Quinn v. O'Brien

• Decision Date: 05 February 2020
• Docket Number: No. CV-19-338,CV-19-338
• Citation: 2020 Ark. App. 83,596 S.W.3d 20
• Parties: L. Walter QUINN, Appellant v. Richard D. O’BRIEN and Simmons Bank, in Its Capacity as Trustee of the Heartland Bank Liquidating Trust U/I/D March 8, 2018, Appellees
• Court: Arkansas Court of Appeals

2020 Ark. App. 83

596 S.W.3d 20

L. Walter QUINN, Appellant

v.Richard D. O’BRIEN and Simmons Bank, in Its Capacity as Trustee of the Heartland Bank Liquidating Trust U/I/D March 8, 2018, Appellees

No. CV-19-338

Court of Appeals of Arkansas, DIVISION III.

Opinion Delivered: February 5, 2020

Rehearing Denied March 11, 2020

Timothy Dudley, Little Rock, for appellant.

Wright, Lindsey & Jennings LLP, Little Rock, by: Edwin L. Lowther, Jr., Gary D. Marts, Jr., and Adrienne L. Baker, for appellee Rick O’Brien.

Quattlebaum, Grooms & Tull PLLC, by: E.B. Chiles IV, Little Rock and Christopher Keller, for appellee Simmons Bank, Trustee of Heartland Bank Liquidating Trust U/I/D March 8, 2018.

PHILLIP T. WHITEAKER, Judge

Appellant L. Walter Quinn filed suit in the Pulaski County Circuit Court against separate appellee Richard D. O'Brien and Heartland Bank¹ for breach of fiduciary duty, fraud, and negligence in connection with Quinn’s business relationship with Heartland Bank and its parent company, Rock Bancshares, Inc. Both O'Brien and Heartland Bank subsequently moved to dismiss his complaint pursuant to Arkansas Rule of Civil Procedure 12(b)(6) for failing to state a claim and for failing to state facts upon which relief can be granted. The court granted the motions, and Quinn appeals.

I. Standard of Review

In reviewing the circuit court’s decision on a motion to dismiss under Arkansas Rule of Civil Procedure 12(b)(6) (2019), we treat the facts alleged in the complaint as true and view them in the light most favorable to the party who filed the complaint. Travelers Cas. & Sur. Co. of Am. v. Ark. State Highway Comm'n , 353 Ark. 721, 120 S.W.3d 50 (2003). In testing the sufficiency of the complaint on a motion to dismiss, we resolve all reasonable inferences in favor of the complaint, and the pleadings are liberally construed. Id. However, Arkansas is a fact-pleading state. According to Arkansas Rule of Civil Procedure 8(a)(1), a pleading that sets forth a claim for relief shall contain a statement in ordinary and concise language of facts showing that the pleader is entitled to relief. As a result, one seeking relief must state facts, not mere conclusions. Id. ; Rippee v. Walters , 73 Ark. App. 111, 40 S.W.3d 823 (2001).

Further, Rule 12(b)(6) allows for the dismissal of a complaint for failure to state facts upon which relief can be granted. We must read Rules 8(a)(1) and 12(b)(6) together in testing the sufficiency of the complaint herein. Hames v. Cravens , 332 Ark. 437, 966 S.W.2d 244 (1998). We will look to the underlying facts supporting an alleged cause of action to determine whether the matter has been sufficiently pled. Country Corner Food & Drug, Inc. v. First State Bank & Tr. Co. , 332 Ark. 645, 966 S.W.2d 894 (1998).

II. Quinn’s Complaint

We now turn our focus to the facts as alleged in Quinn’s third amended complaint. For purposes of our appellate review, we will treat the following facts as contained in his complaint as true.

Rock Bancshares, Inc., an Arkansas bank holding company, owns Heartland Bank. It is Quinn’s relationship to these two entities and to appellee O'Brien that sets the stage for the issues raised herein.

At all times relevant to the lawsuit, Quinn was the majority stockholder of Rock Bancshares, served as its president and chief executive officer, and was its creditor as he owned approximately $3.2 million in capital notes issued by Rock Bancshares. Quinn also served on the board of directors of Rock Bancshares’ subsidiary, Heartland Bank. In addition to his role on the Heartland Bank board of directors, Quinn was a customer of Heartland Bank due to the fact that he owed Heartland Bank approximately $5 million in loans.

Appellee O'Brien was also actively involved in both Rock Bancshares and Heartland Bank. He was an officer and director of Rock Bancshares; he was on the board of directors of Heartland Bank; and he served as Heartland Bank’s president and chief executive officer. In these capacities, O'Brien obtained personal knowledge of Quinn’s business dealings and financial status by accessing confidential credit information on Quinn and his various business enterprises. O'Brien was also aware that Quinn owed another bank—Prosperity Bank—approximately $5 million; that the Prosperity Bank loan had not been renewed at maturity; that Prosperity Bank had initiated legal action against Quinn; and that his stock in Rock Bancshares was pledged as collateral on the Prosperity Bank loan. With this knowledge, O'Brien consulted legal counsel² and formulated a plan to acquire Quinn’s stock in Rock Bancshares from one of Quinn’s creditors.

In early 2015, the Federal Reserve Bank of St. Louis informed Heartland Bank that it had scheduled a bank examination for June. O'Brien, as an officer and director of Heartland, was aware of the Federal Reserve examination and was notified by the Federal Reserve Bank that Quinn would be required to pay off his $5 million loan obligation to Heartland Bank prior to the scheduled examination, even though Quinn had been performing on the loans as required and was not in default.

On March 31, 2015, Quinn converted the $3.2 million he held in Rock Bancshares capital notes into common stock. At the time of the conversion, Quinn was unaware that he would need to repay his $5 million loan to Heartland in June. At the time of the conversion, O'Brien knew that this conversion would impair Quinn’s ability to pay off his loans with both Heartland Bank and Prosperity Bank but failed to disclose to Quinn that his note was scheduled to be called in June.

In June 2015, Quinn discovered he would be required to pay off his performing loans at Heartland Bank. He did so. However, due to the repayment of the Heartland Bank loan and the conversion of the Rock Bancshares capital notes to common stock, he lacked the financial resources to satisfy his outstanding loan obligations to Prosperity Bank. As a result, he was unable to satisfy the terms of his settlement agreement with Prosperity Bank. O'Brien subsequently inquired whether he could personally purchase the Rock Bancshares stock Quinn had pledged as collateral for the Prosperity Bank loan while leaving in place the judgment, thereby further damaging Quinn’s ability to meet the terms of the Prosperity Bank settlement agreement.

Upon completion of its examination of Heartland Bank, the Federal Reserve Bank prepared a confidential report. Sometime after the bank received the report of the exam, someone released the report to a third party. This confidential report was discussed in an article published in Arkansas Business , a weekly business journal. The article was critical of Quinn.

In December 2017, Quinn took a leave of absence from his positions as president and CEO of Rock Bancshares and from his board of directors positions with both Rock Bancshares and Heartland Bank. O'Brien was named acting president and CEO of Rock Bancshares upon his departure.

Based on the foregoing facts, Quinn asserted three causes of action: breach of a fiduciary duty, fraud, and negligence. Quinn claimed that Heartland Bank should be vicariously liable for O'Brien’s actions because O'Brien was acting within the course and scope of his position as president and CEO of Heartland Bank and was acting to further Heartland’s interest. We look at each of these causes of action in turn to determine whether the circuit court’s decision to grant the motion to dismiss was appropriate.

III. Analysis

A. Breach of Fiduciary Duty

In his third amended complaint, Quinn sought relief under the theory of breach of fiduciary duty as a cause of action. Breach of fiduciary duty involves betrayal of a trust and benefit by a dominant party at the expense of one under his or her influence. Cole v. Laws , 349 Ark. 177, 76 S.W.3d 878, cert. denied , 537 U.S. 1003, 123 S.Ct. 509, 154 L.Ed.2d 400 (2002). A person standing in a fiduciary relationship with another is subject to liability to the other for harm resulting from a breach of the duty imposed by the relationship. Long v. Lampton , 324 Ark. 511, 922 S.W.2d 692 (1996). In assessing a cause of action for breach of fiduciary duty, we must determine first the existence of a fiduciary relationship and second what duty is owed; the issue of what duty is owed, if any, is always a question of law. Id.

Factually, Quinn alleged that he was a customer of Heartland Bank; the majority shareholder and an officer of Rock Bancshares; and a member of the board of directors of both Heartland Bank and Rock Bancshares. He further factually alleged that O'Brien was an officer and a board member of both Heartland Bank and Rock Bancshares and as such, owed a fiduciary duty to the organization’s employees, the board of directors, and Rock Bancshares. While not clearly set out in the complaint, we presume that Quinn was asserting that O'Brien owed a duty to him in his capacity as an officer and director of both Heartland and Rock Bancshares. Finally, Quinn claimed that O'Brien owed a fiduciary duty to him as a creditor of Rock Bancshares. We must now consider whether these alleged facts create a fiduciary relationship that would impose a resulting fiduciary duty.

Arkansas jurisprudence "imposes a high standard of conduct upon an officer or director of a corporation." Raines v. Toney , 228 Ark. 1170, 1178, 313 S.W.2d 802, 808 (1958). An officer or director of a corporation owes a fiduciary duty to the corporation and its shareholders. See id. In fact, a person who serves as both an officer and a director of a corporation bears an even greater duty. See id. Our legislature has codified a high standard of conduct owed by an officer to his corporation in the Arkansas Business Corporation Act:

(a) An officer with discretionary authority shall discharge his duties under that authority:

(1) in good faith;

(2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and

(3) in a manner he reasonably believes to be in the

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