author: David Newbern, Justice. Donald L. Corbin, Justice, dissenting.

text:
    AMERICAN INVESTORS LIFE INSURANCE COMPANY v. TCB TRANSPORTATION, INC., an Arkansas Corporation, James Dunn, Laverne Howard, Terry Howard, Eugene E. Howard, Jr., David Meadows, James Sullins, Beverly Turner, and Roger D. Watson
    92-1084
    849 S.W.2d 509
    Supreme Court of Arkansas
    Opinion delivered March 22, 1993
    [Rehearing denied May 3, 1993.]

      Skokos, Coleman & Rainwater, P.A., by: Jay Bequette and Randy Coleman, for appellant.

      James A. McLarty, for appellee.

      Glaze, Corbin, and Brown, JJ., would grant rehearing.

   David Newbern, Justice.

The issue in this appeal is whether a Chancellor who has determined the Chancery Court lacks jurisdiction of a suit begun there may enjoin the parties to retain the status quo until the merits of the case are decided in a Circuit Court. We hold a Chancellor has the authority to do so if it appears that the remedy at law might otherwise be inadequate.

American Investors Life Insurance Company (American Investors), the appellant, provided health insurance to employees of appellee TCB Transportation, Inc. (TCB). Premiums were paid by individual employees through withholdings from wages. A dispute arose over late payment of the past-due medical bills of ■ Steve Turner who was an insured under the policy as the spouse of one of the TCB owners. Turner had contracted Hodgkins disease. A notice of cancellation of the policy was sent by Fewell & Associates, administrator for American Investors, to the Turners.

TCB and its eight employees sought an injunction in Jackson County Chancery Court requiring that insurance coverage be continued until a determination could be made whether cancellation was proper. The petition alleged irreparable harm would result if coverage was terminated because the cost of replacing Steve Turner’s health insurance, assuming replacement coverage could be obtained, would increase by over 200%.

A consent order was entered in which Fewell & Associates agreed to withdraw its notice of cancellation and continue coverage until the action could be determined on the merits. TCB’s petition for an injunction was held in abeyance.

American Investors moved for summary judgment, arguing TCB and its employees were no longer qualified to be insured under the terms of the group policy and, therefore, cancellation was proper. The motion also requested that the petition for injunctive relief be dismissed or transferred to Circuit Court as there was an adequate remedy at law for breach of contract.

In response, TCB argued there were material questions of fact presented as to whether cancellation was proper. TCB recognized, however, that the case involved breach of contract issues and that the Chancellor should not decide them on the merits. TCB thus had no objection to transferring the claims to Circuit Court provided the prior consent order remained in effect pending the outcome of the litigation.

The Chancellor denied the summary judgment motion and transferred the case to the Circuit Court, stating he lacked subject matter jurisdiction. The consent order was left in effect, and American Investors was ordered to maintain coverage for TCB and its employees pending a final determination in the Circuit Court.

A common function of a temporary restraining order or a preliminary injunction is to maintain the status quo until the merits of a controversy are decided. See Citizens’ Pipeline v. Twin City Pipeline, 183 Ark. 1006, 39 S.W.2d 1017 (1931). In some instances we have observed that a Chancery Court entered a temporary order to preserve the status quo although the merits of an underlying controversy were to be decided in a Circuit Court. Mills v. Patton, 233 Ark. 755, 346 S.W.2d 689 (1961); Coffelt v. Nicholson, 224 Ark. 176, 272 S.W.2d 309 (1954); Special School Dist. No. 58 v. Deason, 181 Ark. 208, 255 S.W.2d 23 (1930).

A party must show lack of an adequate remedy at law to obtain relief in equity, Compute-A-Call v. Tolleson, 285 Ark. 355, 687 S.W.2d 129 (1985); however, in Honor v. Yamuchi, 307 Ark. 324, 820 S.W.2d 267 (1991), we stated, “Regardless of whether the appellant is entitled to bring an action of law, the mere existence of that right does not deprive the equity court of jurisdiction unless the legal remedy is clear, adequate and complete [emphasis in original].”

We hear chancery cases de novo, and we may affirm if we find the result reached by the chancellor was correct for any reason. May v. Bob Hankins Distributing Co., 301 Ark. 494, 785 S.W.2d 23 (1990). We lack assurance that the remedy for breach of contract is complete in this situation. If Turner or some other insured were denied health care as a result of inability to pay it might not matter at all whether there was a remedy in contract, for it could prove to be wholly inadequate.

It was not improper for the Chancellor to transfer the case to the Circuit Court. Nor do we find error in his order requiring temporary maintenance of the insurance coverage in view of our conclusion that the remedy at law would otherwise have been incomplete.

Affirmed.

Glaze, Corbin, and Brown, JJ., dissent.

Donald L. Corbin, Justice, dissenting.

“Good results make bad law.” It is a statement I have heard time and time again in my experiences as an appellate judge. The majority opinion issued today lends truth to the statement, so much so that it compels me to dissent.

Consistently with other results-oriented opinions of this court, the majority opinion issued today jumps to an unfounded conclusion. In this particular case, that unfounded conclusion is that appellee Steve Turner does not have an adequate remedy at law. There is absolutely nothing in the record that can be used to support this conclusion. The conclusion requires speculation on the majority’s part and I am unwilling to join in that speculation.

The majority opinion states that if appellant is unable to receive health care, his remedy at law for breach of contract could prove to be wholly inadequate (emphasis added). I completely agree with the statement, even as it is written in its conditional form. I also agree that the mere existence of a remedy at law is not sufficient to deprive equity of its jurisdiction if the remedy is inadequate. Honor v. Yamuchi, 307 Ark. 324, 820 S.W.2d 267 (1991). What I disagree with, is that there is any evidence in the record even remotely indicating that appellee Steve Turner will be unable to receive health care if he is uninsured. That evidence is simply not there. And even reviewing this case de novo, this court cannot create such evidence or overlook its absence. Moreover, appellee does not allege that he will not be provided with health care. The majority opinion is therefore based on an allegation that was not even raised in the trial court, much less ruled upon, or even argued for the first time on appeal.

Even worse than the majority opinion’s unfounded conclusion that appellee Steve Turner’s remedy for breach of contract could be inadequate however, is the reasoning used to reach it. The opinion reasons, “[w]e lack assurance that the remedy for breach of contract is complete in this situation.” If the majority lacks such assurance, I ponder the question of just whose burden it was to supply such assurance by producing evidence. As the parties seeking the injunction, it was appellees’ burden. See generally W.E. Long Co. v. Holsum Baking Co., 307 Ark. 345, 820 S.W.2d 440 (1991); Dunkum v. Moore, 265 Ark. 544, 580 S.W.2d 183 (1979); Arkansas State Bd. of Pharmacy v. Troilett, 249 Ark. 1098, 463 S.W.2d 383 (1971); Green v. Smith, 231 Ark. 94, 328 S.W.2d 357 (1959); Flippin v. McCabe, 228 Ark. 495, 308 S.W.2d 824 (1958); Arkansas State Bd. of Architects v. Clark, 226 Ark. 548, 291 S.W.2d 262 (1956); Van Norman v. Reynolds, 177 Ark. 798, 9 S.W.2d 39 (1928).

Granted, appellee Steve Turner does allege, in the original petition for injunction, that if appellant cancels his health insurance, he would suffer irreparable harm because replacement insurance, assuming it would cover pre-existing conditions, would raise costs “200/300%.” This is all he alleges, however; he never alleges he will be denied health care. In addition, he did not offer the trial court any evidence of the alleged increase in costs. There was not a single allegation, witness, or affidavit offered to the effect that appellant inquired about obtaining replacement insurance. Whether an insurance company would insure a person diagnosed with Hodgkin’s disease and at what cost is a matter of which neither this court nor the trial court should take judicial notice. Most important though, is that the allegation that appellant’s cost of insurance would rise can be remedied adequately by money damages in circuit court should it be ultimately determined that appellant wrongfully terminated appellees’ coverage.

Putting the procedural defect in the majority opinion aside, I now turn to the more significant substantive defect — the complete disregard for the separation of equity courts and law courts in our system of jurisprudence.

On appeal, appellant argues the chancellor erred in finding a lack of subject matter jurisdiction and subsequently ordering appellant to maintain coverage of appellees. I agree with this contention. I agree because it is well settled that a lack of an adequate remedy at law is at the foundation of the power to issue injunctive relief. Compute-A-Call, Inc. v. Tolleson, 285 Ark. 355, 687 S.W.2d 129 (1985). Thus, the chancellor’s finding that appellees had an adequate remedy at law for breach of contract extinguished the chancery court’s power to issue injunctive relief. The finding of an adequate remedy at law is wholly inconsistent with the issuance of an injunction.

The majority tries to reconcile this inconsistency by citing three cases in which this court has “observed” a chancery court issuing an injunction when a circuit court ultimately decided the merits of the case. After reading the three cases cited by the majority, it is obvious why the majority carefully chose the word “observed.” Indeed, this court did make the described observation in the three cited cases, but it expressed its approval of such actions in only one of those cases, Mills v. Patton, 233 Ark. 755, 346 S.W.2d 689 (1961), which was expressly limited to the facts of that case. In Coffelt v. Nicholson, 224 Ark. 176, 272 S.W.2d 309 (1954), this court merely observed that a chancery court issued an injunction which was abandoned when the petitioner’s attorneys concluded circuit court was the appropriate forum; the order appealed from and affirmed in that case was an order of the circuit court. In Special School Dist. No. 50 v. Deason, 181 Ark. 208, 255 S.W.2d 23 (1930), this court expressly reserved comment on the propriety of the chancery court’s jurisdiction because the issue was not raised by the parties.

It is true that this court expressed approval of a chancery court issuing an injunction when a circuit court decided the merits of the case in Mills, 233 Ark. 755, 346 S.W.2d 689. Mills does directly discuss the “power of equity to grant an injunction in a case like this.” A key factor, however, is that Mills, and the cases on which Mills relies, are cases contesting the eligibility of a public official to hold office. Thus, the holding in Mills regarding a chancery court’s power to issue an injunction is expressly limited to cases involving a challenge to a public official’s eligibility to hold office. The most important factor in explaining Mills’ inapplicability to the current case, however, is that, unlike the chancery court in the present case, the chancery court in Mills did not make an express finding that it lacked subject matter jurisdiction.

Glaze and Brown, JJ., join in this dissent.


source: Caselaw Access Project

author: David Newbern, Justice.

license: Public Domain

text:
    Jerry HAYES v. STATE of Arkansas
    CR 92-1359
    849 S.W.2d 501
    Supreme Court of Arkansas
    Opinion delivered March 22, 1993

      William R. Simpson, Jr., Public Defender, by: Tammy Harris, Deputy Public Defender.

      Winston Bryant, Att’y Gen., by: Brad Newman, Asst. Att’y Gen., for appellee.
   David Newbern, Justice.

This criminal appeal arises from the conviction, upon a jury verdict, and sentence to life imprisonment of the appellant, Jerry Hayes. Hayes was charged with the murder of Patricia Taunt. He questions the sufficiency of the evidence to sustain the conviction and argues a statement he made to the police should have been suppressed. We decline to consider the sufficiency argument because of Hayes’s failure to move for a directed verdict, and we find no basis for suppressing the statement.

An unidentified person reported that Ms. Taunt was missing and that the police should “look into” her disappearance. Detective Stafford visited Ms. Taunt’s home where he met Hayes and the victim’s daughter. The daughter said the victim was not home and she didn’t know where she was but that some of her clothing and jewelry were missing. The daughter said the victim had vanished a week earlier and she assumed that she was on the road with her truck-driver husband. Hayes was taken in for questioning and released an hour later.

Barry Mattinson had worked with Hayes for three months at a Pizza Hut restaurant, and they had become friends. Mattinson was interviewed by the police and made a statement implicating Hayes in the murder. In his testimony at Hayes’s trial Mattinson said he received a call from Hayes at the restaurant asking for help. Mattinson said he told Hayes he would not help him kill the victim, but then Hayes said he had just killed her and needed help to hide the body. Mattinsons said Hayes had, in the presence of other witnesses, threatened to kill the victim on several occasions. Brian Lowery, a former Pizza Hut manager, also testified of hearing Hayes threaten to kill the victim.

Mattinson said he agreed to help dispose of the body because Hayes threatened to kill the victim’s son and any police officer with whom he came into contact. He also said he was a homosexual and in love with Hayes and became afraid of Hayes while they were in the process of trying to hide the body.

When Mattinson arrived at the house where Hayes and Ms. Taunt lived, Hayes was wearing bloody pants and seemed agitated. Mattinson saw a body wrapped in bloody blankets. Hayes placed the body in Mattinson’s car. Forensic examination of the car later revealed bloodstains in the rear passenger floorboard. They drove to Heber Springs, hid the body under some brush, and returned later to bury it.

Mattinson led the police to the grave. Hayes was arrested shortly thereafter and interrogated by two officers who testified Hayes signed a statement acknowledging he had been advised of his rights, but he refused to sign a form stating he waived his rights. The officers said, however, that Hayes agreed to talk with them despite his unwillingness to sign the waiver. According to the officers, when Hayes was informed that Mattinson had told them the story Hayes made statements they felt were incriminating.

1. Sufficiency of the evidence

Arkansas R. Crim. P. 36.21(b) provides:

Failure to Question the Sufficiency of the Evidence. When there has been a trial by jury, the failure of a defendant to move for a directed verdict at the conclusion of the evidence presented by the prosecution and at the close of the case because of insufficiency of the evidence will constitute a waiver of any question pertaining to the sufficiency of the evidence to support the jury verdict.

Hayes did not move for a directed verdict at the conclusion of the evidence presented by the prosecution. Nor did he move for a directed verdict at the close of the case. He did, however, move at the conclusion of a discussion of instructions to be presented to the jury, and just before the jury was to return to the courtroom for closing arguments, to “dismiss for lack of evidence.”

Even if we were to equate the dismissal motion with one for a directed verdict, we would not consider it because of failure to make the motion at the conclusion of the prosecution’s case. We have no case in which we have considered the issue whether a motion for directed verdict at the conclusion of the trial is sufficient to warrant consideration of sufficiency of the evidence when no such motion was made at the close of the prosecution’s case. We observe, however, that the Rule is stated in the conjunctive, clearly requiring the motion to be made in both instances, as we said in cases such as Collins v. State, 308 Ark. 536, 826 S.W.2d 231 (1992), and Dewitt v. State, 306 Ark. 559, 815 S.W.2d 942 (1991).

The failure to make the motion at the conclusion of the prosecution’s case and at the close of the case and the motion to “dismiss,” made apparently as an afterthought, are indications that, apparently with good reason, Hayes was not serious about questioning the sufficiency of the evidence to go to the jury. We decline to consider the point.

2. Suppression

At the suppression hearing Officer Durham testified Hayes was arrested at 5:30 a.m., September 11, 1991, and advised of his rights pursuant to Miranda v. Arizona, 384 U.S. 436, 467 (1966). An interview took place after Hayes had, according to Officer Stafford, acknowledged being informed of his rights, refused to sign the waiver, but agreed to talk. The interview was not recorded. Officers Durham and Oberle testified that Hayes was coherent and had no problem understanding what was taking place. They also testified that Hayes did not request an attorney until the end of the interview, and after he did so no further questions were asked.

Oberle began the interview and informed Hayes that Barry Mattinson had made a statement identifying Hayes as the murderer and had led them to the body. At one point, Oberle asked Hayes if he wanted to tell his side of the story, to which Hayes replied, “Why should I? Barry already told you everything.” Later Hayes said, “I knew Barry would end up telling. I saw Barry get picked up down the street earlier, and I knew y’all would be coming to get me. That’s why I was clothed and my shoes on .... I was sitting in the chair waiting and had fallen asleep.”

Other statements were alleged to have been made by Hayes, but the Court concluded they were actually non-answers to questions from which the officers made assumptions. Only the statements contained in the testimony quoted were admitted in evidence.

Hayes denies making any statements and asserts he requested an attorney at the beginning of the interview. He first argues the statements should have been suppressed because Mattinson testified at trial that the officers had lied to him (Mattinson) to obtain information. No such argument was made to the Trial Court, and as this objection is being raised for the first time on appeal it need not be considered. Smith v. State, 310 Ark. 30, 832 S.W.2d 497 (1992); St. Clair v. State, 301 Ark. 223, 783 S.W.2d 835 (1990).

Hayes argues that the fact that he was arrested at 5:30 a.m. and was suffering from sleep deprivation justified suppression. Again, he made no such argument at the trial, and it will not be considered.

Finally Hayes contends he did not make the statements attributed to him by the officers. He argues his refusal to sign the waiver form indicates he did not waive his rights and that as he requested an attorney the officers should not have continued to question him. To the extent these arguments raise issues of credibility, we defer to the trier of fact, in this instance the Trial Court, who was in the better position to assess their truthfulness. Atkins v. State, 310 Ark. 295, 836 S.W.2d 367 (1992); Brown v. State, 309 Ark. 503, 832 S.W.2d 217 (1992).

In reviewing the denial of a motion to suppress we make an independent examination based upon the totality of the circumstances and reverse only if the decision of the Trial Court was clearly against the preponderance of the evidence.. Watson v. State, 308 Ark. 643, 826 S.W.2d 281 (1992).

No argument was advanced or evidence presented which would support the conclusion that Hayes lacked the capacity to understand the warnings given him or the consequences of his speaking to the officers. Hayes was 26 years old at the time of his omnibus hearing which took place approximately 9 months after his interrogation. Hayes testified he had some college education, and he said no threats or promises were made. He also said there was no lengthy wait prior to his interrogation. Given the totality of the circumstances we conclude Hayes’s implicit waiver of his right to remain silent was with knowledge of the consequences.

The waiver was also voluntary. In making his ruling the Court made a threshold inquiry whether there is any requirement that prior to making a statement an accused must sign a written waiver. Hayes’s counsel conceded there is no such requirement, and we so held in Fleming v. State, 284 Ark. 307, 681 S. W.2d 390 (1984).

The totality of the circumstances approach in these situations involves two major components; first, the conduct of the officers and second, the vulnerability of the accused. State v. Graham, 277 Ark. 465, 642 S.W.2d 880 (1982). Two officers said Hayes waived his right and made the incriminating statements. Hayes denies it but acknowledges the lack of coercive circumstances. As noted above, we decline to reverse the Trial Court’s ruling which was obviously based on belief of the officers’ testimony as opposed to that of Hayes with respect to the implied waiver.

3. Rule 11

The record has been examined in accordance with Ark. Sup. Ct. R. 11(f), and it has been determined that there were no rulings adverse to the appellant which constituted prejudicial error.

Affirmed.


author: David Newbern, Justice. Steele Hays, Justice,

text:
    H.L. “Pete” SMITH v. EASTGATE PROPERTIES, INC., Richard Stofer, and Henry Allen
    92-692
    849 S.W.2d 504
    Supreme Court of Arkansas
    Opinion delivered March 22, 1993
    [Rehearing denied May 3, 1993.]

      Wright, Lindsey & Jennings, by: John R. Tisdale and Charles L. Schlumberger, for appellant.

      Eudox Patterson, for appellees.
   David Newbern, Justice.

This case involves the remedies to be afforded a dissenting shareholder of a closely held corporation when a majority of the shareholders vote to sell substantially all the corporate assets. The appellant, H.L. “Pete” Smith, argues the Chancellor erred by substituting the equitable remedy of foreclosure for the legal remedy of determining the fair value of his shares under Ark. Code Ann. § 4-26-904(f)(2)(A) (Repl. 1991) when acting pursuant to the clean-up doctrine. He also contends the Chancellor should have ruled on his shareholder’s derivative claim brought on the corporation’s behalf under Ark. Code Ann. § 4-26-811 (a)(3) (Repl. 1991). We find no error and affirm.

Smith was the sole shareholder of Pete Smith Realty, Incorporated. On May 24, 1988, the appellees, Richard Stofer and Henry Allen loaned $475,000 to financially troubled Pete Smith Realty secured by a deed of trust on all real property owned by the corporation. A few days after the transaction, Stofer, Allen, J.E. Johnston, and Charles Regan purchased two-thirds of the corporate stock from Smith. Stofer later purchased Regan’s shares. The corporate name was changed to Eastgate Properties, Incorporated. Allen and Stofer were directors, officers, and majority shareholders of Eastgate.

In July of 1988, Stofer and Allen loaned Eastgate approximately $38,000 which was secured by the deed of trust under a future advances provision. Eastgate borrowed $200,000 of additional working capital from One National Bank which was also secured by a mortgage lien on the corporation’s real property. Stofer, Smith, and Allen were individually liable with Eastgate on the debt to One National Bank.

The original $475,000 loan from Stofer and Allen was due November 24, 1988, and well into default on March 12, 1991, when a special meeting of the stockholders, directors, and officers of Eastgate was held. During this meeting, a majority of the shareholders (Stofer, Allen, and Johnston) voted to convey the real property owned by Eastgate to Stofer and Allen in satisfaction of the debt owed them. Smith objected to the transfer prior to the meeting and voted his shares in opposition to the decision. The property was conveyed to Stofer and Allen by corporate warranty deed and bill of sale. On March 20, 1991, Smith made written demand on Eastgate for the fair value of his shares pursuant to Section 4-26-904(f)(2)(A). Stofer and Allen maintained Smith’s stock was worthless because Eastgate’s debts exceeded the value of its assets.

In May of 1991, Stofer and Allen requested an ex parte temporary restraining order in Garland County Chancery Court prohibiting Smith from removing fixtures from the real property which had been conveyed to them by Eastgate. The Chancellor granted the temporary relief on May 31,1991. On July 19,1991, Smith responded to the petition and claimed ownership of the fixtures by virtue of a 1975 agreement between Smith Farms and Pete Smith Realty. Smith Farms was also owned by Smith. Smith requested that the temporary restraining order be lifted and Allen and Stofer’s claim for permanent injunctive relief be dismissed.

Smith affirmatively contended in Chancery Court that Stofer and Allen breached a fiduciary duty of care and loyalty owed to Eastgate and its minority shareholders by transferring corporate assets to themselves for substantially less than their fair market value. Smith alleged the real property owned by Eastgate was worth over $2,000,000 but was transferred to Stofer and Allen for only $475,000. Smith also claimed Stofer and Allen’s purchase of the assets was a taking of a corporate opportunity in which Eastgate and its shareholders had a profit expectancy. As a proximate result of Stofer and Allen’s actions, Smith alleged he suffered damages of $300,000, which represented 25% of the estimated fair value of Eastgate’s assets. Smith also demanded $1,215.61 in compensation for the value of his engineering services rendered to Eastgate.

On July 5,1991, Smith filed a complaint in Garland County Circuit Court against Stofer, Allen, and Eastgate seeking a determination of the fair value of his shares under Section 4-26-904(f)(2)(A). The complaint alleged the same basic causes of action as the counterclaims filed in Chancery Court. Because Eastgate had no assets to pay a judgment, Smith sought to hold Stofer and Allen jointly and severally liable for the value of his shares under Section 4-26-811(a)(3). With respect to his claim for services rendered, Smith claimed he was suing in his capacity as a shareholder, and thus the case was a shareholder’s derivative suit brought on Eastgate’s behalf. His theory was that Stofer and Allen had failed to make provisions for paying Eastgate’s debts, so they were liable to Eastgate and Eastgate to him.

Smith immediately moved to transfer his claims against Stofer, Allen, and Eastgate to Chancery Court because the same issues were pending in the action there. Smith stated he filed his petition in Circuit Court to comply with Section 4-26-904(f)(2)(A) requiring such actions to be brought there. Having filed in Circuit Court as required by the Statute, Smith asked that his claims be transferred to Chancery Court which could decide them under the clean-up doctrine in order to avoid a multiplicity of suits and the potential for inconsistent decisions. The Circuit Court granted the motion without objection from Stofer and Allen.

The case went to trial on December 18,1991. No testimony has been included in the record as designated by Smith for presentation here, and we have only the Chancellor’s findings to consider. The Chancellor recognized most of the evidence at trial dealt with the appraised value of Eastgate’s real property which ranged from $1,600,000 to $704,000. The Chancellor ruled the most appropriate remedy to end the controversy was to set aside the conveyance from Eastgate to Stofer and Allen and order the Chancery Clerk to conduct a judicial sale of Eastgate’s real property. The Chancellor acknowledged the parties did not request this remedy but believed he could fashion any reasonable relief justified by the proof.

The property would be sold subject to One National Bank’s $200,000 loan, and the net proceeds of the sale would be paid to Stofer and Allen to apply to their loans made to Eastgate. Any proceeds in excess of the principal and interest owed to Stofer and Allen would be returned to Eastgate. Presumably, Smith would be entitled to share in the excess proceeds in proportion to his ownership interest in Eastgate. The Chancellor stated this remedy would place the parties in the same position as if Stofer and Allen had foreclosed on their mortgage.

The Chancellor further held the sale would render moot Smith’s claim against Eastgate, Stofer, and Allen for allegedly breaching a fiduciary duty by transferring assets for less than fair value, and Smith’s claim for recovery as a minority shareholder. Smith was awarded a $1,215.61 judgment against Eastgate for engineering services rendered.

Smith moved to amend the findings, arguing the Chancellor incorrectly substituted the equitable remedy of foreclosure for the legal remedy of determining the fair value of his shares. Smith alleged the foreclosure sale would not result in a fair value given to his shares as these sales were commonly viewed as “liquidation sales” where property is sold for a fraction of its value. The motion was denied. Smith moved to supplement the record with the Clerk’s report of sale showing Stofer and Allen purchased substantially all of Eastgate’s real property at the foreclosure sale for $450,000.

1. Equitable remedies

Smith argues the Chancellor was without authority to substitute the equitable remedy of foreclosure for the legal remedy of determining the fair value of his shares under Section 4-26-904(f)(2)(A). He contends a Chancellor must apply legal remedies when acting pursuant to the clean-up doctrine.

We recognize the legal right of a dissenting shareholder to obtain a determination of the fair value of his shares under Section 4-26-904(f)(2)(A) when a majority of the shareholders vote to sell substantially all the corporate assets. There is no dispute that Smith complied with the Statute by objecting to the transfer prior to the meeting, by not voting in favor of it, and by making a timely written demand on Eastgate for the fair value of his shares. Ark. Code Ann. § 4-26-904(a) (Repl. 1991). The Statute is silent on the method for determining “fair value.” We have stated there is no set formula or standard for determining fair value. General Securities Corp. v. Watson, 251 Ark. 1066, 477 S.W.2d 461 (1972).

By setting the sale to Stofer and Allen aside, the Chancellor avoided applicability of § 4-26-904(f)(2)(A). To support his argument that the Chancellor was without authority to set aside the sale and impose the equitable remedy of foreclosure, Smith relies almost exclusively on the maxim “equity follows the law” as cited in Beebe School Dist. v. National Supply Co., 280 Ark. 340, 658 S.W.2d 372 (1983). In the Beebe case, National Supply argued this Court should not follow a decision reached in a law case because the case on appeal arose in equity. We disagreed, stating “equity follows the law is strictly applicable whenever the rights of the parties are clearly defined and established by law.” The primary basis for our decision, however, was the fact that the same result had been reached in an appeal from a chancery court.

It might be true that equity follows the law in the sense of applying to equitable estates and interests the same rules by which common law legal estates are governed. Pomeroy’s Equity Jurisprudence, § 426 (5th ed. 1941). We cannot, however, interpret the Beebe case to mean equity must disregard equitable remedies in favor of legal remedies when acting pursuant to the clean-up doctrine. The fact that in some instances equity follows the same rules as are applied to legal estates does not mean equity must apply the same remedies.

We believe this statement to be particularly appropriate:

[O]ne large division of the equity jurisprudence lies completely outside of the law; it is additional to the law; and while it leaves the law concerning the same subject-matter in full force and efficacy, its doctrines and rules are constructed without any reference to the corresponding doctrines and rules of the law. Another division of equity jurisprudence is directly opposed to the law which applies to the same subject-matter; its doctrines and rules are so contrary to those of the law, that when they are put into operation the analogous legal doctrines and rules are displaced and nullified. As these conclusions cannot be questioned, it is plain that the maxim, Equity follows the law, is very partial and limited in its application, and cannot, like all the other maxims discussed in this chapter, be regarded as a general principle.

Pomeroy’s Equity Jurisprudence, § 427 (5th ed. 1941).

In setting aside the conveyance and ordering the assets sold at foreclosure, the Chancellor relied on Whitten Developments, Inc. v. Agee, 256 Ark. 968, 511 S.W.2d 466 (1974), which states the general rule that “a court of equity may fashion any reasonable remedy justified by the proof.” See also Roe v. Dietrich, 310 Ark. 54, 835 S.W.2d 289 (1992); Keith v. Barrow-Hicks Ext. Imp. Dist, 275 Ark. 28, 626 S.W.2d 951 (1982). Smith argues this rule is applicable only when a court of equity substitutes one equitable remedy for another. We decline to say the rule is so narrow.

In the Whitten case, we stated even though Agee did not request foreclosure, he was, in view of his prayer for general relief, entitled to any relief in equity justified upon proof of the facts alleged. It is undisputed that in this case Smith invoked the jurisdiction of Chancery Court and there requested “all other just and proper relief.” The Chancellor acted within his authority in determining a foreclosure sale was the best method for determining the value of Smith’s shares and ending the litigation.

Smith argues the foreclosure sale guaranteed he would not receive a fair value for his shares because foreclosure sales bring only a fraction of the true value of the assets sold. He supports his argument with the fact that the price brought at the foreclosure sale, from Stofer’s and Allen’s $450,000 bid, was substantially less than the lowest appraised value of the property, $704,000.

We refuse to take judicial notice that foreclosure sales always result in property selling for less than market value. Furthermore, we cannot determine from the record whether this specific foreclosure sale brought a lower than market value price. We do know that Eastgate owed Stofer and Allen $513,000, and it owed the Bank $200,000 for a total indebtedness secured by the property in question of at least $713,000, which was well over the lower estimate of the property’s value. Smith has failed to demonstrate that the fair market value of the property, when considering the interests of Stofer, Allen, and One National Bank, was substantially higher than the price brought at the foreclosure sale.

2. Shareholder’s derivative suit

Smith’s second point is that the Chancellor should have ruled on his shareholder’s derivative claim brought under Section 4-26-811(3). The purpose of the claim was to impose joint and several liability against Stofer and Allen for any judgment Eastgate might be required to pay. The Chancellor determined his decision to set aside the transfer to Stofer and Allen rendered this issue moot.

Section 4-26-811(3) provides

The directors of a corporation who vote for or assent to any distribution of assets of a corporation to its shareholders during the liquidation of the corporation without the payment and discharge of, or making adequate provision for, all known debts, obligations, and liabilities of the corporation shall be jointly and severally liable to the corporation for the value of the assets which are distributed, to the extent that the debts, obligations, and liabilities of the corporation are not thereafter paid and discharged;

Although Stofer and Allen voted to convey Eastgate’s assets to themselves during a liquidation without first making provision for other creditors, the Chancellor set aside the transfer and ordered the assets sold. The proceeds of the sale would be used to pay other creditors, presumably in order of their priority. We agree that the Chancellor’s action rendered the Statute inapplicable. A decision would have no practical legal effect upon an existing legal controversy. Frisby v. Strong School Dist. 282 Ark. 81, 666 S.W.2d 391 (1984).

Affirmed.

Hays, J., dissents.

Steele Hays, Justice,

dissenting. Without lessening the broad powers of a chancellor to order whatever remedy may be in keeping with the proof, when the law affords specific statutory relief, fashioned for the protection of minority stockholders, as I see it those affected may claim that relief irrespective of whether the case is tried in law or in equity. I would remand the case for a determination by the chancellor as to the fair value, if any, of appellant’s stock.


author: Tom Glaze, Justice. Robert H. Dudley, Justice, Tom Glaze, Justice.

text:
    CROCKETT & BROWN, P.A. v. Richard COURSON
    92-605
    849 S.W.2d 938
    Supreme Court of Arkansas
    Opinion delivered March 22, 1993
    [Supplemental Opinion on Denial of Rehearing April 26, 1993.]

      Crockett, Brown & Worsham, P.A., by: C. Richard Crockett, for appellant.

      John Richard Byrd, and Wilson, Engstrom, Corum & Dudley, by: William R. Wilson and Gary D. Corum, for appellee.

      Newbern, J., not participaring.

   Tom Glaze, Justice.

This case involves a dispute over the amount of compensation, if any, the appellee, Richard Courson, owes appellant, Crockett & Brown, P.A. (C & B), for its legal services. Courson was shot with a shotgun by a Thomas Averette, and as a result, Courson was totally blind in one eye and sustained a thirty percent loss of vision in the other. On July 5, 1989, Courson retained C & B to represent him in his claim against Averette. by signing a contract whereby (1) he agreed to pay C & B a retainer of $7,500, (2) he would pay an hourly fee up to $15,000 (including the $7,500 retainer), plus out-of-pocket expenses and, in addition, (3) C & B would receive ten percent of any recovery which exceeded $30,000. Courson paid the retainer fee amount to C & B, and five months later, C & B filed a negligence suit against Averette.

The events that led to this acrimonious litigation between C & B and Courson began after C & B demanded policy limits, $300,000, from Averette’s insurance carrier and when the carrier eventually responded a year later, January 17,1991, with a counter-settlement offer in the sum of $100,000. Courson immediately rejected the offer, but C & B suggested to Courson that the offer was reasonable. Afterwards, Courson’s relationship with C & B nose-dived. In fact, C & B then asked Courson to remit the balance of the fees and costs ($9,889.19) due under their July 5 agreement to which Courson responded that he was unable to pay. C & B informed Courson that, if he did not comply with their July 5 contract, he would have to enter a new agreement whereby C & B would receive one-third of any settlement reached at least sixty days before trial or forty percent if settled within sixty days of trial. Courson apparently indicated to C & B that he had signed and returned the agreement to C & B when, in fact, he had not done so. Instead, Courson hired other attorneys, William R. Wilson, Jr., Gary Corum and John Richard Byrd (W C & B), and notified C & B of its termination on March 11, 1991.

W C & B requested C & B to turn over Courson’s file, but C & B refused, stating Courson by this time owed it more than $21,000 in fees and expenses. C & B related it would release its file only when Courson performed his part of the contract. W C & B proceeded with their representation of Courson, which resulted in a $300,000 settlement with Averette’s insurance company. This settlement amount was placed into the court’s registry, and C & B brought its claim for recovery under its July 5 contract and further asked that a lien be placed on Courson’s cause of action. Courson responded, arguing C & B was not entitled to anything, including the $7,500 retainer paid it, because none of the work C & B performed inured to Courson’s benefit.

After conducting an extensive hearing bearing on the parties’ respective claims, the trial court held that Courson had discharged C & B for cause since (1) C & B failed to require Averette to disclose his insurance coverage or to determine whether or not punitive damages were covered, (2) members of C & B expressed displeasure with Courson when Courson refused the $100,000 offer, and (3) Courson was justified in being disturbed about the way in which his case was proceeding. The trial court further found that, under Ark. Code Ann. § 16-22-303 (1987), C & B'was entitled to a reasonable attorney’s fee in the amount of $15,000 and costs incurred, $2,541.27, which should be credited with the $7,500 amount Courson already had paid. The court awarded C & B a lien upon Courson’s settlement proceeds and further ordered C & B to deliver Courson’s file to W C & B within ten days.

C & B brings this appeal, arguing three points for reversal. Courson cross-appeals, urging the trial court erred in two respects. We review these respective claims as the parties raised and argued them on appeal.

In considering C & B’s points, we have difficulty in reaching the merits of any of its arguments. First C & B seeks in this appeal to enforce not its July 5 agreement with Courson, but instead its purported amended and substituted agreement to which C & B claims Courson agreed, giving C & B a third of the $300,000 he eventually recovered in this cause. Among other things, C & B contends on appeal that Courson had stated that he had signed the new contract submitted to him by C & B, and he was estopped to deny it. However, in reviewing the record, we cannot find where this contention was ever presented to the trial court below. C & B conceded as much in oral argument. As we have repeatedly held before, this court will not countenance an argument raised for the first time on appeal. Lytle v. Wal-Mart Stores, Inc., 309 Ark. 139, 827 S.W.2d 652 (1992); Mini Creek Contractors, Inc. v. Grandstaff, 300 Ark. 516, 780 S.W.2d 543 (1989).

In its second point, C & B submits that the trial court erred in failing to enforce C & B’s request for a retaining lien, but this issue appears to be moot. As Courson submits in response, the trial court in its October 28, 1991 order directed Courson’s personal effects be returned and for his files to be copied and given toWC&B.C&B acceded to these directions, thereby making moot any prior dispute on this point between the parties.

Concerning C & B’s final point, it argues the trial court erred in failing to award it attorney’s fees under Ark. Code Ann. § 16-22-308, since it prevailed in obtaining fees and costs under its July 5 contractual agreement with Courson. While C & B argues this issue on appeal, it simply failed to raise and obtain a ruling on this matter below. In a recent case where this court decided a similar request for attorney’s fees on appeal, we held that the burden of obtaining a ruling from the court is on the attorney requesting such fees and the objections and matters left unresolved below are waived and may not be relied upon on appeal. McElroy v. Grisham, 306 Ark. 4, 810 S.W.2d 933 (1991). For the foregoing reasons, we affirm the trial court’s rulings on direct appeal.

On cross-appeal, Courson argues that, because C & B was discharged for cause, the trial court erred in awarding any attorney’s fees to C & B. The trial court ruled that Ark. Code Ann. § 16-22-303 (1987) entitled C & B to a reasonable fee for services rendered, plus costs. The trial court was correct.

In Henry, Walden & Davis v. Goodman, 294 Ark. 25, 741 S.W.2d 233 (1987), this court stated that a client’s exercise of the right to discharge an attorney with or without cause does not constitute a breach of contract because it is a basic term of the contract, implied by law into it by reason of the nature of the attorney-client relationship, that the client may terminate that contract at any time. Citing with approval the landmark case of Fracasse v. Brent, 494 P.2d 9 (Calif. 1972), this court further related the California rule that there is no injustice in awarding a discharged attorney the reasonable value of the services he or she rendered up to the time of discharge. The Fracasse court noted that this rule preserves the client’s right to discharge his attorney, and yet acknowledges the attorney’s right to fair compensation for work performed.

Although Courson argues that attorney’s fees should only be awarded an attorney who is discharged without cause, the better rule follows that related in Fracasse above, namely, an attorney discharged with or without cause can recover the reasonable value of his or her services to the date of discharge. The North Carolina Court of Appeals sets out a number of opinions taking this view. See Covington v. Rhodes, 38 N.C. App. 68, 247 S.E.2d 305 (1978); see also Sohn v. Brockington, Fla. App., 371 So.2d 1089 (1979); Tobias v. King, Ill. App., 406 N.E.2d 101 (1980); Phelps v. Elgin, Joliet and Eastern Railway Co., 70 Ill. App.2d 89, 217 N.E.2d 519 (1966); Trenti, Saxhaug v. Nartnik, 439 N.W.2d 418 (Minn. App. 1989); In Re Estate of Poli, 134 N.J. 222, 338 A.2d 888 (1975).

Courson next contends that the amount of attorney’s fees awarded C & B is excessive and not reasonable. Courson argues that, if C & B is found entitled to an attorney’s fee award, the court should hold the amount could never exceed the $7,500 Courson initially paid. As mentioned earlier, the court awarded that amount and another $7,500, plus $2,541.29 costs — a total of $17,541.29.

This court has held that, among the pertinent considerations in determining the reasonableness of an attorney’s fee, not specifically fixed by contract, are: (1) the attorney’s judgment, learning, ability, skill, experience, professional standing and advice; (2) the relationship between the parties; (3) the amount or importance of the subject matter of the case; (4) the nature, extent and difficulty of services in research; (5) the preparation of pleadings; (6) the proceedings actually taken and the nature and extent of the litigation; (7) the time and labor devoted to the client’s cause, the difficulties presented in the course of the litigation and the results obtained. Robinson v. Champion, 251 Ark. 817, 475 S.W.2d 677 (1972). In making these determinations, both the trial court’s and this court’s experience and knowledge of the character of such services may be used as a guide. Id. Considerable weight is to be given the opinion of the judge before whom the proceedings are conducted. Id.

Courson argues that C & B misunderstood the law relevant to his case and neglected to develop the case so that it would be ripe for settlement. He asserts the evidence reflects C & B browbeat and coerced him to accept an inadequate settlement offer. After Courson refused the offer, he experienced strained relations with C & B, causing him to hire new counsel. Courson said that C & B then refused to provide file information to Courson’s new counsel.

C & B presented the trial judge with considerable evidence and exhibits reflecting the legal services it rendered Courson. C & B’s documents showed its hourly fee to the time of discharge totaled $22,300. C & B showed it researched Courson’s case, drafted complaints and various other routine pleadings, motions and briefs. C & B made a demand for $300,000 — the limits of Averette’s homeowner’s liability policy. It received in return , an offer to settle for $100,000, which was refused by the client. Then, C & B began to research a structured settlement and that research is amply supported in the record. C & B argues that the arrived at structured settlement would have been worth approximately $343,000 over the long term, and was valued as worth $142,000 in present value. In fact, C & B asserts that, at the time of discharge, it had just informed Courson that C & B had begun work on attempting to bargain for an “annuity for life with cost of living escalators.”

C & B showed that it had arranged and taken the depositions of Courson; Averette; Sam Smith, Sheriff of Chicot County; Donnie Dotson, the Game & Fish officer who arrested Averette; and Dr. Chen, the admitting physician who did surgery on Courson. C & B argues that its efforts educated Averette’s counsel and that the settlement offers made were not mere nuisance offers. Also, C & B asserted that it was in continuous contact with the numerous hospitals and doctors who had treated Courson. The billable hours records also reflect that C & B spent a considerable amount of time talking to and writing Courson’s many creditors.

From the foregoing, we cannot say the attorney’s fees awarded by the trial court were excessive or unreasonable for the services C & B rendered in this matter. Accordingly, we affirm the trial court’s award of attorney’s fees and costs.

Dudley and Newbern, JJ., dissent.

Robert H. Dudley, Justice,

concurring on direct appeal; dissenting on cross-appeal. The limited facts stated in the majority opinion, while correct, do not give a reader a complete understanding of the essential factual underpinning of this case—that the attorneys were discharged with just cause and that their services were of little value to the client. The complete facts are as follows. Richard Courson had been turkey hunting at a private hunting club on Tom Steele Island on the Mississippi River. He was walking back to the clubhouse when a poacher, Thomas Averett, apparently mistook him for a turkey and shot him in the face with a load of number six steel shot from thirty-two steps away. Ninety-seven of the shot went into Courson’s upper torso, face, and brain. As a result, even after four surgical procedures on his left eye and two procedures on his right eye costing over $30,000, he lost the sight in the left eye, incurred a thirty percent loss of vision in the right, and suffers from other less severe injuries. After Averett shot Courson, he saw that Courson was severely wounded, and fled the scene. Six or seven hours later, a game warden caught Averett and Averett confessed to what he had done.

Later, Courson hired Sam Pope of Crossett as his attorney to file a civil suit against Averett. Courson was subsequently referred to Robert J. Brown of the law firm of Crockett and Brown in Little Rock. Courson talked to Brown, decided to hire him, and amicably discharged Pope. Pope’s employment has no further materiality. Courson entered into a written contract with Brown’s firm, Crockett and Brown, by which the firm was to represent him in his civil suit. In the contract, Crockett and Brown agreed to be paid an hourly rate that would amount to a maximum of $ 15,000, plus 10 percent of any recovery in excess of $30,000. Courson paid a $7,500 retaining fee.

Crockett and Brown filed suit for Courson against Averett on November 13, 1989, a little over seven months after being employed. Even though Averett shot Courson, ran away, and left Courson to die, Crockett and Brown failed to pray for punitive damages. The law firm did not inspect Averett’s insurance policy to see if it covered punitive damages and did not investigate Averett’s personal net worth. The law firm failed to conduct any research on the question of exclusion of punitive damages in insurance policies. The law firm did take depositions and, on February 27, 1990, eleven months after being employed, made demand on Averett’s insurance company for the $300,000 limit of his policy.

On January 17,1991, the insurance company made an offer of $100,000. Robert J. Brown attempted to pressure Courson into accepting the offer even though the law firm had no economic analysis of Courson’s loss of future earnings and did not know the amount of future medical expenses. Courson testified that he knew that he faced as much as another $20,000 in medical bills just to remove the shot still in him, and, in addition, he knew that additional eye surgery was necessary. Courson testified that Brown told him: “Goddamn it, you’re not gambling with your money anymore, you’re gambling with my money.”

Courson knew another attorney who had retired after twenty-one years with a different insurance company and asked that attorney to evaluate his case. After conferring with this retired attorney, Courson told Brown that he would not settle his case of clear liability for less than $300,000.

Crockett and Brown never attempted to help Courson obtain social security benefits. Instead, Brown advised Courson to get into rehabilitative counseling, get a job, and try to find an oral surgeon and a neurologist in the Little Rock area.

Courson failed to pay the hourly charges and costs that he had agreed to pay to the law firm. They amounted to almost $10,000 over and above the amount paid as a retainer. Brown and an associate talked to Courson about his failure to pay the amount that he owed, and they also discussed entering into a new agreement. The law firm wanted to change the hourly contract to a one-third contingent fee agreement. Courson testified that he was without funds and felt the law firm was trying to coerce him into a contract that was more advantageous to the firm. Two weeks later Courson told the associate: “I think you’re screwing me.”

The insurance company offered the law firm a structured settlement totaling $150,000. Courson testified that the settlement offer had not been disclosed to him when the associate called and asked if he had signed the new contingent fee agreement. Courson testified that he told the associate that he had signed the new agreement and put it in the mail. In fact, he had not done so, and never did. According to Courson, it was only after he said that he had signed the new agreement that Brown advised him of the new structured settlement offer. Courson refused the offer and fired Crockett and Brown.

Courson then hired the law firm of Wilson, Engstrom, Corum and Dudley, in Little Rock, and John Richard Byrd, in Hamburg. The Wilson firm and Byrd commenced representation of Courson and asked the Crockett and Brown firm for Courson’s file. Crockett and Brown refused to give the file to the Wilson firm. After various motions were filed in the trial court, the Crockett and Brown firm was removed as counsel of record, and the Wilson firm and Byrd were substituted. The trial court ordered Crockett and Brown to give the Courson file to the Wilson firm, but Crockett and Brown did not do so. The Wilson firm arranged for examinations of Courson and obtained medical evaluations. The Wilson firm obtained the insurance policy and determined that punitive damages were covered. The complaint was amended to ask for punitive damages. After the Wilson firm obtained all of the necessary medical documentation and developed the appropriate economic data, a demand was made for the policy limits. The case was settled for $300,000. The settlement proceeds were placed in the registry of the court because Crockett and Brown claimed a lien on the proceeds.

This appeal involves the amount of Crockett and Brown’s fee. The foregoing facts are set out in such detail to show the two critical factors: that Courson discharged Crockett and Brown “with cause,” and that while Crockett and Brown may have devoted many hours to this case, Courson received little, if any, benefit from those hours of work. Thus, we have the real issue of when an attorney is discharged with cause should his fee be based primarily on the hours worked and costs expended by the attorney, or should it be based on the amount of benefit to the client?

In the trial court Crockett and Brown argued that they were entitled to the specified hourly rate plus the contingent fee of ten percent as set out in their contract of employment. Courson contended he owed Crockett and Brown nothing because he discharged them with just cause.

The trial court ruled that Courson discharged Crockett and Brown with “just cause” and that, pursuant to Ark. Code Ann. § 16-22-303 (Supp. 1991), Crockett and Brown was entitled to a “reasonable” attorney’s fee in the amount of $15,000 and costs incurred of $2,541.27, and Courson was entitled to a set-off for the $7,500 already paid.

On direct appeal, the Crockett and Brown firm makes three assignments of error. I agree with the majority opinion that we cannot reach any of their arguments because of procedural errors and, accordingly, concur with the majority opinion in affirming the trial court on the direct appeal.

On cross-appeal, Courson contends that the trial court erred in awarding to Crockett and Brown a reasonable fee based upon the amount of work done by the law firm, plus costs. This is the real issue in this case. The trial court ruled that Crockett and Brown was entitled to such a fee pursuant to Ark. Code Ann. §16-22-303 (Supp. 1991). The majority opinion affirms that ruling. I dissent.

Discharge of Attorney

Attorney-client contracts contain an implied provision that the client may discharge the attorney at any time, either with or without cause. Sikes v. Segars, 266 Ark. 654, 587 S.W.2d 554 (1979).

[T] here can be no doubt of the right of a client to discharge an attorney who fails to prosecute the cause with reasonable diligence, for that is clearly the measure of an attorney’s duty to his client. Any other rule would require a client to retain an attorney who was neglecting the cause and failing to proceed with proper diligence.

Johnson v. Missouri Pac. R.R. Co., 149 Ark. 418, 427, 233 S.W. 699, 702 (1921). Because a client may always terminate the contract, a breach of contract action by an attorney for wrongful discharge does not really exist. See Henry, Walden & Davis v. Goodman, 294 Ark. 25, 741 S.W.2d 233 (1987).

Discharge Without Just Cause

In Henry, Walden & Davis v. Goodman, a law firm was hired by the client for a contingent consideration of one-third of any recovery. That law firm was discharged without just cause. A second law firm was employed, also for a contingent consideration of one-third of any recovery. The second firm obtained a judgment for $ 100,000, and it was paid afeeof$33,333. The first firm filed suit to collect another one-third from the proceeds of the judgment. The trial court refused to award the first firm one-third, but did award a reasonable fee to it based upon the amount of work done by that firm. We affirmed and stated that it would “be an injustice to the client to hold him liable for both contingency fees for exercising that fundamental right [to terminate the contract at any time].” We said, “an underlying assumption of this proposition is that the contingency has not been effected prior to discharge.” Id. at 31, 741 S.W.2d at 236. That reasoning is in accord with the majority of jurisdictions. See Annotation, Limitation to Quantum Meruit Recovery, Where Attorney Employed Linder Contingent Fee Contract Is Discharged Without Cause, 92 A.L.R. 3d 690 (1979).

The General Assembly enacted an attorney’s compensation law in 1989 and expressly stated that the purpose of the act was to modify the effect of Henry, Walden & Davis v. Goodman, and to entitle attorneys to collect the full amount provided in the contract. Act 293 of 1989, codified as Ark. Code Ann. §§ 16-22-301 to -304 (Supp. 1991).

The material part of the 1989 act, Ark. Code Ann. § 16-22-302, provides: “The compensation of an attorney at law, solicitor, or counselor for his services is governed by the agreement, expressed or implied, which is not restrained by law.” (Emphasis added.)

We need not resolve the question of whether the legislative branch can regulate compensation of attorneys because the statute was obviously intended to apply to situations in which the client discharged the attorney without just cause. Such is not the case now before us; this case involves discharge with just cause. Even the majority opinion tacitly agrees that the statute does not govern, for it holds that when an attorney is discharged for just cause the amount of compensation is not governed by the agreement, as set out in the statute, but rather is to be based upon the theory of quantum meruit.

Dismissal With Just Cause

The case before us involves dismissal with just cause. In Beaumont v. J.H. Hamlen & Sons, 190 Ark. 630, 632, 81 S.W.2d 24, 25 (1935), we wrote: “The law is well settled in this and most other jurisdictions that, if an attorney . . . commits a material breach of his contract of employment, he thereby forfeits all right to compensation.” The reasoning of the opinion was that a client employs the attorney to perform the entire contract, and when the entire contract is not performed, the attorney forfeits the stipulated compensation. Id. at 632, 81 S.W.2d at 25. As a result of the above language, cross-appellant Courson argues that the Crockett and Brown firm is not entitled to any fee whatsoever. At first blush, the argument seems to have merit. However, the case was written before our cases held that a client his an implied right to terminate a contract at any time, and that does not amount to a breach of contract. Thus, the case at bar is essentially a matter of first impression for this court.

The majority opinion holds that Crockett and Brown is entitled to compensation based upon quantum meruit, and the standard for that award is based on the amount of time and expense devoted to the case by the attorney. That is not the correct standard for this type of case. As set out in Johns v. Klecan, 556 N.E.2d 689 (Ill. App. 1990), the rationale underlying the doctrine of quantum meruit in this type of case is that the client who benefits from the attorney’s services should be required to pay the reasonable value of those services to the attorney. It is a doctrine designed to prevent the unjust enrichment of the client. An example of this is found in Phelps v. Elgin, Joliet & Eastern Ry., 217 N.E.2d 519 (Ill. App. 1966), where the attorney was discharged for cause and under the established law was entitled to recover under the doctrine of quantum meruit. The trial court ruled that under the theory of quantum meruit the attorney was not entitled to a fee, and the appellate court affirmed stating: “Nothing of value has been recovered by reason of any act done or suit brought by the respondents. On the basis of this record, we must conclude, as did the trial judge, that the respondents are not entitled to recover any fees.” Id. at 523. It did not matter how much time the attorney devoted to the case because the client did not unjustly benefit. The same reasoning should be applied to this case. Crockett and Brown may have devoted many hours to building the file, but they refused to turn that file over to the Wilson firm, and the work product in that file was of no value to the client in the settlement of his case. Crockett and Brown was discharged with just cause, and is entitled to a fee only for those services that were of benefit to the client, and, on cross-appeal, this case should be reversed for a determination of that amount, if any.

The rule has been stated as follows:

It has been held that a lawyer who unjustifiably terminates his employment, or gives the client cause to discharge him prior to completion of the services for which he was engaged, can recover against the client only the amount by which his services have benefited the client, who, in the absence of recovery by the attorney, would be unjustly enriched by such services.

7 Am. Jur. 2d Attorneys at Law § 299 (1980).

Under the majority opinion a lawyer might commit some act that is inimical to the best interest of his client, but he would still be paid a windfall as compensation for his time expended in committing that act. Suppose that an attorney was representing a plaintiff against an insurance company, but failed to disclose to the client that also he was representing the insurance company in the same case, and the client eventually found out about the conflict of interest and discharged the attorney “with just cause.” See Miller v. Solomon, 199 N.E.2d 660 (Ill. App. 1964). Under the rationale of majority opinion the attorney could collect for all the work he had done in the client’s name, regardless of whether it was of benefit to the client. The majority opinion will lead to windfalls for attorneys who are discharged with just cause because it fails to recognize that the basis for quantum meruit in this type of case is to prevent the unjust enrichment of the client.

Many of the cases cited in the majority opinion offer no support for the opinion. The majority opinion cites the case of Covington v. Rhodes, 247 S.E.2d 305 (N.C. 1978), as supporting its position. However, that case involved an attorney who had “performed in a reasonably professional manner,” and the court discussed discharge in terms of being “without cause.” The majority opinion cites Sohn v. Brockington, 371 So.2d 1089 (Fla. Dist. Ct. App. 1979), but, again, that case was one in which the attorney was discharged “without cause.” The majority opinion also cites In Re Estate of Poli, 338 A.2d 888 (N.J. Co. Ct. 1975), but, in that case, even though the client contended that the attorney was discharged with cause, the court discussed the case in terms of discharge “without cause.” The case of Fracasse v. Brent, 494 P.2d 9 (Cal. 1972), also involved discharge of the attorney “without cause.” In that case, the Supreme Court of California said that the attorney had been discharged “without cause” and was entitled to receive the value of his services up to the time he was discharged. While the discussion about cases involving discharge “with cause” is dicta, the opinion does allude to a different standard for the fee when an attorney is discharged “with cause,” as follows:

Amicus contends that there will be substantial difficulty in ascertaining the amount of recovery under a quantum meruit theory. The same difficulty—if such it be—is also present, however, in cases in which an attorney has been discharged with “cause” and yet such difficulty does not appear to have been insurmountable.

Id. at 13.

In summary, the majority opinion provides a windfall to attorneys who are discharged with just cause. It allows them to recover “reasonable fees” based primarily on the amount of time expended by the attorney, regardless of whether the work benefitted the client. Such a standard is not in comport with the rationale for quantum meruit in this type case. The holding should be that when an attorney is discharged with just cause, he might recover on the basis of quantum meruit for the amount that his services has enriched the client. Accordingly, I dissent on cross-appeal.

Newbern, J., joins in this concurrence and dissent.

APRIL 26, 1993

C. Richard Crockett, for appellant.

Wilson, Engstrom, Corum & Dudley, by: William R. Wilson, Jr. and John R. Byrd, and Gary D. Corum for appellee.

SUPPLEMENTAL OPINION ON DENIAL OF REHEARING

Tom Glaze, Justice.

Appellee Courson petitions for rehearing and clarification of the court’s opinion in this cause and particularly asks whether by this court’s reference to Henry, Walden & Davis v. Goodman, 294 Ark. 25, 741 S.W.2d 233 (1987), we intended to hold the General Assembly’s enactment of Ark. Code Ann. §§ 16-22-301 to -304 (Supp. 1991) is a nullity. He points out that the General Assembly enacted §§ 16-22-301 to -304 with the intent to supersede the holding in Goodman and to allow an attorney a lien for services based on the attorney’s agreement with his or her client.

In reading § 16-22-301, the court concluded the General Assembly’s new enactments applied to situations where the client discharged an attorney without cause. The Goodman case was a without-cause situation — the cause here is one involving a with-cause discharge. In short, our holding in this case should not be read to invalidate § § 16-22-301 to -304 since those provisions were not applicable nor in issue. Our earlier reference to Good man was intended to underscore the Fracasse rule to the extent that rule allowed an attorney discharged with cause to recover the reasonable value of his or her services to the date of discharge.

In addition to requesting a clarification, Courson reasserts his position adopted by the dissenting opinion, that the standard of recovery of attorneys in with-cause discharges should be limited to the amount the attorney’s services enriched his or her client. He claims the “reasonable value” rule the court adopted permits an attorney discharged for cause to recover based merely on his or her time cards. We disagree. The various factors set forth in our earlier opinion have been applied for decades by this state’s courts. Such awards are determined on a case-by-case basis, and depending upon the circumstances, the trial court in its discretion may not award any fee. Courson’s argument in this respect is without merit.

       The court’s adoption of this rule was opposed by dissenting Justices Dudley and Newbern who opted for a rule requiring that an attorney discharged with cause was limited to a fee for the amount his or her services had enriched the client. Both the majority and dissenting justices agreed §§ 16-22-301—304 were not applicable in this case since those provisions applied in without cause discharge.


author: Donald L. Corbin, Justice.

text:
    Brenda FURMAN, Inmate Records Supervisor, Maximum Security Unit, Arkansas Department of Correction v. Harold B. HOLLOWAY
    92-1156
    849 S.W.2d 520
    Supreme Court of Arkansas
    Opinion delivered March 22, 1993

      Winston Bryant, Att’y Gen., by: Darnisa Evans Johnson, Asst. Att’y Gen., for appellant.

      Appellee, pro se.
   Donald L. Corbin, Justice.

Appellant, Brenda Furman, Inmate Records Supervisor, Maximum Security Unit, Arkansas Department of Correction, appeals the order of the Pulaski County Circuit Court ordering appellant to produce appellee’s, Harold B. Holloway’s, inmate file for his inspection. This order was stayed pending determination of this appeal. We have jurisdiction of this appeal because it requires the interpretation of the Arkansas Freedom of Information Act (FOIA), Ark. Code Ann. §§ 25-19-101 to -107 (Repl. 1992), and Ark. Code Ann. § 12-27-113(e) (Supp. 1991). While appellant recognizes a court of competent jurisdiction can order disclosure of an inmate’s records, appellant contends the inmate must establish a “particularized need” for the information requested. The trial court determined there was no such requirement. We affirm.

While this court is not bound by the decision of the circuit court, in the absence of a showing that the trial court erred in its interpretation of the law, that interpretation will be accepted as correct on appeal. Bryant v. Mars, 309 Ark. 480, 830 S.W.2d 869 (1992). The Arkansas Freedom of Information Act provides in pertinent part:

Except as otherwise specifically provided by this section or by laws specifically enacted to provide otherwise, all public records shall be open to inspection and copying by any citizen of the State of Arkansas during the regular business hours of the custodian of the records.

Ark. Code Ann. § 25-19-105(a).

“Public records” means writings, recorded sounds, films, tapes, or data compilations in any form, required by law to be kept or otherwise kept, and which constitute a record of the performance or lack of performance of official functions which are or should be carried out by a public official or employee, a governmental agency, or any other agency wholly or partially supported by public funds or expending public funds. All records maintained in public offices or by public employees within the scope of their employment shall be presumed to be public records.

Ark. Code Ann. § 25-19-103(1).

The records requested by Mr. Holloway are required to be kept by the director of the Department of Correction by section 12-27-113(e) which provides:

(e) The director shall make and preserve a full and complete record of each and every person committed to the department, along with a photograph of the person and data pertaining to his trial conviction and past history.
(1) To protect the integrity of those records and to insure their proper use, it shall be unlawful to permit inspection of or disclose information contained in those records or to copy or issue a copy of all or part of any record to any person so committed except as authorized by administrative regulation or by order of a court of competent jurisdiction. The regulations shall provide for adequate standards of security and confidentiality of records.
(2) Administrative regulation may authorize the disclosure of information contained in such records for research purposes.

Mr. Holloway requested that he be allowed to inspect his inmate file or be provided copies of his inmate file on December 23,1991. This request was denied by Ms. Furman on January 2,1992. On January 6, 1992, Mr. Holloway again requested that he be allowed to examine his inmate file. Mr. Holloway received no response to his second request. As a result, Mr. Holloway filed a complaint in the Pulaski County Circuit Court asking the circuit court to order the records be made available to him as provided for in section 25-19-107 which provides in pertinent part:

Any citizen denied the rights granted to him by this chapter may appeal immediately from the denial to the Pulaski County Circuit Court or to the circuit court of the residence of the aggrieved party, if an agency of the state is involved, or to any of the circuit courts of the appropriate judicial districts when an agency of a county, municipality, township, or school district, or a private organization supported by or expending public funds, is involved.

The trial court ordered that Mr. Holloway be allowed to inspect his inmate file in the presence of a Department of Correction personnel within a reasonable time after a request, made in writing. The order further provided that only one inspection per six (6) month period would be allowed and the Department of Correction was authorized to remove from Mr. Holloway’s file any documents it deems to be of a sensitive or confidential nature and which would cause great harm to third persons if disclosed to Mr. Holloway or any other member of the public.

Appellant contends the trial court erred by not requiring Mr. Holloway to show a “particularized need” for the information contained in his inmate file before ordering disclosure. Appellant contends Ark. Code Ann. § 12-27-113(e), Arkansas Department of Correction Administrative Regulation 804(V), and Arkansas Department of Correction Directive 90-16 disallow access to inmate’s records. Regulation 804(V) provides:

POLICY: It shall be unlawful to permit inspection of or to disclose information contained in inmate records or to copy or issue a copy of all or part of any record to any person so committed except as authorized by Administrative Regulation or by order of a court of competent jurisdiction.

Information is not exempt from our FOIA unless specifically exempted under the FOIA or some other statute. Young v. Rice, 308 Ark. 593, 826 S.W.2d 252 (1992). Section 12-27-113(e)(1) disallows access of an inmate to his records unless allowed by administrative regulation or by order of a court of competent jurisdiction. Section V of Regulation 804 provides that an inmate be allowed access to his records if provided for by Administrative Regulation or by order of a court of competent jurisdiction. Section VI of Regulation 804 provides in pertinent part:

PROCEDURES:
3. Pursuant to the Arkansas Freedom of Information Act, as amended, public information will be released upon appropriate requests for information.
4. At no time shall copies of the inmate record be given to the inmate unless authorized by a representative of the Attorney General’s Office or as otherwise stated in this regulation.

Arkansas Department of Correction Directive 90-16, which is not binding because it is not an Administrative Regulation, provides in pertinent part:

PROCEDURE:
D. Privacy of Institutional Files
To protect the integrity of the data contained in the institutional files and to ensure its proper use it is unlawful to permit inspection of or disclose information contained in those records or to copy or issue a copy of all or part of any record to any person so committed except by Court Order or as authorized by Administrative Regulation.

Clearly the records appellee requests are “public records” under our FOIA since they are required to be kept by law. Ark. Code. Ann. § 25-19-103(1). Section 12-27-113(e) provides that disclosure of inmate records is only permissible when authorized by administrative regulation or by order of a court of competent jurisdiction. Disclosure of inmate records to inmates is permitted under Administrative Regulation 804 when authorized by a representative of the Attorney General’s Office, pursuant to an appropriate request under the Arkansas FOIA, or by order of a court of competent jurisdiction. Arkansas Department of Correction Administrative Regulation 804. Appellee made an appropriate request under the Arkansas FOIA. Therefore, the trial court correctly determined that appellee should be allowed access to his inmate file. Additionally, disclosure is specifically permitted pursuant to court order, which was obtained by Mr. Holloway.

Appellant cites Bradley v. Fairfax, 634 F.2d 1126 (8th Cir. 1980) and Thomas v. United States, 597 F.2d 656 (8th Cir. 1979), for the proposition that appellee must show a particularized need to gain access to his inmate file. These cases are inapplicable. Thomas involved an attempt to obtain grand jury materials, which are specifically exempted from the Federal Freedom of Information Act. In Thomas, the court held that since the requester was not entitled to the grand jury materials under the Federal FOIA or by a statute, a “particularized need” must be shown for the materials. Absent a “particularized need,” the court declined to order disclosure. The language appellant cites from Bradley also refers to grand jury materials and is inapplicable.

The materials Mr. Holloway has requested are exempted from our FOIA by statute, but there is a method for obtaining those records contained in the statute, which does not require a showing of “particularized need.” Therefore, as did the trial court, we find no requirement for appellee to show a “particularized need” before he can inspect his inmate file. We do note, however, that the restrictions imposed by the circuit court’s order are permissible under the statute and we find them to be reasonable.

Appellant also argues appellee must show a violation of due process in order to have a right to examine his inmate file. Since this argument was not raised below, we will not consider it on appeal. We do not consider arguments raised for the first time on appeal. Dwiggins v. Propst Helicopters, Inc., 310 Ark. 62, 832 S.W.2d 840 (1992). Finally, appellant argues appellee should be required to show a compelling need before being allowed to inspect his inmate file. Since this argument was also not raised below, we will not address it. Id.

The applicable statutes and regulations set out above allow appellee to examine his inmate file upon order of a court of competent jurisdiction. There is no requirement that the inmate show a “particularized need” for the records. The Pulaski County Circuit Court, a court of competent jurisdiction, has ordered appellee be allowed to examine his inmate file. Therefore, appellee is entitled to inspect his inmate file subject to the limitations imposed by the trial court’s order.

Affirmed.

Hays, J., dissents.