklin filed suit for wrongful denial of coverage for the “Drive for Life” claims which were eventually settled in 2010 for $900,000. This $900,000 settlement would eventually trigger another round of litigation.
Soon thereafter, Lewellen filed suit against Franklin alleging fraudulent misrepresentation and violations of the MMPA, resulting in a 2012 award of $25,000 in actual damages and $1 million in punitive damages against Chad individually for his fraudulent misrepresentation, and $25,000 in actual damages and $500,000 in punitive damages against Chad Franklin National Auto Sales North, LLC for a violation of the MMPA. Lewellen was also awarded attorneys’ fees totaling $82,810. In 2013, Lewellen sued Universal and Franklin, alleging that the $900,000 settlement between Universal and Franklin was fraudulent. The Clay County Circuit Court entered the following in that action, which were appealed to the Western District:
- Denial of insurance coverage on the Lewellen’s claim that Franklin committed fraudulent misrepresentation in the sale of a vehicle;
- Awarding insurance coverage under Lewellen’s policy with Universal for the actual and punitive damages on the Lewellen’s MMPA claim against Franklin;
- Summary judgment in favor of Universal on Lewellen’s claims that the settlement agreement was a civil conspiracy to commit a fraudulent transfer and violated the MMPA;
- Denial of Lewellen’s claim for tortious interference with a business expectancy;
- Striking Franklin’s pleadings after several alleged discovery violations and entering default judgment on Lewellen’s fraudulent transfer and MMPA claims against him.
After Franklin’s pleadings were stricken, a jury awarded Lewellen $266,370in actual damages and $450,000 in punitive damages on each of her two claims. The court merged the actual damages on the two claims but granted the total amount of punitive damages and awarded Lewellen $189,060 in attorneys’ fees.
1. The Court of Appeals upheld the denial of insurance coverage for Lewellen’s claim that Franklin committed fraudulent misrepresentation in the sale of a vehicle.
Lewellen contended the court erred in denying insurance coverage for the damages awarded on her fraudulent misrepresentation claim against Franklin. The Western District appellate court disagreed, and found that the policy’s exclusion of dishonest and fraudulent acts was valid, rejecting Lewellen’s contention that the language was ambiguous. The court also held that the definition of “occurrence” in Franklin’s Universal policy did not provide insurance coverage for damages on Lewellen’s fraudulent misrepresentation claim.
2. The Court of Appeals reversed the finding of insurance coverage under Lewellen’s policy with Universal for the actual and punitive damages on the Lewellen’s MMPA claim against Franklin.
Universal argued on appeal that the trial court erred in finding Franklin’s policy covered Lewellen’s MMPA claim, asserting that the fraud exception and the policy definition of “occurrence” noted above should preclude coverage. Lewellen argued that not only did Franklin’s policy afford coverage to her MMPA claim, but the coverage of that claim triggered the concurrent proximate cause rule granting coverage to her extinguished fraudulent misrepresentation claim.
The appellate court first turned to the policy definition of “loss” which was defined as “all sums the INSURED legally must pay as DAMAGES because of INJURY to which this insurance applies caused by an OCCURRENCE.” The court held that the conduct underlying Lewellen’s fraudulent misrepresentation and MMPA claim was the same conduct. Because the Court had already determined that Franklin’s actions were intentional and, therefore, not an “occurrence” under the policy, it found the same for the MMPA claims. The Court reversed summary judgment in Lewellen’s favor and denied coverage for the MMPA claims. In reaching this decision, the Court found that the concurrent proximate cause rule did not apply to Lewellen’s claims.
3. The Court of Appeals affirmed summary judgment in favor of Universal on Lewellen’s claims that the settlement agreement was a civil conspiracy to commit a fraudulent transfer and violated the MMPA.
Lewellen contended the trial court erred in granting Universal’s motion for summary judgment on her claims that Universal’s settlement agreement with Franklin amounted to a civil conspiracy to commit a fraudulent transfer with Franklin. In granting summary judgment in Universal’s favor, the trial court noted that the “[f]acts that may cause the bad faith settlement payments to Tiffany Franklin to appear suspicious (or even if arguably fraudulent) do not offset” the common law requirement that without a lien, a mere general creditor does not have a sufficient right or interest in his debtor’s property to give him standing to maintain a suit against a third person converting the debtor’s property with the intent to defraud the debtor's creditors. Lewellen argued that the Missouri Uniform Fraudulent Transfer Act (“UFTA”) removed the common law rule that a lien was a condition precedent for standing to maintain a lawsuit against a third party.
After a lengthy discussion of the language of the UFTA and analysis of opinions rendered in other jurisdictions on the issue, the Court adopted the majority viewpoint that absent a proper lien, a claim of civil conspiracy against a third party cannot be maintained under the UFTA.
4. The Court of Appeals affirmed denial of Lewellen’s claim against Universal for tortious interference with a business expectancy.
Lewellen argued that the circuit court erred in granting Universal’s motion for summary judgment on her claim that Universal tortiously interfered with a business expectancy. The appellate court affirmed the trial court’s finding that there was no authority for the proposition that a plaintiff in a lawsuit possesses “a valid business expectancy” in the future collection of a judgment either before or after a judgment is entered.
5. The Court of Appeals upheld the trial court’s entry of default judgment against Franklin after several alleged discovery violations.
Franklin claimed that striking his pleadings as a discovery sanction was inappropriate because Lewellen was not prejudiced by his failure to appear at his scheduled deposition, which the appellate court rejected. The Court of Appeals noted that even with threats of sanctions, Franklin still failed to make appearances and it was not until later that his counsel learned that he was in a rehabilitation center. Additionally, Franklin claimed that the circuit court abused its discretion by improperly considering and taking judicial notice of his discovery violations in other cases. The court of appeals found that the circuit court had not its discretion because the other cases were related, and even consolidated, with the current case at issue. Furthermore, the court reasoned that Franklin was an experienced businessman who was “no stranger” to the legal system, and who knew or should have known of the dire consequences of disappearing, without notice, during pretrial proceedings.
6. The Court of Appeals reversed the jury’s award of punitive damages.
Franklin argued that the trial court committed instructional error by providing a damage instruction and verdict director that removed the threshold finding of outrageousness for an award of punitive damages. The Court of Appeals agreed, holding that the modification of 10.01 removing the requirement that the jury find that Franklin’s conduct was outrageous was “unnecessary and improper” and materially affected the merits and the outcome of the case. The appellate court also agreed with Franklin that the trial court erred in the exclusion of evidence as to the nature and structure of the settlement with Universal. The case was remanded for a new determination of punitive damages.
Lewellen v. Universal Underwriters Insurance Company et al., WD81171.
* Kelly M. “Koki” Sabatés, Summer Law Clerk, assisted in the research and drafting of this post. Sabatés is a rising 3L student at the University of Missouri-Columbia.
In May, the House passed the venue and joinder bill (Senate Bill 7) by a 100-46 vote. The bill primarily aims to restrict non-Missouri plaintiffs from joining their claims, in the same lawsuit, with those of a Missouri resident, where the non-residents’ claims have no legal nexus to Missouri. Read more here and here. Senate Bill 7, however, was still waiting for the Governor’s signature to become law in May.
In case you missed the news (again), look no further…..
Governor Mike Parson has officially signed Senate Bill 7 (along with three other tort reform bills) into law on July 10, 2019. This move was anticipated based on prior, favorable statements he made about the bill.
Opponents of the bill continue to believe that the passage of this bill “will harm state citizens by favoring corporations over individuals.” Proponents of the bill, now law, believe that this move will make Missouri “a pro-business state.”
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Attorneys: Megan Sterchi Lammert
From the East to the West, Does Arbitration in Missouri Reign Best? Missouri Courts Uphold and Invalidate Arbitration AgreementsJune 25, 2019 | Robert Chandler
This past May, the Missouri Supreme Court, Missouri Court of Appeals, and both United States District Courts in Missouri analyzed the validity and enforceability of arbitration provisions. Three key concepts have emerged from these recent decisions:
(1) A challenge to the delegation clause in an arbitration agreement (one that says the arbitrator gets to decide who decides whether the dispute is fit for arbitration) must be pleaded separately from a challenge to the contract
(2) Incorporation of the AAA rules in an arbitration agreement generally constitutes clear and unmistakable evidence of the parties’ intention to arbitrate.
(3) Under long-standing Missouri law, an employee’s continued employment, without more, does not in and of itself constitute adequate consideration for an agreement to arbitrate.
Consideration for the Entire Contract is Separate from Consideration for the Delegation Provision
Newberry v. Jackson, 2019 WL 2181859 (Mo. banc. 2019)
The Missouri Supreme Court affirmed, en banc, the circuit court’s motion to compel arbitration and stay court proceedings. Employees brought discrimination and retaliation claims against their former employer, Dollar General. The employer responded with Motions to Compel Arbitration and Stay Further Proceedings, to which the employees responded that there was no consideration for the arbitration agreements. More specifically, the employees claimed that the delegation provisions were unconscionable and there was no clear and unmistakable evidence of the parties’ intent to incorporate them. Although the employees admitted to signing the documents and knew they would be bound to arbitration, they did not necessarily understand the documents. Nevertheless, the circuit court sustained the motions to compel arbitration and stay the proceedings under the Missouri Supreme Court’s Pinkerton decision (which upheld a delegation clause in an arbitration agreement), and alternatively held the arbitration agreements valid because they were not unconscionable on their face and supported by consideration by mutuality of enforcement and continued at-will employment.
The Missouri Supreme Court accepted the case for review, and affirmed its earlier Pinkerton decision, which it found to be consistent with the U.S. Supreme Court decision in Rent-A-Ctr v. Jackson. The court found the employee’s allegations of unconscionability to be inadequate because they challenged the entire contract—not the delegation provision, specifically. Under Rent-A-Center, the “delegation clause must be treated as a separate contract within the larger arbitration contract and must be challenged on an additional ground or basis beyond the fact it is contained in an arbitration contract that the party also contends is invalid.” The court found that because the lack of consideration that the employees assert is the same lack of consideration they claim should invalidate the overall arbitration agreements, “they do not raise a unique challenge to the delegation clauses. Accordingly, the delegation provisions are valid,” and the employer “did not have a burden in the circuit court to show legally sufficient consideration.”
Incorporation of AAA Rules Is Clear and Unmistakable Evidence of Intent to Arbitrate
Hughes v. Ancestry.com, 2019 WL 2260666 (Mo. App. Ct. W.D. May 28, 2019) (not officially published)
Although Missouri state courts have consistently held that continued at-will employment alone does not constitute consideration for an arbitration agreement, they continue to hold that the incorporation of the AAA rules in an arbitration agreement shows clear and unmistakable evidence of intent to arbitrate. In this consumer action, the Missouri Court of Appeals for the Western District reversed the trial court’s denial of a motion to compel arbitration. Consumers brought an action against Ancestry.com for allegedly releasing their private health information to third parties without their expressed permission. The company responded with a Motion to Compel Arbitration and Stay Litigation which was subsequently denied by the circuit court. The Court of Appeals reversed and remanded because the consumers failed to separately contest the validity of the delegation provision.
The court reviewed the case de novo because arbitrability is a matter of contractual interpretation, which is a question of law. The court had to first determine whether the parties’ agreement contained a provision that clearly and unmistakably delegated threshold issues of arbitrability to the arbitrator. The provision in the agreement incorporated the AAA rules, which has been held to constitute clear and unmistakable evidence of the parties’ intent to arbitrate. The court then had to determine the validity of the provision. The Missouri Court of Appeals also reasoned that under Rent-A-Center, the validity of the delegation provision must be challenged separately from a challenge against the agreement, as a whole.
Hobby Lobby Stores, Inc. v. Bachman, 2019 WL 2331006 (E.D. Mo. May 23, 2019)
In this employment discrimination case, the United States District Court of Missouri for the Eastern District had to determine if the Mutual Arbitration Agreement was valid and enforceable in order to grant the employer’s Petition to Compel Arbitration. For the reasons discussed above, the court held that because the Mutual Arbitration Agreement incorporated the AAA rules and the employees had not challenged the delegation provision specifically, the agreement was, indeed, enforceable.
Continued At-Will Employment and Presentation of Agreement Does Not Manifest Mutual Assent
Wilbur v. Securitas Security Services USA, Inc. 2019 WL 1980703 (W.D. Mo. May 3, 2019)
In this employment discrimination case, the United States District Court for the Western District of Missouri had to determine if there was a valid arbitration agreement and if the dispute fell within the terms of the agreement. As the party seeking to compel arbitration, the employer bore the burden of proving the existence of the valid and enforceable arbitration agreement. The “Dispute Resolution Agreement Acknowledgment” stated, inter alia, that all claims against the parties must be solved by Arbitration instead of in a court of law. The employee signed and printed his name; however, the lines for the employer representative signature and printed name were left blank. The employer argued that even though the agreement lacked their signature, the presentation of the agreement, the employee’s acceptance of the agreement, and their continued employment provided adequate consideration and gave rise to mutual assent. The court cited Missouri state court precedent, in Baier v. Darden Restaurants, in holding that an “acknowledgment” of this type was not adequate evidence of mutual assent to arbitrate, and that continued employment, without more, did not constitute adequate legal consideration for an agreement to arbitrate.
Missouri has continued to hold that incorporation of the AAA Rules is clear and unmistakable evidence of the parties’ intent to engage in arbitration. When challenging arbitration, the delegation provision must be challenged separately from a challenge to the whole contract. Presentation of an arbitration agreement to an employee, the employee’s acknowledgement of receipt, and the employee’s continued at-will employment are not enough to form an enforceable arbitration agreement. An employer should always obtain the employee’s expressed assent - i.e., a signature agreeing to the terms of the arbitration provision, and not merely acknowledging its receipt. Additionally, an employer should always specifically express its agreement in order to avoid a mutual assent challenge.
* Kelly M. “Koki” Sabatés, Summer Law Clerk, assisted in the research and drafting of this post. Sabatés is a rising 3L student at the University of Missouri-Columbia.
About Missouri Law Blog
The BSCR Missouri Law Blog examines significant developments, trends and changes in Missouri law on a broad range of topics of interest to Missouri practitioners and attorneys and businesses with disputes subject to Missouri law. Learn more about the editor, David Eisenberg.
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