Becknell v. Quinn

• Decision Date: 21 November 1983
• Docket Number: No. LR-C-81-500,LR-C-81-645.,LR-C-81-500
• Citation: 592 F. Supp. 102
• Parties: James C. BECKNELL, Individually and as Trustee of the Linda and Leslie Becknell Trusts, John D. Kettelle, Trustee of the Linda and Leslie Becknell Trusts, Plaintiffs, v. Luke W. QUINN, Otter Creek Development Company, Otter Creek Mall, Otter Creek Mall Company, Otter Creek Mall, Inc., M.G. Herring, Jr., Jacque Alexander, Defendants. James C. BECKNELL and John D. Kettelle, Trustees of the Linda and Leslie Becknell Trusts, Plaintiffs, v. FIRST NATIONAL BANK IN LITTLE ROCK, et al., Defendants.
• Court: U.S. District Court — Eastern District of Arkansas

592 F. Supp. 102

James C. BECKNELL, Individually and as Trustee of the Linda and Leslie Becknell Trusts, John D. Kettelle, Trustee of the Linda and Leslie Becknell Trusts, Plaintiffs, v. Luke W. QUINN, Otter Creek Development Company, Otter Creek Mall, Otter Creek Mall Company, Otter Creek Mall, Inc., M.G. Herring, Jr., Jacque Alexander, Defendants.

James C. BECKNELL and John D. Kettelle, Trustees of the Linda and Leslie Becknell Trusts, Plaintiffs, v. FIRST NATIONAL BANK IN LITTLE ROCK, et al., Defendants.

Nos. LR-C-81-500, LR-C-81-645.

United States District Court, E.D. Arkansas, W.D.

November 21, 1983.

Edward F. Mannino, Dilworth, Paxson, Kalish & Kauffman, Philadelphia, Pa., W. Dent Gitchel, Little Rock, Ark., for plaintiffs.

George Pike, Jr., Friday, Eldredge & Clark, Little Rock, Ark., for First Nat. Bank in Little Rock.

David M. Powell, Wright, Lindsey & Jennings, Little Rock, Ark., for Worthan Bank and Trust Co.

Richard A. Williams, Mitchell, Williams, Selig, Jackson & Tucker, Little Rock, Ark., for Otter Creek Development Co.

James M. McHaney, Owens, McHaney & Calhoun, Little Rock, Ark., for Limited Partnership defendants.

Daryl G. Raney and Darrell D. Dover, House, Jewell, Dillon, Dover & Dixon, Little Rock, Ark., for Luke W. Quinn.

O.H. Storey, III, Hoover, Jacobs & Storey, Little Rock, Ark., for Otter Creek Mall, Otter Creek, Inc., and M.G. Herring, Jr.

MEMORANDUM OPINION

H. FRANKLIN WATERS, Chief Judge.

The controversy resulting in this lawsuit arises from the operation of a limited partnership known as Otter Creek Development Company (OCDC) organized on June 7, 1971, to own, hold for development, and subsequently develop certain admittedly valuable real estate located at the intersections of Interstate 30 and Interstate 430 in southern Little Rock, Arkansas. The facts in relation to the formation of the partnership and the reasons for its formation are not substantially in dispute.

At the time the limited partnership was formed, two general partners were designated, James C. Becknell, one of the plaintiffs, and Luke W. Quinn, one of the defendants. At the time of its formation, Becknell and Quinn each contributed $100.00 in return for one partnership unit.

As part of its plan of organization, OCDC issued 2,470 partnership units to Becknell's mother, Aileen Becknell, in exchange for 322 acres of land owned by her, located at the intersection of the two highways, and issued 395 units to be divided between Quinn and Edward P. Moore in exchange for 50 acres of land owned by them. Additional units and options to acquire units were issued to certain private investors as limited partners in exchange for cash and promissory notes. By the end of 1971 a total of 5,410 units, including the option units, had been issued.

At the time that the limited partners, also defendants in the case, were allowed to invest in the limited partnership, they subscribed to a total of approximately 2,420 units, but each of them were issued only 50 units in return for $5,000.00 in cash. In addition, these limited partners each had an option to purchase 60 additional units for the same price of $100.00 per unit, or $6,000.00. However, the consideration for the option was $40,000.00, of which $5,000.00 was paid in cash and the balance of $35,000.00 represented by a promissory note payable $5,000.00 plus accrued interest annually. The options thus purchased by the limited partners could be exercised at any time upon payment of $100.00 per unit, and such payment did not accelerate the balance due on the option note. At the time of their investment, the limited partners were not allowed to purchase only the initial 50 shares, but, instead, were required to also subscribe to an additional 60 units by means of the option described above. The evidence indicated that the plan was developed to make available to the Becknell family certain tax benefits. This arrangement has caused the parties to be in substantial disagreement about where control of the limited partnership was vested at various times during the occurrences which resulted in this dispute.

All witnesses who spoke on the subject at the trial seem to agree that the purpose of the limited partnership, unquestionably, was to own and develop the subject property, and all investors recognized that this would be a long-term investment which might not produce substantial income for the investors for a number of years. Subsequent to formation of the limited partnership and issuance of the shares to Becknell's mother, Aileen Becknell, in 1971 she made a gift of her 2,470 units to two trusts created by her for the benefit of two granddaughters, the daughters of plaintiff, James C. Becknell. Mr. Becknell was named a co-trustee of these trusts.

The partnership was apparently operated without substantial dispute among the investors, with it being utilized for the purposes that all seem to admit that it had until 1979. During that intervening period apparently satisfactory progress was made toward getting the necessary utilities, zoning, and other improvements necessary to make the location attractive as a regional shopping center and other commercial ventures. According to Mr. Becknell's testimony, the split of authority between him and Quinn, the other general partner, was that Quinn was to be responsible for day-to-day operations of the partnership, and Becknell was responsible for long-range planning. Becknell was an experienced real estate agent, developer and investor in various real estate transactions.

Apparently during the period between the formation of the partnership and 1979, the partnership business progressed smoothly with no substantial dispute either between the limited partners or either of them and other investors. However, in 1975, Becknell had pledged 1,235 units belonging to the trusts of which he was a co-trustee to the First National Bank in Little Rock to secure a loan of approximately $475,000.00 and the remaining 1,235 units to Worthen Bank and Trust Company, N.A., to secure a loan in the approximate amount of $250,000.00. These loans were not made for the benefit of the limited partnership, but the monies obtained were apparently used by him to finance other of his business ventures. The evidence indicated that he was, among other things, an investor in the development of the "Train Station," the refurbishing and attempted use of the old train station in Little Rock for commercial ventures, an undertaking that apparently, to date, has not been profitable.

Both of these loans were renewed and extended by Mr. Becknell numerous times between 1975 and 1979, apparently by payment only of the interest due. Then, in late 1978, it apparently became impossible for Mr. Becknell to even pay the interest and extend the promissory notes. The evidence indicates that both of the banks holding the pledges of the partnership units belonging to the trust cooperated fully with Mr. Becknell in an attempt to help him through the financial problems which were apparently incurred by him. Finally, by letter dated November 28, 1978, First National Bank, through its attorney, advised Mr. Becknell that the indebtedness owed to it by him and various of his controlled entities, had matured on September 1, 1978, and that there was then owed a principal amount of $470,672.88, with accrued interest in the amount of $16,118.93, with additional interest accruing at the rate of $128.95 each day. The letter indicates that the bank, even then, was attempting to work with Mr. Becknell to see that these obligations were handled in some way most beneficial to him. That letter does not demand that he pay the indebtedness in full. Instead, the letter advises "We have been instructed to advise you that unless you take some action with respect to this promissory note before Tuesday, December 5, 1978, the bank will be forced to liquidate the partnership units in Otter Creek Development Company ...."

The evidence shows that Mr. Becknell had, on November 28, 1978, closed a transaction in which he sold his interest in the Train Station. It appears that he had advised officers of at least Worthen Bank, and perhaps also First National Bank, that this transaction would help solve his financial problems. He, however, apparently did not receive sufficient proceeds to pay any portion of either of the indebtednesses owed to the two banks.

In spite of the November 28, 1978, letter, no action was taken by Mr. Becknell to, in any way, resolve the problems caused by the default at First National Bank and a public sale of the partnership units pledged to it was set for November 6, 1979. The evidence indicates that First National continued to work with Mr. Becknell in an attempt to liquidate the indebtedness by other means in order that the partnership units belonging to the trust could be saved. It appears that Mr. Becknell simply could not come up with the money necessary to liquidate this indebtedness nor the Worthen indebtedness. In the meantime, Becknell had moved to Dallas and, according to the testimony of Quinn, at some point prior to the First National Bank sale of the partnership units pledged to it, an officer of the bank, Pat Koch, had advised Quinn of the sale of the partnership units, and Quinn called Becknell and asked him to return to Arkansas to attempt to save the units. According to Quinn, Becknell's reply was that it would do no good because the Arkansas usury law (at that time allowing a maximum interest rate of 10%) "had his hands tied."

During the period that Mr. Becknell's financial difficulties were coming to a head, the limited partnership had dealt, through Becknell and Quinn, with a number of developers in relation to developing the property owned by the partnership. One of those developers was Dean I. Dauley from Grand Prairie, Texas. Apparently, the negotiations with Dauley in respect to development of the property had not progressed to any substantial degree. In...