Friday Living Trust et al. v. Tampa, Inc. and Jerry O'Steen

ARKANSAS COURT OF APPEALSDIVISION IV

JUDGE OLLY NEAL

NOT DESIGNATED FOR PUBLICATION

CA00-298

November 15, 2000

FRIDAY LIVING TRUST, et al.

APPELLANTS AN APPEAL FROM GARLAND COUNTY

CHANCERY COURT

V. NO. 99-1175

HONORABLE DAVID B. SWITZER

TAMPA, INC. and JERRY O'STEEN CHANCELLOR

APPELLEES

REVERSED

OLLY NEAL, Judge

This interlocutory appeal is brought from a chancery decree issuing a preliminary injunction. We agree with appellant that the injunction was improperly issued and reverse.

Appellant Bettye Friday is the trustee of the Friday Living Trust. The trust is an estate planning device formed to hold the assets of Mrs. Friday and her late husband, James Friday. On April 1, 1999, appellee Tampa, Inc., filed a lawsuit in the state of Texas alleging that James Friday, individually and as trustee of the Friday Living Trust, and Jim Thomas, Friday's former son-in-law, had conspired to defraud Tampa in connection with the sale of a piece of property. Jim Thomas had been hired by Tampa to locate and purchase land upon which motels could be constructed. According to the complaint, Friday purchased a 5.642-acre tract in the name of the Friday Living Trust for $35,000 on May 8, 1997. He then sold the land to Tampa, who did not know of Friday's and Thomas's relationship, for$184,324.14 on July 3, 1997. Tampa alleged that Thomas and Friday were unjustly enriched as a result of that transaction and sought relief in the nature of monetary damages and the imposition of a constructive trust.

On August 7, 1999, while the Texas lawsuit was still pending, James Friday died. As a result, Betty Friday became the trustee of the Friday Living Trust. On August 24, 1999, Tampa filed a petition in Garland County Chancery Court seeking to enjoin Mrs. Friday from distributing the trust principal or paying any claims or debts with trust funds prior to resolution of the Texas litigation. The petition alleged that, because the Trust permitted immediate distribution of the trust's assets, Tampa could be deprived of its ability to recover damages in the Texas lawsuit. The chancellor entered a temporary restraining order on the day that Tampa's petition was filed. A hearing was then held on September 28, 1999, to determine whether the TRO should remain in effect.

At the hearing, Mrs. Friday testified that, when her husband died, he owed medical bills from an extended hospital stay. She acknowledged that she had the authority as trustee to pay those bills (the amounts of which were not mentioned) and to pay certain taxes owed by the trust. She also testified that the trust's assets consisted of approximately $84,000 in a savings account, some certificates of deposit of unknown value, and her residence. Other testimony was provided by Jairl Dowell, the attorney who filed the Texas lawsuit on behalf of Tampa. He offered his opinion that Tampa would be successful on the merits of the lawsuit and would obtain a summary judgment. He also expressed concern that the Friday Living Trust could be terminated by Mrs. Friday or that other creditors would deplete the trust's funds.

At the close of the hearing, the chancellor declared that the temporary restraining order would remain in full force and effect. He entered an order on January 14, 2000, enjoining Mrs. Friday "from making any distributions of principal of the said trust and...from the payment of any debts or claims against the trust which are in the nature of claims against a decedent's estate. . . ." Mrs. Friday appeals from that order.1

We review chancery matters, including the granting of an injunction, de novo on appeal. Brown v. SEECO, Inc., 316 Ark. 336, 871 S.W.2d 580 (1994). The granting of an injunction is a matter within the discretion of the chancellor. Tri-County Funeral Serv., Inc. v. Howard Funeral Home, Inc., 330 Ark. 789, 957 S.W.2d 694 (1997). We will not reverse unless there has been a clearly erroneous factual determination or unless the chancellor's decision is contrary to some rule of equity or the result of an improvident exercise of judicial power. Id. The party seeking a preliminary injunction bears the burden of proving that it should issue. See Local Union No. 884, United Rubber, Cork, Linoleum, & Plastic Workers of America v. Bridgestone/Firestone, Inc., 61 F.3d 1347 (8th Cir. 1995). See also Dunkum v. Moore, 265 Ark. 544, 580 S.W.2d 183 (1979).

Appellants argue that appellees were not entitled to an injunction in this case because they did not show lack of an adequate remedy, the threat of irreparable harm, or a likelihood of success on the merits. The prospect of irreparable harm or the lack of an otherwise adequate remedy is at the foundation of the court's power to issue injunctive relief. Paccar Financial Corp. v. Hummell, 270 Ark. 876, 606 S.W.2d 384 (Ark. App. 1980). In addition,the party seeking a preliminary injunction must show a likelihood of success on the merits. Smith v. American Trucking Ass'n, Inc., 300 Ark. 594, 781 S.W.2d 3 (1989). Appellants argue in particular that a mere allegation or concern that a judgment may be uncollectible does not merit the issuance of an injunction such as the one in this case. Upon our de novo review, we agree. Appellees' purpose in seeking an injunction was to prevent usurpation of the trust's assets so that those assets might still be available when judgment was entered in the Texas lawsuit. In short, they sought to preserve the status quo. However, they did not show that the status quo was in imminent danger of being upset. They did not aver in their complaint that Mrs. Friday had threatened or was likely to dispose of the trust assets. Nothing in her testimony indicated any plan to do so. Attorney Jairl Dowell could only say that he feared the trust might be terminated through disbursal of its assets. However, the trust itself was not introduced into evidence. Its specific terms were not made a part of the record below and, as a result, are not part of the record on appeal. Thus, the prospect of irreparable harm was only speculative. To obtain injunctive relief, the injury or threat of injury must be real and immediate, not conjectural or hypothetical. 42 Am. Jur. 2d Injunctions § 32 (2d ed. 2000). Appellees' pleadings and proof showed only that they speculated that Mrs. Friday might disburse the trust's assets. Therefore, the injunction should not have been issued.

We are aware that, in some jurisdictions, courts have enjoined the transfer of property pending resolution of a separate lawsuit. See, e.g., Tivis v. Hulsey, 146 Kan. 851, 73 P.2d 1111 (1937); Zonghetti v. Jeromack, 150 A.D.2d 561, 541 N.Y.S.2d 235 (1989). However,in those cases, the possibility of a defendant disposing of fraudulently obtained assets was shown to be more imminent or more likely than in this case.

Based upon the forgoing, we reverse the chancellor's entry of an injunction. We do not address appellants' argument that the chancellor erred in imposing a constructive trust because his written order does not mention that a constructive trust was imposed.

Reversed.

Pittman and Bird, JJ., agree.

1 An appeal may be taken from an interlocutory order granting an injunction. See Ark. R. App. P.-Civ 2(a)(6).