528 S.W.3d 381
Mo. Ct. App.2017Background
- GB Investments borrowed $433,500 from Frontenac Bank under a promissory note secured by real property; Gil Bashani personally guaranteed the debt. The note and guaranty include contractual attorneys’ fees clauses.
- The loan matured January 30, 2014; after default the Bank foreclosed and its subsidiary purchased the property at the foreclosure sale for $325,000. The Bank later resold the property for about $425,000.
- The Bank sued GB Investments on the note and Bashani on the guaranty seeking the deficiency and fees; Defendants filed counterclaims (breach, fraud, negligent misrepresentation) exceeding $260,000.
- Defendants repeatedly failed to comply with discovery: late/incomplete responses, failure to produce documents, a missed deposition, and their then-counsel failed to appear at a hearing on the Bank’s motion to compel. The trial court struck Defendants’ pleadings as a sanction under Rule 61.01.
- New counsel appeared, moved to reconsider (unverified, no supporting affidavits), which was denied. A bench trial proceeded limited to the Bank’s damages and fees; judgment awarded the Bank $116,894.18 (deficiency) plus $71,425.78 in attorneys’ fees; appeal followed.
- The court affirmed the sanctions and judgment, and awarded the Bank $20,000 in appellate fees.
Issues
| Issue | Plaintiff's Argument (Bank) | Defendant's Argument | Held |
|---|---|---|---|
| 1) Were pleadings properly struck as a discovery sanction? | Sanctions were justified because Defendants repeatedly violated discovery and prejudiced the Bank. | Violations were attributable to former counsel’s abandonment and should not be imputed to Defendants. | Affirmed: court reasonably found a pattern of willful discovery noncompliance, prejudice to the Bank, and no evidence of attorney abandonment; striking pleadings was not an abuse of discretion. |
| 2) Could Bank recover fees for defending counterclaims under the note/guaranty? | Fees for defending counterclaims are recoverable because those defenses related to enforcement/collection of the note and guaranty per contract language. | Contract does not extend to fees incurred defending counterclaims. | Affirmed: contractual fee clauses covered fees incurred in defending counterclaims because they were connected to enforcement/collection. |
| 3) Was the deficiency calculation erroneous by using foreclosure sale price rather than later resale price/fair market value? | Foreclosure sale credit is the proper offset; debtor did not attack or void the sale. | Court should credit the later resale price (or FMV) to avoid lender windfall. | Affirmed: Missouri precedent requires using the foreclosure sale price for deficiency calculations unless the sale is voided or shown fraudulent/grossly inadequate. |
| 4) Are appellate fees awardable under the contract? | Yes; contract expressly authorizes fees for appeals. | (Implicit) Appellate fees not warranted or should be remanded to trial court. | Awarded $20,000 on appeal: contractual language covers appeals and the issues on appeal implicated enforcement of the note/guaranty. |
Key Cases Cited
- Holm v. Wells Fargo Home Mortgage, Inc., 514 S.W.3d 590 (Mo. banc 2017) (Rule 61.01 sanctions and striking pleadings as available remedy for discovery failures)
- Cotleur v. Danziger, 870 S.W.2d 234 (Mo. banc 1994) (attorney neglect is generally imputed to client; abandonment is narrow exception)
- First Bank v. Fischer & Frichtel, Inc., 364 S.W.3d 216 (Mo. banc 2012) (use foreclosure sale price, not fair market value, in deficiency calculation absent successful attack on the sale)
- Frontenac Bank v. T.R. Hughes, Inc., 404 S.W.3d 272 (Mo. App. E.D. 2012) (applying First Bank and affirming foreclosure-sale credit in deficiency calculations)
- Stockmann v. Frank, 239 S.W.3d 650 (Mo. App. E.D. 2007) (two-prong test for striking pleadings: pattern of discovery abuse and prejudice)
- Scheck Indus. Corp. v. Tarlton Corp., 435 S.W.3d 705 (Mo. App. E.D. 2014) (standards of review for court-tried cases and deference to trial court findings)
- Lee v. Investors Title Co., 241 S.W.3d 366 (Mo. App. E.D. 2007) (contractual fee provisions permit recovery of attorney fees by prevailing contracting party)