Arkansas-Missouri Forest Prods., LLC v. Lerner

• Decision Date: 19 January 2016
• Docket Number: No. ED 102321,ED 102321
• Citation: 486 S.W.3d 438
• Parties: Arkansas–Missouri Forest Products, LLC, Plaintiff/Appellant, v. Stuart J. Lerner, et al., Defendants/Respondents.
• Court: Missouri Court of Appeals

486 S.W.3d 438

Arkansas–Missouri Forest Products, LLC, Plaintiff/Appellant,

v.Stuart J. Lerner, et al., Defendants/Respondents.

No. ED 102321

Missouri Court of Appeals, Eastern District, DIVISION TWO .

Filed: January 19, 2016

Motion for Rehearing and/or Transfer to Supreme Court Denied February 29, 2016

Application for Transfer Denied May 3, 2016

Lynn W. Hursh, Gerald A. King, Co–Counsel, Thomas B. Weaver, Co–Counsel, 2345 Grand Blvd., Suite 1500, Kansas City, MO 64108, for appellant.

Theodore C. Beckett, III, Jeffrey M. Hensley, Co–Counsel, 420 Nichols Road, Suite 200, Kansas City, MO 64112, Jeffrey P. Hine, Co–Counsel, 3071 Lexington Ave, Cape Girardeau, MO 63701, Brian E. McGovern, Co–Counsel, James R. Walsh, Co–Counsel, 825 Maryville Center Drive, Ste 300, St. Louis, MO 63017, for respondent.

Angela T. Quigless, Judge

I. Introduction

Plaintiff Arkansas–Missouri Forest Products, L.L.C. (“Ark–Mo”) appeals from the trial court's judgment notwithstanding the verdict (“JNOV”) that set aside the jury's verdict in favor of Ark–Mo on Ark–Mo's breach of contract claim against Stuart Lerner (“Lerner”). The jury awarded Ark–Mo $2,169,398 in damages. Ark–Mo also appeals from the trial court's judgment in favor of defendants on Ark–Mo's claim for an accounting. We reverse the JNOV in favor of Lerner and remand for entry of judgment against Lerner in accordance with the verdict. We also reverse the trial court's judgment in favor of defendants and against Ark–Mo on Ark–Mo's claim for an accounting and remand with instructions.

II. Factual Background

In reviewing a JNOV, we consider the evidence and reasonable inferences favorable to the jury verdict and disregard contrary evidence that does not support the verdict. Kasa l v. Freihaut, 860 S.W.2d 24, 25 (Mo.App.E.D.1993). Viewed in this light, the evidence was as follows: Ark–Mo is a Missouri company owned by Mark Garnett (“Garnett”) and Diann Garnett.¹ The Garnetts use Ark–Mo as their investment vehicle through which they own interests in certain businesses, including those at issue in the underlying litigation. The Garnetts also own an interest in Garnett Wood Products, a company that sells wood and nails for use in the manufacture of pallets. Garnett has been involved in the pallet business for a long time.

When Lerner, a California resident, met Garnett in 1987, Lerner had just formed L & M Pallet, which started manufacturing white pallets. Lerner purchased substantial amounts of wood from Garnett Wood Products on behalf of L & M Pallet through word of mouth about Garnett. Garnett extended “a lot of credit” to Lerner because L & M Pallet was a growing company and it was difficult for Lerner to get credit in California. Lerner and Garnett transacted their business without formal documentation. Over time, Garnett and Lerner became good friends and their families spent time together regularly. Lerner attended the Garnetts' annual deer hunting events.

After Lerner sold L & M Pallet in 1994, Lerner began working with CHEP USA (“CHEP”), which owns and leases blue wooden pallets² to its customers. Lerner formed Blue Chip Manufacturing in California to operate a manufacturing facility for CHEP. From 1998 to 2002, Lerner manufactured for CHEP blue pallets which were mostly consumed in the west coast. During this period, Garnett Wood Products sold lumber and nails to various companies including CHEP and Blue Chip Manufacturing. By 2002, the blue pallet market in the west coast became saturated and the need for Blue Chip Manufacturing to produce pallets for CHEP declined. In 2000, Garnett and Lerner already knew that the west coast market for CHEP pallets would become saturated. Accordingly, they started discussing various scenarios to further their business together, including potentially manufacturing pallets for CHEP in the central and east coast regions. In these discussions, Lerner told Garnett that, if they “could do something with CHEP,” Lerner would split any profits 50–50 with Garnett. Nothing developed with CHEP in 2000.

In 2003 and 2004, Garnett and Lerner met with representatives of CHEP and discussed the advantages to CHEP of a centralized manufacturing location in the Midwest. A CHEP manufacturing facility in the Midwest would allow Garnett and Lerner to take advantage of Garnett's presence and knowledge of the pallet business in the Midwest and concurrently satisfy CHEP's desire to expand its business in the central and east coast regions. Garnett was actively involved in their discussion with CHEP regarding such facility in the Midwest. Garnett and Lerner also agreed that Garnett, through Ark–Mo, would be “the one who's going to have to take care of the day-to-day operation of the plant” since Lerner did not want to move to the Midwest. Since 2000, Garnett and Lerner had not discussed further what their respective ownership interests would be in any future projects with CHEP. However, Lerner told Garnett that they would be partners. The representatives of CHEP also knew them as partners in their dealings with CHEP.

After Garnett, Lerner, and the representatives of CHEP actively searched for a location for a CHEP manufacturing facility in the Midwest, they found a desirable location in Southaven, Mississippi. Garnett, Lerner, and CHEP agreed that the pallet manufacturing facility would be owned by CHEP and operated by Lerner and Garnett's jointly-owned business. In spring of 2005, Garnett and Lerner met with James Harper (“Harper”), an attorney in Southaven whom Lerner had hired to prepare the organizational documents for Blue Chip II, L.L.C. (“BC II”), the entity that would contract with CHEP to manage the Southaven facility. Based on their prior conversations about partnering to work with CHEP, Garnett believed that Ark–Mo would have a 50% ownership interest in BC II. However, the organizational documents prepared by Harper at Lerner's direction gave L & M Ventures (“L & M,” Lerner's investment company) a 65% ownership interest in BC II, Lerner's brother a 5% interest, and Ark–Mo a 30% interest. Although Garnett was surprised, he did not say anything in Harper's office because he wanted to think about the situation before he reacted.

Upon exiting Harper's office, Garnett expressed his disappointment and asked Lerner why he had allocated Ark–Mo only 30% of BC II when the promise was “50–50.” In response, Lerner told Garnett that his brother, an attorney, told him that it was necessary. Garnett asked Lerner whether the interest allocation would be the same for “every CHEP venture from now on other than the things [they were] already doing.” Lerner said yes and they “shook hands” (the “Parking Lot Deal”). Garnett did not document this agreement because he and Lerner had relied on oral agreements in the past. In April of 2005, Ark–Mo, L & M, and Lerner's brother executed the BC II Operating Agreement. Proportionate to their respective interests, Ark–Mo paid $45,000 for its 30% share in BC II and L & M paid $105,000 for its 65% share.

During the preparation for and start-up of the Southaven facility, Garnett was regularly on site dealing with various aspects of the permitting and organization of the operation. Ray Garza, Lerner's employee who had experience at Blue Chip Manufacturing, was brought in to help set up the Southaven facility. The facility opened in April, 2005.

In early May of 2005, BC II hired Robert Gossett (“Gossett”) to work as on-site manager of the operations in Southaven. As a result of Gossett's hiring, Garnett no longer needed to be constantly in Southaven. Garnett went to Southaven once a week but continued to receive and monitor daily production reports and stayed involved in the operations. Lerner was in Southaven for quarterly meetings, but infrequently beyond that. The Southaven operation was very successful.

In late 2005, Garnett visited a CHEP repair facility in Florida. Garnett's inspection revealed that the repair facility was a “mess” with “a lot of problems.” Garnett suggested to Lerner that they offer to help CHEP improve its Florida repair facility. Lerner was at first reluctant, but was persuaded by Garnett. Garnett and Lerner helped CHEP improve the Florida repair facility and CHEP was satisfied with the result. CHEP later contacted Lerner about taking over management of CHEP's repair facility in Pico Rivera, California, which was experiencing production and management problems. Lerner was reluctant to become involved in managing the Pico Rivera CHEP facility (the “Pico Rivera”) because of his prior negative experience with the pallet repair industry in California. To persuade Lerner, Garnett recommended to Lerner that they provide their management services on a cost-plus basis so that their financial risk in the operation was reduced. Garnett eventually persuaded Lerner by stating that management of the Pico Rivera was an opportunity they should pursue.

During the first quarter of 2006, Garnett was actively involved in the discussions and communications about taking over the management of the Pico Rivera. Lerner asked Garnett to review the plant layout of the Pico Rivera and various things that needed to be done. Lerner also asked Garnett to come to California to inspect the Pico Rivera. Lerner copied Garnett on numerous communications Lerner exchanged with CHEP regarding the Pico Rivera. Garnett was involved with various tasks necessary to facilitate the operation of the Pico Rivera, from getting an environmental and safety study done and obtaining permits for the Pico Rivera to designing the layouts of the plant.

To take over the operation of the Pico Rivera, Lerner prepared to form Blue Chip Recycling, L.L.C. (“BCR”). Lerner informed Garnett that Lerner planned to give Ark–Mo a 5% interest in BCR because Lerner did not need Garnett in California. However, Garnett assumed Ark–Mo would receive a 30% interest in BCR based on the Parking Lot Deal which did not limit their “venture with CHEP” to a specific geographic area or to manufacturing...