Pitman Place Dev. Llc v. Howard Investments Llc

Decision Date23 November 2010
Docket NumberNo. ED 94456.,ED 94456.
Citation330 S.W.3d 519
CourtMissouri Court of Appeals
PartiesPITMAN PLACE DEVELOPMENT, LLC, Appellant,v.HOWARD INVESTMENTS, LLC, Respondent.

330 S.W.3d 519

PITMAN PLACE DEVELOPMENT, LLC, Appellant,
v.
HOWARD INVESTMENTS, LLC, Respondent.

No. ED 94456.

Missouri Court of Appeals, Eastern District, Division Four.

Nov. 23, 2010.Application for Transfer to Supreme Court Denied Dec. 28, 2010.Application for Transfer


Denied March 1, 2011.

[330 S.W.3d 523]

Steven M. Cockriel, Cockriel & Christofferson, LLC, St. Louis, MO, for Appellant.Richard A. Winderlich, Anne R. Kerns, Lewis Rice & Fingersh, L.C., St. Louis, MO, for Respondent.KURT S. ODENWALD, Presiding Judge.

Introduction

Pitman Place Development, L.L.C. (Pitman) appeals from the judgment of the trial court finding that defendant, Howard Investments, L.L.C. (Howard), was entitled to enforce a promissory note and deed of trust against Pitman that had been executed by Matt Burghoff (Burghoff), Pitman's designated manager. Amid allegations that Burghoff wrongfully increased his authority to act on behalf of Pitman, the trial court found that Burghoff acted with apparent authority of the principal when he executed the promissory note and deed of trust. The trial court further found that, as a holder in due course, Howard was entitled to enforce the promissory note and deed of trust against Pitman. Because the trial court's ruling was supported by substantial evidence, was not against the weight of the evidence, and did not erroneously declare or apply the law, we affirm.

Background

The following evidence, viewed in the light most favorable to the trial court's verdict, was adduced at trial:

In January 2002, Burghoff, John Sensakovic (Sensakovic), and Thomas Moore (Moore) created Pitman by executing the Pitman Place Limited Liability Company Operating Agreement (Operating Agreement). All three members made initial capital contributions and ownership was divided among the three members. According to the Operating Agreement, Pitman was organized:

A. To engage in any lawful business for which a limited liability company may be organized under the Missouri Limited Liability Company Act, including, but not limited to, buying or otherwise acquiring, owning, holding, leasing, managing and controlling real property; and

B. To acquire any and all property whether tangible or intangible, personal, real or mixed, of whatever kind, to enter into and perform contracts of any kind necessary to, in connection with, or incidental to the accomplishment of the

[330 S.W.3d 524]

aforesaid purposes, and which may be in the best interests of the Company, and to borrow money and issue evidences of indebtedness and to secure the same by security interest, pledge or other lien in furtherance of the purposes of the Company.

The Operating Agreement named Burghoff as Pitman's initial manager, thereby granting Burghoff certain rights and responsibilities within the company. Burghoff's authority as manager was limited by Article 5.1 of the Operating Agreement which stated:

The management and control of the business and affairs of the Company shall be vested exclusively in the Managers, who shall have the right and authority, singly or collectively, to manage the business and affairs of the Company and make all decisions with respect thereto, provided, however, that the following matters require, in addition, the Consent of Members:

...

(vii) to sell, assign, pledge, or encumber any property of the Company, with a

(viii) value in excess of Fifty Thousand Dollars ($50,000.00); (viii) to acquire property, to contract for services, or otherwise to create any obligation or liability on the part of the Company, in excess of Fifty Thousand Dollars ($50,000.00).

Pitman's sole real estate asset was a parcel of property located in St. Louis County (the Property), which Pitman leased to a company operating a restaurant on the premises.

In July or August 2007, Burghoff met with Dan Salzman (Salzman), senior vice president of Rockwood Bank, to obtain a $525,000 loan. Burghoff proposed using the Property as collateral for the loan. Burghoff represented to Salzman that the purpose of the loan was to refinance the Property. Although Salzman believed Burghoff had authority to sign loan documents on behalf of Pitman, Burghoff in fact acted without the consent, knowledge, or authority of Pitman's other two members.

In connection with securing the loan, Burghoff provided Rockwood Bank with a copy of the Operating Agreement. In doing so, Burghoff omitted the portion of the agreement addressing the limitations on the manager's authority to borrow. The loan processor at Rockwood Bank contacted Burghoff and informed him of the missing pages of the Operating Agreement. On the morning of the loan closing, Burghoff faxed a copy of the omitted portions to Rockwood Bank. However, Burghoff fraudulently altered Article 5.1 of the Operating Agreement to reflect an increase in the manager's authority to create “any obligation or liability” on the part of the company and “to sell, assign, pledge or encumber any property” of the company from the original $50,000 limit to $750,000. After receiving the omitted portions, the Rockwood Bank loan processor believed she had a true and accurate copy of the Operating Agreement. The loan processor testified that she never received a copy of the Operating Agreement limiting Burghoff's authority to $50,000.

The Rockwood Bank loan closed on August 24, 2007. As part of the loan closing, Burghoff, as manager of Pitman, executed a promissory note (Note) for $525,000 on behalf of, and in the name of Pitman, in favor of Rockwood Bank in exchange for a loan made by Rockwood Bank in the amount of $525,000. The Note identified the borrower as “Pitman Place Development LLC.” In connection with the loan, Burghoff also executed a Deed of Trust and Security Agreement (Deed of Trust) in

[330 S.W.3d 525]

the name of, and on behalf of, Pitman whereby the Property was pledged as security for payment of the Note. The Deed of Trust listed Pitman as the “grantor” and was signed by Burghoff, as “Manager of Pitman.” At the loan closing, Burghoff also executed an Assignment of Leases and Rents, a UCC Financing Statement, and an Automatic Transfer Authorization, all in the name of, and on behalf of, Pitman.

A portion of the loan proceeds were used to pay Pitman's expenses and to pay off a prior lien obligation on the Property.1 The remaining funds were deposited into Pitman's bank account. Burghoff later utilized the funds in Pitman's bank account for purposes unrelated to Pitman's business. Moore and Sensakovic had no knowledge of Burghoff's actions and did not consent or authorize Burghoff to enter into the Rockwood Bank loan transaction on behalf of Pitman.

Pitman filed suit against Rockwood Bank to set aside the Rockwood Bank loan transaction after Moore and Sensakovic discovered Burghoff's fraud. Rockwood Bank later assigned its interests in the Note and Deed of Trust to Howard, after Howard was notified of the pending litigation.

Pitman subsequently filed a four count Second Amended Petition against both Rockwood Bank and Howard on April 2, 2009. In its first count, Pitman alleged that the Rockwood Bank loan transaction was not binding and sought to quiet title to the Property, free of any purported liens or other interests claimed by Howard. Pitman asserted that the loan documents were invalid and created no enforceable interests in or against the Property. In its second count, Pitman sought a declaration that the Note was invalid as to Pitman and that Pitman owed no money under the Note and loan documents. Pitman voluntarily dismissed its third count against Rockwood Bank prior to trial. In its fourth count, Pitman alleged an action for “Money Had and Received,” against Howard.

The matter proceeded to a bench trial. The trial court entered its Findings of Fact, Conclusions of Law, Judgment and Order on January 14, 2010, denying Pitman's claims and entering judgment in favor of Howard. The trial court found that Rockwood Bank was a holder in due course of the Note and Deed of Trust, and took both instruments free of all personal and ordinary defenses. The trial court then found that under the “shelter principle,” Howard was vested with the rights of the transferor, Rockwood Bank, including Rockwood Bank's rights as holder in due course. As a holder in due course, the trial court found Howard could enforce the Note and Deed of Trust against Pitman, free of all personal and ordinary defenses. The trial court also found that Burghoff was an agent of Pitman acting with apparent authority when he executed the Note and Deed of Trust. The trial court held both documents binding on Pitman.

Pitman filed a Notice of Appeal to this Court on February 19, 2010. This appeal follows.

Points on Appeal

Pitman presents five points on appeal. In its first two points Pitman alleges that the trial court erred in finding that the Rockwood Bank loan documents were binding upon Pitman because Burghoff lacked authority to execute the loan documents. Pitman first claims that Burghoff lacked authority because executing the

[330 S.W.3d 526]

loan documents was not “carrying on the usual way of the business or affairs” of Pitman, as required under Section 347.065 RSMo (2000),2 which regulates limited liability companies. In its second point, Pitman contends Burghoff lacked apparent authority to bind Pitman as its agent because neither Moore nor Sensakovic took any action to create the appearance that Burghoff had apparent authority to act for Pitman.

In its third point on appeal, Pitman claims the trial court erred in finding that Howard, as the transferee of the Note and Deed of Trust, acquired the rights of a holder in due course and was immune to Pitman's defense of Burghoff's lack of authority. Pitman claims Rockwood Bank had notice of Burghoff's lack of authority to execute the loan documents, and therefore was not a holder in due course. Pitman further argues that even if Rockwood Bank was deemed to be a holder in due course, Howard took the Note and Deed of...

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