National Enterprises, Inc. v. Kessler

• Decision Date: 15 September 2005
• Docket Number: No. 04-646.,04-646.
• Citation: 213 S.W.3d 597
• Parties: NATIONAL ENTERPRISES, INC. and Arkansas No. 1 LLC, Appellants, v. Donald D. KESSLER and Mary L. Kessler, et al. on their own behalf and on behalf of others similarly situated, Appellees.
• Court: Arkansas Supreme Court

213 S.W.3d 597

NATIONAL ENTERPRISES, INC. and Arkansas No. 1 LLC, Appellants, v. Donald D. KESSLER and Mary L. Kessler, et al. on their own behalf and on behalf of others similarly situated, Appellees.

No. 04-646.

Supreme Court of Arkansas.

September 15, 2005.

Farrar, Reis, Rowe, Nicolosi, Williams & Strause, by: Bryan J. Reis, and Williams & Anderson, PLC, by: Peter G. Kumpe and Stephen B. Niswanger, Little Rock, for appellants.

Bequette & Billinglsley, P.A., by: Jay Bequette, Little Rock and Wood, Smith Schnipper & Clay, by: Don M. Schnipper, Hot Springs National Park, for appellees.

ROBERT L. BROWN, Justice.

Appellants National Enterprises, Inc. and Arkansas No. 1 LLC (hereinafter National Enterprises) petition for rehearing from this court's decision handed down on July 1, 2005. Three points are raised in support of the petition: (1) the court erred in leaving intact the circuit court's order to deposit more than $1.9 million into the registry of the circuit court; (2) this court erred in creating lender liability under Ark.Code Ann. § 18-14-601 (Repl.2003); and (3) this court erred in concluding that National Enterprises waived the issue of notice to class members prior to a determination of liability. We deny the petition with respect to the lender-liability point and the waiver point, but grant the petition with respect to the mandated deposit of more than $1.9 million into the registry of the circuit court.

In our opinion which is the subject of the petition, we said regarding the mandated payment:

We decline to reverse the circuit court's order directing payment of $1,995,999.67 into the registry of the court, or, in the alternative, the posting of a supersedeas bond, subject to any adjustment of that total amount by the circuit court based on the total damages awarded to class members.

National Enterprises, Inc. v. Kessler, No. 04-646, slip op. at 12, 2005 WL 1541139 (Ark. July 1, 2005) (substituted by National Enterprises, Inc. v. Kessler, 363 Ark. 167, ___, 213 S.W.3d 597, 599 (2005)). Our reasoning for this holding was that liability had been decided against National Enterprises. Thus, all that remained were damage determinations for all class members after notice was given pursuant to Arkansas Rule of Civil Procedure 23(c) (2005).

Nevertheless, we now agree with National Enterprises that because a judgment for a specific sum of damages has yet to be entered due to this court's reversal and remand to the circuit court for a determination of damages, payment of any sum into the registry of the court is premature. The appellees' response to National Enterprises's petition on this point overlooks the potential, at least, for a reduction of the damage award based on the defenses asserted. The argument made by the appellees that the ultimate damage award may be "significantly higher" does not answer National Enterprises's assertion that the damages, after defenses are raised, may be lower.

Accordingly, we strike from our original opinion the paragraph quoted above and replace it with the following language which appears in the substituted opinion issued this date:

Because we reverse the damages awarded to the class members due to a lack of notice to the class, we further reverse the circuit court's order directing National Enterprises to pay $1,995,999.67 into the registry of the court.

Rehearing is denied in part and granted in part. Substituted opinion issued this date.

This case involves a time-share development located in Hot Springs known as the Lakeshore Resort and Yacht Club. The appellants in this case are National Enterprises, Inc., and Arkansas No. 1 LLC, which are allegedly the successors-in-interest to the original developer of the Lakeshore condominiums. Hereinafter, the appellants will jointly be referred to as National Enterprises. The appellees are Donald D. Kessler and others (jointly referred to as Owners), who are the owners of the Lakeshore condominiums and who brought a class-action suit against National Enterprises. In that suit, the Owners sought restitution and rescission of their purchase contracts and raised claims of misrepresentation and breach of contract. The circuit court certified the class and on that same date granted summary judgment in favor of the Owners and against National Enterprises on issues involving liability and damages. We affirm that grant of summary judgment in part and reverse and remand in part.

The history of this case is taken largely from the Joint Statement of Undisputed Facts (Joint Statement) filed by the parties in federal district court on October 21, 1999. That Joint Statement was attached as an exhibit to the Owners' Response to National Enterprises's Motion to Dismiss or for Summary Judgment and Counter-Motion for Summary Judgment, which was filed in circuit court on January 7, 2004.

In 1983, Painter's Point Development Company Limited Partnership mortgaged a parcel of land in Hot Springs to Union Planters National Bank to construct a hotel and condominium units on that property. Painter's Point built the hotel and condominium units, and in June 1985, conveyed the property with the condominium units to the Lakeshore Resort and Yacht Club Limited Partnership (Lakeshore Partnership).

When the Lakeshore Partnership purchased the Lakeshore condominiums from Painter's Point, they entered into a written license agreement (License Agreement) under which the Owners of the condominium units on the Lakeshore property were to have use of certain amenities in the adjoining hotel and on the hotel property. On August 26, 1986, the Lakeshore Partnership conveyed the condominium property to Hansen, Hooper & Hayes, Inc. (HHH), the general partner for Lakeshore Partnership, and, on August 27, 1986, HHH executed a $2,802,000.00 promissory note and mortgage in favor of Independence Federal Bank, FSB.

On November 18, 1988, Union Planters foreclosed on its mortgage on the hotel property and a foreclosure decree was subsequently entered in favor of Union Planters on August 3, 1990. On December 24, 1990, Robert and Shannon Fewell purchased the hotel property from Union Planters and later deeded the property to Lake Hamilton Resort, Inc., an Arkansas corporation (LHR). LHR is owned by the Fewells.

In September 1991, Independence Federal Bank went into receivership. The Resolution Trust Corporation (RTC) assumed the HHH note and mortgage given for the Lakeshore condominiums from Independence Federal Bank and later entered into an arrangement with LHR for LHR to operate the condominiums. LHR collected the revenues, paid expenses, and split any remaining sum with the RTC. During the period of this arrangement, LHR maintained a list of time-share owners, booked time-share owners into their units, provided utilities and parking to time-share owners, and ensured that they had the benefit of hotel amenities.

On August 19, 1993, RTC, as the receiver for Independence Federal Bank, filed an action in Garland County Chancery Court to foreclose on the HHH mortgage. On October 13, 1993, National Enterprises purchased the note and mortgage from RTC and was substituted as the plaintiff in the foreclosure action on the Lakeshore condominiums. On November 1, 1993, LHR wrote to National Enterprises and offered the sum of $275,000.00 to purchase the note and mortgage. The next day, National Enterprises made a written counter-proposal and offered to sell its beneficial interest in the Lakeshore Resort and Yacht Club for $1,000,000.00. By reply letter that same day, LHR pronounced the counter-proposal "totally off-base" and terminated the management agreement. By letter dated December 3, 1993, LHR informed the condominium Owners that, effective December 10, 1993, they would no longer be considered hotel guests and that their use of hotel amenities, parking facilities adjacent to the condominiums, and utilities had ended. National Enterprises purchased the property at the subsequent foreclosure sale on May 11, 1994.

On June 10, 1994, National Enterprises sued LHR to enforce the License Agreement. On August 30, 1994, the chancellor ruled that the License Agreement executed for the benefit of the owners did not survive the foreclosure decree of the hotel property entered in favor of Union Planters.

On September 18, 1995, National Enterprises transferred one hundred percent of its right, title and interest in the Lakeshore property to Arkansas No. 1 LLC, by warranty deed. Again, for ease of reference, we will continue to refer to both appellants as National Enterprises.

On November 27, 1996, this case began when the appellees, as named representatives of the Owners filed a class-action complaint against National Enterprises and sought rescission and restitution on theories of breach of contract and misrepresentation. The class size was described as "not known" but was estimated to be not less than 300 members. The alleged common issues of the class members arose because of their time-share interests as owners of condominium units at the Lakeshore Resort & Yacht Club.

On January 6, 1997, National Enterprises removed the case to federal district court based on diversity of jurisdiction. During the ensuing seven years while the case was in the federal court system, it was the subject of four opinions handed down by the Eighth Circuit Court of Appeals. See Kessler v. National Enters., Inc., 347 F.3d 1076 (8th Cir.2003) (Kessler IV); Kessler v. National Enters., Inc., 238 F.3d 1006 (8th Cir.2001) (Kessler III); Kessler v. National Enters., Inc., 203 F.3d 1058 (8th Cir.2000) (Kessler II); Kessler v. National Enters., Inc., 165 F.3d 596 (8th Cir.1999) (Kessler I).

In Kessler III, the Eighth Circuit reversed the district court's judgment in favor of National Enterprises. The district court had determined that the property interests purchased by National Enterprises at the May, 1994 foreclosure sale did not include the initial developer's obligations to provide...