Camelot Carpets v. Metro Distributing Co.

• Decision Date: 15 December 1980
• Docket Number: No. 41774.,41774.
• Parties: CAMELOT CARPETS, LTD., Interstate Supply Company, Standard Floor Covering, Inc., Plaintiffs-Respondents, v. METRO DISTRIBUTING COMPANY, Harold L. Ehrhard, Ray W. Schwebel, William A. Ratteree, and Adolph Investment Company, Defendants-Appellants.
• Court: Missouri Court of Appeals

607 S.W.2d 746

CAMELOT CARPETS, LTD., Interstate Supply Company, Standard Floor Covering, Inc., Plaintiffs-Respondents, v. METRO DISTRIBUTING COMPANY, Harold L. Ehrhard, Ray W. Schwebel, William A. Ratteree, and Adolph Investment Company, Defendants-Appellants.

No. 41774.

Missouri Court of Appeals, Eastern District, Division Four.

September 16, 1980.

Motion for Rehearing and/or Transfer October 17, 1980.

Application to Transfer Denied December 15, 1980.

William J. Travis, Donald U. Beimdiek, St. Louis, for defendants-appellants.

Harold Ehrhard, Donald H. Clooney, Dempster K. Holland, St. Louis, for plaintiffs-respondents.

Motion for Rehearing and/or Transfer to Supreme Court Denied October 17, 1980.

SMITH, Presiding Judge.

Defendants appeal from the judgment of the circuit court in a court-tried case. Judgment was rendered against both Metro Distributing Company and Adolph Investment Company in favor of each of the three plaintiffs as follows: Camelot Carpets, Inc.-$21,578.17 plus interest; Standard Floor Covering, Inc.-$5,975.92 plus interest; Interstate Supply Company-$4,610.10 plus interest. The court ordered Adolph to pay the judgment to trustees to be appointed by the court for Metro and for those trustees to pay the judgment to the plaintiffs. Adolph appealed the judgment; Metro did not. The court found in favor of defendants Harold L. Ehrhard, Ray W. Schwebel and William A. Ratteree on plaintiffs' claims against them. No appeal was taken by plaintiffs from that portion of the judgment or from the court's refusal to award punitive damages and attorney's fees.

Plaintiffs' suit sought to recover against defendants on the basis of accounts due from Metro for carpet purchased by Metro from plaintiffs. There was no dispute that Metro owed the accounts to plaintiffs. The amounts owed were not disputed and are the amounts reflected in the judgment. Adolph makes no attack on the amount of the judgment. The individual defendants were sued as statutory trustees of Metro. The suit against Adolph was grounded upon two claims, i. e.: (1) that it had received assets from Metro in fraud of plaintiffs' rights as creditors of Metro and (2) that Metro was the "alter ego" or agent of Adolph and Ratteree and that they are liable for the debts of Metro.¹

Following trial the court entered findings of fact as follows:

"Findings of Fact"

"1. That at various times during 1974 and 1975, plaintiffs on open accounts sold and delivered goods and merchandise to defendant Metro Distributing Company, a Missouri corporation, whose corporate charter was forfeited on January 1, 1975, as follows:

"Camelot Carpets, Ltd.-$21,578.17 and demand for payment made April 2, 1975;

"Standard Floor Covering, Inc.$5,975.92 and demand for payment made August 22, 1975;

"Interstate Supply Company-$4,610.10 and demand for payment made July 31, 1975.

"2. That defendant William A. Ratteree as sole owner of defendant Adolph Investment Company had actual or legal control of said Metro Distributing Company during 1974 and 1975; that Adolph Investment Company used Metro Distributing Company and another corporation as its vehicle to purchase and install carpeting in its business of building and operating various apartment houses.

"3. That defendant Ratteree and Adolph Investment Co. caused assets of Metro Distributing Company to be dissipated or wrongfully paid to other creditors thus unintentionally defrauding plaintiffs.

"4. That defendant Adolph Investment Company acting through defendant Ratteree did so without malice and therefore plaintiffs are not entitled to punitive damages.

"5. That said defendant Ratteree represented to plaintiffs that funds of Metro Distributing Company would be available to pay their bills and that plaintiffs relied on the same.

"6. That Metro Distributing Company was not indebted to Adolph Investment Company for any debts that remain unpaid.

"7. That Metro Distributing Company owes plaintiffs the said undisputed amounts.

"8. That attorney's fees are not proper to be awarded to plaintiffs."

On appeal the defendant challenges the judgment on the basis that the evidence failed to establish (1) fraud, (2) fraudulent conveyance of assets, or (3) actual or legal control of Metro by Adolph or Ratteree. We find it unnecessary to rule on the first two contentions as the evidence is sufficient to support the judgment under the "alter ego" or agency theory. Our review is that mandated by Murphy v. Carron, 536 S.W.2d 30 (Mo. banc 1976), and our recitation of the factual background of the judgment is based upon the evidence most favorable to the judgment entered. Some of this evidence was disputed.

Adolph is a company owned 100% by William Ratteree. It is engaged in the development of apartment houses. Prior to 1969 it bought its own carpet for those developments. In 1969, Metro was formed. Ratteree owned six of the 11 shares of that company. The remaining shares were owned by a Mr. Rose. Metro was housed in space previously utilized by Adolph for carpet storage and owned by Adolph. Ratteree's capital contribution to this corporation was carpet inventory worth approximately $40,000.² Metro provided carpet and installation service for Adolph in its apartment developments. In September 1973 Rose left Metro and Ehrhard and Schwebel took his place. They purchased the five shares of stock from Metro for $14,250 for which they gave a promissory note. No payments on the note were ever made and the stock was kept in the custody of Ratteree as "Trustee." The purchase agreement had restrictions on sale or transfer of the stock essentially giving Ratteree a right of first refusal. This right of first refusal gave Ratteree the right to purchase the stock or to cause Metro to purchase it. Ehrhard was employed by Metro as its President and General Manager. The employment agreement restricted Ehrhard's commercial activities to Metro and Ayers Floor Company except with the consent of Ratteree and required that any check for more than $500 required the signature of Ratteree. At the same time a service agreement was entered into between Metro, Ayers Floor Company, Adolph, Ratteree and Empire Ltd. (another company controlled by Ratteree) requiring Metro to provide new carpet to Ratteree and his companies at .50 cents a yard over cost. Ayers Floor Company (owned totally by Ehrhard and Schwebel) agreed to lay carpeting for Ratteree and his companies for .80 cents a yard or $1.00 a yard for carpet with rubber backing. The agreement was terminable on 30 days notice, except that so long as Ratteree remained a stockholder of Metro, that company could terminate only with the consent of Ratteree.

Metro borrowed money for operations from Pioneer Bank and Trust Company on an open-ended basis commencing in December 1973. At that time Ratteree and his wife and Ehrhard and his wife executed a personal guaranty of these borrowings. In December of 1973, Ratteree resigned his position "as an officer and/or director of Metro."³ From September of 1973 on, Ayers, Adolph and another company controlled by Ratteree provided the great majority of Metro's business. Adolph in turn provided a very substantial portion of Ayers' business. It is obvious that Metro was utilized to supply carpet to Ayers and Adolph and that Ayers in turn was utilized to lay the carpet for Adolph. During this period Metro with the knowledge at least of Adolph, began billing much of its carpet to Ayers which in turn billed that charge along with its own to Adolph. Also during this period, and until August 1975, Adolph carried large accounts payable to Metro and Ayers, aggregating at some points in excess of $40,000. Much of these "accounts payable" were not for current purchases and in fact no payments were made to Ayers by Adolph from July 1974 until at least April of 1975. Ayers in turn owed large accounts payable to Metro. The accounts between Metro and Adolph were carried on Adolph's books as "intra-company accounts." In March 1975 Ratteree purported to "surrender" his ownership of Metro stock. It is unnecessary for us to pass upon the legal effect of this purported surrender.

Late in 1974 and through the first half of 1975 plaintiffs began to make inquiry of Metro concerning their overdue accounts. Ehrhard advised them that when he received payment of his accounts receivable from Adolph and Ayers Metro would take care of these accounts. Camelot had advised Ratteree in April, 1975, of the debt owed by Metro and of Ehrhard's advice concerning Metro's accounts receivable from Adolph. In June the representative of Camelot and its attorney met with Ehrhard and Ratteree about that company's account. They were advised by Ehrhard that when Adolph paid its accounts to Metro and to Ayers, and Ayers its account...