RSS Feed

Author Archives: Harry Styron

Tesla slips the noose of regulatory capture in Missouri


A regulated industry sometimes is able to use a regulatory agency to restrict competition. In Missouri, licenses for dealers of new cars have been issued only to applicants which hold franchises granted by manufacturers, with the franchisees each maintaining a place of business within the state. The value of a dealership is strengthened if a manufacturer cannot open a competing dealership.

Under Tesla’s business model, purchasers buy directly from the manufacturer, not from a separate dealership. Tesla granted itself a franchise and was thus both franchisee and franchisor, sparing customers the cost of supporting a separate dealership.

The Missouri Automobile Dealers Association (MADA) sued the Missouri Department of Revenue and Tesla Motors, claiming that issuing the license to Tesla created “a non-level playing field.” The Cole County Circuit Court determined that MADA had a right to challenge the issuance of the license to Tesla and agreed with MADA that the issuance of the license to Tesla was unlawful.

The Missouri Court of Appeals reversed the Circuit Court, holding that MADA (as well as another car dealer and a motor vehicle manufacturer) had no right to challenge the issuance of the license to Tesla, lacking standing. The appellate court examined the motor vehicle licensing statutes and found that the statutes permitted an applicant to challenge the refusal of the Department of Revenue to issue a license, but said nothing about the right of a dealer to challenge the issuance of a license to a potential competitor. Moreover, a court could not order the Department of Revenue to revoke the license, because the Department’s power to do so depended upon the existence of specified acts or events that were deemed by the Department’s director to be a “clear and present danger to the public welfare.” The director had not made such a discretionary finding.

The appellate court characterized the MADA challenge as that of “competitors seeking to avoid competition and not as vindicators of the a larger public interest.” Thus Missouri follows several other states that have allowed Tesla’s business model to disrupt old ways of doing business.

Uber and Lyft, Airbnb and HomeAway, and Zillow are similarly changing the economy, taking advantage of internet and smartphone technology to be responsive to consumer preferences. Lobbyists will have plenty to do.

Advertisement

Book Review: James Fork of the White River, Transformation of an Ozark River

Book Review:  James Fork of the White River, Transformation of an Ozark River

Published by Lens & Pen Press, 4067 Franklin, Springfield MO 65807, $35 (buy both James Fork of the White River and Damming the Osage for $52.50 postpaid), 351 pages.

The evolution of a river in the modern era has many dimensions—geology, politics, cultures, the rise and fall of towns, commerce—and Crystal and Leland Payton have once again used various techniques to capture the modern history of the James River in Southwest Missouri. These techniques involve reproduction of old photographs, maps, and promotional brochures, and lavish new photographs. Combining these graphics with a penetrating verbal narrative, the Paytons have given us what we all want and need to know about the White River’s largest Missouri tributary.

The James originates on the dome of the Springfield Plateau, east of Springfield, near Mansfield. Other streams radiate from this high elevation—the Niangua and the Osage Fork of the Gasconade flowing northward, Bryant Creek and the North Fork of the White flowing southeastward, Swan and Bull creeks flowing south, and the James, initially flowing westward before taking a southward turn at Springfield to eventually reach the White River a few miles above Kimberling City.

Drawing on the pioneering archaeological work of Carl and Eleanor Chapman, whose courses and books about Missouri anthropology and archaeology shaped a couple of generations of students including me, the Paytons summarize what is known about occupants of the valley over the past 12,000 years until the first Anglo-Americans began visiting, then settling, in the past three centuries.

The text, supported by photographs, depicts the valley of the James and its tributaries east of Springfield as an agricultural area, once dominated by general farming, changing to cattle ranching. The authors point out that the substantial Amish communities have continued to raise a variety of crops and livestock, along the tributaries such as Panther Creek and the upper Finley.

Proceeding westward, the James and especially its tributaries that drain Springfield (Pearson, Jordan, Fassnight and Wilson creeks), are urban streams, carrying loads of contaminants. Jordan Creek runs through the heart of downtown Springfield, much of it in underground culverts; the Paytons do a great job of explaining the history and politics of burying Jordan Creek and the progress toward its exhumation and restoration. A interesting tidbit appears in a sidebar, connecting the Jordanaires vocal group that backed Elvis to this stream, a small point that typifies the richness of this book.

In addition, the role of John Woodruff, a Springfield business mogul in the years before World War II, in the development of Springfield and his pursuit of the Arcadian style of tourism is also connected to the James River. In their various books, the Paytons have explicated the attempts of various Ozarks promoters, like Woodruff, to present living and vacationing in the Ozarks as a step back into a perpetual paradise. The idea is both attractive and hollow, and the Paytons use advertising materials and historical photographs to show the efforts made to puff up this ideal, which can never been sustained.

The middle section of the James River Valley, from Springfield to Galena, has a history connected to the Arcadian ideal, some deep hill country culture, and geological curiosities. Here you’ll learn about Browns Spring, Hurley, Jenkins, Ponce de Leon, and Montague.

Galena, with a railroad, became the jumping off point for the classic Ozark float industry that began early in the 20th century. The railroad brought customers from Kansas City, Saint Louis and other Midwestern metropolises. At Galena, they could be placed into long, flat-bottomed boats, and spend several days fishing, camping and drinking, before disembarking at Branson. From there, they and their boats would be loaded on a northbound train to return them to Galena, and eventually take the fishermen to their homes. While there are lots of photos of strings of fish, I suspect that much of what happened on the river stayed on the river.

The lower James, more than the middle section, was caught up in the clamoring for a dam. The story of how the Corps of Engineers wrested dam-building away from private enterprises is well-told in the the Payton’s earlier book Damming the Osage. Similarly, with the boosting of engineering and construction firms, local politicians (especially Dewey Short) and chambers of commerce became convinced that the national interest would be served by a dam and reservoir on the White River, just below the point where the James River emptied in. The machinations resulting in the selection of the Table Rock dam site and the construction of the dam is fascinating and occupies a significant portion of the book.

I’m especially happy that the Paytons are interested in the economic and ecological health of the James River Valley. They have included opinions of several knowledgable people and provided their own thoughtful synthesis.

A short final section is entitled Guardians of Water Quality, and describes the good work of several organizations and individuals who are dedicated to monitoring, protecting and improving the water of this compromised system. The organizations mentioned are the James River Basin Foundation, Ozarks Water Watch, Watershed Committee off the Ozarks, and the Ozarks Environmental and Water Resources Institute at Missouri State University. I have worked with all these organizations, and believe that the work of each of them in public education will be helped by the publication of the James Fork of the White River.

SB 656: Missouri’s New Statute on Carrying Concealed Firearms and Standing Your Ground


Springfield criminal defense attorney Shane Cantin has written a well-balanced article that examines Missouri’s new legislation, SB 656, “Missouri Concealed Carry & Castle Doctrine: What You Need to Know.”

SB 656 does away with the requirement of training and a permit for carrying concealed firearms. The business of concealed carry classes and permits will still go on, though perhaps with smaller enrollments.   Missourians carrying their weapons to states that require permits will need a permit from Missouri to carry a firearm in those states.

Because of the lack of necessity of attending a class and obtaining a permit, it is possible that more people will wish to buy handguns to carry. My guess, though, is that most of the people who wish to own handguns already have purchased them, and the new law will not boost sales. As young people turn 19 and thus fall under the new law, they may purchase handguns, and some of these may enjoy the hobby of collecting and trading guns. Events, such as the Orlando shooting and the election of candidates perceived as anti-gun, often spur gun sales, more than changes in state law. I wonder about how many people who once start carrying concealed firearms continue to do so.

The modification of the castle doctrine to a stand-your-ground law expands the scope of justification as a defense to the use of lethal force. The duty to first retreat and the requirement of being in one’s home or on one’s property are eliminated. While there may be an increase in shootings due to more people being armed and feeling empowered to use guns to resolve disputes and more opportunity for accidental shootings, I am not expecting there to be any substantial economic effect from the new law. The vast majority of people who lawfully carry guns will not display or use them.

 

 

 

 

Breaking bad; closing good. So is walking away.


The rebound of the real estate market in the Ozarks seems very real, judging from the calls I get from stressed out buyers and sellers who are approaching closing dates.

Buyers sometimes want break contracts, and sellers want to force the buyers to close.

If the buyer has not made objections to the condition of the property in the proper time, or if the reason for wanting out seem weak (by “weak” I mean petty or based on alleged fraudulent concealment that shouldn’t have fooled an inspector), I tell them to either close or buy their way out with money. It is difficult for a buyer to prove that a seller has breached a contract, and spending two or three years in a lawsuit  is a very expensive way to not have fun.

If a seller calls me because a buyer is threatening to walk away from the contract, I tell the seller that a suit for specific performance (asking the judge to force the buyer to close) is unlikely to be successful and would result in the property being taken off the market while the suit is pending.

The seller’s other alternative is to sell the house to someone else, then sue the buyer for damages, which are the difference between the contract price in the first contract and the price at which the property actually sells. In a rising market, there’s a good chance of finding another buyer and perhaps getting a better price, so litigation is unnecessary.

When I get these calls, here’s what I’m really thinking. I might have been able to prevent this situation if I had been asked to assist in the preparation of the contract. I would get to meet the client when the client was happy, rather than angry.

I could have looked at the title history to the property. I could have given advice based on my long experience in this market and knowledge about such things as:

  • subdivision covenants,
  • the developer of the subdivision,
  • the builder’s reputation,
  • how well the HOA is functioning,
  • drainage and road maintenance,
  • past or pending litigation involving the property or the subdivision

Instead, I speak to people who are already upset, who seem to resent that I don’t see the other party as a villain, and who have to make a decision in the next 24 hours.

It’s a joke among lawyers that a friend or client will call a lawyer to complain about a $200 traffic ticket, but will not talk to the lawyer about a $300,000 real estate contract. So when I get the call, I have to work really hard to be sympathetic.

Owner of philandering bull strictly liable but comparatively at fault for neighbor’s injuries


When Taylor’s bull crossed the fence, attracted by Coble’s heifers, Coble hopped on his ATV. The bull charged and the ATV flipped. The bull mounted–not the heifer–but the ATV, pinning Coble, who was seriously injured. In Coble v. Taylor, the Missouri of Appeals for the Southern District reviewed Missouri’s fencing laws to affirm that Taylor was liable for Coble’s injuries resulting from his attempt to drive the bull back home. The jury awarded damages for Coble’s injuries; however, the damage award was reduced, based on the jury finding that Taylor was 65% at fault and Coble was 35% at fault.

Under Missouri’s fencing laws, particularly section 272.030, an owner of livestock is liable for damages sustained if his animal trespasses by breaching a lawful fence.

Taylor (the owner of the bull) argued that the fence was not an “exterior” fence (one along a public road, not a fence that separates the land of two different owners), but a partition fence, and therefore was not the kind of fence that section 272.030 referred to. The appellate court stated that section 272.030 was a modern statute that didn’t follow the old common law that limited the livestock owner’s liability to injuries resulting only breaches of exterior fences, which was related to the 19th century concept of fencing out free-ranging animals, rather than fencing them in.

Taylor also argued that the he and his wife should not be strictly liable for injuries resulting from animal trespass, so that they should not be liable for injuries caused by Coble flipping his ATV. “Strict liability” essentially means liability without regard to the actions of the person who was injured. The appeals court reviewed the Restatement (Second) of Torts, section 518, which is a distillation of appellate court decisions of state and federal courts, with commentary, to find that “any trespassing bull may be expected to attack and gore any other animal or any person who gets in his way.” Thus it is reasonable to expect that people will try to control the bull and get hurt doing so, and the owner of the bull should be liable.

Coble argued that the jury should not have been instructed to determine that he was partly at fault for the way he drove the ATV, which led the jury to only compensate him for only 65% of the damages that he proved. The appeals court said that the jury was properly instructed to apply Missouri’s comparative fault statute, because the Missouri Supreme Court has determined that the legislature intended for comparative fault to be applied whenever possible (other than cases of intentional injury), even though the idea of strict liability and comparative fault seem incompatible.

Missouri’s Sunshine Law overrides confidentiality clause in settlement agreement and advice of counsel


On advice of its attorney, the Robinwood South Community Improvement District refused to provide a copy of a settlement agreement to John P. Strake, a member of the public who requested it.  Strake sued and filed a motion for summary judgment, stating that there was no fact question regarding whether the settlement agreement (relating to a personal injury suit) was a public record; Strake also wanted the imposition of a civil penalty and the recovery of his costs and attorney fees.

On November 10, 2015, a unanimous Missouri Supreme Court in Strake v Robinwood West Community Improvement District held that the District’s reliance on its attorney’s advice to not disclose the settlement agreement did not shield the District from being held liable for knowing and purposeful violations of the Sunshine Law.

The trial judge in St. Louis County ordered the District to provide a copy of the settlement agreement. But the trial judge also entered a judgment in favor of the District, denying the civil penalty, attorney fees and costs that were sought by Strake for the District’s knowing and purposeful violation of the Sunshine Law. The trial judge’s order did not explain why exactly she declined to impose the penalty and award costs and attorney fees, noting only that the District “was relying on the advice of counsel to avoid a lawsuit for breach of contract.”

When a city or other unit of local government enters into a settlement agreement to end a lawsuit,  officials often don’t want to encourage additional claims by disclosing how much was paid to make the plaintiff go away. Most settlement agreements contain a confidentiality clause, which may contain penalties for disclosure of the settlement terms, unless ordered by a court before the settlement is final.

Private corporations are no different, but governmental bodies in Missouri have to follow the Sunshine Law, which is Missouri’s body of statutes that require disclosure of most kinds of public records, as well as requiring that meetings of governmental business be conducted in public meetings. Some kinds of governmental records may properly be closed for a time–such as the details of negotiations to buy or sell real estate or terms of proposed settlement offers in litigation–but these records must eventually become public, unless a court determines that they should remain closed. The Sunshine Law specifies very limited grounds for keeping settlement agreements closed, not allowing courts to conceal the amounts paid by or to the governmental body.

A governmental body that knowingly violates the Sunshine Law may be penalized up to $1,000, plus paying the court costs and attorney fees of the party requesting the records. The penalty is up to $5,000 if the governmental body purposely violates the Sunshine Law, which requires proof that the governmental body had “a conscious design, intent or plan” to violate the law “with awareness of the probable consequences.” The District’s attorney had advised the District that “the most prudent course” was to refuse the request to produce the settlement agreement, while pointing out the statute that required the disclosure of the settlement agreement, apparently fearing that the consequences of breaching the confidentiality clause might be more serious than the consequences of violating the Sunshine Law.

The District’s attorney’s advice provided a basis for the Supreme Court to conclude that the District had actual knowledge of its obligations under the Sunshine Law to give the settlement agreement to Strake and the consequences of not doing so, such that its decision to withhold the settlement agreement was a purposeful violation.

The American Civil Liberties Union provided legal counsel to Strake. Those who criticize the ACLU for many of its activities should recognize that the ACLU’s action in this case was non-partisan and strongly in support in openness in government. The Missouri Press Association also participated in the appeal.

 

 

Indemnity clause in commercial lease does not allow recovery of attorney fees by tenant


A person who is fired up about filing a lawsuit believes he will win and will recover his attorney fees. Lawyers in Missouri and most of the United States have to throw cold water on the prospective client, because attorney fees are not generally recoverable unless provided for by a statute or a contract between the warring parties. This is called the American Rule, apparently because the general rule is different in other countries, where the rule is “loser pays.”

I was surprised to read today an imaginative litigant had been able to convince a trial judge that an indemnity clause in a lease of commercial property would support an attorney fee award. The case is Morris Branson Theatre v. Cindy Lee LLC.

The appeals court reversed the trial court’s judgment in favor of a tenant, finding that the landlord had failed to adequately repair the leased premises from tornado damage. The trial court also ordered the landlord to pay the tenant’s legal fees, on the basis of a clause in the lease that required each party “pay, protect, indemnify and save harmless” each other from liabilities arising out of the other party’s violation of the lease. This language is typical for an indemnity clause.

The appeals court sent the case back to the trial court for additional findings of fact, based on the appeals court having determined that the definition for “premises” applied by the trial court was too broad.

Because the trial court’s judgment in favor of the tenant was set aside by the appellate court, the attorney fee award was also reversed as being moot. Anticipating that the same issue would arise again when the trial court addressed the case again (unless the parties choose to settle), the court of appeals advised the landlord and tenant and trial judge that the indemnity clause is only to be applied when landlord or tenant is required to defend a claim made by another party. The indemnity clause does not apply to litigation between the landlord and tenant.

Even though people in the Ozarks sometimes think they are quite exceptional, the court of appeals let this landlord and tenant and a trial judge know that the American Rule still applies.

Missouri Court of Appeals upholds architectural committee’s ban on outbuildings


Stanley Sellers bought a home in Woodfield subdivision and wanted to build an outdoor kitchen. He applied to the Woodfield property owners’ association’s architectural committee, which approved his plans. Without asking for approval, he then built a storage building in his yard. The POA told him that the architectural committee had adopted a rule that prohibited storage and utility buildings. Sellers asked the POA and the architectural committee to change its rules or grant him a waiver, which did not happen.

(For clarification, the document that is referred to here as “covenants” is also referred to as a “declaration” or “subdivision restrictions” or “covenants, conditions and restrictions” or “master deed” or “subdivision indenture,” depending on where you are. An association of lot owners is called a property owners’ association (POA) or homeowners’ association (HOA). “Architecture committees” are sometimes called “architectural control committees (ACCs) or design review committees (DRCs), or some other variation.)

Sellers sued, arguing that the rule against storage buildings  was invalid, because Missouri law prohibits adoption of additional subdivision covenants (“new burdens”) without unanimous approval of all lot owners, unless the covenants permit addition of new burdens on real estate by less than unanimous consent. The trial court ruled for the POA, indicating that the covenants in place before Sellers’ purchase of a lot empowered the POA to regulate “accessory structures” and allowed the architecture committee to make “guidelines and policies for the development and [sic] a residential community which is harmonious and aesthetically pleasing.” Thus the prohibition of storage buildings was a burden within the scope of the recorded covenants rather than the imposition of a new burden.

The appeals court’s decision in Sellers v. Woodfield POA, upholding the trial court’s decision, makes a few points worth remembering:

  • A court reviewing the decision of an architectural committee reviews only for reasonableness and does not substitute its opinion (for the architectural committee’s opinion) as to harmony or disharmony.
  • It doesn’t matter whether the homeowner was aware of the requirements. Though the court of appeals didn’t explain this, a purchaser of a lot is deemed as a matter of law to have knowledge of subdivision covenants applicable to the lot, if the covenants are recorded.
  • If the covenants authorize the POA or the architecture committee to make additional rules not in the recorded covenants, the lot purchaser also is deemed to have notice of this rulemaking authority and should ask about the existence of additional rules.

Missouri appeals court reverses trial court, slaps down bank that manipulated HOA


The Missouri Supreme Court, on June 30, 2015, reversed much of this Court of Appeals decision discussed in this post, reinstating the judgment of the trial court, after determining that Jefferson Bank’s amendment of the covenants was proper. The amendment removed the requirement that the HOA’s board members be residents; the Supreme Court reasoned that unanimous consent of the lot owners was not required since the nature of the amendment was to remove rather than add a restriction.

After the real estate bubble burst, many Missouri banks ended up owning a majority of lots in subdivisions, standing in the shoes of the developers–the banks’ previous customers. Banks face many challenges in their effort to sell the lots that they had to take through foreclosure; not the least is high-end architectural standards imposed by the original developer that seem unworkable in this more austere era.

Jefferson Bank & Trust found itself in this fix after it became the owner of 13 of the 18 lots in the Arbors at Sugar Creek subdivision. In 2005, the developer had recorded covenants that gave the board of the homeowners’ association (HOA) approval rights over any new construction. The owners of the five existing homes  protested when the bank and its new partner proposed to build what the homeowners characterized as “tract houses.”

Because the original HOA had been dissolved by the Missouri Secretary of State for failing to file annual reports, the bank formed a new HOA and recorded a new declaration of covenants, since it had more than 67% of the voting power, as required by the old declaration for amendment. The new declaration eliminated the old declaration’s requirement that HOA board members be residents, and the bank appointed its executives to be the new board.

After a bunch of wrangling in court, the trial court ruled that the new HOA was legitimate, that the new board acted reasonably in approving the new building plans, asking that the HOA reimburse the bank for subdivision maintenance costs paid by the bank, and awarding other damages against the lot owners.

The appeals court in this October 28, 2014 decision, agreed that the new HOA was the successor to the old HOA, but threw out the rest of the trial court’s judgment, to find that the bank acted in bad faith, having

  • relied on its acquisition of majority voting power to unilaterally deny homeowners the benefit of self-governance that they received under the original declaration
  • used its command of the subdivision’s affairs to advance in own financial interest in redeveloping the subdivision in a manner contrary to the wishes of the newly disenfranchised residents
  • violated the implied covenant of good faith and fair dealing by amending the declaration and removing the residency requirement for board members so it could appoint its own executives to the board.

Having stacked the board of the new HOA, the appeals court ruled “all the board’s subsequent actions are null and void,” including the approval of development plans submitted by the bank’s partner.

The critical factor here is the requirement of the original declaration that the HOA board members be residents. The overreaching on this issue tainted everything else that the bank did.

It’s unusual to see a court roll over a bank in favor of homeowners. My guess is that the Missouri Supreme Court will be asked to review this decision.

Quitclaim deed to living trust can terminate title insurance coverage and trigger legal malpractice claim


When my clients discovered that a neighbor’s deed included a strip of land across their driveway, I advised them to make a claim on their title insurance policy. The claim was denied, not because it wasn’t real, but because my clients had inadvertently terminated their policy of title insurance by conveying their land to their living trust by quitclaim deed rather than by warranty deed.

Title insurance in the United States is usually issued on policy forms created by the American Land Title Association (ALTA), which are adapted for each state. Before the adoption of the 2006 ALTA title insurance form, when the insured conveys all its interest in the real estate without warranty, the owner’s policy of title insurance terminates.

The primary way of conveying title insurance without warranty is by quitclaim deed, which is a common way of conveying property when payment is not made. How this custom developed, I don’t know, but it can be devastating if there is an ownership dispute.

The 2006 ALTA owner’s policy form includes living trusts as insureds under the title insurance policy, but most owner’s policies of title insurance are made on pre-2006 forms.

A lawyer setting up a living trust–or preparing a conveyance of a gift of real estate to a relative, a church or another charity–has two choices to avoid potential malpractice liability:

  • review the existing owner’s policy of title insurance to make sure that the conveyance won’t leave the the client unprotected if an ownership dispute pops up.
  • avoid using quitclaim deeds except with respect to property that the client never owned and other very limited circumstances.

 

%d bloggers like this: