Court Opinion

ID: 4708672
Source: CourtListenerOpinion
Date Created: 2021-08-03 14:08:24.270735+00
Date Added: 2024-06-11T08:06:51.917149
License: Public Domain

In the Missouri Court of Appeals
                               Western District

AUSTIN WATTERSON,                      )
                            Appellant, )           WD83848
v.                                     )
                                       )
JOSH WILSON, et al.,                   )           FILED: August 3, 2021
                         Respondents. )

        APPEAL FROM THE CIRCUIT COURT OF CASS COUNTY
              THE HONORABLE WILLIAM B. COLLINS, JUDGE

            BEFORE DIVISION ONE: ALOK AHUJA, PRESIDING JUDGE,
         LISA WHITE HARDWICK AND ANTHONY REX GABBERT, JUDGES

      Austin Watterson appeals from the circuit court’s grant of summary

judgment against him in a civil lawsuit concerning ownership of a business.

Watterson contends that the circuit court erred in granting summary judgment

because the record contains genuine disputes of material facts. For reasons

explained herein, we affirm the judgment in part and reverse in part.

                         FACTUAL AND PROCEDURAL HISTORY

      Sometime prior to July 2011, Watterson and Josh Wilson, along with a third

party, Mike West, entered into an arrangement in which they worked together

under the limited liability company (“LLC”) Wilson Home Development (“WHD”).

The terms of the arrangement are in dispute. Watterson contends he was a part
owner of WHD, while Wilson contends that Watterson was merely an employee.

Watterson’s name did not appear in WHD’s articles of organization.

      In May 2011, Watterson filed for bankruptcy under Chapter 7 of the United

States Code. In his petition to the bankruptcy court, Watterson did not claim any

ownership interest in an LLC. Watterson alleged that on August 1, 2011, he and

Wilson met at Wilson’s home to discuss their business relationship. Watterson

alleged that, during this conversation, the pair orally agreed to start a new LLC

which they would manage together, without West, as equal co-owners.

Watterson further alleged that the pair agreed to split profits and losses equally

and agreed that Wilson would manage the company’s finances while Watterson

would manage sales. The agreement was never reduced to writing. Articles of

organization for Wilson Home Restoration (“WHR”) were filed in December 2011,

and listed Wilson as “the organizer.”.

      Wilson and Watterson worked together under WHR until 2014, when Wilson

unilaterally terminated Watterson’s relationship with the LLC. Watterson testified

that, per their oral agreement, the two acted as equal co-owners of WHR while

working together. Wilson admitted that, at least once while working together and

in his presence, Watterson held himself out publicly as a co-owner, which Wilson

never corrected at that time or any time thereafter. Additionally, the pair

appeared as guests on a radio show, where Wilson admitted that he “heard or

understood” that “perhaps . . . something on the radio may have alluded to” he

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and Watterson acting as co-owners of WHR. Wilson contends that Watterson was

merely an employee.

      Watterson filed suit against Wilson alleging he was wrongfully ousted from

WHR without receiving the value of his ownership interest in the company. After

discovery, the circuit court granted Wilson’s summary judgment motion on

Watterson’s claims of constructive trust, promissory estoppel, fraud, breach of

contract, and quasi-contract and quantum meruit. Watterson appeals.

                                STANDARD OF REVIEW

      “When considering appeals from summary judgments, [we] will review the

record in the light most favorable to the party against whom judgment was

entered.” ITT Commercial Finance Corp. v. Mid-America Marine Supply Corp.,

854 S.W.2d 371, 376 (Mo. banc 1993). “Facts set forth by affidavit or otherwise in

support of a party's motion are taken as true unless contradicted by the non-

moving party's response to the summary judgment motion.” Id. “We accord the

non-movant the benefit of all reasonable inferences from the record.” Id. “Our

review is essentially de novo.” Id.

                                      ANALYSIS

      We must first address whether judicial estoppel applies to preclude

Watterson from alleging an interest in WHR. Wilson argued judicial estoppel

below, but the circuit court did not specify whether it granted summary judgment

on the basis of judicial estoppel or on each of Watterson’s claims individually.

Thus, we must discuss each in turn. Watterson contends that judicial estoppel
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does not preclude him from asserting ownership of WHR. “Judicial estoppel will

lie to prevent litigants from taking a position, under oath, ‘in one judicial

proceeding, thereby obtaining benefits from that position in that instance and

later, in a second proceeding, taking a contrary position in order to obtain benefits

. . . at that time.’” In re Contest of Primary Election Candidacy of Fletcher, 337

S.W.3d 137, 140 (Mo. App. 2011) (quoting State Bd. of Accountancy v. Integrated

Fin. Solutions, L.L.C., 256 S.W.3d 48, 54 (Mo. banc 2008)). To determine if judicial

estoppel applies, we consider the following factors:

      First, a party's later position must be clearly inconsistent with its
      earlier position. Second, courts regularly inquire whether the party
      has succeeded in persuading a court to accept that party's earlier
      position . . . . A third consideration is whether the party seeking to
      assert an inconsistent position would derive an unfair advantage or
      impose an unfair detriment on the opposing party if not estopped.

Id. “[U]nder United States Supreme Court precedent these factors are not fixed

or inflexible prerequisites.” Id.

      The parties dispute whether Watterson’s failure to claim an ownership

interest in WHD and WHR during his prior bankruptcy proceeding precludes him

from alleging the interest now. Watterson filed for bankruptcy in May 2011. He

testified that he and Wilson agreed to become co-owners of the soon-to-be

organized WHR in August 2011. Therefore, Watterson asserts that, when he filed

his bankruptcy petition, he did not have any interest in WHR to disclose to the

bankruptcy court. Further, Watterson filed under Chapter 7 of the United States

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Code, which does not require parties to apprise the court of any property interests

acquired after the filing date. Harris v. Veigalahn, 575 U.S. 510, 513-14 (2015).

      Wilson argues that Watterson should have listed an interest in WHR

because it was sufficiently rooted in the pre-bankruptcy past. Property acquired

after filing the bankruptcy petition may still be property of the bankruptcy estate if

an interest in that property was “sufficiently rooted in the pre-bankruptcy past.”

Segal v. Rochelle, 382 U.S. 375, 380 (1966). Wilson first argues that WHR was a

continuation of WHD and, therefore, was sufficiently rooted because WHD existed

prior to Wilson’s filing. This argument ignores that WHD and WHR are ultimately

separate and distinct legal entities, and the summary judgment record does not

indicate whether WHR merely continued WHD’s business (in terms of its

customers, employees, assets, or otherwise). To find a sufficiently rooted interest,

courts consider whether a “readily discernible interest” existed at the time of

filing. In re Vote, 276 F.3d 1024, 1026-27 (8th Cir. 2002). Here, without a more

fully developed record, any interest that Watterson may have had in WHD prior to

filing for bankruptcy does not demonstrate, standing alone, that a readily

discernible interest also existed in the not-yet-organized WHR. Wilson also bases

his contention on Watterson’s testimony that his business relationship with

Wilson and West began “a few months” before July 2011. The record reveals that

Watterson’s admission was related to the parties’ working together as WHD and

does not evince that he had an interest in WHR prior to filing.

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      Wilson also argues that the bankruptcy code requires all petitioners to list

any reasonably anticipated increases in income or expenditures for the 12 months

following the filing date. 11 U.S.C. § 501. He does not provide, nor do we find,

law demonstrating that Wilson should have also necessarily included his

ownership interest in WHR as a part of his alleged increase in income.

Additionally, the record includes evidence that Watterson and Wilson agreed to

reduced salaries in order to grow WHR. While Wilson argues that Watterson

should have listed any change in income or expenditures, the plain language of

the statute requires only that the debtor list an “increase” in income or

expenditures. Id. Beyond agreeing to a reduced salary, the record also contains

evidence that Watterson did not contribute cash capital to WHR, and Wilson does

not point to any evidence, aside from Watterson’s alleged interest in WHR, that

Watterson should have expected his expenditures to increase either. Therefore,

even if Watterson should have specifically included his ownership interest in WHR

as part of disclosing an anticipated increase in income or expenditures, the record

is insufficient to support summary judgment on whether Wilson should have

anticipated an increase in income or expenditures in the first place.

      The record does not demonstrate that Watterson was required to disclose

to the bankruptcy court his alleged ownership interest in WHR. Therefore, we

cannot consider his failure to disclose as a position clearly inconsistent with the

allegations before us. If the circuit court granted summary judgment on the basis

of judicial estoppel, it erred in doing so.

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          Watterson next contends that the circuit court erred in granting summary

judgment on his six claims for relief because disputes over material facts remain

on each claim. We will first address whether a dispute over a material fact

common to all of Watterson’s claims exists. To avoid summary judgment,

Watterson must show evidence in the record that he had an ownership interest in

WHR. Section 347.015(11)1 defines an LLC member as:

          any person that signs in person or by an attorney in fact, or otherwise
          is a party to the operating agreement at the time the limited liability
          company is formed and is identified as a member in that operating
          agreement and any person who is subsequently admitted as a
          member in a limited liability company in accordance with sections
          347.010 to 347.187 and the operating agreement, until such time as
          an event of withdrawal occurs with respect to such person.

(Emphasis added). Section 347.015(13) defines an operating agreement as:

          any valid agreement or agreements, written or oral, among all
          members, or written declaration by the sole member concerning the
          conduct of the business and affairs of the limited liability company
          and the relative rights, duties and obligations of the members and
          managers, if any.

          Under the plain language of the statutes, if Watterson was a party to an oral

operating agreement and identified as a member in that agreement at the time the

LLC was formed, then he may indeed have ownership rights in WHR as a

member. See Birkenmeier v. Keller Biomedical LLC, 312 S.W.3d 380, 390-91 (Mo.

App. 2010). In Birkenmeier, the Eastern District of this court considered similar

1
    All statutory references are to the Revised Statutes of Missouri 2000, unless otherwise indicated.

                                                    7
facts. In that case, Birkenmeier was not named as a member in the LLC’s articles

of organization. Id. at 385. Nevertheless, he alleged that he and the organizing

member had reached an oral agreement in which he would own five percent of

the LLC. Id. The Eastern District ultimately affirmed the grant of summary

judgment against Birkenmeier on the ground that the uncontroverted facts

demonstrated that the parties had never agreed on some of the core operations of

the LLC and additional members. Id. at 390-91. Rather, the uncontroverted

evidence revealed that the parties left the terms open to future discussion, which

showed that they never reached an agreement as required by Section 347.015(13).

Id.

      Here, Watterson testified to specific facts indicating that he and Wilson had

a conversation on August 1, 2011. During that conversation, Watterson testified

that the pair agreed to become 50/50 partners of WHR, agreed to share profits and

losses, agreed that Wilson would handle the LLC’s finances while Watterson

would manage sales, and agreed that the two would share in decision-making

authority. Such facts, if true, amounted to an oral agreement concerning the

operation of WHR and outlining the relative rights and duties of the members,

which would render it a valid operating agreement under the statute. Further,

because Watterson was a party to the alleged agreement and was identified as a

part-owner in the agreement, he would qualify as a member of the LLC under the

statute even though not included in the articles of organization. See id.

Consequently, because Watterson testified that such an agreement took place, but

                                         8
Wilson testified otherwise, the oral agreement’s existence is a question of

material fact in dispute.

      Wilson argues that we ought to ignore Watterson’s “self-serving”

testimony and affidavit. While generalized self-serving allegations are not

sufficient to defeat summary judgment, specific testimony based on the affiant’s

personal knowledge suffices. See Stanbrough v. Vitek Solutions, Inc., 445 S.W.3d

90, 99-100 (Mo. App. 2014). Here, Watterson does not generally allege that an

agreement existed; rather, based on personal knowledge he testified that on a

specific date, at a specific location, and during a specific conversation, he and

Wilson came to specific terms as to how they would operate WHR as co-owners.

This testimony suffices to demonstrate a dispute over whether an agreement

making Watterson a co-owner actually existed. See id. The finder of fact must

resolve that dispute.

      Moreover, Section 347.037.1 does not require that an LLC’s organizer, who

signs and files the articles of organization, must be member or manager of the

LLC. Wilson argues that because Watterson does not appear as an “organizer” in

WHR’s articles of organization, he cannot be a member. The plain language of

Section 347.037.1 refutes that argument, however. WHR’s articles of organization

lists only “each organizer,” who need not be members or managers of the

organization. Therefore, the organizer’s names, or lack thereof, in WHR’s articles

of organization do not conclusively evince any membership interest in WHR—

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Watterson’s or Wilson’s. Consequently, WHR’s articles of organization do not

refute the alleged oral agreement between the parties.

      We next consider each of Watterson’s six claims to determine if he

successfully precluded summary judgment. Watterson seeks relief under theories

of: (1) constructive trust, (2) promissory estoppel, (3) fraud, (4) breach of contract,

(5) quasi-contract, and (6) quantum merit. For each claim, he contends that the

record contains evidence supporting the elements and creating disputes of

material fact sufficient to defeat summary judgment.

      A constructive trust may be imposed when a person “has acquired property

under such circumstances as make it inequitable for him to retain it.” Brown v.

Brown, 152 S.W.3d 911, 916 (Mo. App. 2005). Wilson bases his argument in

support of summary judgment on the grounds that Watterson did not sign the

articles of organization and, therefore, received appropriate pay and severance as

an employee. Having determined that the existence of an agreement creating

ownership rights remains a material fact in dispute, this argument has no merit. If

an oral operating agreement making Watterson a member existed, then his ouster

from WHR without compensation for his portion of the LLC would amount to an

inequitable retention by Wilson of Watterson’s property. Thus, the court erred in

granting summary judgment on Watterson’s constructive trust claim, and we

reverse.

      Promissory estoppel has four elements: “(1) a promise; (2) on which a

party relies to his or her detriment; (3) in a way the promisor expected or should

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have expected; and (4) resulting in an injustice that only enforcement of the

promise could cure.” Clevenger v. Oliver Ins. Agency, Inc., 237 S.W.3d 588, 591

(Mo. banc 2007). We find that summary judgment was appropriate as to

promissory estoppel because Watterson has failed to demonstrate that only

enforcement of the promise could cure the detriment of his reliance. The Eastern

District again considered a similar claim in Birkenmeier, where it found summary

judgment appropriate on a promissory estoppel claim because Birkenmeier did

not specifically seek reinstatement as an owner of the LLC. Birkenmeier, 312

S.W.3d at 389. Instead of seeking specific performance of the promise,

Birkenmeier sought damages for his ouster, which demonstrated that other

remedies at law were available to him. Id. We agree with the Eastern District’s

analysis. The record indicates that, for promissory estoppel, Watterson sought

“an amount which will fairly and reasonably compensates (sic) [him],” indicating

that he did not specifically seek to renew his ownership rights through promissory

estoppel but instead sought damages compensating him for Wilson’s denial of

those rights. Therefore, as in Birkenmeier, another remedy exists at law, and the

circuit court did not err in granting summary judgment on Watterson’s promissory

estoppel claim.

      Watterson next contends the circuit court erred in granting summary

judgment on his claim for fraud. A viable claim for fraud requires: “a

representation; that is false; that is material; the knowledge of its falsity or

ignorance of its truth; the speaker's intent it be acted on; the hearer's ignorance of

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the falsity of the representation; the hearer's reliance; the hearer's right to rely on

it; and injury.” Heberer v. Shell Oil Co., 744 S.W.2d 441, 443 (Mo. banc 1988).

Wilson argues that Watterson failed to plead fraud with the particularity that Rule

55.15 requires. Wilson does not support his conclusory contention with reference

to a specific deficiency or with any additional law or argument, and we find no

Rule 55.15 deficiencies in the petition.

       Beyond the already rejected contention that Watterson failed to show a

dispute of material fact as to his ownership rights in WHR, Wilson contends that

Watterson cannot demonstrate that he did not know he would never own part of

WHR. He bases that contention on Watterson’s knowledge that his name was not

on the articles of organization and Wilson’s fear that Watterson bore no liability

until his name was added in writing. As discussed above, Watterson’s name not

appearing on WHR documents is not dispositive of his ownership interest.

Further, the lack of writing and Wilson’s uninformed fears do not demonstrate

Watterson’s belief that he was never an owner. Watterson testified that, although

his name was not on the articles of organization, he sought to have his name

amended to the articles of organization because of his beliefs that he was already

an owner, that he already bore liability, and that formally adding his name would

ease Wilson’s mind. The belief that he was an owner is also supported in the

record by the uncontroverted fact that he was publicly held out as an owner while

in Wilson’s presence, which Wilson did nothing to refute publicly or privately.

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      Watterson also sufficiently supports his reliance on Wilson’s promise

through his testimony that he left his job at “K2” and agreed to work with Wilson

at a “lower” salary for the sake of growing the business in which he thought he

had an interest. Finally, Wilson argues that Watterson cannot demonstrate that

his reliance on Wilson’s promise led to a detriment because he received pay and

severance for his work. This argument ignores that Watterson testified that he

took a lower salary than normal in reliance on Wilson’s promise and that he

would also be entitled to a portion of WHR’s value, which he testified to have

never received, if the promise that he was an owner was true. We find that

Watterson further supports the remaining elements for fraud with evidence on the

record which Wilson does not contest in his arguments or brief. Consequently,

we find summary judgment inappropriate on Watterson’s fraud claim, and we

reverse.

      Watterson next contends that the circuit court erred in granting summary

judgment on his breach of contract claim. “A breach of contract action includes

the following essential elements: (1) the existence and terms of a contract; (2) that

plaintiff performed or tendered performance pursuant to the contract; (3) breach

of the contract by the defendant; and (4) damages suffered by the plaintiff.”

Rissler v. Heinzler, 316 S.W.3d 533, 536 (Mo. App. 2010) (quoting Keveney v. Mo.

Mil. Acad., 304 S.W.3d 98, 104 (Mo. banc 2010)). Watterson’s testimony that he

entered into an oral agreement with Wilson and that he was ousted without

receiving adequate value for his ownership interest precludes summary judgment

                                         13
on this claim. Additionally, the record contains evidence that Watterson fulfilled

his obligations under the agreement through several years of work and aiding in

the decision making at WHR. Lastly, Watterson provides evidence of damage

from the breach in that he was unilaterally ousted from WHR without receiving

value for his share of the business.

      Wilson argues that summary judgment was appropriate because Watterson

cannot demonstrate the mutuality of the agreement. Watterson’s testimony about

the pair’s August conversation, however, indicated a mutual agreement and

suffices to raise a dispute of material fact. Wilson further argues that Watterson

chose not to become a “legal owner” by electing not to appear in the articles of

organization. As discussed above, WHR’s articles of organization, read under

Section 347.037.1, do not speak to any membership interests, including Wilson’s.

In the light most favorable to the non-moving party, Watterson’s choosing

omission from the articles of organization does not necessitate the inference that

he forwent all ownership interests at that time; rather, it creates the plausible

inference, to which Watterson testified, that he merely intended to keep his orally

agreed upon interest undisclosed under the uninformed belief that his ongoing

bankruptcy could negatively affect the business. However questionable the

motives of that decision may be, Watterson’s testimony provides a clear dispute

of material fact as to whether the parties formed a viable contract. We find that

Watterson successfully precluded summary judgment on each element of his

                                          14
breach of contract claim. The circuit court erred in granting summary judgment

on Watterson’s breach of contract claim, and we therefore reverse.

      Finally, the circuit court did not err in granting summary judgment on

Watterson’s quasi-contract and quantum meruit claims. “The essential elements

of quasi-contract are: (1) a benefit conferred upon the defendant by the plaintiff;

(2) appreciation by the defendant of the fact of such benefit; and (3) acceptance

and retention by the defendant of that benefit under circumstances in which

retention without payment would be inequitable.” Pitman v. City of Columbia,

309 S.W.3d 395, 402 (Mo. App. 2010) (internal quotation marks and citations

omitted)). Quantum meruit is a theory of relief under a quasi-contract claim.

Holliday invs., Inc., v. Hawthorn Bank, 476 S.W.3d 291, 296 (Mo. App. 2015). “For

a quasi-contract based upon quantum meruit, recovery is based upon the

reasonable value of the goods or services furnished to the defendant.” Id. “To

recover under quantum meruit, it is the plaintiff's burden to show that its services

benefited the defendant.” Miller v. Horn, 254 S.W.3d 920, 925 (Mo. App. 2008).

“The plaintiff must also show the amount of the benefit.” Id.

      This may be accomplished by showing proof of the reasonable value
      of the services performed. Reasonable value is the price customarily
      paid for such services at the time and locality in question. Proof of
      reasonable value is not accomplished simply by reciting the bill or
      referring to the contract, or stating the “standard price” that plaintiff
      usually would charge for such service.

Id. (internal citations omitted) (emphasis added). Watterson bases his quasi-

contract and quantum meruit claims on the value of his labor and the value of a

                                          15
vehicle allegedly contributed to WHR. He concludes that Wilson did not pay him

adequate value upon termination but does not point to any evidence in the record,

aside from the alleged agreement, demonstrating what constitutes sufficient value

or how the wages and severance that Wilson paid him were insufficient. Because

Watterson cannot support the final element of his quasi-contract and quantum

meruit claims with evidence in the record, summary judgment was appropriate on

those claims.

                                    CONCLUSION

      We find that Wilson was not entitled to summary judgment on the basis of

judicial estoppel. We affirm the court’s grant of summary judgment on

Watterson’s claims of promissory estoppel, quasi-contract, and quantum meruit.

We reverse the court’s grant of summary judgment on Watterson’s claims of

constructive trust, fraud, and breach of contract. The cause is remanded to the

circuit court for further proceedings consistent with this opinion.

                                       ____________________________________
                                       LISA WHITE HARDWICK, JUDGE
ALL CONCUR.

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