Tyson Foods, Inc. v. Adams

Decision Date21 October 1996
Docket NumberNo. 95-969,95-969
Citation930 S.W.2d 374,326 Ark. 300
PartiesTYSON FOODS, INC., Appellant, v. Steve ADAMS, Appellee.
CourtArkansas Supreme Court

Samuel A, Perroni, Rita S. Looney, Little Rock, for appellant.

Walter B. Cox, Tim E. Howell, Fayetteville, for appellee.

DUDLEY, Justice.

This is another in the recent series of legal malpractice suits. In this one, Steve Adams, the attorney, agreed to represent Tyson Foods, Inc., in two separate underlying actions: one was to quiet title to a tract of land in Pope County, and the other was to defend a foreclosure action involving the same land. Both cases were removed to Federal District Courts for the Eastern District of Arkansas, the quiet-title action to the court of District Judge Henry Woods and the foreclosure action to the court of District Judge Susan Wright. Adams was negligent in his representation of Tyson in both cases. In the quiet-title action, he failed to respond to motions for summary judgment and failed to notify Tyson that judgment had been entered against it; in the foreclosure suit, he failed to respond to motions and failed to notify his client that the property was about to be sold. Tyson subsequently filed this malpractice action against Adams in the Circuit Court of Washington County. The Honorable David Burnett, circuit judge on exchange, ruled on summary judgment that Adams was negligent, but that such negligence was not the proximate cause of damage to Tyson. We affirm the ruling.

In 1982, Valmac Industries, Inc., a poultry producer, needed a larger freezer facility to store its poultry products in Russellville. Valmac was short of capital because of its rapid growth. In addition, interest rates were high, approximately 15%, and so Valmac decided to finance the expansion by using a sale and leaseback with an option to purchase. This way, Valmac could use someone else's capital to build the facility. Valmac reached agreement with Satterfield Development, Inc., a Russellville builder, for the sale and leaseback with an option to purchase. In performance of that agreement, Valmac deeded the land on which the freezer was located to Satterfield Development. The consideration recited in the deed was $166,000, Valmac's book value, which was considerably less than the facility's market value. Satterfield Development then leased the property back to Valmac and gave it an option to purchase. The consideration recited in the lease was $49,000 per month through March 1, 1988, and, at that time, Valmac had the option of purchasing the facility at its fair market value. Valmac employed an outside attorney to give an opinion on the validity of the lease and option. Upon review of the deed, lease, and purchase agreement, the attorney gave his opinion that the lease and option was a valid lease and was not voidable under the then-existing usury laws. Valmac's Board of Directors authorized the transaction by resolutions dated August 19 and 23, 1982.

On August 30, four days after the lease and option were executed, Valmac and Satterfield Development, through Blake Lovett, president of Valmac, and George Satterfield, president of Satterfield Development, signed a separate letter agreement. Lovett testified by deposition that the letter agreement was signed as the result of a side agreement he and George Satterfield had previously entered. In the side agreement the option price was fixed at $68,660, but was to be adjusted according to whether the federal discount rate, plus 5%, averaged more or less than 17% during the final thirty-six months of the term of the lease. Lovett explained that the agreement meant that the real option price was the difference between the amount paid in monthly rentals and the cost of construction plus the cost of interest, and that the option price was never intended to be an amount equal to the fair market value of the facility, as stated in the lease. Lovett testified that the side agreement was not disclosed so that Valmac could deduct the lease payments according to the terms of the original lease, rather than capitalizing them as required by tax laws and generally accepted accounting principles, and so that Valmac could avoid violation of the then-existing usury laws. Valmac also wanted to avoid disclosing the side option price because it was in violation of covenants with its bank regarding asset and liability ratios. The side agreement was not disclosed to Valmac's independent counsel, its auditors, or its bank. Lovett testified that he "understood that if the agreement was disclosed that there would be consequences that might arise from the agreement."

Satterfield Development completed construction of the expansion, and beginning in March 1983, Valmac paid monthly rent to Satterfield Development. Valmac treated the lease as such and deducted the lease payments as made rather than capitalizing them. In October 1984, Tyson acquired approximately 80% of Valmac's common stock and at about the same time, as the successor-in-interest, began operating the freezer facility and making the rental payments to Satterfield Development. A formal merger of Valmac and Tyson took place on July 1, 1987. During meetings leading up to the acquisition of Valmac by Tyson, Lovett disclosed to Leland Tollett, president of Tyson, that the agreement with Satterfield was a "finance-type lease." Tollett, by deposition, testified that Lovett told him there was an agreement by which Valmac would obtain title to the property, and the formula for calculation of price was "based on an interest rate calculation."

In 1985, George Satterfield decided to build a large sawmill that was to be owned and operated by another of his corporations, Satterfield Lumber Company. Satterfield needed to borrow a considerable amount of money to construct such a large mill. On December 10, 1985, Savers Federal Savings and Loan Association extended a $1,600,000 loan to Satterfield and Satterfield Lumber Company. As part of the security for the loan, Satterfield, as president of Satterfield Development, executed a mortgage on the freezer property to Savers. In obtaining the loan from Savers, Satterfield provided Savers a copy of the lease and option agreement with Valmac. He did not disclose the side agreement to Savers. Satterfield constructed the sawmill and put it into operation, but soon began to lose money and fell behind in his payments to Savers. Savers notified Satterfield that it was considering its options, including foreclosing on the freezer property. The freezer property had a true market value of more than $2,000,000, as it was appraised in 1982 as having a fair market value of $2,900,000 and in 1990 as having a fair market value of $2,700,000 without the lease and $2,060,000 with the lease.

In 1988, Tyson attempted to exercise its option to purchase the freezer according to the terms of the August 30, 1982, side agreement, the one providing that the purchase price was $68,660, with adjustments for construction costs and interest. Ironically, under this agreement, Satterfield Development owed Tyson upon Tyson's exercise of the option to purchase. Under the terms of the side agreement, Satterfield owed Tyson $169,298, less the agreed option price of $68,660, or a net of $100,638. Satterfield Development owed this amount because interest rates had fallen dramatically during the term of the lease. Satterfield eventually disclosed to Tyson that Satterfield Development could not convey clear title because the property had been mortgaged to Savers. Satterfield Development, Satterfield Lumber, and Tyson entered into various agreements in attempts to clear title, but all failed. Tyson and Satterfield Development executed a lease extension on June 1, 1988. Shortly thereafter, the original lease and option agreement, along with the lease extension, were recorded in the records of Pope County. During the late 1980's, Savers encountered its own capital problems and was taken over by the Resolution Trust Corporation under federal law.

Tyson employed Adams to file suit for specific performance of the side agreement and to quiet title. On May 19, 1989, Adams, on behalf of Tyson, filed the suit in the Chancery Court of Pope County against Satterfield Development, Satterfield Lumber, and Savers. The R.T.C. subsequently replaced Savers and caused the action to be removed to United States District Court. After removal, the R.T.C. filed a motion for summary judgment. Adams failed to respond on behalf of Tyson, and District Judge Henry Woods granted the motion dismissing the R.T.C., but not the other defendants. The primary basis of Judge Wood's ruling was that Tyson and its predecessor in interest could not rely on the secret side agreement under the D'Oench, Duhme doctrine. Adams failed to notify Tyson that the R.T.C. had been granted a summary judgment.

The R.T.C. initiated the foreclosure action against Satterfield Development and others on July 22, 1991. Tyson was made a party because of its claim to the property. Adams failed to respond for Tyson. The Honorable Susan Wright, United States District Judge, ruled that the R.T.C.'s interest was prior to all other interests in the property, including Tyson's, and entered a decree of foreclosure in favor of the R.T.C. Judge Wright relied on the ruling by Judge Woods in making her decision.

Tyson employed new counsel, David Duke, who filed motions for reconsideration in both cases. Both federal district judges denied the motions, with Judge Wright stating that, in addition to other reasons for her original ruling, Savers, and, in turn, the R.T.C., was a bona fide purchaser for value and was without notice of Tyson's claim to the property. Judge Wright also indicated that Savers and the R.T.C. had no duty to inquire about Tyson's possession since it was consistent with the lease and option agreement submitted to Savers at the time the loan was made. Judge Wright also stated that Adams's negligence did not...

To continue reading

Request your trial
16 cases
  • Union Pacific R. Co. v. Sharp
    • United States
    • Arkansas Supreme Court
    • October 9, 1997
    ...the negligence of the defendant and the damage, it is proper for the case to go to the jury. Ouachita, supra; Tyson Foods Inc. v. Adams, 326 Ark. 300, 930 S.W.2d 374 (1996); McGraw v. Weeks, 326 Ark. 285, 930 S.W.2d 365 (1996). In other words, proximate causation becomes a question of law o......
  • Southern Farm Bureau Cas. Ins. v. Daggett
    • United States
    • Arkansas Supreme Court
    • September 25, 2003
    ...Pappas, 104 Wash.2d 254, 704 P.2d 600 (1985)). See also Anthony v. Kaplan, 324 Ark. 52, 918 S.W.2d 174 (1996); Tyson Foods, Inc. v. Adams, 326 Ark. 300, 930 S.W.2d 374 (1996); Restatement (Third) of the Law Governing Lawyers § 53, Reporter's Note Here, the Pulaski County court granted Dagge......
  • Schmidt v. Pearson, Evans and Chadwick
    • United States
    • Arkansas Supreme Court
    • November 4, 1996
    ...alleged negligence of the attorney, the result in the underlying action would have been different. Id.; see also Tyson Foods, Inc. v. Adams, 326 Ark. 300, 930 S.W.2d 374 (1996); Callahan v. Clark, 321 Ark. 376, 901 S.W.2d 842 (1995); Shaffer v. Wilkes, 65 F.3d 115 (8th Cir.1995); Vanderford......
  • Wallace v. Broyles
    • United States
    • Arkansas Supreme Court
    • January 15, 1998
    ...no dispute as to underlying facts, different conclusions could be reached. Summary judgment was inappropriate. Tyson Foods, Inc. v. Adams, 326 Ark. 300, 930 S.W.2d 374 (1996), was a legal malpractice action in which a summary judgment was granted in favor of the defendant-attorney. The summ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT