Ibac Corp. v. Becker

• Decision Date: 25 October 2007
• Docket Number: No. 07-252.,07-252.
• Citation: Ibac Corp. v. Becker, 265 S.W.3d 755, 371 Ark. 330 (Ark. 2007)
• Parties: IBAC CORP., Nylkoorb Management Group, Inc., The Royal Arkansas Hotel and Suites, Inc., Turner Hughes Corp., Wayne Burmaster, and Edward Hayster, Sr., Appellants, v. Gerhardt BECKER, International Hotel Management, Inc., Appellees.
• Court: Arkansas Supreme Court

265 S.W.3d 755

371 Ark. 330

IBAC CORP., Nylkoorb Management Group, Inc., The Royal Arkansas Hotel and Suites, Inc., Turner Hughes Corp., Wayne Burmaster, and Edward Hayster, Sr., Appellants, v. Gerhardt BECKER, International Hotel Management, Inc., Appellees.

No. 07-252.

Supreme Court of Arkansas.

October 25, 2007.

John David Coulter, John Keeling Baker, Little Rock, AR, for Appellant.

Michael W. Boyd, Pine Bluff, AR, for Appellee.

JIM GUNTER, Justice.

This appeal arises from a restraining order and an order to inspect, entered on February 21, 2007, by the Jefferson County Circuit Court against IBAC Corporation (IBAC), Nylkoorb Management Group, Inc. (Nylkoorb), Turner Hughes Corporation (THC), Wayne Burmaster, Edward Hayter, Sr., and The Royal Arkansas Hotel and Suites, Inc. (Royal) (collectively Appellants). Appellants now bring this appeal and ask us to set aside the restraining order. Appellant Royal also asks that we dissolve the order to inspect. We reverse the circuit court's orders and remand for further proceedings.

On February 13, 2007, Gerhardt Becker and International Hotel Management, Inc., (collectively Appellees) filed a complaint in the Jefferson County Circuit Court against Appellants alleging various causes of action, including fraud, breach of contract, and breach of fiduciary duty and sought a liquidation and dissolution of Royal. Appellees also requested that the circuit court enter an order to inspect the financial records of Royal pursuant to Ark.Code Ann. § 4-27-1604 (Supp.2007). Appellees further sought a restraining order prohibiting Appellants from:

misappropriating, or misusing corporate funds and assets, from paying any expenditure of the corporation except corporate expenditures incurred in the ordinary course of business, from operating the corporation in any manner other than in the ordinary course of business, from selling, concealing, moving, mortgaging, pleading, encumbering, damaging, destroying, impairing, conveying, obligating or otherwise disposing of any corporate asset of The Royal, Inc.; and from destroying, transferring, concealing, altering any corporate record except in the ordinary course of business, from backdating any existing corporate record, from disbursing any bonuses or dividends to any officer or shareholder, from transferring any corporate stock or ownership, and from impairing stock in any way, and from interfering with a complete audit of the corporation's financial records and transactions.

On February 21, 2007, the circuit court entered a restraining order, stating that "[i]rreparable harm or damage will or might result to Plaintiffs if preliminary injunctive relief is not granted." The order stated that Appellants were restrained and enjoined from the following:

a) misappropriating or misusing corporate funds and assets, from paying any expenditure of the corporation except corporate expenditures incurred in the ordinary course of business,

b) from operating the corporation in any manner other than in the ordinary course of business,

c) from selling, concealing, moving, mortgaging, pledging, encumbering, damaging, destroying, impairing, conveying, obligating or otherwise disposing of any corporate asset of the Royal Arkansas Hotel and Suites, Inc..;

d) from destroying, transferring, concealing, altering any corporate record,

e) from creating any corporate record except in the ordinary course of business,

f) from backdating any existing corporate record,

g) from distributing any bonuses or dividends to any officer or shareholder,

h) from transferring any corporate stock or ownership,

i) from impairing stock in The Royal Arkansas Hotel and Suites, Inc. in any way, and

j) from interfering with a complete audit of the corporation's financial records and transactions.

The circuit court also ordered Appellants to allow the inspection and copying of Royal's records. The circuit court did not conduct a hearing before entering these two orders. On March 13, 2007, Appellants filed their joint notice of appeal seeking interlocutory review and reversal of the restraining order and the order to inspect. Appellants now bring this appeal.

For their first point on appeal, Appellants argue that the restraining order should be vacated because the circuit court failed to comply with Rule 65 of the Arkansas Rules of Civil Procedure (2007). Specifically, Appellants assert that the restraining order was entered without a showing of irreparable harm or likelihood of success on the merits. Appellants also argue that Appellees failed to satisfy the requirement under Ark. R. Civ. P. 7 (2007) by failing to submit a written or oral motion for injunctive relief. Royal further contends that the restraining order should be dissolved because it was issued without notice.

Appellees argue that, although the restraining order is "succinct," it sets forth that irreparable harm will or may result if the order is not entered and goes on to describe with particularity each act prohibited. They assert that the restraining order clearly meets the standards set forth in Rule 65(e). They also contend that Appellants' complaint regarding their ability to address the restraining order should have been raised with the circuit court pursuant to Rule 65. Appellees do not make an argument concerning Rule 7, except to provide a conclusory statement that they complied with the rule.

Royal also argues that the circuit court committed reversible error by entering the order to inspect without providing Royal the opportunity to answer the complaint, engage in discovery, and defend itself at a hearing or trial on the merits. Appellees respond, arguing that the order to inspect is not an appealable order pursuant to Rule 2(a) of the Arkansas Rules of Appellate Procedure—Civil (2007), and therefore should not be heard. Alternatively, Appellees assert that the order to inspect was proper and warranted pursuant to Ark. Code Ann. § 4-27-1604.

At the outset, we address whether the order to inspect is appealable. Ark. R.App.P.-Civ. 2(a) enumerates matters in which an appeal may be taken from a circuit court to the Arkansas Supreme Court. An order to inspect is not enumerated in this list. However, Rule 2(a)(6) does provide that an injunction is an appealable order. Royal asserts that the order to inspect is a preliminary injunction, which is therefore appealable under Rule 2(a). Royal contends that because the order to inspect mandates acts on the part of Royal, it is rightly considered an affirmative or mandatory injunction under Rule 65.

We have defined an injunction as "a command by a court to a person to do or refrain from doing a particular act." State Game and Fish Comm'n v. Sledge, 344 Ark. 505, 42 S.W.3d 427 (2001); Arkansas Dep't of Human Servs. v. Hudson, 338 Ark. 442, 994 S.W.2d 488 (1999); Tate v. Sharpe, 300 Ark. 126, 777 S.W.2d 215 (1989). It is mandatory when it commands a person to do a specific act, and prohibitory when it commands him or her to refrain from doing a specific act. Butler v. State, 311 Ark. 334, 842 S.W.2d 435 (1992). All court orders are mandatory in the sense that they are to be obeyed, but not all orders are mandatory injunctions. Tate, 300 Ark. at 129, 777 S.W.2d at 215. To be a mandatory injunction, the order must be based upon equitable grounds to justify the use of the extraordinary powers of equity, such as irreparable harm and no adequate remedy at law. Id. In addition, the order must determine issues in the...