Steward v. Goetz

• Decision Date: 25 March 1997
• Docket Number: No. 69670,69670
• Citation: 945 S.W.2d 520
• Parties: Anne M. STEWARD, Plaintiff/Appellant, v. Clifford L. GOETZ and Leonard D. Vines, Defendants/Respondents.
• Court: Missouri Court of Appeals

Page 520

945 S.W.2d 520

Anne M. STEWARD, Plaintiff/Appellant, v. Clifford L. GOETZ and Leonard D. Vines, Defendants/Respondents.

No. 69670.

Missouri Court of Appeals,

Eastern District,

Division Two.

March 25, 1997.

Motion for Rehearing and/or Transfer to

Supreme Court Denied May 14, 1997.

Application to Transfer Denied

June 17, 1997.

Fairfax Jones, Terry Luecjenhoff, Casserly, Jones, Brittingham & Edwards, P.C., St. Louis, for appellant.

Martin M. Green, Joe D. Jacobson, Green Schaaf & Margo, P.C., Clayton, for respondent, Goetz.

Robert S. Rosenthal, Michael M. Flavin, T. Michael Ward, Brown & James, P.C., St. Louis, for respondent, Vines.

CRANE, Presiding Judge.

Plaintiff Anne Steward and defendant Clifford Goetz each owned one half of the shares of Crestwood Builders Supply, Inc. (CBS). In December, 1988 they sold CBS for $5,000,000.00. Goetz and Steward were represented by Goetz's law partner, defendant Leonard Vines, in the transaction. Steward gave the buyers an unconditional guarantee of the accuracy of CBS's financial statements. In January, 1989 an audit showed actual inventory to be approximately $280,000.00 less than shown on the financial statements which, when combined with other discrepancies in accounts payable and receivable, resulted in the financial statements overstating CBS's financial condition by $292,199.00. Steward paid buyers their claim of $292,199.00. Steward then filed an action against Goetz for misrepresentation, claiming he misrepresented that there was no inventory shortage, and against Vines for legal malpractice, alleging he failed to advise her that she was making an unconditional warranty. The jury returned verdicts in Steward's favor. The trial court sustained Goetz's motion for a new trial and Vines's motion for judgment notwithstanding the verdict (JNOV), and, alternatively, Vines's motion for a new trial. Steward appeals.

On appeal Steward asserts that the trial court erred in granting Goetz a new trial because of instructional error, that the trial court erred in granting Vines a JNOV because the verdict was against the weight of the evidence, and, alternatively, a new trial on the same grounds, and, if the verdict against Goetz is reinstated on appeal, that the trial court erred in denying plaintiff prejudgment interest. Goetz asserts that plaintiff failed to make a submissible case against him.

With respect to Goetz, we hold that plaintiff failed to make a submissible case; we therefore reverse the grant of a new trial and remand the case to the trial court with instructions to enter judgment notwithstanding the verdict in favor of Goetz. We affirm the JNOV in favor of Vines.

FACTS

Because the primary issues on appeal involve submissibility, we recite the facts in the light most favorable to plaintiff and disregard defendants' evidence which does not support plaintiff's case. We include those facts which plaintiff put into evidence through the uncontradicted testimony of her witnesses and the uncontradicted direct examination testimony of the witnesses she called under the adverse witness rule.

CBS Background

Steward was a certified public accountant, who owned a small accounting firm performing accounting and tax services. She met Goetz, an attorney, while she was providing accounting services and he was providing legal services for the prior owner of CBS. Steward and Goetz acted as accountant and attorney for CBS until 1981 when they and a third investor purchased the company. After the purchase Steward and Goetz continued to provide accounting and legal services, and the third investor managed the business.

In 1986 Steward and Goetz became the sole and equal shareholders of CBS and continued as members of the board of directors. Goetz assumed the duty of running CBS on a day-to-day basis. He was the chief executive officer and chief operating officer of the business. Although he continued his law practice, he spent more than fifty percent of his time at CBS. The department heads at CBS reported to Goetz and kept him advised of the affairs of the business on a daily basis.

Steward was treasurer of the company. She visited CBS three times per month for a couple of hours each visit. She would receive the sales receipts and payment records from the office manager and then compile financial statements and produce tax returns, payroll reports, and workers' compensation reports from the information given her. In 1987 Goetz hired a full-time comptroller who reported to him. He put the company on a payroll service, relieving Steward of her payroll duties. He also acquired a computer and hired a computer expert. Thereafter, the computer was used to generate the financial statements. The computer produced daily printouts showing sales, expenses, and inventory. Steward did not compile the financial statements once the computer was put into use. She continued to do the company's tax returns, met weekly with the comptroller, reviewed the financial statements, and reviewed problems of policy.

CBS-Inventory History

Shortly after Goetz assumed management of CBS, Price Waterhouse took a physical count of the inventory. It found $248,000.00 more inventory than was recorded on the company's books. Steward discussed with Goetz that the additional inventory increased the company's income taxes.

In 1987 another physical count of the inventory was conducted by an outside firm under the supervision of the CBS comptroller. This count reflected a shortage of $152,000.00 or $155,000.00. Steward discussed the shortage with Goetz and other company employees. They said that there was no actual shortage because the counting process had been inaccurate and told her no changes should be made to the company books.

In the spring of 1988, CBS personnel conducted another physical inventory and found a shortage of $170,000.00 on the perpetual inventory. In September, 1988 Steward filed an amended tax return to reflect the correct inventory figure and corrected the perpetual inventory records to reflect the actual inventory count, thereby correcting the January 31, 1988 inaccuracy.

In November, 1988 the comptroller sent Steward the October 31, 1988 financial statement. In a handwritten note he advised Steward that $134,000.00 in windows were in the warehouse and were not reflected on the books of the company. Steward knew that the November, 1988 financial statements likewise did not show the windows in inventory. CBS's principal asset on its financial statements was inventory.

Sale of CBS

In the fall of 1988, Steward and Goetz began negotiating the sale of their stock in CBS for $5,000,000.00 with Tom Barta and Bert Wenneker (the buyers). The $5,000,000.00 price was significantly higher than had been discussed with any prior potential buyer. The buyers' accountant was Robert Kolb, C.P.A., who assisted them with the purchase. Kolb and the buyers toured CBS which consisted of a plant and a warehouse containing approximately $1,800,000.00 in inventory. The parties signed a Letter of Intent on November 4, 1988. The parties agreed that the transaction was to close before the end of the year and there was to be no physical inventory count taken before closing because it would be too costly for the buyers and may have delayed closing beyond 1988. After the price was negotiated, Goetz hired Vines, a partner in Goetz's law firm, to draft the closing documents. On November 21, 1988 Goetz introduced Steward to Vines and told her he had hired his partner Vines to represent himself and Steward in the sale of the business, to which she agreed.

On December 2, 1988 Steward, Goetz, Vines, Barta and Kolb met in Goetz's office to review a draft agreement for the sale and purchase of stock. Steward understood that she and Goetz were going to be sharing responsibilities for the financial statements equally. Steward agreed to take sole responsibility for the taxes because she knew the company's taxes. Steward testified that, from the beginning of negotiations, she understood that both she and Goetz would equally warrant the accuracy of the financial statements to the best of their knowledge. In the first draft of "An Agreement for Sale and Purchase of Stock," drafted by Vines and reviewed by the parties at the December 2, 1988 meeting, the sellers warranted that the CBS financial statements were "materially true, complete and correct to the best of the Corporation's and Existing Shareholderss' [sic] knowledge." All of the drafts prepared by Vines after the December 2 meeting retained this language. Steward testified she received four of the seven drafts prepared by Vines. Steward attended another meeting on December 8 at which they reviewed a draft which incorporated the December 2 discussions.

In mid-December Kolb advised the buyers to obtain independent counsel. They retained the law firm of Thompson & Mitchell, which also represented the lender in the transaction, Mercantile Bank. Thompson & Mitchell attorneys Deborah Dearing and Stanley Walch handled the representation. The attorneys reviewed the drafts prepared by Vines and advised the buyers that the documents were one-sided and needed substantial revision.

On December 19, 1988 Steward, Goetz and Vines met at the offices of Thompson & Mitchell with the buyers and their attorneys to work out all of the open issues so that the documents could be prepared by closing. Kolb testified that Deborah Dearing said that the buyers wanted the guarantee changed from a "to the best of their knowledge" guarantee to an "absolute" guarantee of the accuracy of the financial statements. Steward testified that she did not hear Deborah Dearing make this statement. She and Kolb agreed that Goetz made a big scene and refused to guarantee the financial statements. Steward assumed the guarantee was still to the best of their knowledge. Steward testified that "they" asked her if she would be responsible for the financial statements and she said she would because she...