McGraw v. Andes

• Decision Date: 03 November 1998
• Docket Number: No. WD,WD
• Citation: McGraw v. Andes, 978 S.W.2d 794 (Mo. App. 1998)
• Court: Missouri Court of Appeals
• Parties: Robert P. McGRAW, Respondent, v. Wilmer C. ANDES, Defendant, A.L. Thompson, Sr. & ATM Corporation, Appellants. 54518.

Page 794

978 S.W.2d 794

Robert P. McGRAW, Respondent, v. Wilmer C. ANDES, Defendant A.L. Thompson, Sr. & ATM Corporation, Appellants.

No. WD 54518.

Missouri Court of Appeals Western District.

Submitted July 16, 1998.

Decided Nov. 3, 1998.

Theodore C. Beckett, II, Kansas City, for appellants.

Michael M. Tamburini, Kansas City, for respondent.

Before SMART, P.J., and ELLIS and HOWARD, JJ.

PER CURIAM.

This case involves an action commenced by a former officer and shareholder of a development corporation. Robert P. McGraw, plaintiff, contends that the corporation and the other principals in the corporation breached various agreements. The claims arose out of the development and construction of a large condominium complex in Independence, Missouri. A.L. Thompson and ATM Corporation appeal the trial court's rulings on after-trial motions. The orders of the trial court are affirmed in part and reversed in part.

Factual Background

Although the appellants' brief is not easy to read, our efforts to understand the facts have yielded the following factual information underlying this litigation. ¹ On June 5, 1991, A.L. Thompson, Michael L. Andes and Wilmer C. Andes formed ATM Corporation ("ATM"). ATM is the developer and operator of Apple Tree Manor Condominiums in Independence, Missouri. The three men planned four successive phases of thirty units each. The units were to be constructed by Speed Oil Co., a corporation of which Wilmer Andes was the president and sole principal. Mr. Thompson was not involved in the day-to-day operation of ATM. He and his wife, Eileen, appointed Robert P. McGraw, a retired dentist, as their agent in proxy to vote their shares.

After he had obtained a loan on behalf of ATM, McGraw was elected a director, Chief Executive Officer, Chief Financial Officer and President of ATM on November 25, 1991. Both McGraw and his wife, Cicely, personally guaranteed loans made by First City Bank ("the Bank") on Phases I and II of the project. These loans were both in excess of two million dollars. McGraw also became a shareholder of the corporation. At this time, Thompson and McGraw held the same percentage of shares in ATM and together they held majority interest in ATM. McGraw also served as trustee of the stock owned by Wilmer Andes and Michael Andes, who wished to avoid registering their stock in their own names. Also on November 25, 1991, Thompson, Wilmer Andes, Michael Andes and McGraw entered into a shareholders agreement (see "Appendix A"). At the time they entered into the agreement, these four individuals were the shareholders and directors of ATM.

The construction of Apple Tree Manor proceeded in two phases. The first phase began in late 1991 or early 1992. In April, 1992, the foundation piers for the first building settled because they had been placed upon mud. As a result of problems with the construction of Phase I, Wilmer Andes was relieved of his construction duties and Otis Baker was brought in as the project supervisor at this time. Correcting the foundation difficulties cost over $300,000.00 and delayed the project two or three months.

Before the Bank would agree to loan money to ATM for Phase II, it required that a certain number of units be sold in Phase I. The Bank made it clear that the units must be sold outright. At their June 6, 1992 meeting, the directors of ATM discussed the possible purchase of two units. Neither Thompson nor Wilmer Andes were willing or able to buy the units. Thompson proposed that he take ownership of two units in exchange for a lessening of ATM's debt to him but this was not acceptable to the Bank. McGraw offered to purchase two units and finance them with an outside loan. A total purchase price of $207,900.00 was established, using the current cost sheet for the units. The proceeds realized from the sale of the units to McGraw were used to pay ATM's loan balance with the Bank.

The company had been doing business out of the basement of Wilmer Andes' home and at a trailer at the construction site, paying Wilmer Andes $2,400.00 per month for this privilege. ATM had been informed by the City of Lee's Summit that it could no longer use Wilmer Andes' basement as an office. Because ATM needed an office and a sales model unit, the McGraws leased the two units they had bought back to ATM. Unit 101 was used as a sales model until the next phase was constructed, and Unit 105 was used as the corporation's office.

McGraw leased Unit 105 to ATM on May 15, 1993. The lease agreement called for rent of $1,200.00 to be paid monthly. The term of the lease was five years, from May 15, 1993 through May 31, 1998. The agreement required that Mr. McGraw be given six months' notice of termination or abandonment. ATM quit the lease in January 1995 without prior notice. McGraw claimed that the total amount owed him for rent and for repairs was $33,601.15.

McGraw had also previously entered into an oral agreement with ATM whereby he loaned the corporation money for out-of-pocket expenses. ATM's books, as of December 31, 1994, showed a current liability to McGraw of $191,021.69. The ATM shareholders' agreement (see "Appendix A") memorializes the oral loan agreement, providing that "[t]he parties hereto shall be reimbursed for actual out-of-pocket expenses necessarily incurred by them in connection with the Project." All four shareholders, McGraw, Wilmer Andes, Michael Andes and Thompson, signed the shareholders' agreement. McGraw testified that the company had established a running account for the out-of-pocket expenses that he had incurred. He advanced thousands of dollars to ATM on his personal credit card and at one point, took out a second mortgage on his home to pay contractors who worked for ATM. There was evidence that these out-of-pocket expenses had been discussed by the other members of the corporation and that Thompson had assured McGraw that the loan would be paid. Additionally, there was evidence that the advances made by McGraw protected Thompson's letter of credit and allowed the project to continue.

McGraw also leased his warehouse to ATM. The shareholders' agreement contained the following:

Building Lease. ATM will lease Bob's building at 315 North Main, Independence, for storage and warehousing purposes for which ATM will pay Bob $3,000.00 per month rent, commencing November 1, 1991, continuing until the first four phases of construction are completed. Such payments will be treated as Project Costs.

ATM stored electrical transformers and other miscellaneous items in the warehouse at times. According to ATM, the payments made pursuant to the lease of the warehouse were actually disguised compensation for McGraw's services to ATM. ATM had made a series of rent payments to McGraw on the warehouse. According to the bookkeeper, the payments were part of "soft draw requests" and coded as rent. McGraw received $61,700.00 in rent payments. At the time of trial, McGraw claimed that $127,300.00 was owed to him under the warehouse lease.

In late 1994, the Bank decided not to renew the loan. ATM scheduled a special shareholders meeting on December 20, 1994. Prior to the December 20 meeting, Thompson called McGraw and told him that if he had to buy the loan, he wanted control of the corporation. McGraw agreed to give Thompson twenty-one percent of his stock, and Mrs. McGraw agreed to give him stock in consideration of a release of the McGraws' guaranty on the loan. At this meeting, McGraw was removed from the board of directors and removed as president without explanation. There was evidence that until the time he was terminated, McGraw had received no complaints on his performance at ATM, but instead had been commended many times. The evidence shows that McGraw had devoted many long hours to the success of ATM and that Apple Tree Manor was regarded as a quality development. Mr. Baker, the project supervisor, and Mr. Constance, the attorney, were terminated at the same time as McGraw. On January 5, 1995, Thompson purchased the Bank's loan to ATM for $2,397,000.00. At the time of trial, McGraw was a minority shareholder in the company.

Procedural Background

Mr. McGraw's Suit

On April 7, 1995, McGraw filed suit against Wilmer Andes, Thompson and ATM corporation. McGraw brought his suit both in his individual capacity and as a shareholder of ATM. Count I of the petition states a claim against Wilmer Andes for breach of the oral loan agreement and claims he loaned Wilmer Andes $24,544.55 which has not been repaid. Count II states a cause of action for breach of the warehouse lease. Count III was a claim for breach of lease in regard to the condominium. Count IV alleges a breach of the shareholder agreement, in which McGraw claims that the defendants agreed that he would be entitled to serve on the ATM board of directors, that he would be paid $3,000.00 per month for use of his warehouse, that Wilmer Andes would acknowledge McGraw's $18,000.00 loan, that McGraw and his wife would guarantee the $2.3 million dollar bank loan, and that McGraw would receive thirty percent of outstanding ATM stock. He claims that Andes promised that the corporation would make a $4,000,000.00 profit and that McGraw would make in excess of $1,000,000.00. McGraw alleges that this agreement was breached and that he was damaged in an amount exceeding $1,000,000.00. In Count V, McGraw alleges that ATM breached the oral loan agreement by failing to repay him the sum of $105,000.00. Count VI is a derivative count for breach of a construction contract.

The Defendants' Counterclaims

ATM Corporation alleges in counterclaims that McGraw negligently and intentionally breached his fiduciary duties. ATM alleges, inter alia, that McGraw awarded subcontracts to contractors who were his friends; awarded subcontracts on the basis of the lowest bid without regard to substance or quality; and improperly engaged in unfair self-dealing transactions in the lease of McGraw's warehouse, the purchase of two...