Category Archives: Copyright (c) 2013 Royce Barondes.

Documentation Bogs-Down an Attempted Assignment

A recent entry in the expanding line of cases where lenders’ fail to retain appropriate documentation is Gemini Capital Group, LLC v. Tripp, 2013 WL 5872742 (Mo. App. S.D.,2013).

The putative assignee, Gemini, initiated proceedings against the debtor.  When faced with an inability to document ownership of the claims, the creditor, at the very last minute, sought a voluntary dismissal.  Faced with counterclaims and a request for class certification, the tide seems to have turned.  What about the agreement to arbitrate:

Here, Gemini asserts that the right to collect under the retail installment contract and the corresponding right to compel arbitration under the arbitration agreement were assigned from Auto Master to SHAC, from SHAC to Sagres, and finally, from Sagres to Gemini. In the trial court, Gemini asserted this chain was demonstrated by the affidavits provided in support of their motion. However, the documentation Gemini provided fails to demonstrate the assignment of Tripp and Thoms’s account. Although Gemini provided the written agreements purporting to prove the assignments, the documents merely reference lists of purchased accounts and corresponding account-holder information. The two Exhibits “A” were not included with the documentation provided to the trial court or filed as part of the record on appeal. Gemini failed to prove the chain of assignment, and its motion to compel arbitration was properly denied.

This conclusion is not altered by the affidavits and computer printouts Gemini provided. The affidavits did not provide substantial evidence of the assignments because they contained only legal conclusions as to the critical facts surrounding the assignment of Tripp and Thoms’s account.


Treating Simultaneity as Effecting Incorporation by Reference–Midland Property Partners

Here we have another not-very-thoughtful analysis of multiple documents executed at the same time. Midland Property Partners, LLC v. Watkins, 2013 WL 5904617 (Mo.App. W.D. 2013).

For reasons the opinion does not clarify, a maker of notes also issued a separate guaranty.  The guaranty contains a waiver of a right to a jury trial.  The notes do not.

As to claims brought on the notes themselves, and not on the guaranties, the court, relying on the principle that simultaneous agreements are to be construed together, reads-into the notes a jury waiver included in the guaranties:

“Accordingly, the Notes and Guaranties should be construed together in order to ascertain the intention of the parties with respect to the jury-waiver provisions.”

This kind of express incorporation as a result of having provided multiple writings is a common mistake made by courts.  The parties have expressly chosen to provide separate documents.  If they wanted each to be read into the other, why would there not be a single instrument?  Or, then, why would the notes not expressly incorporate the guaranties?

The intelligent approach to these issues is not to simply, and tediously, treat what the parties consciously memorialized in separate writings as if they were in a single writing.  Rather, the other simultaneous agreements may be referenced for interpretative purposes, as a Missouri court noted three decades ago:

We agree with the trial court that the deed of trust/note and the lease are separate documents and each must be interpreted and enforced according to its own terms. The provisions of one are not to be impliedly incorporated into the other. However, these documents, along with others, constituted one complicated interdependent transaction. The documents contain references to each other, and obviously are closely related. The intent of the parties and the meaning of those documents must be determined from the entire transaction and not simply from isolated portions of a particular document.

Norcomo Corp. v. Franchi Construction Co., 587 S.W.2d 311, 317 (Mo. App. 1979) (emphasis added).

This author has previously examined these issues at some length.  See Royce de R. Barondes, Side Letters, Incorporation by Reference and Construction of Contractual Relationships Memorialized in Multiple Writings, 64 Baylor Law Review 651-720 (2012).  Link to SSRN version.

Has Someone Been Severed from an Understanding of Contracts?

STT Holdings, LLC v. Wren, No. ED99763 (Mo. Ct. App., E.D.), involves a spicy dispute arising from an LLC member’s withdrawal from the firm, alleging breach of the withdrawing member’s terms of employment.  The alleged facts referenced in the withdrawing member’s brief involve circumstances I might dream-up for an exam:

some spicy ones:

allegations concerning a former executive indictment (note:  to be clear, this author is not expressing a view on veracity of allegations)

allegations a control person “cheated on an important technical certification test by having one of [a company’s] employees complete the certification test under his name”  (note:  to be clear, this author is not expressing a view on veracity of allegations)

one that is beyond what I might have imagined;

a former member, who had been bought-out, was thought evidently to have been bought-out by another member but that member, as reported in the brief, “during the trial, … gratuitously volunteered that he did not own 51% of SpearTip because on March 31, 2006, SpearTip, not [that member], acquired [a former member’s] equity shares….  [The testifying member] further used his position as SpearTip’s CEO to assign ownership of the shares to himself personally.”  (again, this author is not stating a view on veracity of allegations)

There are many interesting circumstances to address in the briefs.  We may perhaps return to this case at a later date.  For now, we will turn to one aspect of one brief that succinctly addresses a matter.  The mind boggles:

Section 14.11, “Severability of Provisions,” of SpearTip’s Operating Agreement, Exhibit 1, provides that: “Each provision of this Agreement is severable… .” SLF039.  Appellant’s contention that Wren forfeited his right to redeem his equity interest pursuant to Operating Agreement Section 11.6 because he breached the provisions of Section 12.1 is without merit in light of the express provision that all provisions of the operating agreement are severable or divisible.

“Severable or divisible contracts are, in legal effect, independent agreements about different subjects though made at the same time.”  Grease Monkey Intern, Inc. v. Godat, 916 S.W.2d 257,261 (Mo. App. E. Dist. 1995); Sanfillipo v. Oehler, 869 S.W.2d 159, 161 (Mo. App. E.D. 1994).  The question of divisibility is primarily a question of the intent of the parties determined by the language used and the subject matter of the agreements.  Grease Monkey Intern, 916 S.W.2d at 261.  SpearTip’s operating agreement is a severable contract that embraces separate distinct promises that admit to separate execution, Id, and the alleged breach of the non-compete clause has no effect on the enforceability of the redemption clause.

Brief of Respondent/Cross-Appellant David Wren, STT Holdings, LLC v. Wren, No. ED99763 (Mo. Ct. App., E.D. 12-13.

Why is this analysis of concern?  It is certainly possible that an employment agreement, including an associated non-compete, could end up being an entirely separate agreement from the arrangements governing ownership of an entity.  Rudman v. Cowles Communications, 280 N.E.2d 867 (N.Y. 1972) is a somewhat analogous case, where an employer’s breach of an employment agreement with an executive of an acquired firm is treated as a separate agreement from the acquisition agreement itself.  So, there may be a severable pair of undertakings, but, if so, the brief’s author will have stumbled into the correct conclusion.

“Severable” can be used in multiple ways.  For one of the contracts folks, It can be used to direct a court that, if the court finds some provision in a contract unenforceable, that provision can be severed.  One might also use that language in connection with describing the consequences of a determination that a contract involves multiple pairs of performance where “the parts of each pair are properly regarded as agreed equivalents”.  Restatement 2d § 240.  So, for example, Allstate Indem. Co. v. Rice, 2013 WL 1314195 (W.D. Mo. 2013) (annotating prior authority as “discussing the general rule when a policy may be divisible and severable where it covers several different kinds of risks or property at different locations).

What, do we suppose, is the intent of the contractual language quoted, albeit only in part?  It is implausible that an operating agreement is drafted so as to make each duty severable in the sense of giving rise to a divisible obligation.  It simply does not make sense.  To be severable in the form of divisible requires pairs of performance that are viewed as equivalents.  It cannot be the case that each promise in an operating agreement has some other paired equivalent.

Books and Records Request under DGCL 220–Keeping Board Minutes Private

A shareholder makes a demand to review board minutes under DGCL 220.  The “Memorandum Supplementing Order Affirming Judgment Pursuant to Rule 84.16(b)”, dated Aug. 20, 2013, from the Western District, describes the shareholder as:

“demanding, pursuant to Delaware General Corporation Law Section 220, to inspect and copy “the minutes of the Company’s Board of Directors and Nominating Committee from January 2009 to the present date.” [The shareholder] explained that the purpose of the demand was “to confirm that the Company’s Directors satisfied their fiduciary duties and maintained board independence, as opposed to the entrenchment of management, in connection actions taken since January 1, 2009.” A week later, [the issuer’s] legal counsel sent a response to [a stockholder] declining the demand for several reasons, including that the demand failed to state a proper purpose under Delaware law, was not made in good faith, and failed to consider [the issuer’s] legitimate interest in protecting the confidentiality of nonpublic corporate records.”

This author is somewhat displeased that the court’s discussion of this matter is in a memorandum not generally available (i.e., not available through Westlaw or Lexis).  Does this not present an issue of the type as to which practicing lawyers should have guidance?

By way of background, Delaware law provides shareholders have the right to inspect books and records for proper purposes under DGCL 220.  This right is important, because the Delaware law is that if a derivative lawsuit is brought without demand having been first made, discovery is stayed pending determination of whether demand was excused is determined.  As the Drexler et al. treatise (§ 42.03[2]) explains,

More after the break …

Continue reading

Executive Board of the Missouri Baptist Convention v. Windermere Baptist Conference Center, 2013 WL 5775055 (Mo. Ct. App., So. Dist.)

Here we have some interesting allegations.  The alleged facts include the following, in brief (summarized by your author):

The governing documents of the Missouri Baptist Convention (MBC) provide that all charters for its agencies will include various provisions giving MBC retained control.

Windermere Baptist Conference Center, an agency of MBC, was formed in 2000.  However, MBC alleges that MBC’s executive director, while acting in that capacity, arranged for charter amendments for the newly-formed agency that did not include provisions that could have been created to effect to the required retained control.  (An interesting provision in the nonprofit corporation law, Mo. Stat. 355.606, allows articles to provide a third party with a veto any articles or bylaw amendment.) It is further alleged that the then executive director was not fully candid in communicating as to the circumstances.

The brief’s quite long.  This is only a summary of a part of the pertinent allegations.

This particular claim was evidently disposed-of, against the plaintiffs, on the basis of the statute of limitations and a purported release.  The alleged circumstances don’t sound so good.  If the matter ultimately gets to a determination on the merits, it may provide some helpful guidance on pertinent Missouri principles.