K.C. Properties of N.W. Arkansas, Inc. and Buildings, Inc. v. Lowell Investment Partners, LLC; Pinnacle Management Services, LLC; Tim Graham; Bill W. Schwyhart; J.B. Hunt; Ozark Mountain Water Park, LLC; J.B. Hunt, LLC; Schwyhart Holding, LLC; and Tim Graham, LLC
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SUPREME COURT OF ARKANSAS
No. 07-471
K.C. PROPERTIES OF N.W.
ARKANSAS, INC. AND BUILDINGS,
INC.
APPELLANTS,
VS.
LOWELL INVESTMENT PARTNERS,
LLC; PINNACLE MANAGEMENT
SERVICES, LLC; TIM GRAHAM; BILL
W. SCHWYHART; J.B. HUNT;
OZARK MOUNTAIN WATER PARK,
LLC; J.B. HUNT, LLC; SCHWYHART
HOLDING, LLC; AND TIM GRAHAM,
LLC,
APPELLEES,
Opinion Delivered March 13, 2008
APPEAL FROM WASHINGTON
COUNTY CIRCUIT COURT,
NO., CIV 2005-924-1,
HON. WILLIAM A. STOREY, JUDGE,
REVERSED AND REMANDED.
JIM GUNTER, Associate Justice
This appeal arises from an order of the Washington County Circuit Court granting a
motion for summary judgment filed by Appellees Lowell Investment Partners, LLC (LIP);
Pinnacle Management Services, LLC (PMS); Tim Graham (Graham); Bill W. Schwyhart
(Schwyhart); J.B. Hunt (Hunt); Ozark Mountain Water Park, LLC (Ozark); J.B. Hunt, LLC
(Hunt, LLC); Schwyhart Holding, LLC (Schwyhart, LLC); and Tim Graham, LLC (Graham,
LLC). Appellants KC Properties (KC) and Buildings, Inc. (Buildings) appeal. We reverse the
circuit court’s order granting summary judgment and remand for further proceedings.
On August 5, 2004, KC and LIP entered into an operating agreement as members of
Ozark. Pursuant to that operating agreement, LIP owned fifty-one percent of Ozark and KC
owned forty-nine percent. PMS was named manager of Ozark. Ozark was created for the
purpose of “operation of the water park at or near the intersection of Interstate 540 and
Highway 264 in Lowell, Arkansas.” The park was to occupy 16.58 acres of an approximately
thirty-four acre tract of land at that site. The land was owned by Pinnacle Hills Realty
(PHR), an LLC in which Schwyhart, LLC; Graham, LLC; and J.B. Hunt, LLC; are members.
Schwyhart, LLC; Graham, LLC; and J.B. Hunt, LLC; are also the members of PMS.
Schwyhart, Hunt, and Graham are the managers of PMS. The property was to be sold to
Ozark for $3,000,000. That same day, Buildings entered into a contract with Ozark to
construct the water park on the subject property on a cost-plus-six-percent basis.
On September 10, 2004, PHR entered into a real-estate contract with Parker
Northwest Properties, LLC to sell the entire property located at the intersection of Interstate
540 and Highway 264. PHR sold the entire thirty-four acres for $8,250,000. KC filed suit
against Appellees for breach of contract and breach of fiduciary duties in Washington County
Circuit Court. KC contended that, because the subject property was to be sold to Ozark for
$3,000,000, Ozark missed an opportunity to own property that was worth at least
$1,023,088.25 more than what Ozark paid for it, and therefore, lost at least $501,313.24 in
damages. Buildings sued for breach of contract contending that it lost a six-percent profit,
which would have been $410,760. On January 23, 2007, the Washington County Circuit
Court granted summary judgment in favor of Appellees on all counts. Appellants KC and
Buildings now bring their appeal.
I. Standard of review
Summary judgment is to be granted by a circuit court only when it is clear that there
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are no genuine issues of material fact to be litigated, and the party is entitled to judgment as
a matter of law. Bennett v. Spaight, __ Ark. __, __ S.W.3d __ (Feb. 21, 2008) (citing Wagner
v. General Motors Corp., 370 Ark. 268, __ S.W.3d __ (2007)). Once the moving party has
established a prima facie entitlement to summary judgment, the opposing party must meet
proof with proof and demonstrate the existence of a material issue of fact. See Bennett, supra
(citing Pakay v. Davis, 367 Ark. 421, 241 S.W.3d 257 (2006)). On appellate review, this court
determines if summary judgment was appropriate based on whether the evidentiary items
presented by the moving party in support of the motion leave a material fact unanswered. Id.
This court views the evidence in a light most favorable to the party against whom the motion
was filed, resolving all doubts and inferences against the moving party. Id. Our review
focuses not only on the pleadings, but also on the affidavits and other documents filed by the
parties. Id.
II. Points on appeal
A. Ark. Code Ann. § 4-32-304
For their first point on appeal, Appellants argue that the circuit court erred in holding
that Ark. Code Ann. § 4-32-304 (Repl. 2001) prohibits a member of a limited liability
company from suing a fellow member and manager for breach of contract and breach of
fiduciary duty. Appellants specifically argue that the circuit court erred in holding that neither
the members of Ozark nor its manager were proper parties to this lawsuit pursuant to § 4-32304. Appellants contend that § 4-32-304 only applies to situations where a third party seeks
to hold a member of an LLC liable for the debt, obligation, or liability of the LLC or another
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member thereof, but does not provide a shield for a member’s or manager’s own acts or
omissions.
Appellees respond, arguing that the circuit court was correct in its holding.
Specifically, Appellees assert that Appellants’ claims against PMS must fail because the
operating agreement states that the Manager shall not be held liable under a judgment, decree,
or order of court for a debt, obligation, or liability of the company. Appellees contend that
Appellants’ claims against Graham, Schwyhart, Hunt, and their respective LLCs must fail
because they were not parties to the operating agreement in their individual or corporate
capacities. Appellees assert that, with respect to the breach of fiduciary duty claims, the only
members of Ozark were LIP and K.C. Further, Appellees argue that Ark. Code Ann. § 4-32304 eliminates breach of contract and tort liability for LIP, Graham, Schwyhart, Hunt, and
Ozark.
This case presents an issue involving statutory interpretation. When reviewing issues
of statutory interpretation, the first rule in considering the meaning and effect of a statute is
to construe it just as it reads, giving the words their ordinary and usually accepted meaning
in common language. Talbert v. U.S. Bank, N.A., __ Ark. __, __ S.W.3d __ (Jan. 17, 2008)
(citing Maddox v. City of Fort Smith, 369 Ark. 143, __ S.W.3d __ (2007)). When the language
of a statute is plain and unambiguous, there is no need to resort to rules of statutory
construction. Id. A statute is ambiguous only where it is open to two or more constructions,
or where it is of such obscure or doubtful meaning that reasonable minds might disagree or
be uncertain as to its meaning. Id. When a statute is clear, however, it is given its plain
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meaning, and we will not reach for legislative intent; rather, that intent must be gathered from
the plain meaning of the language used. Id. We are very hesitant to interpret a legislative act
in a manner contrary to its express language, unless it is clear that a drafting error or omission
has circumvented legislative intent. Id.
Arkansas Code Annotated § 4-32-304, which addresses the liability of members,
provides:
Liability of Members to Third Parties
Except for the personal liability for acts or omissions of those providing
professional service as set forth in § 4-32-308, a person who is a member,
manager, agent or employee of a limited liability company is not liable for a
debt, obligation, or liability of limited liability company, whether arising in
contract, tort, or otherwise or for the acts or omissions of any other member,
manager, agent or employee of the limited liability company.
Id. The Arkansas Small Business Entity Tax Through Act, Ark. Code Ann. § 4-32-402
(Repl. 2001), also addresses the liability of members, stating:
Unless otherwise provided in an operating agreement:
(1) A member or manager shall not be liable, responsible, or accountable in
damages or otherwise to the limited liability company or to the members of the
limited liability company for any action taken or failure to act on behalf of the
limited liability company unless the act or omission constitutes gross negligence
or willful misconduct;
Id.
While the plain language of § 4-32-304 seems to shield one member of a limitedliability company from being held liable to another member, the language of § 4-32-402
clearly allows members to be held liable to other members of the limited-liability company
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when an act or omission constitutes gross negligence or willful misconduct. Statutes relating
to the same subject are said to be in pari materia and should be read in a harmonious manner,
if possible. See Weiss v. Maples, 369 Ark. 282, __ S.W.3d __ (2007). The title of § 4-32-304,
“Liability of members to third parties,” clarifies the intent of the legislature in enacting this
statute and allows it to be read harmoniously with § 4-32-402. We have long held that the
title of an act is not controlling in its construction, although it is considered in determining
its meaning when such meaning is otherwise in doubt. Baker Refrigeration Systems, Inc. v.
Weiss, 360 Ark. 388, 201 S.W.3d 900 (2005). The title may only be examined for the
purpose of shedding light on the intent of the legislature. Id. Thus, when both the language
of § 4-32-304 and its title are read together, it is clear that the legislature intended to prohibit
suit by a third party against one member of a limited-liability company for another member’s
actions.
The circuit court ruled that, even if § 4-32-304 allowed members to sue other
members, summary judgment was still proper because Graham, Schwyhart, Hunt, and their
respective LLCs were not members. The operating agreement states that the agreement “is
entered into and shall be effective as of August 5, 2004, by and among the Company, the
Manager, and all Persons who are identified as Members on Exhibit A attached hereto. . . .” Exhibit
A attached to the agreement lists only LIP and KC as members. Therefore, according to the
agreement, Hunt, Graham, Schwyhart, and their LLCs were not members of Ozark and § 432-304 does not apply to them.
Because LIP and KC were the only members of Ozark with PMS acting as manager,
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LIP and PMS were the only entities that KC could bring suit against under section § 4-32402(1), set forth above, which provides that a member or manager, unless otherwise provided
for by an operating agreement, can only be liable to the limited-liability company or members
thereof if the act or failure to act constituted gross negligence or willful misconduct.
However, LIP and PMS did not sell the property to another party. Rather, PHR, as owner
of the property, sold the thirty-four acres to another party for $8,250,000. Thus, neither PMS
nor LIP committed any act or failure to act constituting gross negligence or willful misconduct
for which they could be held liable under § 4-32-402(1). Accordingly, we affirm the circuit
court’s order of summary judgment on this point.
B. Privity of Contract
For their second point on appeal, Appellants argue that the circuit court erred in
granting summary judgment based on its finding that Hunt, Graham, Schwyhart, and their
LLCs were not in privity of contract with KC. Appellants assert that the circuit court erred
in finding that there was no allegation made by Appellants that Hunt, Graham, Schwyhart,
and their LLCs were agents of the manager, PMS. Appellants contend that the use of the
term “manager” implies that there is an agency relationship and one should not have to
actually use the term “agent” in order to imply that relationship. Appellees respond, arguing
that the only entities that can potentially be held liable for a breach of contract in this situation
are Ozark and perhaps its manager, PMS, because the contract to build the water park was
between only Buildings and Ozark.
Appellants rely on § 4-32-301(b)(2) (Repl. 2001) for their proposition that the term
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“manager” implies that there is an agency relationship and that the term “agency” need not
be used to allege an agency relationship. Section 4-32-301 states:
(a) Except as provided in subsection (b) of this section, every member is an
agent of the limited liability company for the purpose of its business or affairs,
and the act of any member, including, but not limited to, the execution in the
name of the limited liability company of any instrument, for apparently carrying
on in the usual way the business or affairs of the limited liability company of
which he or she is a member, binds the limited liability company, unless the
member so acting has, in fact, no authority to act for the limited liability
company in the particular matter, and the person with whom the member is
dealing has knowledge of the fact that the member has no such authority.
(b) If the articles of organization provide that management of the limited
liability company is vested in a manager or mangers:
(1) No member solely by reason of being a member is an agent of the limited
liability company; and
(2) Every manager is an agent of the limited liability company for the purpose of its
business or affairs, and the act of any manager, including, but not limited to, the
execution in the name of the limited liability company of any instrument, for
apparently carrying on in the usual way the business or affairs of the limited
liability company of which he is a manager binds the limited liability company,
unless the manager so acting has, in fact, no authority to act for the limited
liability company in the particular matter, and the person with whom the
manager is dealing has knowledge of the fact that the manager has no such
authority.
Id. (emphasis added).
Appellants admit that there is no privity of contract between the individuals, their
LLCs, and K.C., but still seek to hold the individuals and their LLCs liable for breach of
contract under the theory of agency. It is clear that the individuals and their LLCs were not
parties to the operation agreement. “Pinnacle Management Services, LLC, Manager, by Bill
W. Schwyhart, Manager” and “Pinnacle Management Services, LLC, Manager, by Tim
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Graham, Manager” signed the agreement for Ozark. “Pinnacle Management Services, LLC,
Manager, by Bill W. Schwyhart, Manager” and “Pinnacle Management Services, LLC,
Manager, by Tim Graham, Manager” signed for member LIP. Ken Bailey, President of KC,
signed for member KC. “Bill W. Schwyhart, Manager” and “Tim Graham, Manager” signed
for Manager PMS. Therefore, the LLCs were not parties to the operating agreement, and
Schwyhart and Graham only signed as agents of PMS.
Appellants argue that PMS, through the individuals and their LLCs, caused PHR to
sell the property intended for the water park, and that these actions of PMS are imputed to
LIP by and through their common membership and management. Pursuant to § 4-32301(b)(2), PMS, as manager of Ozark, would also be considered an agent of Ozark. PMS is
also the manager of LIP, and therefore, an agent of LIP. Schwyhart, Hunt, and Graham are
managers of PMS, and pursuant to § 4-32-301, agents of PMS. The LLCs were acting in their
capacity as members of PHR when they sold the property to another party and were not
acting on behalf of either PMS or LIP. PHR had no fiduciary duty to Appellants. Further,
Appellants provide us with no case law or authority for their proposition that the actions of
one corporation can be imputed to another solely by their common membership and
management. Because Appellants have failed to provide proof rebutting the LLCs’ proof that
there was no breach of the operating agreement or a breach of fiduciary duties, we affirm
summary judgment on this point.
C. Consequential damages
For their third point on appeal, Appellants argue that the circuit court erred in holding
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that Buildings had no claim for breach of contract based upon a mutual waiver of
consequential damages. Appellants specifically argue that the circuit court erred in equating
lost profits with consequential damages. In response, Appellees assert that the circuit court
was correct in its ruling because paragraph 13 of the contract provides for a mutual waiver of
consequential damages.
Consequential damages are those damages that do not flow directly and immediately
from the breach, but only from some of the consequences or results of the breach. See
Reynolds Health Care Servs., Inc. v. HMNH, Inc., 364 Ark. 168, 217 S.W.3d 797 (2005); Bank
of America N.A. v. C.D. Smith Motor Co., 353 Ark. 228, 106 S.W.3d 425 (2003); Dawson v.
Temps Plus, Inc., 337 Ark. 247, 987 S.W.2d 722 (1999). Lost profits are well recognized as
a type of consequential damages. See Reynolds, supra. In order to recover consequential
damages in a breach-of-contract case, a plaintiff must prove more than the defendant’s mere
knowledge that a breach of contract will entail special damages to the plaintiff. Id. It must
also appear that the defendant at least tacitly agreed to assume responsibility. Id.
In the present case, paragraph 13 of the contract between Ozark and Buildings states:
MUTUAL WAIVER OF CONSEQUENTIAL DAMAGES Owner and
Contractor agree to waive all claims against each other for any consequential
damages that may arise out of or relate to this Agreement. Owner agrees to
waive damages including but not limited to Owner’s loss of use of the Project,
any rental expenses incurred, loss of income, profit or financing related to the
Project, as well as the loss of business, loss of financing, principal office
overhead and expenses, loss of profits not related to this Project, or loss of
reputation. Contractor agrees to waive damages including but not limited to loss of
business, loss of financing, principal office overhead and expenses, loss of profits not
related to this Project, loss of bonding capacity or loss of reputation. This Article shall
not be construed to preclude contractual provisions for liquidated damages
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when such provisions relate to direct damages only. The provisions of this
Article shall also apply to the termination of this Agreement and shall survive
such termination.
(Emphasis added). The contract entered into between Buildings and Ozark provided that it
was a cost-plus-six-percent contract. Buildings sued for six percent, or $410,760. This waiver
specifically provided that Buildings agreed to waive “loss of profits not related to this Project.”
It is clear that the $410,760 in damages claimed by Buildings for breach of contract are related
to the project, and therefore, not waived by the operating agreement. Further, the damages
claimed by Buildings are not consequential damages because they flow directly from the
breach of the construction contract. See Reynolds, supra. Thus, we hold that the circuit court
erred in finding that Buildings waived its breach-of-contract claim.
Appellees argue that Buildings’s breach-of-contract claim should be dismissed because
it did not fulfill the condition precedent that requires the parties to attempt to settle any
dispute through mediation before a lawsuit is filed. The contract between Ozark and
Buildings states:
15.2 INITIAL DISPUTE RESOLUTION PROCESSES If a dispute arises
out of or relates to this Agreement or its breach, the parties shall endeavor to
settle the dispute first through direct discussions. If the dispute cannot be
settled through direct discussions, the parties shall endeavor to settle the dispute
by mediation under the current Construction Industry Mediation Rules of the
American Arbitration Association before recourse to any binding dispute
resolution procedures.
In their reply brief, Appellants argue that Appellees waived their right to enforce mediation.
Appellants attached to their response to the motion for summary judgment two letters from
their attorney to the Appellees’ attorney requesting mediation, with one of the letters setting
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a deadline for the mediation. Appellants assert that Appellees never responded to the request
for mediation, and therefore waived the mediation requirement. The issue of whether
Appellees waived the mediation requirement raises issues of fact, thereby making summary
judgment inappropriate. Accordingly, we hold that the circuit court erred in granting
summary judgment on Buildings’s claim for breach of contract.
D. Interference with contractual relationships
For their fourth point on appeal, Appellants argue that the circuit court erred in
holding that there was not sufficient evidence to support Buildings’s claim for interference
with contractual relationships. Appellants assert that by selling the property where Buildings
was to construct the water park, the individual appellees and their limited liability companies
interfered with Buildings’s contract with Ozark making it impossible for it to construct the
water park. In response, Appellees argue that the circuit court was correct in its ruling
because Appellant failed to allege in their amended and restated complaint or otherwise state
in the record exactly what constitutes the improper conduct of the individual appellees and
their LLCs.
The elements of tortious interference that must be proved are: (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; and (4) resultant damage to the
party whose relationship or expectancy has been disrupted. See El Paso Prod. Co. v. Blanchard,
__ Ark. __, __ S.W.3d __ (Dec. 6, 2007) (citing Stewart Title Guar. Co. v. American Abstract
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& Title Co., 363 Ark. 530, 215 S.W.3d 596 (2005)). Our law requires that the conduct of the
defendants be at least “improper,” and we look to factors in § 767 of the Restatement
(Second) of Torts for guidance about what is improper. See Dodson v. Allstate Ins. Co., 345
Ark. 430, 47 S.W.3d 866 (2001) (citing Mason v. Wal-Mart Stores, Inc., 333 Ark. 3, 969 S.W.2d
160 (1998)). In determining whether an actor’s conduct in intentionally interfering with a
contract or a prospective contractual relation of another is improper or not, consideration is
given to the following factors:
(a) the nature of the actor’s conduct,
(b) the actor’s motive,
(c) the interests of the other with which the actor’s conduct interferes,
(d) the interests sought to be advanced by the actor,
(e) the social interests in protecting the freedom of action of the actor and the
contractual interests of the other,
(f) the proximity or remoteness of the actor’s conduct to the interference and
the relations between the parties.
Id.
Here, Appellants assert that the following issues of fact should be considered by a jury
in determining whether or not Appellees’ actions were improper: (1) Appellees allowed Ozark
to enter into a contract with Buildings to build a water park on the 16.58 acres when
Schwyhart and Graham were in the process of negotiating for the sale of the exact same
property to another buyer for another purpose; (2) that the Appellees breached fiduciary
duties in the manner in which they went about selling the water park property; (3) that the
individuals were attempting to promote their own interest and to profit for themselves; (4)
that the Appellees sold the property in secret; (5) that the conduct interfering with the
contract took place not only before but within a month after signing an agreement to build
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the water park on August 5, 2004; and (6) that the Appellees were not engaged in an arm’s
length transaction with Buildings.
The circuit court ruled that Appellants “failed to allege in their amended complaint or
otherwise state in the record, exactly what constitutes the improper conduct of J.B. Hunt,
individually, J.B. Hunt, LLC, Tim Graham, individually, Tim Graham, LLC, Bill Schwyhart,
individually and Schwyhart Holdings, LLC, that was improper within the definition of AMI
404.” The circuit court further ruled that there was nothing in the record to support the
allegations of wrongdoing, other than the fact that PHR sold the intended site of the water
park to another buyer. We affirm the circuit court’s ruling because Appellants did not
provide specific facts or evidence to support their contention that these individuals and their
LLCs engaged in improper conduct. For this reason, we affirm on this point.
E. Restitution
For their fifth point on appeal, Appellants argue that the circuit court erred in finding
that there was nothing in the record to support a claim for restitution and finding that there
had been a waiver of this claim. They specifically assert that Buildings is entitled to restitution
for expenses incurred prior to entering into the construction contract in anticipation of
building the water park. In response, Appellees assert that the circuit court was correct in its
ruling because Buildings failed to identify any such damage and is therefore not entitled to
proceed on this claim unless and until it specifies its damages.
Regarding the doctrine of restitution, we have stated:
As an alternative to affirmance remedies, this court has allowed a defrauded
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party the remedy of restitution. This alternative remedy brings in the doctrine
of election of remedies. Restitution is characterized as a disaffirmance remedy
because it is awarded when the contract is revoked, rescinded, or disaffirmed.
However, restitution differs from the two types of affirmance remedies just
discussed. “Damages” refers to a money award compensating a plaintiff for
losses. Dan B. Dobbs, Law of Remedies, § 1.1 (2d ed. 1993). Although an
award of restitution may in fact provide compensation for the plaintiff in some
cases, “[t]he restitutionary goal is to prevent unjust enrichment of the defendant
by making him give up what he wrongfully obtained from the plaintiff.” Id.
Restitution is thus measured by the defendant’s gain, not by the plaintiff’s loss.
Id.
Smith v. Walt Bennett Ford, Inc., 314 Ark. 591, 602, 864 S.W.2d 817, 823 (1993).
Here, the circuit court noted that, excluding an action for recission, a party can only
seek restitution in Arkansas if there is a contract implied in fact or implied in law. Relying
on Crosby v. Hardeman, Inc., 414 Fed. 2d 1 (8th Cir. 1969), the circuit court found that there
was nothing in the record to support a claim for restitution based upon a contract implied in
fact because the parties entered into the operating agreement subsequent to the time that the
expenses were incurred, and no provision was made by either party for the reimbursement
of expenses prior to that date.
In Crosby, supra, the United States Eighth Circuit Court of Appeals stated:
An implied in fact contract may be inferred from the facts and
circumstances of a given case, but an indispensable element of any contract,
express or implied, is a promise.
....
In 1 Williston, Contracts § 3 (3d ed. 1957) contracts implied in fact are
treated as true contracts arising from mutual agreements and intents to promise
where the agreement and promise have not been expressed in words and it is
noted at page 11, “The elements requisite for an informal contract, however,
are identical whether they are expressly stated or implied in fact.” The
difference between an expressed contract containing an actual promise and an
implied contract where the contract is implied from the conduct of the parties
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is merely in the mode of manifesting assent and in the mode of proof. Both
express and implied contracts are founded upon mutual assent of the parties and
require a meeting of the minds. 17 C.J.S. Contracts § 3 at pp. 553-554 (1963).
Id. at 7. We have held that a contract implied in fact derives from the “presumed” intention
of the parties as indicated by their conduct. Steed v. Busby, 268 Ark. 1, 593 S.W.2d 34 (1980)
(citing Caldwell v. Missouri State Life Ins. Co., 148 Ark. 474, 230 S.W. 566 (1921)). An
implied contract is proven by circumstances showing the parties intended to contract by
circumstances showing the general course of dealing between the parties. Id.
In the present case, Buildings produced an affidavit from Ken Bailey setting forth a
demand for restitution in the amount of $52,645.59 that it had advanced to the water park.
Bailey’s affidavit states that Buildings spent $102,645.59 in expenses toward the water park
project, but gave Appellees a credit for $50,000. Buildings wanted to be reimbursed for the
$52,645.59 as well as $126,305 for a claim made by Professional Parks against Buildings related
to the water park. Buildings claimed that these expenses were expended on the water park
and the design of the water park incurred during the year 2003 through July of 2004.
The operating agreement was not executed until August 5, 2004, after Buildings
incurred these expenses on the water park. There was no provision made by either party for
reimbursement of expenses prior to that date. A promise to pay is an indispensable element
of a contract, whether express or implied. See Crosby, supra. Therefore, there is nothing in
the record to support a claim for restitution based on a contract implied in fact.
Alternatively, the circuit court found that a contract implied in law was only proper
where the defendant benefitted unjustly, and the law implied a contract to repay. In the
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present case, there has not been any unjust enrichment on the part of Schwyhart, Hunt,
Graham, or their LLCs, which would entitle Buildings to restitution. Despite the fact that
Buildings expended funds in anticipation of constructing the water park, none of the
individuals or their LLCs have wrongfully obtained anything from Buildings. See Smith, supra.
Therefore, we affirm the circuit court’s grant of summary judgment on Appellants’ restitution
claim.
F. Promissory estoppel
For their sixth point on appeal, Appellants argue that the circuit court erred in finding
that the defenses of waiver and estoppel barred the promissory-estoppel claim of KC and
Buildings and that there were no facts to support a claim of promissory estoppel. Specifically,
Appellants contend that individual defendants Graham and Schwyhart, whose companies have
the same principals in both PHR and PMS, as well as principals in LP, made certain promises
and representations to Appellants that the subject property was to be sold to them. Appellants
assert that, in reliance on these promises, KC discontinued any attempt to find property for
its water park and expended monies in anticipation of going forward with the project. In
response, Appellees assert that the circuit court was correct in rejecting Appellants’ claim for
promissory estoppel because there is no evidence in the record that the individuals or their
respective LLCs ever made any promises to Appellants to sell the subject property to Ozark
beyond what is stated in the operating agreement.
The black-letter law on promissory estoppel is found in the Restatement (Second) of
Contracts:
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A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does
induce such action or forbearance is binding if injustice can be avoided only by
enforcement of the promise. The remedy granted for breach may be limited as
justice requires.
See Rigsby v. Rigsby, 356 Ark. 311, 149 S.W.3d 318 (2004). We have held that the party
asserting estoppel must prove it strictly, there must be certainty to every intent, the facts
constituting it must not be taken by argument or inference, and nothing can be supplied by
intendment. Ward v. Worthen Bank & Trust Co., 284 Ark. 355, 681 S.W.2d 365 (1985) (citing
Julian Martin, Inc. v. Indiana Refrigeration Lines, Inc., 262 Ark. 671, 560 S.W.2d 228 (1978)).
Further, we have stated that a party asserting estoppel must prove that in good faith he relied
on some act or failure to act by the other party and, in reliance on that act, suffered some
detriment. Peek v. Simmons First Nat’l Bank, 309 Ark. 294, 832 S.W.2d 458 (1992) (citing
Worth v. Civil Serv. Comm’n, 294 Ark. 643, 646, 746 S.W.2d 364, 366 (1988)). Whether
there was actual reliance and whether it was reasonable is a question for the trier of fact. See
Rigsby, supra.
In the present case, following the filing of Appellees’ motion for summary judgment,
Ken Bailey, President of KC, submitted an affidavit, which states:
We were told by Graham, Schwyhart and Hunt that they own the property
under another company, Pinnacle Hills Realty, and they verbally agreed and
verbally promised that they would sell it for $3,000,000.00 to the company we
were going to form to own the Water Park.
....
Although we knew there was potentially other land where this water park
might be located, after we made the deal with Hunt, Graham and Schwyhart,
we discontinued looking for other properties and in particular we gave up
looking at the 20 acres on Wagon Wheel Road which we could have
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purchased for $1,100,000.00. Had we not had the promises from Graham,
Schwyhart and Hunt, we would have continued our search for property at
other locations. The Manager of the Ozark Mountain Water Park, Pinnacle
Management Services, sold the water park property without finding suitable
replacement property. However, now that the water park property is not
available there is no other viable, affordable property that exists along I-540.
This self-serving affidavit is the only evidence presented by Appellants that would support
their claim for promissory estoppel. The circuit court found that there was no foundation in
Bailey’s affidavit that he was a real estate agent or otherwise qualified to assert his opinion with
respect to the availability of affordable property along I-540 for sale. Because our case law
states that the facts constituting promissory estoppel must not be taken by argument or
inference, and nothing can be supplied by intendment, see Ward, supra, we hold that
Appellants have failed to rebut proof with proof concerning the claim for promissory estoppel
and affirm summary judgment on this point.
G. Piercing the corporate veil
For their seventh point on appeal, Appellants argue that the circuit court erred in
finding that there was absolutely no evidence to support KC and Buildings’s claim that the
corporate veil of the limited-liability companies should be pierced. Appellants specifically
assert that piercing the corporate veil of these limited-liability companies presents issues of fact
which preclude summary judgment. They further contend that, by piercing the corporate
veil, the individuals, as managers of PMS, and the LLCs, as members of PMS, may be held
liable for the actions of PMS and LIP. In response, Appellees assert that there is no evidence
to support Appellant’s claim for piercing the corporate veil.
It is a nearly universal rule that a corporation and its stockholders are separate and
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distinct entities, even though a stockholder may own the majority of the stock. Anderson v.
Stewart, 366 Ark. 203, 234 S.W.3d 295 (2006); First Commercial Bank v. Walker, 333 Ark. 100,
969 S.W.2d 146 (1998). In special circumstances, the court will disregard the corporate facade
when the corporate form has been illegally abused to the injury of a third party. EnviroClean,
Inc. v. Arkansas Pollution Control & Ecology Comm’n, 314 Ark. 98, 858 S.W.2d 116 (1993); Don
G. Parker, Inc. v. Point Ferry, Inc., 249 Ark. 764, 461 S.W.2d 587 (1971). The conditions
under which the corporate entity may be disregarded or looked upon as the alter ego of the
principal stockholder vary according to the circumstances of each case. Anderson, supra (citing
Winchel v. Craig, 55 Ark. App. 373, 934 S.W.2d 946 (1996)). The doctrine of piercing the
corporate veil is founded in equity and is applied when the facts warrant its application to
prevent an injustice. Humphries v. Bray, 271 Ark. 962, 611 S.W.2d 791 (Ark. App. 1981).
Piercing the fiction of a corporate entity should be applied with great caution. Banks v. Jones,
239 Ark. 396, 390 S.W.2d 108 (1965); Thomsen Family Trust v. Peterson Family Enters., 66 Ark.
App. 294, 989 S.W.2d 934 (1999). The issue of whether the corporate entity has been
fraudulently abused is a question for the trier of fact, and the one seeking to pierce the
corporate veil and disregard the corporate entity has the burden of proving that the corporate
form was abused to his injury. See National Bank of Commerce v. HCA Health Servs. of Midwest,
Inc., 304 Ark. 55, 800 S.W.2d 694 (1990).
All corporations, regardless of the fact that the holders of stock and the officers of the
corporation are identical, are separate and distinct legal entities; and it follows that, in the
absence of facts on which liability can be predicated, one such corporation is not liable for the
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debts of another. See Mannon v. R.A. Young & Sons Coal Co., 207 Ark. 98, 179 S.W.2d 457
(1944). “The fact that the officers of one corporation are also officers of another does not
make the corporations the same, nor the acts of one the acts of the other.” Id. (citing 19
C.J.S., Corporations, § 789, p.166). “The fact that some of the stockholders in one company
had also stock in each of the other companies, and the fact that the general managers and
officers of one company were also general managers and officers of another company, did not
make these companies the same corporation, nor the acts of one the acts of the other.” Id.
(citing Fort Smith Light & Traction Co. v. Kelley, 94 Ark. 461, 127 S.W. 975 (1910)).
Appellants argue that Appellees’ response to interrogatories and requests for production
of documents support Appellants’ allegations that the corporate veil should be pierced. In
their response to interrogatories, Appellees admit that (1) LIP technically has no members; (2)
LIP has no operating agreement, books, or records; (3) LIP has no assets, and that PHR paid
for all of its bills; (4) that there are no contributions to capital made by any members of LIP
or Pinnacle; and (5) there were no loans made by any member. However, based on our case
law, PMS, LIP, and the individual LLCs are separate and distinct legal entities regardless of
whether they include the same people. See Mannon, supra. Further, there have been no facts
presented by Appellants upon which the individual LLCs can be held liable for the actions of
PMS and LIP. Therefore, we affirm the circuit court’s grant of summary judgment on this
point. Accordingly, because we hold that the circuit court erred in granting summary
judgment on Buildings’s claim for breach of contract, we reverse and remand for further
proceedings.
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Reversed and remanded.
HANNAH, C.J., concurs.
BROWN and IMBER, JJ., not participating.
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