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Frontenac Bank v. GB Investments, LLC

Court of Appeals of Missouri, Eastern District, First Division

May 9, 2017


         Appeal from the Circuit Court of St. Louis County 14SL-CC01671 Honorable Kristine A. Kerr


         GB Investments, LLC (individually "GB Investments") and Gil G. Bashani (individually "Bashani") (collectively "Defendants") appeal the order striking their pleadings as a discovery sanction. Defendants also appeal the judgment, entered after a bench trial, in favor of Frontenac Bank ("the Bank") on the Bank's action on a promissory note against GB Investments and the Bank's action on a guaranty against Bashani. We affirm.[1]

         I. BACKGROUND

         On March 17, 2004, GB Investments executed a promissory note with the Bank for $433, 500.00, and the original note was modified and restated several times (collectively "Note"). The Note was secured by a deed of trust on real property commonly known as 9974 Old Olive Street Road, St. Louis, Missouri 63141 ("the Property"). The Note includes provisions requiring GB Investments to pay the Bank's attorneys' fees incurred in connection with efforts to collect amounts under the Note.

         On April 19, 2010, Bashani, the managing member of GB Investments, executed a guaranty, whereby he personally guaranteed all obligations and indebtedness then existing or thereafter created by GB Investments in favor of the Bank, including the obligations referenced in the Note ("Guaranty"). The Guaranty, like the Note, includes a provision that gives the Bank the right to collect attorneys' fees incurred in connection with enforcing the Guaranty.

         On January 30, 2014, the Note matured pursuant to its terms, and the total amount (a total of $437, 653.90 in principal and interest) became due. After Defendants failed to pay that amount pursuant to the Note and Guaranty, the Bank foreclosed on the Property pursuant to its rights under the terms of the deed of trust. FB-Realty, LLC, a wholly-owned subsidiary of the Bank, purchased the Property at the foreclosure sale for $325, 000.00.

         A. The Bank's Petition and Defendants' Responsive Pleadings

         After the foreclosure sale, the Bank filed a two-count petition against Defendants on May 19, 2014. Count I is an action against GB Investments seeking recovery under the Note, and Count II is an action against Bashani seeking recovery under the Guaranty. The Bank's petition requested a judgment against Defendants, (1) for damages in the amount of $112, 653.90 (the total amount of $437, 653.90 due under the Note minus the foreclosure sale price of $325, 000.00); and (2) for attorneys' fees and legal expenses incurred by the Bank in connection with its efforts to collect the amounts due under the Note and in connection with enforcement of the Guaranty.

         In response to the Bank's petition, Defendants' counsel, Eugene Trams, [2] filed an answer, an affirmative defense of failure to state a claim, and three counterclaims on behalf of Defendants. Defendants' counterclaims against the Bank were for breach of contract, fraudulent misrepresentation, and negligent misrepresentation, and they sought damages in excess of $260, 000.00. The breach of contract counterclaim alleged the Bank breached an agreement to renew the Note, delayed the Note renewal process, and failed to provide sufficient time for Defendants to secure substitute financing. In addition, Defendants' fraudulent and negligent misrepresentation counterclaims related to statements made by the Bank and its regional president David Webb regarding Note renewal.[3]

         After Defendants filed their responsive pleadings, the trial court scheduled the case for trial on February 18, 2016.

         B. Procedural Posture Relating to the Discovery Process

         On August 19, 2015, the Bank served its first request for production of documents and its first set of interrogatories upon Defendants. Responses to the Bank's initial discovery request were due on September 21, 2015.

         1. Defendants' Failure to Timely and Adequately Provide Discovery Responses

         After the Bank did not receive timely discovery responses from Defendants, the Bank's counsel sent Defendants' counsel a letter on September 25, 2015, explaining that the Bank would seek action from the trial court if responses were not received by September 30.

         On October 8, the Bank filed its first motion to compel against Defendants, alleging it had still not received any discovery responses from Defendants. The Bank's motion requested the trial court to, inter alia, enter an order directing Defendants to provide discovery responses and striking Defendants' pleadings. However, the trial court did not enter a ruling on the Bank's first motion to compel.

         On October 21, the Bank received discovery responses from Defendants, which the Bank alleged were "completely lacking, " "incomplete, " and "objectionable." By letter dated November 16, the Bank's counsel informed Defendants' counsel of the specific deficiencies in the Defendants' discovery responses. The Bank received supplemental discovery responses from Defendants on November 30, 2015, which the Bank alleged "again proved to be incomplete and lacking."

         2. The Bank's Second Motion to Compel

         On January 4, 2016, the Bank filed a second motion to compel against Defendants. The motion was based upon Defendants' failure to timely and adequately provide discovery responses as set out in the previous subsection. The motion also alleged the following issues occurred with respect to three of Bashani's scheduled depositions, which were to be conducted on behalf of himself and Defendant GB Investments.

         Bashani's first deposition was scheduled for the morning of Tuesday, December 1, 2015. However, on Monday, November 30, at 4:34 p.m., the Bank's counsel received an email notice from Defendants' counsel informing the Bank that Bashani would not be appearing at the deposition. According to Defendants' counsel, the canceling of the deposition was caused by Bashani and not any failure on the part of Defendants' counsel; an email sent by Defendants' counsel to the Bank's counsel on December 1st states Bashani "was unreachable, and then dumped th[e] news on [Defendants' counsel] late yesterday." The parties' agreed to continue the deposition to Friday, December 4.

         Bashani and Defendants' counsel both appeared at the December 4 deposition. During the deposition, Bashani continuously referred to documents that he had access to, but which had not been produced to the Bank during discovery. Accordingly, the parties agreed to continue the December 4 deposition until December 11 to allow Defendants and their counsel time to produce the documents to which Bashani referred to in his deposition testimony. Defendants' counsel told the Bank's counsel he would get him the documents prior to the rescheduled December 11 deposition. However, Defendants' counsel did not ever provide any documents to the Bank. In addition, Defendants and their counsel failed to appear at the rescheduled December 11 deposition, and they did not send or have any communication with the Bank's counsel informing the Bank that they did not intend to appear. Furthermore, the record reflects Defendants' counsel's appearance and representation of Defendants at the December 4 deposition is the last action counsel took on behalf of Defendants.

         The Bank's second motion to compel alleged, "Defendants' conduct is outrageous and is prohibiting the Bank from preparing its case for the February 18, 2016 trial and to defend against the counterclaims filed against the Bank by the Defendants." In addition, the Bank's motion requested the court to, inter alia, enter an order striking Defendants' pleadings, including their counterclaims against the Bank.

         C. The Trial Court's Order Striking Defendants' Pleadings, the Entry of Appearance of Defendants' New Counsel, and Defendants' Motion for Reconsideration

         On January 27, 2016, the trial court held a hearing on the Bank's second motion to compel. On that same date, the court entered an order granting the Bank's motion and striking Defendants' pleadings, including their counterclaims. The trial court's order states in relevant part:

. . . Counsel for [the Bank] appears. Counsel for [Defendants] fails to appear or otherwise contact the court. This matter was set at 9 a.m. The [c]ourt called the number listed for [Defendants'] counsel (on the MO Bar web site) and left a message, requesting that counsel contact the [c]ourt. This was at 9:35 a.m. No response. The [c]ourt notes that counsel for [Defendants] set today's hearing for [a] status conference. Further, this matter is set for trial on February 18, 2016 at 9 a.m. The [c]ourt expects to proceed with trial on that date, with or without [Defendants].
Before the [c]ourt today is [the Bank's] second motion to compel discovery responses and for sanction[s]. The [c]ourt takes judicial notice of its file, including but not limited to the allegations in the motion before the [c]ourt today (along with attached exhibits). The [c]ourt finds that it has no choice but to grant the relief requested by [the Bank], especially given the failure of counsel for the [D]efendant[s] to communicate with the [c]ourt in any fashion at all. Motion to strike the pleadings of [Defendants] and [their] counterclaims is granted. The court reserves ruling on the motion of [the Bank] for attorneys' fees and costs, given that this matter is set for trial in the near future.

         On February 5, 2016, Defendants' new counsel, Christopher Swiecicki, entered his appearance for Defendants. On that same date, Swiecicki, on behalf of Defendants, filed an unverified motion for reconsideration of the trial court's order striking Defendants' pleadings. No exhibits, including any statement or affidavit by Bashani, are attached to Defendants' motion. Instead, Defendants' motion simply makes bare allegations regarding their interaction (or lack thereof) with their former counsel, Trams. The trial court subsequently denied Defendants' motion for reconsideration.

         D. The Bench Trial and the Trial Court's Judgment

         On February 18, 2016, the trial court held a bench trial on the Bank's action on the Note against GB Investments and the Bank's action on the Guaranty against Bashani.[4] Counsel for the Bank and counsel for Defendants (Swiecicki) appeared at the trial. Because Defendants' pleadings had been stricken, the focus of the trial was on the Bank's damages and attorneys' fees. In support of its claim, the Bank presented testimony of its general counsel, David Wulkopf, in the form of an affidavit and live testimony. Attached to Wulkopf's affidavit are exhibits including the Note, the Guaranty, and bills the Bank had received for attorneys' fees.

         Wulkopf testified that after the Bank foreclosed on the Property pursuant to its rights under the terms of the deed of trust, FB-Realty, LLC, a wholly-owned subsidiary of the Bank, purchased the Property at a foreclosure sale for $325, 000.00. Wulkopf also testified that sometime after the purchase at the foreclosure sale, FB-Realty, LLC sold the Property. When counsel for Defendants (Swiecicki) asked Wulkopf if the Bank received $425, 000.00 from the post-foreclosure sale, Wulkopf replied, "We did sell the [P]roperty. I'm not - I don't have the contract, I was not prepared for that so I don't know the exact purchase price or sale price."[5]

         Wulkopf indicated during his testimony that the Bank was requesting a judgment against the Defendants in the total amount of $188, 319.96, which consisted of damages and attorneys' fees. Defendants' counsel (Swiecicki) cross-examined Wulkopf as to the requested amount of damages and attorneys' fees.

         After the bench trial, the trial court entered a judgment in favor of the Bank in the amount of $188, 319.96. Consistent with Wulkopf's testimony and the Bank's bills for attorneys' fees, that figure represented the sum of, (1) $116, 894.18 in damages, which was the amount of principal, accrued interest, and accrued charges due and outstanding under the Note, after applying all credits including the $325, 000.00 foreclosure sale price of the Property; and (2) $71, 425.78 in attorneys' fees, which was the amount of fees the Bank incurred during the proceedings before the trial court, including some fees the Bank incurred in defending the Defendants' counterclaims. Defendants appeal.[6]


         Defendants raise three points on appeal. In their first point, Defendants argue the trial court erred in entering the order striking Defendants' pleadings as a discovery sanction. In their second point, Defendants assert the trial court erred in awarding the Bank attorneys' fees it incurred in defending Defendants' counterclaims. And in their third point, Defendants contend the trial court's judgment erroneously calculates the Bank's damages.

         In addition, the Bank has filed a motion for attorneys' fees on appeal, ...

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