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.