Nat'l Bank of Ark. v. River Crossing Partners, LLC

• Decision Date: 10 November 2011
• Docket Number: No. 10–1337.,10–1337.
• Citation: 385 S.W.3d 754,2011 Ark. 475
• Parties: NATIONAL BANK OF ARKANSAS, Appellant v. RIVER CROSSING PARTNERS, LLC, and Robert Aguiar, Individually and as Trustee of the Robert J. Aguiar Revocable Trust, Appellees.
• Court: Arkansas Supreme Court

2011 Ark. 475

385 S.W.3d 754

NATIONAL BANK OF ARKANSAS, Appellant

v.RIVER CROSSING PARTNERS, LLC, and Robert Aguiar, Individually and as Trustee of the Robert J. Aguiar Revocable Trust, Appellees.

No. 10–1337.

Supreme Court of Arkansas.

Nov. 10, 2011.

Stephen L. Gershner and Charles Darwin “Skip” Davidson, Little Rock, for appellant.

James Gerard Schulze, Little Rock, Cade Lee Cox and David W. Sterling, North Little Rock, for appellee.

COURTNEY HUDSON HENRY, Justice.

Appellant National Bank of Arkansas (NBA) appeals the circuit court's decision to submit certain claims to the jury and the circuit court's denial of its motion for directed verdict, motion for judgment notwithstanding the verdict (JNOV), motion for new trial, and motion for mistrial. For reversal, NBA argues that the circuit court erred in submitting NBA's foreclosure and fraudulent-transfer claims to the jury. NBA further asserts that substantial evidence did not support the jury's verdict on two separate grounds. On cross-appeal, appellee Robert Aguiar argues that the circuit court erred in granting a verdict for NBA on his claim for abuse of process. We have jurisdiction of this appeal pursuant to Arkansas Supreme Court Rule 1–2(b)(5) (2011), as the appeal presents an issue needing development and clarification. We reverse and remand on the direct appeal and affirm on the cross-appeal.

I. Facts

On May 2, 2005, River Crossing Partners, LLC and its members, Robert Aguiar (Robert), Clinton Aguiar (Clinton), and Gary Washam (Washam) (collectively referred to as RCP), borrowed $2.5 million from NBA to purchase and develop a nineteen-acre residential subdivision in Maumelle. The RCP parties signed the note, which was secured by a mortgage of the subdivision property, a mortgage of Robert's real property in Little Rock (the Brodie Creek house), a mortgage of Robert's real property in Hot Springs Village (the Buque house), and a consumer security agreement and assignment granting a lien on Robert's securities account that contained three $100,000 bonds. The consumer security agreement and the assignment stated that they secured the current and future obligations of the RCP parties. One year later, the loan matured. On October 30, 2007, RCP renewed the loan in the amount of $1,354,323 (Note 1). Robert borrowed $88,000 from NBA to pay the interest on Note 1 (Note 2). Subsequently, NBA made a construction loan to HomeBuilderOne, Inc. and Clinton, and that loan (Note 3) was secured by a mortgage on the subdivision property. NBA also made two construction loans (Note 4 and Note 5) to Washam Construction Company and Gary Washam.

After January 2007, none of the subdivision lots sold. By June 2008, all of the loans went into default. In August 2008, Robert created the Robert J. Aguiar Revocable Trust. According to NBA, Robert transferred a significant amount of property to the trust, including Robert's Brodie Creek and Buque houses. On September 4, 2008, NBA filed its complaint against RCP, seeking personal judgment on the promissory notes, foreclosure of its mortgages, and enforcement of the security agreement. In its third amended complaint, NBA added a fraudulent-conveyance claim against Robert and the trust, alleging that Robert had fraudulently transferred the Brodie Creek and Buque homes to the trust. NBA requested that the circuit court void those transfers as fraudulent and impose a lien on the properties.

In response, RCP did not dispute that NBA was entitled to foreclose on the mortgaged real property. It claimed that NBA was not entitled to enforce the security agreement against the three bonds in Robert's securities account. Robert denied transferring his property to the trust to avoid creditors and asserted that he intended to avoid probate. RCP also disputed the amount of money that it owed at the time of the default. RCP and Robert filed a counterclaim alleging breach of contract; seeking rescission or cancellation of the loan documents; seeking modification or reformation of the loan documents; and alleging conversion, trespass, abuse of process, violations of the Arkansas Deceptive Trade Practices Act, and fraud or misrepresentation. Prior to trial, Clinton and Washam filed for bankruptcy.

On April 21, 2009, NBA filed a motion objecting to RCP's request for a jury trial, which the circuit court denied. The circuit court submitted inter alia the following issues to the jury: (1) the amount due from RCP and Robert on Note 1; (2) whether Notes 3, 4, and 5 were secured by Robert's investment account; and (3) whether Robert fraudulently transferred the Brodie Creek and Buque houses to the trust. The case proceeded to trial, and the circuit court directed a verdict against several of RCP's claims. The court also granted a directed verdict on NBA's right to foreclose on the mortgaged property and denied NBA's motion for directed verdict on the amount of debt owed by RCP. The jury rendered the following verdicts:

a. On Loan No. 1 [Note 1] ..., the jury unanimously found that RCP and [Robert] breached their contract and assessed damages in favor of NBA against RCP and [Robert] in the total amount of $500,000;

...

e. The jury found, by vote of 11 jurors, that under the security agreements, Bond CUSIP # 345370BX7 ... is collateral for Loan No. 1 and Loan No. 2, but is not collateral for Loan No. 3 ..., Loan No. 4 ..., or Loan No. 5 ...;

f. The jury found, by vote of 11 jurors, that under the security agreements, Bond CUSIP # 345402Z87 ... is collateral for Loan No. 1 and Loan No. 2, but is not collateral for Loan No. 3, Loan No. 4, or Loan No. 5;

g. The jury unanimously found that under the security agreements, Bond CUSIP # 3133FOD89 ... is collateral for Loan No. 1 and Loan No. 2, but is not collateral for Loan No. 3, Loan No. 4, or Loan No. 5;

h. The jury unanimously found that Lot 3R, Brodie Creek Community, an addition to the City of Little Rock, was fraudulently transferred from [Robert] to the trust;

i. The jury unanimously found that Lot 4, Block 4, Buque Subdivision, Hot Springs Village, was not fraudulently transferred from [Robert] to the trust[.]

On August 5, 2009, the circuit court entered an order reflecting the jury verdicts and granted foreclosure against the property securing the debts. The court also ruled that the deed of the Brodie Creek house was void and dismissed NBA's claim to avoid the transfer of the Buque house. The court dismissed all claims against Washam because of his bankruptcy status. NBA then moved for a JNOV, vacation of the order granting a jury trial, treatment of the jury verdict as advisory, new trial, and mistrial. The circuit court denied these motions, and NBA brought its appeal. RCP filed a cross-appeal.

Before the court of appeals, NBA argued, among other things, that it primarily sought foreclosure and an equitable lien on the Buque house. NBA contended that the clean-up doctrine remained viable after the adoption of amendment 80 and that those issues should have been decided by the circuit court instead of the jury. In response, RCP asserted that NBA's underlying cause of action was for breach of contract and that the issues were properly tried before a jury. In National Bank of Arkansas v. River Crossing Partners, LLC, 2010 Ark. App. 841, 379 S.W.3d 789, the court of appeals reversed and remanded on the direct appeal and affirmed on the cross-appeal, rejecting Robert's argument that the circuit court erred in denying a motion for directed verdict on Robert's claim for abuse of process. RCP filed a petition for review, arguing that the court of appeals' opinion conflicted with prior precedent. We accepted RCP's petition for review. Upon the grant of a petition for review, we consider the case as though it had been originally filed in this court. Powell v. Lane, 375 Ark. 178, 289 S.W.3d 440 (2008).

II. Equitable Claims

On appeal, NBA raises the following allegations of error: (1) the circuit court erred in submitting its foreclosure and fraudulent-transfer claims to the jury; (2) the circuit court erred in refusing to grant its motions for directed verdict, JNOV, new trial, and mistrial; (3) substantial evidence does not support the jury's verdict that Notes 3, 4, and 5 were not secured by the bonds in Robert's investment account; and (4) substantial evidence does not support the jury's verdict that Robert did not fraudulently transfer the Buque House into the trust. The applicable standard of review is that entitlement to a jury trial is reviewed de novo on appeal. First Nat'l Bank of DeWitt v. Cruthis, 360 Ark. 528, 203 S.W.3d 88 (2005).

For the first point on appeal, NBA argues that the circuit court erred in submitting its foreclosure and fraudulent-transfer claims to the jury. Citing Cruthis, supra, and Ludwig v. Bella Casa, LLC, 2010 Ark. 435, 372 S.W.3d 792, NBA contends that it sought foreclosure against the mortgaged property and an equitable lien on the Buque house, and as a result, the other issues, which are now on appeal, were not triable to the jury. RCP responds that NBA's underlying cause of action included a claim for breach of contract and that the circuit court properly submitted the element of damages to the jury and retained the remaining equitable issues.

Prior to amendment 80, a plaintiff filed suit in chancery or circuit court. The clean-up doctrine was used to allow a chancery court to decide law issues because, under that longstanding rule, once a chancery court acquired jurisdiction for one purpose, it could decide all other issues. Cruthis, supra (citing Douthitt v. Douthitt, 326 Ark. 372, 930 S.W.2d 371 (1996)). The clean-up doctrine provides that, once a court of equity acquires jurisdiction over a case, it may decide all other issues, legal or equitable. Colclasure v. Kansas City Life Ins. Co., 290 Ark. 585, 720 S.W.2d 916 (1986).

Amendment 80 to the Arkansas Constitution abolished chancery courts and vested jurisdiction for actions in equity and law in the...