AFPC, Inc. and Michael L. Vernon v. R. Scott Wallace

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AFPC, INC. and







January 21, 2004


CV 02-7754



Larry D. Vaught, Judge

In this one-brief appeal, appellants, AFPC, Inc. (AFPC) and Michael L. Vernon (Vernon), appeal the decision of the circuit court granting the motion of appellee R. Scott Wallace for directed verdict, in effect dismissing appellants' complaint for: (1) conversion; (2) breach of contract; (3) tortious interference with business expectancies; (4) fraudulent misrepresentation. We affirm with respect to the claims of conversion, tortious interference with business expectancies, and fraudulent misrepresentation and reverse and remand on appellants' claim of breach of contract.

AFPC is an Arkansas corporation having Vernon as its sole shareholder. Prior to the business relationship with appellee, AFPC was engaged in the business of printing, mounting, and laminating signage and promotional materials. AFPC owned various printing equipment for its printing business and occasionally allowed appellee to borrow its printer while he was engaged in a separate printing business under the name Big Impressions.

The parties agreed to establish some type of joint venture for the purpose of conducting their combined printing business activities, to be called AFPC, Inc. d/b/a Big Impressions. There apparently was an understanding that a contract between the parties would be reduced to writing subsequent to the move of AFPC's printing business assets to appellee's offices. AFPC primarily agreed to contribute printing equipment and other assets, while appellee primarily agreed to run the equipment and oversee the production of printing jobs. It is disputed as to whether there was an agreement that Vernon and appellee would share all income and expenses on an equal basis, but Vernon expressly referred to the parties as "partners" at trial.

Certain other facts are undisputed. AFPC moved its assets to appellee's offices, and the parties commenced the joint venture on or around February 18, 2002. Appellee gave Vernon access keys to the lower level of the business premises, and Vernon used those keys on a number of occasions to enter the premises and conduct business. AFPC purchased additional equipment for use in the joint venture and funded the expenses of the combined printing business during such time that cash flow from the business was insufficient to cover them.

Additionally, appellee did not dispute that: (1) he used the equipment AFPC moved to his location; (2) new equipment was purchased by appellants after he and Vernon entered into some sort of arrangement; (3) he, in fact, ordered some of the equipment, signed the purchase order, and accepted receipt of it; (4) he never reimbursed appellants for any of the cost of the new equipment; (5) he did not deposit all the revenues from the joint venture into a jointly accessible account; (6) appellants paid a substantial amount of expenses related to the joint venture operations without reimbursement. Appellee did, however, assert that there was no agreement that he would deposit the revenue into a joint account and that the parties never had a meeting of the minds as to the terms of the agreement.

Appellants argued that appellee reneged on virtually all of his obligations under the agreement, obtaining all of the old and new printing equipment, then ousting appellants from the premises.1 They alleged that appellee also deprived them of access to the bank accounts and records carried on by appellee under the name Big Impressions.

At a hearing held in August 2002, the court ordered appellee to immediately make all assets owned by either appellant available for repossession.2 Appellee conceded that possession of certain listed assets was rightfully with appellants and thereafter restored possession to them. After the close of appellants' case-in-chief at the trial in January 2003, appellee moved for directed verdict on the sole ground that appellants' claims were barred by the statute of frauds. Appellants opposed the motion, contending that conversion was established, there was evidence establishing tortious interference with business expectancy, and neither claim was governed by the statute of frauds. Appellants also argued that the contract claim was outside the statute of frauds because appellee signed a purchase order for the new equipment, paid for by appellants, and possession of the equipment had been transferred to appellee. The circuit court verbally granted directed verdict, dismissing appellants' claims because the court found there was not "sufficient evidence of any kind of proof of damages." The circuit court subsequently entered a judgment, drafted by appellee, dismissing the appellants' claims because of insufficient evidence. From that judgment comes this appeal.

Standard of Review

Appellants argue on appeal that the circuit court erred in granting appellee's motion to dismiss. The record shows that appellants moved for a directed verdict rather than a motion to dismiss, which is identical to a motion for a directed verdict in a jury trial. The motion is a challenge to the sufficiency of the evidence. See Green v. State, 79 Ark. App. 297, 87 S.W.3d 814 (2002). In determining the correctness of the circuit court's ruling, we view the evidence in the light most favorable to the party against whom the verdict is sought and give it the highest probative value, taking into account all reasonable inferences deducible from it. Curry v. Thornsberry, 81 Ark. App. 112, 98 S.W.3d 477 (2003). A motion for directed verdict should not be granted if there is any substantial evidence that tends to establish an issue in favor of that party. Id. Evidence is insubstantial when it is not of sufficient force or character to compel a conclusion one way or the other or if it does not force a conclusion to pass beyond suspicion or conjecture. Id.


In the circuit court's February 7, 2003 order, reference is made to the August 15, 2002 order granting appellants the right to recover certain assets from appellee's premises, which appellee conceded were the property of appellants. The circuit judge found that as to the assets already recovered, the claim was moot. As to any remaining claim for conversion or for the use of the assets, he dismissed the claim because appellants failed to establish the cause of action. When specifically asked if there was anything else that he claimed appellee still had possession of that he was asking be returned, Vernon stated only "photo shop software," and nothing else.

The tort of conversion is the exercise of dominion over property in violation of the rights of the owner or the person entitled to possession. Grayson v. Bank of Little Rock, 334 Ark. 180, 971 S.W.2d 788 (1998); Tackett v. McDonald's Corp., 68 Ark. App. 41, 3 S.W.3d 340 (1999). The intent required is not conscious wrongdoing but rather an intent to exercise dominion or control over the property that is in fact inconsistent with the plaintiff's rights. Id. We hold that except for the software referred to by Vernon in his testimony, all the disputed assets had already been returned, and that appellants failed to establish that their rights to the disputed assets were violated by appellee's use of those assets by agreement.

Tortious Interference With Business Expectancies

With regard to this claim, the circuit court's February 7, 2003 order dismissed the claim, stating that no evidence was presented from which the court could find any intentional act on the part of appellee to interfere with any business expectancy. To establish a claim of tortious interference, a plaintiff must prove: (1) the existence of a valid contractual relationship or a business expectancy; (2) knowledge of the relationship or expectancy on the part of the interfering party; (3) intentional interference inducing or causing a breach or termination of the relationship or expectancy; (4) resultant damage to the party whose relationship or expectancy has been disrupted. Vowell v. Fairfield Bay Cmty. Club, Inc., 346 Ark. 270, 58 S.W.3d 324 (2001).

There was at least some evidence that appellants maintained a business expectancy and that appellee had knowledge thereof. Evidence was put forth from a customer, Mark Glover, who had prior dealings with appellants and discontinued his relationship after an unsatisfactory job overseen by appellee. There was evidence that the printing job was late, mistakes were made, the same errors were made multiple times, and eventually, Glover lost his printing contract with Burger King. He testified that he went to the premises to see appellee and he was not there, but Glover admitted that there was construction work going on at the building and that he did not know if that was the reason appellee was not there. The evidence was insufficient, however, to prove that the delay and quality control problems were done with the requisite intent for this cause of action.

Fraudulent Misrepresentation

To establish fraud, five elements must be proven: (1) a false representation of a material fact; (2) knowledge that the representation is false or that there is insufficient evidence upon which to make the representation; (3) intent to induce action or inaction in reliance upon the representation; (4) justifiable reliance on the representation; (5) damage suffered as a result of the reliance. Tyson Foods, Inc. v. Davis, 347 Ark. 566, 66 S.W.3d 568 (2002). The circuit court found that the evidence with regard to this cause of action was lacking on all elements, particularly: (1) what, if any, representations the appellee3 supposedly made which were false; (2) what, if any, reliance appellants were justified in taking; (3) what, if any, intention existed on the part of appellee to induce any action or inaction on the part of appellants.

Appellants argue that appellee made numerous representations discussing the union of their respective printing businesses, which they claim never came to pass. Vernon testified that appellee misrepresented that they would be bringing their respective customers and accounts payables together as one company, and that those misrepresentations were material to his decisions to join forces with appellee, move his equipment to appellee's premises, and purchase new equipment for the combined business. However, appellants incorrectly claim that appellee's denial of the contractual relationship necessarily makes all those representations false. There was insufficient evidence presented from which a factfinder could infer that appellee knew his representations were false. We affirm on this issue.

Breach of Contract

The circuit court's order stated that the claim for breach of contract fails to establish what agreement and terms the parties reached, and thus that it is impossible to determine what damages, if any, were suffered by appellants. The circuit court further explained that to the extent the statute of frauds required the agreement between the parties to be in writing, there was insufficient evidence presented as to that document. There was evidence that the parties had discussed entering into an agreement, and some action was taken, i.e., appellants transferred assets to appellee's premises, business expenses incurred by appellants, appellee ordering, signing for, accepting delivery of, and using new equipment paid for by appellants. The circuit court found that while these actions might prevent dismissal under the statute of frauds, the actions by the parties failed to establish, with any certainty, the terms and conditions of the transfer, and consequently, the circuit court could not rule further on this issue.

In Ward v. Williams, __ Ark. __, 118 S.W.3d 513 (2003), the supreme court set forth the essential elements of a contract: (1) competent parties, (2) subject matter, (3) legal consideration, (4) mutual agreement, and (5) mutual obligations. The court also said that we will keep in mind the following two principles when determining whether a contract has been entered into: (1) a court cannot make a contract for the parties but can only construe and enforce the contract that they have made, and if there is no meeting of the minds, there is no contract, and (2) it is well settled that in order to make a contract there must be a meeting of the minds as to all terms, using objective indicators. Id.

This court has held that in order to take an oral contract out of the statute of frauds, the making of the oral contract and its performance must be proved by clear and convincing evidence. Stewart v. Stewart, 72 Ark. App. 405, 37 S.W.3d 667 (2001). However, a requirement that the evidence be clear and convincing does not mean that the evidence be uncontradicted. Id. Clear and convincing evidence is evidence by a credible witness whose memory of the facts about which he testifies is distinct, whose narration of the details is exact and in due order, and whose testimony is so direct, weighty, and convincing as to enable the fact-finder to come to a clear conviction, without hesitation, of the truth of the facts related. Id. For example, the supreme court has held that partial performance of a contract by payment of a part of the purchase price and placing a buyer in possession of land pursuant to an agreement of sale and purchase is sufficient to take the contract out of the statute of frauds. See Dolphin v. Wilson, 328 Ark. 1, 942 S.W.2d 815 (1997). In Dolphin, like the case at bar, the only evidence consisted of the competing testimonies of the parties. Id. Appellants argue that there was substantial evidence presented that the parties did in fact enter into a contract, and while appellee does not dispute the presence of an agreement, he claims that no precise terms were ever agreed upon. Appellants claim that because they had presented evidence as to the terms of the agreement, and appellee simply offered another version of the agreement, the motion to dismiss should have been denied.

Appellants presented a page of notes taken by Vernon at the meeting to discuss the joint venture, some of which corroborated his testimony as to the terms and conditions of the agreement. The notes discussed the "merger" of the two printing businesses, lists of customers, certain decisions regarding the use of appellee's laminator and Vernon's printer, the name of the proposed venture, and various divisions of duties between Vernon and appellee. Appellants claim there were also discussions regarding the physical transfer of Vernon's equipment and the start-up of one set of books for the new venture, as well as the equal division of profits with appellee's compensation to be deducted from his share of profits.

The circuit court's ruling was made on a motion to dismiss, and as stated above, we view the evidence in the light most favorable to the party against whom the verdict is sought and give it the highest probative value, taking into account all reasonable inferences deducible from it when determining the correctness of the circuit court's ruling. Curry v. Thornsberry, supra. A motion for directed verdict should not be granted if there is any substantial evidence that tends to establish an issue in favor of that party. Id. Vernon testified as to the terms of the agreement between the parties, provided a computation of the alleged damages, and established partial performance of the agreement to such extent as to get past the statute of frauds issue. Substantial evidence was presented on the breach of contract issue to survive appellee's motion to dismiss, and we hold that the circuit court improperly weighed the evidence in granting appellee's motion. Accordingly, we reverse and remand on this issue.

Affirmed in part; reversed and remanded in part.

Pittman and Neal, JJ., agree.

1 While Vernon argues that appellee changed the locks, appellee claims that his landlord changed the locks and that Vernon neither asked for, nor did appellee offer Vernon, a set of the new keys.

2 That order is not at issue in this appeal.

3 The order actually refers to representations the "Plaintiffs" supposedly made, but should have referred to "Defendant."