Real Estate Investors Four v. American Design Group

• Decision Date: 03 April 2001
• Citation: 46 S.W.3d 51
• Parties: (Mo.App. S.D. 2001) Real Estate Investors Four, Inc., f/k/a Nusrala Four, Inc., Plaintiff/Respondent, v. American Design Group Inc., Defendant/Appellant, and American Design Properties, Inc., Defendant. ED77614 0
• Court: Missouri Court of Appeals

46 S.W.3d 051 (Mo.App. S.D. 2001)

Real Estate Investors Four, Inc., f/k/a Nusrala Four, Inc., Plaintiff/Respondent, v. American Design Group Inc., Defendant/Appellant, and American Design Properties, Inc., Defendant.

ED77614

Missouri Court of Appeals Eastern District

04/03/2001

Appeal From: Circuit Court of St. Louis County, Hon. Dennis N. Smith

Counsel for Appellant: Eugene Portman and Wrenn Terrill Kates

Counsel for Respondent: Michael J. McKitrick

Opinion Summary: Plaintiff lessor filed a lawsuit against both its lessee and the actual occupant of its leased premises, on an alter ego theory, for non-payment of rent and other charges and for damage to the leased property. After a bench trial, the trial court entered a joint and several judgment against both defendants in the amount of $54,116.73. The occupant appeals.

Division Five holds: 1. The trial court did not err in holding the occupant liable for the lessee's obligations under the lease under an alter ego theory where lessor adduced substantial evidence of control, fraud, wrong or other unjust acts, and proximate cause. 2. Statute of Limitations on claim for unpaid rent and failure to maintain the premises in good order and repair began to run when these obligations were breached, not from the date that the occupant created the lessee. 3. Two-sentence argument asserting a Statute of Frauds violation preserved nothing for appellate review.

Kathianne Knaup Crane, Judge

Plaintiff lessor filed a lawsuit against both its lessee and the actual occupant of its leased premises, on an alter ego theory, for non-payment of rent and other charges and for damages for failure to maintain the leased property in good order and repair. After a bench trial, the trial court entered a joint and several judgment against both defendants in the amount of $54,116.73. The occupant appeals. It contends that the trial court erred by entering a judgment against it because plaintiff failed to prove the elements necessary to recover on an alter ego theory. It also argues that the action was barred by the statute of limitations and the statute of frauds. We affirm.

FACTUAL BACKGROUND

The Parties

Plaintiff, Real Estate Investors Four, Inc., is a Missouri corporation which was formerly known as Nusrala Four, Inc. (hereinafter "Nusrala Four"). It is the owner of a shopping center at 8602-8606 Olive Boulevard in St. Louis County.

Defendant and appellant, American Design Group, Inc. (hereinafter "Group"), is a Missouri corporation engaged in the business of wholesale distribution of fashion jewelry, gift items, and other merchandise. Since its incorporation it has been wholly owned by J.H. Blum. Marvin Blum, who is J.H. Blum's husband, and Matthew Smith, who is Marvin Blum's ex-son-in-law, are also involved in the business.

Group, Marvin Blum, and Smith have each made conflicting claims identifying Group's officers. On its 1988 Annual Registration Report filed with the Secretary of State, Group reported that J.H. Blum was the president, vice president, secretary, treasurer, and director. Group's answers to interrogatories, dated October, 1999 stated that J.H. Blum was and had been president since inception. However, Marvin Blum testified in November, 1999, as the corporate representative of Group, that he was president of Group, had held that position for several years, and had previously been vice president of Group. He testified that J.H. Blum held the other corporate offices, including vice president and treasurer. Smith testified that he had been general manager of Group since 1989 and also had held the position of vice president for several years. Group paid a salary to Smith.

Defendant, American Design Properties, Inc. (hereinafter "Properties"), was incorporated on June 13, 1989 and was administratively dissolved on December 31, 1992, for failing to file its Annual Registration Report. The administrative dissolution was rescinded on October 1, 1997. Properties was formed to sublease property.

Properties, Marvin Blum, and Smith also contradicted each other about the identity of Properties' officers. On its 1998 Registration Report, Properties reported J.H. Blum was the president, vice president, secretary, treasurer, and director. However, Properties' answers to interrogatories, signed in October, 1999, stated that Smith had been president, secretary and general manager since inception. Smith, who testified as the corporate representative of Properties, testified that he has been the only officer and director of Properties. Properties' answers to interrogatories also stated that occasionally Marvin Blum acted and signed as an officer of Properties. However, Marvin Blum testified that he was not and had never been an owner, employee, officer, or director of Properties.

Smith testified that he owned Properties. However, Smith testified that he has no stock certificate showing his ownership of the company, nor any records evidencing a purchase. Properties indicated in its answers to interrogatories that J. Blum owned 100% of Properties.

Properties has never had any bank accounts or any employees. Properties has no money and no revenue. Properties has never filed any federal or state income tax returns. It has no financial statements. Properties never conducted any business other than, as described below, to collect from Group the exact amount of rent Properties owed under the lease and turn the money over to the lessor. Properties has never held directors' or shareholders' meetings and has no minutes.

The Lease

In 1990, Elizabeth Torno, as lessor, and Properties, as lessee, entered into a commercial lease (the lease) of shopping center property "for no other purpose or business than that of retail and/or wholesale use of furs and/or jewelry and/or other fashion items" for a five-year term commencing July 1, 1990, with an option for an additional five-year term. The lease cancelled, as of July 1, 1990, a prior lease between the parties dated May 24, 1989. The lease was not assignable and prohibited subletting without the written consent of the lessor. Marvin Blum signed the lease as vice president of Properties. In 1995 Nusrala Four acquired the property and became the lessor¹ under the lease. In August, 1997, the lease was amended to extend the term from July 1, 1995 to June 30, 2000 and to give Properties the right to terminate the lease upon 120 days' written notice. Marvin Blum signed the amendment on behalf of Properties. Marvin Blum also had telephone conversations with representatives of the lessor and the president of Nusrala Four.

Group was the actual occupant of the premises for the entire period. Group advanced funds to Properties to pay the monthly rent through October, 1998. Neither Smith nor Blum notified the lessor that Properties was subleasing the property. Smith and Blum agreed that Properties had not executed any sublease or assignment agreements, but Blum testified there was a verbal agreement.

Nusrala Four did not know that Group was the actual occupant of the premises. Nusrala Four received rent payments through November, 1998. However, unlike the previous payments, the November, 1998 rent payment was made by means of a check drawn on the account of Group signed by Smith. This was the first time that Nusrala Four heard of Group or saw a check with that name on it. Nusrala Four did not receive any further rent payments after November, 1998 and no maintenance payments for the year ending December 31, 1998 or thereafter. On February 26, 1999 Nusrala Four received an envelope containing the keys to the premises and a note on stationary imprinted "From the desk of Marvin D. Blum" which bore the handwritten entries: "American Design Properties" and "WE have vacated the property at 8604 Olive. Enclosed are the keys." Nusrala Four had not received a notice of termination prior to February 26, 1999. Upon entering the property, Nusrala Four discovered damage to the interior of the leased premises.

PROCEDURAL BACKGROUND

Nusrala Four filed a lawsuit against Group and Properties on March 15, 1999. As amended, the petition sought damages from Group and Properties for breach of contract, and from Group in quantum meruit, for unjust enrichment, and for damages resulting from failure to maintain the leased premises in good repair. It also sought damages from Group as the alter ego of Properties.

At trial Nusrala Four called two witnesses, its president, who testified to the lease and the amounts owed, and a contractor, who testified to the physical damage to the premises. It also introduced portions of the depositions of Marvin Blum and Smith, which had been taken on November 29, 1999, interrogatory answers filed by Group and Properties in October, 1999, as well as other exhibits. Group and Properties did not put on any evidence. At the conclusion of the trial, the trial court entered judgment in favor of plaintiff and against Group and Properties on the breach of contract claim against Properties, the failure to maintain and repair claim against Group, and the alter ego claim against Group, jointly and severally, in the amount of $54,116.73, which included damages, interest, and attorney's fees.

Only Group appeals. It claims that there was insufficient evidence to establish alter ego liability and that the alter ego claim was barred by the Statute of Limitations. It alternatively argues that the action was barred by the Statute of Frauds.

DISCUSSION

Because this was a court-tried case, we review pursuant to the standard set out in Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). We will affirm the trial court's judgment unless there is no substantial evidence to support it, unless it is against the weight of the evidence, or unless it erroneously declares or misapplies the law. Id.

I. Alter Ego

For its first point Group contends that the trial court erred by entering a judgment against Group because Nusrala Four failed to prove each of the...