Trakru v. Mathews

• Decision Date: 16 April 2014
• Docket Number: No. CV–13–619.,CV–13–619.
• Citation: 434 S.W.3d 10,2014 Ark. App. 154
• Parties: Roma TRAKRU, Appellant v. David MATHEWS, Appellee.
• Court: Arkansas Court of Appeals

2014 Ark. App. 154

434 S.W.3d 10

Roma TRAKRU, Appellant

v.David MATHEWS, Appellee.

No. CV–13–619.

Court of Appeals of Arkansas.

March 12, 2014.

Rehearing Denied April 16, 2014.

Quattlebaum, Brooms, Tull & Burrow, PLLC, Little Rock, by: E.B. Chiles IV, Joseph R. Falasco, and Jennifer Wethington Merritt, for appellant.

Wilcox & Lacy, PLC, Jonesboro, by: Tony L. Wilcox and Dustin H. Jones, for appellee.

ROBERT J. GLADWIN, Chief Judge.

A Stone County jury awarded appellee David Mathews $570,000 in compensatory damages and $500,000 in punitive damages on his claims against appellant Roma Trakru for breach of contract, breach of fiduciary duty, and fraud. For reversal, Trakru argues that the circuit court erred in failing to grant her directed-verdict motion on each of Mathews's causes of action; in awarding Mathews attorney fees; in limiting cross-examination of Mathews; and in instructing the jury on fraud. We affirm.¹

I. Factual Background

David Mathews is the former owner of Stone County Ironworks (Ironworks), an iron-furniture design and manufacturing company headquartered in Mountain View, Arkansas.² Under Mathews's ownership, the business enjoyed much success, with even greater growth projected at the turn of the twenty-first century. With growth came debt, however, and by 2002, Ironworks had approximately $5,000,000 in outstanding loans with Bank of America. The loans were collateralized by Ironworks's assets and personally guaranteed by Mathews.

In 2003, Ironworks defaulted on its loan payments, with approximately $4,600,000 due and owing. The bank engaged consultant Paul Porter to streamline Ironworks's operation and obtain financing elsewhere. When those efforts failed, Porter recommended that Ironworks be sold. He became the trustee of the company's assets through an assignment for the benefit of creditors and began looking for buyers. Mathews cooperated with Porter, for which Bank of America agreed to relieve him of his personal guarantee on the loans.

There was no shortage of interest in the company. Arkansas businessmen Sam Winstead and Tom Earnhart considered buying Ironworks, and appellant Roma Trakru of a California mergers-and-acquisitions company inquired about Ironworks on behalf of one of her clients. When Trakru learned that no brokerage commissions would be paid on the Ironworks sale, she ceased her inquiries as an agent and became interested in Ironworks personally.

Through mid–2003, Trakru and Mathews exchanged several phone calls and emails regarding a potential partnership in the iron furniture and decorating business. They contemplated that Mathews would provide the manufacturing skills for the enterprise while Trakru would provide her financial, technology, and management expertise. In a June 7, 2003 email, Trakru told Mathews that he would have stock options in the nascent company and that, if his investment matched hers, he would become a fifty-percent partner. Trakru also mentioned that Mathews would need to sign a non-compete agreement as part of the deal.

On June 8, 2003, Trakru drafted a Memorandum of Understanding (MOU) in which she and Mathews agreed to form a partnership. The MOU stated that they would be equal partners in the business; that Mathews would have a year to defer his investment in the company, after which his investment amount would increase by twenty-five percent each year; that each party would own a fifty-percent interest in the company at the end of three years or thereafter; that the agreement was valid until December 31, 2003, or until superceded by “another specific contract”; and that further details would be enumerated in a contract to be drawn up within two months. Mathews signed the MOU and returned it to Trakru. The MOU does not bear Trakru's signature, but Trakru told Mathews that she had signed the document.

Mathews and Trakru agreed to name their new company Metal Arts, Inc. Within a short period of time, Metal Arts became part of a plan in which Ironworks's assets would be purchased by three different buyers: Tom Earnhart and his business partner would buy Ironworks's Calico Rock industrial plant for $950,000; Sam Winstead would buy Ironworks's other tangible assets, such as real estate and equipment, for $750,000; and Mathews and Trakru, “or an entity in which one or more of them is an investor” would buy Ironworks's intangible assets, such as goodwill, trademarks, customer lists, and intellectual property, for $400,000. As part of these proposed transactions, all parties agreed that they would execute a mutual non-compete and non-solicitation agreement.

On the evening of July 1, 2003—approximately one week before the closing of the Ironworks sale—Trakru and Mathews executed a handwritten document during an evening at Sam Winstead's cabin. The document purported to give Mathews certain stock options in Metal Arts and provided as follows:

Whereas David Mathews and Roma Trakru entering into this agreement related to purchase of Stone County Ironworks on this 1st day of July 2003 by our signatures we agree as follows[:]

David Mathews has a right to purchase up to 50% of Metal Arts, Inc. upon payment of 50% of original price plus any other moneys invested in the Stone County Ironworks purchase and operation within the first one year minus any return of capital to Roma Trakru.

During subsequent years he can purchase an equity interest in Metal Arts, Inc. at valuation of 1.25 of original prior year's purchase price proportionate to the invested capital of Roma Trakru.

As and when David Mathews invests his 50% of invested capital in Metal Arts, Inc. Roma Trakru will assign that proportionate % of stock in Metal Arts, Inc. to David Mathews.

Invested capital is amount of money used for purchase + amount invested available cash. Available cash is available to Roma Trakru to withdraw from the company and will not be included as part of invested capital. [signed by Mathews and Trakru; witnessed by Winstead and Earnhart].

According to Mathews, he insisted on executing the above “stock-option agreement” because he was worried that, with the Ironworks sale approaching, his partnership agreement with Trakru was unclear and that, under the terms of the pending sale, he would be required to sign a non-compete agreement that would render him unable to participate in the iron-working business.

Mathews did not exercise his option to buy into Metal Arts before the sale of Ironworks's assets on July 9, 2003. Consequently, Trakru, through Metal Arts, became the sole owner of Ironworks's intangible assets on that date. Mathews relinquished all of his Ironworks assets on July 9 and, by virtue of the covenant not to compete that he signed at closing, was prohibited from working in the iron-furniture business.

Within days after closing, Trakru's attitude toward Mathews changed drastically, and she informed him that they could not work together. Trakru explained later that she felt wrong about the partnership for various reasons, including that Mathews had spoken harshly to her and that Mathews's employees allegedly said that they did not want to work for him. When Mathews indicated to Trakru that he wanted to exercise his option on Metal Arts, Trakru offered to sell him the company for approximately $580,000, which, according to her, was $50,000 more than she had invested.³ Mathews began trying to put together a financing package but encountered difficulty getting in touch with Trakru.

Mathews later notified Trakru that he wanted out of the covenant not to compete. Trakru's attorney responded that the covenant not to compete remained enforceable. In August 2003, Mathews requested an accounting from Trakru “to determine the purchase price should Mr. Mathews elect to exercise his option to purchase 50% of Metal Arts, Inc.” Trakru's attorney responded that the option did not exist. No further information was forthcoming from Trakru.

Mathews eventually learned that Trakru had paid herself $300,000 in consulting fees from the amount she invested in Metal Arts and that she had sold Metal Arts for $640,000 within a few weeks after the July 9, 2003 closing. On August 6, 2003, Trakru and a man named Paul Balentine formed a company called Metal Creations, Inc., and that company purchased Metal Arts on or about August 22, 2003. Later, Balentine paid Trakru $550,000 for her interest in Metal Creations. Mathews receivednone of the proceeds from these transactions.

On January 20, 2004, Mathews sued Trakru and Metal Arts in Stone County Circuit Court for fraud, breach of contract, and breach of fiduciary duty, based on the above-mentioned events.⁴ Following a trial, the jury found Trakru liable on all three causes of action and awarded Mathews $570,000 in compensatory damages without allocating that amount to any particular cause of action. The jurors also awarded Mathews $500,000 in punitive damages, having been instructed that they could do so in connection with the fraud claim. The circuit court entered judgment accordingly and granted Mathews $53,500 in attorney fees based on the breach-of-contract verdict.

II. Denial of Directed Verdict

Trakru argues first that the circuit court erred in denying her motion for a directed verdict, which she made at the close of Mathews's case and at the close of all of the evidence. The motion was directed to all three of Mathews's causes of action and, with Mathews's agreement, incorporated arguments made by Trakru in several pretrial motions.

In reviewing the denial of a directed verdict, we determine whether the jury's verdict is supported by substantial evidence. Jenkins v. APS Ins., LLC, 2013 Ark. App. 746, 431 S.W.3d 356. We do not try the issues of fact on appeal but simply review the record for substantial evidence to support the jury's verdict. Id. Substantial evidence is that which goes beyond suspicion or conjecture and is sufficient to compel a conclusion one way or the other. Id. We view the evidence and all reasonable...