Mitchell v. K.C. Stadium Concessions, Inc.

• Decision Date: 28 September 1993
• Citation: 865 S.W.2d 779
• Court: Missouri Court of Appeals
• Parties: James O. MITCHELL, et ux., Respondent, v. K.C. STADIUM CONCESSIONS, INC., et al., W.R. Grace & Company, Defendants, Home Insurance Company of Illinois, Appellant, Restaurant Enterprises Group, Inc., et al., Appellants. James O. MITCHELL, et ux., Respondent, v. RESTAURANT ENTERPRISES GROUP, INC., et al., Appellants. WD 46809, WD 46825.

Page 779

865 S.W.2d 779

James O. MITCHELL, et ux., Respondent, v. K.C. STADIUM CONCESSIONS, INC., et al., W.R. Grace &

Company, Defendants,

Home Insurance Company of Illinois, Appellant,

Restaurant Enterprises Group, Inc., et al., Appellants.

James O. MITCHELL, et ux., Respondent, v. RESTAURANT ENTERPRISES GROUP, INC., et al., Appellants.

WD 46809, WD 46825.

Missouri Court of Appeals Western District.

Sept. 28, 1993.

Motion for Rehearing and/or Transfer to

Supreme Court Denied Nov. 2, 1993.

Application to Transfer Denied Dec. 21, 1993.

Kenneth O. Smith, Martin Mark Meyers, Kansas City, for appellants.

George Kapke, Independence, for respondent.

Martin Mark Meyers, Kansas City, for defendants.

Before BERREY, P.J., and BRECKENRIDGE and HANNA, JJ.

HANNA, Judge.

This action for damages arises from the destruction by fire of a building owned by the plaintiffs, Mr. and Mrs. James O. Mitchell. The lawsuit was filed against the Restaurant Enterprises Group, Inc., (REG) and Home Insurance Company of Illinois (Home Ins.). Both REG and Home Ins. appeal from the order of the trial court which entered judgment on the jury's verdict in favor of the Mitchells. The trial court overruled both defendants' motions for judgment notwithstanding the verdict and alternative motions for new trial. REG appeals from a $270,625.40 judgment in favor of the Mitchells for failure to provide rent insurance. Home Ins. appeals the judgment in favor of the Mitchells on the insurance policy for destruction of the building in the amount of $870,000.

On December 13, 1973, Marguerite S. Lamble entered into a lease with defendant K.C. Stadium Concessions, Inc. as lessee on the property located at 3706 S. Noland Road. The lease contained the following relevant provisions: 1) the duration of the lease was twenty years; 2) rent was $4,677.09 per month; 3) lessee agreed to maintain, at its own expense, fire and extended insurance coverage on the premises, insuring all building and improvements for their full replacement value; 4) lessee agreed to maintain insurance to cover the payment of rent to lessor during any period in which the premises was untenable; and 5) in the final five years of the lease, either party had the option of canceling in the event of the buildings destruction.

Subsequent to the signing of the lease, several events occurred. On September 16, 1974, the Mitchells acquired the property subject to the lease and effectively became the lessor. On March 23, 1983, K.C. Stadium Concessions assigned the lease to Gilbert/Robinson. Through this transaction, Gilbert/Robinson became the lessee under the lease agreement. By a letter dated December 7, 1988, the Mitchells were notified by REG, Gilbert/Robinsons parent corporation, that due to corporate reorganization the subsidiary of Gilbert/Robinson was being sold but that prior to the sale, the 1973 Lease Agreement was being assigned to REG-GRC Corp., a wholly owned subsidiary of REG. The letter was on REG letterhead. The Mitchells were provided with a copy of the Assignment and Assumption Agreement which advised that REG-GRC Corp. was the entity which had responsibility for the Gilbert/Robinson lease, and acknowledged that Gilbert/Robinson would remain liable to the plaintiffs under the lease agreement.

By amendment to the lease, the parties had agreed that if the building was destroyed in the last five years of the term of the lease, then either party had the option not to rebuild and, in that event, the lease "shall be declared canceled and terminated as of the date of destruction." On March 27, 1989, the building on the leased premises was totally destroyed by fire. The trial court ruled, as a matter of law, that the destruction occurred in the last five years of the lease.

On April 13, 1989, both Gilbert/Robinson and REG-GRC Corp., through their attorneys, notified the Mitchells that they were exercising their option under the lease not to rebuild and to declare the lease terminated as of the date of the fire, March 27, 1989. The Mitchells have not rebuilt the structure since the fire.

Count III of the Mitchells petition, which is the only count making claim against REG, alleged that REG breached the lease by 1) its failure to insure the full replacement value of the leased premises and to name the Mitchells as additional insureds on the policy; 2) its failure to pay rent from April 1, 1989, in the sum of $4,677.09 per month; 3) its failure to pay the taxes for the year 1989 in the amount of two thousand, five hundred eighty-eight and 50/100 ($2,588.50) dollars.

The Mitchells also sued Home Ins. for "breach of contract under a third-party beneficiary theory." The Mitchells alleged that REG purchased insurance on the leased premises from Home Ins. and, as third-party beneficiaries of the insurance policy, they are entitled to the policy limits of the insurance policy or full damages of $1,499,204.67, plus monthly rent, real estate taxes and costs.

On June 25, 1992, after a jury trial, judgment was entered in favor of the Mitchells and against REG for the failure of REG to provide rent insurance, a cause of action that was not pleaded until immediately before submission of the case to the jury. Damages were assessed at $270,625.40 for the plaintiffs claim that REG failed to provide rent insurance. Judgment was also entered against Home Ins. and damages assessed at $870,000 for loss of the building. Both defendants appeal. We reverse the award against REG and affirm the judgment against Home Ins.

REGs Appeal

In REGs first point, it claims that the trial court erred in overruling its motion for judgment notwithstanding the verdict because there was no substantial evidence that defendant REG was a party to the lease, that it assumed any liability under the lease, or that it did business as or was the alter ego of REG-GRC Corp. so as to justify piercing the corporate veil. The Mitchells theory is that REG assumed the liabilities of the lease and, in that respect, on the morning of trial, moved the court to amend its caption of the petition by interlineation to have it read: "REG also known as, or doing business as, REG-GRC Corp." Nothing else in the pleading was amended.

The plaintiffs theory was that REG and REG-GRC Corp. were a single corporate entity. However, plaintiffs introduced proof which established that REG-GRC Corp. was a separate corporation and, on appeal, it has not been disputed that REG-GRC Corp. is a wholly owned but separate corporation of REG. Additionally, the plaintiffs concede that they did not attempt to offer the necessary proof to pierce the corporate veil, and, in fact, argue that their recovery against REG does not require them to pierce the corporate veil of REG. Plaintiffs maintain that REG is liable because it voluntarily assumed the liability under the lease. The factual basis for this claim, plaintiffs argue, is that REG paid rent, paid taxes, and bought insurance on the building, thereby acting as the lessee. ¹ REG argues that this is not sufficient evidence to establish that REG assumed liability under the lease to cause it to become one and the same entity as REG-GRC Corp. REG also argues that the Mitchells were advised from the outset that the party assuming liability for the lease was REG-GRC Corp., a separate corporation.

Plaintiffs apparently assert a new exception to the general rule of nonliability of a separate parent corporation for the contracts of its subsidiary corporation. However, it cites no cases in support of this theory of corporate liability.

As a general rule, two separate corporations are to be regarded as distinct legal entities, even if the stock of one is owned partly or wholly by the other. Central Cooling & Supply Co. v. Director of Revenue, 648 S.W.2d 546, 547-48 (Mo.1982); Terre Du Lac Assn, Inc. v. Terre Du Lac, Inc., 737 S.W.2d 206, 218 (Mo.App.1987). Ordinarily, a parent corporation is not liable for the acts of its subsidiary corporation. An exception to this rule occurs in the situation where the plaintiff pierces the corporate veil.

The mere fact of complete ownership and control by the parent corporation does not, of itself, justify piercing of the corporate veil. Terre du Lac, 737 S.W.2d at 218. The test to determine when to pierce the veil and thereby hold the parent liable has two parts: first, the corporation must be controlled and influenced by persons or by another corporation; and second, the evidence must establish that the corporate cloak was used as a subterfuge to defeat public convenience, to justify a wrong, or to perpetrate a fraud. Id. (citing Fairbanks v. Chambers, 665 S.W.2d 33, 37 (Mo.App.1984)). The plaintiffs' evidence that REG made two rent and one tax payment and insured the building falls short of evidence necessary to prove REGs domination of REG-GRC Corp. or to hold REG liable under any other theory. Further, no evidence was presented that REG was acting with any improper purpose. The second prong of the test was also unsatisfied.

In State ex rel. General Mills, Inc. v. Waltner, 348 Mo. 852, 156 S.W.2d 664 (1941), the court found that a suit against a parent for the tort of its subsidiary requires different allegations and proof than a suit against the subsidiary for its own tort. Id. 156 S.W.2d at 668. "Therefore, a petition stating a cause of action against the subsidiary cannot, by amendment, be converted into a suit against the parent corporation." Id.

A second and decisive reason for denying relief to the plaintiffs under this point is that Article IX of the lease amendment, made at the time of the original lease, provides that if the building is destroyed by fire or other casualty within the last five years of the lease, either party may elect to terminate the lease. The building was completely destroyed by fire on March 27, 1989. The defendant exercised its option by written notification to the plaintiffs of its intention to terminate the lease. The trial court...