Sharmel Props., Inc. v. Davis

• Decision Date: 03 June 2019
• Docket Number: Case No. 4:18-CV-1746 PLC
• Parties: SHARMEL PROPERTIES, INC., et al., Plaintiff, v. RAYMOND T. DAVIS, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

SHARMEL PROPERTIES, INC., et al., Plaintiff, v. RAYMOND T. DAVIS, Defendant.

Case No. 4:18-CV-1746 PLC

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MISSOURI EASTERN DIVISION

June 3, 2019

MEMORANDUM AND ORDER

This matter is before the Court¹ on Defendant Raymond Davis's motion to dismiss Plaintiffs Sharmel Properties, Inc.'s ("Sharmel") and Melvin Milne's (collectively, "Plaintiffs") action for breach of contract and fraud pursuant to Fed. R. Civ. P. 12(b)(6). [ECF No. 7] Plaintiffs oppose the motion. [ECF No. 14]

I. Factual and Procedural Background²

Milne, a resident of Missouri, was the principal of Sharmel, a Missouri corporation "engaged in the business of acquiring, operating, and selling multi-family and single family rental property." [ECF No. 12 at ¶¶ 3-4] On October 1, 2003, Plaintiffs hired Davis, a management consultant residing in Michigan doing business as Inkjet Capital Management, to "assist them in arranging financing for the acquisition of new rental property...and then to assist in the re-financing of the properties already owned." [Id. at ¶ 12] The parties entered a "Business Consulting Agreement" ("Consulting Agreement"), and Plaintiffs paid Davis a$10,000 "deposit and advance for the services to be furnished them[.]" [ECF No. 12 at ¶ 13]

Pursuant to the Consulting Agreement, Davis agreed to provide Plaintiffs the following services:

2.1 Advice and Counsel

Consultants will provide advice and counsel to Client to include all consulting services, including compiling information supplied by the client into a model to be submitted to the Institutional Banking unit to meet the criteria for certain equity and debt financing.

2.2 Introductions to the Investment Community

Consultants have substantial contacts among members of the investment community throughout the United States. Consultants shall introduce these contacts to Client so as to enable Client to establish relationships with investment banking firms, institutional banking firms, and investment professionals and to provide them with corporate information about Client on a regular and continuous basis. Consultants understand that this is in keeping with Client's business objectives. Client understands and agrees that Consultants shall only make introductions to potential investors and financial institutions.

2.2a Scope of Consulting Services

Consulting services to be provided hereunder include recommending financing structures and making introductions to and managing relationships with, funding sources introduced to Client from the Consultant's proprietary business contacts, which consist of private and public investment funds, investment bankers, bond and tax credit brokers, private investors, bankers and insurance lenders. The services to be provided include any services ancillary to funding the Project and any funding package or structure approved by the Client and any modification to the Project or the structure of the funding required by the Client.

[ECF No. 5-1] Milne signed the agreement on October 1, 2003 as "owner, President" of Sharmel. [Id.] The signature line for Davis is blank. [Id.]

The amended petition states that Davis introduced Plaintiffs to Mark Harris, d/b/a New River Mortgage Group, and represented to them that Harris "and his business contacts would be able to accomplish the financing that Plaintiffs sought to accomplish." [ECF No. 12 at ¶¶ 14-15]. When Harris failed to "arrange for, provide, or take any meaningful steps to provide" the financing needed to complete the acquisition of the new rental property or re-finance existing properties, Plaintiffs asked Davis to intervene. [Id. at ¶¶ 19-21] Plaintiffs also requested Davis "provide alternative sources of funding if [Harris] did not follow through on his contractual obligations." [Id. at ¶ 26] Davis "refused to take any action to assist Plaintiffs," the deal "fell through," and Plaintiffs lost the earnest money they had paid to the sellers, as well as other expenses incurred in preparing to buy the property.³ [Id. at ¶¶22-23] In addition, Plaintiffs "were forced to sell certain of their rental properties" and "lost certain of their rental properties through foreclosure." [Id. at ¶¶ 27-28]

On April 23, 2014, Plaintiff filed a petition against Harris in the Circuit Court of St. Louis County alleging breach of contract and fraud. [ECF No. 5] With the petition, Plaintiffs filed a copy of the Consulting Agreement and a "Special Sale Contract," along with its amendments, for the purchase of Bridleton Wood Apartments.⁴ [ECF Nos. 5-1, 5-2, 5-3] The "Third Amendment to Special Sale Contract" reflected a closing date of January 2, 2004. [ECF No. 5-3]

The trial court granted Plaintiffs leave to amend the petition and add Davis as a defendant in May 2016. See 14SL-CC-01322, 14SL-CC-01322-01. Davis was served with the amendedpetition on September 28, 2018. See 14SL-CC-01322, 14SL-CC-01322-01. In the amended petition, Plaintiffs alleged claims of breach of contract and fraud against Davis and Harris. Plaintiffs sought compensatory relief in the amount of $1,158,756.20, "together with costs of court herein expended," and punitive damages for fraud. [ECF No. 12]

Davis removed the case to federal court on the basis of diversity jurisdiction on October 12, 2018. [ECF No. 1] Because Plaintiffs failed to effect service upon Harris, the Court dismissed him from the case without prejudice. [ECF No. 15]

II. Legal Standard

A Rule 12(b)(6) motion to dismiss for failure to state a claim tests the legal sufficiency of a complaint. Fed. R. Civ. P. 12(b)(6). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Aschroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2006)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. When considering a motion to dismiss for failure to state a claim, a court is generally limited to review of the complaint, exhibits attached to the complaint, and matters necessarily embraced by the complaint. See, e.g., Dittmer Props., LP v. FDIC, 708 F.3d 1011, 1021 (8th Cir. 2013); Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003).

"When an affirmative defense such as the statute of limitations is asserted in support of a motion to dismiss, the petition may not be dismissed unless it clearly establishes on its face and without exception that it is barred." Hemar Ins. Corp. of Am. v. Ryerson, 108 S.W.3d 90, 92 (Mo.App. 2003) (citing Sheehan v. Sheehan, 901 S.W.2d 57, 59 (Mo. banc 1995)). See also Joyce v. Armstrong Teasdale, LLP, 635 F.3d 364, 367 (8th Cir. 2011) (quotation omitted) ("As ageneral rule, 'the possible existence of a statute of limitations defense is not ordinarily a ground for Rule 12(b)(6) dismissal unless the complaint itself establishes the defense.'").

III. Discussion

Davis moves to dismiss Plaintiffs' action for breach of contract and fraud on the grounds that the amended petition, on its face, establishes: (1) the claims are barred by the statute of limitations; (2) the claims are barred by the statute of frauds; (3) Plaintiff Milne is not a real party in interest; and (4) service of summons and amended petition on Davis was improper because the amended petition was never filed in state court. [ECF No. 7] In response, Plaintiffs dispute Davis's claim that they did not file the amended petition in state court. [ECF No. 14] Plaintiffs do not address Davis's arguments relating to the statute of limitations, statute of frauds, or real party in interest.

A. Statute of Limitations

Davis urges the Court to dismiss Plaintiffs' case because the amended petition establishes that Plaintiffs' claims are barred by the relevant statutes of limitations. Davis asserts that, because Plaintiffs' claims are based on activities that allegedly occurred in 2003 and 2004, and Plaintiffs did not file this action until April 2014, Plaintiffs claims are barred by either Missouri's five-year statute of limitations or Michigan's six-year statute of limitations.⁵

As an initial matter, the Court addresses the question of whether to apply the law of Missouri or Michigan. "A federal court exercising diversity jurisdiction is required to apply the law of the forum when ruling on statutes of limitations." Pinnacle Pizza Co., Inc. v. Little Caesar Entrs., Inc., 598 F.3d 970, 975 (8th Cir. 2010) (quoting Nettles v. Am. Tel. & Tel. Co., 55 F.3d1358, 1362 (8th Cir. 1995)). "Missouri, the forum, considers statutes of limitations issues procedural, and, therefore, governed by Missouri law." Nettles, 55 F.3d at 1362 (quoting Renfro v. Eli Lilly & Co., 686 F.2d 642, 646 (8th Cir. 1982)). See also Witherspoon v. Bayer HealthCare Pharm. Inc., No. 4:13-CV-1912-ERW, 2013 WL 6069009, at *3 (E.D. Mo. Nov. 18, 2013). Therefore, the Court applies the Missouri statute of limitations in resolving this case. See Pinnacle Pizza, 598 F.3d at 975.

The five-year statute of limitations set forth in Mo. Rev. Stat. § 516.120 applies to actions for breach of contract and fraud. Mo. Rev. Stat. §§ 516.120(1), (5). Accordingly, Plaintiffs' claims are actionable only if they filed their lawsuit within five years from the date that their causes of action accrued. Aguilar v. Thompson Coburn LLP, 540 S.W.3d 910, 914 (Mo.App. 2018).

Under Missouri law, a cause of action does not accrue "when the wrong is done or the technical breach of contract or duty occurs, but when the damage resulting therefrom is sustained and is capable of ascertainment[.]" Mo. Rev. Stat. § 516.100. Damages are capable of ascertainment, and the statute of limitations begins to run, when the evidence places "a reasonably prudent person on notice of a potentially actionable injury." Powel v. Chaminade Coll. Preparatory, Inc., 197 S.W.3d...