Bull v. Torbett

• Decision Date: 27 June 2017
• Docket Number: WD 79919.
• Parties: Robert BULL, Respondent, v. Mark TORBETT, Appellant.
• Court: Missouri Court of Appeals

529 S.W.3d 832

Robert BULL, Respondent,

v.Mark TORBETT, Appellant.

WD 79919.

Missouri Court of Appeals, Western District.

Opinion filed: June 27, 2017

Application for Transfer to Supreme Court Denied August 1, 2017

Application for Transfer to Supreme Court Denied October 31, 2017

Patrick R. Miller, for Respondent.

Don R. Lolli, Kansas City, for Appellant.

Matthew W. Geary, Kansas City, Co-counsel for Appellant.

Before Division Three: Anthony Rex Gabbert, Presiding Judge, Victor C. Howard, Judge and Cynthia L. Martin, Judge

VICTOR C. HOWARD, JUDGE

Mark Torbett appeals the Jackson County Circuit Court's denial of his motion to compel arbitration and dismiss him for lack of personal jurisdiction. He raises three points on appeal complaining that he should be able to enforce the arbitration agreement as a non-signatory because of equitable estoppel and agency theory. The judgment is reversed and remanded.

Facts

On March 14, 2016, Robert and Linda Bull (the Bulls) filed a Second Amended Petition in a lawsuit against the Real Estate Store USA (TRES) and Mark Torbett (the founder of the Real Estate Store). The Bulls alleged one count of fraud, one count of negligent misrepresentation, and one count of violating the Missouri Merchandising Practices Act. They alleged the following factual situation:

The Bulls live in California. Robert Bull was referred to Torbett and TRES following his attendance at a wealth management seminar. Torbett and TRES are located in Utah.

Torbett told Robert Bull that real estate was a safe investment, generating a return on investment through the payment of rents by tenants occupying the properties. Torbett told Robert Bull that TRES was a "one stop shop" where he could locate and purchase residential real estate for investment. Torbett told Robert Bull that TRES would assist the Bulls with all aspects of learning the business of owning residential real estate. Torbett told Robert Bull that TRES would identify and sell the Bulls property that was currently generating revenue with a reliable tenant. Torbett encouraged Robert Bull to consider him a consultant who would educate the Bulls and assist the Bulls in being successful in the residential real estate industry.

Torbett referred the Bulls to Horizon Trust Company¹ (Horizon) to establish a self-directed IRA to purchase property from TRES. Based on Torbett's recommendation, the Bulls deposited funds with Horizon. Horizon is located in Albuquerque, New Mexico.

In reliance on Torbett's statements, the Bulls agreed to purchase residential properties located in Jackson County, Missouri. The properties were identified by Torbett from TRES's inventory. Torbett represented the properties were in good condition with good, reliable tenants. Torbett represented the properties were fully insured and further stated premiums for the first year's insurance were pre-paid and all policies were transferrable to the Bulls.

Torbett represented that TRES had acquired insurance from AON, a viable insurance carrier covering rental revenues from the properties for the first year. If the tenant did not pay, the Bulls need only submit a claim to the insurance carrier to cover the unpaid rent. The rental insurance premium was pre-paid and coverage was transferrable to the Bulls. Torbett represented the homes were occupied by AON qualified tenants.

The sale price of the properties was determined by Torbett and TRES. When Robert Bull inquired regarding the value of the properties, Torbett advised the price was not material. Instead, the Bulls need only concern themselves with the cash flow the property would generate. Torbett also said the properties were priced by Torbett and TRES for purchase by the Bulls at their fair market value. Torbett provided spread sheets that represented historical performance of properties, including rents received and expenses paid.

Through Horizon, the Bulls purchased two properties in Jackson County, Missouri. Torbett said the Bulls' purchase of the properties was a prudent investment even though the Bulls were out of town investors. Torbett represented that the Bulls' ownership of the properties would yield monthly income and involve little to no day to day involvement. The Bulls engaged Prime Realty to manage the properties upon the enthusiastic recommendation of Torbett.

Following purchase of the properties, the Bulls soon learned the condition of the properties was not as represented by Torbett and TRES. The properties were occupied by non-paying tenants. The Bulls incurred substantial costs to evict the non-paying tenants who also caused substantial damage to the properties.

The Bulls incurred substantial costs to make repairs to the properties to attract new tenants so the properties could generate revenue. While attempting to attract new tenants, the Bulls learned from Prime Realty that the properties would not lease at the rates Torbett and TRES represented the properties were capable of earning. Prime Realty encouraged the Bulls to lower the monthly rental rates to attract new renters.

The Bulls' initial claims for rental income coverage were denied by AON because the tenants in the properties at the time of the Bulls' purchase were not qualified. Torbett and TRES had failed to perform adequate background checks on the tenants or misrepresented the results of background checks of the tenants when applying for coverage from AON. The Bulls' insurance claims for property damage were also denied because the insurance coverage acquired by Torbett and TRES does not cover damage by tenants.

The Bulls discovered the purchase price paid to acquire each property was substantially higher than fair market value. They learned that the first property purchased from TRES on July 30, 2013, for $60,694 was apparently purchased by Torbett and TRES from Coral Properties on July 24, 2013 for $38,000. The second property purchased from TRES on July 25, 2013 for $60,694 was apparently purchased by Torbett and TRES from Coral Properties on July 24, 2013 for $40,000.

John Wheeler, the principal of Prime Realty, is also the principal of Coral Properties. Review of eviction records shows from February 1, 2014 through March 2016, Prime Realty has filed nine other eviction cases in addition to those for the Bulls naming parties holding property through Horizon. The Bulls alleged that Torbett, TRES, and Prime Realty "appear to be working together to sell overpriced residential real estate to out-of-town investors at higher than market values. With elevated sale revenues enjoyed by [Torbett and TRES] and long term management fees going to Prime Realty."

Torbett and TRES filed their Answer on March 23, 2016. They denied liability and requested that the trial court dismiss the petition or enter judgment in their favor. Torbett and TRES filed a motion to compel arbitration on April 22, 2016. The motion to compel alleged that all of the Bulls' disputes and claims related to the purchase of two parcels of real estate and are thereby subject to the mandatory arbitration clause contained in the Real Estate Purchase Contracts [REPCs]. The arbitration clause at issue stated:

Arbitration. The Parties agree that any dispute or claim relating to this Real Estate Purchase Contract shall be submitted to binding arbitration under the Real Estate Industry Arbitration Rules of the American Arbitration Association. The parties agree that the costs if such proceedings shall be reimbursed to the prevailing party, including reasonable attorneys' fees and costs. The parties agree arbitration shall be conducted in Salt Lake County, State of Utah.

The Bulls filed suggestions in opposition to the motion to compel arbitration. They agreed a valid arbitration agreement existed but alleged their claims against Torbett extended beyond the mere purchase of real estate. They also alleged that Torbett was not a party to the Real Estate Purchase Contracts and, therefore, cannot compel arbitration.

Torbett and TRES filed reply suggestions on May 19, 2016. They filed supplemental suggestions in support of the motion to compel on June 22, 2016. Torbett also filed a motion to dismiss for lack of personal jurisdiction.

The Bulls filed a response to the motion to dismiss on July 6, 2016. They dismissed their claims against TRES on July 7, 2016. Only their claims against Torbett remained. They also filed supplemental suggestions in opposition of the motion to compel on July 7, 2016. The Bulls filed a motion for leave to add John Wheeler as a defendant and to file their third amended petition on July 8, 2016.

The trial court denied the motion to compel arbitration and dismiss on July 21, 2016. It found:

Motion to Compel Arbitration

State courts are bound by the provisions of the Federal Arbitration Act in cases involving interstate commerce. VCW, Inc. v. Mutual Risk Management , Ltd., 46 S.W.3d 118, 121 (Mo. App. 2001). The Court notes this case involves interstate commerce because Horizon Trust Company is located in New Mexico and purchased two parcels of real estate in Kansas City, Missouri from The Real Estate Store located in Utah for the benefit of two self-directed trusts whose beneficiaries live in California. As such, this dispute concerns interstate commerce.

When dealing with a motion to compel arbitration, the Court must determine (1) whether a valid arbitration agreement exists and if so, (2) determine if the dispute falls within the scope of the arbitration agreement. Ellis v. J F Enterprises, LLC, 482 S.W.3d 417, 419 (Mo. 2016). It is axiomatic that "a party cannot be compelled to arbitration unless the party has agreed to do so." Tucker v. Vincent , 471 S.W.3d 787, 794 (Mo. Ct. App. 2015). The FAA requires courts stay proceedings when the dispute is subject to an agreement to arbitrate. 9 U.S.C. § 3.

The only arbitration agreement before this Court is located within the Real Estate Purchase Contracts signed by Robert Bull² and Torbett in his corporate capacity on behalf of The Real Estate Store. There is no

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