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Arcese v. Daniel Schmitt & Co.

Court of Appeals of Missouri, Eastern District, First Division

September 6, 2016


         Appeal from the Circuit Court of St. Louis County 11SL-CC04781 Honorable Gloria Clark Reno

          LISA P. PAGE, JUDGE.

         Anthony Arcese ("Plaintiff") filed suit against Daniel Schmitt & Co. ("Defendant") alleging, inter alia, violations of the Missouri Merchandising Practices Act ("MMPA"), Section 407.010, et seq., in connection with the sale of a 1954 Cadillac convertible. In response thereto, Defendant filed a counterclaim for breach of contract. After a bench trial, judgment was entered in favor of Defendant and against Plaintiff. The judgment of the trial court is affirmed in part and reversed in part.


         In December 2010, with the assistance of his adult children, Plaintiff, a New York resident, began exploring the purchase of a classic automobile. Upon reviewing and searching eBay, an online auction and shopping website, Plaintiff discovered a 1954 Cadillac convertible ("Cadillac") that was listed for sale. This Cadillac was owned by and listed on eBay by Defendant, a classic car automotive dealer located in St. Louis County.

         Plaintiff's son contacted Defendant, via email, to express Plaintiff's interest in purchasing the Cadillac. Prior to presenting an offer to Defendant for purchase of the Cadillac, Plaintiff employed, at the cost of $350, the services of Mark Hiatt ("Hiatt"), a Missouri certified appraiser of classic cars. Hiatt prepared and delivered to Plaintiff a report, indicating several cosmetic items in need of repair.

         Based upon the report developed by Hiatt, Plaintiff contacted Defendant to request certain repairs be performed. Defendant agreed to undertake said repairs; however, there exists considerable conflicting evidence as to who was to pay for the same.

         On January 5, 2011, Defendant prepared the necessary paperwork, including a Retail Buyers Order ("RBO"), to effectuate the purchase of the Cadillac, and faxed this paperwork to Plaintiff. The RBO represented a sale price of $60, 000 and required a $1, 500 non-refundable deposit. The RBO included no language or representation regarding Plaintiff's requested repairs or which party was to pay for said repairs.[1]

         Upon receipt, Plaintiff executed the paperwork, including the RBO, and faxed the same back to Defendant on January 5, 2011. On that same date, Plaintiff provided to Defendant a $1, 500 deposit, via a credit card transaction, and Defendant removed the Cadillac from the eBay website.

         Additionally, on that same date, Plaintiff mailed to Defendant a $5, 500 check. The purpose of the $5, 500 check is the source of contention. Defendant claims the $5, 500 check was an additional deposit, made to secure the purchase of the Cadillac and was to be used toward the balance of the purchase price and requested repairs. Plaintiff contends Defendant verbally requested $7, 000 as a deposit, with only $1, 500 being non-refundable, in order to effectuate the sale of the Cadillac and to remove the Cadillac from the eBay website.

         On January 19, 2011, Plaintiff and his son traveled from the State of New York to St. Louis to inspect the Cadillac at Defendant's business. Upon a personal inspection of the Cadillac, Plaintiff discovered several faults and defects that Plaintiff was purportedly unaware of at the time of executing the RBO and paying Defendant pursuant to the parties' RBO and verbal agreement. These defects prompted Plaintiff's hesitation to follow through with the purchase. After returning to New York, on January 23, 2011, Plaintiff's son sent an email to Defendant rescinding the contract for the sale of the Cadillac.

         On January 25, 2011, Defendant responded to the email, informing Plaintiff that the full $7, 000 deposit would be retained by Defendant and not returned to Plaintiff.

         In April 2013, Plaintiff filed a three count petition ("Petition") in the Circuit Court of St. Louis County against Defendant, alleging, inter alia, Defendant violated the MMPA through unlawful retention of the full $7, 000 deposit. In support thereof, Plaintiff asserted the liquidated damages provision of the RBO permitted Defendant to retain only $1, 500 of the deposit, not the full $7, 000. The liquidated damages provision of the RBO read as follows:

FAILURE OR REFUSAL TO ACCEPT DELIVERY: Unless this Purchase Order shall have been cancelled by Purchaser under and in accordance with the provisions of paragraphs "1" and "9" above, Dealer shall have the right, upon failure or refusal of Purchaser to accept delivery of the vehicle ordered and to comply with the terms of this Purchase Order, to retain as liquidated damages any cash deposit made by the Purchaser, and in the event a vehicle has been traded in as part of the consideration for the vehicle ordered by the Purchaser hereunder to sell such traded-in vehicle and reimburse himself with the proceeds of such sale for the expenses specified in paragraph "1" above and for such other expenses and losses as Dealer may incur or suffer as a result of such failure or refusal by Purchaser.

(emphasis added).

         Defendant filed a counterclaim for breach of contract. After a two day bench trial, the trial court entered judgment in favor of Defendant and against Plaintiff: (1) finding Defendant did not violate the MMPA by retaining the full $7, 000 deposit; (2) awarding Defendant $16, 019.85 in actual damages on Defendant's breach of contract counterclaim; and (3) awarding Defendant $43, 033.75 in attorney's fees and $5, 147.92 in court costs.

         This appeal follows.


         Plaintiff advances three points on appeal. In his first point, Plaintiff contends the trial court erred as a matter of law in finding against Plaintiff in his cause of action under the MMPA, in that Defendant unlawfully retained $5, 500 under the guise of liquidated damages. Plaintiff maintains the RBO's liquidated damages provision limited Defendant's damages to only $1, 500.

         Second, Plaintiff avers the trial court erroneously declared or misapplied the law by awarding Defendant both liquidated damages in the amount of $7, 000 and actual damages in the amount of $16, 019.85.

         Third, Plaintiff disputes the trial court's award of $43, 033.75 in attorney's fees in favor of Defendant. Specifically, Plaintiff argues an award of attorney's fees in favor of a defendant under the MMPA is erroneous as matter of law, in that said award contravenes the legislative intent and purpose of the MMPA.

         Standard of Review

         This court will affirm the judgment of the trial court in a bench-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. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976); see also Repair Masters Const., Inc. v .Gray, 277 S.W.3d 854, 857 (Mo. App. E.D. 2009). We view the evidence and any inferences therefrom in the light most favorable to the trial court's judgment, and we will disregard all contrary evidence and inferences. Star Dev. Corp. v. Urgent Care Assocs., Inc., 429 S.W.3d 487, 491 (Mo. App. W.D. 2014). We defer to the trial court's determination of witness credibility and the weight given thereto. Id.

         However, when the issue to be determined on appeal is a question of law, such as issues of statutory interpretation and contract interpretation, "no deference is due to the trial court's judgment and our review is de novo." City of Richmond Heights v. Waite, 280 S.W.3d 770, 774 (Mo. App. E.D. 2009).


         Point I-Validity of Liquidated Damages Provision

         In his first point on appeal, Plaintiff contends the trial court erred as a matter of law in overruling Plaintiff's cause of action under the MMPA and awarding Defendant $7, 000 as and for liquidated damages. Specifically, Plaintiff argues the liquidated damages provision incorporated in the RBO limits Defendant's liquidated damages to only $1, 500, and Defendant's retention of any sum over that amount violated the MMPA.

         Ostensibly, Plaintiff maintains, in the alternative, should this court find the liquidated damages provision does not, as a matter of law, limit Defendant's liquidated damages to only $1, 500, the trial court's award of $7, 000 in liquidated damages to Defendant was, nevertheless erroneous. In support thereof, Plaintiff avers that $7, 000 was neither a reasonable forecast of Defendant's harm, nor were Defendant's damages difficult to accurately discern.

         A. Rules Governing Liquidated Damages

         "Liquidated damages are a measure of compensation which, at the time of contracting, the parties agree shall represent damages in a case of breach." Paragon Grp., Inc. v. Ampleman, 878 S.W.2d 878, 880 (Mo. App. E.D. 1994). Conversely, "a penalty [clause] is not a measure of compensation for contract breach, but rather, a punishment for default or a security for actual damages sustained due to non-performance which incorporates the idea of punishment." Goldberg v. Charlie's Chevrolet, Inc., 672 S.W.2d 177, 179 (Mo. App. E.D. 1984); see also Star Dev. Corp, 429 S.W.3d at 491 ("[P]enalty clauses serve as punishment for a default or breach.").

         Ordinarily, "penalty clauses" are disguised as liquidated damages clauses. Cf. Muhlhauser v. Muhlhauser, 754 S.W.2d 2, 5 (Mo. App. E.D. 1988) (a clause demarcated as a "penalty" clause, may, nevertheless, be a liquidated damages clause); see also Restatement of Contracts § 339, cmt. b. ("The payment promised may be a penalty, though described as liquidated damages, and vice versa."). The mere branding of a provision in a contract as one of "liquidated damages" does not, however, make it so. Hawkins v. Foster, 897 S.W.2d 80, 85 (Mo. App. S.D. 1995). If, in fact, said provision is a penalty, the labeling of the clause is of no consequence. Id.; Boulware v. Crohn, 99 S.W. 796, 800 (Mo. App. 1907) ("Calling a sum liquidated damages is not conclusive of its character."). Accordingly, the import of construing purported liquidated damages provisions cannot be overstated, in that, generally, liquidated damages clauses are valid and enforceable, whereas "penalty clauses" are invalid and unenforceable. Grand Bissell Towers, Inc. v. Joan Gagnon Enters., Inc., 657 S.W.2d 378 (Mo. App. E.D. 1983).

         "There is no bright line separating a liquidated damages clause from a penalty clause." Burst v. R.W. Beal & Co., Inc., 771 S.W.2d 87, 90 (Mo. App. E.D. 1989). However, in construing and distinguishing between valid liquidated damages clauses and invalid penalty clauses, this court is guided by Restatement of Contracts § 339 (1932), which has been adopted by the Supreme Court of Missouri. Taos Const. Co., Inc. v. Penzel Const. Co., Inc., 750 S.W.2d 522, 525-26 (Mo. App. E.D. 1988); see also Grand Bissell Towers, Inc., 657 S.W.2d at 379 (adopting Restatement of Contracts § 339). Pursuant to § 339 of the Restatement of Contracts:

(1) An agreement, made in advance of breach, fixing the damages therefor, is not enforceable as a contract and does not affect the damages recoverable for the breach, unless
(a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and
(b)the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation.

         Restatement of Contracts § 339; see also Restatement (Second) of Contracts § 356 (1981) (cited with approval by Paragon Grp, Inc., 878 S.W.2d at 881).[2]

         Furthermore, in deciphering alleged liquidated damages provisions, the intent of the parties governs. Star Dev. Corp., 429 S.W.3d at 492; see also Goldberg, 672 S.W.2d at 179 ("The case law and treatises indicate that . . . it is the intent of the parties and the special circumstances of the cases which control; not the contract terminology."). As such, "whether an agreement sets forth a penalty or liquidated damages [clause], we look to the intention of the parties as ascertained from the contract as a whole." Diffley v. Royal Papers, Inc., 948 S.W.2d 244, 246 (Mo. App. E.D. 1997).

         B. The Liquidated Damages Provision Does Not, Per Se, Limit the Damages that May be Awarded.

         First, it must be noted that Plaintiff does not contend the liquidated damages provision of the RBO is invalid per se. Rather, Plaintiff merely asserts the liquidated damages provision limits, as a matter of law, Defendant's liquidated damages to only $1, 500. Essentially, Plaintiff concedes a liquidated damages award of $1, 500 as valid and enforceable, but challenges a liquidated damages award greater than $1, 500. Although we note the novelty of Plaintiff's argument, we are not persuaded.

         On January 5, 2011, upon execution of the RBO, Plaintiff provided to Defendant a $1, 500 "non-refundable" deposit via a credit card transaction. Shortly thereafter, on the same date, Plaintiff provided to Defendant a check valued at $5, 500.

         In the instant matter, the RBO included a liquidated damages provision which provided for the forfeiture of "any cash deposit made by the Purchaser[.]" The full liquidated damages provision is set forth, in toto, supra.

         At trial, there was conflicting evidence adduced regarding the purpose of the $5, 500 payment and whether said payment was non-refundable or refundable. However, grounded upon the liquidated damages provision incorporated in the RBO and the evidence presented at trial, the trial court awarded Defendant $7, 000 in liquidated damages and denied Plaintiff's Petition alleging a violation of the MMPA. In calculating the liquidated damages award, the judgment of the trial court stated, in relevant part, as follows:

39. On January 5, 2011[, ] [Plaintiff] signed each of the above documents, and returned them ...

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