Securites and Exchange Commission v.Morriss et al
MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that the objection of Blink Marketing Group, LLC [Doc. #390 ] is sustained.. Signed by District Judge Carol E. Jackson on 4/14/16. (KKS)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
SECURITIES AND EXCHANGE
BURTON DOUGLAS MORRISS, et al.,
Case No. 4:12-CV-80 (CEJ)
MEMORANDUM AND ORDER
This matter is before the Court on the objection of Blink Marketing Group,
LLC, (Blink) to the receiver’s determination to disallow a portion of Blink’s claim for
materials and services it provided to Acartha Group, LLC. The receiver has filed a
response in support of her determination.
On January 17, 2012, the Court appointed a receiver to oversee four
investment entities established by defendant Burton Douglas Morriss, including
Acartha Group, LLC (Acartha Group). The Court subsequently established a
procedure for individuals or entities to submit claims for payment from the
receivership entities. [Doc. #234, as amended by Doc. #278]. Blink submitted a
claim for marketing materials and services it provided to Acartha Group. On April
28, 2015, the receiver notified Blink that she would recommend allowance of the
claim in part. Blink timely filed an objection seeking payment of its entire claim.
Blink is a sales and marketing communications agency. In mid-2011, Blink
produced investor presentation materials for Acartha. See Invoices dated May –
August 2011 [Doc. #390-8]. In addition, Blink proprietor William Lawlor had
multiple discussions with Morriss regarding Acartha’s corporate website. See
William Lawlor Affidavit at ¶¶ 4, 8 [Doc. #390-8 at 4]. On July 27, 2011, Lawlor
emailed Morriss an offer (called a Statement of Work or “SOW”1) to design and
execute changes to the website. Email and July 2011 SOW at §§ 1, 4 [Doc. #39712]. The July 2011 SOW addressed three components to be completed for a total
cost of $90,000. Id. It appears that Lawlor and Morriss discussed Blink’s proposal
because, on August 14, 2011, Lawlor emailed Morriss an updated SOW for work on
two components for a total cost of $75,000. Email and August 2011 SOW at § 1
[Doc. #397-13]. Lawlor’s email stated that he was “setting up team meetings” and
“collect[ing] existing content.”
On August 29, 2011, Morriss signed the August 2011 SOW. See Executed
August 2011 SOW [Doc. #390-1 at 11]. The “Approval” section that Morriss signed
provided that: “A deposit of 50% of the project costs will be required to initiate the
project.” Id. at § 5. Morriss returned the signed agreement but did not pay the
deposit. Nonetheless, Blink began work on the Acartha website “because [Lawlor]
believed Mr. Morriss would send payment as he promised and because the amount
of work involved and the intended deadlines were such that getting a head start on
the work was prudent.”2 William Lawlor’s Second Affidavit at ¶8 [Doc. #390-10 at
Also referred to as “Scope of Work” by the parties.
Lawlor states that the design Acartha requested presented “tough issues” that required “a
good deal of time and effort” to resolve. William Lawlor’s Supplemental Affidavit at ¶8 [Doc.
#454]. Blink’s timeline for completing the work was 8 to 12 weeks. August 2011 SOW at §
5 [Doc. #390-1].
On November 15, 2011, Lawlor emailed Morriss asking him to pay
outstanding invoices for the investor presentation materials and to provide
information on “timing on the Acartha site project.” [Doc. #397-14]. On December
23, 2014, Lawlor again emailed Morriss seeking payment for the invoices. No
mention was made of the Acartha website. [Doc. #397-15].
In 2015, Lawlor asked Blink’s financial officer to calculate the value of the
work that had been done on the Acartha website, applying Blink’s 2011 hourly
rates. Lawlor’s 2nd Aff. at ¶9. The financial officer reviewed the August 2011 SOW,
“wireframes” of the website, and a graphical depiction of the website. Based on that
review, Blink determined that it spent 120 hours of work on planning and design
services, for a cost of $34,670. See Blink’s Supp. to Objection [Doc. #454];
Spreadsheet [Doc. #390-10 at 18]. According to Lawlor, “a good part of the time
and work reflected” in its calculation “involved conferences with Mr. Morriss and
Acartha employees.” Lawlor’s 2nd Aff. at ¶10 [Doc. #397-9].
Blink submitted a claim to the receiver for $74,594, consisting of (1) $37,094
for its work on investor presentations and a single web page and (2) $37,500 due
under the August 2011 SOW. The receiver recommends the Court approve Blink’s
claim for $37,094 and deny the claim for $37,500.
A district court’s power to supervise an equity receivership and to determine
the appropriate action to be taken in the administration of the receivership is
extremely broad. S.E.C. v. Capital Consultants, LLC, 397 F.3d 733, 738 (9th Cir.
2005) (citation and quotation omitted). The district court has broad powers and
wide discretion to determine the appropriate relief in an equity receivership. Id. The
receivership court has the power to use summary procedures in allowing,
disallowing, and subordinating claims of creditors, so long as creditors have fair
notice and a reasonable opportunity to respond. McFarland v. Winnebago S., Inc.,
863 F. Supp. 1025, 1034 (W.D. Mo. 1994) (citing S.E.C. v. Hardy, 803 F.2d 1034,
1040 (9th Cir. 1986), and United States v. Arizona Fuels Corp., 739 F.2d 455, 458
(9th Cir. 1984)). Because a receivership court sits in equity, it also has the
authority to cancel contracts as part of its equitable powers. See id. (court has
authority to cancel instruments and contracts, including notes and deeds of trust).
The evidence supporting cancellation must be clear, cogent and convincing. See id.
(discussing authority to cancel promissory notes deeds of trust). The burden of
proof is on the party who seeks the cancellation. Id. (citing Wilkie v. Elmore, 395
S.W.2d 168, 172 (Mo. 1965).
Blink seeks $37,500.00 — the 50% deposit — due pursuant to the August
2011 contract; in the alternative, it requests $34,750.00 for its design services
under equitable principles. The receiver argues that Blink has not established either
a contractual or equitable right to payment.
It is undisputed that Morriss signed the Statement on August 29, 2011. The
receiver contends that his signature did not create a binding contract because he
did not pay the 50% deposit. Thus, according to the receiver, the Statement
remains a mere proposal. Blink counters that the Statement was an offer that
Morriss accepted when he signed it. Lawrence Andrea Mar. 3, 2015 letter at 1-2
[Doc. #390-10]. Blink asserts that the deposit requirement was “a condition
precedent that only Blink could amend or waive.” Id. at 2.
The existence of a contract requires both an offer and acceptance. Walker v.
Rogers, 182 S.W.3d 761, 768 (Mo. Ct. App. 2006). A determination of whether an
offer has been accepted depends upon what is actually said and done; it does not
depend on the understanding or supposition of one of the parties. Id. Here, Blink
made an offer in the form of an SOW. The SOW clearly defined the work to be
done, the timeline for delivery, and the terms of payment. See DeCarlo & Doll, Inc.
v. Bershtein, No. CV 9103232838, 1996 WL 456294, at *2 (Conn. Super. Ct. July
31, 1996) (verbal assent to proposal for services formed contract even without
payment of deposit because the proposed agreement was “definite and certain as
to its terms and requirements”). Morriss indicated his intention to enter into a
contract by signing the SOW and returning it. The receiver contends that Morriss’s
signature had no legal effect. But, when he signed the proposal, Morriss knew that
Blink was preparing content and scheduling meetings. There is no logical reason for
him to have signed and returned the SOW unless he intended Blink to move
forward with performance. His failure to pay the deposit does not negate the fact
that a contract was formed or that Acartha became obligated to pay the deposit.
And, the fact that Blink chose to proceed on the design work without first requiring
the deposit does not nullify or otherwise invalidate the contract. Id. (“Any
qualification of or departure from the terms in which the offer was made by the
offeror, however, invalidates the offer unless the offeror agrees to the qualification
or departure.”) In this case, Blink states it accepted Morriss’s departure from the
terms of the offer by commencing work. Under the parties’ contract, Acartha is
obligated to pay the 50% deposit.
The receiver also argues that all the work Blink performed on the Acartha
website was completed before Morriss signed the SOW on August 29, 2011, and
therefore is merely Blink’s cost of preparing the proposal.3 In support of this
contention, the receiver cites Lawlor’s July 27, 2011 email to Morriss sending (1)
the initial SOW, (2) a 4-page sitemap, and (3) “a wireframe4 around the client login
area functionality.” Email [Doc. #397-12]. According to the receiver, these
documents represent the sum total of the work Blink performed. Blink identifies
additional documents showing a much expanded sitemap, additional wireframes,
and 117 pages of web content. [Doc. #397-8 at 27-40; #397-18]. The Court finds
that the record establishes that Blink performed work pursuant to a valid contract
and is entitled to payment of the 50% deposit in the amount of $37,500.00. It is
unnecessary to address Blink’s alternative claim to payment for the work it
performed pursuant to equitable principles.
The receiver argues that she is not bound by any contracts entered into by
the receivership entities before her appointment, and that as an equity receiver she
may reject any contracts under common law. The Court does not find that equity
supports rejecting the Blink contract for the reasons argued here. The receiver
suggests that Blink’s claim will be subordinate to those of investors if there are
insufficient funds to satisfy all claims. This argument will be taken up when the
receiver presents her proposal for distribution of assets.
The Court will assume for the purposes of this memorandum that this provides sufficient
legal justification for withholding the deposit.
According to Lawlor, a “wireframe” is a visual guide showing the framework of a website.
Lawlor Aff. in Support of Supplement, March 9, 2016. [Doc. #454].
IT IS HEREBY ORDERED that the objection of Blink Marketing Group, LLC
[Doc. #390] is sustained.
CAROL E. JACKSON
UNITED STATES DISTRICT JUDGE
Dated this 14th day of April, 2016.
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