Williams v. Brush Island Public Water

• Decision Date: 30 November 2006
• Docket Number: No. 06-126.,06-126.
• Citation: 243 S.W.3d 903
• Parties: Robert T. WILLIAMS, Josephine Williams, Robert Jones, Sr., Dorothy A. Jones, Andrew W. Williams, Fredonia Williams, Delbert. L. Gieber, Dara J. Gieber, Bowman M. Burns, Jr., Lela Burns and All Others Similarly Situated, Appellants, v. BRUSHY ISLAND PUBLIC WATER AUTHORITY of the State of Arkansas, Formerly Known as Brushy Island Water Association, Inc., Christopher Baker, Florestine Perkins, Lee A. Jeffery, Jerry Carter and George Coleman, in Their Respective Capacities as Directors and/or Trustees and/or Officers of Brushy Island Public Water Authority of the State of Arkansas, Formerly Known as Brushy Island Water Association, Inc., Appellees.
• Court: Arkansas Supreme Court

243 S.W.3d 903

Robert T. WILLIAMS, Josephine Williams, Robert Jones, Sr., Dorothy A. Jones, Andrew W. Williams, Fredonia Williams, Delbert. L. Gieber, Dara J. Gieber, Bowman M. Burns, Jr., Lela Burns and All Others Similarly Situated, Appellants, v. BRUSHY ISLAND PUBLIC WATER AUTHORITY of the State of Arkansas, Formerly Known as Brushy Island Water Association, Inc., Christopher Baker, Florestine Perkins, Lee A. Jeffery, Jerry Carter and George Coleman, in Their Respective Capacities as Directors and/or Trustees and/or Officers of Brushy Island Public Water Authority of the State of Arkansas, Formerly Known as Brushy Island Water Association, Inc., Appellees.

No. 06-126.

Supreme Court of Arkansas.

November 30, 2006.

James F. Lane, P.A., by: James F. Lane, Conway, for appellants.

Wright, Lindsey & Jennings, LLP, by: C. Tad Bohannon and Michelle M. Kaemmerling, Little Rock, for appellees.

JIM GUNTER, Associate Justice.

Appellants are water users in the Brushy Island Public Water Authority (the "Authority"). They sued the. Authority and its directors seeking a declaration that the vote to convert the Brushy Island Water Association, of which appellants were members, from a nonprofit corporation into a water authority was void and invalid. The circuit court granted the Authority's motions (1) for summary judgment, (2) to strike an amendment to appellants' complaint, and (3) to appoint a receiver for the Authority. Appellants brought this appeal from the circuit court's order striking the amendment to their second amended complaint and appointing Central Arkansas Water ("CAW") as the receiver for the Authority. We assumed jurisdiction pursuant to Ark. R. Sup.Ct. 1-2(b)(1), as this appeal raises an issue of first impression. We affirm the circuit court's order.

The Authority provides water service to the Brushy Island Community in and east of Sherwood in Pulaski County. Before the Authority was created, water service in this area was provided by a nonprofit corporation, the Brushy Island Water Association. At an annual membership meeting of the Brushy Island Water Association on July 15, 2003, the Association's board of directors and members passed resolutions to convert the Association into a public water authority pursuant to Ark.Code Ann. § 4-35-202 (Supp.2005). Water authorities do not have members, so all former members of the Association became water users of the Authority.

On September 30, 2003, appellants filed a lawsuit challenging various acts of the Association's board of directors. One of the claims challenged the conversion vote on July 15, 2003, on the ground that the vote failed to pass by a majority. Several amended and substituted complaints were later filed. On September 28, 2004, the trial court granted appellees' motion to strike the third amended and substituted complaint, leaving the second amended and substituted complaint as the operative pleading. In addition, the trial court granted appellees' motion to dismiss as to several claims, but allowed appellants to proceed with, among other claims, the challenge to the conversion vote on the ground that it failed to pass by a majority.

On July 27, 2005, appellees filed a combined motion for appointment of receiver and motion for summary judgment. Appellees asked the trial court to appoint CAW as receiver subject to terms outlined in a proposed order attached to the motion. Appellees submitted affidavits and other evidence indicating that the Authority's water-system facilities were in a state of disrepair and in need of significant improvements, that the Authority lacked funds to pay for improvements, that four of the five directors wanted to resign, and that the Authority had been cited by the Arkansas Department of Health for violations of certain public-health regulations. In conjunction with its willingness to serve as receiver, CAW had arranged financing for the improvements needed to the Authority's system. Appellees also moved for summary judgment on all remaining claims, including the conversion-vote claim.

On August 16, 2005, appellants filed a first amendment to complaint, purporting to add a claim that the court eliminated when it struck the third amended and substituted complaint. They also filed a response to appellees' combined motion for appointment of receiver and motion for summary judgment, arguing that the appointment of a receiver was not necessary or appropriate. Appellees filed a motion to strike the first amendment to complaint. On August 25, 2005, the trial court held a hearing to address the combined motion and the motion to strike. On October 18, 2005, the trial court entered an order dismissing the remaining claims against appellees, granting the motion to strike, appointing CAW as receiver for the Authority, and outlining the terms of the receivership. Appellants brought this appeal.

Appointment of Receiver

Appellants' first point on appeal is that the trial court erred in failing to conduct an "evidentiary hearing" in order to appoint a receiver. Appellants neither explain exactly what is required in an "evidentiary hearing" nor cite any law directly supporting their position that an "evidentiary hearing" is a prerequisite to a trial court's appointment of a receiver. They simply claim that, pursuant to our decision in Davis v. Schimmel, 252 Ark. 1201, 482 S.W.2d 785 (1972), due process mandates that appellants be afforded "an evidentiary hearing on the merits of the appointment of a receiver."

The appellant in Davis was the owner of oil and gas leases in certain lands in Lafayette County. He asked the chancery court to appoint a receiver to negotiate and execute leases on unleased interests in these lands, which the court did. Two years later, the defendants—nonresident owners of the land involved—filed motions to vacate the orders of the court appointing the receiver and approving his reports granting leases to appellant in their lands. The court set aside the orders appointing the receiver and confirming his reports, holding that they were entered without notice and were therefore void. We affirmed, stating that, before depriving a person of "any significant property interest," "[d]ue process requires, at a minimum, that one be given a meaningful opportunity for a hearing, appropriate to the nature of the case and preceded by notice." Id. at 1207, 482 S.W.2d at 789. Although we noted that publication of a warning notice is an adequate method of service for nonresidents, we held that the affidavit for warning order in this case was not in strict compliance with statutory requirements and was, therefore, invalid. Accordingly, we held that, because the defendants received neither constructive nor actual notice of the action, the orders appointing the receiver and confirming the leases made by the receiver to the appellant were void.

Appellants' reliance on Davis is misplaced. The issue in Davis was not whether an evidentiary hearing was required in order for a court to appoint a receiver, but whether the defender of a suit for the appointment of a receiver received adequate notice. Davis does not support appellants' position in this case that the court was required to hold an "evidentiary hearing" before it appointed a receiver.

Appellees contend that this issue has not been preserved for appeal because the record reflects that the appellants were given the opportunity to present live testimony and additional evidence in opposition to the motion to appoint a receiver, but they failed to do so. Appellees cite Robinson v. State, 363 Ark. 432, 214 S.W.3d 840 (2005), for the proposition that it is appellant's obligation to obtain a ruling on his argument to preserve it for appeal. Appellees claim that their motion for appointment of receiver was supported by two affidavits, a notice from the Arkansas Department of Health, and an order of the Board of Health. Appellants filed a response opposing the appointment of a receiver, but submitted no evidence in support of their opposition. In the hearing held August 25, 2005, on appellees' combined motion for appointment of receiver and motion for summary, judgment and appellees' motion to strike, appellants neither produced testimonial or documentary evidence in opposition to the motion for appointment of receiver nor called appellees' affiants to question them about their affidavits. In response, appellants argue that they requested an opportunity to examine appellees' affiants and were denied that opportunity.

After hearing arguments on the summary-judgment motion and on the motion to strike, the court turned to the motion for appointment of receiver. The court had already said that it was granting appellees' motion for summary judgment. Appellees noted that the court's ruling on their motion to strike was determinative of whether they wanted to go forward on the motion for appointment of a receiver. The following excerpt occurred immediately after appellees indicated that CAW was willing to serve as receiver only if no claims remained pending in the lawsuit.

THE COURT: If you are prepared to do this, what I would like to do is go ahead and hear arguments on behalf of the receivership. I will, I guess, take it in abeyance with the other and we'll just deal with it that way.

APPELLEES' COUNSEL: Certainly. I am prepared to do that.

APPELLANTS' COUNSEL: Your Honor, if I may address the Court, I was under the impression today that we would have the summary judgment hearing, much as the rule contemplates, and argue the motion and the response and the relative merits.

I was under the impression that we would have something on the nature of an evidentiary hearing on the request for appointment of receivership. And to that end, I had hoped to be able to inquire of at least Mr. Ferguson and some others about areas of concern I have with the affidavit. I did not know that the Court was going to treat the— and could not tell from the pleadings that the defendants...