Liles v. Liles, 85-252

• Decision Date: 02 June 1986
• Docket Number: No. 85-252,85-252
• Citation: 289 Ark. 159,711 S.W.2d 447
• Parties: Tommy LILES and Dave Wisdom Harrod, Appellants, v. Barbara LILES, Appellee.
• Court: Arkansas Supreme Court

Page 447

711 S.W.2d 447

289 Ark. 159

Tommy LILES and Dave Wisdom Harrod, Appellants, v. Barbara LILES, Appellee.

No. 85-252.

Supreme Court of Arkansas.

June 2, 1986.

J.B. Cross, Edwin L. Lowther, Little Rock, for appellants.

Douglas House, Heber Springs, for appellee.

NEWBERN, Justice.

This case involves an action by a former wife, the appellee, Barbara Liles, to set aside a property settlement into which she had entered with her former husband, the appellant, Tommy Liles, in contemplation of divorce. She sued to set aside the agreement and to recover her expenses related to the action, including her attorney's fee. The chancellor set aside the property settlement and entered a new property division order. He awarded Barbara Liles an additional amount of money, which he characterized as both damages and an attorney's fee, jointly and severally against Tommy Liles and attorney Dave Wisdom Harrod, the other appellant, whose fraudulent conduct the chancellor determined to have been responsible for the improperly induced agreement. Both of these remedies were appropriate, and we affirm.

The following is a summary of the facts as found by the chancellor: Barbara and Tommy Liles were married in 1970. She had two children from a previous marriage. In 1976 Barbara engaged Dave Wisdom Harrod to represent her in divorce proceedings against Tommy. A divorce was granted. Barbara and Tommy reconciled, and the divorce was annulled in 1977.

In 1978, Tommy was injured while working for an off-shore oil driller, Rowan Drilling Co. His personal injury claim was covered by the Jones Act, 42 U.S.C. § 688. He and Barbara consulted Harrod about Tommy's possible personal injury remedies, and they were told by Harrod of the expertise of a Texas attorney, Benton Musslewhite, in Jones Act litigation. Harrod and Musslewhite associated to bring a claim against Rowan on behalf of Tommy. When the claim was filed in the U.S. District Court in Texas, Tommy's workers' compensation payments ceased, and Musslewhite loaned $500 to the Liles. Later, Barbara learned of the involvement of Newton Schwartz, another Texas lawyer, when Musslewhite wrote Harrod about splitting the prospective attorney fee with Schwartz.

Tommy's Jones Act claim against Rowan resulted in a judgment in Tommy's favor of 2.5 million dollars. Although it was not stated by the chancellor in his findings, it is undisputed that Aetna Insurance Co., Rowan's carrier which handled the litigation, threatened to appeal. On May 2, 1981, a structured settlement agreement was reached. The settlement required Aetna to pay Tommy a lump sum of $400,000; $2,000 per month for life with a thirty-year guarantee beginning June 1, 1981; $65,000 on June 1, 1986; and $35,000 every five years from June 1, 1991 through 2001. The monthly and incremental lump sum payments were to be made to Harrod as trustee of the Tommy R. Liles trust.

Returning to the facts found by the chancellor: Marital problems between Barbara and Tommy arose during the negotiations with Aetna. Tommy, Harrod, and Bryce Marler, a private investigator and former bail bondsman, were making plans to set up a company called Southern Investment Corporation. A purpose of the business was to be the financing of Jones Act litigation on behalf of injured employees of off-shore drilling companies. Tommy was to have an airplane so he could fly up and down the coastal area looking for potential claimants. Barbara's objection to this scheme led to further marital difficulties. Barbara decided to seek a legal separation, and she and Tommy went together to Harrod's office where Harrod prepared a separation agreement. Barbara and Tommy again reconciled, and she accompanied him to Houston, Texas, where they signed the settlement documents on or about May 2, 1981.

On May 8, 1981, Tommy was staying at a lake cabin, away from the marital home in Drasco, Arkansas, because he was upset over Barbara's objection to the Southern Investment Corporation plan. On May 10, 1981, Tommy appeared at the house and ran Barbara away, threatening her with a shovel. Barbara went to a nearby store. Harrod appeared there and instructed Barbara to come to his office the following day.

Barbara spent all day May 11, 1981, in Harrod's office. She asked him what her rights would be in the event of a divorce. Harrod told her what Tommy would give her. She understood Harrod to be representing her. Harrod told her that he was her attorney and would take care of her. He telephoned Tommy several times that day and ultimately prepared an addendum to the trust, a property settlement agreement, and an entry of appearance, all of which were signed by Barbara. The trust addendum contained a clause stating that if any party challenged the trust he or she would forfeit his or her interest in the proceeds. Harrod told Barbara that the addendum was not valid unless filed and that it would not be filed unless it was necessary to protect her interest.

As Barbara left Harrod's office on May 11, 1981, Harrod informed her he would no longer represent her but would be representing Tommy. He filed Tommy's divorce petition. Even prior to the May 11, 1981, discussion between Barbara and Harrod, Harrod had hired Marler to investigate Barbara's "drug habits" in contemplation of a contested divorce proceeding. Marler sent Harrod a bill, dated May 7, 1981, in the amount of $1,575 for those services.

On June 12, 1981, Barbara returned to Harrod's office and asked him to delay the divorce. He replied he could not do so. The divorce was entered on June 15, 1981.

The trust addendum named Harrod as trustee. It was his duty to distribute the $2,000 monthly payments from Aetna. He did so for some five months until he resigned and appointed Barbara's daughter from her previous marriage as trustee. The daughter had married Tommy after Barbara and Tommy were divorced.

Other undisputed facts are that the trust monies were to be distributed among Barbara, Tommy, and the attorneys to cover their fee percentage of the award, and Harrod was to withhold $80 per month as a fee for handling the trust funds. During the five months he acted as trustee, Harrod failed to account for $20 per month or $100.

It is also undisputed that of the $400,000 initial payment to Tommy from Aetna, the attorneys were paid $355,542.63. Tommy later petitioned the federal court for a reduction in the amount approved to be paid to the attorneys, and $114,800.43 was remitted to him. The remission occurred after the divorce.

Harrod charged a $10,000 fee for representing Tommy in the uncontested divorce. Barbara and her son, James Ezell, testified that when they asked Harrod why the fee was so high he said it represented not only the divorce, which Tommy "could afford," but other services previously rendered to Tommy and Barbara.

The chancellor reached the following conclusions of law:

1. On May 11, 1981, Dave Harrod owed a fiduciary duty to Barbara Liles to represent and protect her interests in the divorce action against Tommy Liles.

2. Harrod breached his fiduciary duty to Barbara Liles by entering into a conspiracy with Tommy Liles to defraud Barbara Liles of her marital assets. Specific evidence of fraud includes the following acts:

(a) Harrod and Tommy Liles established an attorney-client relationship before May 11, 1981

(b) David Harrod attempted to secure evidence of drug abuse by Barbara Liles

(c) Tommy Liles and Harrod permitted Harrod to represent Barbara Liles when both knew that she trusted and relied upon Harrod's judgment and advice

(d) Neither Tommy Liles nor Harrod advised Barbara Liles of Harrod's representation of Tommy Liles in the divorce proceeding until after the execution of documents on May 11, 1981

3. Because of the conduct of Tommy Liles and Harrod, Barbara Liles was not properly represented in the divorce action and did not receive nor have an opportunity to receive proper consultation as to her rights in the proceeding.

4. As a result of the conspiracy to defraud Barbara Liles of her marital assets, the property settlement agreement of May 11, 1981, shall be set aside and the marital property shall be returned to the marital corpus and distributed in accordance with the Court's final judgment and decree of this date.

5. [Here the court discussed the condition of the parties in the light of the factors listed in Ark.Stat.Ann. § 34-1214(A)(1) (Supp.1985) ]

6. For the reasons set forth in paragraph 5 above, the marital corpus shall be divided equally, except as stated below. The corpus shall include all proceeds from the Rowan settlement, including the remitted attorneys' fees and expenses; all real property owned by the parties as of May 11, 1981; and all personal property except personal items, mementos, effects and clothing, these items being the personal property of the respective party. In addition to his personal items, Tommy Liles shall be credited $10,000 as a set-off for future medical expenses and shall be credited $6,928.63 as a set-off for amounts paid on behalf of Barbara Liles and/or payments of marital debts since May 11, 1981.

7. The "in terrorem" clause in the addendum to the trust agreement shall be set aside because of the conspiratorial and fraudulent acts of Tommy Liles and Harrod.

8. A court of equity cannot award punitive damages and, therefore, the punitive damages claim of Barbara Liles shall be dismissed.

9. Harrod was not negligent in failing to calculate the amount of attorneys' fees and expenses that should have been paid from the initial $400,000 lump sum settlement payment.

10. Harrod and Tommy Liles did not commit fraud or enter into a conspiracy with the intent to defraud Barbara Liles of her marital assets by consenting to the structured settlement on May 2, 1981.

11. Because of his dual representation and fraudulent conduct, Harrod shall be required to return to the marital corpus the $10,000 fee he received for preparing the property settlement...