State ex rel. Webster v. Eisenbeis

• Decision Date: 27 June 1989
• Docket Number: No. 54416,54416
• Citation: 775 S.W.2d 276
• Parties: STATE of Missouri, ex rel., William L. WEBSTER, Attorney General, Plaintiff/Appellant Cross-Respondent, v. Bradley EISENBEIS, Defendant/Respondent, and Rogue Creek Valley, Inc., and Stuart McCaleb, Defendants, and James Higgins, Defendant Cross-Appellant.
• Court: Missouri Court of Appeals

Page 276

775 S.W.2d 276

STATE of Missouri, ex rel., William L. WEBSTER, Attorney General, Plaintiff/Appellant Cross-Respondent, v. Bradley EISENBEIS, Defendant/Respondent and Rogue Creek Valley, Inc., and Stuart McCaleb, Defendants and James Higgins, Defendant Cross-Appellant.

No. 54416.

Missouri Court of Appeals,

Eastern District,

Division Four.

June 27, 1989.

Rehearing Denied Aug. 1, 1989.

Peter Lumaghi, St. Louis, for State ex rel. Webster.

William J. Fletcher, Kirkwood, for James Higgins.

Dana A. Hockensmith and Carol Kennedy Bader, St. Louis, for Rogue Creek Valley, Inc.

SATZ, Judge.

In this action, the state charged defendants with violating our Merchandising Practices Act, Chapter 407, RSMo 1978, in their development and marketing of lots in a recreational area. Defendants are Rogue Creek Valley, Inc.; its president and sole shareholder, Bradley Eisenbeis; its vice-president and secretary, Stuart McCaleb; and its chairman, James Higgins. ¹ In the jury waived trial below, the trial court granted a "motion for directed verdict" made jointly by defendants Eisenbeis and McCaleb and entered a default judgment against defendant Higgins. A "consent" judgment was entered against the corporate defendant Rogue Creek Valley, Inc. The state appeals the judgment in favor of defendant Eisenbeis, and defendant Higgins appeals the default judgment. The appeals have been consolidated. We affirm.

The Merchandising Practices Act supplements the definition of common law fraud in an attempt to preserve fundamental honesty and fair dealing in public transactions. State ex rel. Danforth v. Independence Dodge, Inc., 494 S.W.2d 362, 368 (Mo.App.1973). To prevent easy evasions, the Act purposely does not expressly define the deceptive or unfair conduct made unlawful but simply declares deceptive and unfair conduct to be unlawful and leaves it to the courts to decide whether fair dealing has been violated. Id. at 368. Thus, the Act declares as an unlawful practice:

The act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, or the concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise ...

§ 407.020.1, RSMo 1978. ²

In its petition against the defendants, the state made three basic charges. First, the defendants misrepresented to potential buyers the completion date of various aspects of the development. Second, various facilities and utilities were not provided by defendants as promised, because money generated by the sale of the lots was diverted by defendants to other business interests without corresponding benefit to the development. Third, misrepresentations were made that "no liens or encumbrances existed on [the] lots at the time of their sale, when, in fact, liens and encumbrances existed on the lots prior to their sale." Based upon these allegations, the state requested various kinds of injunctive relief as well as civil penalties "of not more than one thousand dollars for each violation" of the Act. At the close of the state's case, defendants Eisenbeis and McCaleb moved for a directed verdict on the grounds there was neither sufficient evidence to "tie them individually" to any of the alleged violations or "to show any false or deceptive practices." Their motions were granted. The state's appeal of the judgment in favor of Eisenbeis followed.

We review the grant of a directed verdict in a court tried case as a submission on the merits. Wyrozynski v. Nichols, 752 S.W.2d 433, 436-37[3,4] (Mo.App.1988). Therefore, we view the evidence and permissible inferences in the light most favorable to the judgment. St. Charles County v. McPeak, 730 S.W.2d 611, 612 (Mo.App.1987).

In the early 1970's, William J. Rummel (Rummel), president of the Oak-Land Development Corporation (Oak-Land), began developing a resort development in Washington County. He called the development Somethin' Green. By 1982, he had completed two lakes and begun a third. He had also completed some roads and provided for utilities to most of the lots in the area around the first two lakes. Rummell sold 170 lots in the development.

In June, 1982, Oak-Land sold the development to Rogue Creek Valley, Inc. Eisenbeis was the incorporator and may have been the "sole owner" of the latter corporation. After the sale, the name of the development was changed to Rogue Creek Valley.

As payment for the development, Eisenbeis, as president of Rogue Creek Valley, Inc., gave Oak-Land a promissory note in the amount of $780,000. Monthly payments were to be made on the note. The amount of each payment was a function of the amount of principal and interest received during the previous month by Rogue Creek Valley, Inc. from sales contracts, notes and deeds of trust generated by the sale of lots. Incorporated into the note was the purchase agreement which provided that, as part of its security, Oak-Land would take back a deed of trust on some of the unplatted property. After the note was signed, Rummel, as president of Oak-Land, assigned the note to himself and his wife. The sale of lots in the area encumbered under the terms of the purchase agreement is integral to this case.

The Rogue Creek Valley development was managed on a daily basis by Kelly Winfield (Winfield). Winfield was also the first sales manager at Rogue Creek Valley. In that capacity, he conducted the meetings of the sales staff. At the end of 1983, Winfield left. The record does not show that his replacement made any changes in the operation of the development or in the sale of lots.

From the time Rogue Creek Valley, Inc. took over sales until its sales office closed in June 1984, the Rogue Creek Valley sales force sold approximately 455 lots. When a lot was sold in the development, the purchaser would receive a sales contract signed by the salesperson and an Intrastate Exemption Statement signed by Eisenbeis. ³ The general warranty deeds received by the purchasers were signed by Eisenbeis as grantor. In showing the lots, salespeople made various statements concerning the completion dates for the third lake, the utilities, the roads, and for the various facilities and amenities.

Of the lots sold by Rogue Creek Valley, Inc., approximately ninety were in the area covered by the deed of trust. The purchasers of these lots, however, were not informed of the lien, and, in fact, the Intrastate Exemption Statements explicitly stated there were no liens on the property. In 1984, Rummel was made aware of the sale of lots in the area covered by the deed of trust. He contacted an attorney who in June of that year sent letters to those purchasers informing them of Rummel's lien on the property. Rogue Creek Valley, Inc., then sued Rummel to release the deed of trust as to those lots. A settlement was reached, and Rummel executed a partial deed of release on August 21, 1984. Ten days later, on August 31, 1984, the state was granted a temporary restraining order against Rogue Creek Valley, Inc. All sales and work was enjoined at the development. Thereafter, Rogue Creek Valley, Inc., filed for Chapter 11 bankruptcy on March 20, 1985, and, in May of 1985, Rummel foreclosed on the deed of trust.

State's Burden of Proof

To prove a violation of the Merchandising Practices Act of 1978, the state does not need to prove the elements of common law fraud. State ex rel. Webster v. Areaco Inv. Co., 756 S.W.2d 633, 635 (Mo.App.1988). The state only needs to prove the defendant's conduct constituted unfair practices. State ex rel. Webster v. Cornelius, 729 S.W.2d 60, 64 (Mo.App.1987); State ex rel. Ashcroft v. Marketing Unlimited of America, Inc., 613 S.W.2d 440, 445 (Mo.App.1981). It is the defendant's conduct, not his intent, that constitutes unfair practices. Id.

The state acknowledges it must accept the determinations of credibility implicitly made by the trial court, view the evidence and permissible inferences most favorably to the judgment and disregard all contrary evidence and inferences. See, e.g., Snowden v. Gaynor, 710 S.W.2d 481, 483 (Mo.App.1986). The state, however, does not follow these principles in its attempt to show it met its burden under the Act. Rather, the state disregards the implicit determinations of credibility made by the trial court, culls the 735 pages of transcript and the 100 plus exhibits for the evidence most favorable to it and, from this evidence, makes inferences favorable to it. We have carefully read the transcript and examined the exhibits, and, within the scope of our review, we find the record sufficient to affirm the court's entry of judgment in favor of defendant Eisenbeis.

Diversion of Funds

The state, by testimony of its investigator and by exhibits, established the deposits made into and checks written on the bank accounts of Rogue Creek Valley, Inc. Each check was signed by one of the three individual defendants and was made out to several different business entities. The investigator, however, admitted she did not know the source of the deposits to the Rogue Creek Valley, Inc. accounts, she did not investigate the bank records of these other business entities, and she did not know for what reason the checks were written. Moreover, defendant McCaleb testified, as far as he knew, none of the entities receiving money failed to reimburse Rogue Creek Valley, Inc., or failed to use the money to pay debts incurred by that corporation.

Quite simply, the trial court did not accept the state's inference that these checks represented improper diversion of funds.

Representations About Facilities And Utilities

The state contends false representations were made by the salespeople of Rogue Creek Valley, Inc. or by Eisenbeis himself about the actual provisions for and the completion dates of facilities such as horseback riding, miniature golf, archery, roads, lakes, and utilities...