Midland Prop. Partners, LLC v. Watkins

• Decision Date: 05 November 2013
• Docket Number: No. WD 76027.,WD 76027.
• Parties: MIDLAND PROPERTY PARTNERS, LLC, Respondent, v. Richard WATKINS, Appellant.
• Court: Missouri Court of Appeals

416 S.W.3d 805

MIDLAND PROPERTY PARTNERS, LLC, Respondent,
v.
Richard WATKINS, Appellant.

No. WD 76027.

Missouri Court of Appeals,
Western District.

Nov. 5, 2013.

[416 S.W.3d 809]

Ryan L. White, for Respondent.

John M. Duggan, for Appellant.

Before Division Two: MARK D. PFEIFFER, Presiding Judge, JOSEPH M. ELLIS, Judge and VICTOR C. HOWARD, Judge.

JOSEPH M. ELLIS, Judge.

Appellant Richard C. Watkins appeals from a judgment entered by the Circuit Court of Jackson County in favor of Midland Property Partners, LLC, Gary Jenkins, the Mark Horstmann Revocable Trust, and the Betty Horstmann Revocable Trust (collectively, “Respondents”). This litigation arose after Respondents each filed suit against Appellant for breach of promissory note. For the following reasons, the judgment is affirmed in part and reversed in part.

In 2006, Appellant and Respondents organized and became members of a limited liability company, MCI Partners, LLC (“MCI”). MCI was created to develop and manage commercial real estate in the Kansas City area. Appellant had a 30% ownership interest in MCI and acted as the company's sole manager from 2006 to 2009.

In 2009, additional capital was necessary for MCI's continued operation. Given his 30% ownership interest, Appellant was required to make a deferred capital contribution of $79,500.00 to the company. Appellant was unable to pay the required deferred capital contribution. Thus, on January 19, 2009, Appellant drafted, executed, and delivered four promissory notes (“the Notes”) in exchange for Respondents agreeing to advance his share of the deferred capital contribution to MCI. Each of the four Notes was made payable to one of Respondents. The Notes collectively total $79,500.00.¹

Each Note provides that Appellant promises to pay the principal sum of the respective Note in full by January 19, 2010, with interest accruing at a rate of 7.25%. The Notes further provide that, upon default, Appellant must pay “all reasonable costs incurred by [Respondents] in collecting or enforcing payment [of the Notes].”

In addition to the Notes, Appellant also executed and delivered four corresponding continuing limited guaranties (“the Guaranties”) to Respondents. Each Guaranty identifies Appellant as the guarantor and provides that Appellant agrees to pay the Notes he executed on January 19, 2009. The Guaranties also contain the following jury-waiver provision:

[416 S.W.3d 810]

TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND ACKNOWLEDGING THAT THE CONSEQUENCES OF SAID WAIVER ARE FULLY UNDERSTOOD, GUARANTOR HEREBY EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED AGAINST GUARANTOR OR ANY OTHER PERSON LIABLE ON THE NOTE.

The Guaranties further provide that Respondents were “expressly relying upon [the Guaranties] in extending credit to [Appellant]” and that Respondents accepted the Guaranties as “material inducement to the extension of credit to [Appellant].”

Appellant failed to make any payments under the four Notes by January 19, 2010. Each Respondent subsequently sent Appellant a demand letter seeking payment of their respective Note. When Appellant again failed to make any payments under the Notes, Respondents filed petitions against Appellant alleging breach of the promissory notes and requesting attorneys' fees. ²

Appellant denied the allegations made in Respondents' petitions and asserted several counterclaims. The counterclaims pertained to Respondents' alleged violations of MCI's Operating Agreement (“the Operating Agreement”). In particular, Appellant alleged that Respondents breached the Operating Agreement by not following the procedures setout therein for removing him as manager, adding additional managers, conducting meetings, purchasing his ownership interest, and borrowing money from the bank. Appellant also pleaded set-off as an affirmative defense. His request for a set-off stemmed from his belief that any judgment against him should be offset by the amount of money Respondents allegedly failed to pay him when they purchased his ownership interest in MCI without complying with procedures outlined in the Operating Agreement.³

Prior to trial, the circuit court dismissed Appellant's counterclaims on the basis that such claims must be arbitrated in light of the Operating Agreement's arbitration provision. The circuit court also granted Respondents' motion to strike Appellant's demand for a jury trial based upon the jury-waiver provisions in the Guaranties.

On June 26, 2012, a bench trial commenced at which Appellant and all four Respondents testified.⁴ During the trial, Appellant moved to dismiss the case on the basis that Respondents failed to produce or prove that they had possession of the original Notes and, thus, could not prove that they were holders of the Notes. The circuit court took the matter under advisement. Each Respondent later testified that Appellant executed the Notes and that the original Notes were, at one time, in their possession. The Respondents further testified that although they did not know where the original Notes were, they had not transferred their respective interests in the Notes. When called as rebuttal witnesses, Respondents testified, over Appellant's objection, that they could not locate

[416 S.W.3d 811]

the original Notes' whereabouts, despite their efforts to do so.

At the close of evidence, Respondents moved for leave to amend the pleadings to conform to the evidence regarding Respondents' inability to locate the original Notes. Appellant objected to the motion, arguing that he had objected to the introduction of such evidence throughout the trial as outside the scope of the pleadings. The circuit court took the matter under advisement with the case.

On October 23, 2012, the circuit court issued its judgment, which awarded each Respondent the amount due under their respective Note plus interest and attorneys' fees. In its judgment, the circuit court explained that Respondents were entitled to enforce the Notes in that they were once in possession of the original Notes, they had not transferred the Notes, and they could not locate the original Notes' whereabouts at the time of trial. The circuit court also granted Respondents' request for leave to amend their pleadings to conform to the evidence regarding the Notes' whereabouts pursuant to Rule 55.33(b). The circuit court noted that although Appellant objected to the introduction of such evidence, no prejudice would result from Respondents amending the pleadings because the evidence did not change the substance of the petitions, the terms of the Notes were not in dispute, and Appellant had already admitted to executing the Notes. The circuit court went on to dismiss Appellant's request for a set-off after finding that it was without authority to consider the request because it pertained to issues that fell squarely within the scope of the Operating Agreement's arbitration provision.

Appellant now raises four points of error on appeal. In his first point, Appellant contends that the circuit court erred in denying him his constitutional right to a jury trial. Article I, section 22(a) of the Missouri Constitution establishes the right to a jury trial in certain civil cases. Bydalek v. Brines, 29 S.W.3d 848, 856 (Mo.App.S.D.2000). A trial court may not deny a party its right to a jury trial absent a waiver of that right by the party. Id. Thus, a trial court commits reversible error if it denies a party its right to a jury trial in a civil case that is otherwise triable by jury. Id.

A party can contractually waive its constitutional right to a jury trial. Savannah Place, Ltd. v. Heidelberg, 122 S.W.3d 74, 79 (Mo.App.S.D.2003). The validity of a contractual jury waiver “depends on whether the defendant knowingly and voluntarily consented to relinquish [his or] her right to a jury trial.” ⁵Malan Realty Investors, Inc. v. Harris, 953 S.W.2d 624, 627 (Mo. banc 1997). Contractual waivers of one's right to a jury trial “will never be implied but must be clearly and explicitly stated.” Id. An effective contractual jury-waiver provision, therefore, requires the use of clear, unambiguous, unmistakable, and conspicuous language. Id.

Appellant does not dispute the validity of the jury-waiver provisions contained in the Guaranties. Rather, Appellant contends that the Guaranties' jury-waiver provisions are inapplicable to the present action because Respondents brought suit for breach of the Notes, not the Guaranties, and the Notes do not contain jury-waiver provisions. Respondents

[416 S.W.3d 812]

acknowledge that the Notes do not contain a jury-waiver provision. Nevertheless, they aver that Appellant waived his right to a jury trial in the present case because the Guaranties and the Notes were executed at the same time and, therefore, must be construed together.

We recognize that a guaranty “is a collateral agreement for another's undertaking, and is an independent contract which imposes responsibilities different from those imposed in the agreement to which it is collateral.” Derges v. Hellweg, 128 S.W.3d 186, 191 (Mo.App.S.D.2004) (internal quotation omitted). However, “[a] guaranty agreement may be construed together with any contemporaneously executed agreements dealing with the same subject matter as an aid in ascertaining the intention of the parties.” Dunn Indus. Grp., Inc. v. City of Sugar Creek, 112 S.W.3d 421, 434 (Mo. banc 2003). In fact, “when several instruments relating to the same subject are executed at the same time[,] ... the documents will be construed together, even in the absence of explicit incorporation, unless the realities of the situation indicate that the parties did not so intend.” Johnson ex rel. Johnson v. JF Enters., LLC, 400 S.W.3d 763, 767 (Mo. banc 2013) (emphasis and quotation omitted). Such is true even when the instruments are “not part of a single contract.” Id.

Here, Appellant executed and signed all the Notes and Guaranties on January 19, 2009. Each...