Nat'l Bank of Ark. v. River Crossing Partners, LLC
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Cite as 2010 Ark. App. 841
ARKANSAS COURT OF APPEALS
DIVISION I
CA10-222
No.
NATIONAL BANK OF ARKANSAS
APPELLANT
Opinion Delivered
December 15, 2010
APPEAL FROM THE PULASKI
COUNTY CIRCUIT COURT, SIXTH
DIVISION [NO. CV-2008-9962]
V.
RIVER CROSSING PARTNERS, LLC,
AND ROBERT AGUIAR,
INDIVIDUALLY AND AS TRUSTEE
OF THE ROBERT J. AGUIAR
REVOCABLE TRUST
APPELLEES
HONORABLE TIMOTHY FOX,
JUDGE
REVERSED AND REMANDED ON
DIRECT APPEAL; AFFIRMED ON
CROSS-APPEAL
JOHN MAUZY PITTMAN, Judge
National Bank of Arkansas brings this appeal from a judgment entered on a jury verdict
by the Pulaski County Circuit Court. Appellant filed this action for judgment on five
promissory notes, foreclosure on mortgages of real property, and enforcement of a security
agreement covering an investment account owned by appellee Robert Aguiar. Robert Aguiar
brings a cross-appeal. We reverse and remand on the direct appeal and affirm on the crossappeal.
The appellees involved in this appeal are River Crossing Partners, LLC (RCP), and
Robert Aguiar, individually and as Trustee of the Robert J. Aguiar Revocable Trust. On May
2, 2005, Robert Aguiar, his son, Clinton Aguiar, and Gary Washam (the RCP parties)
borrowed money from appellant to purchase and develop a subdivision in Maumelle. Each
Cite as 2010 Ark. App. 841
of the RCP parties signed the note, which was secured by a mortgage of the subdivision
property, real property in Little Rock and Hot Springs Village owned by Robert Aguiar, a
security agreement pledging an investment account owned by Robert Aguiar, and an
assignment of the investment account from Robert Aguiar. The security agreement stated that
it secured all present and future debts of RCP, Robert Aguiar, Clinton Aguiar, and Gary
Washam and granted a lien on Robert Aguiar’s investment account, which contained three
$100,000 bonds at that time. Similarly, the assignment of the securities account granted
appellant a lien on Robert Aguiar’s investment account to secure the present and future debts
of RCP, Robert Aguiar, Clinton Aguiar, and Gary Washam. The RCP parties renewed this
loan in the amount of $1,354,323 on October 30, 2007 (Note 1). Robert Aguiar borrowed
$88,000 from appellant to pay the interest on that loan at the same time (Note 2).
Appellant later made a construction loan to HomeBuilderOne, Inc. (HOI) and Clinton
Aguiar (Note 3), which was secured by a mortgage on the subdivision property. Appellant
also made two construction loans to Washam Construction Company (WCC) and Gary
Washam (Notes 4 and 5). Appellant took the position below, and argues on appeal, that the
HOI and WCC construction loans were also secured by Robert Aguiar’s investment account.
Appellees disputed this.
No lots were sold after January 2007. All of the loans went into default by June 2008.
After Robert Aguiar created the Robert J. Aguiar Revocable Trust on August 15, 2008, he
transferred a significant amount of property to it; according to appellant, some of that property
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secured the notes to appellant. Appellant completed construction of the houses; purchased
some improvement district bonds; and made payments on the improvement district tax
assessments. On September 4, 2008, appellant filed this action seeking judgment on the notes,
foreclosure of its mortgages, and enforcement of the security agreement. In its third amended
complaint, appellant added a claim of fraudulent conveyance against Robert Aguiar and the
trust, alleging that Robert Aguiar had fraudulently transferred a house in Little Rock (the
Brodie Creek house) and a house in Hot Springs Village (the Buque House) to the trust.
Appellant asked the court to void those transfers as fraudulent and asked for a lien to be
imposed on those properties.
Appellees did not dispute that appellant was entitled to foreclose on the mortgaged real
property, but they asserted that appellant was not entitled to enforce the security agreement
against all, but only one, of the bonds in Robert Aguiar’s securities account. Robert Aguiar
also denied transferring his property to the trust to avoid his creditors and asserted that his
intent had been to avoid probate. Appellees disputed the amount of money that they owed
appellant at the time of default. RCP and Robert Aguiar filed counterclaims against appellant
for breach of contract, rescission, modification or reformation of the notes, and for claims
arising out of appellant’s collection practices. Gary Washam and Clinton Aguiar filed for
bankruptcy before trial.
Over appellant’s objection, the trial court granted RCP’s and Robert Aguiar’s request
for a jury trial. At a pretrial hearing, the trial court stated that it could submit the amount of
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Cite as 2010 Ark. App. 841
the debt to the jury and reserve for itself the equitable issues. Appellant filed a motion
objecting to that procedure, which the trial court denied.
Appellant’s Special Assets Officer, Jackson Balentine, testified at trial about the amounts
due on the loans. Clinton Aguiar testified that, although he had repeatedly asked appellant to
explain the construction line advances charged to the RCP debt when there was no
construction being done, appellant did not satisfactorily explain them to him. Neal Ferguson,
with Investment Professionals, Inc., testified about Robert Aguiar’s investment account.
Robert Aguiar; Mike Fisher, appellant’s Senior Vice President of Commercial Lending; John
Gregson, who was a vice president with appellant and the loan officer who originated these
loans; and Gary Washam testified.
The court directed a verdict against several of appellees’ claims. It denied appellant’s
motion for directed verdict on the amount of the debt owed by appellees. It granted a
directed verdict on appellant’s right to foreclose on the mortgaged real estate. The jury
rendered the following verdicts:
a.
On Loan No. 1 (promissory note from RCP, Aguiar, Clinton Aguiar, and Gary
Washam to NBA dated 5/2/05 and renewed on 10/30/07, NBA loan no.
4112553) the jury unanimously found that RCP and Aguiar breached their
contract and assessed damages in favor of NBA against RCP and Aguiar in the
total amount of $500,000;
b.
On Loan No. 2 (promissory note from Aguiar to NBA dated 10/30/07, NBA
loan No. 4119717) the jury unanimously found that Aguiar breached the
contract and assessed damages in favor of NBA against Aguiar in the amount
of $95,233.78;
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Cite as 2010 Ark. App. 841
c.
The jury unanimously found that under the security agreements, NBA deposit
account #571881 is collateral for Loan No. 1 and Loan No. 2;
d.
The jury unanimously found that under the security agreements, NBA deposit
account #572446 is collateral for Loan No. 1 and Loan No. 2;
e.
The jury found, by vote of 11 jurors, that under the security agreements, Bond
CUSIP #345370BX7 (Ford Motor Co. Del Def) is collateral for Loan No. 1
and Loan No. 2, but is not collateral for Loan No. 3 (promissory note from
HOI to NBA, dated 1/5/07, NBA loan No. 4117461), Loan No. 4
(promissory note from WCC to NBA dated 3/7/06, NBA Loan No.
4115085), or Loan No. 5 (promissory note from WCC to NBA dated
1/11/07, NBA loan No. 4117893);
f.
The jury found, by vote of 11 jurors, that under the security agreements, Bond
CUSIP #345402Z87 (Ford Motor Credit Medium Term NTS) is collateral for
Loan No. 1 and Loan No. 2, but is not collateral for Loan No. 3, Loan No. 4,
or Loan No. 5;
g.
The jury unanimously found that under the security agreements, Bond CUSIP
#3133FOD89 (Federal Home LN. Mtg. Corp Medium Term NTS) is
collateral for Loan No. 1 and Loan No. 2, but is not collateral for Loan No. 3,
Loan No. 4, or Loan No. 5;
h.
The jury unanimously found that Lot 3R, Brodie Creek Community, an
addition to the City of Little Rock was fraudulently transferred from Aguiar to
the Trust;
i.
The jury unanimously found that Lot 4, Block 4 Buque Subdivision, Hot
Springs Village was not fraudulently transferred from Aguiar to the Trust;
j.
The jury unanimously found that NBA did not breach its contract referred to
as Loan No. 1 with RCP and Aguiar;
k.
The jury unanimously found that NBA did not breach its contract referred to
as Loan No. 2 with Aguiar;
l.
The jury unanimously found that NBA did not convert property of Aguiar; and
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m.
The jury unanimously found that NBA made an unlawful claim against title of
property belonging to Aguiar and awarded damages of $0.00.
The circuit court then entered judgment on the verdict and granted foreclosure against
the property securing the debts. It declared the deed of the Brodie Creek property to the trust
to be void and dismissed appellant’s claim to avoid the transfer of the Buque House. The
court noted that Gary Washam had been discharged in bankruptcy and dismissed all claims
against him. Appellant moved for judgment notwithstanding the verdict, vacation of the order
granting a jury trial, treatment of the jury verdict as advisory, new trial, and mistrial. The trial
court denied this motion. Appellant appealed from the judgment and the order denying its
posttrial motion. Appellees filed a cross-appeal.
Appellant’s arguments on appeal are: (1) the trial court erred in submitting its
foreclosure and fraudulent-transfer claims to the jury; (2) the trial court erred in refusing to
grant its motions for directed verdict, JNOV, new trial, and mistrial; (3) the jury’s verdict that
Notes 3, 4, and 5 were not secured by the bonds in Robert Aguiar’s investment account was
not supported by substantial evidence; (4) the jury’s verdict that Robert Aguiar’s transfer of
the Buque House was not a fraudulent transfer was not supported by substantial evidence.
Appellant argues that the trial court erred in submitting the following issues to the jury:
(1) the amount due from RCP and Robert Aguiar on Note 1; (2) whether Notes 3, 4, and
5 were secured by Robert Aguiar’s bonds; and (3) whether Robert Aguiar’s transfer of the
Buque House to the trust was avoidable as a fraudulent transfer. In its argument on all three
issues, it urges us to hold that the adoption of Amendment 80 to the Arkansas Constitution,
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which abolished chancery courts and vested jurisdiction for actions at law and in equity in the
circuit courts, did not expand a party’s right to a jury trial. It asks us to recognize that the
cleanup doctrine, which allowed the chancery court to decide legal issues that were incidental
to or related to the determination of equitable issues, see Colclasure v. Kansas City Life Insurance
Co., 290 Ark. 585, 720 S.W.2d 916 (1986), cert. denied, 481 U.S. 1069 (1987), is still viable
after the adoption of Amendment 80. It contends that, because it sought foreclosure, a strictly
equitable remedy, against the property securing the notes on which it sought judgment, and
an equitable lien on the Buque House, the incidental issues of the amounts due on the notes,
whether other notes were secured by the bonds, and whether the transfer of the Buque House
was avoidable as a fraudulent transfer, were not triable to the jury. Appellant relies on the
Arkansas Supreme Court’s recent decisions in Ludwig v. Bella Casa, 2010 Ark. 435, __ S.W.3d
__, and First National Bank of Dewitt v. Cruthis, 360 Ark. 528, 203 S.W.3d 88 (2005).
Appellees respond that appellant’s underlying cause of action was for breach of
contract, which was at law, and that, although appellees conceded that they owed some
money to appellant, they disputed how much they owed. They urge us to hold that it was
appropriate for the trial court to send the damages element of their claim to the jury and retain
for itself the remaining equitable issues. We disagree.
In Cruthis, the appellant had sought restitution and an equitable lien in Count I of the
complaint; the appellees had requested a jury trial in their counterclaim. The circuit court
submitted the case to the jury, and the appellant argued on appeal that submission of the
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restitution claim to the jury was error. The supreme court held that a plaintiff’s claim for an
equitable lien should not have been submitted to a jury because that cause of action could not
be heard in circuit court before Amendment 80. The supreme court held that no new or
expanded jurisdiction beyond that formerly existing in the chancery and circuit courts was
created through Amendment 80; rather, circuit court jurisdiction now includes all matters
previously cognizable by circuit, chancery, probate, and juvenile courts. The court cautioned
that Amendment 80 did not alter the jurisdiction of law and equity; matters that could be
submitted to a jury for decision and the matters that must be decided by the court remain
unaltered. It concluded:
Thus, although unjust enrichment is an equitable cause of action, because it is
based on the alleged breach of an implied contract, it may be heard in circuit court and
may be heard by a jury. See, e.g., Fite, supra. However, we must reverse because
restitution was not the only equitable remedy sought in Count I. FNB also sought an
equitable lien on certain property. An equitable lien is a right to have a demand
satisfied from a particular fund of specific property. Kane Enter. v. MacGregor, Inc., 322
F.3d 371 (5th Cir. 2003) (quoting Blacks Law Dictionary 934 7th ed. (1999)). An
equitable lien has also been defined as a remedy that awards a nonpossessory interest
in property to a party who has been prevented by fraud, accident or mistake from
securing that to which he was equitably entitled. Lorimer v. Berrelez, 331 F. Supp. 2d
585 (E.D. Mich. 2004) (quoting Senters v. Ottawa Sav. Bank, 443 Mich. 45, 503
N.W.2d 639 (1993)). An action on an equitable lien was historically heard in chancery
court because it is an equitable remedy. See Dews v. Halliburton Indus. Inc., 288 Ark.
532, 708 S.W.3d 67 (1986); Rose City Bottling Works v. Godchaux Sugars, Inc., 151 Ark.
269, 236 S.W. 825 (1922). Because an equitable lien was sought, the circuit court
erred in submitting Count I to the jury, and because we reverse on this basis, we need
not address the remaining issues.
360 Ark. at 537, 203 S.W.3d at 94.
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On November 11, 2010, the supreme court relied on Cruthis in deciding Ludwig v.
Bella Casa. It reversed and remanded that part of the trial court’s decision that sent a nuisance
claim to the jury and reserved for itself the question of whether to grant an injunction:
We have a similar situation in the present case. The circuit judge submitted the
issue of whether appellant’s airstrip was a nuisance to the jury, but reserved the issue
of remedy for the court. Traditionally, the determination of whether something
constitutes a private nuisance and whether to grant equitable relief was for a chancellor
to decide in a court of equity. Relying on our holding in Cruthis, we reverse the
circuit court’s decision to submit the private nuisance claim to a jury. As a claim that
would normally lie in equity, the circuit court erred in submitting the nuisance issue
to the jury.
2010 Ark. 435, at 8–9.
In his dissent from that part of the majority opinion in Ludwig, Justice Brown cited the
following passage from a treatise authored by former Justice David Newbern and Professor
John J. Watkins, Civil Practice & Procedure § 29:3, at 564 (4th ed. 2006):
With the merger of law and equity and elimination of the separate chancery courts,
there is simply no justification for retaining any remnant of the cleanup doctrine and
a system under which the fundamental right to a jury trial turned on the choice of
words in a pleading.
When a case with legal and equitable claims involves common questions of fact,
the preferable approach is to try those questions to the jury, perhaps on written
interrogatories as allowed by Ark. R. Civ. P. 49(a), before the court determines
whether equitable relief is appropriate. The jury’s findings would be binding on the
court, which would serve as fact-finder only as to noncommon factual questions arising
in connection with the equitable relief. If the order of trial is arranged in this fashion,
the right to jury trial on the legal claims would be ensured. Temporary equitable relief,
if appropriate, could be granted pending a final adjudication on the merits.
In Ludwig, therefore, the supreme court rejected the approach of the treatise quoted
above and essentially upheld the viability of the cleanup doctrine after the adoption of
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Amendment 80. In light of the supreme court’s interpretation of Cruthis in Ludwig, we must
reverse and remand on this point and, consequently, on the entire direct appeal.
On cross-appeal, Robert Aguiar argues that the trial court erred in directing a verdict
for appellant on his claim for abuse of process at the close of the evidence. He contends that
he produced substantial evidence that appellant intentionally perverted the legal process to
accomplish an ulterior purpose for which it was not designed; that appellant overreached, by
filing lis pendens on property that was not pledged as collateral, on the pretext that he had
fraudulently transferred it into the trust; and that appellant hamstrung his ability to manage
his financial affairs and to defend himself in this lawsuit. He points to his testimony that
Jackson Balentine told him, “We’re going to get everything you own,” even though appellant
was entitled to less than that.
One asserting an abuse-of-process claim must establish that (1) a legal procedure was
set in motion in proper form, even with probable cause and ultimate success; (2) the
procedure was perverted to accomplish an ulterior purpose for which it was not designed; and
(3) a willful act was perpetrated in the use of process which was not proper in the regular
conduct of the proceeding. South Ark. Petroleum Co. v. Schiesser, 343 Ark. 492, 36 S.W.3d 317
(2001). The test of abuse of process is whether a judicial process was used to extort or coerce.
Id. The key to the tort is the improper use of process after its issuance in order to accomplish
a purpose for which the process was not designed. Id. Thus, it is the purpose for which the
process was used, once issued, that is important in reaching a conclusion. Id.
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Because Robert Aguiar failed to establish an ulterior purpose or an improper act on the
part of appellant, we affirm on the cross-appeal.
Reversed and remanded on direct appeal; affirmed on cross-appeal.
G LADWIN and A BRAMSON, JJ., agree.
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