Brittany Hunter v. Charles Moore, Sr. , 486 S.W.3d 919 ( 2016 )

SUPREME COURT OF MISSOURI
en banc
BRITTANY HUNTER, )
)
Respondent, )
)
v. ) No. SC95083
)
CHARLES MOORE, SR., )
)
Appellant. )
APPEAL FROM THE CIRCUIT COURT OF THE CITY OF ST. LOUIS
The Honorable David L. Dowd, Judge
Opinion issued April 19, 2016
Brittany Hunter (Plaintiff) brought negligence claims arising out of her stay at a
motel against the motel’s manager, Charles Moore Sr. (Defendant) and his employer.
The parties entered a settlement agreement under section 537.065. 1 Because the parties
disputed some of the terms of the agreement, Plaintiff filed a separate action, which is the
subject of this appeal, against Defendant seeking specific performance and reformation of
their executed agreement. Specifically, Plaintiff asked the court to add to their written
instrument two terms that she claims the parties agreed to but mistakenly failed to reduce
to writing: (1) that Defendant’s insurer, American Family Mutual Insurance Company
1
All statutory references are to RSMo 2000 unless otherwise indicated.
(Insurer) is to be precluded from controlling the defense of Plaintiff’s negligence claims
against Defendant, and (2) that Defendant is to cooperate with Plaintiff in the underlying
action by agreeing to an uncontested hearing on liability and damages. This opinion will
at times refer to these terms collectively as “the disputed terms.”
Based on evidence adduced at a bench trial, the trial court entered judgment
reforming the written agreement to require Defendant to preclude Insurer from
controlling the defense of the underlying action and to cooperate with Plaintiff in the
underlying action, “either by agreeing to a consent judgment or having an uncontested
hearing on liability and damages.” (emphasis added). On appeal, Defendant argues that
there was no substantial evidence to support reformation.
Although there was substantial evidence to support the trial court’s judgment
reforming the written instrument to include the disputed terms, both parties agree that it
was never their intention for Defendant to enter a consent judgment. This Court may
enter the judgment as the trial court ought to have entered. Rule 84.14. Accordingly, the
portion of the judgment requiring Defendant to cooperate in the underlying action “either
by agreeing to a consent judgment or having an uncontested hearing on liability and
damages” is modified to require only that Defendant cooperate by “having an
uncontested hearing on liability and damages.” The judgment as modified is affirmed.
I. Facts
This case arises out of an underlying negligence action filed by Plaintiff, by and
through her next friend and mother, against Defendant and his employer, Delta Motel
(Delta), to recover for injuries Plaintiff sustained while staying at the motel. Delta
maintained a liability insurance policy through Insurer, under which both Defendant and
Delta were insureds. Defendant and Delta demanded that Insurer defend and indemnify
them against Plaintiff’s claims. Insurer notified Defendant that it would defend him in
the underlying action under a reservation of rights and filed a declaratory judgment action
against both Defendant and Delta seeking a judgment that it had no duty to defend or
indemnify its insureds under the policy.
Defendant hired a separate attorney (“Defendant’s attorney”) to represent him in
the declaratory judgment action. Through this attorney, Defendant rejected Insurer’s
defense under a reservation of rights. Defendant warned that if Insurer did not withdraw
its reservations of rights and dismiss him from the declaratory judgment action, he would
consider entering into a settlement agreement with Plaintiff pursuant to section 537.065. 2
2
Section 537.065 reads in whole:
Any person having an unliquidated claim for damages against a tort-feasor,
on account of bodily injuries or death, may enter into a contract with such
tort-feasor or any insurer in his behalf or both, whereby, in consideration of
the payment of a specified amount, the person asserting the claim agrees
that in the event of a judgment against the tort-feasor, neither he nor any
person, firm or corporation claiming by or through him will levy execution,
by garnishment or as otherwise provided by law, except against the specific
assets listed in the contract and except against any insurer which insures the
legal liability of the tort-feasor for such damage and which insurer is not
excepted from execution, garnishment or other legal procedure by such
contract. Execution or garnishment proceedings in aid thereof shall lie only
as to assets of the tort-feasor specifically mentioned in the contract or the
insurer or insurers not excluded in such contract. Such contract, when
properly acknowledged by the parties thereto, may be recorded in the office
of the recorder of deeds in any county where a judgment may be rendered,
or in the county of the residence of the tort-feasor, or in both such counties,
and if the same is so recorded then such tort-feasor's property, except as to
the assets specifically listed in the contract, shall not be subject to any
3
In response, Insurer offered Defendant a full defense and indemnification and promised
to dismiss Defendant from the declaratory judgment action. Despite these assurances,
Insurer did not dismiss Defendant and moved for summary judgment against both
Defendant and Delta in the declaratory judgment action.
After learning that Insurer had not dismissed Defendant from the declaratory
judgment action and had, instead, moved for summary judgment against him, attorneys
for Plaintiff and Defendant explored the possibility of their clients entering a settlement
agreement pursuant to section 537.065. After negotiations via email and telephone,
Plaintiff and Defendant reached a settlement agreement and signed a written instrument
purporting to contain the terms of their agreement. The written instrument requires
Plaintiff to limit her recovery against Defendant in the negligence action to proceeds
from the insurance policy and to an agreed-upon portion of any judgment against the
Insurer arising out of its failure to defend and indemnify Defendant. 3 Defendant agreed
to assign to Plaintiff a portion of any proceeds Defendant might recover in an action
against Insurer and to cooperate with Plaintiff and her attorney in the pursuit of such
claims. The written instrument was silent as to whether or how Defendant was to
cooperate with Plaintiff in her underlying negligence action.
On the same day Defendant signed the written instrument, Defendant’s attorney
sent Insurer a letter on Defendant’s behalf declaring that Insurer had breached the
judgment lien as the result of any judgment rendered against the tort-feasor,
arising out of the transaction for which the contract is entered into.
3
The agreement would also permit Plaintiff to satisfy her judgment against any lottery
winnings of Defendant or to garnish his wages in the event he should earn more than
$50,000 in a year.
4
contract of insurance by moving for summary judgment against Defendant in the
declaratory judgment action after promising to fully defend and indemnify him.
Defendant’s attorney stated that, as a result of Insurer’s breach, his client had entered into
a “537 agreement with plaintiff in the underlying action” and instructed the attorney hired
by Insurer to represent Defendant in the underlying negligence action to withdraw as
counsel in that case.
Shortly after receiving the letter notifying it of the parties’ settlement agreement,
Insurer dismissed Defendant from the declaratory judgment action without prejudice.
Insurer’s attorney did not withdraw as counsel for Defendant in the underlying
negligence action. When Plaintiff’s attorney asked Defendant’s attorney what was taking
place, the latter indicated that he no longer represented Defendant and that he was
surprised that Insurer’s attorney had not withdrawn his representation in the negligence
action. Plaintiff’s attorney then contacted Insurer’s attorney to see why he had not
withdrawn as Defendant’s counsel. Insurer’s attorney responded that he intended to
continue his representation of Defendant in the underlying negligence action.
Plaintiff filed the subject action against Defendant seeking specific enforcement of
the settlement agreement and reformation of the written instrument to reflect the true
intentions of the parties. The trial court heard evidence regarding whether the agreement
was enforceable and whether it required Defendant to cooperate with Plaintiff in the
underlying negligence action. Plaintiff’s attorney testified that the parties intended that
Defendant would cooperate with Plaintiff in the underlying action by having an
uncontested hearing on liability and damages at a bench trial and by precluding Insurer
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from controlling the defense in that proceeding. Defendant’s attorney testified that he
and Plaintiff’s attorney negotiated the terms of the agreement via telephone and email,
but that he could not recall the specifics of the parties’ intentions and that he did not
believe that he intended the disputed terms to be part of the agreement. Plaintiff’s
attorney acknowledged that these terms were not set forth explicitly in the written
instrument, but he testified that he had intended to reduce them to writing and that he
perhaps “didn’t connect the dots” as well as he should have.
As additional evidence of the parties’ intent that Plaintiff would have an
uncontested hearing on liability and damages in her negligence action against Defendant
and that Insurer would not be allowed to control the defense, Plaintiff introduced the
letter from Defendant’s attorney to Insurer as well as emails between the parties’
attorneys expressing their mutual surprise that Insurer’s attorney did not withdraw his
representation of Defendant after being notified that Defendant had entered into the
settlement agreement with Plaintiff. Additionally, Plaintiff’s attorney pointed to a section
of the instrument stating that the parties “specifically considered” the decisions in Butters
v. City of Independence, 513 S.W.2d 418 (Mo. 1974), and State ex rel. Rimco, Inc. v.
Dowd, 858 S.W.2d 307 (Mo. App. 1993), which both involved a settlement agreement
pursuant to section 537.065 in which the insurer was not allowed to control the defense of
its insured and the insured cooperated with the plaintiff in the underlying tort action.
The trial court entered judgment in favor of Plaintiff, finding that Plaintiff had
proven by clear, cogent, and convincing evidence that the parties mutually agreed that
Defendant would not allow Insurer “to have control over the defense” of the underlying
6
negligence action and that he would cooperate with Plaintiff in that action “either by
agreeing to a consent judgment 4 or having an uncontested hearing on liability and
damages.” The trial court relied on the letter to Insurer asking its attorney to withdraw
his representation of Defendant, email communications between the parties’ attorneys,
the testimony of Plaintiff’s attorney, and the written instrument’s reference to the Rimco
and Butters cases in reaching its conclusion that, through mutual mistake, these terms
were not set forth in the writing and that reformation was a proper remedy. To the extent
that Defendant’s attorney testified that the parties did not intend to incorporate the
disputed terms in the settlement agreement, the trial court explicitly found his testimony
not credible.
Defendant appeals. This Court has jurisdiction pursuant to article V, section 10 of
the Missouri Constitution.
II. Standard of Review
This Court will affirm a trial court’s judgment in a court-tried case unless there is
no substantial evidence to support it, it is against the weight of the evidence, or it
erroneously declares or applies the law. Ivie v. Smith, 439 S.W.3d 189, 198-99 (Mo. banc
2014). This standard applies in all court-tried cases regardless of the burden of proof at
trial. Id. at 199.
Evidence is substantial if it has any tendency to prove or disprove any fact
necessary to sustain the trial court’s judgment. Id. In deciding whether the trial court’s
4
As noted above, both parties on appeal agree that they never intended for Defendant to
agree to a “consent judgment.”
7
judgment is supported by substantial evidence, appellate courts must view the evidence in
the light most favorable to the judgment, defer to the trial court’s credibility
determinations, and accept as true the evidence and inferences favorable to the judgment,
disregarding all contrary evidence. Id. at 200. In reaching its judgment, the trial court is
free to believe any, all, or none of the evidence presented at trial. Id. The trial court here
made detailed findings of fact and conclusions of law. Additionally, any issues of fact
upon which no specific findings are made are considered as having been found in
accordance with the court’s judgment. Rule 73.01(c).
III. Analysis
Defendant argues that the trial court erred in reforming the written instrument
because there was no substantial evidence of a mutual mistake that prevented the
instrument from accurately reflecting the parties’ actual agreement. 5
“Equity will reform an instrument which, through mutual mistake of the parties,
does not accurately set forth the terms of the agreement actually made or which does not
incorporate the true prior intentions of the parties.” King v. Riley, 498 S.W.2d 564, 566
(Mo. 1973); accord Lunceford v. Houghtlin, 170 S.W.3d 453, 464 (Mo. App. 2005).
Reformation is an extraordinary equitable remedy and should be granted only with great
caution and in clear cases of fraud or mistake. Ethridge v. TierOne Bank, 226 S.W.3d
5
In his briefs to the court of appeals, Defendant also argued that the trial court’s
judgment is against the weight of the evidence. A claim that the judgment is against the
weight of the evidence presupposes that there is sufficient evidence to support the
judgment. J.A.R. v. D.G.R., 426 S.W.3d 624, 630 (Mo. banc 2014). Because Defendant
does not raise an against the weight of the evidence argument here, he has waived it.
Boyer v. Grandview Manor Care Ctr., Inc., 793 S.W.2d 346, 347 (Mo. banc 1990).
8
127, 132 (Mo. banc 2007). A mistake supporting reformation must be mutual, such that
both parties “have done what neither intended.” State ex rel. State Highway Comm’n v.
Schwabe, 335 S.W.2d 15, 19 (Mo. 1960). Reformation is not limited to instances of
“particular error” in a writing, such as misnaming a party, a mistake in the description of
a parcel of land, or a mistake in some other specific term of the written instrument. King,
498 S.W.2d at 566. The party seeking reformation need not show “what particular words
were agreed upon by the parties as words to be inserted in the instrument.” Id. “It is
sufficient that the parties agreed to accomplish a particular object by the instrument to be
executed, and that the instrument as executed is insufficient to effectuate their intention.”
Id.
The party seeking reformation must show by clear, cogent, and convincing
evidence: (1) the existence of an actual, preexisting agreement and (2) a mutual mistake
made by the parties to the agreement. Cardinal Partners, LLC v. Desco Inv. Co., 301
S.W.3d 104, 110 (Mo. App. 2010). Whether there has been a mutual mistake is normally
a question of fact. Brown v. Mickelson, 220 S.W.3d 442, 448 (Mo. App. 2007).
Entitlement to reformation may be shown through circumstantial evidence as long as “the
natural and reasonable inferences drawn from [that evidence] clearly and decidedly prove
the alleged mistake.” Everhart v. Westmoreland, 898 S.W.2d 634, 638 (Mo. App. 1995).
Relevant factors the trial court may consider in determining whether reformation is
warranted include “the wording of the contract as signed by the parties, the relationship
of the parties, the subject matter of the contract, the usages of the business, the
9
circumstances surrounding the execution of the contract, and its interpretation by the
parties.” Id.
Under the facts here, there was sufficient evidence in the record to support the trial
court’s finding that, due to mutual mistake, the parties failed to include the disputed terms
in the written instrument when the parties had previously agreed to those terms.
Plaintiff’s attorney testified regarding the parties’ intentions in entering the settlement
agreement. He stated that it was their mutual intent that Insurer would no longer control
the defense in the underlying action and that Defendant would “cooperate in pursuit of all
the underlying claims” by having an uncontested hearing on liability and damages. He
testified that he meant to reduce these terms to writing when he drafted the written
instrument and acknowledged that he perhaps “didn’t connect the dots” as well as he
should have. Plaintiff’s attorney further testified that he discussed these specific terms
with Defendant’s attorney “several times” and that these intentions were “clear” to
Defendant’s attorney before the parties signed the written instrument. 6
6
Plaintiff’s attorney mentioned numerous times during his testimony that, although the
attorneys discussed and agreed to the disputed terms specifically during negotiations,
they also mutually understood that these terms would be included because their
agreement was made pursuant to section 537.065. As Defendant correctly points out, the
disputed terms are not implied in all section 537.065 agreements. Nothing in the text of
section 537.065 requires parties to agree that an insurer may not control the defense of a
party to the agreement. Nor does the statute contain any provisions requiring parties to
agree to either a consent judgment or an uncontested hearing on liability and damages. It
may be true that, as a practical matter, parties frequently include such terms in
agreements made pursuant to the statute when, as here, an insurer has denied coverage to
its insured. See, e.g., Intermed Ins. Co. v. Hill, 367 S.W.3d 84, 87 (Mo. App. 2012);
Rinehart v. Anderson, 985 S.W.2d 363, 365 (Mo. App. 1998); and Cologna v. Farmers
and Merchants Ins. Co., 785 S.W.2d 691, 694-95 (Mo. App. 1990). That such terms may
be common does not mean that they are inherently implied in all such agreements,
10
Reformation may properly be granted when “a mutual mistake of law” prevents a
written instrument from expressing the parties’ actual intentions, which occurs when
“parties erroneously suppose that the words used in an instrument are legally effective to
secure a certain result.” Schwabe, 335 S.W.2d at 21; accord Cardinal Partners, LLC,
301 S.W.3d at 110. Defendant endeavors to show that only Plaintiff’s attorney labored
under the mistaken belief that the written instrument was sufficient to secure for Plaintiff
an uncontested hearing and the exclusion of Insurer from the defense of her underlying
action. Defendant cites large portions of the testimony of his attorney to show that the
attorney did not intend for the disputed terms to be part of the agreement. In doing so,
Defendant fails to comply with the applicable standard of review. This Court must
review the evidence in the light most favorable to the judgment in determining if a party
has shown it is entitled to relief by clear, cogent, and convincing evidence. Ivie, 439
S.W.3d at 200. All contrary evidence is to be ignored, and appellate courts defer to the
trial court’s credibility determinations. Id. The trial court explicitly found the testimony
of Defendant’s attorney not credible to the extent he testified that the parties did not agree
to the disputed terms.
Furthermore, evidence does not have to be undisputed for a party seeking
reformation to prevail. Leimkuehler v. Shoemaker, 329 S.W.2d 726, 731 (Mo. 1959).
When parties present conflicting evidence, the fact finder must resolve the conflict and
make credibility determinations. CMI Food Serv., Inc. v. Hatridge Leasing, 890 S.W.2d
however, and parties should take care to reduce to writing all terms they intend to include
in their agreements under the statute.
11
420, 423 (Mo. App. 1995). Appellate courts defer to those determinations as long as they
are supported by competent and substantial evidence. Id.
Other evidence supported the trial court’s conclusion that both parties intended for
the disputed terms to be part of the settlement agreement. Defendant’s attorney sent a
letter to Insurer the same day Defendant signed the written instrument. In the letter,
Defendant’s attorney claimed that Insurer had materially breached the contract of
insurance and added:
Because of American Family’s material breach of the contract of
insurance, my client has decided to now enter into the 537 agreement with
the plaintiff in the underlying action in order to protect his personal assets.
Additionally, he does not trust American Family or anyone hired by
American Family to represent him in the underlying action. Therefore, he
is instructing [American Family’s attorney] to file a Motion to Withdraw
and notice same up for hearing in the [underlying action] as soon as
possible.
Attorneys for both Plaintiff and Defendant expressed their disbelief in emails to each
other that Insurer’s attorney failed to withdraw as counsel from the underlying action
after receiving the letter from Defendant’s attorney. These letters and emails, which were
specifically discussed by the trial court in its judgment, 7 indicate that Defendant’s
attorney, as well as Plaintiff’s, intended for the settlement agreement to include the
disputed terms.
7
Defendant’s briefs to this Court do not reference the letter from Defendant’s attorney to
Insurer or the emails exchanged by the parties’ attorneys showing their surprise that
Insurer’s attorney did not withdraw from the underlying negligence action even though
the trial court made specific findings of fact regarding this evidence. The standard of
review on appeal requires that evidence be viewed in the light most favorable to the
judgment. Ivie, 439 S.W.3d at 200.
12
The trial court also took note of the provision in the written instrument stating that
the parties “specifically considered” Butters v. City of Independence, 513 S.W.2d 418
(Mo. 1974), and State ex rel. Rimco, Inc. v. Dowd, 858 S.W.2d 307 (Mo. App. 1993). In
Butters, the plaintiff and the defendant in a tort action entered an agreement pursuant to
section 537.065 after the defendant’s insurer refused to defend and indemnify the
defendant without a reservation of rights. 513 S.W.2d at 422. When the underlying
action went to trial, the defendant did not cross-examine the plaintiff’s witnesses or
contest liability. Id. Because the insurer refused to fully defend and indemnify its
insured, this Court concluded that the insurer had “no right to insist upon controlling the
defense” and its insured was free to incur expenses in negotiating and settling the
plaintiff’s claims. Id. at 424-25. In Rimco, a defendant to a tort action similarly entered
into an oral section 537.065 agreement after rejecting its insurer’s offer to defend under a
reservation of rights. 858 S.W.2d at 308. The insurer sought to prevent judgment from
being entered pursuant to the settlement agreement while it contested coverage in a
separate declaratory judgment action. Id. The court of appeals held that an insurer who
does not accept the defense of its insured without reservation “forfeits its right to
participate in the litigation and to control the lawsuit.” 8 Id. at 309. Because Butters and
Rimco discuss agreements pursuant to section 537.065 that incorporated one or both of
8
Butters and Rimco discuss the options of insurers and insureds when coverage of a
claim against an insured is in dispute and accurately state that, once an insurer refuses to
defend its insured without reservation, the insured is free to enter settlement negotiations
with a claimant and to take control of its own defense. Neither case holds, however, that
the terms disputed by the parties here are somehow inherent in every agreement made
pursuant to section 537.065.
13
the disputed terms at issue here, the parties’ explicit use of these cases as a “guide” for
their agreement supports the trial court’s finding that the parties mutually intended to
include the disputed terms.
In this case, there was substantial evidence to support the trial court’s
determination that Plaintiff and Defendant agreed to the disputed terms prior to signing
the written instrument and that, due to a mutual mistake, they failed to reduce those terms
to writing.
IV. Conclusion
This case should be a cautionary tale for contract drafters. Although the
extraordinary equitable remedy of reformation may be available to the party who can
clearly and convincingly show that a mutual mistake prevented a written instrument from
effectuating the true intentions of the parties, attorneys should make every effort to
reduce all agreed-upon terms to writing so that an agreement, once made, may be
immediately and efficiently enforced according to its plain, written terms.
The judgment as modified is affirmed.
______________________________
Mary R. Russell, Judge
All concur.
14