Hrr Arkansas v. River City Contractors

• Decision Date: 24 October 2002
• Docket Number: No. 01-598.,01-598.
• Citation: 350 Ark. 420,87 S.W.3d 232
• Parties: HRR ARKANSAS, INC., and Paul Davis Systems of Central Ark. v. RIVER CITY CONTRACTORS, INC., Tom Megee, and Donna Wright.
• Court: Arkansas Supreme Court

87 S.W.3d 232

350 Ark. 420

HRR ARKANSAS, INC., and Paul Davis Systems of Central Ark. v. RIVER CITY CONTRACTORS, INC., Tom Megee, and Donna Wright.

No. 01-598.

Supreme Court of Arkansas.

October 24, 2002.

COPYRIGHT MATERIAL OMITTED

Brown, Schwander, Greene & Sloan, P.L.C., by: L. Howard Schwander, III, Little Rock, for appellant HRR Arkansas, Inc.

Ross & Ross, P.A., by: Mark L. Ross, Little Rock, for appellees.

JIM HANNAH, Justice.

HRR Arkansas, Inc., d/b/a Paul Davis Systems of Arkansas ("HRR"), appeals the final order and judgment of the Pulaski County Chancery Court, Fourth Division. HRR alleges that the trial court erred: (1) by failing to dismiss the claim of Appellee River City Contractors, Inc. ("River City"), when River City lacked the capacity to sue as a corporation; (2) by failing to remit to HRR 54,000 paid to Appellee Donna Wright; (3) by refusing to grant a permanent injunction to enforce the covenants not to compete provisions of Appellee Tom Megee's "Sale of Assets Agreement" and "Associate Employment Agreement"; and (4) by awarding commissions to Megee that were contrary to the express language of the Sale of Assets Agreement and Associate Employment Agreement. We reverse and dismiss the trial court's judgment in favor of River City. We affirm the trial court on the remaining points on appeal.

The Arkansas Court of Appeals certified the instant appeal to this court as an issue of significant public interest or a legal principle of major importance. Thus, our jurisdiction is pursuant to Ark. R. S.Ct. 1-2(d)(2).

Facts

HRR is an Arkansas corporation solely owned by Eric Tucker. In 1996, HRR entered into a Sale of Assets Agreement with Megee, on behalf of River City. Megee was the sole shareholder of River City. Both HRR and River City were in the business of restoration and home repair to damaged property caused by casualty and peril, as defined in the casualty insurance business. River City was a long-established business in the central Arkansas area, and HRR had no Arkansas presence at the time of its purchase of River City's assets. HRR purchased River City to acquire an existing restoration business which had established good working relationships with insurance companies, their agents and adjusters.

The Sale of Assets Agreement was conditioned upon a commercial lease with River City, as well as the execution of an Associate Employment Agreement with Megee. Both the Sale of Assets Agreement and the Associate Employment Agreement contained covenants not to compete, which provided that "for a period of five (5) years from the date of this agreement, or two (2) years after the termination of this agreement, which ever occurs later, directly or indirectly, within a radius of ten (10) miles of 2824 Barrow Road, Little Rock, Arkansas, or such others established by [HRR]," Megee was not to "engage in the business of insurance restoration or other business substantially the same ...".

The terms relating to the sales price in the Sale of Assets Agreement indicated that HRR would pay over a period of time. In addition, the sales price could change by downward adjustments if there were shortfalls in Megee's revenue production while employed by HRR. Under the terms of the agreement, HRR would receive 20% of all customer contract prices before any commissions were owed to Megee.

After twenty-five months, the working relationship between HRR and Megee broke down. Megee was dissatisfied with the way HRR was running River City. HRR alleged that Megee made derogatory remarks, accusing Tucker of being racist and being prejudiced. HRR also alleged that Megee made "innuendos" about HRR's financial status. Megee and River City complained of unpaid commissions and past due rent. Megee's attorney sent a letter to HRR which outlined his disagreements with HRR. Immediately thereafter, HRR changed the locks on the place of business.

Appellee Wright executed a Sale of Assets Agreement with HRR, in which HRR purchased Wright's "book of business" for $4,000. The book of business included the contacts listed in Exhibit A, which was to be attached to the Sale of Assets Agreement. Wright also entered into an Associate Employment Agreement with HRR. The Sale of Assets Agreement and the Associate Employment Agreement contained covenants not to compete. The covenant not to compete in Wright's employment contract provided that, for two (2) years after termination of employment, Wright was not to "solicit or do business with any adjuster or insurance company for which [HRR] had completed estimates within the past two (2) years ...".

Megee and Wright were fired at approximately the same time. Thereafter, Megee began operating a home repair and restoration business, under the banner of River City Contractors, Inc., in North Little Rock. Wright went to work for Megee.

HRR filed a petition for injunctive relief and damages for breach of the Sale of Assets Agreement against Megee and Wright, arguing that Megee and Wright were in direct competition with HRR, in violation of the no-compete clauses contained in the Associate Employment Agreements and Sale of Assets Agreements. River City counterclaimed and asserted damages for unpaid rent. Megee counterclaimed and asserted damages for unpaid commissions under the Sale of Assets Agreement and Associate Employment Agreement. Wright counterclaimed and asserted damages for unpaid salary and benefits under the Associate Employment Agreement.

HRR, River City, Megee, and Wright submitted a joint exhibit reflecting customer contract prices and amounts actually collected. The trial court appointed a special master to perform an accounting of HRR's books and bank accounts.

At the close of trial, HRR moved to dismiss all claims by River City, asserting that River City lacked capacity to bring suit. HRR offered into evidence a certified copy of a proclamation from the Secretary of State, which stated that River City's charter had been revoked in 1996 due to River City's failure to pay franchise taxes. River City offered no evidence regarding reinstatement of its corporate charter. The trial court did not rule on the motion at that time, but stated that it would issue a letter opinion.

The trial court issued a letter opinion with the following findings. The court determined that the Sale of Assets Agreement with Wright was not a sale, but a non-compete agreement. The court declined to enforce the agreement, finding that 54000 was insufficient consideration for a non-compete agreement. The trial court did not order Wright to return the $4000 she received under the Sale of Assets Agreement. In addition, the court declined to enforce the non-compete clause of Wright's Associate Employment Agreement because Wright had not learned any trade secrets, because the non-compete clause contained no geographical location, and because Wright was terminated for reasons other than poor job performance.

The trial court declined to enforce the non-compete clause in the Sale of Assets Agreement with Megee, finding that the agreement was predicated on future job performance and was not a sale of assets. Further, the trial court found that the consideration of $26,000 paid to Megee was insufficient and unreasonable for a five-year promise not to compete. The trial court ordered Megee to return the $26,000 paid to him by HRR. The court did not enforce the non-compete clause in Megee's Associate Employment Agreement because HRR terminated Megee without just cause. In addition, the court determined that the non-compete clause was unenforceable because the geographical area was uncertain.

In an order filed October 26, 2000, the trial court awarded Megee commissions in the amount of $9,523.65. The trial court awarded River City $25,920 for unpaid rent, less roof repairs, that HRR owed to River City. The court ordered Megee to return the $26,000 paid to him by HRR. Wright was awarded $1,224.87 for three weeks' pay and two days' car allowance.

Standard of Review

Our standard of review in chancery cases is de novo. ConAgra, Inc. v. Tyson Foods, Inc., 342 Ark. 672, 30 S.W.3d 725 (2000) (Tyson I); Ferguson v. Green, 266 Ark. 556, 587 S.W.2d 18 (1979). In Tyson I, we stated:

All of the issues raised in the court below are before the appellate court for decision and trial de novo on appeal in equity cases involves determination of fact questions as well as legal issues. The appellate court reviews both law and fact and, acting as judges of both law and fact as if no decision had been made in the trial court, sifts the evidence to determine what the finding of the chancellor should have been and renders a decree upon the record made in the trial court. The appellate court may always enter such judgment as the chancery court should have entered upon the undisputed facts in the record. Tyson I, supra (quoting Ferguson, supra (citations omitted)). We have further noted that we do not reverse a finding of fact of the chancery court unless we conclude that the chancery court has clearly erred. Weigh Systems South, Inc. v. Mark's Scales & Equipment, Inc., 347 Ark. 868, 68 S.W.3d 299 (2002); Saforo & Assoc., Inc. v. Porocel Corp., 337 Ark. 553, 991 S.W.2d 117 (1999). A finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with a definite and firm conviction that a mistake has been committed. Bendinger v. Marshalltown Trowell Co., 338 Ark. 410, 994 S.W.2d 468 (1999); Saforo, supra.

Lack of Capacity to Sue

There is a near universal rule that a corporation and its stockholders are separate and distinct entities, even though a shareholder may own the majority of the stock. First Commercial Bank, N.A. v. Walker, 333 Ark. 100, 969 S.W.2d 146, cert. denied, 525 U.S. 965, 119 S.Ct. 410, 142 L.Ed.2d 332 (1998); Banks v. Jones, 239 Ark. 396, 390 S.W.2d 108 (1965). A corporation has the power to sue and be sued in its corporate name. Ark.Code Ann....