Court Opinion

ID: 4380919
Source: CourtListenerOpinion
Date Created: 2019-03-26 16:00:20.76881+00
Date Added: 2024-06-11T14:22:25.487776
License: Public Domain

United States Court of Appeals
            For the Eighth Circuit
        ___________________________

                No. 17-2511
        ___________________________

      H&R Block Eastern Enterprises, Inc.

        lllllllllllllllllllllPlaintiff - Appellee

                           v.

Claude L. Sanks, Jr., also known as Bobby Sanks

      lllllllllllllllllllllDefendant - Appellant
        ___________________________

                No. 17-2588
        ___________________________

      H&R Block Eastern Enterprises, Inc.

       lllllllllllllllllllllPlaintiff - Appellant

                           v.

Claude L. Sanks, Jr., also known as Bobby Sanks

       lllllllllllllllllllllDefendant - Appellee
                      ____________

    Appeals from United States District Court
for the Western District of Missouri - Kansas City
                 ____________
                          Submitted: November 13, 2018
                             Filed: March 26, 2019
                                  [Unpublished]
                                 ____________

PER CURIAM.

       H&R Block Eastern Enterprises, Inc. (“Block”) sued Claude L. Sanks, Jr., for
fraudulent and negligent misrepresentations and for breach of multiple contracts.
Sanks appeals the district court’s1 grant of summary judgment in favor of Block and
its denial of Sanks’s motion for summary judgment on his counterclaims. Sanks also
appeals the district court’s imposition of sanctions for willful violation of its
discovery order, its denial of his motion to amend his counterclaims, and its award
of contractual attorneys’ fees to Block. For reasons described in the district court’s
thorough and well-reasoned opinions, and for those that follow, we affirm.

      Sanks’s mother established a tax preparation business that became known as
Sanks Income Tax. She operated it for many years with Sanks until she suffered a
severe brain injury. Thereafter, Block and Sanks agreed to have Sanks Income Tax
become a Block franchise. At all times, Sanks held himself out as the sole and
undisputed owner of Sanks Income Tax. Cathy Conaway, Sanks’s sister and the
guardian and conservator of their mother, threatened litigation against her brother
when she heard that Sanks Income Tax may have become a Block franchise. Sanks’s
attorney responded with a letter that included multiple misrepresentations about
Sanks Income Tax and its status as a Block franchise.

      Later, Sanks sold Sanks Income Tax to Block pursuant to an asset purchase
agreement (“APA”). Under the APA, Sanks agreed to transfer all property and assets
of Sanks Income Tax to Block. He also agreed to abide by noncompetition and

      1
       The Honorable Gary A. Fenner, United States District Judge for the Western
District of Missouri.

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nonsolicitation covenants that prohibited him from serving clients of Sanks Income
Tax, and he agreed to refrain from using any IRS Electronic Filing Identification
Number (“EFIN”) for five years. At no point did Sanks disclose that his sister had
challenged his ownership of Sanks Income Tax. He also misrepresented to Block that
Sanks Income Tax had to relocate because its lease was expiring. There was no such
lease, and Sanks Income Tax was not required to move.

      While Block attempted to move Sanks Income Tax to a new location,
Conaway, who had assumed management responsibilities for what she thought was
her mother’s original business, continued to operate it at its original location.
Conaway unknowingly retained multiple assets of Sanks Income Tax that Sanks had
promised to deliver to Block. Sanks was aware of Conaway’s continued operation
of Sanks Income Tax. Upon learning of Conaway’s activities, Block confronted
Sanks, who assured Block that he would transfer all assets of Sanks Income Tax to
the new location as promised. The parties agreed to amend the APA, conditioning
a remaining payment owed to Sanks upon Sanks Income Tax achieving certain
revenue thresholds by the end of 2015.

       Unbeknownst to Block, Sanks also opened a competing business called Tax &
Accounting Services. Sanks used the EFIN from Sanks Income Tax to file returns
through Tax & Accounting Services, and he admitted to serving clients on the APA
client list at Tax & Accounting Services. Sanks also admitted to serving clients on
the APA client list at two other, independently owned tax businesses.

      Block filed this lawsuit in 2016 to enjoin Sanks from violating the noncompete
and nonsolicitation covenants of the APA. To resolve Block’s motion for a
preliminary injunction, Sanks entered into yet another agreement requiring him to
abide by the APA and prohibiting him from serving former clients of Sanks Income
Tax during this litigation. Nevertheless, Sanks continued to file returns for clients of
Sanks Income Tax elsewhere.

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       Viewing the record in the light most favorable to Sanks, and drawing all
reasonable inferences from it in his favor, we conclude, after careful de novo review,
that summary judgment was properly granted in favor of Block. See Beaulieu v.
Ludeman, 690 F.3d 1017, 1024 (8th Cir. 2012).

       Block’s lawsuit was not barred by any of the agreements it entered into with
Sanks. Blocks’ conditional release in the APA of certain existing claims does not
apply here because Block’s claims either were not subject to the release, arose after
their initial agreement was executed, or involved misrepresentations that induced
Block to enter into that agreement. See Bening v. Muegler, 67 F.3d 691, 698 (8th Cir.
1995) (explaining that a misrepresentation claim cannot be released by a contract
induced by that misrepresentation). Block’s agreement to “forbear” from bringing
suit in the APA amendment also was not the equivalent of a “release” and, under
Missouri law, was not perpetual even though it did not include an explicit time limit.
See Bridges v. Stephens, 34 S.W. 555, 560 (Mo. 1896) (“Nor is it an objection that
no specific time of forbearance was agreed upon, for in such a case the law will imply
a reasonable time.”).

       For reasons described in greater detail in the district court’s opinion, the record
established beyond genuine controversy that Sanks is liable for fraudulent and
negligent misrepresentation and for breaching multiple contracts and covenants with
Block, including explicit noncompetition and nonsoliciation covenants and the
implied covenant of good faith and fair dealing. See Kmak v. Am. Century Cos., 754
F.3d 513, 516 (8th Cir. 2014) (“Missouri law implies a covenant of good faith and
fair dealing in every contract.”). The district court also properly denied Sanks’s
motion for summary judgment on his counterclaims for the reasons described in its
opinion.

       We review the district court’s imposition of discovery sanctions for abuse of
discretion. Int’l Bhd. of Elec. Workers, Local Union No. 545 v. Hope Elec. Corp.,
380 F.3d 1084, 1105 (8th Cir. 2004). We conclude that the district court did not

                                           -4-
abuse its discretion. We also find that it properly awarded contractual attorneys’ fees
to Block for its prosecution of its breach of contract claims. See Supplemental Med.
Servs. v. Medi Plex Health Care, 293 S.W.3d 128, 132 (Mo. Ct. App. 2009) (stating
that the trial court “has no discretion in complying with terms of attorneys’ fees made
by contract”). Finally, we find that the district court properly denied Sanks’s
untimely motion for leave to amend his counterclaims for failure to show good cause.
See Hartis v. Chi. Title Ins. Co., 694 F.3d 935, 948 (8th Cir. 2012) (“Rule 16(b)’s
good-cause standard governs when a party seeks leave to amend a pleading outside
of the time period established by a scheduling order, not the more liberal standard of
Rule 15(a).”).

      Accordingly, we affirm. See 8th Cir. R. 47B.

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